<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 15, 1996.
REGISTRATION NO. 333-
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
K&G MEN'S CENTER, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
Georgia 5651 58-1898817
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OR INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
1750-A Ellsworth Industrial Blvd.
Atlanta, Georgia 30318
(404) 351-7987
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
John C. Dancu
Chief Financial Officer
K&G Men's Center, Inc.
1750-A Ellsworth Industrial Blvd.
Atlanta, Georgia 30318
(404) 351-7987
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
Copies to:
J. Stephen Hufford, Esq. James L. Smith, III, Esq.
Hunton & Williams Troutman Sanders LLP
NationsBank Plaza, Suite 4100 NationsBank Plaza, Suite 5200
600 Peachtree Street, NE 600 Peachtree Street, N.E.
Atlanta, Georgia 30308 Atlanta, Georgia 30308
(404) 888-4045 (404) 885-3111
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
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. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
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 registration statement for the
same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following Box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=======================================================================================
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par 1,380,000
value.................. shares $25.25 $34,845,000 $10,559.09
=======================================================================================
</TABLE>
(1) Includes 180,000 shares that may be sold pursuant to an over-allotment
option granted to the Underwriters.
(2) Estimated solely for the purpose of calculating the registration fee based
upon the average between the high and low price of the Common Stock on the
Nasdaq National Market on October 9, 1996, pursuant to Rule 457(c).
----------------
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 THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
==============================================================================
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 14, 1996
1,200,000 SHARES
LOGO
COMMON STOCK
-----------
Of the 1,200,000 shares of Common Stock offered hereby, 313,850 shares are
being sold by K&G Men's Center, Inc. (the "Company") and 886,150 shares are
being sold by certain selling shareholders named herein (the "Selling
Shareholders"). The Company will not receive any of the proceeds from the sale
of shares offered by the Selling Shareholders. See "Principal and Selling
Shareholders."
The Common Stock is quoted on the Nasdaq National Market under the symbol
"MENS." On October 11, 1996, the last reported sale price of the Common Stock
as reported on the Nasdaq National Market was $25.875. See "Price Range of
Common Stock."
SEE "RISK FACTORS" ON PAGES 7 THROUGH 10 FOR A DISCUSSION OF CERTAIN
INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON
STOCK OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
===============================================================================
<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) SHAREHOLDERS
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share.......... $ $ $ $
- ------------------------------------------------------------------------------
Total(3)........... $ $ $ $
</TABLE>
===============================================================================
(1) See "Underwriting" for a description of the indemnification arrangements
with the Underwriters.
(2) Before deducting expenses of the offering payable by the Company estimated
to be $ .
(3) The Company and certain of the Selling Shareholders have granted the
Underwriters a 30-day option to purchase up to 180,000 additional shares of
Common Stock solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discount,
Proceeds to Company and Proceeds to Selling Shareholders will be $ ,
$ , $ and $ , respectively. See "Underwriting."
-----------
The Common Stock is offered severally by the Underwriters named herein,
subject to prior sale, when, as and if received and accepted by them, subject
to their right to reject orders, in whole or in part, and to certain other
conditions. It is expected that delivery of the certificates representing the
Common Stock will be made on or about , 1996.
THE ROBINSON-HUMPHREY COMPANY, INC.
J.C. BRADFORD & CO.
INTERSTATE/JOHNSON LANE
CORPORATION
, 1996
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
<PAGE>
[INTERIOR STORE PHOTOGRAPH]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE
"UNDERWRITING."
2
<PAGE>
[INTERIOR STORE PHOTOGRAPHS]
<PAGE>
[INTERIOR STORE PHOTOGRAPHS]
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and Consolidated Financial
Statements and Notes thereto appearing elsewhere in this Prospectus. The term
"Company," as used herein, includes the operations of K&G Men's Center, Inc.,
its subsidiaries and certain entities affiliated with the Company by virtue of
the Company's ownership of at least 50% of the outstanding stock of each of
them. See Note 2 of Notes to Consolidated Financial Statements. Except as
otherwise specified, this Prospectus assumes no exercise of the Underwriters'
over-allotment option. The Company has a 52/53-week fiscal year that ends on
the Sunday closest to the end of January of each year. As used herein, "fiscal
1993," "fiscal 1994," "fiscal 1995" and "fiscal 1996" refer to the Company's
fiscal years ended January 30, 1994, January 29, 1995 and January 28, 1996, and
the fiscal year ending February 2, 1997, respectively.
THE COMPANY
K&G Men's Center, Inc. ("K&G" or the "Company") is a rapidly growing
superstore retailer of men's apparel and accessories. K&G's stores offer first-
quality, current-season men's apparel comparable in quality to that of
traditional department and fine specialty stores, but at everyday low prices
30% to 70% below those typically charged by such stores. The Company's
merchandising strategy emphasizes broad and deep assortments across all major
menswear categories, including tailored clothing, casual sportswear, dress
furnishings, footwear and accessories. This dominant merchandise selection,
which includes brand name as well as private label merchandise, positions the
Company to attract a wide range of menswear customers in each of its markets.
In addition, the Company's philosophy of delivering everyday value
distinguishes K&G from other retailers that adopt a more promotional pricing
strategy.
The Company's 16 stores operating in 11 states are "destination" stores
located primarily in low-cost warehouses. The Company's stores are operated
under the names "K&G Men's Center" and "K&G MenSmart" east of the Mississippi
River and "T&C Men's Center" and "T&C MenSmart" west of the Mississippi River.
K&G's stores are open for business on Fridays, Saturdays and Sundays only,
except for a limited number of Monday holidays and an expanded schedule for the
holiday season when the store is open every day. The Company pioneered the
weekend strategy in menswear as a means of responding to its customers'
shopping habits and creating a sense of urgency to purchase, while facilitating
cost control and inventory replenishment. This strategy is an integral element
of the Company's retail formula that emphasizes low operating costs, low mark-
ups and high inventory turnover to produce attractive store-level economics.
The defining elements of the K&G concept and the Company's strategy are:
Customer Orientation. K&G believes it has structured all aspects of its
business to be responsive to the needs and desires of its customers. The
Company's broad and deep selection of first-quality merchandise provides
one-stop shopping convenience. In addition, K&G's commitment to everyday
low prices assures customers that they can consistently purchase menswear
at prices substantially below those of traditional department and fine
specialty stores. Further, the Company's stores are open during those hours
when men most frequently shop. Management considers the customer-oriented
nature of K&G's merchandising and operating policies the most fundamental
element of the Company's business strategy.
Broad and Consistent Selection of First-Quality Merchandise. K&G's
abundant merchandise offerings consist of all major categories of men's
apparel, including business attire (suits, sportcoats, shirts and ties),
casual wear (slacks, shorts, polo-style shirts, sweaters and activewear),
formal wear (tuxedos and related furnishings), accessories (underwear,
socks, belts, gloves and scarves), outerwear and footwear. In each
merchandise category other than accessories, the Company strives to offer
its customers a dominant selection of "good-better-best" merchandise that
enables the customer to make the value/quality decision
3
<PAGE>
that best fits his needs. Recognizing the trend toward casual dressing in
the workplace, K&G added casual clothing and sportswear to its tailored
clothing selection in 1991, and tailored clothing accounted for less than
half of the Company's net sales in fiscal 1995.
Everyday Low Pricing and Low Mark-Ups. K&G's pricing strategy is to
enhance customer value by offering "impossible prices" --everyday low
prices (typically 30% to 70% below prices charged by traditional department
and fine specialty stores) achieved by minimizing the mark-up added to its
merchandise. This pricing strategy is designed to drive sales volume and
generate high inventory turnover, and contrasts distinctly with the pricing
strategies of many department and specialty stores. These stores add a
higher mark-up to their merchandise when it first appears on the selling
floor, and then later sell the goods at a promotional price that still
typically exceeds K&G's everyday low price.
Destination Superstores. K&G's stores are "destination" stores located
primarily in low-cost warehouses easily accessible from major highways and
thoroughfares. The Company seeks to make an immediate visual impact on
customers entering its stores through its presentation of an abundant
selection of fresh, first-quality merchandise. K&G instills a sense of
urgency for the customer to purchase by opening its stores for business on
Fridays, Saturdays and Sundays only, and management believes that a high
percentage of customers who come to K&G's stores purchase merchandise
during their visit. In addition, by replenishing its stores weekly, the
Company encourages customers to shop frequently to seek opportunistic
purchases.
Low-Cost Operations. The Company seeks to minimize costs throughout its
operations. This low-cost philosophy begins with merchandise purchasing,
where the Company consistently seeks to obtain the lowest price available
from its vendors, rather than asking for special allowances or other
concessions. In addition, K&G is able to reduce its rental obligations by
locating its stores primarily in low-cost warehouses. K&G's weekend-only
format reduces payroll costs and eliminates the need for a central
distribution center, enabling the Company's vendors to drop-ship most
merchandise directly to the stores. Further, word-of-mouth publicity,
combined with the efficient implementation and management of K&G's
advertising program, results in below industry average advertising
expenditures as a percentage of net sales. Through the use of these
strategies, the Company is able to minimize its costs and pass those
savings along to its customers.
The Company believes that the effect of its merchandising approach and low-
cost operating strategy is to significantly influence the buying patterns of
menswear consumers in each market it serves. This effect is demonstrated by the
Company's historical increases in comparable store sales and by its high
inventory turnover (4.2x in fiscal 1995), both of which exceed menswear
industry averages. K&G opened its first store in December 1989, and at the end
of fiscal 1995 had 11 stores. See "--Summary Consolidated Financial Data." The
Company's sales have grown from $7.5 million in fiscal 1990, its first full
year of operation, to $60.0 million in fiscal 1995, a 52% compounded annual
growth rate. In addition, net income increased from approximately $1.2 million
in fiscal 1993 to $3.2 million in fiscal 1995.
K&G's expansion strategy is to open stores in metropolitan markets, including
those markets with the potential for multiple sites. Clustering multiple stores
in a single market permits the Company to capture advertising and management
efficiencies. K&G does not utilize a distribution center; accordingly, it is
not constrained geographically or by the capacity limits of a central facility,
allowing management to concentrate on the best real estate opportunities in
targeted markets. Since October 1995, the Company has opened eight stores,
doubling its store base to 16 stores. The eight stores included two stores each
in the Boston and Washington, D.C. areas and stores in Atlanta, Baltimore,
Kansas City, Kansas and Long Island. In the fourth quarter of fiscal 1996, the
Company will open a store in Columbus, Ohio. The Company intends to open eight
new stores in fiscal 1997 and eight to ten new stores in fiscal 1998.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company............... 313,850 shares
Common Stock offered by the Selling Shareholders.. 886,150 shares
Common Stock to be outstanding after the offering. 6,691,350 shares(1)
Use of proceeds by the Company.................... To finance new store expansion and for
working capital and other general
corporate purposes. See "Use of
Proceeds."
Nasdaq National Market symbol..................... MENS
</TABLE>
- --------
(1) Excludes (i) 123,325 shares of Common Stock issuable upon the exercise of
outstanding stock options and (ii) 489,175 shares available for grant under
the Company's stock option plans. See "Management--Stock Option Plan for
Directors" and "--Stock Option Plan for Employees."
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk. See "Risk
Factors."
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED(1)
----------------------------------- ---------------------
JANUARY 30, JANUARY 29, JANUARY 28, JULY 30, JULY 28,
1994 1995 1996 1995 1996
----------- ----------- ----------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $37,081 $49,801 $60,027 $25,103 $35,745
Gross profit............ 8,229 11,557 14,433 5,931 8,276
Operating income........ 2,241 3,722 5,138 1,914 2,172
Net income.............. 1,157 2,298 3,186 1,189 1,489
Net income per common
and common equivalent
share.................. $ 0.26 $ 0.48 $ 0.61 $ 0.23 $ 0.23
Weighted average common
and common equivalent
shares outstanding
(000's)................ 4,410 4,830 5,250 5,250 6,378
SELECTED OPERATING DATA:
Comparable store sales
increase(2)............. 7.9% 17.2% 11.9% 15.5% 11.1%(4)
Average sales per square
foot of selling
area(3)................ $ 501 $ 539 $ 517 $ 231 $ 214(4)
Stores open at beginning
of period............... 5 7 9 9 11
Stores opened during
period.................. 2 2 3 -- 3
Stores closed during
period.................. -- -- 1 -- --
Stores open at end of
period.................. 7 9 11 9 14
<CAPTION>
AS OF JULY 28, 1996
---------------------
AS
ACTUAL ADJUSTED(5)
-------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $18,789 $26,364
Total assets................................................ 26,890 34,465
Total debt.................................................. 205 205
Shareholders' equity........................................ 20,739 28,314
</TABLE>
- --------
(1) The business of the Company is seasonal, and results for any period within
a fiscal year are not necessarily indicative of the results that may be
achieved for a full fiscal year.
(2) A new or relocated store becomes comparable beginning in its fourteenth
full month of operation. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--General."
(3) Average sales per square foot of selling area is calculated by dividing
selling area square footage for all stores open the entire period into
total net sales for those stores. Selling area excludes administrative,
storage, alterations and fitting areas.
(4) The Company's original store in Atlanta was relocated in February 1996 to a
larger location across the street, and is therefore excluded from the
calculation of both comparable store sales and average sales per square
foot of selling area for the six months ended July 28, 1996.
(5) Adjusted to reflect the sale by the Company of 313,850 shares of Common
Stock offered hereby at an assumed offering price of $25.875 per share and
the use of the estimated net proceeds therefrom as described under "Use of
Proceeds."
6
<PAGE>
RISK FACTORS
Prospective investors should carefully consider the following risk factors,
in addition to the other information contained in this Prospectus, in
evaluating an investment in the Common Stock offered hereby. This Prospectus
contains certain forward-looking statements with respect to the Company's
operations, industry, financial condition and liquidity. These statements
reflect the Company's assessment of a number of risks and uncertainties. The
Company's actual results could differ materially from the results anticipated
in these forward-looking statements as a result of certain factors set forth
below and elsewhere in this Prospectus.
SMALL STORE BASE
The Company opened its first store in 1989 and presently operates 16 stores.
Of these stores, eight were opened during the period from October 1995 to
September 1996. Prior to these openings, the last store opened by the Company
was its Cincinnati store in May 1994. Consequently, the Company has a
relatively limited history of opening and operating stores, and also
previously closed two stores due to those stores' financial underperformance.
Moreover, the Company's operating profits have historically been
disproportionately generated by stores that have been operating for longer
periods of time. Due to these factors, the results achieved to date by the
Company's relatively small store base may not be indicative of the results
that may be achieved from a larger number of stores. In addition, should any
new store be unprofitable or should any existing store experience a decline in
profitability, the effect on the Company's results of operations would be more
significant than would be the case if the Company had a larger store base.
Although management believes that it has carefully planned for the
implementation of its expansion program, there can be no assurance that such
plans can be executed as envisioned or that the implementation of those plans
will not have an adverse effect on results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
General" and "Business--Expansion Strategy."
EXPANSION AND ITS ANTICIPATED FINANCIAL EFFECT
The Company's future operating results will depend largely upon its ability
to open and operate new stores successfully and to manage a larger business
profitably. The success of K&G's planned expansion strategy is dependent upon
many factors, including identifying suitable markets and sites for new stores,
negotiating leases with acceptable terms, building or refurbishing stores and
obtaining site financing. In addition, the Company must be able to continue to
hire, train and retain competent managers and store personnel. The failure of
the Company to achieve its expansion goals on a timely basis, obtain
acceptance in markets in which it currently has limited or no presence,
attract and retain qualified management and other personnel, appropriately
upgrade its systems and controls or manage operating expenses could adversely
affect the Company's future operating results.
A variety of factors, including store location, store size, the time of year
when the store is opened and the level of initial advertising expenditures
influence if and when a store becomes profitable. Each of the Company's stores
opened since the end of fiscal 1992 that has been in operation for at least
one year (except its closed Detroit store) became profitable within 12 months
of its opening. No assurance can be given that all of the Company's stores
will become profitable within the same time frame in the future.
Since October 1995, the Company has opened eight stores, doubling its store
base to 16 stores. The Company intends to open one more store in fiscal 1996,
bringing its store count to 17. The Company intends to open eight new stores
in fiscal 1997 and has no operating experience in certain of the markets in
which it expects to open new stores. The Company's store base includes a
relatively high proportion of younger stores, which have yet to reach
maturity. The Company's more mature stores historically have produced higher
sales per square foot and higher operating margins than its younger stores.
K&G's planned expansion is expected to produce a decrease in the Company's
overall sales per square foot and operating margins. Increases in the level of
advertising and pre-opening expenses associated with the opening of new stores
may also contribute to a decrease
7
<PAGE>
in the Company's operating margins. Finally, opening new stores in existing
markets may also reduce sales of existing stores in those markets, negatively
impacting comparable store sales. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources" and "Business--Expansion Strategy."
MERCHANDISE AND MARKET TRENDS
The Company's success depends in part on its ability to anticipate and
respond to changing merchandise trends and consumer demands in a timely
manner. Accordingly, any failure by the Company to identify and respond to
emerging trends could adversely affect consumer acceptance of K&G's
merchandise, which in turn could adversely affect the Company's results of
operations. If the Company miscalculates either the market for the merchandise
in its stores or its customers' purchasing habits, it may be required to sell
a significant amount of inventory at below average mark-ups over the Company's
cost, or below cost, which could adversely affect the Company's financial
condition and results of operations. Furthermore, as with other retail
businesses, the Company's operations may be adversely affected by unfavorable
local, regional or national economic developments which result in reduced
consumer spending in the markets served by its stores.
Industry sources indicate that unit sales of men's suits have declined or
remained relatively constant over many years. This is primarily attributable
to men allocating a lower portion of their disposable income to tailored
clothing and to a trend toward more casual dressing in the workplace. Because
men's tailored clothing accounts for approximately 43% of the merchandise sold
by the Company, if unit sales continue to decline or remain relatively
constant, there can be no assurance that the Company will continue to be able
to maintain or increase its sales volume or maintain its profitability.
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company's business is affected by the seasonal pattern common to most
retailers. Historically, its highest net sales and operating income have been
experienced during the fourth quarter, which includes the holiday selling
season. During fiscal 1995, approximately 37% of the Company's net sales and
approximately 43% of its operating income were generated during the fourth
quarter. Accordingly, any adverse trend in net sales for such period could
have a material adverse effect upon the Company's profitability and could
adversely affect the Company's results of operations for the entire year. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Quarterly Results, Seasonality and Inflation."
In addition to seasonality, the Company's results of operations may
fluctuate from quarter to quarter as a result of the amount and timing of
sales contributed by new stores, the advertising and pre-opening expenses
associated with the opening of new stores and the integration of new stores
into the operations of the Company, as well as other factors.
VENDOR RELATIONSHIPS
The Company's business is dependent upon its ability to purchase first-
quality, current-season, brand name and private label merchandise at
competitive prices. A disruption of vendor relationships could adversely
affect the Company's business. Although management believes that the Company's
relations with its vendors currently are satisfactory and that the Company
currently has adequate sources of brand name and private label merchandise,
there can be no assurance that the Company will be able to acquire such
merchandise, especially on an opportunistic, in-season basis, to the extent it
has in the past. As the Company's store base grows, management expects the
percentage of opportunistic, in-season purchases made by the Company to
decrease. See "Business--Purchasing and Distribution."
8
<PAGE>
COMPETITION
The market for menswear is highly fragmented and competitive. The Company
faces intense competition for customers and for access to quality merchandise
from traditional department stores, specialty retailers and off-price retail
chains, including other retailers that have developed their own menswear
superstore formats. Certain of the Company's competitors have recently been
the subject of bankruptcy proceedings, which can produce intense price
competition in the industry as a result of promotional activity. Many of the
Company's competitors have greater financial and other resources than the
Company, and there can be no assurance that the Company will be able to
compete successfully with these competitors in the future. See "Business--
Merchandising" and "--Competition."
RELIANCE ON KEY PERSONNEL
The Company believes that its continued success will depend to a significant
extent upon the efforts and abilities of Stephen H. Greenspan, its Chairman,
President and Chief Executive Officer. The loss of Mr. Greenspan's services
could have a material adverse effect on the Company. The Company's continued
success is also dependent upon its ability to attract and retain qualified
employees to meet the Company's needs during expansion. See "Management."
CONTROL OF THE COMPANY
Following the completion of this offering, the Company's principal
shareholders, executive officers and directors will own 47.8% of the
outstanding Common Stock (45.8% if the Underwriters' over-allotment option is
exercised in full). Accordingly, such shareholders will continue to
effectively control the outcome of all matters requiring a vote of
shareholders, including the power to elect all of the directors and to take
action with respect to any sale of assets, merger or consolidation. See
"Principal and Selling Shareholders."
ANTI-TAKEOVER PROVISIONS
The Company's Articles of Incorporation and Bylaws contain provisions that
may discourage other persons from attempting to acquire control of the
Company, including, without limitation, a classified Board of Directors and
procedural requirements in connection with shareholder proposals or director
nominations. In addition, the Company has available for issuance 2,000,000
shares of Preferred Stock, $.01 par value per share, which the Board of
Directors of the Company is authorized to issue, in one or more series,
without any further action on the part of the shareholders. Each of these
provisions could render more difficult or discourage an attempt by a third
party to obtain control of the Company. In the event the Company issues a
series of Preferred Stock in the future that has preference over the Common
Stock with respect to the payment of dividends and upon the Company's
liquidation, dissolution or winding up, the rights of the holders of the
Common Stock offered hereby could be adversely affected. See "Description of
Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE
The market price of the Common Stock could be adversely affected by the
availability for sale of additional Common Stock owned by the Company's
principal shareholders. The Company's principal shareholders, executive
officers and directors, who will collectively own approximately 47.8% of the
Company's outstanding Common Stock following the offering (45.8% if the
Underwriters' over-allotment option is exercised in full), have agreed not to
offer, sell or otherwise dispose of such shares for a period of 120 days
following the effective date of the Registration Statement of which this
Prospectus is a part without the prior written consent of the representatives
of the Underwriters. After the expiration of such 120-day period, such shares
may be sold in accordance with Rule 144 promulgated under the Securities Act
of 1933, as amended (the "Securities Act"), or upon registration under the
Securities Act without regard to the volume limitations of Rule 144. The sale
of a substantial number of such shares could adversely affect the market price
of the Common Stock. See "Principal and Selling Shareholders," "Shares
Eligible for Future Sale" and "Underwriting."
9
<PAGE>
STOCK PRICE VOLATILITY
The market price of the Company's Common Stock has risen substantially since
the Company's initial public offering in January 1996. The Company's Common
Stock is quoted on the Nasdaq National Market, which has experienced and is
likely to experience in the future significant price and volume fluctuations
which could adversely affect the market price of the Common Stock without
regard to the operating performance of the Company. In addition, the Company
believes that factors such as quarterly fluctuations in the financial results
of the Company, the Company's comparable store sales results, announcements by
other apparel retailers, the overall economy and the condition of the
financial markets could cause the price of the Common Stock to fluctuate
substantially.
USE OF PROCEEDS
The net proceeds to the Company from this offering are estimated to be
approximately $7,575,000, assuming a public offering price of $25.875 per
share, after deducting the estimated underwriting discount and offering
expenses payable by the Company. The Company will not receive any proceeds
from the sale of shares by the Selling Shareholders. The net proceeds to the
Company will be used to finance new store expansion and for working capital
and other general corporate purposes. The Company estimates that the total
cash required to open a prototypical new store typically ranges from $625,000
to $900,000 depending on store size, the required level of leasehold
improvements, landlord assistance and vendor financing. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" and "Business--Expansion Strategy."
Pending application of the net proceeds as described above, the Company
intends to invest the net proceeds in short-term, interest-bearing,
investment-grade securities.
PRICE RANGE OF COMMON STOCK
The Common Stock of the Company has been quoted on the Nasdaq National
Market under the symbol "MENS" since the Company consummated its initial
public offering in January 1996 at a price of $10.00 per share. Prior to that
time, there was no public market for the Common Stock. The following table
sets forth the actual high and low closing sale prices per share for the
Company's Common Stock for the periods indicated as reported by the Nasdaq
National Market.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL 1995:
Fourth Quarter (commencing January 24, 1996).................... $10.75 $10.50
FISCAL 1996:
First Quarter................................................... 19.75 11.00
Second Quarter.................................................. 22.50 16.13
Third Quarter (through October 11, 1996)........................ 26.50 19.75
</TABLE>
On October 11, 1996, the closing sales price for the Company's Common Stock
was $25.875 per share. As of October 10, 1996, there were 42 holders of record
of the Company's Common Stock. This number does not include beneficial owners
of the Common Stock whose shares are held in the names of various dealers,
clearing agencies, banks, brokers and other fiduciaries.
10
<PAGE>
CAPITALIZATION
The following table sets forth the total capitalization of the Company
(unaudited) (i) as of July 28, 1996, and (ii) as adjusted to reflect the sale
of 313,850 shares of Common Stock by the Company at the assumed offering price
of $25.875 per share, after deducting the estimated underwriting discount and
offering expenses payable by the Company, and the application of the net
proceeds therefrom as described under "Use of Proceeds." The table should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Company's Consolidated Financial
Statements and Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JULY 28, 1996
--------------------
AS
ACTUAL ADJUSTED
--------- ----------
(IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt.......................... $ -- $ --
========= =========
Notes payable to related parties(1)........................ $ 205 $ 205
--------- ---------
Minority interest.......................................... 226 226
--------- ---------
Shareholders' equity:
Preferred Stock, $.01 par value, 2,000,000 shares
authorized; no shares issued and outstanding, actual and
as adjusted............................................... -- --
Common Stock, $.01 par value; 20,000,000 shares authorized;
6,377,500 shares issued and outstanding, actual; 6,691,350
shares issued and outstanding, as adjusted(2)............. 64 67
Additional paid-in capital................................. 17,587 25,159
Retained earnings.......................................... 3,088 3,088
--------- ---------
Total shareholders' equity................................ 20,739 28,314
--------- ---------
Total capitalization...................................... $ 21,170 $ 28,745
========= =========
</TABLE>
- --------
(1) Notes payable to related parties consist of the investments made by two
minority shareholders in the Company's operations in Cincinnati and
Indianapolis.
(2) Excludes (i) 123,325 shares of Common Stock issuable upon the exercise of
outstanding stock options and (ii) 489,175 shares available for grant
under the Company's stock option plans. See "Management--Stock Option
Plans for Directors" and "--Stock Option Plan for Employees."
DIVIDEND POLICY
The Company currently intends to retain all future earnings after
consummation of this offering for use in the expansion and operation of its
business. The Company does not anticipate paying dividends on its Common Stock
in the foreseeable future. The payment of future dividends will be at the sole
discretion of the Company's Board of Directors and will depend on, among other
things, future earnings, capital requirements, the general financial condition
of the Company and general business conditions. In addition, the payment of
dividends by the Company and its subsidiaries is substantially limited by
restrictive covenants in K&G's bank credit agreement.
11
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
The selected consolidated financial data below should be read in conjunction
with the Company's Consolidated Financial Statements and Notes thereto and
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" included elsewhere in this Prospectus. The statement of
operations and balance sheet data set forth below for the years ended January
30, 1994, January 29, 1995 and January 28, 1996, and as of those dates have
been derived from the Company's Consolidated Financial Statements, which have
been audited by Arthur Andersen LLP, the Company's independent accountants.
The statement of operations data and balance sheet data set forth below for
the six months ended July 30, 1995 and July 28, 1996 and as of those dates
have been derived from the unaudited financial statements of the Company for
such periods. In the opinion of management, the unaudited financial statements
from which these data have been derived include all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation of the
information set forth therein. The selected operating data are unaudited.
Financial information for fiscal years prior to fiscal 1993 has been omitted
because such information was not audited and included the results of
corporations affiliated with K&G which were not subject to a uniform set of
accounting policies, procedures and controls. These entities also had
different fiscal years than K&G. Accordingly, management believes that such
information is not comparable to the information presented below.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED(1)
----------------------------------- ------------------
JANUARY 30, JANUARY 29, JANUARY 28, JULY 30, JULY 28,
1994 1995 1996 1995 1996
----------- ----------- ----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $37,081 $49,801 $60,027 $25,103 $35,745
Cost of sales, including
occupancy costs......... 28,852 38,244 45,594 19,172 27,469
------- ------- ------- ------- -------
Gross profit............ 8,229 11,557 14,433 5,931 8,276
Selling, general and
administrative expenses. 5,988 7,835 9,295 4,017 6,104
------- ------- ------- ------- -------
Operating income........ 2,241 3,722 5,138 1,914 2,172
Other income (expense):
Interest expense....... (75) (159) (55) (59) (20)
Other income, net...... 39 235 220 59 318
------- ------- ------- ------- -------
Income before income
taxes and minority
interest in (earnings)
loss of affiliates..... 2,205 3,798 5,303 1,914 2,470
Provision for income
taxes................... 845 1,532 2,079 749 945
------- ------- ------- ------- -------
Income before minority
interest in (earnings)
loss of affiliates..... 1,360 2,266 3,224 1,165 1,525
Minority interest in
(earnings) loss of
affiliates............. (203) 32 (38) 24 (36)
------- ------- ------- ------- -------
Net income.............. 1,157 2,298 3,186 1,189 1,489
Dividends on Redeemable
Common Stock, Series B. -- -- (230) (70) --
------- ------- ------- ------- -------
Net income applicable to
Common Stock, Series A
shareholders........... $ 1,157 $ 2,298 $ 2,956 $ 1,119 $ 1,489
======= ======= ======= ======= =======
Net income per common
and common equivalent
share.................. $ 0.26 $ 0.48 $ 0.61 $ 0.23 $ 0.23
======= ======= ======= ======= =======
Weighted average common
and common equivalent
shares outstanding
(000's)................ 4,410 4,830 5,250 5,250 6,378
SELECTED OPERATING DATA:
Comparable store sales
increase(2)............. 7.9% 17.2% 11.9% 15.5% 11.1%(4)
Stores open at end of
period.................. 7 9 11 9 14
Average sales per square
foot of selling area(3). $ 501 $ 539 $ 517 $ 231 $ 214(4)
BALANCE SHEET DATA (AT
PERIOD END):
Working capital......... $ 3,194 $ 5,601 $ 7,813 $ 4,685 $18,789
Total assets............ 8,995 12,464 17,203 13,785 26,890
Total debt.............. 448 895 205 901 205
Shareholders' equity.... 2,817 6,188 2,643 5,173 20,739
</TABLE>
- --------
(1) The business of the Company is seasonal, and results for any period within
a fiscal year are not necessarily indicative of the results that may be
achieved for a full fiscal year.
(2) A new or relocated store becomes comparable beginning in its fourteenth
full month of operation. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--General."
(3) Average sales per square foot of selling area is calculated by dividing
selling area square footage for all stores open the entire period into
total net sales for those stores. Selling area excludes administrative,
storage, alterations and fitting areas.
(4) The Company's original store in Atlanta was relocated in February 1996 to
a larger location across the street, and is therefore excluded from the
calculation of both comparable store sales and average sales per square
foot of selling area for the six months ended July 28, 1996.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company opened its first store in December 1989 in Atlanta. This store
received a strong response in the Atlanta market, and in fiscal 1990, K&G
focused on opening additional stores outside Atlanta with co-investors. These
co-investors typically contributed up to 50% of the initial capital investment
for the store and served as store managers. K&G opened seven such stores from
fiscal 1990 through the beginning of fiscal 1994. In fiscal 1994, the Company
re-examined its expansion strategy and decided not to open stores with co-
investors in the future. Accordingly, K&G delayed new store openings until it
could complete preparations for future store expansion. Also in fiscal 1994,
the Company acquired the interests of certain co-investors. There are now only
two stores (located in Cincinnati and Indianapolis) not wholly-owned by the
Company, and K&G holds majority interests in both of these stores.
After further development of its superstore concept, management information
systems and management team, K&G recommenced its expansion in fiscal 1995 with
the opening of two stores in Boston in October 1995 and another in Kansas
City, Kansas in December 1995. To date in fiscal 1996, the Company has opened
five stores with three stores opened in March 1996 in Atlanta, Baltimore and
Long Island and two stores opened in the Washington, D.C. area in September
1996. The Company intends to open a store in Columbus, Ohio in November of
1996. In addition, the Company in February 1996 moved its first store in
Atlanta across the street from its original location and expanded the selling
square footage from the original store approximately 30%. This relocated store
was treated as a newly-opened store for purposes of the Company's comparable
store calculation beginning in the first quarter of fiscal 1996 and will be
included again in the comparable store base in the first quarter of fiscal
1997.
The Company has experienced a 52% compounded annual growth rate in net sales
since its first full year of operations, with comparable store sales increases
every year since inception. In addition, the Company has been profitable in
each of the 14 quarters included in the Company's Consolidated Financial
Statements. Management believes that a significant portion of its comparable
store sales increases are due to word-of-mouth publicity provided by its
customers, which is supported by local advertising. The following table sets
forth certain operating statistics for the Company since fiscal 1991 (dollars
in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------
FISCAL YEAR
---------------------------------------------- JULY 30, JULY 28,
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $16,568 $29,712 $37,081 $49,801 $60,027 $25,103 $35,745
Comparable store sales
increase............... 53.3% 37.1% 7.9%(1) 17.2% 11.9% 15.5% 11.1%(2)
Number of stores at end
of period.............. 4 5 7 9 11 9 14
</TABLE>
- --------
(1) In fiscal 1993, the Company opened a second store in Atlanta, which had
the effect of reducing comparable store sales growth at K&G's original
Atlanta store.
(2) The Company's original store in Atlanta was relocated in February 1996 to
a larger location across the street, and is therefore excluded from the
calculation of comparable store sales for the six months ended July 28,
1996.
As the Company expands, it will continue its strategy of offering everyday
low prices, which results in the Company having a lower gross margin and
higher inventory turnover than many of its competitors. See "Risk Factors--
Merchandise and Market Trends." K&G also plans to maintain its position as a
low-cost provider of men's apparel through continued control of store and
corporate expenses. See "Business--Business Strategy." The Company intends to
open eight new stores in fiscal 1997. Given the Company's expansion, the
Company's store base will include a relatively high proportion of younger
stores, which have yet to reach maturity. The Company's more mature stores
historically have produced higher sales per square foot and higher operating
13
<PAGE>
margins than its younger stores. K&G's planned expansion is expected to
produce a decrease in the Company's overall sales per square foot and
operating margins. Increases in the level of advertising and pre-opening
expenses associated with the opening of new stores may also contribute to a
decrease in the Company's operating margins. Finally, opening new stores in
existing markets may also reduce sales of existing stores in those markets.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, statement of
operations data expressed as a percentage of net sales:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
FISCAL YEAR
------------------- JULY 30, JULY 28,
1993 1994 1995 1995 1996
----- ----- ----- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales............................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales, including occupancy
costs................................... 77.8 76.8 76.0 76.4 76.8
----- ----- ----- ----- -----
Gross profit............................ 22.2 23.2 24.0 23.6 23.2
Selling, general and administrative
expenses................................ 16.1 15.7 15.5 16.0 17.1
----- ----- ----- ----- -----
Operating income........................ 6.1 7.5 8.5 7.6 6.1
Other income (expense):
Interest expense....................... (0.2) (0.3) (0.1) (0.2) (0.1)
Other income, net...................... 0.1 0.4 0.4 0.2 0.9
----- ----- ----- ----- -----
Income before income taxes and minority
interest in (earnings) loss of
affiliates............................. 6.0 7.6 8.8 7.6 6.9
Provision for income taxes.............. 2.3 3.1 3.4 3.0 2.6
----- ----- ----- ----- -----
Income before minority interest in
(earnings) loss of affiliates........... 3.7 4.5 5.4 4.6 4.3
Minority interest in (earnings) loss of
affiliates.............................. (0.6) 0.1 (0.1) 0.1 (0.1)
----- ----- ----- ----- -----
Net income.............................. 3.1 4.6 5.3 4.7 4.2
Dividends on Redeemable Common Stock,
Series B................................ -- -- (0.4) (0.3) --
----- ----- ----- ----- -----
Net income applicable to Common Stock,
Series A shareholders.................. 3.1% 4.6% 4.9% 4.4% 4.2%
===== ===== ===== ===== =====
</TABLE>
SIX MONTHS ENDED JULY 28, 1996 AND JULY 30, 1995
Net sales of $35.7 million for the six months ended July 28, 1996 represents
an increase of $10.6 million, or 42.4%, over net sales of $25.1 million in the
six months ended July 30, 1995. The increase in net sales is a result of
comparable store growth of 11.1% and the opening of six new stores since
October 1995. Three of the six new stores were opened in March 1996, including
a third store in Atlanta, Georgia, and stores in Baltimore, Maryland and Long
Island, New York. Comparable store sales increased 15.5% in the six months
ended July 30, 1995.
