<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 25, 1998.
REGISTRATION NO. 333-55895
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
K&G MEN'S CENTER, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
GEORGIA 58-1898817
(I.R.S. EMPLOYER IDENTIFICATION NO.)
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
1225 CHATTAHOOCHEE AVENUE, N.W.
ATLANTA, GEORGIA 30318
(404) 351-7987
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S EXECUTIVE OFFICES)
JOHN C. DANCU
CHIEF OPERATING OFFICER AND CHIEF FINANCIAL OFFICER
K&G MEN'S CENTER, INC.
1225 CHATTAHOOCHEE AVENUE, N.W.
ATLANTA, GEORGIA 30318
(404) 351-7987
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
WITH A COPY TO:
B. LYNN WALSH, ESQ. JAMES L. SMITH, III, ESQ.
CHARLES R. MONROE, JR., ESQ. TROUTMAN SANDERS LLP
HUNTON & WILLIAMS NATIONSBANK PLAZA, SUITE 5200
NATIONSBANK PLAZA, SUITE 4100 600 PEACHTREE STREET, N.E.
600 PEACHTREE STREET, N.E. ATLANTA, GEORGIA 30308-2216
ATLANTA, GEORGIA 30308-2216 (404) 885-3000
(404) 888-4000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement has become effective.
---------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
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, other than securities offered only in connection with dividend or
interest reinvestment plans, 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 effective 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. [_]
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 SUCH +
+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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE 25, 1998
1,650,000 SHARES
[LOGO OF K&G MEN'S CENTER INC. APPEARS HERE]
COMMON STOCK
Of the 1,650,000 shares of Common Stock offered hereby, 88,263 shares are
being offered by the Company and 1,561,737 shares are being offered by the
Selling Shareholders. See "Principal and Selling Shareholders." The Company
will not receive any proceeds from the sale of shares by the Selling
Shareholders.
The Common Stock is traded on the Nasdaq National Market under the symbol
"MENS." On June , 1998, the last reported sale price of the Common Stock on
the Nasdaq National Market was $ per share. See "Price Range of Common
Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 OF THIS PROSPECTUS FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS 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>
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- --------------------------------------------------------------------------------
<CAPTION>
Proceeds to
Price to Underwriting Proceeds to Selling
Public Discount (1) Company (2) Shareholders
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<S> <C> <C> <C> <C>
Per Share........................ $ $ $ $
Total (3)........................ $ $ $ $
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</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting estimated offering expenses of $165,000, which will be
paid by the Company.
(3) The Selling Shareholders have granted the Underwriters a 30-day option to
purchase up to 247,500 additional shares of Common Stock, solely to cover
over-allotments, if any. If the Underwriters exercise this option in full,
the Price to Public will total $ , the Underwriting Discount will total
$ and the Proceeds to Selling Shareholders will total $ . See
"Principal and Selling Shareholders" and "Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein (the "Underwriters") when, as and if delivered to and accepted by the
Underwriters and subject to their right to reject any order in whole or in
part. It is expected that delivery of the certificates representing the shares
will be made against payment therefor at the office of NationsBanc Montgomery
Securities LLC on or about June , 1998.
-----------
NationsBanc Montgomery Securities LLC
The Robinson-Humphrey Company
J.C. Bradford & Co.
June , 1998
<PAGE>
[COLLAGE OF REPRESENTATIVE STORE PHOTOGRAPHS]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE COMMON
STOCK. SUCH TRANSACTIONS MAY INCLUDE STABILIZING TRANSACTIONS AND THE PURCHASE
OF COMMON STOCK TO COVER SYNDICATE SHORT POSITIONS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS OR THEIR AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS
IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103
OF REGULATION M. SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements and notes thereto appearing
elsewhere in this Prospectus or incorporated by reference herein. Unless
otherwise indicated, all of the information in this Prospectus (i) has been
adjusted to give effect to two stock splits, each effected in the form of a
share dividend, a 262.5-for-one split as of December 4, 1995 and a three-for-
two stock split as of April 25, 1997, and (ii) assumes no exercise of the
Underwriters' over-allotment option. See "Underwriting." 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.
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," "fiscal 1996," "fiscal 1997" and "fiscal 1998" refer to the
Company's fiscal years ended January 30, 1994, January 29, 1995, January 28,
1996, February 2, 1997 and February 1, 1998, and the fiscal year ending January
31, 1999, respectively. Certain statements in this Prospectus constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"). See "Special Note Regarding
Forward-Looking Statements."
THE COMPANY
K&G Men's Center, Inc. (the "Company" or "K&G") is a rapidly growing
superstore retailer of men's apparel and accessories. K&G's stores offer first-
quality, current-season men's apparel and accessories comparable in quality to
that of traditional department and fine specialty stores, at everyday low
prices 30% to 70% below retail prices 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 29 stores operating in 16 states are "destination" stores
located primarily in low-cost warehouses and secondary strip shopping centers
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 pioneered the weekend strategy in menswear
retailing 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 had net sales of $119.4 million and operating income of $9.9
million for the twelve month period ended May 3, 1998. K&G has experienced a
32% compounded annual sales growth rate and a 44% compounded annual operating
income growth rate over the five years ended February 1, 1998. The Company has
achieved its strong financial performance through consistent net sales growth,
combined with one of the highest operating margins in the industry. The
Company's revenue growth has been driven by strong annual comparable store
sales increases (five year average of 12.5%) and significant new store
openings, including 14 new stores in the last two years. In fiscal 1997, the
Company generated one of the highest operating margins (8.5%), the lowest SG&A
as a percentage of sales (14.8%), and one of the highest inventory turns (4.1x)
in the menswear industry.
The Company believes that its success is the result of its ability to deliver
a unique value proposition to its customers. K&G creates this value by
providing a dominant selection of high quality merchandise at lower prices than
its competition in a one-stop shopping superstore designed for convenience and
ease of shopping. The Company executes its vision through the following
strategies:
3
<PAGE>
Low Cost Operations. K&G's unique weekend-only strategy coincides with the
buying patterns of its customers while significantly reducing operating costs.
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. In addition, K&G is able to reduce its
rental obligations by locating its stores in low-cost warehouses and secondary
strip center locations. Word-of-mouth publicity, combined with the efficient
implementation and management of K&G's advertising program, results in below
industry average advertising expenditures. The Company's low-cost structure is
the cornerstone of its positioning in the marketplace. The Company passes its
operating cost savings to its customers through a lower mark-up of its
merchandise, enabling it to provide current-season men's apparel comparable in
quality to apparel offered by traditional department and fine specialty stores,
but at much lower prices.
Dominant Selection of First-Quality Merchandise. K&G's abundant merchandise
offerings consist of all major categories of men's apparel, including business
attire (suits, sportscoats, blazers, dress pants, shirts and ties), casual wear
(slacks, shorts, polo-style shirts, sweaters and activewear), formal wear
(tuxedos and related furnishings), accessories (underwear, socks, belts,
luggage, 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 in all sizes, colors,
styles and fits to enable customers to make the price/quality decision that
best meets their needs. In addition, the Company's information systems enable
K&G to identify top selling items, capitalize on opportunistic buys and respond
to market trends, thereby ensuring current season, customer-oriented
merchandise.
Everyday Low Prices and Low Mark-Ups. K&G seeks to provide the customer with
value by offering quality merchandise at everyday low prices, which are
typically 30% to 70% below retail prices charged by traditional department and
fine specialty stores. This pricing strategy is designed to drive sales volume
and generate high inventory turnover (4.1x in fiscal 1997), and contrasts with
the pricing strategy of many department and specialty stores, which
significantly mark-up their merchandise and then mark down the merchandise to
give customers the perception of value. Typically, the competition's
promotional price still exceeds K&G's everyday low price. The Company
consistently seeks to obtain the lowest price from its vendors by establishing
partnerships, ordering large volumes and not requesting markdown allowances,
concessions, or merchandise returns (except for damaged goods). The combination
of the Company's vendor strategy and its low cost operation are part of the
formula that enables K&G to offer high quality merchandise at prices lower than
the competition.
Destination Superstores. K&G's stores are "destination" superstores located
primarily in low-rent, light industrial areas or secondary strip shopping
centers 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 a dominant selection of first-quality merchandise
sorted and clearly marked by category, size, style, color and fit. K&G instills
a sense of urgency for the customer to purchase by opening its stores for
business only on Friday, Saturday and Sunday, when men typically shop. The
Company believes that a high percentage of customers who come to K&G's stores
purchase merchandise during their visit.
GROWTH AND EXPANSION
The Company currently has 29 stores in 16 states, 21 of which have been
opened since October 1995. The Company plans to open more than 70 new stores
over the next five to six years. K&G intends to initially focus its expansion
efforts in the top fifty metropolitan markets in the United States and intends
to cluster stores in markets to take advantage of advertising and operating
efficiencies. The Company does not utilize a distribution center; accordingly,
it is not constrained geographically or by the capacity limits of a central
facility, which allows management to concentrate on the best real estate
opportunities in targeted markets. The Company believes that both the maturing
of its young store base and new store openings will drive revenue growth for
the
4
<PAGE>
Company. The Company has historically experienced double digit comparable store
sales growth for its new stores, primarily as word-of-mouth publicity grows in
the markets that it serves.
The Company's 29 stores are located in Atlanta (3); Baltimore; Boston (2);
Charlotte; Cincinnati; Cleveland; Dallas (3); Denver; Houston (2);
Indianapolis; Long Island (2); Los Angeles; Minneapolis; Philadelphia (2);
Seattle; Washington, D.C. (2); Kansas City, Kansas; Rahway, New Jersey;
Fairfield, New Jersey; and Columbus, Ohio. The Company currently intends to
open six more stores in fiscal 1998, for a total of ten new stores for the
fiscal year.