Gross profit increased $2.3 million, or 39.5%, to $8.3 million in the six
months ended July 28, 1996. Gross profit as a percentage of net sales
decreased to 23.2% in the six months ended July 28, 1996 from 23.6% in the six
months ended July 30, 1995. The decrease in gross profit as a percentage of
net sales is mainly due to the new stores having a higher occupancy cost as a
percentage of net sales. In addition, the Company lowered its mark-up on
specific goods in order to lower the selling prices and to enhance its
competitive position.
Selling, general and administrative expenses increased $2.1 million, or
52.0%, to $6.1 million in the six months ended July 28, 1996. Selling, general
and administrative expenses as a percentage of net sales increased to 17.1% in
the six months ended July 28, 1996 from 16.0% in the six months ended July 30,
1995. The increase was a result of $105,000 in store pre-opening expenses in
the six months ended July 28, 1996, a higher level of advertising expenses as
a percentage of net sales due to the new stores, and certain costs associated
with being a public company. The Company did not have any pre-opening expenses
in the six months ended July 30, 1995 and became a public company in January
1996.
14
<PAGE>
Operating income was $2.2 million for the six months ended July 28, 1996
compared to $1.9 million in the six months ended July 30, 1995. Operating
income as a percentage of net sales decreased to 6.1% in the six months ended
July 28, 1996 from 7.6% in the six months ended July 30, 1995.
The factors discussed above resulted in an increase in net income applicable
to common stock of $370,000, or 33.1%, to $1,489,000 in the six months ended
July 28, 1996 from $1,119,000 in the six months ended July 30, 1995.
FISCAL 1995 COMPARED TO FISCAL 1994
Net sales of $60.0 million in fiscal 1995 represented an increase of $10.2
million, or 20.5%, over net sales of $49.8 million in fiscal 1994. The
increase in net sales resulted from comparable store sales growth of 11.9% and
the opening of two stores in Boston in October 1995 and a store in Kansas
City, Kansas in December 1995. Comparable store sales in fiscal 1994 increased
17.2%. Comparable store sales increases were experienced in all comparable
stores in both fiscal periods.
Gross profit increased $2.8 million, or 24.9%, to $14.4 million in fiscal
1995 from $11.6 million in fiscal 1994. Gross profit as a percentage of net
sales increased to 24.0% in fiscal 1995 from 23.2% in fiscal 1994. The
improvement in gross profit as a percentage of net sales resulted from an
increase in merchandise margin achieved through improved purchasing and
relatively stable occupancy costs as a percentage of net sales.
Selling, general and administrative expenses increased $1.5 million, or
18.6%, to $9.3 million in fiscal 1995 from $7.8 million in fiscal 1994.
Selling, general and administrative expenses as a percentage of net sales
decreased to 15.5% in fiscal 1995 from 15.7% in fiscal 1994. The decrease was
a result of a reduction in advertising expenses and other store expenses as a
percentage of net sales, which was partially offset by an increase in payroll
costs as a percentage of net sales, mainly at the corporate level. Management
believes that the Company spent its advertising budget more effectively in the
1995 period than it did in the 1994 period. In fiscal 1995, the Company
incurred store closing costs of approximately $60,000 for the closing of the
Detroit store and pre-opening expenses of approximately $110,000 for the
opening of its two Boston stores in October 1995 and its Kansas City store in
December 1995.
As a result of the above factors, operating income increased $1.4 million,
or 38.0%, to $5.1 million in the fiscal 1995 from $3.7 million in fiscal 1994.
Operating income as a percentage of net sales equaled 8.5% in fiscal 1995,
compared to 7.5% in fiscal 1994.
The factors discussed above also resulted in net income of $3.2 million in
fiscal 1995, compared to $2.3 million in fiscal 1994, a 38.6% increase. In
fiscal 1995, K&G accrued approximately $230,000, or 0.4% of sales, in
dividends payable on its Redeemable Common Stock, Series B, which was not
outstanding during the corresponding period of fiscal 1994. Net income
applicable to Common Stock, Series A shareholders as a percentage of net sales
equaled 4.9% in fiscal 1995, compared to 4.6% in fiscal 1994.
FISCAL 1994 COMPARED TO FISCAL 1993
Net sales of $49.8 million in fiscal 1994 represented an increase of $12.7
million, or 34.3%, over net sales of $37.1 million in fiscal 1993. The
increase in net sales resulted from a comparable store sales increase of 17.2%
and the opening of two new stores. Comparable store sales in fiscal 1993
increased 7.9%. In fiscal 1993, the Company opened a second store in Atlanta,
which had the effect of reducing comparable store sales growth at K&G's
original Atlanta store. Comparable store sales increases were experienced in
all comparable stores in both fiscal years.
Gross profit increased $3.3 million, or 40.4%, to $11.6 million in fiscal
1994 from $8.2 million in fiscal 1993. Gross profit as a percentage of net
sales increased to 23.2% in fiscal 1994 from 22.2% in fiscal 1993. The
improvement in gross profit as a percentage of net sales resulted from an
increase in merchandise margin,
15
<PAGE>
partially offset by an increase in occupancy costs as a percentage of net
sales. Occupancy costs increased as the Company opened two new stores in
fiscal 1994 and its Denver store had a full year of occupancy cost in fiscal
1994 as compared to two months of occupancy costs in fiscal 1993.
Selling, general and administrative expenses increased $1.8 million, or
30.9%, to $7.8 million in fiscal 1994 from $6.0 million in fiscal 1993.
Selling, general and administrative expenses as a percentage of net sales
decreased to 15.7% in fiscal 1994 from 16.1% in fiscal 1993. The overall
decrease resulted from a decrease in other store and corporate expenses as a
percentage of net sales, offset by an increase in advertising and store
payroll costs as a percentage of net sales.
As a result of the above factors, operating income increased $1.5 million,
or 66.1%, to $3.7 million in fiscal 1994 from $2.2 million in fiscal 1993.
Operating income as a percentage of net sales equaled 7.5% in fiscal 1994
compared to 6.1% in fiscal 1993.
The factors discussed above resulted in net income of $2.3 million in fiscal
1994 compared to $1.2 million in fiscal 1993, a 98.6% increase. Net income as
a percentage of net sales equaled 4.6% in fiscal 1994 compared to 3.1% in
fiscal 1993.
QUARTERLY RESULTS, SEASONALITY AND INFLATION
The Company's business is seasonal in nature with the fourth quarter, which
includes the holiday selling season, accounting for the largest percentage of
the Company's net sales volume and operating profitability in any given year.
During fiscal 1995, the fourth quarter accounted for approximately 37% of the
Company's net sales and approximately 43% of the Company's operating income.
Because of the seasonality of the Company's business, results for any quarter
are not necessarily indicative of the results that may be achieved for the
full year. In addition, quarterly results of operations are affected by the
timing and amount of sales and costs associated with the opening of new
stores.
The following table sets forth certain items in the Company's consolidated
statements of operations for each of the last ten quarters. In the opinion of
management, the unaudited financial statements from which these data have been
derived include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the information set forth
therein (dollars in thousands).
<TABLE>
<S> <C> <C> <C> <C>
FISCAL 1996: APRIL 28, 1996 JULY 28, 1996
-------------- -------------
Net sales............... $17,528 $18,217
Gross profit............ 4,123 4,153
Operating income........ 1,120 1,052
Net income.............. 769 720
FISCAL 1995: APRIL 30, 1995 JULY 30, 1995 OCTOBER 29, 1995 JANUARY 28, 1996
-------------- ------------- ---------------- ----------------
Net sales............... $12,437 $12,666 $12,717 $22,207
Gross profit............ 3,012 2,919 3,077 5,425
Operating income........ 1,125 789 990 2,234
Net income.............. 695 494 631 1,366
FISCAL 1994: MAY 1, 1994 JULY 31, 1994 OCTOBER 30, 1994 JANUARY 29, 1995
-------------- ------------- ---------------- ----------------
Net sales............... $10,245 $10,848 $11,585 $17,123
Gross profit............ 2,279 2,283 2,704 4,291
Operating income........ 550 372 936 1,864
Net income.............. 343 266 595 1,094
</TABLE>
Inflation can affect the costs incurred by the Company in the purchase of
its merchandise, the leasing of its stores and certain components of its
selling, general and administrative expenses. To date, inflation has not
adversely affected the Company's business, although there can be no assurance
that inflation will not have a material adverse effect in the future.
16
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically funded its working capital and capital
expenditure requirements from proceeds from the sale of equity securities, net
cash provided by operating activities and through borrowings from related
parties and under its bank credit facilities. The Company had working capital
of $3.2 million, $5.6 million, $7.8 million and $18.8 million at the end of
fiscal 1993, 1994, 1995 and at July 28, 1996, respectively. The principal use
of working capital is to purchase inventory. The Company had $8.9 million in
cash and marketable securities as of July 28, 1996.
The Company's capital expenditures totaled $293,000, $367,000, $885,000 and
$611,000 in fiscal 1993, fiscal 1994, fiscal 1995 and in the six months ended
July 28, 1996, respectively. These capital expenditures were primarily used to
open new stores and upgrade the Company's management information systems. In
fiscal 1994, the Company incurred indebtedness of $560,000 to certain related
parties in connection with the opening of new stores. Most of this
indebtedness was incurred in the first nine months of fiscal 1994. As of July
28, 1996, $205,000 of this amount remained outstanding. See Note 3 of Notes to
Consolidated Financial Statements.
The Company currently has a bank credit facility, which expires June 30,
1999, and permits borrowings of up to $5.0 million. The interest rate on this
facility is the prime rate less 1% or LIBOR plus 1.5% per annum, at the option
of the Company. As of July 28, 1996, K&G had no debt outstanding on this
facility.
In May 1995, the Company raised gross proceeds of $6.5 million through the
sale of Redeemable Common Stock, Series B, primarily to institutional
investors. The Redeemable Common Stock, Series B, had a 5% annual dividend and
automatically converted into Common Stock on a one-for-one basis upon
consummation of the Company's initial public offering. The proceeds of this
transaction were used to redeem shares of Common Stock, Series A, from K&G's
existing shareholders.
The Company's primary capital requirements are for the opening of new
stores. The Company estimates that the total cash required to open a 15,000 to
20,000 square foot prototypical store, including inventory, store fixtures and
equipment, leasehold improvements, other net working capital and pre-opening
costs (primarily stocking and training), typically ranges from $625,000 to
$900,000 depending on landlord assistance and vendor financing. The Company
intends to open eight new stores in fiscal 1997. See "Business--Expansion
Strategy." The Company believes that the proceeds of this offering, internally
generated funds, cash on hand and its bank credit facility will be adequate to
fund its anticipated needs for the foreseeable future.
17
<PAGE>
BUSINESS
GENERAL
The Company is a rapidly growing superstore retailer of men's apparel and
accessories. K&G's stores offer first-quality, current-season men's apparel
comparable in quality to that of traditional department and fine specialty
stores, but at everyday low prices 30% to 70% below those typically charged by
such stores. The Company's merchandising strategy emphasizes broad and deep
assortments across all major menswear categories, including tailored clothing,
casual sportswear, dress furnishings, footwear and accessories. This dominant
merchandise selection, which includes brand name as well as private label
merchandise, positions the Company to attract a wide range of menswear
customers in each of its markets. In addition, the Company's philosophy of
delivering everyday value distinguishes K&G from other retailers that adopt a
more promotional pricing strategy.
The Company's 16 stores operating in 11 states are "destination" stores
located primarily in low-cost warehouses easily accessible from major highways
and thoroughfares. K&G's stores are open for business on Fridays, Saturdays
and Sundays only, typically for a total of 24 hours per week. The Company's
stores are operated under the names "K&G Men's Center" and "K&G MenSmart" east
of the Mississippi River and "T&C Men's Center" and "T&C MenSmart" west of the
Mississippi River. The Company pioneered the weekend strategy in menswear as a
means of responding to its customers' shopping habits and creating a sense of
urgency to purchase, while facilitating cost control and inventory
replenishment. This strategy is an integral element of the Company's retail
formula that emphasizes low operating costs, low mark-ups and high inventory
turnover to produce attractive store-level economics.
The Company's business was founded in Georgia in 1989 and incorporated in
Georgia in June 1990. K&G's principal executive offices are located at 1750-A
Ellsworth Industrial Boulevard, Atlanta, Georgia 30318, and its telephone
number is (404) 351-7987.
MEN'S APPAREL INDUSTRY
According to a June 1995 apparel market study, total retail sales of men's
apparel in 1994 were approximately $39.5 billion, of which suits, sportcoats,
blazers and dress and casual slacks comprised approximately $8.0 billion.
Industry sources indicate that unit sales of men's suits have declined or
remained relatively constant over many years. However, the trend toward casual
dressing in the workplace has promoted sales in categories other than suits.
The men's apparel industry is highly fragmented and historically has been
served by a variety of distribution channels, including fine specialty stores,
department stores and off-price retailers. The Company believes each of these
formats has targeted certain customers and has inherent limitations.
Men's specialty stores typically cater to a customer who demands a high
level of service and is not particularly price sensitive. Specialty stores
generally carry high-quality, expensive, designer and brand name suits, and
include the cost of tailoring in the price of each garment, but the breadth of
these stores' selections may be limited. In addition, these stores are mostly
focused on tailored clothing and often lack a significant selection of
sportswear. Further, these stores often lack the buying power enjoyed by
menswear companies that purchase in significant volumes.
The tailored clothing and sportswear departments of department stores
typically sell a significant portion of their merchandise on sale. Although
department stores may carry a greater breadth of merchandise than specialty
stores, their merchandise selection is still limited compared to the Company's
and their promotional pricing in many instances is higher than the Company's
everyday low price.
Off-price stores offer low prices, but their breadth of merchandise may be
limited. In addition, these stores' merchandise assortment is often limited
and unbalanced in that it includes both current- and off-season merchandise
and inconsistent colors and sizes. Off-price stores also usually provide
apparel for the entire family, rather than focusing exclusively on the
menswear business.
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The Company's superstore concept addresses the inherent limitations of these
other formats by combining dominant selection and everyday value in a no-
frills, enjoyable shopping environment.
BUSINESS STRATEGY
The Company seeks to dominate the menswear business in each of its markets.
The defining elements of the K&G concept and the Company's strategy are:
Customer Orientation. K&G believes it has structured all aspects of its
business to be responsive to the needs and desires of its customers. The
Company's broad and deep selection of first-quality merchandise provides
one-stop shopping convenience. In addition, K&G's commitment to everyday
low prices assures customers that they can consistently purchase menswear
at prices substantially below those of traditional department and fine
specialty stores. Further, the Company's stores are open during those hours
when men most frequently shop. Management considers the customer-oriented
nature of K&G's merchandising and operating policies the most fundamental
element of the Company's business strategy.
Broad and Consistent Selection of First-Quality Merchandise. K&G's
abundant merchandise offerings consist of all major categories of men's
apparel, including business attire (suits, sportcoats, shirts and ties),
casual wear (slacks, shorts, polo-style shirts, sweaters and activewear),
formal wear (tuxedos and related furnishings), accessories (underwear,
socks, belts, gloves and scarves), outerwear and footwear. In each
merchandise category other than accessories, the Company strives to offer
its customers a dominant selection of "good-better-best" merchandise that
enables the customer to make the value/quality decision that best fits his
needs. Recognizing the trend toward casual dressing in the workplace, K&G
added casual clothing and sportswear to its tailored clothing selection in
1991, and tailored clothing accounted for less than half of the Company's
net sales in fiscal 1995.
Everyday Low Pricing and Low Mark-Ups. K&G's pricing strategy is to
enhance customer value by offering "impossible prices"--everyday low prices
(typically 30% to 70% below prices charged by traditional department and
fine specialty stores) achieved by minimizing the mark-up added to its
merchandise. This pricing strategy is designed to drive sales volume and
generate high inventory turnover, and contrasts distinctly with the pricing
strategies of many department and specialty stores. These stores add a
higher mark-up to their merchandise when it first appears on the selling
floor, and then later sell the goods at a promotional price that still
typically exceeds K&G's everyday low price.
Destination Superstores. K&G's stores are "destination" stores located
primarily in low-cost warehouses easily accessible from major highways and
thoroughfares. The Company seeks to make an immediate visual impact on
customers entering its stores through its presentation of an abundant
selection of fresh, first-quality merchandise. K&G instills a sense of
urgency for the customer to purchase by opening its stores for business on
Fridays, Saturdays and Sundays only, and management believes that a high
percentage of customers who come to K&G's stores purchase merchandise
during their visit. In addition, by replenishing its stores weekly, the
Company encourages customers to shop frequently to seek opportunistic
purchases.
Low-Cost Operations. The Company seeks to minimize costs throughout its
operations. This low-cost philosophy begins with merchandise purchasing,
where the Company consistently seeks to obtain the lowest price available
from its vendors, rather than asking for special allowances or other
concessions. In addition, K&G is able to reduce its rental obligations by
locating its stores primarily in low-cost warehouses. K&G's weekend-only
format reduces payroll costs and eliminates the need for a central
distribution center, enabling the Company's vendors to drop-ship most
merchandise directly to the stores. Further, word-of-mouth publicity,
combined with the efficient implementation and management of K&G's
advertising program, results in below industry average advertising
expenditures as a percentage of net sales. Through the use of these
strategies, the Company is able to minimize its costs and pass those
savings along to its customers.
The Company believes that the effect of its merchandising approach and low-
cost operating strategy is to significantly influence the buying patterns of
menswear consumers in each market it serves. This effect is
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demonstrated by the Company's historical increases in comparable store sales
and by its high inventory turnover (4.2x in fiscal 1995), both of which exceed
menswear industry averages. K&G opened its first store in December 1989, and
at the end of fiscal 1994 it had nine stores. The Company's sales have grown
from $7.5 million in fiscal 1990, its first full year of operation, to $60.0
million in fiscal 1995, a 52% compounded annual growth rate. In addition, net
income increased from approximately $1.2 million in fiscal 1993 to $3.2
million in fiscal 1995.
EXPANSION STRATEGY
K&G's expansion strategy is to open stores in metropolitan markets,
including those markets with the potential for multiple sites. Clustering
multiple stores in a single market permits the Company to capture advertising
and management efficiencies. In determining where to open new stores, the
Company evaluates potential rental obligations, site visibility and access,
parking availability, building specifications, detailed demographic
information (including, among other factors, data relating to income and
education levels, age and occupation), existing and potential competitors and
the number of K&G stores that the market can support. The Company does not
utilize a distribution center; accordingly, it is not constrained
geographically or by the capacity limits of a central facility, allowing
management to concentrate on the best real estate opportunities in targeted
markets.
As of the end of September 1995, the Company operated eight stores. The
Company opened two stores in Boston in October 1995 and another in Kansas
City, Kansas in December 1995. In February 1996, the Company moved its
original Atlanta store across the street and expanded its selling square
footage by approximately 30%. In March 1996, the Company opened stores in
Atlanta, Baltimore and Long Island. In September 1996, the Company opened two
stores in the Washington, D.C. area and the Company intends to open its sixth
store in fiscal 1996 in Columbus, Ohio in November 1996, bringing its total
store count to 17. The Company intends to open eight new stores in fiscal 1997
and eight to ten new stores in fiscal 1998. The Company is reviewing numerous
metropolitan markets for its expansion. The map set forth below identifies the
Company's existing stores and the Company's proposed Columbus, Ohio store,
which is scheduled to open in November 1996.
[MAP OF CONTINENTAL UNITED STATES WITH EXISTING (16) AND PROPOSED (1) STORE
LOCATIONS]
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In establishing new stores, the Company leases space in warehouses or strip
shopping centers. The Company estimates that the total cash required to open a
prototypical new store, including inventory, store fixtures and equipment,
leasehold improvements, other net working capital and pre-opening costs
(primarily stocking and training), typically ranges from $625,000 to $900,000
depending on store size, the required level of leasehold improvements,
landlord assistance and vendor financing.
MERCHANDISING
Merchandise Categories. The Company's merchandise strategy targets value-
oriented customers who would typically shop at traditional department and fine
specialty stores. K&G's merchandise assortment features a "good-better-best"
selection in all categories of men's apparel, including business attire
(suits, jackets, shirts and ties), casual wear (slacks, shorts, polo-style
shirts, sweaters and activewear), formal wear (tuxedos and related
furnishings), accessories (underwear, socks, belts, gloves and scarves),
outerwear and footwear. Branded merchandise is complemented by a private label
program, which enhances the Company's presentation of current trends and
provides key items in a wide variety of sizes, colors and styles. In addition,
the Company tailors its merchandise mix to reflect regional factors such as
weather and fashion preferences. Although low prices are an important element
of the Company's strategy, management believes that K&G differentiates itself
from typical off-price retailers by offering a higher percentage of current-
season merchandise similar to that carried by traditional department and fine
specialty stores. The breadth and depth of assortments of this merchandise
offered by K&G also distinguishes the Company from off-price competitors. The
Company occasionally offers focused assortments of close-out goods, but does
not offer factory seconds or irregular merchandise.
K&G stores stock approximately 12,000 different stockkeeping units ("SKUs")
in the following categories: tailored clothing, casual sportswear, dress
furnishings and footwear and accessories. The following reflects the
percentage of the Company's net sales by major merchandise category for the
periods indicated:
<TABLE>
<CAPTION>
FISCAL 1995
-----------
<S> <C>
Tailored clothing........................................... 42.6%
Casual sportswear........................................... 29.2
Dress furnishings........................................... 17.0
Footwear and accessories.................................... 11.2
</TABLE>
Tailored clothing, the Company's largest category as a percentage of net
sales, consists of in-depth presentations of suits, sportcoats and dress
slacks. K&G maintains an average of approximately 4,000 suits in each store.
Recognizing the trend toward casual dressing in the workplace, K&G entered the
casual sportswear business in 1991, and now carries a broad selection of
mostly branded sportswear in its stores.
Pricing. K&G's pricing strategy is to enhance customer value by offering
"impossible prices"--everyday low prices (typically 30% to 70% below prices
charged by traditional department and fine specialty stores) achieved by
minimizing the mark-up added to its merchandise. This pricing strategy is
designed to drive sales volume and generate high inventory turnover, and
contrasts distinctly with the pricing strategies of department and specialty
stores. These stores typically add a substantial mark-up to their merchandise
when it first appears on the selling floor, and then later sell the goods at a
promotional price that still typically exceeds K&G's everyday low price. K&G
affixes a ticket to each item that lists the suggested retail price of the
item and then lists the Company's everyday low price. For example, the
Company's suits are typically priced between $99.90 and $179.90 and have
comparable suggested retail prices between $300.00 and $500.00. Most of the
suits sold by the Company are 100% wool fabric. K&G sells 100% silk ties for
$7.90 and 100% cotton button-down pinpoint oxford dress shirts for $19.90. The
Company's other merchandise categories exhibit similar values. For example,
the Company's long-sleeve casual shirts are typically priced between $14.90
and $29.90 and have comparable suggested retail prices between $30.00 and
$60.00.
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Merchandise Presentation. Each element of store layout and merchandise
presentation is designed to reinforce K&G's merchandising strategy, which is to
provide unparalleled selection and assortment in each category. For example,
the visual centerpiece of each store is the "Miracle Mile," a length-of-the-
store center aisle in two to three rows consisting of a series of tables of
value-priced casual wear. K&G stocks the Miracle Mile with abundant quantities
of high-quality casual attire, most of which is branded. Management believes
that its suit presentation, combined with the Miracle Mile, graphically
illustrates, from the moment a customer enters the store, the quality, value
and depth of selection of the Company's merchandise groupings in a manner that
facilitates the customer's selection of merchandise. The sketch set forth below
provides an example of K&G's in-store merchandise presentation:
[PROTOTYPICAL STORE SCHEMATIC]
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THE K&G SUPERSTORE
Warehouse Format. The K&G superstore is designed to project a no-frills,
value-oriented, warehouse atmosphere. The Company typically occupies existing
warehouse space requiring minimal leasehold improvements and fixtures, and
therefore each store has its own look and feel. K&G's prototypical superstore
is approximately 15,000 to 20,000 gross square feet with fitting rooms and
convenient check-out, customer service and tailoring areas. K&G's stores are
organized to convey the impression of a dominant assortment of first-quality
merchandise at significant savings. The Company seeks to create excitement in
its stores through store layout and the continuous flow of new merchandise.
K&G groups its merchandise by menswear categories and sizes. Brand name and
private label merchandise is intermixed in each category.
Store Operations. All of the functions that are central to the Company's
operating strategy, including purchasing, pricing, store layout and
advertising, are controlled from corporate headquarters rather than at the
individual store level. The Vice President of Operations and the individual
store managers are responsible for managing the stores' operations. K&G
currently has one divisional manager and will hire additional divisional
managers as it increases its number of stores. Each store manager either
reports to the divisional manager or to the Vice President of Operations.
Store managers are responsible for receiving and stocking store merchandise
according to corporate guidelines and for hiring and supervising store
employees. Store managers currently participate in an incentive-based
compensation program based on sales, payroll and inventory shrinkage.
Each store manager is responsible for training store employees. The store is
typically staffed with a store manager, assistant manager, receiving manager
and other employees who serve as customer service, suit sales personnel,
folders (individuals who straighten the store merchandise) and cashiers.
Weekend-Only Hours. K&G stores are open on Fridays, Saturdays and Sundays
only (typically for a total of 24 hours each week), except for a limited
number of Monday holidays and an expanded schedule for the holiday season when
the store is open every day. To date, the Company has not experienced any
material changes in its distribution or personnel arrangements as a result of
the expansion of its stores' hours during the holiday season. The weekend-only
format reduces overhead and personnel costs and enhances inventory turns by
allowing vendors to drop-ship most merchandise directly to the Company's
stores, enabling the Company to replenish its inventory more rapidly.
PURCHASING AND DISTRIBUTION
K&G purchases merchandise from approximately 400 vendors. The Company enjoys
longstanding working relationships with many of these vendors, creating a
continuity of buying opportunities for first-quality, current-season
merchandise. To foster these relationships and buying opportunities, K&G does
not request advertising allowances, avoids merchandise returns (except for
damaged or non-conforming goods) and buys in large volumes. The Company does
not have long-term or exclusive contracts with any of its vendors. In fiscal
1995, no more than 4.2% of K&G's purchases were from any single vendor.
The Company utilizes several purchasing strategies to provide its customers
with a consistent selection of first-quality, current-season men's apparel at
value prices. K&G typically commits to purchase only a portion of its
merchandise in advance of the selling season, unlike traditional department
and fine specialty stores, which typically purchase substantially all of their
merchandise in advance. This allows the Company to take advantage of in-season
buying opportunities and react more quickly to customer buying trends,
although as the Company's store base grows, the percentage of opportunistic,
in-season purchases made by the Company may decrease. The Company's management
information systems enable it to order merchandise on a store-by-store basis,
reinforcing its buying staff's ability to respond quickly to customer buying
trends by re-stocking better selling items and clearing out, through
markdowns, those items not meeting predetermined sales goals. Finally, the
buying staff receives store and SKU sales information on the Monday
immediately following each weekend selling period, further facilitating quick
response to sales trends. Approximately 25% of the Company's merchandise
purchases are currently ordered through an automatic replenishment system that
utilizes model stock levels by store for certain basic categories. In
addition, the Company is exploring purchasing piece goods and contracting for
manufacturing a portion of its suit inventory.
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The Company's buying staff is headed by the General Merchandising Manager,
who is supported by the President and four buyers. The buying staff consists
of individuals with an average of more than 20 years of retail buying
experience.
The Company does not utilize a distribution center, but rather requires its
vendors to drop-ship most merchandise directly to each store. This system
eliminates the time and expense of handling merchandise twice, enhances the
timeliness of the Company's merchandise offerings, reduces corporate overhead
and assists the Company in generating high inventory turns.
CUSTOMER SERVICE
The Company has designed its stores to allow customers to select and
purchase apparel by themselves. For example, each merchandise category is
clearly marked and organized by size, and the Company's suits are specially
tagged "Athletic Fit," "Double-Breasted," "Three Button," etc., as a means of
further assisting customers to easily select their styles and sizes. The
Company's employees assist customers with merchandise selection, including
correct sizing. K&G also is willing to exchange merchandise or give refunds
for unaltered merchandise.
The Company regularly surveys its customers to determine their concerns and
acts in response to such surveys to improve store operations and customer
service. Through effective use of the Company's state-of-the-art management
information systems, which management utilizes each week to analyze sales and
merchandise trends from the prior week, the Company seeks to enhance customer
service by having stores well-stocked with the best-selling merchandise each
time the customer visits. Every store has an on-premises alterations area.
Certain alterations, such as pant cuffs, can be completed on an as-you-wait
basis. Other alterations are typically finished in one week.
ADVERTISING
The Company's annual advertising expenditures are relatively low compared to
other major retailers. Advertising expenditures were $1.3 million, $1.8
million, $2.0 million and $1.5 million in fiscal 1993, fiscal 1994, fiscal
1995 and in the six months ended July 28, 1996, or 3.4%, 3.6%, 3.3% and 4.2%
of net sales, respectively. K&G allocates the majority of its advertising
budget to newspaper and radio advertising. The Company typically advertises
heavily in a new store market during its first year of operation in that
market. While the Company does not advertise the brand names of the men's
apparel that it sells, its advertisements feature the "fabric integrity" of
its merchandise, the quantities of merchandise available in various categories
and the price points for K&G's merchandise as compared to the suggested retail
price. These advertisements are designed to ensure that K&G's customers
recognize the quality, broad selection and everyday low price of the Company's
merchandise.
Management believes the Company enjoys substantial word-of-mouth publicity
from its customer base, and that this word-of-mouth publicity accounts for a
significant portion of the Company's new customers in markets where the
Company has existing stores.
MANAGEMENT INFORMATION SYSTEMS
The Company's merchandising activities are currently maintained by fully-
integrated, point-of-sale inventory and management information systems
processed by an IBM RISC 6000 computer. These systems allow management to
monitor inventory and store operations on a daily basis and to determine
weekly sales and gross margin results by store. All merchandise is bar-coded
and scanned at the point of sale, which adjusts the inventory of each store
automatically and records sales as customers check out. The Company has
implemented scanners at the receiving level to enhance the Company's ability
to purchase, track and receive merchandise on an efficient and timely basis.
The Company's inventory control system enables it to achieve economies of
scale from volume purchases while at the same time ordering and tracking
separate drop shipments by store. Store inventory levels are
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regularly monitored and adjusted as sales trends dictate. The inventory
control system provides information that enhances management's ability to make
informed buying decisions and accommodate unexpected increases or decreases in
demand for a particular item. The inventory management system is capable of
reporting product information, such as style, fabric, vendor lot, model
number, size and color.
The Company's management information systems were originally implemented in
fiscal 1992, and have been consistently upgraded and enhanced since that time.
The Company's present management information systems can support a
substantially expanded operation without significant additional capital
investment.
STORE AND CORPORATE FACILITIES
The Company has consistently committed capital to open, maintain and improve
existing store facilities. Over the past five years, the Company has expended
approximately $2.5 million in aggregate capital expenditures for leasehold
improvements, furniture, fixtures and equipment (including in-store data
processing equipment and software) for its 16 stores presently operating.
The Company currently leases all of its store locations, and therefore has
been able to grow without incurring indebtedness to acquire real estate.
Management believes that the Company's operating history and its ability to
generate substantial customer traffic gives it significant leverage when
negotiating lease terms. Most of the leases provide for fixed rents, subject
to periodic adjustments. Although K&G has not purchased any real estate to
date, it may explore purchasing the real estate of established stores in the
future.
The Company's stores average 17,470 gross square feet and range in size from
11,500 to 26,560 gross square feet. The Company has created a 15,000 to 20,000
square foot prototype store. Store leases typically have terms to maturity of
five to ten years.
The Company leases approximately 100,000 gross square feet of space at its
corporate headquarters in Atlanta, which includes store, office and warehouse
space.
COMPETITION
The market for menswear is highly fragmented and competitive. The Company
faces intense competition for customers and for access to quality merchandise
from traditional department stores, fine specialty stores and off-price retail
chains, including other retailers that have developed their own menswear
superstore formats. Certain of the Company's competitors have recently been
the subject of bankruptcy proceedings, which can produce intense price
competition in the industry as a result of promotional activity. Many of these
competitors are national or regional chains that have substantially greater
resources than the Company.
The principal competitive factors in the retail apparel industry are
merchandise assortment, presentation and quality, price, value, customer
service, relationships with vendors and store location. Management believes
that the Company is well-positioned to compete on the basis of each of these
factors.
EMPLOYEES
At July 28, 1996, the Company's work force consisted of approximately 122
full-time and 163 part-time employees. Employment levels vary during the year
and peak during the holiday selling season.
TRADEMARKS
The Company owns the federally registered trademarks MenSmart(R) and
Menswear MegaCenter(R). The Company's stores are operated under the tradenames
K&G Men's Center, K&G MenSmart, T&C Men's Center and T&C MenSmart.
LEGAL PROCEEDINGS
The Company is not a party to any material pending litigation.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
Stephen H. Greenspan.... 55 Chairman of the Board, President and Chief Executive Officer
Martin Schwartz......... 55 Senior Vice President and General Merchandising Manager
John C. Dancu........... 37 Senior Vice President, Chief Financial Officer and Assistant Secretary
W. Paul Ruben........... 56 Director and Secretary
R. Scott Saban.......... 31 Vice President, Operations and Information Systems
Campbell B. Lanier, III. 45 Director
W. Scott Miller......... 33 Director
</TABLE>
STEPHEN H. GREENSPAN founded the Company in December 1989, and has served as
its Chairman of the Board, President and Chief Executive Officer since the
Company's incorporation. He has more than 30 years of experience in the
apparel industry. In addition to owning and operating K&G and other apparel
retailers, during his career as an entrepreneur in the apparel industry, Mr.
Greenspan has owned and operated companies that liquidated the remaining
merchandise of failing retail businesses, and he has also served as a
manufacturer's representative for various apparel lines.
MARTIN SCHWARTZ has served as K&G's General Merchandising Manager since he
joined the Company in February 1991. Effective January 1996, he assumed the
additional title of Senior Vice President. Prior to joining the Company, from
October 1986 to January 1991, Mr. Schwartz served as Senior Vice President,
General Merchandising Manager--Merchandising and Marketing for a division of
Woolworth & Co., and from May 1984 to September 1986, he served as Vice
President and General Merchandise Manager for the menswear and children's
departments of Montgomery Ward. Mr. Schwartz has over 30 years of experience
in the retail industry and has also served in various merchandising capacities
with Dayton Hudson, Macy's, Federated and Rich's.
JOHN C. DANCU has served as Chief Financial Officer of the Company since
March 1995. Effective January 1996, he assumed the additional title of Senior
Vice President and in March 1996 the title of Assistant Secretary. Prior to
joining the Company, from May 1986 to March 1995, Mr. Dancu was an investment
banker in the corporate finance department of The Robinson-Humphrey Company,
Inc., ultimately serving as a First Vice President. In this capacity, Mr.
Dancu was involved in numerous public and private financings and merger and
acquisition transactions involving companies in the retail industry. Mr. Dancu
is also a certified public accountant.
W. PAUL RUBEN has been a Director and Secretary of the Company since its
incorporation in June 1990. Since 1982, Mr. Ruben has been President of K&G
Associates, Inc., a company owned by Messrs. Ruben and Greenspan. Mr. Ruben is
also a private investor.
R. SCOTT SABAN has served as the Vice President, Operations and Information
Systems, of the Company since January 1995, and prior to that served as the
Company's Management Information Systems Director and as an Assistant Store
Manager. Mr. Saban is the son-in-law of Mr. Greenspan.
CAMPBELL B. LANIER, III has been a Director of the Company since May 1995.
Mr. Lanier has served since 1989 as Chairman of the Board of Directors and
Chief Executive Officer of ITC Holding Company, a privately-held
communications-based holding company headquartered in West Point, Georgia. In
this capacity, Mr. Lanier serves as Chairman of the Board of many of the
operating subsidiaries of ITC Holding Company. Mr. Lanier has also served
since April 1991 as Chairman of the Board of Directors of InterCel, Inc.
("InterCel"), a publicly-held provider of cellular telecommunication services
in the southeastern United States, and has served as an
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officer or director of InterCel (through its predecessors) since its inception
in 1989. Mr. Lanier also serves on the Board of Directors of National Vision
Associates, Ltd., a publicly-held full service optical retailer, and
MindSpring Enterprises, Inc., an Internet services company, and is a special
limited partner of South Atlantic Venture Funds II and III. See "Principal and
Selling Shareholders."
W. SCOTT MILLER has been a Director of the Company since May 1995. Mr.
Miller has been a general partner of South Atlantic Venture Partners II,
Limited Partnership, since March 1993, as well as a general partner of South
Atlantic Venture Partners III, Limited Partnership, since March 1994. Mr.
Miller has been employed by South Atlantic Capital Corporation, a management
service company to the South Atlantic Venture Funds, since March 1991. See
"Principal and Selling Shareholders."
In fiscal 1995, the Board of Directors established Compensation and Audit
Committees. The Compensation Committee, which is comprised of Messrs. Lanier
and Miller, is responsible for recommending to the entire Board of Directors
compensation for executive officers and other members of management of the
Company and approving and recommending for approval by the Board of Directors
the annual incentive compensation plans of the Company and the Company's
awards under each incentive plan. The Audit Committee, which is also comprised
of Messrs. Lanier and Miller, is responsible for reviewing and making
recommendations to the Board of Directors regarding the Company's employment
of independent auditors, the annual audit of the Company's financial
statements and the Company's internal accounting practices and policies.
The Company's Articles of Incorporation provides for a staggered Board of
Directors divided into three classes. Mr. Lanier serves in the first class of
directors, Mr. Miller in the second and Messrs. Greenspan and Ruben in the
third. The initial terms of the second and third classes of directors will
expire at the first and second annual meetings of shareholders, respectively,
following consummation of this offering. Thereafter, each second and third
class director will be elected to serve for a term of three years and until
his successor is duly elected and qualified. Mr. Lanier's initial term as a
member of the first class of directors expired at the first annual meeting of
shareholders following the Company's initial public offering. At that meeting,
Mr. Lanier was elected to serve a three-year term expiring in 1999. Certain of
the Company's shareholders, holding approximately 39.9% of the Company's
Common Stock outstanding upon consummation of this offering, have entered into
a Voting Agreement with South Atlantic Venture Fund III, Limited Partnership
("South Atlantic"), to vote their shares in favor of one nominee for the Board
of Directors designated by South Atlantic for so long as South Atlantic
continues to own more than 50% of the shares it presently owns. Mr. Miller
currently serves as South Atlantic's designated member of the Board pursuant
to this arrangement. See "Principal and Selling Shareholders." The Company's
present intention is to continue to seek qualified, independent persons to
serve as additional members of the Board of Directors.
27
<PAGE>
EXECUTIVE COMPENSATION
The following table presents certain information relating to various forms
of compensation awarded to, earned by or paid to the Company's Chief Executive
Officer and the most highly compensated officers other than the Chief
Executive Officer who earned more than $100,000 during fiscal 1995 and were
serving in such capacities at the end of fiscal 1995. Such executive officers
are hereinafter referred to as the Company's "Named Executive Officers."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------
ANNUAL COMPENSATION(1) AWARDS
---------------------- -------------------------
NAME AND PRINCIPAL SECURITIES UNDERLYING ALL OTHER
POSITION FISCAL YEAR SALARY BONUS OPTIONS/SARS(#) COMPENSATION(2)
- ------------------ ----------- ----------- ---------- ------------------------- ---------------
<S> <C> <C> <C> <C> <C>
Stephen H. Greenspan,
Chairman, President and 1995 $ 92,308 $ 0 0 $2,865
Chief Executive
Officer............... 1994 100,000(3) 0 0 0
Martin Schwartz,
Senior Vice President
and 1995 $ 112,862 $ 22,539 13,500 $4,904
General Merchandising
Manager............... 1994 114,000 0 0 5,437
John C. Dancu,
Senior Vice President,
Chief Financial
Officer and Assistant
Secretary............. 1995 $ 96,923 $ 0 236,250 $3,280
</TABLE>
- --------
(1) In accordance with the rules of the Securities and Exchange Commission,
annual compensation for the Company's Named Executive Officers does not
reflect any benefits that did not exceed the lesser of $50,000 or 10% of
the total annual salary and bonus reported for each such executive
officer.
(2) The amounts shown represent premiums paid by the Company on behalf of each
Named Executive Officer under the Company's health insurance plan.
(3) This figure represents a consulting fee paid to Mr. Greenspan for
consulting services rendered during fiscal 1994.
The following table presents information regarding options granted to the
Company's Named Executive Officers during fiscal 1995 to purchase shares of
the Company's Common Stock. The Company has no outstanding stock appreciation
rights ("SARs") and granted no SARs during fiscal 1995. In accordance with SEC
rules, the table shows the hypothetical "gains" or "option spreads" that would
exist for the respective options based on assumed rates of annual compound
stock price appreciation of 5% and 10% from the date the options were granted
over the full option term. Mr. Greenspan was not granted any options to
purchase Common Stock in fiscal 1995.
OPTION GRANTS IN FISCAL 1995
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
RATES OF STOCK PRICE
APPRECIATION FOR THE
INDIVIDUAL GRANTS OPTION TERM
-------------------------------------------- -----------------------
NO. OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS EXERCISE
OPTIONS GRANTED TO OR BASE
GRANTED EMPLOYEES PRICE EXPIRATION 5% 10%
NAME (#) DURING YEAR ($/SHARE) DATE ($) ($)
- ---- ---------- ----------- -------- ---------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Mr. Schwartz............ 13,500 12.5% $10.00 Jan. 2006 $ 84,902 $ 215,155
Mr. Dancu............... 236,250 --%(1) 3.81 Mar. 2005 566,076 1,434,548
</TABLE>
- --------
(1) Options were issued to Mr. Dancu from certain individual shareholders in
March 1995. Had these options been issued by the Company rather than such
shareholders, they would have represented 68.6% of the total options
granted to employees during the year.
28
<PAGE>
None of the Company's Named Executive Officers exercised any stock options
during fiscal 1995. The following table shows the number of shares of Common
Stock subject to exercisable and unexercisable stock options held by each of
the Named Executive Officers as of January 28, 1996. The table also reflects
the values of such options based on the positive spread between the exercise
price of such options and $10.50, which was the closing sale price of a share
of Common Stock reported in the Nasdaq National Market on January 26, 1996
(the last trading day prior to the end of the Company's fiscal year).
OPTION EXERCISES IN FISCAL 1995 AND FISCAL 1995 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
YEAR-END (#) AT YEAR-END ($)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Mr. Schwartz................ 0 13,500 $0 $6,750
Mr. Dancu................... 236,250 0 1,570,013 0
</TABLE>
- --------
(1) The value of unexercised in-the-money options at January 26, 1996 is
calculated as follows: [(Per Share Closing Sale Price on January 26, 1996)
- (Per Share Exercise Price)] x Number of Shares Subject to Unexercised
Options. The closing sale price reported by the Nasdaq National Market of
the Company's Common Stock for January 26, 1996 was $10.50 per share.
EMPLOYMENT AGREEMENTS
In May 1995, the Company entered into a five-year employment agreement with
each of Messrs. Greenspan and Schwartz. Under his agreement, the Company
agreed to employ Mr. Greenspan as its Chairman of the Board and President at a
salary of $120,000 per year plus such other benefits as are made available to
other senior executives of the Company. The agreement provides that if Mr.
Greenspan is terminated by K&G other than for "cause," as defined in the
agreement, he is entitled to severance compensation equal to 100% of his then-
current annual salary. The agreement contains provisions that purport to
restrict Mr. Greenspan's ability to compete with the Company or solicit its
employees for a specified period following the termination of his employment.
Mr. Schwartz' employment agreement is similar in form except that it (i)
provides for Mr. Schwartz to be employed as the Company's General
Merchandising Manager at a salary of $118,000 per year plus such other
benefits as are made available to other senior executives of the Company and
(ii) entitles Mr. Schwartz to severance compensation equal to 200% of his
then-current annual salary in the event of termination of his employment other
than for "cause."
In March 1995, the Company entered into a two-year employment agreement with
Mr. Dancu under which he is employed as K&G's Chief Financial Officer at a
salary of $120,000 per year plus such other benefits as are made available to
other senior executives of the Company. The agreement provides that if Mr.
Dancu is terminated by K&G other than for "cause," he is entitled to 50% of
his then-current annual salary plus amounts accrued to date to Mr. Dancu under
any bonus or incentive compensation programs then in effect. The agreement
contains provisions that purport to restrict Mr. Dancu's ability to compete
with the Company or solicit its employees for a specified period following the
termination of his employment. In connection with the execution of Mr. Dancu's
employment agreement, each of the Company's then-existing shareholders granted
Mr. Dancu an option to purchase a number of shares of Common Stock equal to
4.5% of the respective stock holdings of each such shareholder. These options,
which relate to an aggregate of 236,250 shares and are exercisable at $3.81
per share, vested upon consummation of the Company's initial public offering
in January 1996.
COMPENSATION OF DIRECTORS
Directors do not currently receive any additional compensation for serving
on the Board of Directors or its committees, but are reimbursed for travel
costs and other out-of-pocket expenses incurred in attending such meetings.
29
<PAGE>
STOCK OPTION PLAN FOR DIRECTORS
The Company's Stock Option Plan for Directors (the "Director's Plan")
provides for the grant of non-qualified stock options to purchase up to 50,000
shares of Common Stock to Directors who are not employees of the Company.
Under the Director's Plan, eligible Directors automatically receive options to
purchase, at the fair market value of the share on the date of grant, (i)
4,000 shares of Common Stock upon the commencement of their services as a
Director, and (ii) 2,500 shares of Common Stock annually as of the first
business day of each fiscal year of the Company. As of July 28, 1996, no
options under the Director's Plan had been granted.
STOCK OPTION PLAN FOR EMPLOYEES
The Company's 1995 Stock Option Plan for Employees (the "Employee Plan")
provides for the grant of both incentive and non-qualified options to purchase
up to 562,500 shares of Common Stock. Upon consummation of the Company's
initial public offering, acting pursuant to the Employee Plan, the
Compensation Committee of the Board of Directors granted employee stock
options to purchase 119,325 shares of Common Stock at an exercise price equal
to $10.00, the Company's initial public offering price. All of these options
vest incrementally over a period of four years and expire 10 years from the
date of grant. All of the Company's executive officers are eligible to
participate in this plan. As of July 28, 1996, there were options to purchase
123,325 shares of Common Stock outstanding under the Employee Plan at a
weighted average exercise price of $10.25.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Interlocks. Until the establishment of the Compensation Committee in
November 1995, the Board of Directors made decisions involving executive
compensation based primarily upon the recommendations of the Chairman of the
Board, President and Chief Executive Officer, Mr. Stephen H. Greenspan. During
fiscal 1995, no executive officer of the Company except Mr. Greenspan served
on the Company's Board of Directors. (The Company does not consider Mr. W.
Paul Ruben, who holds the title of Secretary, to be an executive officer of
the Company.) During fiscal 1995, the Compensation Committee did not include
any member of the Board of Directors who at that time served as an officer or
employee of the Company.
Certain Transactions. Prior to the Company's initial public offering in
January 1996, the Company was operated as a privately-held business and as
such entered into various transactions in the ordinary course of business with
certain entities affiliated with Messrs. Greenspan, Ruben and Richard M.
Vehon, Sr. Mr. Greenspan is the Chairman of the Board, President and Chief
Executive Officer of the Company, and also its principal shareholder. Mr.
Ruben is a director and Mr. Vehon is a former director of the Company, and
both of Messrs. Ruben and Vehon owned greater than 10% of the outstanding
Common Stock of the Company prior to its initial public offering. Management
has recently sought to reduce the number and dollar volume of related party
transactions involving the Company. The Audit Committee of the Board of
Directors is responsible for evaluating the appropriateness of any future
related party transactions.
During fiscal 1993, fiscal 1994 and at the beginning of fiscal 1995, the
shoe departments of certain of the Company's stores were operated on a
"concessionaire" basis by a company called G&D Footwear, 25% of which is owned
by each of Messrs. Greenspan and Ruben. Pursuant to this arrangement, G&D
Footwear paid the Company 10% of the net sales of the shoe department in each
of the affected stores. This arrangement resulted in ordinary course of
business payments to the Company from G&D Footwear of approximately $124,000
and $250,000 for fiscal 1993 and fiscal 1994, respectively. At the beginning
of fiscal 1995, K&G discontinued the leased shoe department operation run by
G&D Footwear and subsequently purchased the shoe department inventory of G&D
Footwear (which had an estimated cost to G&D Footwear of approximately
$387,000) for approximately $391,000. The Company no longer operates leased
shoe departments in any of the Company's stores.
For fiscal 1993 and fiscal 1994, Mr. Greenspan served as an officer of the
Company pursuant to a consulting arrangement between K&G and G-II Associates,
Inc., which is wholly owned by Mr. Greenspan. Pursuant to
30
<PAGE>
this arrangement, Mr. Greenspan was paid $100,000 in each of fiscal 1993 and
fiscal 1994. In addition, for fiscal 1993, T&C Liquidators, Inc. (which was a
50%-owned affiliate of the Company at the time), paid $100,000 to each of
Messrs. Greenspan and Vehon pursuant to a similar consulting arrangement. K&G
has terminated all such consulting arrangements, and Mr. Greenspan is now a
party to an Employment Agreement with the Company. See "Management--Employment
Agreements."
The Company leases its Irving, Texas store from Messrs. Greenspan, Ruben and
Vehon. Pursuant to this arrangement, the Company made lease payments of
$44,000, $60,000 and $61,250 in fiscal 1993, fiscal 1994 and fiscal 1995,
respectively. The lease for this store currently provides that the Company pay
rent of $5,500 per month.
Historically, the Company purchased a portion of its inventory from, and
sold inventory to, a company called K&G Associates, 50% of which is owned by
each of Messrs. Greenspan and Ruben. Pursuant to this arrangement, the Company
purchased inventory in the amounts of approximately $2,099,000, $2,382,000 and
$510,640 in fiscal 1993, fiscal 1994 and fiscal 1995, respectively, and sold
inventory in the amount of $200,000 in fiscal 1994. The Company intends to
continue to reduce the volume of inventory purchased from and sold to K&G
Associates in the future. In fiscal 1993, K&G also borrowed various amounts,
the maximum being $120,000, interest free, from K&G Associates. This loan was
repaid in full by the end of fiscal 1993.
During fiscal 1993, Mr. Greenspan loaned the Company $200,000, the proceeds
of which provided working capital to the Company. This loan was repaid with
interest (calculated at an interest rate of 6.5% per annum) early in fiscal
1995. During fiscal 1993, fiscal 1994 and through June 30, 1995, Messrs.
Greenspan and Ruben personally guaranteed the Company's obligations to its
bank lender. On June 30, 1995, they were released from these guaranties upon
the renewal of the Company's bank line of credit.
In May 1995, the Company raised gross proceeds of $6.5 million through the
sale of Redeemable Common Stock, Series B, primarily to institutional
investors. Of such amount, $3,999,000 and $1,999,500 were invested by South
Atlantic Venture Fund III, Limited Partnership ("South Atlantic"), and ITC
Holding Company ("ITC"), entities that are now principal shareholders of the
Company. W. Scott Miller and B. Campbell Lanier, III, Directors of the
Company, are principals of South Atlantic and ITC, respectively. In addition,
John C. Dancu, the Company's Chief Financial Officer, purchased $150,000 of
Redeemable Common Stock, Series B, in that transaction. The proceeds of the
transaction were used to redeem Common Stock, Series A, from K&G's existing
shareholders, including Messrs. Greenspan, Ruben and Vehon, in the amounts of
$3,000,000, $1,519,500 and $820,500, respectively. Upon consummation of this
offering, the holders of Redeemable Common Stock, Series B, were paid a
dividend in the aggregate amount of approximately $237,000. The Redeemable
Common Stock, Series B, was automatically converted into Common Stock and
ceased to be authorized and outstanding.
The Company leased its original Atlanta store from a company called G&R
Inc., 50% of which is owned by each of Messrs. Greenspan and Ruben. The lease
for this store provided that the Company pay G&R monthly minimum rent equal to
a specified dollar amount plus 1% of the net sales of the store above the
minimum amount on an annual basis. Pursuant to this arrangement, the Company
paid or accrued to G&R approximately $139,000, $143,000 and $154,000 in fiscal
1993, fiscal 1994 and fiscal 1995, respectively. The lease for this store,
which by its terms would have expired in January 2007, was terminated (without
penalty) in February 1996.
Ellsworth Realty, L.L.C. ("Ellsworth Realty"), a limited liability company
whose shareholders are Messrs. Greenspan, Ruben and Dancu, acquired a building
located across the street from the Company's original store in Atlanta. The
Company's corporate headquarters and warehouse space has been located in this
building since fiscal 1992. The Company now leases its corporate headquarters
and warehouse space in this building from Ellsworth Realty and, in February
1996, relocated its original Atlanta store in this building. The lease for the
building provides for the Company to pay Ellsworth Realty a specified amount
for the warehouse and office space and a specified amount for the retail space
plus 1% of the net sales of the store in excess of a certain threshold amount.
The Company's minimum rental obligation for the building under this
arrangement is approximately $19,200 per month.
31
<PAGE>
Management believes that transactions between the Company and its officers,
directors, principal shareholders and affiliates have been and will be on
terms no less favorable to the Company as may be obtained from unaffiliated
third parties.
CERTAIN TRANSACTIONS
All of the Company's material related party transactions are described above
under "Management-- Compensation Committee Interlocks and Insider
Participation."
32
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of September 30, 1996, and as
adjusted to reflect the sale of the shares of Common Stock offered hereby,
with respect to (i) each person known by the Company to own beneficially more
than 5% of the Common Stock, (ii) each of the Company's directors and named
executive officers, (iii) each Selling Shareholder and (iv) all directors and
executive officers of the Company as a group. Shares beneficially owned
include securities that such person has the power to vote or to direct the
investment of and also includes shares such person has the right to acquire
beneficial ownership of within 60 days through the exercise of an option,
warrant or right of conversion of a security or otherwise. Unless otherwise
indicated, (i) each of the shareholders has sole voting and investment power
with respect to the shares beneficially owned and (ii) the business address of
each person named below is that of the Company.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
SHARES BENEFICIALLY OWNED AFTER
OWNED PRIOR TO OFFERING SHARES OFFERING
----------------------- BEING -------------------
NAME NUMBER PERCENT OFFERED NUMBER PERCENT
---- ------------ ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
South Atlantic Venture
Fund III, Limited
Partnership(1)......... 699,825 11.0% -- 699,825 10.5%
ITC Holding Company(2).. 157,223 2.5 80,000 77,223 1.2
Susan Lee Lorder
Vehon(3)................ 188,861 3.0 50,000 138,861 2.1
Susan Lee Lorder Vehon
and Richard M. Vehon,
Jr. as Independent
Executors of the Estate
of Richard M. Vehon,
Sr.(3)................. 188,862 3.0 50,000 138,862 2.1
Richard M. Vehon,
Jr.(3).................. 65,938 1.0 12,150 53,788 0.8
J. William Fowler....... 298,263 4.7 150,000 148,263 2.2
Stephen H. Greenspan(4). 1,504,449 23.6 300,000 1,204,449 18.0
W. Paul Ruben(5)........ 884,494 13.9 175,000 709,494 10.6
Martin Schwartz......... 302,189 4.7 60,000 242,189 3.6
John C. Dancu(6)........ 262,500 4.1 9,000 253,500 3.8
Campbell B. Lanier,
III(7).................. 157,223 2.5 80,000 77,223 1.2
W. Scott Miller(8)...... 709,825 11.1 -- 709,825 10.6
Directors and executive
officers as a group (7
persons)................ 3,820,680 59.9% 624,000 3,196,680 47.8%
</TABLE>
- --------
(1) The business address of South Atlantic Venture Fund III, Limited
Partnership ("South Atlantic") is 614 West Bay Street, Suite 200, Tampa,
Florida 33606-2704.
(2) The business address of ITC Holding Company ("ITC") is 1239 OG Skinner
Drive, P.O. Box 510, West Point, Georgia 31833.
(3) The business address of the named principal shareholder is 1050 N. Central
Expressway, Richardson, Texas 75080. The shares indicated for each of
Susan Lee Lorder Vehon and Richard M. Vehon, Jr. are presented exclusive
of the shares owned by the Estate of Richard M. Vehon, Sr., although each
of such Selling Shareholders may be deemed to beneficially own such
Estate's shares.
(4) Includes 656,250 shares (10.3% of the amount outstanding prior to the
offering) owned of record by a partnership established for Mr. Greenspan's
family.
(5) Includes 656,250 shares (10.3% of the amount outstanding prior to the
offering) owned of record by a partnership established for Mr. Ruben's
family. This partnership is selling 50,000 shares of Common Stock in this
offering.
(6) Includes 26,250 shares owned directly by Mr. Dancu (9,000 of which are
being sold in this offering) and 236,250 shares subject to options held by
him to purchase outstanding shares of Common Stock. Mr. Dancu's options
were granted to him by existing shareholders, and relate to shares held by
various shareholders, including shareholders identified above.
(7) All of the indicated shares are owned of record by ITC Holding Company,
with which Mr. Lanier is affiliated. Mr. Lanier's business address is that
of ITC, as indicated in footnote (2) above.
(8) Includes 699,825 shares owned of record by South Atlantic, with which Mr.
Miller is affiliated, and 10,000 shares owned of record by a trust
established for Mr. Miller's family. Mr. Miller's business address is that
of South Atlantic, as indicated in footnote (1) above.
33
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 20,000,000 shares of
Common Stock, $.01 par value, and 2,000,000 shares of Preferred Stock, $.01
par value (the "Preferred Stock"). As of September 30, 1996, there were
6,377,500 shares of Common Stock and no shares of Preferred Stock issued and
outstanding. The following description is qualified in its entirety by
reference to the Company's Amended and Restated Articles of Incorporation (the
"Articles of Incorporation") and Amended and Restated By-laws (the "Bylaws"),
which are filed as exhibits to the Registration Statement of which this
Prospectus is a part.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of shareholders. Cumulative voting
in the election of directors is not permitted. Subject to preferences that may
be granted to holders of Preferred Stock, holders of Common Stock are entitled
to receive ratably such dividends as may be declared by the Board of Directors
out of funds legally available therefor. In the event of the liquidation,
dissolution or winding up of the Company, holders of Common Stock are entitled
to share ratably in all assets remaining after payment of liabilities and the
liquidation preference, if any, which may be granted to the holders of
Preferred Stock. Holders of Common Stock have no conversion, preemptive or
other rights to subscribe for additional shares or other securities, and there
are no redemption or sinking fund provisions with respect to such shares. The
issued and outstanding shares of Common Stock are, and the shares offered
hereby will be upon payment therefor, fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority to issue up to 2,000,000 shares of
Preferred Stock in one or more series and to fix the number of shares
constituting any such series and the rights and preferences thereof, including
dividend rates, terms of redemption (including sinking fund provisions),
redemption price or prices, voting rights, conversion rights and liquidation
preferences of the shares constituting such series, without any further vote
or action by the Company's shareholders. The issuance of Preferred Stock by
the Board of Directors could adversely affect the rights of holders of Common
Stock. For example, an issuance of Preferred Stock could result in a class of
securities outstanding that would have preferences over the Common Stock with
respect to dividends and liquidations, and that could (upon conversion or
otherwise) enjoy all of the rights appurtenant to Common Stock.
The authority possessed by the Board of Directors to issue Preferred Stock
could potentially be used to discourage attempts by others to obtain control
of the Company, through merger, tender offer, proxy contest or otherwise, by
making such attempts more difficult to achieve or more costly. There are no
issued and outstanding shares of Preferred Stock, the Board of Directors has
no present intention to issue any shares of Preferred Stock and there are no
agreements or understandings for the issuance of Preferred Stock.
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION
The Company's Articles of Incorporation provide for a staggered Board of
Directors divided into three classes. The shareholders may not amend or repeal
this provision except upon the affirmative vote of the holders of not less
than 75% of the outstanding shares of capital stock of the Company entitled to
vote thereon. At any meeting of shareholders with respect to which notice of
such purpose has been given, the affirmative vote of the holders of 75% of all
outstanding shares of capital stock of the Company entitled to vote with
respect to the election of directors may remove directors, but only for cause.
The Company's Articles of Incorporation further provide that nominations for
the election of directors may be made by the Board of Directors or a committee
appointed by the Board of Directors, or by any shareholder of record entitled
to vote generally in the election of directors. However, a shareholder may
nominate one or more persons for election as director at a meeting only if
written notice of such shareholder's intent to make such
34
<PAGE>
nomination has been given to the Secretary of the Company not later than (i)
with respect to any election to be held at an annual meeting of shareholders,
90 days in advance of such meeting, and (ii) with respect to any election of
directors to be held at a special meeting of shareholders, the close of
business on the seventh day following the date on which notice of such meeting
is first given to shareholders.
The provisions of the Articles of Incorporation described in the two
preceding paragraphs may adversely affect the ability of the shareholders to
effect a change in control of the Company even if the change in control is
believed to be in the interests of the shareholders.
As authorized by Georgia Business Corporation Code (the "GBCC"), the
Company's Articles of Incorporation provide that, to the fullest extent
permitted by the GBCC, no director of the Company will be personally liable to
the Company or its shareholders for monetary damages for breach of fiduciary
duty as a director. Under the GBCC, this provision does not limit a director's
liability (i) for any appropriation, in violation of his duties, of any
business opportunity of the Company, (ii) for acts or omissions that involve
intentional misconduct or a knowing violation of law, (iii) in respect of
certain unlawful dividend payments or stock redemptions or repurchases and
(iv) for any transaction from which the director derives an improper personal
benefit. The effect of this provision is to eliminate the rights of the
Company and its shareholders (through shareholders' derivative suits on behalf
of the Company) to recover monetary damages against a director for breach of
the fiduciary duty of care as a director (including breaches resulting from
negligent or grossly negligent behavior) except in the situations described in
clauses (i) through (iv) above. This provision does not limit or eliminate the
rights of the Company or any shareholders to seek non-monetary relief such as
an injunction or rescission in the event of a breach of a director's duty of
care.
The Company's Articles of Incorporation provide that directors and officers
of the Company will be indemnified by the Company to the fullest extent
authorized by the GBCC, as it now exists or may in the future be amended,
against all expenses and liabilities reasonably incurred in connection with
service for or on behalf of the Company. The Company has entered into a form
of Indemnification Agreement consistent with this provision with all of the
Company's directors and executive officers named in the Registration Statement
of which this Prospectus is a part. The rights of directors and officers to
indemnification is not exclusive of any other right now possessed or hereafter
acquired under any statute, agreement or otherwise.
REGISTRATION RIGHTS
Certain holders of Common Stock may require the Company to register under
the Securities Act up to 1,092,236 shares of Common Stock (after giving effect
to this offering) held by them under the terms and conditions of various
registration rights agreements. In addition, under the terms of these
agreements, these parties are entitled to certain piggyback registration
rights should the Company register additional shares of Common Stock. Such
shareholders have agreed with the Company and the Underwriters not to exercise
any of such registration rights for a period of 120 days after the date of
this Prospectus without the prior written consent of the Representatives of
the Underwriters.
VOTING AGREEMENT
Certain of the Company's shareholders, holding approximately 39.9% of the
Company's Common Stock outstanding upon consummation of this offering, have
entered into a Voting Agreement with South Atlantic Venture Fund III, Limited
Partnership ("South Atlantic"), to vote their shares in favor of one nominee
for the Board of Directors designated by South Atlantic for so long as South
Atlantic continues to own more than 50% of the shares it presently owns. Mr.
Miller currently serves as South Atlantic's designated member of the Board
pursuant to this arrangement.
LISTING
The Company's Common Stock is quoted on the Nasdaq National Market under the
symbol "MENS."
TRANSFER AGENT
The transfer agent for the Company's Common Stock is First Union National
Bank of North Carolina.
35
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 6,691,350 shares of
Common Stock outstanding (6,736,350 shares if the Underwriters' over-allotment
option is exercised in full). Of these shares, all of the shares offered
hereby may be resold without restriction under the Securities Act of 1933, as
amended (the "Securities Act"), except that any shares purchased in the
offering by "affiliates" of the Company, as that term is defined in Rule 144
under the Securities Act, may only be resold in compliance with applicable
provisions of Rule 144. Of the remaining 5,491,350 shares of Common Stock held
by existing shareholders, 3,079,763 shares are subject to the restrictions on
resale of Rule 144. Restricted securities and securities held by affiliates of
the Company may not be sold except in compliance with the registration
requirements of the Securities Act or pursuant to an applicable exemption from
registration, such as the exemption provided by Rule 144 under the Securities
Act.
In general, under Rule 144 as currently in effect, a shareholder, including
an affiliate, who has beneficially owned his or her restricted securities (as
that term is defined in Rule 144) for at least two years from the later of the
date such securities were acquired from the Company, or (if applicable) the
date they were acquired from an affiliate, is entitled to sell within any
three-month period, a number of such shares that does not exceed the greater
of 1% of the then outstanding shares of Common Stock (approximately 66,914
shares immediately after this offering) or the average weekly trading volume
in the Common Stock during the four calendar weeks preceding the date on which
notice of such sale was filed under Rule 144. Sales under Rule 144 are also
subject to certain manner of sale provisions, notice requirements and the
availability of current public information about the Company. In addition, if
a period of at least three years has elapsed between the later of the date
restricted securities were acquired from the Company and the date they were
acquired from an affiliate of the Company, a shareholder who is not an
affiliate of the Company at the time of sale and has not been an affiliate of
the Company for at least three months prior to the sale is entitled to sell
the shares immediately without compliance with the restrictions described
above.
Approximately 2,677,796 shares of Common Stock are eligible for sale in the
public market under Rule 144, subject to the volume limitations and other
requirements described above. Notwithstanding the above, the holders of
2,645,906 of those shares (as well as the holders of 855,986 additional shares
not eligible for sale under Rule 144 following consummation of this offering)
have agreed not to sell or transfer any such shares for a period of 120 days
after the date of this Prospectus, without the prior consent of the
representatives of the Underwriters, except for bona fide gifts or transfers
effected other than on any securities exchange or in the over-the-counter
market to donees or transferees that agree to be bound by such restriction.
Certain holders of Common Stock have the contractual right to require the
Company to register shares of Common Stock held by them for sale under the
Securities Act. In addition, these parties are entitled to certain piggyback
registration rights should the Company register additional shares of Common
Stock. Such holders have agreed with the Company and the Underwriters not to
exercise any of such registration rights for a period of 120 days after the
date of this Prospectus without the prior written consent of the
representatives of the Underwriters.
The Securities and Exchange Commission (the "Commission") has recently
proposed reducing the initial Rule 144 holding period to one year and the Rule
144(k) holding period to two years. There can be no assurance as to when or
whether such rule changes will be enacted. If enacted, such modifications will
have a material effect on the times when shares of the Company's Common Stock
become eligible for resale.
36
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, for whom The Robinson-Humphrey Company, Inc., J.C.
Bradford & Co. and Interstate/Johnson Lane Corporation are acting as
representatives (the "Representatives"), have severally agreed to purchase
from the Company and the Selling Shareholders, and the Company and the Selling
Shareholders have agreed to sell to the Underwriters, the number of shares of
Common Stock set forth opposite their respective names.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
The Robinson-Humphrey Company, Inc. ..............................
J.C. Bradford & Co. ..............................................
Interstate/Johnson Lane Corporation...............................
---------
Total......................................................... 1,200,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other conditions. The nature of the Underwriters'
obligations is such that they are committed to purchase all shares of Common
Stock offered hereby if any are purchased.
The Underwriters propose to offer the shares of Common Stock directly to the
public at the public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in
excess of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share in sales to certain
other dealers. After the public offering, the public offering price and other
selling terms may be changed.
The Company and certain of the Selling Shareholders have granted to the
Underwriters a 30-day option to purchase up to an additional 180,000 shares of
Common Stock at the public offering price less the underwriting discount set
forth on the cover page of this Prospectus to cover over-allotments, if any.
If the Underwriters exercise their over-allotment option, the Underwriters
have severally agreed, subject to certain conditions, to purchase
approximately the same percentage thereof that the number of shares of Common
Stock to be purchased by each of them as shown in the above table bears to the
1,200,000 shares of Common Stock offered hereby.
37
<PAGE>
The Company, its principal shareholders, executive officers and directors
(holding, in the aggregate, 3,196,680 shares of Common Stock following the
offering) have agreed that they will not offer, sell or otherwise dispose of
any shares of Common Stock of the Company (other than the shares offered by
the Company in this offering) for a period of 120 days from the date of this
Prospectus without the prior written consent of the Representatives.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against, and to contribute to losses arising out of, certain
liabilities, including liabilities under the Securities Act.
In connection with this offering, certain underwriters and selling group
members (if any) or their respective affiliates who are qualified registered
market makers on the Nasdaq National Market may engage in passive market-
making transactions in the Common Stock on the Nasdaq National Market in
accordance with Rule 10b-6A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), during the two business day period before
commencement of offers of sales of the Common Stock. The passive market-making
transactions must comply with applicable volume and price limits and be
identified as such. In general, a passive market maker may display its bid at
a price not in excess of the highest independent bid for the security;
however, if all independent bids are lowered below the passive market maker's
bid, such bid must then be lowered when certain purchase limits are exceeded.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Shareholders by Hunton & Williams,
Atlanta, Georgia, and for the Underwriters by Troutman Sanders LLP, Atlanta,
Georgia.
EXPERTS
The consolidated financial statements of K&G Men's Center, Inc. as of and
for the years ended January 30, 1994, January 29, 1995 and January 28, 1996,
included in this Prospectus and elsewhere in the Registration Statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said report.
ADDITIONAL INFORMATION
K&G has filed a registration statement on Form S-1 (the "Registration
Statement") with the Securities and Exchange Commission (the "Commission")
under the Securities Act with respect to the shares of Common Stock offered
hereby. This Prospectus omits certain information contained in the
Registration Statement as permitted by the rules and regulations of the
Commission. For further information with respect to K&G and the Common Stock
offered hereby, reference is made to the Registration Statement, including the
exhibits thereto, and consolidated financial statements and notes filed as a
part thereof. Statements herein concerning the contents of any contract or
other document filed with the Commission as an exhibit to the Registration
Statement are not necessarily complete and are qualified in all respects by
such reference. Copies of the Registration Statement, including all exhibits
and schedules thereto, may be inspected without charge at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, as well as the Regional Offices of the Commission at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and
Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of such
information can be obtained by mail from the principal office of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates.
The Company is subject to the informational requirements of the Exchange Act
and in accordance therewith files reports and other information with the
Commission. Reports and other information filed by the Company can be
inspected and copied at the public reference facilities maintained by the
Commission in Washington, D.C., and at the regional offices of the Commission
listed above. Copies of such material can be obtained from the Public
Reference Section of the Commission, Washington, D.C., 20549, at prescribed
rates. The Commission maintains a web site that contains reports, proxy
statements and other information regarding registrants, including the Company,
that file such information electronically with the Commission. The address of
the Commission's web site is http://www.sec.gov.