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 1225
Chattahoochee Avenue, N.W., Atlanta, Georgia 30318, and its telephone number is
(404) 351-7987.
RECENT DEVELOPMENTS
First Quarter Results. For the quarter ended May 3, 1998, K&G had record
sales of $30.3 million, up 27.7% from $23.7 million for the same quarter of
fiscal 1997. The Company had an 8.8% comparable store sales gain in the fiscal
quarter ended May 3, 1998 and opened three new stores. The Company's comparable
store sales gain in the first quarter of fiscal 1997 was 11.9%.
Successful New Store Openings. The Company opened three new stores during the
first quarter of fiscal 1998. Two of the Company's new stores were in Houston,
Texas and were accompanied by a larger opening advertising campaign and a
television test, reflecting a new media plan for accelerating customers'
awareness of the Company in a market. The Company also added a second store in
metropolitan Philadelphia as part of its multiple store strategy in key
markets. The Company opened its first store in the Los Angeles market in June
1998 and has signed a lease to open a second store in Denver, Colorado in the
fall of 1998. The Company will continue to open new stores in both new and
existing markets, but will be increasingly focused on clustering stores in
selected markets.
Additions to Management and Information Systems. The Company has made
additional investments in its management and information systems infrastructure
for its planned growth. In March 1998, K&G added depth to its management team
with the hiring of George ("Skip") Briggs as Vice President of Store
Operations. Mr. Briggs brings 29 years of retail experience to help manage the
Company's rapidly expanding store base. In addition, the Company recently
completed an upgrade of its information systems in the first quarter of fiscal
1998. The Company believes that this improved reporting and upgraded
replenishment system will further enhance its ability to anticipate and react
to changing consumer demands.
THE OFFERING
Common Stock offered by the
Company............................ 88,263 shares
Common Stock offered by the Selling
Shareholders....................... 1,561,737 shares
Common Stock to be outstanding
after the offering................. 10,230,683 shares(1)
Use of proceeds by the Company...... For general corporate purposes, includ-
ing new store expansion and working
capital.
Nasdaq National Market Symbol....... MENS
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(1) Excludes (i) 542,131 shares of Common Stock issuable upon the exercise of
outstanding stock options and (ii) 594,960 shares available for grant under
the Company's stock option plans.
5
<PAGE>
SUMMARY FINANCIAL INFORMATION AND OPERATING DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED ENDED (1)
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JANUARY 30, JANUARY 29, JANUARY 28, FEBRUARY 2, FEBRUARY 1, MAY 4, MAY 3,
1994 1995 1996 1997 1998 1997 1998
------------ ------------ ------------ ------------ ------------ ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $37,081 $49,801 $60,027 $88,104 $112,795 $23,742 $30,309
Gross profit............ 8,229 11,557 14,433 20,760 26,282 5,452 6,881
Operating income........ 2,241 3,722 5,138 7,008 9,607 1,660 1,944
Net income.............. 1,157 2,298 3,186 4,584 6,383 1,146 1,322
Weighted average common
shares outstanding
(000's)................ 6,615 7,245 7,875 9,682 10,118 10,105 10,132
Weighted average common
shares outstanding
assuming dilution
(000's)................ 6,615 7,245 7,875 9,787 10,211 10,167 10,158
Basic earnings per
share.................. $ 0.17 $ 0.32 $ 0.40 $ 0.47 $ 0.63 $ 0.11 $ 0.13
Diluted earnings per
share.................. $ 0.17 $ 0.32 $ 0.40 $ 0.47 $ 0.63 $ 0.11 $ 0.13
SELECTED OPERATING DATA:
Comparable store sales
increase (2)........... 7.9% 17.2% 11.9% 12.4% 13.0% 11.9% 8.8%
Stores open at end of
period................. 7 9 11 17 25 19 28
Total selling square
footage (3)............ 92,227 114,378 151,012 243,402 349,342 268,802 400,822
</TABLE>
<TABLE>
<CAPTION>
AS OF MAY 3, 1998
--------------------
AS
ACTUAL ADJUSTED (4)
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(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA (AT PERIOD END):
Working capital............................................ $36,233 $38,169
Total assets............................................... 54,094 56,030
Total debt................................................. 205 205
Shareholders' equity....................................... 40,025 41,961
</TABLE>
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(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) New or relocated stores become comparable stores beginning in their
fourteenth full month of operation. Fiscal 1996 comparable store sales
increase is calculated on the first 52 weeks in fiscal 1996 compared to the
52 weeks in fiscal 1995. Fiscal 1996 was a 53-week period, and comparable
store sales based on the 53 weeks of fiscal 1996 compared to the 52 weeks
of 1995 were 14.4%. Fiscal 1997 comparable store sales increase was
calculated using the comparable 52-week period of fiscal 1997 and 1996.
Fiscal 1997 was a 52-week period, and comparable store sales based on the
52 weeks of fiscal 1997 compared to the 53 weeks of fiscal 1996 were 12.0%.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--General."
(3) Total selling square footage excludes administrative, storage, alterations
and fitting areas.
(4) As adjusted to give effect to the estimated net proceeds of $1.9 million to
the Company from this offering. See "Use of Proceeds."
6
<PAGE>
RISK FACTORS
In addition to the other information contained or incorporated by reference
in this Prospectus, the following risk factors should be considered carefully
in evaluating the Company and its business before purchasing any of the shares
of Common Stock offered hereby. Certain statements in "Risk Factors"
constitute "forward-looking statements" within the meaning of the Reform Act.
See "Special Note Regarding Forward-Looking Statements."
YOUNG STORE BASE AND LIMITED OPERATING HISTORY
The Company opened its first store in 1989 and presently operates 29 stores.
Of these stores, 21 have been opened since October 1995, and the average age
of the Company's existing stores is 32 months. Consequently, the Company has a
relatively limited history of opening and operating stores, and has also
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 existing store
base may not be indicative of the results that may be achieved from a larger
number of stores. In addition, should any store be unprofitable or 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 Operation--
General" and "Business--Growth and Expansion."
EXPANSION AND ITS ANTICIPATED FINANCIAL EFFECT
The Company intends to continue its rapid store expansion. The Company's
future operating results will depend largely upon its ability to identify and
secure new store locations, open and operate new stores successfully, and
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. The Company intends to open
10 new stores in fiscal 1998 and 10 to 12 new stores in fiscal 1999. To date,
the Company has not opened more than eight stores in any fiscal year and has
no operating experience in certain of the markets in which it expects to open
new stores. Assuming K&G's planned expansion occurs as anticipated, 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
margins than its younger stores. Accordingly, K&G's planned expansion is
expected to produce a decrease in the Company's overall sales per square foot
during fiscal 1998 and fiscal 1999. In addition, increases in the level of
advertising and other store expenses as a percentage of sales as compared to
the Company's more mature stores and pre-opening expenses associated with the
opening of new stores may 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, negatively impacting comparable store
sales. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources" and "Business--Growth
and Expansion."
7
<PAGE>
COMPARABLE STORE SALES
A variety of factors affect the Company's comparable store sales results,
including, among others, economic conditions, the retail sales environment and
the Company's ability to execute its business and expansion strategies
efficiently. While the Company's comparable store sales have increased each
year, there can be no assurance that the Company will continue to generate
comparable store sales increases. In addition, there is no assurance that the
Company's stores will continue to generate sufficient customer traffic and
sales volume. The Company anticipates that opening new stores in existing
markets may result in decreases in comparable store sales for existing stores
in such markets. Adverse changes in the Company's comparable store sales
results could cause the price of the Common Stock to fluctuate significantly.
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 that 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. However,
industry sources indicate a slight increase in unit sales of men's suits over
the last year. Men's suit sales accounted for approximately 29.7% of the
merchandise sold by the Company in fiscal 1997. If unit sales 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 1997, approximately 35% of the Company's net sales and
approximately 49% 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,
8
<PAGE>
management expects the percentage of opportunistic, in-season purchases made
by the Company to decrease. See "Business--Purchasing and Distribution." In
addition, many of the Company's vendors import a substantial portion of their
merchandise from foreign countries, which subjects the Company to the risks
described in "Direct Sourcing of Merchandise" below.
DIRECT SOURCING OF MERCHANDISE
The Company has recently initiated a direct sourcing program to purchase
portions of its tailored clothing directly from manufacturers located in
foreign countries and plans to increase its levels of direct sourcing.
Although the Company has existing relationships with such manufacturers, the
Company has limited experience purchasing merchandise directly from foreign
manufacturers. Purchasing from foreign vendors may expose the Company to risks
related to merchandise reliability, such as quality, fit and delivery of
products. Other risks inherent in foreign sourcing include economic and
political instability, transportation delays and interruptions, restrictive
actions by foreign governments, the laws and policies of the United States
affecting the importation of goods, including duties, quotas and taxes, trade
and foreign tax laws, fluctuations in currency exchange rates, and the
possibility of boycotts or other actions prompted by domestic concerns
regarding foreign labor practices or other conditions beyond the Company's
control.
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. The expansion of the Company's business has brought it
into more direct competition with other superstore or three-day men's
retailers. 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."
YEAR 2000
The Company has completed a preliminary evaluation of its management
information systems to determine their readiness in terms of Year 2000 issues,
and has determined that its point-of-sale cash register systems are the only
application that will require significant modification in order to be Year
2000 ready. The Company has developed a plan to replace its current registers
with a new PC-based register system. The cost to purchase and implement these
systems is estimated to total approximately $1.5 million. These registers are
scheduled to be fully implemented and operational at all store locations prior
to December 31, 1999. Management does not believe that the cost to modify any
of K&G's other systems to be Year 2000 ready will be material to the Company's
financial condition or results of operations. However, the Company currently
does not have any information concerning the Year 2000 readiness of its
suppliers or other third parties with which the Company conducts business, and
in the event that any of its significant suppliers or other third parties with
which the Company conducts business do not successfully and timely achieve
Year 2000 readiness, the Company's business or operations could be adversely
affected.