38
<PAGE>
K&G MEN'S CENTER, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
CONSOLIDATED FINANCIAL STATEMENTS OF K&G MEN'S CENTER, INC. AND
SUBSIDIARIES:
<S> <C>
Report of Independent Public Accountants............................... F-2
Consolidated Balance Sheets as of January 29, 1995, January 28, 1996,
and July 28, 1996..................................................... F-3
Consolidated Statements of Operations for the fiscal years ended
January 30, 1994, January 29, 1995, and January 28, 1996 and for the
six months ended July 30, 1995(unaudited) and July 28, 1996
(unaudited)........................................................... F-4
Consolidated Statements of Shareholders' Equity for the fiscal years
ended January 30, 1994, January 29, 1995, and January 28, 1996 and the
six months ended July 28, 1996 (unaudited)............................ F-5
Consolidated Statements of Cash Flows for the years ended January 30,
1994, January 29, 1995, and January 28, 1996 and for the six months
ended July 30, 1995(unaudited) and July 28, 1996 (unaudited).......... F-6
Notes to Consolidated Financial Statements............................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Shareholders of K&G Men's Center, Inc.:
We have audited the accompanying consolidated balance sheets of K&G Men's
Center, Inc. (a Georgia corporation) and subsidiaries as of January 29, 1995
and January 28, 1996 and the related consolidated statements of operations,
shareholders' equity, and cash flows for each of the three years in the period
ended January 28, 1996. 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 generally accepted auditing
standards. 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. An audit
also includes 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 financial statements referred to above present fairly,
in all material respects, the financial position of K&G Men's Center, Inc. and
subsidiaries as of January 29, 1995 and January 28, 1996 and the results of
their operations and their cash flows for each of the three years in the
period ended January 28, 1996 in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Atlanta, Georgia
March 13, 1996
F-2
<PAGE>
K&G MEN'S CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 28, 1996
JANUARY 29, ------------------------ JULY 28,
1995 ACTUAL PRO FORMA 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
(NOTES 2
AND 12)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents. $ 2,377,000 $ 2,503,600 $12,455,100 $ 8,911,300
Accounts receivable....... 410,300 727,500 727,500 872,600
Merchandise inventory..... 8,194,900 11,148,200 11,148,200 13,553,800
Other assets.............. 240,300 1,069,100 715,200 1,171,300
----------- ----------- ----------- -----------
Total current
assets.............. 11,222,500 15,448,400 25,046,000 24,509,000
----------- ----------- ----------- -----------
PROPERTY AND EQUIPMENT:
Furniture and fixtures.... 386,700 649,400 649,400 870,900
Computer equipment........ 349,700 479,800 479,800 499,900
Leasehold improvements.... 785,800 1,160,900 1,160,900 1,530,500
----------- ----------- ----------- -----------
1,522,200 2,290,100 2,290,100 2,901,300
Less accumulated
depreciation.............. (657,800) (893,300) (893,300) (1,081,700)
----------- ----------- ----------- -----------
Property and equipment,
net...................... 864,400 1,396,800 1,396,800 1,819,600
----------- ----------- ----------- -----------
OTHER ASSETS, net.......... 377,500 358,200 358,200 560,600
----------- ----------- ----------- -----------
Total assets........ $12,464,400 $17,203,400 $26,801,000 $26,889,200
=========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION>
CURRENT LIABILITIES:
<S> <C> <C> <C> <C>
Accounts payable.......... $ 3,882,800 $ 5,193,900 $ 5,193,900 $ 4,266,900
Sales taxes payable....... 234,300 602,500 602,500 460,800
Accrued expenses.......... 690,500 1,219,400 685,100 991,500
Income taxes payable...... 543,700 619,400 619,400 0
Notes payable to related
parties................... 200,000 0 0 0
Current portion of long-
term debt................. 70,200 0 0 0
----------- ----------- ----------- -----------
Total current
liabilities......... 5,621,500 7,635,200 7,100,900 5,719,200
----------- ----------- ----------- -----------
NOTES PAYABLE TO RELATED
PARTIES.................... 573,500 205,000 205,000 205,000
----------- ----------- ----------- -----------
LONG-TERM DEBT, less
current portion............ 51,000 0 0 0
----------- ----------- ----------- -----------
COMMITMENTS (Note 5)
MINORITY INTEREST.......... 30,700 244,300 244,300 225,700
----------- ----------- ----------- -----------
REDEEMABLE COMMON STOCK,
Series B, $.01 par value;
0 and 1,137,675 shares
authorized, respectively;
0, 1,137,675 (actual), and
0 (pro forma and actual)
issued and outstanding,
respectively.............. 0 6,475,900 0 0
----------- ----------- ----------- -----------
SHAREHOLDERS' EQUITY:
Preferred Stock, $.01 par
value; 0, 0, and
2,000,000 shares pro
forma and actual
authorized, respectively,
and unissued............. 0 0 0 0
Common Stock, Series A,
$.01 par value;
5,250,000, 5,250,000, and
0 shares pro forma and
actual authorized,
respectively; 5,250,000,
4,112,325 (actual), and 0
(pro forma and actual)
shares issued and
outstanding,
respectively............. 52,500 41,100 0 0
Common Stock, $.01 par
value; 0, 0, and
20,000,000 (pro forma and
actual) shares
authorized, respectively;
0, 0 (actual), and
6,377,500 (pro forma and
actual) shares issued and
outstanding,
respectively............. 0 0 63,800 63,800
Additional paid-in
capital.................. 1,223,100 990,700 17,587,200 17,587,200
Retained earnings......... 4,912,100 1,611,200 1,599,800 3,088,300
----------- ----------- ----------- -----------
Total shareholders'
equity................... 6,187,700 2,643,000 19,250,800 20,739,300
----------- ----------- ----------- -----------
Total liabilities and
shareholders' equity..... $12,464,400 $17,203,400 $26,801,000 $26,889,200
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
K&G MEN'S CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
------------------------------------- ------------------------
JANUARY 30, JANUARY 29, JANUARY 28, JULY 30, JULY 28,
1994 1995 1996 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES............... $37,081,000 $49,801,400 $60,026,700 $25,103,000 $35,745,100
COST OF SALES, including
occupancy costs........ 28,852,300 38,244,500 45,594,000 19,172,200 27,468,600
----------- ----------- ----------- ----------- -----------
GROSS PROFIT............ 8,228,700 11,556,900 14,432,700 5,930,800 8,276,500
SELLING, GENERAL, AND
ADMINISTRATIVE
EXPENSES............... 5,987,300 7,834,600 9,294,700 4,016,700 6,103,700
----------- ----------- ----------- ----------- -----------
OPERATING INCOME........ 2,241,400 3,722,300 5,138,000 1,914,100 2,172,800
OTHER INCOME (EXPENSE):
Interest expense....... (75,000) (159,100) (54,700) (59,000) (20,100)
Other income, net...... 38,700 235,000 220,000 58,900 317,000
----------- ----------- ----------- ----------- -----------
INCOME BEFORE INCOME
TAXES AND MINORITY
INTEREST IN (EARNINGS)
LOSS OF AFFILIATES..... 2,205,100 3,798,200 5,303,300 1,914,000 2,469,700
PROVISION FOR INCOME
TAXES.................. 845,000 1,532,000 2,079,000 749,100 945,000
----------- ----------- ----------- ----------- -----------
INCOME BEFORE MINORITY
INTEREST IN (EARNINGS)
LOSS OF AFFILIATES..... 1,360,100 2,266,200 3,224,300 1,164,900 1,524,700
MINORITY INTEREST IN
(EARNINGS) LOSS OF
AFFILIATES............. (202,900) 31,500 (38,200) 24,000 (36,200)
----------- ----------- ----------- ----------- -----------
NET INCOME.............. 1,157,200 2,297,700 3,186,100 1,188,900 1,488,500
DIVIDENDS ON REDEEMABLE
COMMON STOCK, SERIES B. 0 0 (229,800) (70,200) 0
----------- ----------- ----------- ----------- -----------
NET INCOME APPLICABLE TO
COMMON STOCK, SERIES A
SHAREHOLDERS........... $ 1,157,200 $ 2,297,700 $ 2,956,300 $ 1,118,700 $ 1,488,500
=========== =========== =========== =========== ===========
NET INCOME PER COMMON
AND COMMON EQUIVALENT
SHARE.................. $ .26 $ .48 $ .61 $ .23 $ .23
=========== =========== =========== =========== ===========
WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT
SHARES OUTSTANDING..... 4,410,000 4,830,000 5,250,000 5,250,000 6,377,500
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
K&G MEN'S CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
---------- ------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, January 31,
1993.................... 2,625,000 $26,300 $ 149,900 $1,483,300 $ 1,659,500
Net income............. 0 0 0 1,157,200 1,157,200
---------- ------- ----------- ---------- -----------
BALANCE, January 30,
1994................... 2,625,000 26,300 149,900 2,640,500 2,816,700
Stock dividend......... 1,785,000 17,800 0 (17,700) 100
Issuance of stock to
acquire minority
interest.............. 840,000 8,400 1,073,200 (8,400) 1,073,200
Net income............. 0 0 0 2,297,700 2,297,700
---------- ------- ----------- ---------- -----------
BALANCE, January 29,
1995................... 5,250,000 52,500 1,223,100 4,912,100 6,187,700
Stock redemption....... (1,137,675) (11,400) (232,400) (6,257,200) (6,501,000)
Net income............. 0 0 0 3,186,100 3,186,100
Dividends on Redeemable
Common Stock, Series
B..................... 0 0 0 (229,800) (229,800)
---------- ------- ----------- ---------- -----------
BALANCE, January 28,
1996................... 4,112,325 41,100 990,700 1,611,200 2,643,000
Net income (unaudited). 0 0 0 1,488,500 1,488,500
Initial public
offering, net of
expenses (unaudited).. 1,127,500 11,300 10,120,600 0 10,131,900
Conversion of
Redeemable Common
Stock, Series B and
Common Stock,
Series A to Common
Stock (unaudited)..... 1,137,675 11,400 6,475,900 (11,400) 6,475,900
---------- ------- ----------- ---------- -----------
BALANCE, July 28, 1996
(unaudited)............ 6,377,500 $63,800 $17,587,200 $3,088,300 $20,739,300
========== ======= =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
K&G MEN'S CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
------------------------------------- ----------------------
JANUARY 30, JANUARY 29, JANUARY 28, JULY 30, JULY 28,
1994 1995 1996 1995 1996
----------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income............. $1,157,200 $2,297,700 $3,186,100 $1,118,700 $1,488,500
---------- ---------- ---------- ---------- ----------
Adjustments to
reconcile net income
to net cash provided
by (used for)
operating activities:
Minority interest in
earnings (loss) of
affiliates........... 202,900 (31,500) 38,200 (24,000) 36,200
Depreciation and
amortization......... 250,300 271,200 329,800 180,100 196,000
Deferred income tax
provision (benefit).. 32,400 (52,200) (275,000) 0 0
Loss on disposal of
fixed assets......... 0 0 39,900 0 0
Changes in assets and
liabilities:
Accounts receivable.. (224,300) (36,000) (317,200) 402,500 (145,100)
Merchandise
inventory........... (847,100) (1,644,500) (2,953,300) (722,200) (2,405,600)
Other assets, net.... (100,300) 53,800 (591,400) (478,100) (102,200)
Accounts payable..... (716,600) 735,600 1,306,300 (433,200) (927,000)
Sales taxes payable.. (84,700) (23,900) 368,200 304,300 (141,700)
Accrued expenses..... 250,900 (28,000) 299,100 532,000 (227,900)
Income taxes payable. (181,200) (123,500) 75,700 (654,000) (619,400)
---------- ---------- ---------- ---------- ----------
Total adjustments... (1,417,700) (879,000) (1,679,700) (892,600) (4,336,700)
---------- ---------- ---------- ---------- ----------
Net cash (used in)
provided by
operating
activities......... (260,500) 1,418,700 1,506,400 226,100 (2,848,200)
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Additions to property
and equipment......... (292,800) (366,800) (885,000) (70,000) (611,100)
Other investing
activities............ 0 0 0 4,000 (209,900)
---------- ---------- ---------- ---------- ----------
Net cash used in
investing
activities......... (292,800) (366,800) (885,000) (66,000) (821,000)
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Issuance of common
stock................. 0 0 0 0 10,131,900
Redemption of Common
Stock, Series A....... 0 0 (6,501,000) (6,501,000) 0
Issuance of Redeemable
Common Stock, Series
B..................... 0 0 6,475,900 6,475,900 0
Repayments of notes
payable to related
parties............... 0 (36,000) (348,500) 0 0
Repayments of long-term
debt.................. (68,300) (75,900) (121,200) (243,000) 0
Issuance of notes
payable to related
parties............... 25,000 559,500 0 0 0
Purchase of minority
interest in affiliate. 0 (70,000) 0 0 0
Capital contribution
from (dividend paid
to) minority
stockholder........... 100,300 45,000 0 0 (55,000)
---------- ---------- ---------- ---------- ----------
Net cash provided by
(used in) financing
activities......... 57,000 422,600 (494,800) (268,100) 10,076,900
---------- ---------- ---------- ---------- ----------
NET (DECREASE) INCREASE
IN CASH AND CASH
EQUIVALENTS............ (496,300) 1,474,500 126,600 (108,000) 6,407,700
CASH AND CASH
EQUIVALENTS AT
BEGINNING OF PERIOD.... 1,398,800 902,500 2,377,000 2,377,000 2,503,600
---------- ---------- ---------- ---------- ----------
CASH AND CASH
EQUIVALENTS AT END OF
PERIOD................. $ 902,500 $2,377,000 $2,503,600 $2,269,000 $8,911,300
========== ========== ========== ========== ==========
SUPPLEMENTAL DISCLOSURE
OF CASH PAID FOR:
Interest............... $ 53,300 $ 96,000 $ 124,581 $ 57,400 $ 18,900
========== ========== ========== ========== ==========
Income taxes........... $1,000,200 $1,655,500 $2,278,300 $1,456,100 $1,801,000
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
K&G MEN'S CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
K&G Men's Center, Inc. (the "Company" or "K&G") is a superstore retailer of
a complete line of men's apparel and accessories. As of January 28, 1996 and
July 28, 1996, the Company operated eleven and fourteen stores, respectively.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the operations of K&G and
certain entities which are affiliated by virtue of K&G's effective control and
ownership of at least 50% of each. All significant intercompany accounts and
transactions have been eliminated. Certain information regarding each of the
subsidiary entities is as follows:
T&C Liquidators, Inc.
A Texas corporation operating three stores in Texas and Colorado; K&G owns
100% of T&C Liquidators, Inc. ("T&C"). On August 2, 1994, K&G and T&C
exchanged shares of common stock (Note 9). Prior to this acquisition, K&G
owned 50% of T&C.
K&G of Indiana, Inc.
A Georgia corporation operating one store in Indiana; K&G owns 67%.
K&G Associates of New Jersey, Inc.
A New Jersey corporation operating one store in New Jersey; K&G owns 100%.
As of January 30, 1994, K&G owned 50% of this entity. K&G purchased the
other 50% on September 30, 1994 (Note 9).
K&G of Ohio, Inc.
A Georgia corporation operating one store in Ohio; K&G owns 60%.
K&G Mensmart, LLC
A limited liability corporation which operated one store in Michigan; K&G
owns 50%. This entity ceased operations, and the store was closed in
September 1995.
The financial statements of 50%-owned entities are included in the
consolidated financial statements because the relationship between K&G and
these entities is, in substance, a parent and subsidiary relationship.
Fiscal Year
The Company's fiscal year covers a 52 or 53-week period which ends on the
Sunday closest to January 31. Fiscal year 1993 ended on January 30, 1994,
fiscal year 1994 ended on January 29, 1995, and fiscal year 1995 ended on
January 28, 1996.
Cash and Cash Equivalents
The Company considers cash on deposit and investments with original
maturities of three months or less to be cash equivalents.
F-7
<PAGE>
Inventory
Inventory is stated at the lower of cost or market determined using the
first-in, first-out ("FIFO") method. FIFO cost is determined using the retail
inventory method.
Cost of Sales
Cost of sales includes the cost of merchandise sold, occupancy costs, and
certain purchasing and merchandise handling costs.
Revenue Recognition
Revenue from retail sales is recognized at the time of sale.
Store Pre-opening Expenses
Costs associated with the opening of new stores are expensed when the store
is opened.
Property and Equipment
Property and equipment are stated at cost. Depreciation of leasehold
improvements is provided using the straight-line method over the related lease
term, which is less than the estimated useful lives of the assets. Other
property and equipment are depreciated using the straight-line method over
their estimated useful lives of five to ten years.
Expenditures for major renewals and betterments that extend the useful lives
of property and equipment are capitalized. Expenditures for maintenance and
repairs are charged to expense as incurred.
Unaudited Pro Forma Information
The Company effected its initial public offering on January 24, 1996 (before
fiscal 1995 year-end). This transaction closed on January 30, 1996 (after
year-end) and resulted in the conversion of the Company's outstanding
Redeemable Common Stock, Series B ("Series B") and Common Stock, Series A
("Series A") into common stock, $.01 par value, (the "Common Stock") (Note 6)
as well as the issuance of 1,127,500 additional shares at $10.00 each less the
expenses of the offering. The unaudited pro forma balance sheet and statement
of shareholders' equity information is presented as if the transaction had
closed as of January 28, 1996.
Unaudited Interim Information
The accompanying financial statements and the related information in the
notes to consolidated financial statements as of July 28, 1996 and July 30,
1995, and for the six months then ended, are unaudited. In the opinion of the
Company's management, these statements include all adjustments (consisting
only of normal recurring adjustments) considered necessary for a fair
presentation of financial condition and results of operations.
Because of the seasonality of the Company's business, results for any
interim period are not necessarily indicative of the results that may be
achieved for the full year. In addition, interim results of operations are
affected by the timing and amount of sales and cost associated with the
opening of new stores.
F-8
<PAGE>
Net Income Per Common and Common Equivalent Share
Net income per common and common equivalent share is computed by dividing
net income by the weighted average number of common and dilutive common
equivalent shares outstanding during the periods in accordance with the
applicable rules of the Securities and Exchange Commission. The Series B
shares, which are considered common stock equivalents, were included in the
earnings per share calculation on an as-if-converted basis.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. The estimates made by management primarily relate to inventory
allowances and certain accrued liabilities.
Accounting Standards Yet to Be Adopted
In October 1995, the Financial Accounting Standard Board ("FASB") issued
Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"),
"Accounting for Stock-Based Compensation," which the Company is required to
adopt in fiscal year 1996. SFAS No. 123 requires companies to estimate the
value of all stock-based compensation using a recognized pricing model.
Companies have the option of recognizing this value as an expense or of
disclosing its pro forma effects on net income. The Company's management has
not yet determined its method of adoption or the financial statement impact of
adopting SFAS No. 123.
In March 1995, the Financial Accounting Standards Board issued Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed of," which established accounting standards for the
impairment of long-lived assets, certain identifiable intangibles and goodwill
related to those assets to be held and used, as well as for long-lived assets
and certain identifiable intangibles to be disposed of. The Company will be
required to adopt the new standard in the first quarter of 1996. The adoption
of this standard will not have a material effect on the Company's financial
position. Other issued but not yet required FASB standards are not currently
applicable to the Company's operations.
3. DEBT
Following is a summary of notes payable to related parties:
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 28, JULY 28,
1995 1996 1996
----------- ----------- -----------
<S> <C> <C> <C>
(UNAUDITED)
Note payable to shareholder of subsidiary
on demand after
February 2, 1997; fixed interest rate of
12%....................................... $ 25,000 $ 25,000 $ 25,000
Note payable to shareholder on demand;
fixed interest rate of 7%.................. 200,000 0 0
Note payable to shareholder of subsidiary
on demand after
February 2, 1997; fixed interest rate of
6%........................................ 180,000 180,000 180,000
Note payable to shareholder of subsidiary
on demand after
January 28, 1996; fixed interest rate of
12%....................................... 368,500 0 0
-------- -------- -----------
773,500 205,000 205,000
Less notes payable classified as current... 200,000 0 0
-------- -------- -----------
$573,500 $205,000 $ 205,000
======== ======== ===========
</TABLE>
F-9
<PAGE>
Following is a summary of long-term debt:
<TABLE>
<CAPTION>
JANUARY 29,
1995
-----------
<S> <C>
Note payable to bank in monthly installments through June 1997 with
variable interest rate at 1.25% above prime (9.75% at January 29,
1995); secured byproperty and equipment........................... $ 77,000
Note payable to an individual in monthly installments through
January 1996,
non-interest-bearing; interest rate imputed at 7.25%.............. 44,200
--------
121,200
Less current portion of long-term debt............................. 70,200
--------
$ 51,000
========
Maturities of notes payable to related parties and long-term debt are as
follows:
Fiscal year 1997................................................... $205,000
========
</TABLE>
In July 1995, the Company entered into a new revolving line-of-credit
agreement with a bank (the "Credit Agreement"). The Credit Agreement provides
for borrowings up to $5,000,000 through June 30, 1999 to be used for working
capital and store expansions. No amounts were outstanding under the Credit
Agreement at January 28, 1996 or July 28, 1996. Interest is due monthly either
at the bank's prime rate minus 1% (7.5% at January 28, 1996) or at LIBOR plus
1.5% (7.04% at January 28, 1996), at the Company's option. The commitment fee
on the unused amount of the Credit Agreement is .125% per annum.
In addition to the Credit Agreement, the bank has committed a $1 million
letter-of-credit facility for inventory purchases. As of January 28, 1996,
$35,600 was issued against this facility.
4. INCOME TAXES
The Company accounts for income taxes using Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," which requires
the use of the asset and liability approach.
The provisions for income taxes consist of the following:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------
JANUARY 30, JANUARY 29, JANUARY 28,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Current................................ $812,600 $1,584,200 $2,354,000
Deferred............................... 32,400 (52,200) (275,000)
-------- ---------- ----------
Provision for income taxes............. $845,000 $1,532,000 $2,079,000
======== ========== ==========
Reconciliations of the statutory federal income tax rate to the Company's
effective tax rates are as follows:
<CAPTION>
FISCAL YEAR ENDED
------------------------------------
JANUARY 30, JANUARY 29, JANUARY 28,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Statutory federal income tax rate...... 34.0% 34.0% 34.0%
State income taxes, net of federal
benefit................................ 4.4 4.4 4.6
Other.................................. (0.1) 1.9 .6
-------- ---------- ----------
Effective income tax rate.............. 38.3% 40.3% 39.2%
======== ========== ==========
</TABLE>
F-10
<PAGE>
Significant components of the Company's deferred tax assets and liabilities
as of January 29, 1995 and January 28, 1996 are summarized as follows:
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 28,
1995 1996
----------- -----------
<S> <C> <C>
Current deferred tax assets (liabilities):
Inventory.............................................. $ 9,000 $265,000
Prepaid rent........................................... (26,400) (42,000)
Other.................................................. 31,000 22,000
-------- --------
Current deferred tax asset, net......................... 13,600 245,000
Noncurrent deferred tax asset:
Property and equipment.................................. 55,000 95,000
-------- --------
Net deferred tax asset.................................. $ 68,600 $340,000
======== ========
</TABLE>
Deferred tax assets and liabilities, net, are included in other current
assets and other assets in the accompanying balance sheets. The Company has
not recorded a valuation allowance against the deferred tax assets at January
29, 1995 or January 28, 1996.
5. COMMITMENTS
The Company leases its retail locations and general offices under operating
leases. Lease terms range from one to ten years. Certain leases call for an
annual contingent payment based on gross sales at the location above a minimum
level.
Minimum future lease payments under noncancelable operating leases are as
follows:
<TABLE>
<CAPTION>
Fiscal year ending:
<S> <C>
1996........................................................ $1,074,300
1997........................................................ 866,200
1998........................................................ 461,400
1999........................................................ 317,800
2000........................................................ 230,000
Thereafter................................................... 1,150,000
----------
$4,099,700
==========
</TABLE>
The minimum future lease payments include $2,300,000 associated with two
retail locations, the Company's headquarters building and warehouse space, all
of which are leased from related parties (Note 10).
Occupancy expense for the years ended January 30, 1994, January 29, 1995,
and January 28, 1996 was $692,500, $1,000,700, and $1,252,315, respectively,
composed of $561,700, $869,800, and $1,098,305, respectively, in minimum rents
and $130,800, $130,900, and $154,010, respectively, of contingent rent
expense.
6. REDEEMABLE COMMON STOCK, SERIES B
As of January 28, 1996 (prior to consummation of the Company's initial
public offering), the Company had outstanding 1,137,675 shares of Series B. On
January 30, 1996, upon consummation of the Company's initial public offering,
each of the shares of Series B was automatically converted into one share of
Common Stock. Accordingly, from that date forward, there have been no shares
of Series B remaining authorized or outstanding.
F-11
<PAGE>
On May 10, 1995, the Company and certain private investors (the
"Investors"), including certain executive officers of the Company, entered
into an investment agreement, a registration rights agreement, and a
shareholders' agreement (collectively, the "Agreements"). Under the terms and
provisions of the Agreements, the Company raised gross proceeds of $6,501,000
through a private placement sale of 1,137,675 shares of Series B to the
Investors. All shares of the Series B were automatically converted to Common
Stock, at the conversion rate then in effect, upon the closing of a public
offering of shares of any class of the Company's Common Stock for an aggregate
price to the public of not less than $10,000,000 in cash and at a price per
share to the public of at least $10.00. The public offering discussed in Notes
2 and 12 resulted in the conversion of all of the Series B, at which time the
provisions, other than the registration rights discussed below, were
terminated.
The Agreements contained certain restrictive covenants which, among other
things, prohibited or limited the Company from declaring or paying dividends
on any shares of common stock (other than the Series B), repurchasing or
issuing any stock, or making loans or advances without the approval of the
Investors representing a majority of the issued and outstanding shares of the
Series B.
The Investors could have transferred or sold their Series B shares based on
specific terms of the Agreements. Any Series B shares sold or transferred were
subject to the restrictions imposed by the Agreements.
The Agreements allow the Investors, under certain conditions, to request the
registration of their Series B shares under the Securities Act of 1933, and
the Investors have "piggyback" registration rights. The Agreements also
provide that the Company will pay all of the registration costs and related
expenses associated with any such offering.
The Series B was convertible into shares of Series A computed by dividing
the original issue price of the Series B to be converted by the applicable
conversion price then in effect. The conversion rate at January 28, 1996 was
one share of the Series A for each share of the Series B.
The holders of the Series B were entitled to receive dividends, accruing on
a daily basis, at a rate of $.286 per share per annum. As of January 28, 1996,
the Company had accrued $229,800 dividends payable on the Series B. These
dividends were classified as accrued expenses in the accompanying year-end
consolidated financial statements, as the Company was required to pay the
dividends quarterly commencing the first quarter of fiscal 1996. At the
consummation of the Company's initial public offering (Note 12), the Company
paid all accrued dividends on the Series B.
The Series B had voting rights equal to the number of the Series A shares
which would be represented if converted at the then-existing conversion rate.
The Series B was redeemable at the option of the holders as follows: up to
one-third of the shares could have been redeemed each year beginning on
December 31, 1999, with all shares becoming redeemable on December 31, 2001.
The redemption price was the higher of (i) $5.71 per share, (ii) the appraised
value, or (iii) an amount equal to the total assets of the Company, less its
total liabilities as of the July 31 preceding the redemption date divided by
the number of shares outstanding at the redemption date.
In the event of liquidation, holders of the Series B were entitled to
receive in cash $6,501,000, plus all dividends accrued and unpaid on such
shares to the date of the distribution before any distributions to the Series
A shareholders.
The proceeds from the issuance of the Series B were used to redeem all of
the outstanding 1,137,675 shares of the Series A from certain of K&G's
existing shareholders.
F-12
<PAGE>
7. EMPLOYMENT AGREEMENTS
During 1995, the Company entered into employment agreements with three
executive officers. The agreements have terms ranging from two to five years
and require aggregate annual compensation of $358,000, plus certain benefits.
The agreements contain certain noncompete provisions and provide for severance
pay if the executives are terminated by the Company other than for cause, as
defined.
8. STOCK OPTIONS
In March 1995, certain shareholders of the Company granted an executive
officer of the Company options to purchase, in aggregate, 236,250 shares of
the Series A from such shareholders. The options are exercisable at $3.81 per
share and vest at the earliest of (i) ratably over the 18-month period ending
September 1996, (ii) seven days prior to the completion date of an initial
public offering (Note 12), (iii) seven days prior to the proposed date of a
change in control transaction, as defined in the agreement, or (iv) upon
termination of the executive officer's employment agreement other than for
cause, as defined. As of January 28, 1996, none of these options had been
exercised. The options expire ten years from the date of grant. In
management's opinion, the exercise price of these options reasonably
approximated the fair value of the Series A at the grant date.
9. ACQUISITIONS
On August 2, 1994, the Company issued 840,000 shares of K&G common stock
with a value of approximately $1,073,000 in exchange for the remaining 50% of
the outstanding stock of T&C. On September 30, 1994, the Company paid $70,000
in cash for the remaining 50% of the outstanding common stock of K&G
Associates of New Jersey, Inc.
Both of these acquisitions have been accounted for using the purchase
method, and accordingly, the acquired assets and liabilities have been
recorded at their fair values at the date of acquisition. The results of
operations have been included in the accompanying statements of operations for
all periods presented, as these entities are included in the consolidated
financial statements (Note 2). Minority interest in earnings of affiliates for
the six months in fiscal year 1995 prior to the acquisitions was $100,100
($167,000 before income tax) and is reflected in the accompanying statements
of operations. The Company's pro forma net income for fiscal year 1994, as if
the acquisitions had taken place on January 31, 1994, is $2,397,800.
Approximately $223,000 of the purchase price was allocated to goodwill, which
is being amortized over 15 years. Accumulated amortization totaled
approximately $11,000 at January 29, 1995 and $29,100 at January 28, 1996.
10. RELATED PARTIES
Significant related party transactions include the following:
. Historically, the Company purchased a portion of its inventory from,
and sold inventory to, a company which is owned by certain of the Company's
shareholders. Pursuant to this arrangement, the Company purchased inventory
in the amounts of $2,099,000, $2,382,000, and $510,640 in fiscal 1993,
fiscal 1994, and fiscal 1995, respectively, and sold inventory in the
amount of $200,000 and $0 in fiscal 1994 and fiscal 1995, respectively.
. The Company leases two retail locations, its corporate headquarters
building, and warehouse space from corporations owned by certain of the
Company's shareholders and shareholders of subsidiaries. Rent expense of
$233,900, $263,700, and $215,000 relating to these leases is included in
cost of sales in the accompanying statements of operations in fiscal 1993,
fiscal 1994, and fiscal 1995, respectively.
. During fiscal 1993 and fiscal 1994 and at the beginning of fiscal 1995,
the shoe departments of certain of the Company's stores were operated on a
"concessionaire" basis by a company which is partially owned by certain of
the Company's shareholders. Pursuant to this arrangement, the Company
received 10%
F-13
<PAGE>
of the net sales of the shoe department in each of the affected stores.
This arrangement resulted in payments to the Company of $124,000 and
$250,000 for fiscal 1993 and fiscal 1994, respectively. At the beginning of
fiscal 1995, K&G discontinued the leased shoe department operation run by
this company and subsequently purchased the leased shoe department
inventory for $391,000. The Company no longer operates leased shoe
departments in any of the Company's stores.
. The Company incurred consulting fees totaling $300,000, $100,000, and
$0 in fiscal 1993, fiscal 1994, and fiscal 1995, respectively, relating to
management services provided by companies owned by certain shareholders and
officers.
. In January 1993, the Company entered into a noncompete agreement with a
former shareholder which was amortized on a straight-line basis from
February 1993 through January 1996, when it terminates. The carrying values
of this noncompete agreement are $89,900 and $0, net of accumulated
amortization of $89,900 and $134,800, at January 29, 1995 and January 28,
1996, respectively, and are included in other assets in the accompanying
balance sheets.
. The Company has an unsecured note payable to a shareholder of a
subsidiary in the amount of $180,000, which bears interest at 6% and is due
on demand after February 2, 1997 (Note 3).
. The Company has an unsecured, noninterest-bearing note payable to a
shareholder of a subsidiary in the amount of $25,000 which bears interest
at 12% and is due on demand after February 2, 1997 (Note 3).
11. SHAREHOLDERS' EQUITY
Stock Dividend
In December 1995, the Board of Directors approved a 262.5-for-one stock
split, effected in the form of a stock dividend, of the Company's Series A and
Series B. The stock dividend has been accounted for by a transfer from
retained earnings to Series A in the amount of the par value of the additional
stock issued. The stock dividend has been reflected in all periods presented.
Accordingly, all previously reported common stock shares, per share, and stock
option data have been restated.
Authorization of Common Stock and Preferred Stock
In December 1995, the Company approved an amendment and restatement of its
articles of incorporation, to be effective upon consummation of the Company's
initial public offering (Notes 2 and 12). These Amended and Restated Articles
of Incorporation authorize 20,000,000 shares of Common Stock having a par
value of $.01 per share and 2,000,000 shares of preferred stock having a par
value of $.01 per share (the "Preferred Stock"). Shares of the Preferred Stock
may be issued in one or more series at such time or times and for such
consideration as the Board of Directors may fix and determine.
Stock Option Plan
In December 1995, the Company adopted the K&G Men's Center, Inc. Stock
Option Plan for Employees (the "Employees' Plan"). The Employees' Plan permits
the issuance of stock options to selected employees of the Company. The
Employees' Plan reserves 562,500 shares of common stock for grant and provides
that the term of each award be determined by the compensation committee of the
Board of Directors.
Under the terms of the Employees' Plan, options granted may be either
nonqualified or incentive stock options. With regard to the incentive stock
options, the exercise price, determined by the committee, may not be less than
the fair market value of a share on the grant date. As of January 28, 1996,
the Company has granted 119,325 options. None of these options were vested and
exercisable at January 28, 1996. As of July 28, 1996, options to purchase
123,325 shares of common stock have been granted and are outstanding. All such
option were granted at their fair market value as of the date of the grant.
F-14
<PAGE>
12. SUBSEQUENT EVENTS
Initial Public Offering
The Company effected its initial public offering on January 24, 1996 (before
fiscal 1995 year-end). This transaction closed on January 30, 1996 (after
year-end). The transaction has not been reflected on the Company's financial
statements as of January 28, 1996 however, it is presented in an unaudited pro
forma format as if the transaction had been consummated as of January 28,
1996. The Company sold 1,127,500 shares of its common stock at $10.00 each and
raised $10,131,900 after expenses of the offering.
F-15
<PAGE>
[INTERIOR AND EXTERIOR STORE PHOTOGRAPHS]
<PAGE>
===============================================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH IN-
FORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE SELLING SHAREHOLDERS OR ANY UNDERWRITER. NEITHER THE DELIV-
ERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUM-
STANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF
THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES
OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES, OR AN OFFER TO, OR
SOLICITATION OF, ANY PERSON IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICI-
TATION IS UNLAWFUL.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 7
Use of Proceeds........................................................... 10
Price Range of Common Stock............................................... 10
Capitalization............................................................ 11
Dividend Policy........................................................... 11
Selected Consolidated Financial Data...................................... 12
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 13
Business.................................................................. 18
Management................................................................ 26
Certain Transactions...................................................... 32
Principal and Selling Shareholders........................................ 33
Description of Capital Stock.............................................. 34
Shares Eligible for Future Sale........................................... 36
Underwriting.............................................................. 37
Legal Matters............................................................. 38
Experts................................................................... 38
Additional Information.................................................... 38
Consolidated Financial Statements......................................... F-1
</TABLE>
===============================================================================
===============================================================================
1,200,000 SHARES
LOGO
COMMON STOCK
---------------
PROSPECTUS
---------------
THE ROBINSON-HUMPHREY
COMPANY, INC.
J.C. BRADFORD & CO.
INTERSTATE/JOHNSON LANE
CORPORATION
, 1996
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated fees and expenses in connection with this offering are as
follows:
<TABLE>
<CAPTION>
SEC filing fees............................................... $ 10,559.09
<S> <C>
NASD corporate finance review fee............................. 3,984.50
Nasdaq/NMS listing fee........................................ 7,177.00
Blue Sky qualification fees and expenses...................... 10,000.00*
Accounting fees and expenses.................................. 8,000.00*
Legal fees and expenses....................................... 35,000.00*
Transfer Agent and Registrar Fees............................. 5,000.00*
Printing costs................................................ 40,000.00*
Miscellaneous................................................. 20,279.41*
-----------
Total........................................................ $140,000.00*
===========
</TABLE>
- --------
*Estimated.