IMPACT OF GENERAL ECONOMIC CONDITIONS
Menswear purchases may be affected by adverse trends in the general economy.
The success of the Company's operations depends, to a significant extent, upon
a number of factors relating to discretionary
9
<PAGE>
consumer spending, including economic conditions affecting disposable consumer
income, such as employment, business conditions, interest rates, availability
and costs of credit and taxation for the economy as a whole and in regional
and local markets where the Company operates. In addition, the Company is
dependent upon the continued popularity of its locations as a shopping
destination and the ability of the Company to generate customer traffic for
its stores, particularly because the Company does not engage in significant
media advertising. There can be no assurance that consumer spending will not
be adversely affected by general economic conditions or a decrease in store
traffic, thereby negatively impacting the Company's results of operations or
financial condition.
CONTROL OF THE COMPANY
Following the completion of this offering, the Company's principal
shareholders, executive officers and directors will own 23.9% of the
outstanding Common Stock. 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.
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 23.9% of the
Company's outstanding Common Stock following the offering (21.5% 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 90 days
following the effective date of the Registration Statement of which this
Prospectus is a part without the prior written consent of the Underwriters.
After the expiration of such 90-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."
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 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, management 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.
10
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 88,263 shares of Common
Stock offered by the Company hereby are estimated to be $1.9 million after
deducting underwriting discounts and estimated offering expenses payable by
the Company. The net proceeds to the Company will be used to finance new store
expansion and for working capital and other general corporate purposes. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Business--Growth and
Expansion." The Company will not receive any proceeds from the sale of shares
by the Selling Shareholders.
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 $6.67 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............................................... $ 7.17 $ 7.00
FISCAL 1996
First Quarter................................................ $12.83 $ 7.25
Second Quarter............................................... 14.83 10.33
Third Quarter................................................ 17.00 13.17
Fourth Quarter............................................... 18.50 14.83
FISCAL 1997
First Quarter................................................ $20.00 $16.25
Second Quarter............................................... 22.88 15.00
Third Quarter................................................ 23.00 18.75
Fourth Quarter............................................... 21.00 18.38
FISCAL 1998
First Quarter................................................ $25.00 $18.00
Second Quarter through June , 1998......................... -- --
</TABLE>
On June , 1998, the closing sales price of the Company's Common Stock was
$ per share. As of April 13, 1998, there were 52 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.
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>
CAPITALIZATION
The following table sets forth the total capitalization of the Company (i)
as of May 3, 1998, and (ii) as adjusted to reflect the sale of 88,263 shares
of Common Stock by the Company at an assumed public offering price of $25.125
per share, after deducting the underwriting discount and estimated 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 incorporated by reference in this Prospectus.
<TABLE>
<CAPTION>
AS OF MAY 3, 1998
------------------
(UNAUDITED)
AS
ACTUAL ADJUSTED
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Notes payable to related parties(1).......................... $ 205 $ 205
-------- --------
Minority interest............................................ 413 413
-------- --------
Shareholders' equity:
Preferred Stock, $.01 par value; 2,000,000 shares
authorized and unissued................................... -- --
Common Stock, $.01 par value; 20,000,000 shares authorized;
10,142,420 shares issued and outstanding; 10,230,683
shares issued and outstanding, as adjusted(2)............. 102 103
Additional paid-in capital................................. 26,067 28,002
Retained earnings.......................................... 13,856 13,856
-------- --------
Total shareholders' equity............................... 40,025 41,961
-------- --------
Total capitalization................................... $ 40,643 $ 42,579
======== ========
</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) 542,131 shares of Common Stock issuable upon the exercise of
outstanding stock options and (ii) 338,710 shares available for grant
under the Company's stock option plans. On June 5, 1998, the shareholders
of the Company approved (i) an amendment to the Company's Amended and
Restated Articles of Incorporation increasing the number of shares of
Common Stock that the Company is authorized to issue from 20,000,000 to
40,000,000 and (ii) an amendment to the Company's 1995 Stock Option Plan
for Employees, increasing the total number of shares of Common Stock
reserved for issuance under such plan from 843,750 to 1,100,000.
12
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
The following table sets forth for the periods indicated selected financial
data for the Company. 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 or incorporated by
reference in this Prospectus. The statement of operations and balance sheet
data presented below for the fiscal years 1993, 1994, 1995, 1996 and 1997, and
as of the end of those fiscal years have been derived from the Company's
Consolidated Financial Statements, which have been audited by Arthur Andersen
LLP, the Company's independent public accountants. The statement of operations
data and balance sheet data for the three months ended May 4, 1997 and May 3,
1998 are derived from unaudited financial statements of the Company
incorporated by reference in this Prospectus and include all adjustments
(consisting only of normal recurring accruals) that management considers
necessary for a fair presentation of the financial position and results of
operations of the Company as of such time and for such periods. The results of
operations for the three months ended May 3, 1998 are not necessarily
indicative of the results that may be achieved for the full fiscal year.
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED ENDED(1)
----------------------------------------------------------- ----------------
JANUARY 30, JANUARY 29, JANUARY 28, FEBRUARY 2, FEBRUARY 1, MAY 4, MAY 3,
1994 1995 1996 1997 1998 1997 1998
----------- ----------- ----------- ----------- ----------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $37,081 $49,801 $60,027 $88,104 $112,795 $23,742 $30,309
Cost of sales, including
occupancy costs........ 28,852 38,244 45,594 67,344 86,513 18,290 23,428
------- ------- ------- ------- -------- ------- -------
Gross profit............ 8,229 11,557 14,433 20,760 26,282 5,452 6,881
Selling, general and
administrative
expenses............... 5,988 7,835 9,295 13,752 16,675 3,792 4,937
------- ------- ------- ------- -------- ------- -------
Operating income........ 2,241 3,722 5,138 7,008 9,607 1,660 1,944
Other income (expense):
Interest expense....... (75) (159) (55) (43) (29) (9) (9)
Other income, net...... 39 235 220 735 1,166 292 306
------- ------- ------- ------- -------- ------- -------
Income before income
taxes and minority
interest in (earnings)
loss of affiliates..... 2,205 3,798 5,303 7,700 10,744 1,943 2,241
Provision for income
taxes.................. 845 1,532 2,079 2,991 4,189 762 879
------- ------- ------- ------- -------- ------- -------
Income before minority
interest in (earnings)
loss of affiliates(2).. 1,360 2,266 3,224 4,709 6,555 1,181 1,362
Minority interest in
(earnings) loss of
affiliates(2).......... (203) 32 (38) (125) (172) (35) (40)
------- ------- ------- ------- -------- ------- -------
Net income.............. $ 1,157 $ 2,298 $ 3,186 $ 4,584 $ 6,383 $ 1,146 $ 1,322
======= ======= ======= ======= ======== ======= =======
Basic earnings per
share.................. $ 0.17 $ 0.32 $ 0.40 $ 0.47 $ 0.63 $ 0.11 $ 0.13
======= ======= ======= ======= ======== ======= =======
Diluted earnings per
share.................. $ 0.17 $ 0.32 $ 0.40 $ 0.47 $ 0.63 $ 0.11 $ 0.13
======= ======= ======= ======= ======== ======= =======
Weighted average common
shares outstanding
(000's)................ 6,615 7,245 7,875 9,682 10,118 10,105 10,132
Weighted average common
shares outstanding
assuming dilution
(000's)................ 6,615 7,245 7,875 9,787 10,211 10,167 10,158
SELECTED OPERATING DATA:
Comparable store sales
increase(3)............ 7.9% 17.2% 11.9% 12.4% 13.0% 11.9% 8.8%
Stores open at end of
period................. 7 9 11 17 25 19 28
Total selling square
footage(4)............. 92,227 114,378 151,012 243,402 349,342 268,802 400,822
BALANCE SHEET DATA (AT
PERIOD END):
Working capital......... $ 3,194 $ 5,601 $ 7,813 $29,305 $ 35,025 $30,465 $36,233
Total assets............ 8,995 12,464 17,203 42,384 47,931 44,789 54,094
Total debt.............. 448 895 205 205 205 205 205
Shareholders' equity.... 2,817 6,188 2,643 31,280 37,817 32,487 40,025
</TABLE>
13
<PAGE>
- --------
(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) Represents the minority interest in (earnings) loss of certain affiliates
included in the Consolidated Financial Statements. Such affiliates are at
least 50% owned entities, and the relationship between K&G and these
entities is, in substance, a parent-subsidiary relationship.
(3) New or relocated stores become comparable stores beginning in their
fourteenth full month of operation. Fiscal 1996 comparable store sales
increase is calculated on the first 52 weeks in fiscal 1996 compared to
the 52 weeks in fiscal 1995. Fiscal 1996 was a 53-week period, and
comparable store sales based on the 53 weeks of fiscal 1996 compared to
the 52 weeks of 1995 were 14.4%. Fiscal 1997 comparable store sales
increase was calculated using the comparable 52-week period of fiscal 1997
and 1996. Fiscal 1997 was a 52-week period, and comparable store sales
based on the 52 weeks of fiscal 1997 compared to the 53 weeks of fiscal
1996 were 12.0%. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--General."
(4) Total selling square footage excludes administrative, storage, alterations
and fitting areas.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the "Selected
Consolidated Financial Data" and the Financial Statements and Notes thereto of
the Company incorporated herein by reference. Certain statements in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" constitute forward-looking statements within the meaning of the
Reform Act. See "Special Note Regarding Forward-Looking Statements."
GENERAL
The Company is a rapidly growing superstore retailer of men's apparel and
accessories. Since October 1995, the Company has opened 21 stores, increasing
its store base by more than 260% to 29 locations. The 21 stores included two
stores each in the Boston; Philadelphia; Long Island; Houston and Washington,
D.C. areas and stores in Atlanta; Baltimore; Cleveland; Los Angeles;
Minneapolis; Seattle; Dallas/Ft. Worth; Charlotte; Kansas City, Kansas;
Fairfield, New Jersey and Columbus, Ohio. The Company currently intends to
open six more stores in fiscal year 1998, for a total of 10 new stores for the
fiscal year.
The Company has experienced a 47% compounded annual growth rate in net sales
since 1991, with comparable store sales increases every year since inception.
Management believes that a significant portion of the Company's 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>
FISCAL YEAR
--------------------------------------------------------------------
1991 1992 1993 1994 1995 1996 1997
------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $16,568 $29,712 $37,081 $49,801 $60,027 $88,104 $112,795
Comparable store sales
increase............... 53.3% 37.1% 7.9%(1) 17.2% 11.9% 12.4%(2) 13.0%(3)
Number of stores at end
of period.............. 4 5 7 9 11 17 25
</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) Fiscal 1996 comparable store sales increase is calculated on the first 52
weeks in fiscal 1996 compared to the 52 weeks in fiscal 1995. Fiscal 1996
was a 53-week period, and comparable store sales based on the 53 weeks of
fiscal 1996 compared to the 52 weeks of 1995 were 14.4%.
(3) Fiscal 1997 comparable store sales increase is calculated using the
comparable 52-week period of fiscal 1997 and 1996. Fiscal 1997 was a 52-
week period, and comparable store sales based on the 52 weeks of fiscal
1997 compared to the 53 weeks of fiscal 1996 were 12.0%.
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 a
higher inventory turnover than many of its competitors. 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. The Company intends to open
10 new stores in fiscal 1998, and 10 to 12 new stores in fiscal 1999. 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 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. 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.
15
<PAGE>
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>
FISCAL YEAR THREE MONTHS ENDED
------------------- ------------------
MAY 4, MAY 3,
1995 1996 1997 1997 1998
----- ----- ----- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales......................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales, including occupancy
costs............................ 76.0 76.4 76.7 77.0 77.3
----- ----- ----- --------- ---------
Gross profit...................... 24.0 23.6 23.3 23.0 22.7
Selling, general and
administrative expenses.......... 15.5 15.6 14.8 16.0 16.3
----- ----- ----- --------- ---------
Operating income.................. 8.5 8.0 8.5 7.0 6.4
Other income (expense):
Interest expense................ (0.1) (0.1) -- -- --
Other income, net............... 0.4 0.8 1.0 1.2 1.0
----- ----- ----- --------- ---------
Income before income taxes and
minority interest in earnings of
affiliates....................... 8.8 8.7 9.5 8.2 7.4
Provision for income taxes........ 3.4 3.4 3.7 3.2 2.9
----- ----- ----- --------- ---------
Income before minority interest in
earnings of affiliates........... 5.4 5.3 5.8 5.0 4.5
Minority interest in earnings of
affiliates....................... (0.1) (0.1) (0.1) (0.2) (0.1)
----- ----- ----- --------- ---------
Net income........................ 5.3% 5.2% 5.7% 4.8% 4.4%
===== ===== ===== ========= =========
</TABLE>
THREE MONTHS ENDED MAY 3, 1998 AND MAY 4, 1997
Net sales of $30.3 million for the three months ended May 3, 1998 represent
an increase of $6.6 million or 27.7% over net sales of $23.7 million for the
three months ended May 4, 1997. On a comparable store basis, net sales
increased 8.8% for the three months ended May 3, 1998, compared to 11.9% for
the three months ended May 4, 1997. The increase in net sales is a result of
the Company's strong comparable stores sales and the opening of three new
stores during the three months ended May 3, 1998 and store openings that
occurred in fiscal 1997. One of the new stores was opened in Philadelphia in
March 1998 and the other two stores were opened in Houston in April 1998.
Gross profit increased $1.4 million or 26.2% to $6.9 million for the three
months ended May 3, 1998. Gross profit as a percentage of sales decreased to
22.7% for the three months ended May 3, 1998 from 23.0% for the three months
ended May 4, 1997. The decrease in gross profit, as a percentage of net sales,
is mainly due to the Company's new stores having higher occupancy costs as a
percentage of net sales.
Selling, general and administrative expenses increased $1.1 million or 30.2%
to $4.9 million for the three months ended May 3, 1998. Selling, general and
administrative expenses as a percentage of net sales increased to 16.3% for
the three months ended May 3, 1998 from 16.0% for the three months ended May
4, 1997. The increase in selling, general and administrative as a percentage
of net sales is due to increased advertising cost as a percentage of net sales
due to new store openings partially offset by a decrease in payroll cost as a
percentage of net sales. In addition, store opening costs were higher as a
percentage of net sales as the Company opened three stores in the three months
ended May 3, 1998 compared to two stores in the three months ended May 4,
1997. Store opening costs are expensed in the quarter in which the store is
opened.
Operating income increased to $1.9 million for the three months ended May 3,
1998 compared to $1.7 for the three months ended May 4, 1997. Operating income
as a percentage of net sales decreased to 6.4% for the three months ended May
3, 1998 from 7.0% for the three months ended May 4, 1997.
The factors discussed above resulted in an increase in net income to $1.3
million for the three months ended May 3, 1998 from $1.1 million for the three
months ended May 4, 1997.
16
<PAGE>
FISCAL 1997 COMPARED TO FISCAL 1996
Net sales of $112.8 million in fiscal 1997 represents an increase of $24.7
million, or 28.0%, over net sales of $88.1 million in fiscal 1996. On a
comparable store basis, (computed using the comparable 52-week periods of
fiscal years 1997 and 1996) sales increased 13.0% for fiscal 1997, compared to
12.4% for fiscal 1996. Fiscal year 1997 was a 52-week period and fiscal year
1996 was a 53-week period. The increase in sales is the result of the
Company's strong comparable store sales, and the opening of eight new stores
during fiscal 1997, partially offset by the 53rd-week of sales included in
1996. In fiscal 1997, the Company opened stores in five new markets:
Charlotte, North Carolina; Minneapolis, Minnesota; Cleveland, Ohio; Seattle,
Washington; and Cherry Hill, New Jersey, a suburb of metropolitan
Philadelphia. The Company added three other stores in existing markets:
Fairfield, New Jersey; the Northern New Jersey market; Arlington, Texas; the
Dallas/Ft. Worth market and Queens, New York, the Long Island, New York
market.
Gross profit increased $5.5 million, or 26.6%, to $26.3 million in fiscal
1997. Gross profit as a percentage of sales decreased to 23.3% in fiscal 1997
from 23.6% in fiscal 1996. The decrease in gross margin as a percentage of
sales is primarily due to the Company's new stores having a higher occupancy
cost as a percentage of sales and a lower initial gross margin.
Selling, general and administrative expenses increased $2.9 million or
21.3%, to $16.7 million in fiscal 1997. Selling, general and administrative
expenses as a percentage of sales decreased to 14.8% in fiscal 1997 from 15.6%
in fiscal 1996. The decrease in selling, general and administrative expenses
as a percentage of sales is attributable to lower levels of advertising and
payroll as a percentage of sales.
Operating income increased to $9.6 million in fiscal 1997 compared to $7.0
million in fiscal 1996, a 37.1% increase. Operating income as a percentage if
sales increased to 8.5% in fiscal 1997 from 8.0% in fiscal 1996.
Other income, net was $1.2 million in fiscal year 1997 compared to $735,000
in fiscal 1996. The increase was due to a higher level of cash investments
during fiscal 1997 due to a higher level of yearly average cash balances.
The factors discussed above resulted in an increase in net income of $1.8
million, or 39.3%, to $6.4 million for fiscal 1997, from $4.6 million in
fiscal 1996. Net income as a percentage of sales equaled 5.7% in fiscal 1997,
compared to 5.2% in fiscal 1996.
FISCAL 1996 COMPARED TO FISCAL 1995
Net sales of $88.1 million in fiscal 1996 represented an increase of $28.1
million, or 46.8%, over net sales of $60.0 million in fiscal 1995. On a
comparable store basis, sales increased 12.4% for fiscal 1996, compared to
11.9% for fiscal 1995. Fiscal 1996 was a 53-week period compared to fiscal
1995, which was a 52-week period. The increase in net sales is a result of the
comparable store growth and the opening of six new stores during fiscal 1996.
In March 1996, the Company opened a third store in Atlanta, Georgia and stores
in Baltimore, Maryland and Long Island, New York. In September 1996, two
stores were opened in the Washington, D.C. area, and the sixth new store of
the year was opened in Columbus, Ohio in November 1996. In addition, in
February 1996, the Company moved its first store in Atlanta across the street
from its original location, thereby expanding its selling square footage from
the original store by approximately 30%.
Gross profit increased $6.3 million, or 43.8%, to $20.8 million in fiscal
1996. Gross profit as a percentage of sales decreased to 23.6% in fiscal 1996
from 24.0% in fiscal 1995. The decrease in gross margin is due to the new
stores having a higher occupancy cost as a percentage of sales, and the
Company lowering its mark-up on specific goods in order to lower the selling
prices and enhance its competitive position.