All of the fees and expenses of this offering will be paid by the Company.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Articles of Incorporation provide that directors and
officers of the Registrant will be indemnified by the Registrant to the
fullest extent authorized by Georgia law, as it now exists or may in the
future be amended, against all expenses and liabilities reasonably incurred in
connection with service for or on behalf of the Registrant. The Company has
entered into a form of Indemnification Agreement consistent with this
provision with all of the Company's directors and executive officers named in
the Registration Statement of which this Prospectus is a part. The rights of
directors and officers to indemnification is not exclusive of any other right
now possessed or hereafter acquired under any statute, agreement or otherwise.
The Registrant's Articles of Incorporation provide that directors of the
Registrant will not be personally liable for monetary damages to the
Registrant for certain breaches of their fiduciary duty as directors, except
for (i) for any appropriation, in violation of his duties, of any business
opportunity of the Company, (ii) for acts or omissions that involve
intentional misconduct or a knowing violation of law, (iii) in respect of
certain unlawful dividend payments or stock redemptions or repurchases and
(iv) for any transaction from which the director derives an improper personal
benefit. In appropriate circumstances, equitable remedies or non-monetary
relief, such as an injunction, will remain available to a shareholder seeking
redress from any such violation. In addition, the provision applies only to
claims against a director arising out of his role as a director and not in any
other capacity (such as an officer or employee of the Registrant).
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following paragraph of this Item 15 describes all offers and sales of
securities by the Registrant within the last three years which were not
registered under the Securities Act of 1933, other than securities issued as
stock dividends. All of the Series B Common Stock, $.01 par value, described
below was automatically converted to Common Stock in January 1996, upon
consummation of the Registrant's initial public offering. The transactions
described below are claimed to be exempt from registration pursuant to Section
4(2) of the Securities Act of 1933, based upon, among other things, written
investment representations made by the parties to whom such securities were
issued. The transactions in which securities were issued are as follows:
II-1
<PAGE>
On May 10, 1995, the Company sold 1,137,675 shares of its Redeemable Common
Stock, Series B (after giving effect to a 262.5-for-one stock split, effective
December 4, 1995), to three institutional investors and an officer of the
Company for total consideration of $6.501 million. The Registrant claims
Section 4(2) of the Securities Act of 1933, as amended, as the exemption on
which these transactions were based.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBIT INDEX
1.1Form of Underwriting Agreement.
3.1Form of Amended and Restated Articles of Incorporation of the
Registrant.*
3.2Form of Amended and Restated Bylaws of the Registrant.*
4.1Form of certificate representing shares of the Registrant's Common
Stock.*
5.1Legal opinion of Hunton & Williams regarding legality of securities
being registered.
9.1Voting Agreement by and among various shareholders of the Company.*
10.1 Amended and Restated Revolving Credit Agreement, dated as of July 19,
1995, by and between K&G Men's Center, Inc. and Trust Company Bank.*
10.1(a) First Amendment to Amended and Restated Revolving Credit Agreement,
dated as of July 10, 1996, by and between K&G Men's Center, Inc.
and SunTrust Bank, Atlanta (formerly Trust Company Bank).
10.2 Employment Agreement, dated as of May 10, 1995, between K&G Men's
Center, Inc. and Stephen H. Greenspan.*
10.3 Employment Agreement, dated as of May 10, 1995, between K&G Men's
Center, Inc. and Martin Schwartz.*
10.4 Employment Agreement, dated as of March 25, 1995, between K&G Men's
Center, Inc. and John C. Dancu.*
10.5K&G Men's Center, Inc. Stock Option Plan for Employees.*
10.6 Lease Agreement, dated as of January 23, 1992, between G&R, Inc. and
K&G Liquidation Centers, Inc.*
10.7 Lease Agreement, dated as of July 2, 1991, between M.C. Long &
Associates Joint Venture and T&C Liquidators of Texas, Inc.*
10.8Form of Indemnification Agreement.*
10.9 Lease Agreement, dated as of November 20, 1995, between Ellsworth
Realty, L.L.C. and K&G Men's Center, Inc.
10.9(a) Amendment to Lease Agreement, dated as of November 29, 1995,
between Ellsworth Realty, L.L.C. and K&G Men's Center, Inc.
10.10 K&G Men's Center, Inc. Stock Option Plan for Directors.**
11.1Statement regarding computation of per share data.
21.1List of the Registrant's Subsidiaries.*
23.1Consent of Arthur Andersen LLP.
23.2Consent of Hunton & Williams (included in Exhibit 5.1).
24.2Power of Attorney (set forth on the signature page to this Registration
Statement).
- --------
* Incorporated by reference to exhibit of same number in the Company's
Registration Statement on Form S-1 (Registration No. 33-80025).
** Incorporated by reference to Appendix A of the Company's definitive Proxy
Statement for its 1996 Annual Meeting of Shareholders, as filed with the
Securities and Exchange Commission on May 7, 1996 (File No. 0-27348).
II-2
<PAGE>
(b) Financial Statement Schedules.
None.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication on such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this Registration Statement
as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Atlanta, State of
Georgia on the 15th day of October, 1996.
K&G Men's Center, Inc.
By: /s/ Stephen H. Greenspan
-------------------------------
Stephen H. Greenspan
Chairman, President and
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Stephen H. Greenspan and John C. Dancu, or either of them, the true and lawful
attorney-in-fact and agent, with full power of substitution and
resubstitution, for and in the name, place and stead of the undersigned, in
any and all capacities, to sign any and all amendments (including post-
effective amendments) to this Registration Statement on Form S-1, to sign any
related registration statement filed pursuant to Rule 462(b) of the Securities
Act, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, and hereby
grants unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully for all intents and purposes as the undersigned might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on October 15, 1996.
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -------------------------------------------
<C> <S>
/s/ Stephen H. Greenspan Chairman, President, Chief Executive
__________________________________________ Officer and Director (principal executive
STEPHEN H. GREENSPAN officer)
/s/ John C. Dancu Chief Financial Officer (principal
__________________________________________ accounting officer)
JOHN C. DANCU
/s/ Campbell B. Lanier, III Director
__________________________________________
CAMPBELL B. LANIER, III
/s/ W. Scott Miller Director
__________________________________________
W. SCOTT MILLER
/s/ W. Paul Ruben Director
__________________________________________
W. PAUL RUBEN
</TABLE>
II-4
<PAGE>
K & G MEN'S CENTER, INC.
COMMON STOCK
------------------
UNDERWRITING AGREEMENT
November __, 1996
THE ROBINSON-HUMPHREY COMPANY, INC.
J.C. BRADFORD & CO.
INTERSTATE/JOHNSON LANE CORPORATION
As representatives of the several
Underwriters named in Schedule I hereto,
c/o The Robinson-Humphrey Company, Inc.
3333 Peachtree Road, N.E.
Atlanta, Georgia 30326
Dear Sirs:
K & G Men's Center, Inc., a Georgia corporation (the "Company") proposes,
subject to the terms and conditions stated herein, to issue and sell to the
Underwriters named in Schedule I (the "Underwriters") an aggregate of 313,850
shares of common stock, par value $.01 per share ("Common Stock"), of the
Company, and the undersigned shareholders of the Company (the "Selling
Shareholders") propose, subject to the terms and conditions stated herein, to
sell to the Underwriters an aggregate of 886,150 shares of Common Stock (such
1,200,000 shares are collectively called the "Firm Shares"), and, at the
election of the Underwriters, subject to the terms and conditions stated herein,
the Company proposes to sell to the Underwriters up to 45,000 additional shares
of Common Stock and certain of the Selling Shareholders propose to sell to the
Underwriters up to 135,000 additional shares of Common Stock (such 180,000
additional shares are collectively called the "Optional Shares") (the Firm
Shares and the Optional Shares that the Underwriters elect to purchase pursuant
to Section 2 hereof are collectively called the "Shares") (the Selling
Shareholders who propose to sell Optional Shares hereunder, as indicated on
Schedule II hereof, are referred to herein as "Designated Selling
Shareholders").
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. (a) The Company
represents and warrants to, and agrees with, each of the Underwriters that:
(i) A registration statement on Form S-1 (File No. __________)
with respect to the Shares, including a prospectus subject to completion,
has been filed by the
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<PAGE>
Company with the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended (the "Act"), and one or more
amendments to such registration statement may have been so filed. After
the execution of this Agreement, the Company will file with the Commission
either (A) if such registration statement, as it may have been amended, has
become effective under the Act, either (1) if the Company relies on Rule
434 under the Act, a Term Sheet (as defined below) relating to the Shares,
that identifies the Preliminary Prospectus (as defined below) that it
supplements and contains such information as is required or permitted by
Rules 434, 430A and 424(b) under the Act or (2) if the Company does not
rely on Rule 434 under the Act, a prospectus in the form most recently
included in an amendment to such registration statement (or, if no such
amendment shall have been filed, in such registration statement) with such
changes or insertions as are required by Rule 430A or permitted by Rule
424(b) under the Act, and in the case of either (i)(A)(1) or (i)(A)(2) of
this sentence, as has been provided to and approved by the Representatives,
or (B) if such registration statement, as it may have been amended, has not
become effective under the Act, an amendment to such registration
statement, including a form of prospectus, a copy of which amendment has
been provided to and approved by the Representatives prior to the execution
of this Agreement. As used in this Agreement, the term "Registration
Statement" means such registration statement, as amended at the time when
it was or is declared effective, including all exhibits thereto and
including any information omitted therefrom pursuant to Rule 430A under the
Act and included in the Prospectus (as hereinafter defined); the term
"Preliminary Prospectus" means each prospectus subject to completion
included in such registration statement or any amendment or post-effective
amendment thereto or filed with the Commission pursuant to Rule 424(a)
under the Act (including the prospectus subject to completion, if any,
included in the Registration Statement at the time it was or is declared
effective); and the term "Prospectus" means (X) if the Company relies on
Rule 434 under the Act, the Term Sheet relating to the Shares that is first
filed pursuant to Rule 424(b)(7) under the Act together with the
Preliminary Prospectus identified therein that such Term Sheet supplements,
(Y) if the Company does not rely on Rule 434 under the Act, the prospectus
first filed with the Commission pursuant to Rule 424(b) under the Act, or
(Z) if the Company does not rely on Rule 434 and if no prospectus is
required to be filed pursuant to Rule 424(b) under the Act, such term means
the prospectus included in the Registration Statement. For purposes of the
following representations and warranties, to the extent reference is made
to the Prospectus and at the relevant time the Prospectus is not yet in
existence, such reference shall be deemed to be to the most recent
Preliminary Prospectus. The term "Term Sheet" means any term sheet that
satisfies the requirements of Rules 434 and 424(b) under the Act. Any
reference in this Agreement to the "date" of a Prospectus that includes a
Term Sheet means the date of such Term Sheet.
(ii) No order preventing or suspending the use of any Preliminary
Prospectus has been issued and no proceeding for that purpose has been
instituted or threatened by
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<PAGE>
the Commission or the securities authority of any state or other
jurisdiction. If the Registration Statement has become effective under the
Act, no stop order suspending the effectiveness of the Registration
Statement or any part thereof has been issued and no proceeding for that
purpose has been instituted or threatened or, to the best knowledge of the
Company, contemplated by the Commission or the securities authority of any
state or other jurisdiction.
(iii) When any Preliminary Prospectus was filed with the
Commission it (A) contained all statements required to be stated therein in
accordance with, and complied in all material respects with the
requirements of, the Act and the rules and regulations of the Commission
thereunder and (B) did not include any untrue statement of a material fact
or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. When the Registration Statement or any amendment or
supplement thereto was or is declared effective, and at each Time of
Delivery (as hereinafter defined), it (A) contained or will contain all
statements required to be stated therein in accordance with, and complied
or will comply in all material respects with the requirements of, the Act
and the rules and regulations of the Commission thereunder and (B) did not
or will not include any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein not
misleading. When the Prospectus or any amendment or supplement thereto is
filed with the Commission pursuant to Rule 424(b) (or, if the Prospectus or
such amendment or supplement is not required to be so filed, when the
Registration Statement or the amendment thereto containing such amendment
or supplement to the Prospectus was or is declared effective) and at each
Time of Delivery, the Prospectus, as amended or supplemented at any such
time, (A) contained or will contain all statements required to be stated
therein in accordance with, and complied or will comply in all material
respects with the requirements of, the Act and the rules and regulations of
the Commission thereunder and (B) did not or will not include any untrue
statement of a material fact or omit to state any material fact necessary
in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. The foregoing provisions of
this paragraph (iii) do not apply to statements or omissions made in any
Preliminary Prospectus, the Registration Statement or any amendment thereto
or the Prospectus or any amendment or supplement thereto in reliance upon
and in conformity with written information furnished to the Company by any
Underwriter through you specifically for use therein.
(iv) The descriptions in the Registration Statement and the
Prospectus of statutes, legal and governmental proceedings or contracts and
other documents are accurate and fairly present the information required to
be shown; and there are no statutes or legal or governmental proceedings
required to be described in the Registration Statement or the Prospectus
that are not described as required and no contracts or documents of a
-3-
<PAGE>
character that are required to be described in the Registration Statement
or the Prospectus or to be filed as exhibits to the Registration Statement
that are not described or filed as required.
(v) Each of the Company and its subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing under
the laws of its jurisdiction of incorporation and has full power and
authority (corporate and other) to own or lease its properties and conduct
its business as described in the Prospectus. The Company has full power
and authority (corporate and other) to enter into this Agreement and to
perform its obligations hereunder. Each of the Company and its
subsidiaries is duly qualified to transact business as a foreign
corporation and is in good standing under the laws of each other
jurisdiction in which it owns or leases properties, or conducts any
business, so as to require such qualification, except where the failure to
so qualify would not have a material adverse effect on the financial
position, results of operations or business of the Company and its
subsidiaries taken as a whole.
(vi) The Company's authorized, issued and outstanding capital
stock is and will be at the Time of Delivery (as hereinafter defined) as
disclosed in the Prospectus under the caption "Capitalization." All of the
issued shares of capital stock of the Company have been duly authorized and
validly issued, are fully paid and nonassessable and at the Time of
Delivery (as hereinafter defined) will conform to the description of the
Common Stock contained in the Prospectus. None of the issued shares of
capital stock of the Company or any of its subsidiaries has been issued or
is owned or held in violation of any preemptive rights of shareholders, and
at the Time of Delivery (as hereinafter defined) no person or entity
(including any holder of outstanding shares of capital stock of the Company
or its subsidiaries) will have any preemptive or other rights to subscribe
for any of the Shares.
(vii) All of the issued shares of capital stock of each of
the Company's subsidiaries have been duly authorized and validly issued,
are fully paid and nonassessable and except as disclosed in Annex II hereto
are owned beneficially by the Company free and clear of all liens, security
interests, pledges, charges, encumbrances, defects, shareholders
agreements, voting trusts, equities or claims of any nature whatsoever.
Other than the subsidiaries listed on Exhibit 22 to the Registration
Statement, the Company does not own, directly or indirectly, any capital
stock or other equity securities of any other corporation or any ownership
interest in any partnership, joint venture or other association other than
as disclosed in the Prospectus.
(viii) Except as disclosed in the Prospectus, there are no
outstanding (A) securities or obligations of the Company or any of its
subsidiaries convertible into or exchangeable for any capital stock of the
Company or any such subsidiary, (B) warrants, rights or options to
subscribe for or purchase from the Company or any such subsidiary any such
capital stock or any such convertible or exchangeable securities or
obligations, or (C) obligations of the Company or any such subsidiary to
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<PAGE>
issue any shares of capital stock, any such convertible or exchangeable
securities or obligations, or any such warrants, rights or options.
(ix) Since the date of the most recent audited financial
statements included in the Prospectus, neither the Company nor any of its
subsidiaries has sustained any material loss or interference with its
business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or governmental
action, order or decree, otherwise than as disclosed in or contemplated by
the Prospectus.
(x) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus, except as disclosed in
the Prospectus (A) neither the Company nor any of its subsidiaries has
incurred any liabilities or obligations, direct or contingent, or entered
into any transactions, not in the ordinary course of business, that are
material to the Company and its subsidiaries, (B) the Company has not
purchased any of its outstanding capital stock or declared, paid or
otherwise made any dividend or distribution of any kind on its capital
stock, (C) there has not been any change in the capital stock, long-term
debt or short-term debt (other than changes effected in the ordinary course
of business consistent with past practice) of the Company or any of its
subsidiaries, and (D) there has not been any material adverse change, or
any development involving a prospective material adverse change, in or
affecting the financial position, results of operations or business of the
Company and its subsidiaries taken as a whole, in each case other than as
disclosed in or contemplated by the Prospectus.
(xi) The Shares have been duly authorized and, when issued and
delivered against payment therefor as provided herein, will be validly
issued and fully paid and nonassessable and will conform to the description
of the Common Stock contained in the Prospectus; and the certificates
evidencing the Shares will comply with all applicable requirements of
Georgia law and the delivery of certificates for the Shares sold by the
Company and payment therefor pursuant to the terms of this Agreement will
pass valid title to such Shares to the several Underwriters, free and clear
of any claim, encumbrance or defect in title.
(xii) Except as disclosed in the Prospectus, there are no
contracts, agreements or understandings between the Company and any person
granting such person the right to require the Company to file a
registration statement under the Act with respect to any securities of the
Company owned or to be owned by such person or to require the Company to
include such securities in the securities registered pursuant to the
Registration Statement (or any such right has been effectively exercised or
waived) or, except with respect to registration rights relating to
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<PAGE>
registration of shares on Form S-8 granted to John Dancu in his employment
agreement with the Company dated March 20, 1995, any securities being
registered pursuant to any other registration statement filed by the
Company under the Act.
(xiii) All offers and sales of the Company's capital stock
prior to the date hereof within the period covered by Item 15 of Part II of
the Registration Statement were at all relevant times duly registered under
the Act or exempt from the registration requirements thereof and were duly
registered or the subject of an available exemption from the registration
requirements of the applicable state securities or blue sky laws.
(xiv) Neither the Company nor any of its subsidiaries is, or
with the giving of notice or passage of time or both will be, in violation
of its Articles of Incorporation or Bylaws or in default under any
indenture, mortgage, deed of trust, loan agreement, lease or other material
agreement or instrument to which the Company or any of its subsidiaries is
a party or to which any of their respective properties or assets are
subject.
(xv) The issue and sale of the Shares and the performance of this
Agreement and the consummation of the transactions herein contemplated will
not conflict with, or (with or without the giving of notice or the passage
of time or both) result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, deed
of trust, loan agreement, lease or other material agreement or instrument
to which the Company or any of its subsidiaries is a party or to which any
of their respective properties or assets is subject, nor will such action
conflict with or violate any provision of the Articles of Incorporation or
Bylaws of the Company as in effect at the First Time of Delivery (as
hereinafter defined) or any Subsequent Time of Delivery (as hereinafter
defined) or the Articles of Incorporation or Bylaws of any of the Company's
subsidiaries or any statute, rule or regulation or any order, judgment or
decree of any court or governmental agency or body having jurisdiction over
the Company or any of its subsidiaries or any of their respective
properties or assets.
(xvi) Neither the Company nor its subsidiaries own any real
property. The Company and its subsidiaries have good title to all personal
property owned by them, in each case free and clear of all liens, security
interests, pledges, charges, encumbrances, mortgages and defects, except
such as are disclosed in the Prospectus or such as do not materially and
adversely affect the value of such property and do not interfere with the
use made of such property by the Company and its subsidiaries; and any real
property and buildings held under lease by the Company or any of its
subsidiaries are held under valid, subsisting and enforceable leases, with
such exceptions as are disclosed in the Prospectus or are not material and
do not interfere with the use made or proposed to be made of such property
and buildings by the Company or such subsidiary; and any such real property
utilized by the Company or any subsidiary as a retail store, whether owned
by the Company or any of its subsidiaries or held under lease, is, to the
Company's knowledge, currently zoned in a classification such as will
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<PAGE>
permit the operation of such property as a retail store with related
parking and the conditions, if any, to the granting of the zoning of such
property have, to the Company's knowledge, been satisfied and the Company
has no knowledge of any pending or threatened application for changes in
the zoning applicable to such property or any portion thereof.
(xvii) No consent, approval, authorization, order or
declaration of or from, or registration, qualification or filing with, any
court or governmental agency or body is required for the issue and sale of
the Shares or the consummation of the transactions contemplated by this
Agreement, except the registration of the Shares under the Act (which, if
the Registration Statement is not effective as of the time of execution
hereof, shall be obtained as provided in this Agreement) and under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and such
as may be required under state securities or blue sky laws in connection
with the offer, sale and distribution of the Shares by the Underwriters.
(xviii) Other than as disclosed in the Prospectus, there is no
litigation, arbitration, claim, proceeding (formal or informal) or
investigation pending or threatened (or, to the knowledge of the Company,
any basis therefor) in which the Company or any of its subsidiaries is a
party or of which any of their respective properties or assets are the
subject which, if determined adversely to the Company or any such
subsidiary, would individually or in the aggregate have a material adverse
effect on the financial position, results of operations or business of the
Company and its subsidiaries taken as a whole. Neither the Company nor any
of its subsidiaries is in violation of, or in default with respect to, any
statute, rule, regulation, order, judgment or decree, except as described
in the Prospectus or such as do not and will not individually or in the
aggregate have a material adverse effect on the financial position, results
of operations or business of the Company and its subsidiaries taken as a
whole, and neither the Company nor any of its subsidiaries is required to
take any action in order to avoid any such violation or default.
(xix) Arthur Andersen LLP, independent public accountants,
who have certified certain financial statements of the Company and its
consolidated subsidiaries, are, and were during the periods covered by
their reports included in the Registration Statement and the Prospectus,
independent public accountants as required by the Act and the rules and
regulations of the Commission thereunder.
(xx) The consolidated financial statements (including the related
notes) of the Company and its consolidated subsidiaries included in the
Registration Statement, the Prospectus or any Preliminary Prospectus were
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved and fairly present the
financial position and results of operations of the Company and its
subsidiaries, on a consolidated basis, at the dates and for the periods
presented.
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<PAGE>
(xxi) This Agreement has been duly authorized, executed and
delivered by the Company and constitutes the valid and binding agreement of
the Company enforceable against the Company in accordance with its terms,
subject, as to enforcement, to applicable bankruptcy, insolvency,
reorganization and moratorium laws and other laws relating to or affecting
the enforcement of creditors rights generally and to general equitable
principles and except as the enforceability of rights to indemnity and
contribution under this Agreement may be limited under applicable
securities laws or the public policy underlying such laws.
(xxii) Neither the Company nor any of its officers, directors
or affiliates (A) has taken or will take or has induced or will induce
others to take, directly or indirectly, any action designed to cause or
result in, or that has constituted or might reasonably be expected to
constitute, the stabilization or manipulation of the price of any security
of the Company to facilitate the sale or resale of the Shares or (B) has,
since the filing of the Registration Statement, (1) sold, bid for,
purchased or paid anyone any compensation for soliciting purchases of, the
Shares or (2) paid or agreed to pay to any person any compensation for
soliciting another to purchase any other securities of the Company.
(xxiii) The Company has obtained for the benefit of the Company
and the Underwriters, from each of its directors and officers and from each
of the Selling Shareholders, a written agreement, enforceable by you, that
for a period of 120 days from the date the Registration Statement is
declared effective under the Act such director, officer or shareholder will
not, without your prior written consent, offer, pledge, sell, contract to
sell, grant any option for the sale of, or otherwise dispose of (or
announce any offer, pledge, sale, grant of an option to purchase or other
disposition), directly or indirectly, any shares of Common Stock or
securities convertible into, or exercisable or exchangeable for, shares of
Common Stock; and from each shareholder having registration rights a
written agreement that it will not exercise such registration rights for a
period of 120 days from the date the Registration Statement is declared
effective under the Act except to the extent such shareholder has elected
to sell shares of Common Stock to the Underwriters under this Agreement.
(xxiv) Neither the Company, any of its subsidiaries, nor any
director, officer, agent, employee or other person associated with or
acting on behalf of the Company or any such subsidiary has, directly or
indirectly, used any corporate funds for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to political activity;
made any unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns from
corporate funds; violated any provision of the Foreign Corrupt Practices
Act of 1977, as amended; or made any unlawful bribe, rebate, payoff,
influence payment, kickback or other unlawful payment.
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<PAGE>
(xxv) The operations of the Company and its subsidiaries with
respect to any real property currently leased by the Company or any
subsidiary (the "Real Property") are in compliance with all federal, state,
and local laws, ordinances, rules, and regulations relating to occupational
health and safety and environmental protection (collectively, "Laws"), and
the Company and its subsidiaries have all licenses, permits and
authorizations necessary to operate under all Laws and are in material
compliance with all terms and conditions of such licenses, permits and
authorizations; neither the Company nor any subsidiary has authorized,
conducted or has knowledge of the unlawful generation, transportation,
storage, use, treatment, disposal or release of any hazardous substance,
hazardous waste, hazardous material, hazardous constituent, toxic
substance, pollutant, contaminant, petroleum product, natural gas,
liquefied gas or synthetic gas defined or regulated under any environmental
law on, in or under any Real Property; and there is no pending or
threatened claim, litigation or any administrative agency proceeding, nor
has the Company or any subsidiary received any written or oral notice from
any governmental entity or third party, that: (A) alleges a violation of
any Laws by the Company or any subsidiary; (B) alleges the Company or any
subsidiary is a liable party under the Comprehensive Environmental
Response, Compensation, and Liability Act, 42 U.S.C. (S) 9601 et seq. or
-------
any state superfund law; or (C) alleges possible contamination of the
environment by the Company or any subsidiary. Additionally, with the
exception of the underground storage tank release experienced by AJS Shoes
and discussed in the September 28, 1995 ATEC Phase I Environmental Site
Assessment, neither the Company nor any subsidiary has received any written
or oral notice that alleges possible contamination of the Real Property.
(xxvi) The Company and its subsidiaries own or have the right
to use all patents, patent applications, trademarks, trademark
applications, trade names, service marks, copyrights, franchises, trade
secrets, proprietary or other confidential information and intangible
properties and assets (collectively, "Intangibles") necessary to their
respective businesses as presently conducted or as the Prospectus indicates
the Company or such subsidiary proposes to conduct; to the best knowledge
of the Company, neither the Company nor any subsidiary has infringed or is
infringing, and neither the Company nor any subsidiary has received notice
of infringement with respect to, asserted Intangibles of others; and, to
the best knowledge of the Company, there is no infringement by others of
Intangibles of the Company or any of its subsidiaries.
(xxvii) The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the businesses in
which they are engaged.
(xxviii) Each of the Company and its subsidiaries makes and
keeps accurate books and records reflecting its assets and maintains
internal accounting controls which provide reasonable assurance that (A)
transactions are executed in accordance with management's authorization,
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<PAGE>
(B) transactions are recorded as necessary to permit preparation of the
Company's consolidated financial statements in accordance with generally
accepted accounting principles and to maintain accountability for the
assets of the Company, (C) access to the assets of the Company and each of
its subsidiaries is permitted only in accordance with management's
authorization, and (D) the recorded accountability for assets of the
Company and each of its subsidiaries is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(xxix) No subsidiary of the Company is currently prohibited,
directly or indirectly, from paying any dividends to the Company, from
making any other distributions on such subsidiary's capital stock, from
repaying to the Company any loans or advances to such subsidiary or from
transferring any of such subsidiary's property or assets to the Company or
any other subsidiary of the Company, except as disclosed in the Prospectus.
(xxx) The Company and its subsidiaries have filed all
foreign, federal, state and local tax returns that are required to be filed
by them and have paid all taxes shown as due on such returns as well as all
other taxes, assessments, amounts required to be withheld and governmental
charges that are due and payable; and no deficiency with respect to any
such return, tax or similar charge or payment has been assessed or
proposed.
(xxxi) The Company is not, will not become as a result of the
transactions contemplated hereby, and does not intend to conduct its
business in a manner that would cause it to become, an "investment company"
or a company "controlled" by an "investment company" within the meaning of
the Investment Company Act of 1940.
(xxxii) The Common Stock has been approved for quotation upon
notice of issuance as a National Market System security on Nasdaq.
(b) Each of the Selling Shareholders, severally and not jointly,
represents and warrants to and agrees with, each of the Underwriters that:
(i) Such Selling Shareholder has not, directly or indirectly,
used any corporate funds of the Company or any subsidiary for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to
political activity, made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political
parties or campaigns from corporate funds of the Company or any subsidiary;
on behalf of the Company or any subsidiary violated any provision of the
Foreign Corrupt Practices Act of 1977, as amended; or on behalf of the
Company or any subsidiary made any unlawful bribe, rebate, payoff,
influence payment, kickback or other unlawful payment.
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(ii) The Shares to be sold by such Selling Shareholder pursuant
to this Agreement are duly authorized, validly issued, fully paid and
nonassessable and have not been issued and are not owned or held in
violation of any preemptive right of shareholders.
(iii) Such Selling Shareholder has duly executed this Agreement
and a durable power of attorney and custody agreement ("Durable Power of
Attorney and Custody Agreement"), naming Stephen H. Greenspan and John C.
Dancu, or either of them, as such Selling Shareholder's attorney(s)-in-fact
("Attorneys-in-Fact") for the purpose of entering into and carrying out
this Agreement and naming Hunton & Williams as custodian ("Custodian") of
the Shares of such Selling Shareholder to be sold to the Underwriters
hereunder for the purpose of selling such Shares to the Underwriters at the
First Time of Delivery (as hereinafter defined) or any Subsequent Time of
Delivery (as hereinafter defined), as the case may be, and receiving
payment therefor.
(iv) There is no litigation, arbitration, claim, governmental or
other proceeding (formal or informal), or investigation pending or
threatened against or affecting such Selling Shareholder that would affect
the ability of such Selling Shareholder to perform his or its obligations
under this Agreement or the Durable Power of Attorney and Custody
Agreement.
(v) Such Selling Shareholder, if a corporation, is a corporation
duly organized, validly existing, and in good standing under the laws of
its jurisdiction of incorporation. Such Selling Shareholder, if an
executor of an estate, has been duly appointed as executor of such estate
and is fully and legally authorized to act in such capacity. Such Selling
Shareholder has all requisite power and authority to execute, deliver, and
perform this Agreement and the Durable Power of Attorney and Custody
Agreement. All necessary corporate proceedings of such Selling
Shareholder, if a corporation, have been duly taken to authorize the
execution, delivery, and performance of this Agreement and the Durable
Power of Attorney and Custody Agreement by such Selling Shareholder. This
Agreement and the Durable Power of Attorney and Custody Agreement have been
duly authorized by such Selling Shareholder, if a corporation, and executed
and delivered by such Selling Shareholder, are the legal, valid, and
binding obligations of such Selling Shareholder, and are enforceable as to
such Selling Shareholder in accordance with their respective terms subject,
as to enforcement, to applicable bankruptcy, insolvency, reorganization and
moratorium or other laws relating to or affecting creditor's rights
generally and to general equitable principles and except as the
enforceability of rights to indemnity and contribution under this Agreement
may be limited under applicable securities laws or the public policy
underlying such laws. No consent, authorization, approval, order, license,
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certificate, or permit of or from, or declaration or filing with, any
federal, state, local, or other governmental authority or any court or
other tribunal is required by such Selling Shareholder for the execution,
delivery, or performance of this Agreement (except filings under the Act
and the Exchange Act and consents under applicable "blue sky" or securities
laws) or the Durable Power of Attorney and Custody Agreement by such
Selling Shareholder. No consent of any party to any material contract,
agreement, instrument, lease, license, arrangement, or understanding to
which such Selling Shareholder is a party, or to which any of such Selling
Shareholder's properties or assets are subject, is required for the
execution, delivery, or performance of this Agreement or the Durable Power
of Attorney and Custody Agreement; and the execution, delivery, and
performance of this Agreement and the Durable Power of Attorney and Custody
Agreement will not violate, result in a breach of, conflict with, or (with
or without the giving of notice or the passage of time or both) entitle any
party to terminate or call a default under any such material contract,
agreement, instrument, lease, license, arrangement, or understanding, or
violate or result in a breach of, any term of such Selling Shareholder's
certificate of incorporation (or other charter document) or by-laws, if
such Selling Shareholder is a corporation, or violate, result in a breach
of, or conflict with, any law, rule, regulation, order, judgment, or decree
binding on such Selling Shareholder or to which any of such Selling
Shareholder's operations, business, properties, or assets are subject.
Such Selling Shareholder, if a corporation, is not in violation or breach
of, or in default with respect to, any term of its articles of
incorporation (or other charter document) or bylaws.
(vi) Such Selling Shareholder has, and immediately prior to the
First Time of Delivery (as hereinafter defined) such Selling Shareholder
will have, good and valid title to the Shares to be sold by such Selling
Shareholder hereunder, free and clear of all liens, security interests,
pledges, charges, encumbrances, defects, shareholders agreements, voting
trusts, equities or claims of any nature whatsoever; and upon delivery of
such Shares, against payment therefor as provided herein, good and valid
title to such Shares, free and clear of all liens, security interests,
pledges, charges, encumbrances, defects, shareholders agreements, voting
trusts, equities or claims of any nature whatsoever, will pass to the
several Underwriters.
(vii) Such Selling Shareholder further represents, warrants and
agrees that such Selling Shareholder has deposited in custody, under the
Durable Power of Attorney and Custody Agreement, certificates in negotiable
form for the Shares to be sold by such Selling Shareholder hereunder as set
forth opposite such Selling Shareholder's name on Schedule II annexed
hereto (including the maximum number of Optional Shares, if any, so set
forth in Schedule II) for the purpose of further delivery pursuant to this
Agreement. Such Selling Shareholder agrees that the Shares of such Selling
Shareholder on deposit with the Custodian are subject to the interests of
the Company, the Underwriters and the other Selling Shareholders, that the
arrangements made for such custody, and the appointment of the Attorneys-
in-Fact pursuant to the Durable Power of Attorney and Custody Agreement,
are to that extent irrevocable, and that the obligations of such Selling
Shareholder hereunder and under the Durable Power of Attorney and Custody
Agreement shall not be terminated, except as provided in this Agreement and
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the Durable Power of Attorney and Custody Agreement, by any act of such
Selling Shareholder, by operation of law, whether, in the case of an
individual Selling Shareholder, by the death or incapacity of such Selling
Shareholder or, in the case of a trust or estate, by the death of the
trustee or trustees or the executor or executors or the termination of such
trust or estate, or, in the case of a partnership or corporation, by the
dissolution, winding-up or other event affecting the legal life of such
entity, or by the occurrence of any other event. If any individual Selling
Shareholder, trustee or executor should die or become incapacitated, or any
such trust, estate, partnership or corporation should be terminated, or if
any other event should occur before the delivery of the Shares hereunder,
the certificates for Shares then on deposit with the Custodian shall, to
the extent such Shares are purchased by the Underwriters, be delivered by
the Custodian in accordance with the terms and conditions of this Agreement
and the Durable Power of Attorney and Custody Agreement as if such death,
incapacity, termination or other event had not occurred, regardless of
whether or not the Custodian shall have received notice thereof.
(viii) Neither such Selling Shareholder nor any of such Selling
Shareholder's affiliates (as defined in the Regulations) (A) has taken or
will take or has or will induce others to take, directly or indirectly, any
action designed to cause or result in or that has constituted or might
reasonably be expected to constitute, the stabilization or manipulation of
the price of any security of the Company, to facilitate the sale or resale
of any of the Shares or (B) has, since the filing of the Registration
Statement, (1) sold, bid for, purchased or paid anyone any compensation for
soliciting purchases of, the Shares or (2) paid or agreed to pay any person
any compensation for soliciting another to purchase any other securities of
the Company.
(ix) To the extent any statements or omissions have been made in
any Preliminary Prospectus, the Registration Statement or any amendments
thereto or the Prospectus or any amendments or supplements thereto, in
reliance upon or in conformity with written information furnished to the
Company by the Selling Shareholder specifically for use therein, such
statements or omissions conform in all material respects to the
requirements of the Act and the rules and regulations of the Commission
thereunder, and did not include any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(x) Except as may be set forth in the Prospectus, such Selling
Shareholder has not incurred any liability for a fee, commission, or other
compensation on account of the employment of a broker or finder in
connection with the transactions contemplated by this Agreement.