Selling, general and administrative expenses increased $4.5 million, or
48.0%, to $13.8 million in fiscal 1996. Selling, general and administrative
expenses as a percentage of net sales increased to 15.6% in fiscal 1996 from
15.5% in fiscal 1995. Advertising expenditures for the Company increased to
$3.5 million for fiscal 1996, or 3.9% of net sales, from $2.0 million for
fiscal 1995, or 3.3% of net sales. The increased advertising costs were offset
by declining payroll costs as a percentage of sales and declining store
operating costs as a percentage of sales.
17
<PAGE>
Operating income increased to $7.0 million in fiscal 1996 compared to $5.1
million in fiscal 1995. Operating income as a percentage of net sales
decreased to 8.0% in fiscal 1996 from 8.5% in fiscal 1995.
Other income, net was $735,000 in fiscal 1996 compared to $220,000 in fiscal
1995. The increase was due to a higher level of cash investments during fiscal
1996 due to higher cash balances from the proceeds of the Company's equity
offerings.
The factors discussed above resulted in net income applicable to Common
Stock of $4.6 million in fiscal 1996 compared to $3.2 million in fiscal 1995,
a 43.9% increase.
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 1997, the fourth quarter accounted for approximately 35% of the
Company's net sales and approximately 49% 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 twelve 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>
<CAPTION>
MAY 3,
1998
-------
<S> <C> <C> <C> <C>
FISCAL 1998:
Net Sales.......................... $30,309
Gross Profit....................... 6,881
Operating Income................... 1,944
Net Income......................... 1,322
<CAPTION>
MAY 4, AUGUST 3, NOVEMBER 2, FEBRUARY 1,
1997 1997 1997 1998
------- --------- ----------- -----------
<S> <C> <C> <C> <C>
FISCAL 1997:
Net Sales.......................... $23,742 $23,542 $25,981 $39,530
Gross Profit....................... 5,452 5,337 5,929 9,564
Operating Income................... 1,660 1,553 1,726 4,668
Net Income......................... 1,146 1,086 1,167 2,984
</TABLE>
<TABLE>
<CAPTION>
APRIL 28, JULY 28, OCTOBER 27, FEBRUARY 2,
1996 1996 1996 1997
--------- -------- ----------- -----------
<S> <C> <C> <C> <C>
FISCAL 1996:
Net Sales......................... $17,528 $18,217 $19,723 $32,636
Gross Profit...................... 4,123 4,153 4,604 7,880
Operating Income.................. 1,120 1,052 1,322 3,514
Net Income........................ 769 720 869 2,226
</TABLE>
<TABLE>
<CAPTION>
APRIL 30, JULY 30, OCTOBER 29, JANUARY 28,
1995 1995 1995 1996
--------- -------- ----------- -----------
<S> <C> <C> <C> <C>
FISCAL 1995:
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
</TABLE>
18
<PAGE>
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.
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 $7.8 million, $29.3 million, $35.0 million and $36.2 million at the end of
fiscal 1995, 1996, 1997 and at May 3, 1998, respectively. The principal use of
working capital is to purchase inventory. The Company had $19.1 million in
cash and marketable securities as of May 3, 1998.
The Company's capital expenditures totaled $885,000, $1,128,000, $1,261,000
and $1,180,000 in fiscal 1995, fiscal 1996, fiscal 1997, and for the three
months ended May 3, 1998, 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 parties in connection with the opening of new stores. Most
of this indebtedness was incurred in the first nine months of fiscal 1994. As
ofMay 3, 1998, $205,000 of this amount remained outstanding.
The Company currently has a bank credit facility, which expires June 30,
2000, 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 May 3, 1998, 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 prototype 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 10 new stores in fiscal 1998 and 10 to 12 new stores in fiscal
1999. In addition, the Company will spend approximately $1.5 million on its
point-of-sale and management information systems over the next year. The
Company believes that the proceeds from its securities offerings, internally
generated funds, existing cash balances and its bank credit facility will be
adequate to fund its anticipated needs for the foreseeable future.
The Company has completed a preliminary evaluation of its management
information systems to determine their readiness in terms of Year 2000 issues,
and has determined that its point-of-sale cash register systems are the only
application that will require significant modification in order to be Year
2000 ready. The Company has developed a plan to replace its current registers
with a new PC-based register system. The cost to purchase and implement these
systems is estimated to total approximately $1.5 million. These registers are
scheduled to be fully implemented and operational at all store locations prior
to December 31, 1999. Management does not believe that the cost to modify any
of K&G's other systems to be Year 2000 ready will be material to the Company's
financial condition or results of operations. However, the Company currently
does not have any information concerning the Year 2000 readiness of its
suppliers or other third parties with which the Company conducts business, and
in the event that any of its significant suppliers or other third parties with
which the Company conducts business do not successfully and timely achieve
Year 2000 readiness, the Company's business or operations could be adversely
affected.
19
<PAGE>
BUSINESS
OVERVIEW
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
and accessories comparable in quality to that of traditional department and
fine specialty stores, at everyday low prices 30% to 70% below retail prices
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 29 stores operating in 16 states are "destination" stores
located primarily in low-cost warehouses and secondary strip shopping centers
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 pioneered the weekend strategy in menswear
retailing 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 had net sales of $119.4 million and operating income of $9.9
million for the twelve month period ended May 3, 1998. K&G has experienced a
32% compounded annual sales growth rate and a 44% compounded annual operating
income growth rate over the five years ended February 1, 1998. The Company has
achieved its strong financial performance through consistent net sales growth,
combined with one of the highest operating margins in the industry. The
Company's revenue growth has been driven by strong annual comparable store
sales increases (five year average of 12.5%) and significant new store
openings, including 14 new stores in the last two years. In fiscal 1997, the
Company generated one of the highest operating margins (8.5%), the lowest SG&A
as a percentage of sales (14.8%), and one of the highest inventory turns
(4.1x) in the menswear industry.
The Company's stores are operated under the tradenames K&G Men's Center, K&G
MenSmart, T&C Men's Center, T&C MenSmart and MenSmart.
BUSINESS STRATEGY
The Company believes that its success is the result of its ability to
deliver a unique value proposition to its customers. K&G creates this value by
providing a dominant selection of high quality merchandise at lower prices
than its competition in a one-stop shopping superstore designed for
convenience and ease of shopping. The Company executes its vision through the
following strategies:
Low Cost Operations. K&G's unique weekend-only strategy coincides with the
buying patterns of its customers while significantly reducing operating costs.
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. In addition, K&G is able to reduce its
rental obligations by locating its stores in low-cost warehouses and secondary
strip center locations. Word-of-mouth publicity, combined with the efficient
implementation and management of K&G's advertising program, results in below
industry average advertising expenditures. The Company's low-cost structure is
the cornerstone of its positioning in the marketplace. The Company passes its
operating cost savings to its customers through a lower mark-up of its
merchandise, enabling it to provide current-season men's apparel comparable in
quality to apparel offered by traditional department and fine specialty
stores, but at much lower prices.
20
<PAGE>
Dominant Selection of First-Quality Merchandise. K&G's abundant merchandise
offerings consist of all major categories of men's apparel, including business
attire (suits, sportscoats, blazers, dress pants, shirts and ties), casual
wear (slacks, shorts, polo-style shirts, sweaters and activewear), formal wear
(tuxedos and related furnishings), accessories (underwear, socks, belts,
luggage, 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 in all sizes, colors,
styles and fits to enable customers to make the price/quality decision that
best meets their needs. In addition, the Company's information systems enable
K&G to identify top selling items, capitalize on opportunistic buys and
respond to market trends, thereby ensuring current season, customer-oriented
merchandise.
Everyday Low Prices and Low Mark-Ups. K&G seeks to provide the customer with
value by offering quality merchandise at everyday low prices, which are
typically 30% to 70% below retail prices charged by traditional department and
fine specialty stores. This pricing strategy is designed to drive sales volume
and generate high inventory turnover (4.1x in fiscal 1997), and contrasts with
the pricing strategy of many department and specialty stores, which
significantly mark-up their merchandise and then mark down the merchandise to
give customers the perception of value. Typically, the competition's
promotional price still exceeds K&G's everyday low price. The Company
consistently seeks to obtain the lowest price from its vendors by establishing
partnerships, ordering large volumes and not requesting markdown allowances,
concessions, or merchandise returns (except for damaged goods). The
combination of the Company's vendor strategy and its low cost operation are
part of the formula that enables K&G to offer high quality merchandise at
prices lower than the competition.
Destination Superstores. K&G's stores are "destination" superstores located
primarily in low-rent, light industrial areas or secondary strip shopping
centers 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 a dominant selection of first-quality merchandise
sorted and clearly marked by category, size, style, color and fit. K&G
instills a sense of urgency for the customer to purchase by opening its stores
for business only on Friday, Saturday and Sunday, when men typically shop. The
Company believes that a high percentage of customers who come to K&G's stores
purchase merchandise during their visit.
GROWTH AND EXPANSION
The Company currently has 29 stores in 16 states, 21 of which have been
opened since October 1995. The Company plans to open more than 70 new stores
over the next five to six years. K&G intends to initially focus its expansion
efforts in the top fifty metropolitan markets in the United States and intends
to cluster stores in markets to take advantage of advertising and operating
efficiencies. The Company does not utilize a distribution center; accordingly,
it is not constrained geographically or by the capacity limits of a central
facility, which allows management to concentrate on the best real estate
opportunities in targeted markets. The Company believes that both the maturing
of its young store base and new store openings will drive revenue growth for
the Company. The Company has historically experienced double digit comparable
store sales growth for its new stores, primarily as word-of-mouth publicity
grows in the markets that it serves.