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2. PURCHASE AND SALE OF SHARES. Subject to the terms and conditions
herein set forth, (a) the Company agrees to issue and sell to each of the
Underwriters, and each of the Underwriters agrees, severally and not jointly, to
purchase from the Company, at a purchase price of $_______ per share (the
"Purchase Price"), the number of Firm Shares set forth opposite the name of such
Underwriter in Schedule I hereto, and (b) each Selling Shareholder agrees,
severally and not jointly to sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Selling
Shareholders at the Purchase Price, the number of Firm Shares set forth opposite
the name of such Selling Shareholder in Schedule II hereto. The number of Firm
Shares to be sold by each Selling Shareholder to each Underwriter shall be the
number which bears the same ratio to the number set forth opposite the name of
such Underwriter in Schedule I hereto as the number of shares to be sold by such
Selling Shareholder, as indicated in Schedule II hereto, bears to the aggregate
number of Firm Shares to be sold by the Selling Shareholders, subject, however,
to such adjustment as you may at any time approve to eliminate fractional
shares. Subject to the terms and conditions herein set forth, in the event and
to the extent that the Underwriters shall exercise the election to purchase
Optional Shares as provided below, (a) the Company agrees to issue and sell, and
the Designated Selling Shareholders agree, severally and not jointly, to sell,
to each of the Underwriters, and each of the Underwriters agrees, severally and
not jointly, to purchase from the Company and the Designated Selling
Shareholders, at the Purchase Price, that portion of the number of Optional
Shares as to which such election shall have been exercised (to be adjusted by
you so as to eliminate fractional shares) determined by multiplying such number
of Optional Shares by a fraction, the numerator of which is the maximum number
of Optional Shares that such Underwriter is entitled to purchase as set forth
opposite the name of such Underwriter in Schedule I hereto and the denominator
of which is the maximum number of the Optional Shares that all of the
Underwriters are entitled to purchase hereunder. The number of Optional Shares
to be sold by the Company to the Underwriters shall be twenty-five percent (25%)
of the aggregate number of Optional Shares being purchased and seventy-five
percent (75%) of such aggregate number of shares shall be sold by the Designated
Selling Shareholders. The number of Optional Shares to be sold by each
Designated Selling Shareholder to the Underwriters as a group shall be the
number which bears the same ratio to the aggregate number of Optional Shares
being purchased from the Designated Selling Shareholders as the maximum number
of Optional Shares to be sold by such Designated Selling Shareholder, as
indicated in the Schedule II hereto, bears to the aggregate number of Optional
Shares to be sold by the Designated Selling Shareholders as a group. The number
of shares resulting from any computations contemplated by this paragraph are
subject to adjustment by you to eliminate fractional shares.
The Company and the Designated Selling Shareholders, severally and not
jointly, hereby grant to the Underwriters the right to purchase at their
election in whole or in part from time to time up to 180,000 Optional Shares, at
the Purchase Price, for the sole purpose of covering over-allotments in the sale
of Firm Shares. Any such election to purchase Optional Shares may be exercised
by written notice from you to the Company and the Custodian, given from time to
time within a period of 30 calendar days after the date of this Agreement and
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<PAGE>
setting forth the aggregate number of Optional Shares to be purchased and the
date on which such Optional Shares are to be delivered, as determined by you,
but in no event earlier than the First Time of Delivery (as hereinafter defined)
or, unless you, the Company and the Custodian otherwise agree in writing,
earlier than two or later than ten business days after the date of such notice.
In the event you elect to purchase all or a portion of the Optional Shares, the
Company and the Designated Selling Shareholders agree to furnish or cause to be
furnished to you the certificates, letters and opinions, and to satisfy all
conditions set forth in Section 7 hereof at each Subsequent Time of Delivery (as
hereinafter defined).
3. OFFERING BY THE UNDERWRITERS. Upon the authorization by you of
the release of the Shares, the several Underwriters propose to offer the Shares
for sale upon the terms and conditions disclosed in the Prospectus.
4. DELIVERY OF SHARES; CLOSING. Certificates in definitive form for
the Shares to be purchased by each Underwriter hereunder, and in such
denominations and registered in such names as The Robinson-Humphrey Company,
Inc. may request upon at least 48 hours' prior notice to the Company shall be
delivered by or on behalf of the Company and the Selling Shareholders to you for
the account of such Underwriter, against payment by such Underwriter on its
behalf of the purchase price therefor by official bank check or checks (payable
in next day funds) drawn on an Atlanta, Georgia bank, one payable to the order
of the Company in next day available funds (with respect to shares being sold by
the Company hereunder) and separate checks payable to the order of each Selling
Shareholder, in next day available funds (with respect to shares being sold by
the Selling Shareholders or Designated Selling Shareholders hereunder). The
closing of the sale and purchase of the Shares shall be held at the offices of
Troutman Sanders, 600 Peachtree Street, N.E., Suite 5200, Atlanta, Georgia
30308, except that physical delivery of such certificates shall be made at the
office of The Depository Trust Company, 55 Water Street, New York, New York
10041. The time and date of such delivery and payment shall be, with respect to
the Firm Shares, at 10:00 a.m., Atlanta time, on the third (or, if the Shares
are priced, as contemplated by Rule 15c6-1(c) under the Exchange Act, after 4:30
p.m., Washington, D.C. time, the fourth) full business day after the execution
of this Agreement or at such other time and date as you and the Company may
agree upon in writing, and, with respect to the Optional Shares, at 10:00 a.m.,
Atlanta time, on the date specified by you in the written notice given by you of
the Underwriters' election to purchase all or part of such Optional Shares, or
at such other time and date as you the Attorney-in-Fact (on behalf of the
Designated Selling Shareholders) and the Company may agree upon in writing.
Such time and date for delivery of the Firm Shares is herein called the "First
Time of Delivery," such time and date for delivery of the Optional Shares, if
not the First Time of Delivery, is herein called a "Subsequent Time of
Delivery," and each such time and date for delivery is herein called a "Time of
Delivery." Such certificates will be made available for checking and packaging
at least 24 hours prior to each Time of Delivery at the office of The Depository
Trust Company, 55 Water Street, New York, New York 10041 or at such other
location in New York, New York specified by you in writing at least 48 hours
prior to such Time of Delivery.
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5. COVENANTS OF THE COMPANY AND THE SELLING SHAREHOLDERS. (a) The
Company covenants and agrees with each of the Underwriters:
(i) If the Registration Statement has been declared effective
prior to the execution and delivery of this Agreement, the Company will
file the Prospectus with the Commission pursuant to and in accordance with
subparagraph (1) (or, if applicable and if consented to by you,
subparagraph (4)) of Rule 424(b) not later than the earlier of (A) the
second business day following the execution and delivery of this Agreement
or (B) the fifth business day after the date on which the Registration
Statement is declared effective. The Company will advise you promptly of
any such filing pursuant to Rule 424(b).
(ii) The Company will not file with the Commission the Prospectus
or the amendment referred to in the second sentence of Section l(a)(i)
hereof, any amendment or supplement to the Prospectus or any amendment to
the Registration Statement unless you have received a reasonable period of
time to review any such proposed amendment or supplement and consented to
the filing thereof and will use its best efforts to cause any such
amendment to the Registration Statement to be declared effective as
promptly as possible. Upon the request of the Representatives or counsel
for the Underwriters, the Company will promptly prepare and file with the
Commission, in accordance with the rules and regulations of the Commission,
any amendments to the Registration Statement or amendments or supplements
to the Prospectus that may be necessary or advisable in connection with the
distribution of the Shares by the several Underwriters and will use its
best efforts to cause any such amendment to the Registration Statement to
be declared effective as promptly as possible. If required, the Company
will file any amendment or supplement to the Prospectus with the Commission
in the manner and within the time period required by Rule 424(b) under the
Act. The Company will advise the Representatives, promptly after receiving
notice thereof, of the time when the Registration Statement or any
amendment thereto has been filed or declared effective or the Prospectus or
any amendment or supplement thereto has been filed and will provide
evidence to the Representatives of each such filing or effectiveness.
(iii) The Company will advise you promptly after receiving
notice or obtaining knowledge of (A) the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or
any part thereof or any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto, (B) the suspension of the qualification of the Shares for offer or
sale in any jurisdiction or of the initiation or threatening of any
proceeding for any such purpose, or (C) any request made by the Commission
or any securities authority of any other jurisdiction for amending the
Registration Statement, for amending or supplementing the Prospectus or for
additional information. The Company will use its best efforts to prevent
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the issuance of any such stop order and, if any such stop order is issued,
to obtain the withdrawal thereof as promptly as possible.
(iv) If at any time when the delivery of a prospectus relating to
the Shares is required under the Act any events have occurred as a result
of which the Prospectus as then amended or supplemented would include an
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, or if for any
reason it is necessary during such same period to amend or supplement the
Prospectus to comply with the Act or the rules and regulations thereunder,
the Company will promptly notify you and upon your request (but at the
Company's expense) prepare and file with the Commission an amendment or
supplement to the Prospectus that corrects such statement or omission or
effects such compliance and will furnish without charge to each Underwriter
and to any dealer in securities as many copies of such amended or
supplemented Prospectus as you may from time to time reasonably request.
If the delivery of a prospectus relating to the Shares is required under
the Act at any time nine months or more after the date of the Prospectus,
upon your request but at the expense of such Underwriter, the Company will
prepare and deliver to such Underwriter as many copies as you may request
of an amended or supplemented Prospectus complying with Section 10(a)(3) of
the Act. Neither your consent to, nor the Underwriters' delivery of, any
such amendment or supplement shall constitute a waiver of any of the
conditions set forth in Section 7.
(v) The Company promptly from time to time will take such action
as you may reasonably request to qualify the Shares for offering and sale
under the securities or blue sky laws of such jurisdictions as you may
request and will continue such qualifications in effect for as long as may
be necessary to complete the distribution of the Shares, provided that in
connection therewith the Company shall not be required to qualify as a
foreign corporation in any jurisdiction.
(vi) The Company will promptly provide you, without charge, (A)
three manually executed copies of the Registration Statement as originally
filed with the Commission and of each amendment thereto, including
financial statements and all exhibits to the Registration Statement, (B)
for each other Underwriter a conformed copy of the Registration Statement
as originally filed and of each amendment thereto, without exhibits, and
(C) so long as a prospectus relating to the Shares is required to be
delivered under the Act, as many copies of each Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto as you may reasonably
request. Prior to the execution and delivery of the Agreement, the Company
will have delivered to you, without charge, in such quantities as you have
requested, copies of each Preliminary Prospectus. The Company consents to
the use, in accordance with the provisions of the Act and with the
securities or blue sky laws of the jurisdictions in which the Shares are
offered by the several Underwriters and by dealers, prior to the date of
the Prospectus, of each Preliminary Prospectus so furnished by the Company.
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(vii) As soon as practicable, but in any event not later than
the last day of the fifteenth month after the effective date of the
Registration Statement, the Company will make generally available to its
security holders an earnings statement of the Company and its subsidiaries,
if any, covering a period of at least 12 months beginning after the
effective date of the Registration Statement (which need not be audited)
complying with Section 11(a) of the Act and the rules and regulations
thereunder.
(viii) During the period of 120 days from the date the
Registration Statement is declared effective under the Act, the Company
will not, without your prior written consent, offer, pledge, issue, sell,
contract to sell, grant any option for the sale of, or otherwise dispose of
(or announce any offer, pledge, sale, grant of an option to purchase or
other disposition), directly or indirectly, any shares of Common Stock or
securities convertible into, exercisable or exchangeable for, shares of
Common Stock, except as provided in Section 2 and except for the issuance
of Common Stock upon the exercise of stock options or warrants outstanding
on the date of this Agreement to the extent that the aggregate number of
such stock options or warrants are disclosed in the Prospectus and except
for options granted pursuant to the Company's Stock Option Plan for
Employees, subject to the limitation on the number of shares of Common
Stock issuable thereunder disclosed in the Prospectus.
(ix) During a period of five years from the effective date of the
Registration Statement, the Company will furnish to you and, upon request,
to each of the other Underwriters, without charge, (i) copies of all
reports or other communications (financial or other) furnished to
shareholders, (ii) as soon as they are available, copies of any reports and
financial statements furnished to or filed with the Commission or any
national securities exchange, and (iii) such additional publicly available
information concerning the business and financial condition of the Company
and its subsidiaries, if any, as you may reasonably request.
(x) Neither the Company nor any of its officers, directors or
affiliates will (A) take, directly or indirectly, prior to the termination
of the underwriting syndicate contemplated by this Agreement, any action
designed to cause or to result in, or that might reasonably be expected to
constitute, the stabilization or manipulation of the price of any security
of the Company to facilitate the sale or resale of any of the Shares, (B)
sell, bid for, purchase or pay anyone any compensation for soliciting
purchases of, the Shares or (C) pay or agree to pay to any person any
compensation for soliciting another to purchase any other securities of the
Company.
(xi) The Company will apply the net proceeds from the offering in
the manner set forth under "Use of Proceeds" in the Prospectus.
(xii) The Company will cause the Shares to be listed on the
Nasdaq National Market System at each Time of Delivery and for at least one
year from the date hereof.
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(xiii) If at any time during the period beginning on the date
the Registration Statement becomes effective and ending on the later of (i)
the date 30 days after such effective date and (ii) the date that is the
earlier of (A) the date on which the Company first files with the
Commission its first Annual Report on Form 10-K after such effective date
and (B) the date on which the Company first issues a quarterly financial
report to shareholders after such effective date, any rumor, publication or
event relating to or affecting the Company shall occur as a result of which
in your reasonable opinion the market price of the Common Stock has been or
is likely to be materially affected (regardless of whether such rumor,
publication or event necessitates an amendment of or supplement to the
Prospectus), the Company will, after written notice from you advising the
Company to the effect set forth above, forthwith prepare, consult with you
concerning the substance of, and disseminate a press release or other
public statement, reasonably satisfactory to you, responding to or
commenting on such rumor, publication or event.
(xiv) The Company confirms that, as of the date hereof, it is
in compliance with all provisions of Section 1 of the laws of Florida,
Chapter 92-198 ("An Act Relating to Disclosure of Doing Business with
Cuba"), and the Company further agrees that if it commences engaging in
business with the government of Cuba or with any person or affiliate
located in Cuba after the date the Registration Statement becomes or has
become effective with the Commission or with the Florida Department of
Banking and Finance (the "Department"), whichever date is later, or if the
information, if any, reported in the Prospectus concerning the Company's
business with Cuba or with any person or affiliate located in Cuba changes
in any material way, the Company will provide the Department of notice of
such business or change, as appropriate, in a form acceptable to the
Department.
(b) Each of the Selling Shareholders, severally and not jointly,
covenants and agrees with each of the Underwriters:
(i) Such Selling Shareholder will cooperate to the extent
necessary to cause the registration statement or any post-effective
amendment thereto to become effective at the earliest possible time.
(ii) Such Selling Shareholder will pay all federal and other
taxes, if any, on the transfer or sale of the Shares being sold by such
Selling Shareholder to the Underwriters.
(iii) Such Selling Shareholder will do or perform all things
required to be done or performed by such Selling Shareholder prior to the
First Time of Delivery or any Subsequent Time of Delivery, as the case may
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be, to satisfy all conditions precedent to the delivery of the Shares
pursuant to this Agreement or the Durable Power of Attorney and Custody
Agreement.
(iv) That such Selling Shareholder has delivered to the Company
an agreement pursuant to which such Selling Shareholder has agreed that
during the period of 120 days from the date the Registration Statement is
declared effective under the Act, such Selling Shareholder will not,
without your prior written consent, offer, pledge, issue, sell, contract to
sell, grant any option for the sale of, or otherwise dispose of (or
announce any offer, pledge, sale, grant of an option to purchase or other
disposition), directly or indirectly, any shares of Common Stock or
securities convertible into, exercisable or exchangeable for, shares of
Common Stock, except as provided in Section 2 and except for the sale of
Common Stock upon the exercise of stock options or warrants outstanding on
the date of this Agreement to the extent that such stock options or
warrants are disclosed in the Prospectus.
(v) No Selling Shareholder will (A) take, directly or indirectly,
prior to the termination of the underwriting syndicate contemplated by this
Agreement, any action designed to cause or to result in, or that might
reasonably be expected to constitute, the stabilization or manipulation of
the price of any security of the Company to facilitate the sale or resale
of any of the Shares, (B) sell, bid for, purchase or pay anyone any
compensation for soliciting purchases of, the Shares or (C) pay or agree to
pay to any person any compensation for soliciting another to purchase any
other securities of the Company.
(vi) Such Selling Shareholder agrees to deliver to the Custodian
on or prior to the First Time of Delivery (or the Subsequent Time of
Delivery, as the case may be) a properly completed and executed United
States Treasury Department Form W-9 (or other applicable form or statement
specified by Treasury Department Regulations in lieu thereof).
(vii) Such Selling Shareholder will furnish any documents,
instruments or other information which you may reasonably request in
connection with the sale and transfer of the Shares.
(viii) Such Selling Shareholder will use its or his best
efforts to comply or cause to be complied with the conditions to the
obligations of the Underwriters in subsections (d), (i) and (j) of Section
7 hereof insofar as such conditions relate to such Selling Shareholder.
6. EXPENSES. The Company will pay all costs and expenses incident
to the performance of its obligations under this Agreement, whether or not the
transactions contemplated hereby are consummated or this Agreement is terminated
pursuant to Section 10 hereof, including without limitation all costs and
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expenses incident to (i) the fees, disbursements and expenses of the Company's
counsel and accountants in connection with the registration of the Shares under
the Act and all other expenses in connection with the preparation, printing and,
if applicable, filing of the Registration Statement (including all amendments
thereto), any Preliminary Prospectus, the Prospectus and any amendments and
supplements thereto, this Agreement and any blue sky memoranda; (ii) the
delivery of copies of the foregoing documents to the Underwriters; (iii) the
filing fees of the Commission and the National Association of Securities
Dealers, Inc. relating to the Shares; (iv) the preparation, issuance and
delivery to the Underwriters of any certificates evidencing the Shares,
including transfer agent's and registrar's fees; (v) the qualification of the
Shares for offering and sale under state securities and blue sky laws, including
filing fees and fees and disbursements of counsel for the Underwriters relating
thereto; (vi) any listing of the Shares on the National Association Securities
Dealers Automated Quotation National Market System and (vii) any expenses for
travel, lodging and meals incurred by the Company and any of its officers,
directors and employees in connection with any meetings with prospective
investors in the Shares. It is understood, however, that, except as provided in
this Section, Section 8 and Section 10 hereof, the Underwriters will pay all of
their own costs and expenses, including the fees of their counsel, stock
transfer taxes on resale of any of the Shares by them, and any advertising
expenses relating to the offer and sale of the Shares.
7. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligations of
the Underwriters hereunder to purchase and pay for the Shares to be delivered at
each Time of Delivery shall be subject, in their discretion, to the accuracy of
the representations and warranties of the Company and the Selling Shareholders
contained herein as of the date hereof and as of such Time of Delivery, to the
accuracy of the statements of Company officers made pursuant to the provisions
hereof, to the performance by the Company and the Selling Shareholders of its
and their covenants and agreements hereunder, and to the following additional
conditions precedent:
(a) If the Registration Statement as amended to date has not become
effective prior to the execution of this Agreement, such registration statement
shall have been declared effective not later than 11:00 a.m., Atlanta time, on
the date of this Agreement or such later date and/or time as shall have been
consented to by you in writing. The Prospectus and any amendment or supplement
thereto shall have been filed with the Commission pursuant to Rule 424(b) within
the applicable time period prescribed for such filing and in accordance with
Section 5(a) of this Agreement; no stop order suspending the effectiveness of
the Registration Statement or any part thereof shall have been issued and no
proceedings for that purpose shall have been instituted, threatened or, to the
knowledge of the Company, the Selling Shareholders or the Representatives,
contemplated by the Commission; and all requests for additional information on
the part of the Commission shall have been complied with to your reasonable
satisfaction.
(b) Troutman Sanders LLP, counsel for the Underwriters, shall have
furnished to you such opinion or opinions, dated such Time of Delivery, with
respect to the incorporation of the Company, the validity of the Shares being
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delivered at such Time of Delivery, the Registration Statement, the Prospectus,
and other related matters as you may reasonably request, and the Company shall
have furnished to such counsel such documents as they request for the purpose of
enabling them to pass upon such matters.
(c) You shall have received an opinion, dated such Time of Delivery,
of Hunton & Williams, counsel for the Company in form and substance satisfactory
to you and your counsel, to the effect that:
(i) The Company has been duly incorporated, is validly existing
as a corporation in good standing under the laws of its jurisdiction of
incorporation and has the corporate power and authority to own or lease its
properties and conduct its business as described in the Registration
Statement and the Prospectus and to enter into this Agreement and perform
its obligations hereunder. The Company is duly qualified to transact
business as a foreign corporation and is in good standing under the laws of
each other jurisdiction in which it owns or leases property, or conducts
any business, so as to require such qualification, except where the failure
to so qualify would not have a material adverse effect on the financial
position, results of operations or business of the Company and its
subsidiaries taken as a whole.
(ii) Each of the subsidiaries of the Company has been duly
incorporated, is validly existing as a corporation in good standing under
the laws of its jurisdiction of incorporation and has the corporate power
and authority to own or lease its properties and conduct its business as
described in the Registration Statement and the Prospectus. Each such
subsidiary is duly qualified to transact business as a foreign corporation
and is in good standing under the laws of each other jurisdiction in which
it owns or leases property, or conducts any business, so as to require such
qualification, except where the failure to so qualify would not have a
material adverse effect on the financial position, results of operations or
business of the Company and its subsidiaries taken as a whole.
(iii) The Company's authorized, issued and outstanding
capital stock is as disclosed in the Prospectus. All of the issued shares
of capital stock of the Company, including the Shares to be sold to the
Underwriters by the Selling Shareholders hereunder, have been duly
authorized and validly issued, are fully paid and nonassessable and conform
to the description of the Common Stock contained in the Prospectus. None
of the issued shares of capital stock of the Company or any of its
subsidiaries has been issued or is owned or held in violation of any
preemptive rights of shareholders, and no person or entity (including any
holder of outstanding shares of capital stock of the Company or its
subsidiaries) has any statutory preemptive or, to our knowledge, other
rights to subscribe for any of the Shares.
(iv) All of the issued shares of capital stock of each of the
Company's subsidiaries have been duly authorized and validly issued, are
fully paid and nonassessable, and except as set forth on Annex II hereto
are owned beneficially by the Company free and clear of all liens, security
interests, pledges, charges, encumbrances, shareholders' agreements, voting
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trusts, defects, equities or claims of any nature whatsoever. Other than
the subsidiaries listed on Exhibit 22 to the Registration Statement, to
such counsel's knowledge the Company does not own, directly or indirectly,
any capital stock or other equity securities of any other corporation or
any ownership interest in any partnership, joint venture or other
association.
(v) Except as disclosed in the Prospectus and except for warrants
issued to Neil Dineman and Philip Elkus each dated January 23, 1996, to
such counsel's knowledge there are no outstanding (A) securities or
obligations of the Company or any of its subsidiaries convertible into or
exchangeable for any capital stock of the Company or any such subsidiary,
(B) warrants, rights or options to subscribe for or purchase from the
Company or any such subsidiary any such capital stock or any such
convertible or exchangeable securities or obligations, or (C) obligations
of the Company or any such subsidiary to issue any shares of capital stock,
any such convertible or exchangeable securities or obligations, or any such
warrants, rights or options.
(vi) The Shares to be issued and sold by the Company have been
duly authorized and, when issued and delivered against payment therefor as
provided herein, will be validly issued and fully paid and nonassessable
and will conform to the description of the Common Stock contained in the
Prospectus; the certificates evidencing the Shares comply with all
applicable requirements of Georgia law; and, based solely upon a letter
from Nasdaq to such effect, the Shares have been listed on the Nasdaq
National Market System.
(vii) Except as disclosed in the Prospectus under the caption
"Description of Capital Stock -- Registration Rights," there are no
contracts, agreements or understandings known to such counsel between the
Company and any person granting such person the right to require the
Company to file a registration statement under the Act with respect to any
securities of the Company owned or to be owned by such person or to require
the Company to include such securities in the securities registered
pursuant to the Registration Statement (or any such right has been
effectively exercised or waived) or, except with respect to registration
rights relating to registration of shares on Form S-8 granted to John Dancu
in his employment agreement with the Company dated March 20, 1995, in any
securities being registered pursuant to any other registration statement
filed by the Company under the Act.
(viii) All offers and sales of the Company's capital stock
prior to the date hereof within the period covered by Item 15 of Part II of
the Registration Statement were at all relevant times duly registered under
the Act or exempt from the registration requirements thereof.
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(ix) Neither the Company nor any of its subsidiaries is, or with
the giving of notice or passage of time or both, will be, in violation of
its Articles of Incorporation or Bylaws or in default under any indenture,
mortgage, deed of trust, loan agreement, lease or other material agreement
or instrument known to such counsel to which the Company or any such
subsidiary is a party or to which any of their respective properties or
assets is subject.
(x) The issue and sale of the Shares being issued at such Time of
Delivery and the performance of this Agreement and the consummation of the
transactions herein contemplated will not conflict with, or (with or
without the giving of notice or the passage of time or both) result in a
breach or violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement,
lease or other material agreement or instrument known to such counsel to
which the Company or any such subsidiary is a party or to which any of
their respective properties or assets is subject, nor will such action
conflict with or violate any provision of the Articles of Incorporation or
Bylaws of the Company or any of its subsidiaries or any statute, rule or
regulation or any order, judgment or decree of which such counsel has
knowledge of any court or governmental agency or body having jurisdiction
over the Company or any of its subsidiaries or any of their respective
properties or assets; provided, however, that counsel need express no
opinion as to blue sky laws.
(xi) No consent, approval, authorization, order or declaration of
or from, or registration, qualification or filing with, any court or
governmental agency or body is required for the issue and sale of the
Shares or the consummation of the transactions contemplated by this
Agreement, except the registration of the Shares under the Act, the
registration of the Common Stock under the Exchange Act and such as may be
required under state securities or blue sky laws in connection with the
offer, sale and distribution of the Shares by the Underwriters as to which
laws such counsel need express no opinion.
(xii) To such counsel's knowledge, and other than as
disclosed in or contemplated by the Prospectus, there is no litigation,
arbitration, claim, proceeding (formal or informal) or investigation
pending or threatened in which the Company or any of its subsidiaries is a
party or of which any of their respective properties or assets is the
subject which, if determined adversely to the Company or any such
subsidiary, would individually or in the aggregate have a material adverse
effect on the financial position, results of operations or business of the
Company and its subsidiaries taken as a whole; and, to such counsel's
knowledge, neither the Company nor any of its subsidiaries is in violation
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of, or in default with respect to, any statute, rule, regulation, order,
judgment or decree, except as described in the Prospectus or where such
violations or defaults would not individually or in the aggregate have a
material adverse effect on the financial position, results of operations or
business of the Company and its subsidiaries, nor is the Company or any
subsidiary required to take any action in order to avoid any such violation
or default.
(xiii) This Agreement has been duly authorized, executed and
delivered by the Company and constitutes the valid and binding agreement of
the Company enforceable against the Company in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting
creditors' rights generally, by general principles of equity whether such
enforceability is considered in a proceeding in law or equity and by the
discretion of the court before which any proceeding therefor may be
brought, and except to the extent that rights to indemnity and contribution
hereunder may be limited by federal or state securities laws or the public
policy underlying such laws.
(xiv) The Registration Statement and the Prospectus and each
amendment or supplement thereto (other than the financial statements and
related schedules therein, as to which such counsel need express no
opinion), as of their respective effective or issue dates, complied as to
form in all material respects with the requirements of the Act and the
rules and regulations thereunder. The descriptions in the Registration
Statement and the Prospectus of statutes, legal and governmental
proceedings or contracts and other documents and statements of law or legal
conclusions are accurate and fairly present the information required to be
shown; and such counsel do not know of any statutes or legal or
governmental proceedings required to be described in the Registration
Statement or Prospectus that are not described as required or of any
contracts or documents of a character required to be described in the
Registration Statement or Prospectus or to be filed as exhibits to the
Registration Statement which are not described or filed as required.
(xv) The Registration Statement and all post-effective
amendments, if any, have become effective under the Act; any required
filing of the Preliminary Prospectus pursuant to Rule 424(a) or of the
Prospectus pursuant to Rule 424(b) has been made in the manner and within
the time period required by such Rule; and no stop order suspending the
effectiveness of the Registration Statement or any part thereof has been
issued and, to such counsel's knowledge, no proceedings for that purpose
have been instituted or threatened or are contemplated by the Commission.
(xvi) The Company is not, and will not be as a result of the
consummation of the transactions contemplated by this Agreement, an
"investment company," or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940.
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Such counsel shall also state that in its capacity as counsel to the
Company, it has participated in conferences with officers and other
representatives of the Company and representatives of the Underwriters and their
counsel, during which the contents of the Registration Statement and the
Prospectus were discussed and reviewed. Such counsel shall further state that
although it is not passing judgment upon, and does not assume any responsibility
for, the accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus, on the basis of the information that
was developed in the course of the performance of the services referred to
above, considered in light of its understanding of the applicable law, nothing
came to such counsel's attention that has caused it to believe that the
Registration Statement or any further amendment thereto made prior to such Time
of Delivery, on its effective date and as of such Time of Delivery, or the
Prospectus or any further amendment or supplement thereto made prior to such
Time of Delivery, as of its issue date and as of such Time of Delivery, (other
than, in each case, the financial statements and schedules and the other
financial and statistical data included therein, as to which such counsel need
express no belief) contained or contains any untrue statement of a material fact
or omitted or omits to state any material fact required to be stated therein or
necessary to make the statements therein in light of the circumstances in which
they were made not misleading.
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deem proper, on certificates of responsible
officers of the Company and public officials and, as to matters involving the
application of laws Texas, to the extent satisfactory in form and scope to
counsel for the Underwriters, upon the opinion of Robert Cox, Esquire, provided
that such counsel states such counsel has no reason to believe that the
Underwriters are not justified in relying upon such opinion and copies of such
opinion are delivered to the Representatives and counsel for the Underwriters.
Whenever used in any statement set forth in such opinion, the phrase
"to [such counsel's] knowledge" and other words of similar meaning qualify and
limit such statement to the current awareness of the lawyers in such firm who
have had responsibility for devoting substantive attention to the representation
of the Company in the transactions contemplated by this Agreement, the
preparation of the Registration Statement and any due diligence in connection
therewith, of factual matters that such lawyers recognize as being relevant to
the statements so qualified and limited.
(d) You shall have received an opinion, dated such Time of Delivery,
of Hunton & Williams, counsel for the Selling Shareholders in form and substance
satisfactory to you and your counsel, to the effect that:
(i) This Agreement and the Durable Power of Attorney and Custody
Agreement have each been duly executed and delivered by or on behalf of
each of the Selling Shareholders and are valid and binding agreements of
each Selling Shareholder enforceable against each Selling Shareholder in
accordance with their terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws relating
to or affecting creditors' rights generally, by general principles of
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equity whether such enforceability is considered in a proceeding in law or
equity and by the discretion of the court before which any proceeding
therefor may be brought, and except to the extent that rights to indemnity
and contribution hereunder may be limited by federal or state securities
laws or the public policy underlying such laws.
(ii) To the best knowledge of such counsel, each Selling
Shareholder has duly authorized, executed and delivered this Agreement and
the Durable Power of Attorney and Custody Agreement and has full legal
right, power and authorization, and any approval required by law, to enter
into this Agreement and the Durable Power of Attorney and Custody Agreement
and to sell, assign, transfer and deliver good and valid title to the
Shares which such Selling Shareholder has agreed to sell pursuant to this
Agreement.
(iii) The execution and delivery of this Agreement and the
Durable Power of Attorney and Custody Agreement by the Selling Shareholders
and the consummation of the transactions contemplated hereby and thereby
will not conflict with, or (with or without the giving of notice or the
passage of time or both) result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement, lease or other material agreement
or instrument known to such counsel to which any Selling Shareholder is a
party or to which any of them or any of their assets or property is
subject, nor will such action conflict with or violate any provision of the
Articles of Incorporation or Bylaws of such Selling Shareholder or any
statute, rule or regulation or any order, judgement or decree of which such
counsel has knowledge of any court or governmental agency or body having
jurisdiction over such Selling Shareholder or any of such Selling
Shareholder's properties or assets; provided, however, that counsel need
express no opinion as to blue sky laws.
(iv) Delivery of certificates for the Shares to be sold by such
Selling Shareholder pursuant to the terms of this Agreement will pass valid
and marketable title thereto to each Underwriter that purchased such Shares
for value in good faith and without notice of any adverse claim with
respect thereto, within the meaning of the Uniform Commercial Code as in
effect in the State of Georgia, free and clear of all liens, security
interests, pledges, charges, encumbrances, defects, shareholders
agreements, voting trusts, equities or claims of any nature whatsoever.
(v) No consent, approval, authorization, order or declaration of
or from, or registration, qualification or filing with, any court or
governmental agency or body is required for the issue and sale of the
Shares being sold by such Selling Shareholder or the consummation of the
transactions contemplated by this Agreement or the Durable Power of
Attorney and Custody Agreement except the registration of such Shares under
the Act, the registration of the Common Stock under the Exchange Act and
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such as may be required under state securities or blue sky laws in
connection with the offer, sale and distribution of such Shares by the
Underwriters, as to which laws counsel need express no opinion.
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deem proper, on certificates of
responsible officers of the Selling Shareholders and public officials and,
as to matters involving the application of laws of Texas, to the extent
satisfactory in form and scope to counsel for the Underwriters, upon the
opinion of Robert Cox, Esquire, provided that such counsel states such
counsel has no reason to believe that the Underwriters are not justified in
relying upon such opinion and copies of such opinion are delivered to the
Representatives and counsel for the Underwriters.
Whenever used in any statement set forth in such opinion, the phrase
"to [such counsel's] knowledge" and other words of similar meaning qualify and
limit such statement to the current awareness of the lawyers in such firm who
have had responsibility for devoting substantive attention to the representation
of the Company in the transactions contemplated by this Agreement, the
preparation of the Registration Statement and any due diligence in connection
therewith, of factual matters that such lawyers recognize as being relevant to
the statements so qualified and limited.
(e) You shall have received from Arthur Andersen LLP, independent
public accountants letters dated, respectively, the date hereof (or, if the
Registration Statement has been declared effective prior to the execution and
delivery of this Agreement, dated such effective date and the date of this
Agreement) and each Time of Delivery, in form and substance satisfactory to you,
to the effect set forth in Annex I hereto. In the event that the letters
referred to in this Section 7(e) set forth any changes, decreases or increases
in the items specified in paragraph (iv) of Annex I, it shall be a further
condition to the obligations of the Underwriters that (i) such letters shall be
accompanied by a written explanation by the Company as to the significance
thereof, unless the Representatives deem such explanation unnecessary, and (ii)
such changes, decreases or increases do not, in your sole judgment, make it
impracticable or inadvisable to proceed with the purchase, sale and delivery of
the Shares being delivered at such Time of Delivery as contemplated by the
Registration Statement, as amended as of the date of such letter.
(f) Since the date of the latest audited financial statements included
in the Prospectus, neither the Company nor any of its subsidiaries shall have
sustained (i) any loss or interference with their respective businesses from
fire, explosion, flood, hurricane or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order or
decree, otherwise than as disclosed in or contemplated by the Prospectus, or
(ii) any change, or any development involving a prospective change (including
without limitation a change in management or control of the Company), in or
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affecting the position (financial or otherwise), results of operations or net
worth of the Company and its subsidiaries taken as a whole, otherwise than as
disclosed in or contemplated by the Prospectus, the effect of which, in either
such case, is in your judgment so material and adverse as to make it
impracticable or inadvisable to proceed with the purchase, sale and delivery of
the Shares being delivered at such Time of Delivery as contemplated by the
Registration Statement, as amended as of the date hereof.