The Company's 29 stores are located in Atlanta (3); Baltimore; Boston (2);
Charlotte; Cincinnati; Cleveland; Dallas (3); Denver; Houston (2);
Indianapolis; Long Island (2); Los Angeles; Minneapolis; Philadelphia (2);
Seattle; Washington, D.C. (2); Kansas City, Kansas; Rahway, New Jersey;
Fairfield, New Jersey; and Columbus, Ohio. The Company currently intends to
open six more stores in fiscal 1998, for a total of ten new stores for the
fiscal year.
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. Over the past three fiscal years and
the first quarter of
21
<PAGE>
fiscal 1998, the Company has expended approximately $4.5 million in aggregate
capital expenditures for leasehold improvements, furniture, fixtures and
equipment (including in-store data processing equipment and software) for its
29 stores presently operating.
The following map sets forth the locations of the Company's 29 stores in June
1998:
[Map of United States displaying the Company's 29 stores.]
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,
sportcoats, blazers, dress pants, shirts and ties), casual wear (slacks,
shorts, polo-style shirts, sweaters and activewear), formal wear (tuxedos and
related furnishings), accessories (underwear, socks, belts, luggage, 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, styles and
fits. 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.
22
<PAGE>
K&G stores stock approximately 18,000 different stockkeeping units ("SKUs")
in the following categories: tailored clothing, casual sportswear, dress
furnishings and footwear and accessories. 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. The following reflects the percentage of
the Company's net sales by major merchandise category for the periods
indicated:
<TABLE>
<CAPTION>
FISCAL 1995 FISCAL 1996 FISCAL 1997
----------- ----------- -----------
<S> <C> <C> <C>
Tailored clothing........................ 42.6% 43.1% 42.5%
Casual sportswear........................ 29.2 28.3 27.2
Dress furnishings........................ 17.0 16.0 16.3
Footwear and accessories................. 11.2 12.6 14.0
</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 up to 9,300 suits per 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. In addition, the Company's footwear department has
been increasing as a percentage of net sales over the past three years.
Pricing. K&G's pricing strategy is to enhance customer value by offering
everyday low prices (typically 30% to 70% below retail 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.
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. In
addition, the Company seeks to make its stores "customer-friendly" by
utilizing store signage and merchandise groupings in a manner that facilitates
the customer's selection of merchandise.
THE K&G SUPERSTORE
Warehouse Format. The K&G superstore is designed to project a no-frills,
value-oriented, warehouse atmosphere. K&G groups its merchandise by menswear
categories and in each category by size, color, style and fit to facilitate
ease of identification by the customer. The Company typically occupies
existing warehouse space requiring minimal leasehold improvements and
fixtures, thereby allowing each store to have 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.
23
<PAGE>
Site Selection. In determining where to open 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.
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 Store Operations, three regional
managers and the individual store managers are responsible for managing the
stores' operations. K&G intends to hire additional regional managers as it
increases its number of stores. 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 individual store
performance.
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 generally 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 and efficiently.
PURCHASING AND DISTRIBUTION
K&G purchases merchandise from approximately 250 vendors. The Company enjoys
long-standing 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 markdown 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. 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 in the future. In
fiscal 1997, no more than 9.95% of K&G's purchases were from any single
vendor. The Company has recently initiated a direct sourcing program to
purchase portions of its tailored clothing directly from manufacturers located
in foreign countries.
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.
24
<PAGE>
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 color, and the Company's suits are
specially tagged "Double-Breasted," "Three Button," "Athletic Fit," etc., as a
means of further assisting customers to easily select their styles and fits.
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 to analyze sales and
merchandise trends, 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 $2.0 million, $3.5
million and $4.2 million in fiscal 1995, fiscal 1996 and fiscal 1997, or 3.3%,
3.9% and 3.8% of net sales, respectively. K&G allocates the majority of its
advertising budget to newspaper and radio advertising. The Company recently
utilized television advertising for its Houston and Charlotte openings and
intends to utilize television in more of its store openings. 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 prices
of the Company's merchandise.
Management believes that the Company enjoys substantial word-of-mouth
publicity from its existing customer base, and the Company believes that such
publicity is an integral component of the Company's ability to attract new
customers in markets where the Company has existing stores.
MANAGEMENT INFORMATION SYSTEMS
The Company's merchandising, financial reporting and in-store activities are
currently supported by fully-integrated, point-of-sale inventory and
management information systems. These systems rely on a client-server network
which includes a cluster of IBM RS 6000 and Compaq database and application
servers. These systems allow management to monitor inventory and store
operations on a daily basis. The inventory management system is capable of
reporting product information, such as style, fabric, vendor lot, model
number, size and color. All merchandise is bar-coded and scanned at the point-
of-sale, and the Company utilizes scanners at the receiving level to enhance
its ability to purchase, track and receive merchandise.
The Company has completed a preliminary evaluation of its management
information systems to determine their readiness in terms of Year 2000 issues,
and has determined that its point-of-sale cash register systems are the only
application that will require significant modification in order to be Year
2000 ready. The Company has developed a plan to replace its current registers
with a new PC-based register system. The cost to purchase and
25
<PAGE>
implement these systems is estimated to total approximately $1.5 million.
These registers are scheduled to be fully implemented and operational at all
store locations prior to December 31, 1999. Management does not believe that
the cost to modify any of K&G's other systems to be Year 2000 ready will be
material to the Company's financial condition or results of operations.
However, the Company currently does not have any information concerning the
Year 2000 readiness of its suppliers or other third parties with which the
Company conducts business, and in the event that any of its significant
suppliers or other third parties with which the Company conducts business do
not successfully and timely achieve Year 2000 readiness, the Company's
business or operations could be adversely affected.
PROPERTIES
The Company currently leases all of its store locations. Management believes
that the Company's operating history and its ability to generate substantial
customer traffic give it significant leverage when negotiating lease terms.
Most of the Company's 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 17,543 gross square feet and range in size from
12,000 to 30,000 gross square feet. The Company's prototype store is a 15,000
to 20,000 square feet 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 one of its Atlanta stores,
executive offices 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. The expansion of the Company's business has brought it
into more direct competition with other superstore or three-day men's
retailers. 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 February 1, 1998, the Company's work force consisted of approximately 172
full-time and 297 part-time employees. Employment levels vary during the year
and peak during the holiday selling season.
TRADEMARKS
The Company owns the federally registered trademark MenSmart. The Company's
stores are operated under the tradenames K&G Men's Center, K&G MenSmart, T&C
Men's Center, T&C MenSmart and MenSmart.
LEGAL PROCEEDINGS
On June 4, 1998, an employee of the Company filed a complaint in California
Superior Court against the Company and certain officers and directors of the
Company relating to the plaintiff's employment relationship with the Company.
The several causes of action stated in the complaint relate primarily to an
alleged employment agreement between the plaintiff and the Company and the
Company's alleged breach thereof. The plaintiff is seeking approximately $10
million plus punitive damages. The Company believes that it has valid defenses
to the plaintiff's claims and intends to vigorously defend the complaint. The
Company does not believe that the ultimate outcome of the legal proceeding
will materially affect the Company's results of operations or financial
condition. No assurance can be given, however, regarding the risk or range of
possible loss to the Company, if any.
The Company is not a party to any other material pending litigation.
26
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The executive officers and directors of the Company, as well as certain key
employees, and their ages as of May 30, 1998, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Stephen H. Greenspan..... 57 Chairman of the Board, President and Chief
Executive Officer
John C. Dancu............ 38 Chief Operating Officer, Chief Financial Officer
and Director
Martin Schwartz.......... 56 Senior Vice President and General Merchandising
Manager
George ("Skip") H. 49
Briggs(1)............... Vice President of Store Operations
R. Scott Saban........... 32 Vice President of Management Information Systems
and Store Construction
Phyllis Slutzky(1)....... 52 Vice President of Marketing
Bradley M. Bell(1)....... 31 Vice President of Finance and Corporate
Controller
Donald W. Burton......... 54 Director
James W. Inglis.......... 54 Director
Campbell B. Lanier, III.. 47 Director
W. Paul Ruben............ 57 Director and Secretary
</TABLE>
- --------
(1) Each of these persons is a significant employee, but not an executive
officer, of the Company.
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.
JOHN C. DANCU has served as Chief Financial Officer of the Company since
March 1995. Effective March 1997, he became the Company's Chief Operating
Officer and a Director of the Company. 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.
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.
GEORGE ("SKIP") H. BRIGGS has served as K&G's Vice President of Store
Operations since he joined the Company in March 1998. Prior to joining the
Company, from May 1995 to March 1998, Mr. Briggs served as a Management
Consultant for The Strategic Initiatives Group and KMR Management, Inc. From
1993 to 1995, he served as a Vice President and later as Senior Vice President
Store Operations for Jos. A. Bank Clothiers. From 1979 to 1993 Mr. Briggs was
President/CEO of G. Briggs, a chain of men's and women's off-price apparel
stores. Mr. Briggs has 29 years of retail experience in merchandising,
marketing and operations capacities.
27
<PAGE>
R. SCOTT SABAN assumed the title and responsibilities of Vice President of
Management Information Systems and Store Construction in April 1998. Prior to
this, he served as the Company's Vice President, Operations and Information
Systems from January 1995 to April 1998. Prior to January 1995, Mr. Saban
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.
PHYLLIS SLUTZKY has served as K&G's Vice President of Marketing since
joining the Company in May 1997. Prior to joining the Company, from 1990 to
1997, she served as Senior Manager, Advertising & Marketing for Uptons. From
1980 to 1997, Ms. Slutzky served as Corporate Vice President of Sales
Promotions, Fashion and Publicity for D.H. Holmes, a chain of full line
department stores.