(g) Subsequent to the date hereof there shall not have occurred any of
the following: (i) any suspension or limitation in trading in securities
generally on the New York Stock Exchange, or any setting of minimum prices for
trading on such exchange, or in the Common Stock by the Commission or the Nasdaq
National Market System; (ii) a moratorium on commercial banking activities in
New York declared by either federal or state authorities; or (iii) any outbreak
or escalation of hostilities involving the United States, declaration by the
United States of a national emergency or war or any other national or
international calamity or emergency if the effect of any such event specified in
this clause (iii) in your judgment makes it impracticable or inadvisable to
proceed with the purchase, sale and delivery of the Shares being delivered at
such Time of Delivery as contemplated by the Registration Statement, as amended
as of the date hereof.
(h) The Company shall have furnished to you at such Time of Delivery
certificates of officers of the Company, satisfactory to you as to the accuracy
of the representations and warranties of the Company herein at and as of such
Time of Delivery, as to the performance by the Company of all of its obligations
hereunder to be performed at or prior to such Time of Delivery, and as to such
other matters as you may reasonably request, and the Company shall have
furnished or caused to be furnished certificates as to the matters set forth in
subsections (a) and (f) of this Section 7, and as to such other matters as you
may reasonably request.
(i) Each Selling Shareholder shall have furnished to you at such Time
of Delivery a certificate of such Selling Shareholder (which may be executed on
behalf of such Selling Shareholder by the Attorney-in-Fact), satisfactory to you
as to the accuracy of the representations and warranties of such Selling
Shareholder herein at and as of such Time of Delivery, as to the performance by
such Selling Shareholder of all of its obligations hereunder to be performed at
or prior to such Time of Delivery, and as to such other matters as you may
reasonably request.
(j) A copy of the Durable Power of Attorney and Custody Agreement
executed by each Selling Shareholder shall have been furnished to your counsel
prior to the First Time of Delivery, along with such information as such counsel
may reasonably request in connection with their review thereof.
(k) The Shares shall be listed on the Nasdaq National Market System.
8. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to
indemnify and hold harmless each Underwriter against any losses, claims, damages
or liabilities, joint or several, to which such Underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon: (i)
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any untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement or any amendment thereto, any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, or (ii) the
omission or alleged omission to state in the Registration Statement or any
amendment thereto, any Preliminary Prospectus, the Prospectus or any amendment
or supplement thereto, a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and will reimburse each Underwriter for
any legal or other expenses reasonably incurred by such Underwriter in
connection with investigating, defending against or appearing as a third-party
witness in connection with any such loss, claim, damage, liability or action;
provided, however, that the Company shall not be liable in any such case to the
- -------- -------
extent that any such loss, claim, damage, liability or action arises out of or
is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in the Registration Statement or any amendment thereto,
any Preliminary Prospectus, the Prospectus or any amendment or supplement
thereto in reliance upon and in conformity with written information furnished to
the Company by any Underwriter through you expressly for use therein; and
provided, further, that the Company shall not be liable to any Underwriter in
respect of any Preliminary Prospectus or any amendment or supplement to any
Preliminary Prospectus to the extent that (A) the Prospectus did not contain the
untrue statement or alleged untrue statement or omission or alleged omission
giving rise to such loss, claim, damage or liability, (B) the Prospectus was not
sent or given to the purchaser of the Shares in question at or prior to the
written confirmation of the sale of such Shares to such person and (C) the
failure to deliver such Prospectus was not the result of non-compliance by the
Company with its obligations under Section 5(a)(vi). The Company will not,
without the prior written consent of each Underwriter, settle or compromise or
consent to the entry of any judgment in any pending or threatened claim, action,
suit or proceeding (or related cause of action or portion thereof) in respect of
which indemnification may be sought hereunder (whether or not such Underwriter
is a party to such claim, action, suit or proceeding), unless such settlement,
compromise or consent includes an unconditional release of such Underwriter from
all liability arising out of such claim, action, suit or proceeding (or related
cause of action or portion thereof).
(b) Each Selling Shareholder, severally and not jointly, agrees to
indemnify and hold harmless each Underwriter against any losses, claims, damages
or liabilities to which such Underwriter may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Registration Statement or
any amendment thereto, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, in each case to the extent, but only to the extent, that such
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untrue statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with written information furnished to
the Company by or on behalf of such Selling Shareholder for use therein, and
will reimburse such Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, the liability
of each Selling Shareholder for indemnification under this Section 8 shall be
limited to an amount equal to the net proceeds received by such Selling
Shareholder from the Underwriters in the offering; and provided, further, that
the Selling Shareholder shall not be liable to any Underwriter in respect of any
Preliminary Prospectus or any amendment or supplement to any Preliminary
Prospectus to the extent that (A) the Prospectus did not contain the untrue
statement or alleged untrue statement or omission or alleged omission giving
rise to such loss, claim, damage or liability, (B) the Prospectus was not sent
or given to the purchaser of the Shares in question at or prior to the written
confirmation of the sale of such Shares to such person and (C) the failure to
deliver such Prospectus was not the result of non-compliance by the Company with
its obligations under Section 5(a)(vi). No Selling Shareholder will, without
the prior written consent of each Underwriter, settle or compromise or consent
to the entry of any judgment in any pending or threatened claim, action, suit or
proceeding (or related cause of action or portion thereof) in respect of which
indemnification may be sought hereunder (whether or not such Underwriter is a
party to such claim, action, suit or proceeding), unless such settlement,
compromise or consent includes an unconditional release of such Underwriter from
all liability arising out of such claim, action, suit or proceeding (or related
cause of action or portion thereof).
(c) Each Underwriter, severally but not jointly, agrees to indemnify
and hold harmless the Company and each Selling Shareholder against any losses,
claims, damages or liabilities to which the Company or any Selling Shareholder
may become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement or any amendment thereto, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Company by such Underwriter through you expressly for use
therein; and will reimburse the Company and each Selling Shareholder for any
legal or other expenses reasonably incurred by the Company, such Selling
Shareholder and any such controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action.
(d) Promptly after receipt by an indemnified party under subsection
(a), (b) or (c) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
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any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the indemnifying
party); provided, however, that if the defendants in any such action include
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both the indemnified party and the indemnifying party and the indemnified party
shall have reasonably concluded that there may be one or more legal defenses
available to it or other indemnified parties which are different from or
additional to those available to the indemnifying party, the indemnifying party
shall not have the right to assume the defense of such action on behalf of such
indemnified party and such indemnified party shall have the right to select
separate counsel to defend such action on behalf of such indemnified party.
After such notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof and approval by such indemnified party
of counsel appointed to defend such action, the indemnifying party will not be
liable to such indemnified party under this Section 8 for any legal or other
expenses, other than reasonable costs of investigation, subsequently incurred by
such indemnified party in connection with the defense thereof, unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that in
connection with such action the indemnifying party shall not be liable for the
expenses of more than one separate counsel (in addition to local counsel) in any
one action or separate but substantially similar actions in the same
jurisdiction arising out of the same general allegations or circumstances, which
separate counsel shall be designated by the Representatives in the case of
indemnity arising under paragraph (a) of this Section 8) or (ii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party. Nothing in this Section 8(d)
shall preclude an indemnified party from participating at its own expense in the
defense of any such action so assumed by the indemnifying party.
(e) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a), (b) or (c) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Selling Shareholders,
respectively, on the one hand, and the Underwriters on the other from the
offering of the Shares. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law or if the indemnified
party failed to give the notice required under subsection (d) above, then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company and the Selling
Shareholders, respectively, on the one hand, and the Underwriters on the other
in connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as any
-32-
<PAGE>
other relevant equitable considerations. The relative benefits received by the
Company and the Selling Shareholders, respectively, on the one hand, and the
Underwriters on the other shall be deemed to be in the same proportion as the
total net proceeds from the offering (before deducting expenses) received by the
Company and the Selling Shareholders, respectively, bear to the total
underwriting discounts and commissions received by the Underwriters. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company and the Selling Shareholders, respectively, on the one hand, or the
Underwriters on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission and
in the case of a failure to give notice as required under subsection (d) above,
the extent to which the indemnifying party was prejudiced thereby. The Company,
the Selling Shareholders and the Underwriters agree that it would not be just
and equitable if contributions pursuant to this subsection (e) were determined
by pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above in this subsection (e). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
in this subsection (e) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (e), no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Shares underwritten
by it and distributed to the public were offered to the public exceeds the
amount of any damages which such Underwriter has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations in this subsection (e) to contribute are several in proportion to
their respective underwriting obligations and not joint.
(f) The obligations of the Company and the Selling Shareholders under
this Section 8 shall be in addition to any liability which the Company or such
Selling Shareholders may otherwise have and shall extend, upon the same terms
and conditions, to each officer, director, agent and employee of any Underwriter
and to each person, if any, who controls any Underwriter within the meaning of
the Act or the Exchange Act; the obligations of the Underwriters under this
Section 8 shall be in addition to any liability which the respective
Underwriters may otherwise have and shall extend, upon the same terms and
conditions, to each officer and director of the Company and any Selling
Shareholder and to each person, if any, who controls the Company or any Selling
Shareholder within the meaning of the Act or the Exchange Act.
9. DEFAULT OF UNDERWRITERS. (a) If any Underwriter defaults in its
obligation to purchase Shares at a Time of Delivery, you may in your discretion
arrange for you or another party or other parties to purchase such Shares on the
terms contained herein. If within thirty-six (36) hours after such default by
-33-
<PAGE>
any Underwriter you do not arrange for the purchase of such Shares, the Company
shall be entitled to a further period of thirty-six (36) hours within which to
procure another party or other parties satisfactory to you to purchase such
Shares on such terms. In the event that, within the respective prescribed
periods, you notify the Company that you have so arranged for the purchase of
such Shares, or the Company notifies you that it has so arranged for the
purchase of such Shares, you or the Company shall have the right to postpone a
Time of Delivery for a period of not more than seven days in order to effect
whatever changes may thereby be made necessary in the Registration Statement or
the Prospectus, or in any other documents or arrangements, and the Company
agrees to file promptly any amendments to the Registration Statement or the
Prospectus that in your opinion may thereby be made necessary. The cost of
preparing, printing and filing any such amendments shall be paid for by the
Underwriters. The term "Underwriter" as used in this Agreement shall include
any person substituted under this Section with like effect as if such person had
originally been a party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased does not exceed one-eleventh of the aggregate number of
Shares to be purchased at such Time of Delivery, then the Company shall have the
right to require each non-defaulting Underwriter to purchase the number of
Shares which such Underwriter agreed to purchase hereunder at such Time of
Delivery and , in addition, to require each non-defaulting Underwriter to
purchase its pro rata share (based on the number of Shares which such
Underwriter agreed to purchase hereunder) of the Shares of such defaulting
Underwriter or Underwriters for which such arrangements have not been made, but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
10. TERMINATION. (a) This Agreement may be terminated with respect
to the Firm Shares or any Optional Shares in the sole discretion of the
Representatives by notice to the Company given prior to the First Time of
Delivery or any Subsequent Time of Delivery, respectively, in the event that (i)
any condition to the obligations of the Underwriters set forth in Section 7
hereof has not been satisfied, or (ii) the Company shall have failed, refused or
been unable to deliver the Shares or to perform all obligations and satisfy all
conditions on its part to be performed or satisfied hereunder at or prior to
such Time of Delivery, in either case other than by reason of a default by any
of the Underwriters. If this Agreement is terminated pursuant to this Section
10(a), the Company will reimburse the Underwriters severally upon demand for all
out-of-pocket expenses (including counsel fees and disbursements) that shall
have been incurred by them in connection with the proposed purchase and sale of
the Shares. The Company shall not in any event be liable to any of the
Underwriters for the loss of anticipated profits from the transactions covered
by this Agreement.
(b) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company as
-34-
<PAGE>
provided in Section 9(a), the aggregate number of such Shares which remains
unpurchased exceeds one-eleventh of the aggregate number of Shares to be
purchased at such Time of Delivery, or if the Company shall not exercise the
right described in Section 9(b) to require non-defaulting Underwriters to
purchase Shares of a defaulting Underwriter or Underwriters, then this Agreement
(or, with respect to a Subsequent Time of Delivery, the obligations of the
Underwriters to purchase and of the Company and the Selling Shareholders to sell
the Optional Shares) shall thereupon terminate, without liability on the part of
any non-defaulting Underwriter or the Company, except for the expenses to be
borne by the Company and the Underwriters as provided in Section 6 hereof and
the indemnity and contribution agreements in Section 8 hereof; but nothing
herein shall relieve a defaulting Underwriter from liability for its default.
11. SURVIVAL. The respective indemnities, agreements,
representations, warranties and other statements of the Company, its officers,
the several Underwriters and the Selling Shareholders, as set forth in this
Agreement or made by or on behalf of them, respectively, pursuant to this
Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Underwriter or any controlling person referred to in Section 8(f) or the
Company, or any officer or director or controlling person of the Company
referred to in Section 8(f), or any Selling Shareholder, and shall survive
delivery of and payment for the Shares. The respective agreements, covenants,
indemnities and other statements set forth in Sections 6 and 8 hereof shall
remain in full force and effect, regardless of any termination or cancellation
of this Agreement.
12. NOTICES. All communications hereunder shall be in writing and,
if sent to any of the Underwriters, shall be mailed, delivered or telegraphed
and confirmed in writing to you in care of The Robinson-Humphrey Company, Inc.,
3333 Peachtree Road, N.E., Atlanta, Georgia 30326, Attention: Corporate Finance
Department (with a copy to Troutman Sanders LLP, 600 Peachtree Street, N.E.,
Suite 5200, Atlanta, Georgia 30308, Attention: James L. Smith, III, Esquire); if
sent to the Company, shall be mailed, delivered or telegraphed and confirmed in
writing to the Company at 1750-A Ellsworth Industrial Boulevard, Atlanta,
Georgia 30318, Attention: John C. Dancu (with a copy to Hunton & Williams, 600
Peachtree Street, Suite 4100, Atlanta, Georgia 30308, Attention: J. Stephen
Hufford, Esq.); and if sent to the Selling Shareholders, shall be mailed,
delivered or telegraphed to the Selling Shareholders in care of John C. Dancu
(with a copy to Hunton & Williams, 600 Peachtree Street, N.E., Suite 4100,
Atlanta, Georgia 30308, Attention: J. Stephen Hufford, Esq.).
13. REPRESENTATIVES. You will act for the several Underwriters in
connection with the transactions contemplated by this Agreement, and any action
under this Agreement taken by you jointly or by The Robinson-Humphrey Company,
Inc. will be binding upon all the Underwriters.
14. BINDING EFFECT. This Agreement shall be binding upon, and inure
solely to the benefit of, the Underwriters and the Company and to the extent
provided in Sections 8 and 10 hereof, the officers and directors and controlling
persons referred to therein and their respective heirs, executors,
-35-
<PAGE>
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. No purchaser of any of the
Shares from any Underwriter shall be deemed a successor or assign by reason
merely of such purchase.
15. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Georgia without giving effect to any
provisions regarding conflicts of laws.
16. COUNTERPARTS. This Agreement may be executed by any one or more
of the parties hereto in any number of counterparts, each of which shall be
deemed to be an original, but all such counterparts shall together constitute
one and the same instrument.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us one of the counterparts hereof, and upon
the acceptance hereof by The Robinson-Humphrey Company, Inc., on behalf of each
of the Underwriters, this letter will constitute a binding agreement among the
Underwriters and the Company. It is understood that your acceptance of this
letter on behalf of each of the Underwriters is pursuant to the authority set
forth in the Master Agreement among Underwriters, a copy of which shall be
submitted to the Company for examination, upon request, but without warranty on
your part as to the authority of the signers thereof.
Very truly yours,
K & G MEN'S CENTER, INC.
By:
------------------------------------
Name:
Title:
THE SELLING SHAREHOLDERS
By:
------------------------------------
, Attorney-in-Fact
-36-
<PAGE>
The foregoing Agreement is hereby
confirmed and accepted as of the
date first written above at
Atlanta, Georgia.
THE ROBINSON-HUMPHREY COMPANY, INC.
J. C. BRADFORD & CO.
INTERSTATE/JOHNSON LANE CORPORATION
By: The Robinson-Humphrey Company, Inc.
By:
----------------------------------
(Authorized Representative)
On behalf of each of the Underwriters
-37-
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Number of
Optional
Shares to be
Total Purchased if
Number of Firm Maximum
Shares to be Option
Underwriter Purchased Exercised
- ------------------------------------- -------------- ------------
<S> <C> <C>
The Robinson-Humphrey Company, Inc.
J. C. Bradford & Co.
Interstate/Johnson Lane Corporation
-------------- ------------
Total 1,200,000 180,000
============== ============
</TABLE>
-38-
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
Number of Optional
Shares to be Sold
Total Number of if Maximum
Selling Shareholder Firm Shares to be Sold Option Exercised
- ------------------- ---------------------- ------------------
<S> <C> <C>
ITC Holding Company 80,000 13,953
J. William Fowler 150,000 26,163
Susan Lee Lorder Vehon 50,000 -
Susan Lee Lorder Vehon and
Richard M. Vehon, Jr. as
Independent Executors of the Estate
of Richard M. Vehon, Sr. 50,000 -
Richard M. Vehon, Jr. 12,150 -
Stephen H. Greenspan 300,000 52,326
W. Paul Ruben 175,000 30,523
Martin Schwartz 60,000 10,465
John C. Dancu 9,000 1,570
------- -------
TOTAL 886,150 135,000
------- -------
</TABLE>
-39-
<PAGE>
ANNEX I
Pursuant to Section 7(e) of the Underwriting Agreement, Arthur Andersen LLP
shall furnish letters to the Underwriters to the effect that:
(i) they are independent public accountants with respect to the
Company and its consolidated subsidiaries within the meaning the Act and
the applicable published rules and regulations thereunder;
(ii) in their opinion, the consolidated financial statements and
schedules audited by them and included in the Prospectus and the
Registration Statement comply as to form in all material respects with the
applicable accounting requirements of the Act and the related published
rules and regulations thereunder;
(iii) on the basis of a reading of the latest available
interim unaudited consolidated financial statements of the Company and its
consolidated subsidiaries and a reading of the unaudited amounts for
revenues and total and per share amounts of net income for the [insert
periods for which "capsule" information is provided] and of the unaudited
consolidated financial statements of the Company and its consolidated
subsidiaries for the periods from which such amounts are derived, limited
procedures, not constituting an audit in accordance with generally accepted
auditing standards, consisting of a reading of the unaudited financial
statements and other information referred to below, a reading of the latest
available interim financial statements of the Company and its subsidiaries,
inspection of the minute books of the Company and its subsidiaries since
the date of the latest audited financial statements included in the
Prospectus, inquiries of officials of the Company and its subsidiaries
responsible for financial accounting matters and such other inquiries and
procedures as may be specified in such letter, nothing came to their
attention that caused them to believe that:
(A) the unaudited consolidated financial statements of the
Company and its consolidated subsidiaries included in the Registration
Statement and the Prospectus do not comply in form in all material
respects with the applicable accounting requirements of the Act and
the related published rules and regulations thereunder or are not in
conformity with generally accepted principles applied on a basis
substantially consistent with that of the audited consolidated
financial statements included in the Registration Statement and the
Prospectus;
(B) as of a specified date not more than 5 days prior to the
date of such letter, there were any changes in the capital stock
(other than the issuance of capital stock upon exercise of employee
stock options that were outstanding on the date of the latest balance
sheet included in the Prospectus) or any increase in inventories or
-40-
<PAGE>
the long-term debt or short-term debt of the Company and its
subsidiaries, or any decreases in net current assets or net assets or
other items specified by the Representatives, or any increases in any
other items specified by the Representatives, in each case as compared
with amounts shown in the latest balance sheet included in the
Prospectus, except in each case for changes, increases or decreases
which the Prospectus discloses have occurred or may occur, or which
are described in such letter; and
(C) for the period from the date of the latest financial
statements included in the Prospectus to the specified date referred
to in clause (B) there were any decreases in revenues or operating
income or the total or per share amounts of net income or other items
specified by the Representatives, or any increases in any items
specified by the Representatives, in each case as compared with the
comparable period of the preceding year and with any other period of
corresponding length specified by the Representatives, except in each
case for increases or decreases which the Prospectus discloses have
occurred or may occur, or which are described in such letter; and
(iv) in addition to the audit referred to in their report(s)
included in the Prospectus and the limited procedures, inspection of minute
books, inquiries and other procedures referred to in paragraph (iii) above,
they have carried out certain specified procedures, not constituting an
audit in accordance with generally accepted auditing standards, with
respect to certain amounts, percentages and financial information specified
by the Representatives that are included in the Registration Statement and
the Prospectus, or which appear in Part II of, or in exhibits or schedules
to, the Registration Statement and have compared certain of such amounts,
percentages and financial information with the accounting records of the
Company and its subsidiaries and have found them to be in agreement.
References to the Registration Statement and the Prospectus in this
Annex I shall include any amendment or supplement thereto at the date of such
letter.
-41-
<PAGE>
ANNEX II
[To Come]
-42-
<PAGE>
EXHIBIT 5.1
October 15, 1996
K&G Men's Center, Inc.
1750-A Ellsworth Industrial Boulevard, N.W.
Atlanta, Georgia 30318
Re: Registration Statement on Form S-1
Ladies and Gentlemen:
We have served as counsel for K&G Men's Center, Inc., a Georgia corporation
(the "Company"), and certain shareholders of the Company (the "Selling
Shareholders") in connection with the registration under the Securities Act of
1933, as amended, pursuant to the Company's Registration Statement on Form S-1
(the "Registration Statement"), of a proposed public offering of 1,200,000
shares (the "Shares") of the Company's authorized common stock, $.01 par value,
of which 313,850 Shares are to be sold by the Company and 886,150 Shares are to
be sold by Selling Shareholders. In addition, the Company and certain of the
Selling Shareholders have granted to the underwriters (the "Underwriters") named
in the Registration Statement an option to purchase up to an additional 180,000
shares of Common Stock to cover over-allotments, if any (the "Over-Allotment
Shares").
We have examined and are familiar with originals or copies (certified or
otherwise identified to our satisfaction) of such documents, corporate records
and other instruments relating to the organization of the Company and to the
authorization and issuance of the Shares and the Over-Allotment Shares to be
offered and sold by the Company and the Selling Shareholders, as appropriate, as
we have deemed necessary and advisable.
Based upon the foregoing and having regard for such legal considerations as
we deem relevant, it is our opinion that:
1. The 886,150 Shares to be sold by the Selling Shareholders are legally
and validly issued, fully paid and non-assessable, and the 313,850 Shares to be
issued and sold by the Company will be, upon issuance, sale and delivery as
contemplated in the Registration Statement, legally and validly issued, fully
paid and non-assessable; and
<PAGE>
2. The 135,000 Over-Allotment Shares to be sold by the Selling
Shareholders upon the exercise of the over-allotment option by the Underwriters
are legally and validly issued, fully paid and non-assessable, and the 45,000
Over-Allotment Shares to be issued and sold by the Company upon the exercise of
the over-allotment option by the Underwriters will be, upon issuance, sale and
delivery as contemplated in the Registration Statement, legally and validly
issued, fully paid and non-assessable.
We do hereby consent to the reference to our firm under the heading "Legal
Matters" in the Prospectus contained in the Registration Statement and to the
filing of this Opinion as Exhibit 5.1 thereto.
Very truly yours,
Hunton & Williams
<PAGE>
FIRST AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT
--------------------------------------------------------
AGREEMENT
---------
THIS FIRST AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT,
dated as of July 10, 1996, between the undersigned, amends that certain Amended
and Restated Revolving Credit Agreement dated as of July 19, 1995 (the "Loan
Agreement"), by and between K&G MEN'S CENTER, INC., a corporation organized and
existing under the laws of the State of Georgia (the "Borrower"), and SUNTRUST
BANK, ATLANTA, a Georgia banking corporation, formerly known as Trust Company
Bank (the "Bank").
WITNESSETH:
-----------
WHEREAS, Borrower and Bank wish to extend the termination date of the
Commitment from June 30, 1998 until June 30, 1999 on the terms and conditions
set forth herein; and
WHEREAS, Borrower and Bank wish to amend certain financial covenants set
forth in Section 5.10;
NOW, THEREFORE, for and in consideration of the sum of $10.00 in hand paid
by the Bank to the Borrower, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, agree as follows:
1. Amendments.
----------
(a) Section 2.01 of the Loan Agreement is hereby amended by deleting all
references to "June 30, 1998" and substituting "June 30, 1999" in lieu thereof.
(b) Section 2.07 of the Loan Agreement is hereby amended by deleting all
references to "June 30, 1998" and substituting "June 30, 1999" in lieu thereof.
(c) Section 5.10 of the Loan Agreement is hereby amended by deleting such
section in its entirety and inserting the following in lieu thereof:
SECTION 5.10. Financial Covenants. The Borrower shall, measured
-------------------
on a rolling twelve month period basis, and tested quarterly:
(a) cause Borrower's consolidated Tangible Net Worth to increase
each year by an amount equal to at least 50% of Borrower's
consolidated after tax Net Income for such fiscal year, if any
(the "Additional Tangible Net Worth");
<PAGE>
(b) commencing as of January 30, 1996, maintain Borrower's
consolidated Tangible Net Worth of at least (i) $10,000,000.00
plus (ii) the sum of Additional Tangible Net Worth for each prior
year, and
(c) maintain at all times a Fixed Charge Coverage ratio of not
less than 2.25 to 1.
2. Miscellaneous. This Amendment shall be governed by and interpreted in
-------------
accordance with the laws of the State of Georgia. Except as amended hereby, the
Loan Agreement remains in full force and effect. All representations,
warranties, covenants and agreements set forth in the Loan Agreement are hereby
restated in their entirety. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which,
taken together, shall constitute one and the same instrument.
WITNESS the hand and seal of the parties hereto through their duly
authorized officers, as of the date first above written.
K&G MEN'S CENTER, INC.
By: /s/ John C. Dancu
-------------------------------
Name: John C. Dancu
Title: Chief Financial Officer
Attest: /s/ John C. Dancu
---------------------------
Name: John C. Dancu
Title: Assistant Secretary
[CORPORATE SEAL]
SUNTRUST BANK, ATLANTA
By: /s/ Kevin C. King
-------------------------------
Name: Kevin C. King
Title: First Vice President
By:
-------------------------------
Name:
Title:
<PAGE>
ACKNOWLEDGED AND AGREED BY THE FOLLOWING
GUARANTORS AS OF THIS 10TH DAY OF JULY, 1996:
T&C LIQUIDATORS, INC.
BY: /s/ Stephen H. Greenspan
-------------------------------
Name: Stephen H. Greenspan
Title: President
K&G ASSOCIATES OF INDIANA, INC.
BY: /s/ Stephen H. Greenspan
-------------------------------
Name: Stephen H. Greenspan
Title: President
K&G ASSOCIATES OF NEW JERSEY, INC.
BY: /s/ Stephen H. Greenspan
-------------------------------
Name: Stephen H. Greenspan
Title: President
K&G OF OHIO, INC.
BY: /s/ Stephen H. Greenspan
-------------------------------
Name: Stephen H. Greenspan
Title: President
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT is made and entered into this 20th day of November, 1995,
between ELLSWORTH REALTY, L.L.C, a Georgia limited liability company (herein
referred to as the "Landlord") and K&G MEN'S CENTER, INC., a Georgia corporation
(herein referred to as the "Tenant").
W I T N E S S E T H:
--------------------
1. PREMISES
In consideration of the rents and other covenants of this Lease, Landlord
hereby leases to Tenant and Tenant hereby takes from Landlord those certain
premises (herein referred to as the "Premises") containing approximately 5.5
acres more or less and the brick building containing approximately 100,000
square feet and referred to alternately as 1225 Chattahoochee Avenue , Atlanta ,
Georgia 30318 and 1750 Ellsworth Industrial Blvd., Atlanta, Georgia 30318. The
Premises are comprised of approximately 70,000 square feet of leaseable area to
be used for "office/warehouse" purposes (herein referred to as the
"Office/Warehouse Space") and 30,000 square feet of leaseable space to be used
for retail purposes (herein referred to as "Retail Space") A legal description
of the premises is attached as Exhibit "A" hereto and made part hereof.
2. TERM
Subject to the terms and conditions hereinafter set forth, the term of this
Lease shall commence on the November 20, 1995 (herein referred to as the
"Commencement Date") and expire unless extended as hereinafter provided, at
midnight on the 31st day of December, 2005. The term of this Lease and any
extension thereof shall be referred to herein as the "Lease Term".
3. RENT
A. Fixed Rent. Tenant agrees to pay to Landlord, as an initial annual rent
----------
for the Premises during the Lease Term, without notice, demand, deduction or
offset, the sum of Two hundred and thirty thousand Dollars ($230,000.00) .
Tenant shall pay the annual rent, in advance, in equal monthly installments of
Nineteen thousand One Hundred and Sixty and 66/100 Dollars ($19,166.67) on the
first (1st) day of each month during the Lease Term upon the store opening.
Before the store opening the Tenant will pay to the Landlord Four thousand
dollars ($4,000) a month. The Tenant agrees to open the store as of February 1,
1996. The annual rent shall be paid to Landlord at the address set forth in
Paragraph 24 hereof or at such other place designated by Landlord. If the Lease
Term shall begin on any date other than the first day of a month or shall end on
any date other than the last day of a month, the monthly installment (prorated
on a thirty (30) day month) shall be paid in advance for such month.
B. Percentage Rent. In addition to the fixed rent and all other sums payable
---------------
hereunder, Tenant agrees to pay to Landlord annually on January 20 of each
calendar year during the Lease Term and any extension thereof, as percentage
rent, (herein referred to as the "Percentage Rent") for the Retail Space a sum
equal to one (1%) percent of the amount by which Tenant's "Gross Sales", as that
term is herein defined, from January 1 to December 31 of the preceding calendar
year exceeds Fifteen Million and No/100 Dollars ($15,000,000.00).
C. Rent Increase for Premises. Commencing on January 1, 1997 and on each
--------------------------
January 1st of each year thereafter during the Lease Term, Tenant agrees to pay,
as an annual rent for such calendar year for the Premises, without notice,
demand, offset or deduction, an amount determined by multiplying (i) the annual
rent for the Premises for the preceding calendar year of the Lease Term by (ii)
the percentage change of the "CPI" ( as that term is herein defined) for the
month of November of the preceding calendar year of the Lease Term from the CPI
for the month of January of the preceding calendar year of the Lease Term plus
----
one hundred percent (100%). The percentage change of the annual rent for each
calendar year shall be the same as the percentage change in the CPI for the one
(1) month period for the preceding calendar year. An example of how to determine
the change in the annual rent is set forth below. In no event shall the annual
rent during the Lease Term be less than the annual rent required to be paid
during the First or preceding calendar year of the Lease Term whichever is
<PAGE>
higher. The monthly installments of the annual rent for the Premises shall be
adjusted accordingly and shall be due and payable, in advance, on the first
(1st) day of each month of such calendar year.
For purposes hereof, the term "CPI" shall mean the Consumer Price Index,
All Urban Consumers (CPI-U), U.S. City Average, All Items - 1982 - 84 = 100
which is published by the United States Bureau of Labor Statistics (herein
called "BLS").
If the standard reference base for the CPI is changed, the CPI shall be
converted using factors supplied by BLS which are based on the percentage change
and not the index point change in the reference base. If an error is discovered
in the CPI and is changed by the BLS, the annual rent shall be recomputed based
on the correct CPI and any payments required by reason thereof shall be promptly
made by Landlord and Tenant, as the case may be. If the CPI is discontinued or
is no longer published on a monthly basis the percentage change shall be an
amount equal to one hundred and three percent (103%) of the annual rent for the
preceding calendar year of the Lease Term.
<TABLE>
<CAPTION>
Example:
<S> <C>
Index Point Change
CPI (for November) 118.5
Less CPI (for January) 113.8
Equals Index Point Change 4.7
Percentage Change
Index Point Change 4.7
Divided by CPI for January 113.8
Equals Percentage Change 0.041
Annual Rent
Annual Rent preceding year $100.00
Multiplied by Percentage of Change 1.041
Equals Annual Rent Current Year $104.10
</TABLE>
D. Definition of Gross Sales. The term "Gross Sales" as used herein shall
-------------------------
mean the total amount of the actual total sales price (whether for cash or on
credit or partly on credit) of all sales or rentals of goods, wares,
merchandise, services, and all credit charges and all other receipts and
revenues from business conducted in or from the Retail Space, including, but not
limited to, all sales to employees of Tenant, all mail or telephone orders
received or filed at or from the Retail Space, all deposits not refunded to
purchasers, all orders taken at the Retail Space whether or not said orders are
filled elsewhere, all receipts or sales through any vending machine or other
coin operated machine or device, and all sales and revenues by any sublessee,
occupant, concessionaire, licensee and any other party or parties in any way
using the Retail Space. Gross Sales shall not include any sums collected and
actually paid by Tenant for any sales or retail excise tax imposed by any duly
constituted governmental authority, refunds, returns and allowances; amounts
received for merchandise transferred to any other place of business of Tenant
and service charges on credit card sales. Each sale upon installment or credit
shall be treated as a sale for the full price in the month in which such sale
shall be made, irrespective of the time when Tenant shall receive payment.
E. Reports. Tenant shall use a tape-recording cash register or such other
-------
sales-recording device which makes a permanent written record of each sale.
During the Lease Term and any extension thereof, Tenant shall maintain and keep
on the Premises or at the principal office of Tenant (or its parent corporation)
for the immediately preceding three (3) calendar years, full, complete and
accurate permanent bank deposit records and receipts, and business records and
ledgers of all of the Gross Sales arising out of the business conducted at or
<PAGE>
from the Retail Space. Landlord may, at all times during normal business hours,
inspect and audit such books and records at the Premises. If the results of any
audit disclose that any statement of Gross Sales made by Tenant for any calendar
year has been misstated by four (4%) percent or more, Tenant shall immediately
pay to Landlord the cost of such audit. The failure to deliver any statement of
Gross Sales promptly when due shall constitute a default by Tenant under this
Lease.
On or before the twentieth (20th) day of the month after the end of each
calendar quarter during the Lease Term and any extension thereof, Tenant shall
deliver to Landlord, a complete and accurate written statement showing, in
reasonable detail, the amount of the Gross Sales for the preceding calendar
quarter, including a complete and accurate copy of the Georgia Sales and Use Tax
return for such calendar quarter and a statement of the total amount of sales
taxes and excise taxes paid or payable for such calendar quarter. Each such
statement shall be signed and verified by Tenant; or, if Tenant is a
corporation, by one of its principal officers. Tenant shall, on or before the
20th day of January of each year during the term of this Lease, deliver to
Landlord a complete and accurate copy of the Sales and Use Tax return filed or
required to be filed by Tenant for the preceding calendar year.
4. USE AND INSURANCE
A. Use. The Premises may be used for any lawful purpose, including retail and
---
general office and warehouse use. Tenant, at its sole cost and expense, shall
during the Lease Term (i) obtain and maintain any and all licenses and permits
necessary for any such use and (ii) comply with all governmental laws,
ordinances, regulations, orders and directives applicable to the use of the
Premises. Tenant shall not receive, store or otherwise handle any product,
material or merchandise which is explosive or highly inflammable, including, but
not limited to, any "hazardous substances," as that term is defined in Paragraph
8 hereof or permit the Premises to be used for any purpose which would render
the insurance thereon void or the insurance risk more hazardous. The Premises
shall not be used for any illegal purposes, in violation of any regulation of
any governmental body or in any manner to create any nuisance.
B. Insurance Requirements. Tenant shall during the Lease Term, at its sole
-----------------------
cost and expense, obtain and maintain (1) comprehensive general public,
liability insurance (with contractual liability endorsement) with coverage in
amounts of not less than $2,000,000.00 with respect to property damage, bodily
injury, personal injury or death to one or more persons and (ii) standard fire
and extended coverage insurance on all buildings and other improvements which
comprise the Premises in an amount which shall equal the replacement cost for
the buildings and improvements and shall include business and rental
interruption insurance. Any insurance policy required hereunder shall insure
Landlord and Tenant and any designees of Landlord (including, the holder of any
security deed encumbering the Premises, which as of the date hereof is SunTrust
Bank, Atlanta); contain such mortgage endorsements as required by Landlord and
any such designee; be written by a responsible insurance company licensed to do
business in Georgia; be in form and substance satisfactory to Landlord and
contain endorsements that such insurance may not be canceled or materially
altered by the insurance company except upon thirty (30) days prior written
notice to Landlord and any such designee. Upon taking or accepting possession of
the Premises and thereafter, at least seven (7) days prior to the expiration of
each policy required to be carried by Tenant hereunder, Tenant shall deliver to
Landlord and any such designee either a duplicate original or a certificate of
insurance of all substitute or renewal policies required to be carried by Tenant
hereunder together with evidence that the entire premium therefor has been paid.
5. SERVICES
A. Utilities. Tenant shall pay for all public and other utilities and related
----------
services rendered or furnished to the. Premises during the Lease Term,
including, but not limited to, gas, heat, light, power, telephone, sprinkler
charges and other utilities and services used on or provided to the Premises and
any taxes, penalties, surcharges or the like pertaining thereto and any cost to
maintain and repair the facilities and equipment used in providing such
utilities and services.
<PAGE>
B. Janitorial Service. Tenant, at its sole cost, shall provide its own
------------------
janitorial services to be performed in the Premises during the Lease Term.
C. Interruption of Service. Except for the gross negligence of Landlord,
------------------------
Landlord shall not be liable for any interruption, discontinuance or failure of
any utility or other service furnished to the Premises. Any interruption,
discontinuance or failure of any utility or other service to the Premises shall
not constitute an eviction (constructive or otherwise) or give Tenant the right
to claim any damages against Landlord or any right to withhold, reduce or abate
the payment of the annual rent or any other sum required to be paid to Landlord
under the terms of this Lease.
6. ADDITIONAL CHARGES
A. Taxes. Commencing on the Commencement Date and continuing thereafter
-----
during the Lease Term, Tenant agrees to pay to Landlord annually, without offset
or deduction, on or before seven (7) days after notice, the real estate ad
valorem taxes, governmental and public charges and special and general
assessments, including all costs and fees incurred by Landlord in contesting
same, (herein collectively referred to as the "Taxes") imposed against the
building and the real property and the buildings and improvements which comprise
the Premises for each calendar year during the Lease Term.
B. Water and Sewer Charges. Commencing on the Commencement Date and
-----------------------
continuing thereafter periodically during the Lease Term, Tenant agrees to pay
to Landlord, without offset or deduction, on or before seven (7) days after
notice any and all water and sanitary sewer charges incurred by Landlord for the
Premises.
C. Rent Tax. If any governmental authority imposes a tax, levy or other
--------
imposition upon Landlord based upon the rent received by Landlord under this
Lease, Tenant shall pay to Landlord, on or before seven (7) days after notice
and without offset or deduction, the amount thereof. The tax, levy or imposition
to which reference is made shall include sales, use, excise or similar tax, but
shall not include capital stock, estate, or inheritance taxes imposed upon
Landlord. The sums contemplated in this Paragraph shall be paid in addition to
the sums required to be paid by Tenant pursuant to Paragraph 6.A. hereof.
D. Payments. The payments required under this Paragraph 6 shall be made to
---------
Landlord at the address set forth in Paragraph 24 hereof.
7. REPAIRS
A. Tenant. Tenant, at its sole cost and expense, shall make all repairs,
------
replacements, alterations and maintenance to the Premises including, but not
limited to, the roof, exterior walls, foundation of the building, windows, doors
and glass, heating, ventilating and air conditioning systems and any repairs,
replacements, damage or injury to all or any part of the Premises caused by
Tenant or its agents, employees, invitees or licensees. Landlord shall not be
required to make any repairs, replacements, alterations or improvements to the
building or the Premises. Landlord shall not be liable to Tenant for any damage
or inconvenience which occurs by reason of the Premises being in need of repair.
B. Waste. Tenant shall not commit or allow any waste or damage to be
-----
committed on or to any portion of the Premises. At the expiration or termination
of this Lease, Tenant shall deliver and surrender the Premises to Landlord in
good order, condition and repair, ordinary wear and tear excepted. The cost and
expense of any repair necessary to restore the Premises to such order, condition
and repair shall be paid by Tenant; and, if Landlord undertakes to perform such
restoration, Tenant shall, on or before seven (7) days after notice, reimburse
Landlord for the cost thereof.
C. Self Help by Landlord. In the event Tenant fails to promptly make any
----------------------
repairs or replacements, or perform any alteration or maintenance required to be
<PAGE>
made by Tenant hereunder, Landlord may, at its option and at Tenant's expense,
make the repairs or replacements and perform the maintenance for and on behalf
of Tenant. Tenant shall, on or before seven (7) days after notice, pay to
Landlord all cost and expense incurred by Landlord in making such repairs and
replacements and performing such alteration or maintenance.
8. COMPLIANCE WITH LAWS, RULES AND REGULATIONS
A. General. Tenant, at its sole cost and expense, shall promptly comply with
-------
all laws, ordinances, orders, rules and regulations of state, federal, municipal
or other agencies or bodies having jurisdiction now or hereafter affecting the
use, condition and occupancy of the Premises.
B. Hazardous Substance. Tenant shall not, on or about the Premises, make,
--------------------
store, use, treat, dispose of or permit any person or entity to make, store,
use, treat or dispose of any (i) "hazardous substance", as that term is defined
in the Comprehensive Environmental Response, Compensation and Liability Act, and
the Rules and Regulations promulgated pursuant thereto, as from time to time
amended (herein collectively called "CERCLA") or (ii) any other hazardous
waste, contaminant, petroleum, oil, radioactive or other materials the removal
of which is required or the maintenance of which is prohibited, penalized or
regulated by any local, state or federal agency, authority or governmental unit.
C. Indemnity. Tenant agrees to defend, indemnify and hold Landlord and its
----------
successors and assigns harmless from and against any and all claims or demands
arising out of or in any manner connected with the "release" or "threatened
release" of "hazardous substances", as those terms are defined in CERCLA, or
contaminants, oil, petroleum, radioactive or other materials from the Premises
or any portion or portions thereof, arising out of or in any manner connected
with the occupancy or use of the Premises by Tenant during the Lease Term and
any and all actions, suits and proceedings in connection with any such claim or
demand and any and all loss, cost, damage, liability and expense incurred by
Landlord in connection therewith, including, but not limited to, attorneys fees
and other costs of litigation. The terms of this Paragraph shall survive the
expiration or termination of this Lease.
9. ALTERATIONS AND IMPROVEMENTS
A. General. Tenant shall not make or permit any alteration, addition or
-------
improvement to be made in or to the Premises without the consent of Landlord
which consent shall not be unreasonably withheld. Any alteration, addition or
improvement to the Premises permitted by Landlord shall be performed by Tenant
at its expense in accordance with any license or permit required with respect
thereto and in a good workmanlike manner and in compliance with all applicable
governmental laws, rules, regulations and ordinances. Any alteration, addition
or improvement shall, on completion, be the property of Landlord and shall be
surrendered to Landlord on the expiration or termination of this Lease.
B. No Liens. Tenant shall have no authority, express or implied, to create or
--------
place any lien or encumbrance on the Premises. Tenant shall pay or cause to be
paid all sums due and payable by Tenant on account of any labor performed or
materials furnished in connection with any work performed on the Premises.
C. Indemnify. Tenant agrees to defend, indemnify and hold Landlord harmless
----------
from and against any and all claims or demands based on any act or omission of
Tenant which gives rise to any lien or claim of lien against the Premises or the
right, title and interest of Landlord in the Premises and any and all actions,
suits and proceedings in connection with any such claim or demand and any and
all loss, cost, damage, liability and expense incurred by Landlord in connection
therewith, including attorneys fees and other costs of litigation. The terms of
this Paragraph shall survive the expiration of the Lease Term.
<PAGE>
10. CONDEMNATION
A. Total. In the event all or a substantial portion (but in any event greater
-----
than 30% of the total square feet) of the Premises is taken for any public or
quasi-public use under any governmental law, ordinance or regulation or by right
of eminent domain or by private purchase in lieu thereof (herein collectively
referred to as a "Taking") and the Taking would prevent or materially interfere
with the use of the Premises for the purpose for which they are then being used,
this Lease shall terminate and the rent shall be abated during the unexpired
portion of the Lease Term effective on the date the condemning authority takes
possession of the Premises. Landlord shall notify Tenant in the event Landlord
receives notice of a proposed Taking.
B. Partial. In the event a portion of the Premises shall be subject to a
-------
Taking and this Lease is not terminated as provided in the Paragraph 10.A.
hereof, Landlord may, at its sole and exclusive option, either (i) terminate
this Lease by notice to Tenant effective as of the date which is ninety (90)
days after the date of such notice or (ii) restore and reconstruct the Premises
to the extent necessary to make the Premises tenantable. In the event Landlord
elects to restore the Premises, the rent payable under this Lease for the
unexpired portion of the Lease Term shall be adjusted in such a manner which is
fair and reasonable under the circumstances.
C. Award. In the event of any Taking of all or a portion of the Premises,
------
Landlord shall be entitled to receive all of the award made in connection with
such Taking, including, without limitation, any award for the value of the
unexpired term of this Lease. Tenant shall not be entitled to receive any award
for the loss of its leasehold advantage. In the event there is an allocation in
the award made to Landlord for moving or business interruption expenses of
Tenant, Landlord shall pay such designated portion of the award to Tenant on or
before ten (I 0) days after its actual receipt thereof. Notwithstanding anything
contained herein to the contrary, Landlord shall not be obligated to seek
recovery of such expense for or on behalf of Tenant.
11. FIRE AND CASUALTY
A. Total. In the event the Premises are totally destroyed or partially
-----
damaged by fire, tornado or other casualty, Tenant shall immediately notify
Landlord. In the event (i) the Premises are partially damaged and restoration
thereof cannot, in Landlord's sole discretion, be completed within one hundred
and fifty (150) days after the date of notice to Landlord by Tenant of such
destruction or (ii) the Premises are totally destroyed, Landlord, at its sole
and exclusive option by notice to Tenant, terminate this Lease in which event
the rent shall abate for the unexpired portion of the Lease Term effective as of
the date of the notice of termination.
B. Partial. In the event Landlord elects to restore the Premises after a
-------
casualty (whether total or partial), Landlord shall, at its sole cost and
expense, proceed with reasonable diligence to restore the Premises or the
building in which the Premises are located to substantially the same condition
as they were prior to such casualty. During such restoration, in the event all
or a portion of the Premises are untenantable and the damage or destruction was
not caused in whole or in part by any negligent act or omission of Tenant, its
agents, employees, invitees or others for whom the Tenant is responsible, the
rent payable under this Lease during the period in which the Premises are
untenantable shall be adjusted in such a manner as is fair and reasonable under
the circumstances. In the event Landlord elects to restore the Premises and
thereafter fails to complete the necessary restoration of the Premises to permit
Tenant to reoccupy the Premises within one hundred and fifty (150) days after
receipt by Landlord of Tenant's notice of such destruction, Tenant may, at its
option and as its sole right and exclusive remedy, terminate this Lease by
notice to Landlord.
C. Mortgagee. Notwithstanding anything contained in this Lease to the
---------
contrary, in the event the "Mortgagee", as that term is herein defined, requires
that the insurance proceeds received by Landlord in connection with any casualty
be applied to repay the indebtedness secured by the "Mortgage", as that term is
herein defined, Landlord shall have the right to terminate this Lease by notice
to Tenant on or before thirty (30) days after the date on which Landlord
receives written notice from the Mortgagee that such proceeds shall be applied
to repay such indebtedness.
<PAGE>
12. WAIVER OF SUBROGATION
Notwithstanding anything contained in this Lease to the contrary, Landlord
and Tenant hereby each waive and release the other from any and all rights of
recovery, claim, action or cause of action, against each other, their agents,
officers, and employees for any loss or damage that may occur to the Premises,
or personal property (building contents) within the building, by reason of fire,
the elements or any other cause which could be insured against under the terms
of standard fire and extended coverage insurance policies, regardless of cause
or origin, including negligence of Landlord or Tenant and their agents, officers
and employees, as the case may be. Landlord and Tenant each agree to give to
their respective insurance companies which have issued policies of fire and
extended coverage insurance, written notice of the terms of the mutual waivers
contained in this Paragraph and to have the insurance policies properly
endorsed, if necessary, to prevent the invalidation of the insurance coverages
by reason of the mutual waivers contained in this Paragraph.
13. LANDLORD LIABILITY
A. Disclaimer of Liability. Landlord shall not be liable to Tenant, its
-----------------------
employees, agents, invitees, licensees or visitors, or to any other person for
any injury to person or damage to property on or about the Premises caused by
(i) the negligence or misconduct of Tenant, its agents, servants or employees or
by any other person entering the Premises under express or implied invitation of
Tenant, (ii) the building and improvements being out of repair or in disrepair,
(iii) leakage of gas, oil, water, steam or electricity into the Premises, (iv)
the breakage of pipes and plumbing in the Premises or (v)any latent defect,
deterioration or change in the condition of the Premises.
B. Indemnity. Tenant agrees to defend, indemnify and hold Landlord harmless
---------
from and against any claim or demand arising out of any damage or injury
contemplated in Paragraph 13.A. hereof, and any action, suit and proceeding in
connection with any such claim or demand and any and all loss, cost, damage,
liability or expense incurred by Landlord in connection therewith including
attorney's fees and other costs of litigation. The terms of this Paragraph shall
survive the expiration of the Lease Term.
14. QUIET ENJOYMENT
Landlord represents to Tenant that it has full right and authority to execute
and deliver this Lease. Upon payment of the rent and performance by Tenant of
each of the covenants and agreements contained in this Lease which require its
performance, Tenant shall peaceably and quietly have, hold and enjoy the
Premises during the Lease Term without hindrance by-Landlord.
15. LANDLORD'S RIGHT OF ENTRY
Landlord shall have the right, at all reasonable hours, to enter the Premises
for the purpose of determining Tenant's use of the Premises or if any default
has occurred under this Lease.
16. ASSIGNMENT OR SUBLEASE
Landlord shall have the right to transfer and assign, in whole or in part,
its rights and obligations in this Lease. Tenant may assign this Lease or sublet
all (but not any part) of the Premises with the prior written consent of
Landlord which consent shall not be unreasonably withheld provided such assignee
assumes the obligations of Landlord under this Lease. Upon receipt from Tenant
of written request for Landlord's consent to any proposed assignment or
sublease, Landlord shall have the option, by notice delivered to Tenant on or
before fifteen (15) days after receipt of Tenant's notice to Landlord, to
terminate this Lease as of the date the proposed assignment or sublease would
have been effective. The failure of Landlord to exercise its option hereunder
shall not be deemed to be the consent of Landlord to any proposed assignment or
sublease. IN THE EVENT LANDLORD CONSENTS TO ANY PROPOSED ASSIGNMENT OR SUBLEASE,
TENANT SHALL NEVERTHELESS AT ALL TIMES, REMAIN FULLY RESPONSIBLE AND LIABLE FOR
THE PAYMENT OF THE RENT AND FOR COMPLIANCE WITH ALL OF ITS OTHER OBLIGATIONS
UNDER THIS LEASE.
<PAGE>
17. HOLDING OVER
In the event Tenant holds over after the expiration or termination of this
Lease, Tenant shall be a tenant at will and all of the terms and provisions of
this Lease shall be applicable during that period, except that Tenant shall pay
to Landlord, as annual rent, an amount equal to one and one-half (1.5) times the
annual rent which would have been payable by Tenant had the period during which
Tenant is holding over been a part of the Lease Term. Tenant agrees to vacate
and deliver the Premises to Landlord upon Tenant's receipt of notice from
Landlord to vacate. The rent payable during the hold over period shall be
payable to Landlord on or before the fifth (5th) day of each month. No holding
over by Tenant, whether with or without the consent of Landlord, shall operate
to extend the Lease Term.
18. DEFAULT BY TENANT
The following events shall be deemed to be events of default by Tenant under
this Lease:
(i) Tenant shall fail to pay the annual rent or any installment thereof
when due and such failure shall continue for a period of five (5) days from the
date such payment was due.
(ii) Tenant shall fail to pay any additional charge contemplated under
Paragraph 6 hereof which is required to be paid by Tenant hereunder and such
failure shall continue for a period of five (5) days after such payment was due.
(iii) The entry of a decree or order for relief by a court having
jurisdiction of Tenant in an involuntary case under the federal bankruptcy laws,
as now or hereafter constituted, or any other applicable federal or state
bankruptcy, insolvency or other similar law, or the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar official) of
Tenant or for any substantial part of its property, or ordering the winding-up
or liquidation of its affairs and the continuance of any such decree or order
unstayed and in effect for a period of sixty (60) consecutive days.
(iv) The commencement by Tenant of a voluntary case under the federal
bankruptcy laws, as now constituted or hereafter amended, or any other
applicable federal or state bankruptcy, insolvency or other similar law, or the
consent by Tenant to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian, sequestrator (or other similar
official) of Tenant or for any substantial part of its property, or the making
of any assignment for the benefit of creditors, or the failure of Tenant
generally to pay its debts as such debts become due, or the taking of any action
by Tenant in furtherance of any of the foregoing.
(v) Tenant shall abandon or vacate the Premises.
(vi) Tenant shall fail to comply with or perform any other term or
provision of this Lease and such failure shall not be cured within twenty (20)
days after written notice by Landlord thereof to Tenant.
19. REMEDIES
Upon the occurrence of an event of default, Landlord shall have the option to
pursue any one or more of the following remedies without further notice or
demand whatsoever.
Landlord may terminate this Lease in which event Tenant shall immediately
surrender possession of the Premises to Landlord. In the event Tenant fails to
surrender possession of the Premises, Landlord may, without prejudice to any
other remedy which it may have for possession or past due payments of the rent,
enter upon and take possession of the Premises and remove Tenant and any other
person who may be occupying the Premises or any part thereof without being
liable for prosecution or any claim of damages therefor. Tenant shall be liable
for any and all damages therefor. to which Landlord is entitled by law by reason
of the termination of this Lease.
<PAGE>
Without terminating this Lease, Landlord may enter upon and take possession of
the Premises and cause Tenant and any other person who may be occupying the
Premises or any part thereof to be removed, without being liable for prosecution
or any claim for damages therefor, and relet the Premises on behalf of Tenant
and receive the rent therefor. Tenant agrees to pay to Landlord, on or before
seven (7) days after notice, any deficiency that may arise by reason of such
reletting including any and all costs to release the Premises.
Landlord may enter upon the Premises without being liable for prosecution or
any claim for damages therefor and do whatever Tenant is obligated to do under
the terms of this Lease. Tenant agrees to reimburse Landlord, on or before seven
(7) days after notice, for any costs, fees or expenses which Landlord may incur
in effecting compliance with Tenant's obligations under this Lease. Tenant
further agrees that Landlord shall not be liable for any damages to Tenant from
such action, whether caused by the negligence of Landlord or otherwise.
Each right and remedy of Landlord provided for in this Lease or now or
hereafter existing at law or in equity or by statute or otherwise shall be
cumulative and concurrent and shall be in addition to every other right or
remedy provided for in this Lease or now or hereafter existing at law or in
equity or by statute or otherwise. The exercise or commencement by Landlord of
any one or more of the rights or remedies provided for in this Lease or now or
hereafter existing at law or in equity or by statute or otherwise shall not
preclude the simultaneous or later exercise by Landlord of any or all of such
other rights or remedies.
No waiver by Landlord of any breach by Tenant of any of the terms, provisions
and covenants contained herein shall be deemed or construed to constitute a
waiver of any other or subsequent breach by Tenant of any of the terms,
provisions and covenants contained herein. Landlord's acceptance of the payment
of rent (or portions thereof) or any other payments hereunder after the
occurrence of and during the continuance of an event of default (or with
knowledge of a breach of any term or provision of this Lease which with the
giving of notice and the passage of time, or both, would constitute an event -of
default) shall not be construed as a waiver of such default. Forbearance by
Landlord to enforce one or more of the remedies herein provided upon the
occurrence of an event of default shall not be deemed or construed to constitute
a waiver of such default. No act or omission by Landlord or its agents during
the Lease Term shall be deemed an acceptance of the surrender of the Premises,
and no agreement to accept a surrender of the Premises shall be valid unless in
writing and signed by Landlord. No surrender of the Premises or any part thereof
by delivery of keys or otherwise shall operate to terminate this Lease unless
and until expressly accepted in writing by Landlord.
Landlord shall not be required to relet the Premises nor exercise any other
right granted to Landlord hereunder nor shall Landlord be under any obligation
to minimize or mitigate Tenant's loss or damage as a result of the default of
Tenant under this Lease.
Unless otherwise expressly provided in this Lease, Tenant shall not have the
right to terminate this Lease by reason of any default or breach by Landlord of
any provision of this Lease or by reason of the condition or state of repair of
the Premises.
20. LATE CHARGES
In the event Tenant fails to pay any installment or payment of rent hereunder
or any other payments required to be paid to Landlord pursuant to the terms of
this Lease on or before five (5) days after the date the installment or payment
is due, Tenant shall pay to Landlord, as a late charge an amount equal to five
percent (5%) of the amount of such installment or payment. The failure by Tenant
to pay the late charge shall be an event of default hereunder. The provision for
a late charge shall be in addition to all of other rights and remedies of
Landlord hereunder or at law and shall not be construed as liquidated damages or
as limiting Landlord's remedies in any manner.
21. ATTORNEY'S FEES
Upon the occurrence of an event of default by Tenant under this Lease or in
the event it shall become necessary or appropriate for Landlord to employ or
<PAGE>
consult with an attorney concerning or regarding any rights or remedies of
Landlord hereunder and Landlord consults with or engages an attorney regarding
the enforcement of this Lease, the collection of any rent due or to become due
or the recovery of the possession of the Premises, Tenant agrees to pay Landlord
any reasonable attorney's fees incurred by Landlord for the services of the
attorney whether or not suit is actually filed.
22. TENANT ESTOPPEL CERTIFICATE
Upon taking possession of the Premises and periodically thereafter during the
Lease Term, Tenant shall, on or before ten (1 0) days after notice from
Landlord, deliver to Landlord a letter certifying (i) the Commencement Date,
(ii) whether or not Tenant is in possession of the Premises, (iii) the date to
which the annual rent and all other sums required to be paid by Tenant hereunder
have been paid, (iv) whether or not Tenant has knowledge of any default by
either party under this Lease and (v) to such other items as Landlord or the
Mortgagee or any prospective purchaser may require.
23. RIGHTS OF MORTGAGEE
A. Right to Cure. In the event Tenant has the express right to terminate this
-------------
Lease by reason of the default or breach of Landlord under this Lease, Tenant
shall not exercise any such right unless and until it shall have first given
written notice to Landlord and the owner (herein called the "Mortgagee") of any
deed to secure debt (herein called the "Mortgage") now or hereafter encumbering
the land on which the building and the Premises are located (if the name and
address of the Mortgagee shall previously have been furnished to Tenant)
specifying in such notice the acts or omissions which constitute the default or
breach by Landlord which permit Tenant to terminate this Lease. The Mortgagee
shall have a reasonable period (but in no event less than 30 days) to remedy
such act or omission after receipt of such notice, Landlord and the Mortgagee,
or either of them, their agents or employees, shall be entitled to enter the
Premises and do therein whatever may be necessary to cure such default or
breach.
B. Subordination. This Lease is and shall be automatically subject and
-------------
subordinate to any security deed (including the Mortgage) and to any and all
advances to be made thereunder and to all renewals, modifications and extensions
thereof. It is the intention of Landlord and Tenant that the foregoing
subordination shall be self-operating without any further agreement of Tenant.
C. Attornment. In the event the Mortgagee exercises the power of sale or
----------
accepts a deed in lieu of foreclosure under the Mortgage, Tenant agrees, in
consideration for the subordination of this Lease set forth above, to attorn to
and recognize the purchaser, at such sale, as landlord under this Lease. Tenant
acknowledges that the purchaser at such sale shall not be liable for any act or
omission of Landlord (or any prior landlord) or subject to any claims which
Tenant may have against Landlord (or any prior Landlord) except for claims which
Tenant notified the Mortgagee of pursuant to Paragraph 23.A. hereof and which
Mortgagee elects to perform to prevent Tenant from Terminating the Lease.
D. Confirmation. In the event the Mortgagee requires confirmation of the
------------
agreements contemplated in Paragraph 28.C. hereof, including, but not limited
to, the subordination of this Lease to the Mortgage, Tenant agrees, on or before
seven (7) days after request to execute and deliver to Landlord such instrument
as the Mortgagee may reasonably require. In the event Tenant fails to do so,
Landlord is hereby irrevocably vested with full power and authority to confirm
the subordination of Tenant's interest under this Lease to the Mortgagee.
24. NOTICES
A. Landlord Address. Any payments required to be made by Tenant to Landlord
----------------
under this Lease shall be paid to Landlord at the address set forth below or at
any other address within the United States as Landlord may specify from time to
time.
B. Notices. Any notice, consent, approval or other communication which may be
-------
required or permitted to be given or delivered hereunder shall be in writing and
<PAGE>
shall be deemed to have been given, delivered and received if mailed or
delivered to the party at the address set forth below (i) as of the date when
the notice is personally delivered (to a member, if the addressee is a limited
liability company or to any officer [if none is designated] if the addressee is
a corporation) and/or (ii) if mailed, in the United States Mail, certified,
return receipt requested, as of the date which is three (3) days after the date
of the post mark on such notice and/or (iii) if delivered by courier or express
mail service, telegram or mailgram where the carrier provides or retains
evidence of the date of delivery, as of the date of such delivery.
TO THE LANDLORD: TO THE TENANT:
Ellsworth Realty, L.L.C. K & G Men's Centers, Inc.
1750 Ellsworth Industrial Blvd. 1777 Ellsworth Industrial Blvd.
Atlanta, Georgia 30318 Atlanta, Georgia 30318
Landlord and Tenant may by notice to the other in the manner provided above,
designate a different address for receiving notices under this Lease. A post
office box shall not be the only notice address for a party. Any notice which is
delivered to the notice address on a non-business day shall be deemed given the
next business day if left at the notice address; or, if not left at the notice
address, the next business day when re-delivered to the notice address. The
refusal to accept delivery of any notice or the absence of anyone at a notice
address to accept delivery shall not prevent any notice from being effectively
given. A non-business day is a Saturday, Sunday or legal holiday generally
observed in the city where notice is delivered.
25. CORPORATE AUTHORITY
If Tenant signs as a corporation, each person executing this Lease on behalf
of Tenant does hereby covenant and warrant that Tenant is a duly authorized and
existing corporation in good standing in the state of its incorporation, that
Tenant has and is qualified to do business in Georgia, and that the corporation
has full right and authority to enter into this Lease, and that each person
signing on behalf of the corporation is authorized to do so.
26. MISCELLANEOUS
A. Limitation on Liability. The term "Landlord" as used in this Lease shall
-----------------------
mean only the owner for the time being of the Premises. Landlord shall have no
personal liability with respect to any of the provisions of this Lease. If
Landlord is in default with respect to its obligations under this Lease, Tenant
shall look solely to the equity of Landlord in the Premises for the satisfaction
of Tenant's remedies. In the event of the sale or transfer of the Premises by
Landlord all obligations of Landlord hereunder shall be transferred to the new
owner of the Premises as of the date of sale of the Premises and the transfer of
this Lease and Landlord shall have no obligation or liability, as landlord, from
and after the date of the transfer of this Lease.
B. Survival. All obligations of Tenant hereunder which are not fully
--------
performed as of the expiration or termination of this Lease shall survive the
expiration or termination of this Lease, including without limitation, all
payment obligations with respect to taxes, insurance premiums, sanitary and
water charges and all obligations concerning the condition of the Premises. Upon
the expiration or termination of this Lease and prior to Tenant vacating the
Premises, Tenant shall pay to Landlord an amount reasonably estimated by
Landlord to (i) restore the Premises, including without limitation, the heating
and air conditioning systems, in good order, condition and repair, normal wear
and tear excepted, and (ii) pay the obligations of Tenant for real estate taxes,
insurance premiums and sanitary and water charges for the year in which the
Lease expires or terminates. All such amounts shall be used and held by Landlord
for payment of such obligations of Tenant and Tenant shall be liable for any
additional costs therefor and shall pay to Landlord, on or before seven (7) days
after notice, any such additional costs. Any portion of the estimated payment in
excess of the actual costs shall be returned to Tenant after all such
obligations have been determined and satisfied.
<PAGE>
C. Applicable Law. This Lease shall be governed by and construed in
---------- ---
accordance with the laws of the State- of Georgia and, if any provision of this
Lease shall to any extent be invalid or unenforceable, the remainder of this
Lease shall not be affected thereby.
D. Time of the Essence. Time is of the essence with respect to this Lease.
-------------------
E. Relationship. This Lease shall create the relationship of landlord and
------------
tenant between Landlord and Tenant and no estate shall pass out of or be
conveyed by Landlord. Tenant has only a usufruct which is not subject to levy
and sale and is not assignable.
F. Successors and Assigns. This lease shall be binding on and inure to the
----------------------
benefit of Landlord and Tenant and their respective heirs, personal
representatives, successors and permitted assigns.
G. Entire Agreement. This lease contains the entire agreement of the
----------------
parties and there are, and were, no verbal representations, understandings,
stipulations, agreements or promises pertaining to this Lease and not
incorporated in this Lease. This Lease may not be altered, waived, amended or
extended except by an instrument in writing, signed by both Landlord and Tenant.
H. Severability. If any term, covenant or condition of this Lease or the
------------
application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, such provision, or the application of such term,
covenant or condition to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall be deemed severable, and the
remainder hereof shall not be affected thereby, and each term, covenant, or
condition of this Lease shall be valid and be enforced to the fullest extent
permitted by law.
I. Net Lease. This Lease is net to Landlord.
---------
IN WITNESS WHEREOF, the parties herein have hereunto set their hands and
seals this 20th day of November 1995.
TENANT: LANDLORD:
K&G MEN'S CENTER, INC. ELLSWORTH REALTY, L.L.C.
By: By:
Title: Title
Attest/Witness: Attest/Witness:
Name: Name:
(CORPORATE SEAL) (CORPORATE SEAL)
<PAGE>
"EXHIBIT "A"
-------------
LEGAL DESCRIPTION
ALL THAT TRACT OR PARCEL OF LAND lying and being in Land Lot 192 of the 17th
District, City of Atlanta, Fulton County, Georgia containing 5.4381 acres, more
or less, and being more particularly described as follows:
COMMENCE at a point located at the intersection of the northernmost right-of-way
line of Chattahoochee Avenue (being 50 feet from centerline) with the
westernmost right-of-way line of Ellsworth Industrial Drive (25 feet form
centerline); thence run north long the westernmost right-of-way line of
Ellsworth Industrial Drive a distance of 180 feet to an iron pin found (being 25
feet from centerline) and the TRUE POINT OF BEGINNING; thence leave said right-
of-way line and run South 89(degrees) 41' West a distance of 175.1 feet to an
iron pin found; thence run South 00(degrees) 32' East a distance of 167.0 feet
to a 3/4" iron rod found on the northernmost right-of-way line of Chattahoochee
Avenue (being 50' from centerline); thence run along the northernmost right-of-
way line of Chattahoochee Avenue and along the arc of a curve to the right whose
arc distance is 128.22 feet and being subtended by a chord of North 79(degrees)
32' West and having a chord distance of 128.21 feet to an iron pin found (being
50 feet from centerline); thence leave said right-of-way line and run North
00(degrees) 13' West a distance of 988.5 feet to an iron pin placed; thence run
North 89(degrees) 47' East a distance of 50.0 feet to a pk nail placed; thence
run South 00(degrees) 13' East a distance of 145.0 feet to a pk nail found;
thence run North 89(degrees) 47' East a distance of 50.00 feet to a pk nail
placed; thence run South 00(degrees) 13' East a distance of 145.0 feet to a pk
nail found; thence run North 89(degrees) 47' West a distance of 250.0 feet to a
pk nail found on the westernmost right-of-way line of Ellsworth Industrial Drive
(being 25 feet from centerline); thence run along said right-of-way line South
00(degrees) 13' East a distance of 700.0 feet to an iron pin found and the TRUE
POINT OF BEGINNING, as per Survey prepared for Ellsworth Realty, L.L.C., General
Electric Company, SunTrust Bank, Atlanta and Chicago Title Insurance Company,
prepared by Metro Engineering and Surveying Co., Inc., bearing the certification
and seal of Chester M. Smith, Jr., Georgia Registered Land Surveyor Number 1445,
dated December 1, 1971, last revised November 7, 1995.
<PAGE>
AMENDMENT TO LEASE AGREEMENT
--------- -- ----- ---------
This amendment is entered into as of this 29th day of November, 1995 by and
between ELLSWORTH REALTY, L.L.C., a Georgia limited liability company (herein
referred to as the "Landlord") and K&G MEN'S CENTER, INC., a Georgia corporation
(herein referred to as the "Tenant").
In consideration of ten and no/100 Dollars ($10.00) paid by each party
hereto to the other and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Landlord and Tenant agree that the
Lease Agreement between Landlord and Tenant dated November 20, 1995 is hereby
amended by providing that the portion of the Premises outlined in red on Exhibit
-------
"A" attached hereto and made a part hereof containing approximately 20,000
- ---
square feet of gross leasable area (herein referred to as the "Office/Warehouse
Space") shall, on or before thirty (30) days after notice from Landlord, be
surrendered by Tenant to Landlord in the same condition as required as if the
term of the Lease had expired and Tenant shall have no rights, obligations or
liabilities with respect to the Office/Warehouse Space. The Lease shall
otherwise continue in full force and effect and all terms and conditions thereof
shall not be modified or amended in any manner (including the payment of any
rent contemplated in Paragraph 3 of the Lease and the payment of the Taxes
contemplated in Paragraph 6 of the Lease) except, that (i) any utilities or
other charges for services provided to the entire building in which the Premises
are located shall be prorated based on the gross leasable area of the
Office/Warehouse Space to the gross leasable area of the entire building and
(ii) Tenant shall not be responsible for (A) any repairs to the Office/Warehouse
Space contemplated to be made by Tenant under Paragraph 7 of the Lease and/or
(B) compliance with any laws with respect to the Office/Warehouse Space
contemplated under Paragraph 8 of the Lease.
IN WITNESS WHEREOF, Landlord and Tenant have hereunto set their hands and
seals as of this 29th day of November, 1995.
TENANT: LANDLORD:
K&G MEN'S CENTER, INC. ELLSWORTH REALTY, L.L.C.,
a Georgia limited liability company a Georgia corporation
By: By:
-------------------------------- -------------------------------
Title: Its:
------------------------ -------------------------
[CORPORATE SEAL]
<PAGE>
EXHIBIT 11.1
K & G MEN'S CENTER, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON
AND COMMON EQUIVALENT SHARES
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
------------------------------------- --------------------
JANUARY 30, JANUARY 29, JANUARY 28, JULY 30, JULY 28,
1994 1995 1996 1995 1996
---------- ----------- ---------- -------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Weighted average common and common
equivalent shares outstanding (1) 4,410,000 4,410,000 5,250,000 5,250,000 5,250,000
Issuance of common stock in T&C 0 420,000 0 0 0
Acquisition
Initial public offering 0 0 0 0 1,127,500
---------- ---------- ---------- ---------- ----------
Weighted average common and common
equivalent shares outstanding 4,410,000 4,830,000 5,250,000 5,250,000 6,377,500
---------- ---------- ---------- ---------- ----------
Net income $1,157,200 $2,297,700 $3,186,100 $1,188,900 $1,488,500
---------- ---------- ---------- ---------- ----------
Net income per common and common
equivalent shares outstanding $0.26 $0.48 $0.61 $0.23 $0.23
========== ========== ========== ========== ==========
</TABLE>
(1) The weighted average number of common and common equivalent shares
outstanding for all periods presented includes the effects of the August
1994 stock dividend and December 1995 stock split, effected as a stock
dividend. In addition, the Redeemable Common Stock, Series B is considered
a common Stock equivalent and has been reflected on an as-if-converted basis
in all periods presented.
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
October 14, 1996