BRADLEY M. BELL has served as K&G's Corporate Controller since joining the
Company in April 1996. Effective June 1998, Mr. Bell assumed the additional
title and responsibilities of Vice President of Finance. Prior to joining the
Company, from 1995 to 1996, he served as Director of Accounting for Turner
Home Entertainment, a division of Turner Broadcasting Systems, Inc. From 1994
to 1995, Mr. Bell served as the Assistant Controller for Petstuff, Inc., a pet
supply retailer with 52 superstore locations. Mr. Bell began his professional
career with Deloitte & Touche, LLP in the firm's audit practice. In this
capacity, Mr. Bell specialized in the retail industry. Mr. Bell is also a
certified public accountant.
DONALD W. BURTON has been a director of the Company since August 1997. Since
1981, Mr. Burton has served as Chairman and Managing General Partner of South
Atlantic Venture Funds. Mr. Burton has been the general partner of The Burton
Partnership, Limited Partnership since January 1979. Mr. Burton serves on the
board of directors of ITCDeltaCom, Inc., which provides retail and wholesale
telecommunication services; KNOLOGY Holdings, Inc., a broadband communications
services company; Powertel, Inc., a personal communications services company;
MTL Inc., a tank truck carrier company; The Heritage Group of Mutual Funds and
several private companies. Mr. Burton also serves as a director of the
National Venture Capital Association. Prior to founding the South Atlantic
Venture Funds, Mr. Burton was a General Partner of Fidelity Ventures, Limited,
Boston, Massachusetts. See "Principal and Selling Shareholders."
JAMES W. INGLIS has been a director of the Company since March 1997. Mr.
Inglis is currently an independent business consultant. From 1996 to 1998, Mr.
Inglis served as the Chief Operating Officer, Senior Vice Present and a
director of The Maxim Group, a publicly-held retailer of floor coverings. From
1983 to 1996, Mr. Inglis served in various capacities with The Home Depot,
Inc., including most recently as its Executive Vice President of Strategic
Development and as a member of its board of directors.
CAMPBELL B. LANIER, III has served as a Director of the Company since May
1995. Mr. Lanier serves as Chairman of the Board and Chief Executive Officer
of ITC Holding Company, Inc. ("ITC Holding") and has served as a director of
ITC Holding (or its predecessor companies) since the company's inception in
1985. In addition, Mr. Lanier is an officer and director of several ITC
Holding subsidiaries. Mr. Lanier also is a director of Innotrac Corporation,
which provides customized, technology-based marketing support services;
Chairman of the Board and a director of ITCDeltaCom, Inc., which provides
retail and wholesale telecommunications services; a director of KNOLOGY
Holdings, Inc., a broadband communications services company; a director of
MindSpring Enterprises, Inc., an Internet access provider; a director of
National Vision Associates, Ltd., a full service optical retailer; and a
director of Powertel, Inc., a personal communications services company. Mr.
Lanier also is a special limited partner in the South Atlantic Venture Fund
II, Limited Partnership and South Atlantic Venture Fund III, Limited
Partnership, and he is a Managing Director of South Atlantic Private Equity
Fund IV, Limited Partnership. See "Principal and Selling Shareholders."
W. PAUL RUBEN has been a Director and Secretary of the Company since its
incorporation in June 1990. Mr. Ruben is primarily a private investor.
28
<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 May 3, 1998 (prior to this
offering), the number of shares being offered and the beneficial ownership of
the Common Stock of the Company upon consummation of the offering. The
information is provided with respect to (i) each person who is known by the
Company to own beneficially more than 5% of the outstanding shares of Common
Stock, (ii) each of the Selling Shareholders, (iii) each director of the
Company, (iv) each executive officer, and (v) all of the directors and
executive officers of the Company as a group (8 persons). Except as otherwise
indicated by footnote, the named person has sole voting and investment power
with respect to all shares of Common Stock shown as beneficially owned. An
asterisk indicates beneficial ownership of less than 1% of the Common Stock
outstanding.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR OWNED AFTER
TO OFFERING SHARES OFFERING
----------------------- BEING -----------------------
NAME NUMBER PERCENT OFFERED NUMBER PERCENT
- ---- ------------ ---------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C>
SELLING SHAREHOLDERS
South Atlantic Venture
Fund III, Limited
Partnership(1)......... 914,737 9.0% 914,737 -- --
ITC Holding Company(2).. 98,655 * 50,000 48,655 *
Fowler Family Limited
Partnership(3)......... 75,000 * 25,000 50,000 *
EXECUTIVE OFFICERS AND
DIRECTORS
Stephen H.
Greenspan(3)(4)........ 1,681,162 16.6% 330,000 1,351,162 13.2%
W. Paul Ruben(3)(5)..... 897,005 8.8% 180,000 717,005 7.0%
Martin Schwartz(3)...... 313,401 3.1% 62,000 251,401 2.5%
John C. Dancu(6)........ 277,893 2.7% -- 277,893 2.7%
R. Scott Saban.......... 899 * -- 899 *
James W. Inglis......... 11,400 * -- 11,400 *
Campbell B. Lanier,
III(7)................. 98,655 * 50,000 48,655 *
Donald W. Burton(8)..... 962,362 9.5% 914,737 47,625 *
Directors and executive
officers as a group (8
persons)............... 3,988,404 39.2% 1,536,737 2,451,667 23.9%
OTHER SHAREHOLDERS
Northwestern Mutual Life
Insurance Company(9)... 851,100 8.4% -- 851,100 8.3%
</TABLE>
- --------
(1) The business address of South Atlantic Venture Fund III, Limited
Partnership ("South Atlantic") is 614 West Bay Street, 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 selling shareholder is that of the
Company, 1225 Chattahoochee Avenue, N.W., Atlanta, Georgia 30318-9958.
(4) Includes 984,375 shares (9.7% of the amount outstanding prior to the
offering) owned of record by The Greenspan Family Limited Partnership, of
which Mr. Greenspan is a general partner. Of the shares being offered
hereby, 110,000 shares are being offered by such limited partnership and
220,000 shares are being offered individually by Mr. Greenspan.
(5) Includes 763,590 shares (7.5% of the amount outstanding prior to the
offering) owned of record by The Ruben Family Limited Partnership, of
which Mr. Ruben is a general partner. All of the shares being offered
hereby are owned of record by such limited partnership.
(6) Includes 23,520 shares owned directly by Mr. Dancu and 254,373 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, with which Mr.
Lanier is affiliated.
(8) Of the shares indicated, 914,737 are owned of record by South Atlantic,
with which Mr. Burton is affiliated, and 47,625 are owned of record by The
Burton Partnership, Limited Partnership, of which Mr. Burton is a general
partner.
(9) The business address of the named shareholder is 720 E. Wisconsin Avenue,
Milwaukee, Wisconsin 53203.
29
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
The Common Stock of the Company is quoted on the Nasdaq National Market
under the symbol "MENS." Sales of substantial amounts of shares in the public
market or their availability for sale could adversely affect prevailing market
prices of the Common Stock and make it more difficult for the Company to sell
equity securities in the future at a time and price which is deemed
appropriate.
Upon completion of this offering, the Company will have 10,230,683 shares of
Common Stock outstanding and 542,131 shares of Common Stock reserved for
issuance upon exercise of outstanding stock options. Of these shares, all of
the 1,650,000 shares sold in this offering (1,897,500 if the Underwriters'
over-allotment option is exercised in full) will be freely tradable without
restriction or further registration under the Securities Act, unless purchased
by an "affiliate" of the Company as such term is defined in Rule 144 described
below. Of the remaining 8,580,683 shares, 2,428,042 shares are held by persons
deemed "affiliates" of the Company as such term is defined in Rule 144. Such
shares held by affiliates may not be sold except in compliance with the
registration requirements of the Securities Act or pursuant to an exemption
from registration, such as the exemption provided by Rule 144 under the
Securities Act. Shares held by executive officers, directors and the Selling
Shareholders are subject to a lock-up agreement that does not permit their
resale prior to 90 days from the date of this Prospectus without the prior
consent of the Underwriters and thereafter may be sold subject to the
limitations of Rule 144.
In general, Rule 144 as currently in effect allows a shareholder (except
persons who may be deemed "affiliates" of the Company under Rule 144) who has
beneficially owned restricted shares for at least one year to sell a number of
shares within any three-month period that does not exceed the greater of (i)
1% of the then outstanding shares of Common Stock (102,307 shares after giving
effect to this offering) or (ii) the average weekly trading volume in the
Common Stock during the four calendar weeks immediately preceding such sale.
Sales under Rule 144 are also subject to certain requirements as to the manner
and notice of sale and the availability of public information about the
Company. A shareholder (or shareholder whose shares are aggregated) who is not
an "affiliate" of the Company at any time during the 90 days immediately
preceding a sale, and who has beneficially owned his shares for at least two
years (as computed under Rule 144), is entitled to sell shares under Rule 144
without regard to the volume and manner of sale limitations described above.
Shares properly sold in reliance upon Rule 144 to persons who are not
"affiliates" are thereafter freely tradable without restriction or
registration under the Securities Act. The Company is unable to predict the
effect that sales made under Rule 144, pursuant to future registration
statements or otherwise, may have on the then prevailing market price for the
shares of Common Stock. Nevertheless, sales of a substantial amount of Common
Stock in the public market, or a perception that such sales could occur, could
adversely affect market prices for the Common Stock.
30
<PAGE>
UNDERWRITING
The Underwriters named below have severally agreed, subject to the terms and
conditions set forth in the Underwriting Agreement, to purchase from the
Company and the Selling Shareholders the number of shares of Common Stock
indicated below opposite their respective names at the public offering price
less the underwriting discount set forth on the cover page of this Prospectus.
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters are
committed to purchase all of the shares if they purchase any.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
<S> <C>
NationsBanc Montgomery Securities LLC.............................
The Robinson-Humphrey Company, LLC................................
J.C. Bradford & Co. ..............................................
---------
Total........................................................... 1,650,000
=========
</TABLE>
The Underwriters have advised the Company and the Selling Shareholders that
the Underwriters propose initially to offer the Common Stock to the public on
the terms set forth on the cover page of this Prospectus. The underwriters may
allow to selected dealers a concession of not more than $ per share; and the
Underwriters may allow, and such dealers may reallow, a concession of not more
than $ per share to certain other dealers. After the public offering, the
offering price and other selling terms may be changed by the Underwriters. The
Common Stock is offered subject to receipt and acceptance by the Underwriters,
and to certain other conditions, including the right to reject orders in whole
or in part.
The Seller Shareholders have granted an option to the Underwriters,
exercisable during the 30-day period after the date of this Prospectus, to
purchase up to a maximum of 247,500 additional shares of Common Stock to cover
over-allotments, if any, at the same price per share as the initial shares to
be purchased by the Underwriters. To the extent that the Underwriters exercise
this option, the Underwriters will be committed, subject to certain
conditions, to purchase such additional shares in approximately the same
proportion as set forth in the above table. The Underwriters may purchase such
shares only to cover over-allotments made in connection with this offering.
The Underwriting Agreement provides that the Company and the Selling
Shareholders will indemnify the Underwriters against certain liabilities,
including civil liabilities under the Securities Act, or will contribute to
payments the Underwriters may be required to make in respect thereof.
All of the Selling Shareholders have agreed, subject to certain limited
exceptions, not to offer, sell or otherwise dispose, directly or indirectly,
of any shares of Common Stock of the Company for a period of 90 days after the
date of this Prospectus, without the prior written consent of NationsBanc
Montgomery Securities LLC, as representative of the Underwriters. The Company
has agreed not to offer, sell or otherwise dispose of, directly or indirectly,
any shares of Common Stock of the Company for a period of 90 days after the
date of this Prospectus, without the prior written consent of NationsBanc
Montgomery Securities LLC, as representative of the Underwriters, except that
the Company, without such consent, may grant options or issue Common Stock
upon exercise of new or outstanding options pursuant to the Company's existing
stock option plans.
Certain persons participating in this offering are permitted to engage in
certain transactions that stabilize the price of the Common Stock. Such
transactions consist of bids or purchases for the purpose of pegging, fixing
or maintaining the price of the Common Stock. If the Underwriters create a
short position in the Common Stock in connection with the offering, i.e., if
they sell more shares of Common Stock than are set forth on the cover page of
this Prospectus, the Underwriters may reduce that short position by purchasing
Common Stock in the open market. The Underwriters may also elect to reduce any
short position by exercising all or part of the over-allotment option
described above.
31
<PAGE>
In general, purchases of Common Stock for the purpose of stabilization or to
reduce a short position could cause the price of the Common Stock to be higher
than it might be in the absence of such purchases. Neither the Company nor any
of the Underwriters makes any representation or predictions as to the
direction or magnitude of any effect that the transactions described above may
have on the price of the Common Stock. In addition, neither the Company nor
any of the Underwriters makes any representation that the Underwriters will
engage in such transactions or that such transactions, once commenced, will
not be discontinued without notice.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements under the captions "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and certain other statements contained or incorporated
by reference in this Prospectus constitute "forward-looking statements" within
the meaning of the Reform Act. When used herein, the words "anticipates,"
"intends," "plans," "believes," "estimates," "expects" and similar expressions
are intended to identify forward-looking statements. Such forward-looking
statements involve known and unknown risks and uncertainties, and other
factors that may cause the actual results, performance or achievements of the
Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, but are not limited to, (i) the youth of the Company's store
base; (ii) risks related to the Company's expansion strategy; (iii) potential
inability to sustain comparable store sales growth; (iv) merchandise and
market trends; (v) vendor relationships; (vi) reliance on key personnel and
(vii) the impact of economic conditions. Accordingly, any such statements are
qualified in their entirety by reference to, and are accompanied by, the
factors discussed throughout this Prospectus, and particularly those set forth
herein under "Risk Factors." The risk factors described herein could cause
actual results or outcomes to differ materially from those expressed in any
forward-looking statements of the Company made by or on behalf of the Company
and, therefore, investors should not place undue reliance on any such forward-
looking statements. Further, any forward-looking-statement speaks only as of
the date on which such statement is made, and the Company undertakes no
obligation to update any forward-looking statement or statements to reflect
events or circumstances after the date on which such statement is made or to
reflect the occurrence of unanticipated events. New factors emerge from time
to time, and it is not possible for management to predict all of such factors.
Further, management cannot assess the impact of each such factor on the
Company's business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those contained in
any forward-looking statements.
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 certain legal matters will be passed upon 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 28, 1996, February 2, 1997 and February 1, 1998,
incorporated by reference in the Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are incorporated by reference in reliance
upon the authority of said firm as experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed a Registration Statement on Form S-3 under the
Securities Act with the Securities and Exchange Commission (the "Commission")
with respect to the shares offered by this Prospectus. This
32
<PAGE>
Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. Statements
contained herein concerning the provisions of any documents are not
necessarily complete and, in each instance, reference is made to the copy of
such documents filed as an exhibit to the Registration Statement, and each
such statement shall be deemed qualified in its entirety by such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Commission. A copy of
the reports and other information filed by the Company in accordance with
Exchange Act may be inspected without charge at the offices of the Commission
at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and will also be
available for inspection and copying at the regional offices of the Commission
located at 7 World Trade Center, Suite 1300, New York, New York, 10048, and at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois,
60661-2511. Copies of such material may also be obtained from the Public
Records Section of the Commission, Washington, D.C. 20549, upon payment of the
fees prescribed by the Commission. The Commission maintains a Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission with a Web
site address of http://www.sec.gov. Such reports, proxy statements and other
information concerning the Company are also available for inspection at the
offices of the Nasdaq National Market, Reports Section, 735 K Street, N.W.,
Washington, D.C. 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission (Commission
File No. 0-27348) are incorporated herein by reference: (i) the Company's
Annual Report on Form 10-K for the year ended February 1, 1998, (ii) the
Company's Quarterly Report on Form 10-Q for the quarter ended May 3, 1998, and
(iii) the Company's Registration Statement on Form 8-A filed December 5, 1995,
registering the Company's Common Stock under Section 12(g) of the Exchange
Act. All documents filed by the Company with the Commission pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act subsequent to the date
hereof and prior to the termination of the offering of the Common Stock
registered hereby shall be deemed to be incorporated by reference into this
Prospectus and to be a part hereof from the date of filing of such documents.
Any statements contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein or in any other subsequently filed document which also is, or is deemed
to be, incorporated by reference herein modifies or supersedes such
statements. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this Prospectus
is delivered, upon the written or oral request of such person, a copy of any
or all of the foregoing documents incorporated by reference into this
Prospectus (other than exhibits to such documents, unless such exhibits are
specifically incorporated by reference into such documents). Request for such
copies should be directed to Bradley M. Bell, Vice President of Finance and
Corporate Controller, at K&G Men's Center, Inc., 1225 Chattahoochee Avenue,
N.W., Atlanta, Georgia 30318, (404) 351-7987.
33
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, sales representative, or any other person has been authorized to
give any information or to make any representations other than those contained
in this Prospectus, and, if given or made, such information or representation
must not be relied upon as having been authorized by the Company, by any
Selling Shareholder or by the Underwriters. Neither the delivery of this
Prospectus nor any sale made hereunder shall under any circumstances create any
implication that there has been no change in the affairs of the Company since
the date hereof. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities offered hereby by anyone in any
jurisdiction in which such offer or solicitation is not authorized or in which
the person making such offer or solicitation is not qualified to do so or to
any person to whom it is unlawful to make such offer or solicitation.
------------------
TABLE OF CONTENTS
------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 11
Price Range of Common Stock.............................................. 11
Dividend Policy.......................................................... 11
Capitalization........................................................... 12
Selected Consolidated Financial Data..................................... 13
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 15
Business................................................................. 20
Management............................................................... 27
Principal and Selling Shareholders....................................... 29
Shares Eligible for Future Sale.......................................... 30
Underwriting............................................................. 31
Special Note Regarding Forward-Looking Statements........................ 32
Legal Matters............................................................ 32
Experts.................................................................. 32
Additional Information................................................... 32
Incorporation of Certain Documents by Reference.......................... 33
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1,650,000 SHARES
[LOGO OF K&G MEN'S CENTER, INC. APPEARS HERE]
COMMON STOCK
-----------
PROSPECTUS
-----------
NationsBanc Montgomery
Securities LLC
The Robinson-Humphrey Company
J.C. Bradford & Co.
June , 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Registration fee to Securities and Exchange Commission.......... $ 13,785
National Association of Securities Dealers, Inc. filing fee..... 5,173
NASDAQ National Market Listing fee.............................. 17,500
Transfer Agent's and Registrar's fees........................... 5,000
Printing and engraving costs.................................... 40,000
Accounting fees and expenses.................................... 8,000
Legal fees and expenses......................................... 45,000
Miscellaneous expenses.......................................... 30,542
--------
Total......................................................... $165,000
========
</TABLE>
The foregoing items, except for the registration fee to the Securities and
Exchange Commission, are estimated. The Company has agreed to bear all
expenses in connection with the registration of the Shares being offered.
ITEM 15. 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 16. EXHIBITS.
<TABLE>
<C> <S>
1.1+ Form of Underwriting Agreement.
3.1+ Articles of Amendment to the Amended and Restated Articles of
Incorporation of the Company.
4.1* Form of certificate representing shares of the Registrant's Common
Stock.
4.2* See Exhibits 3.1 and 3.2 for provisions of the Amended and Restated
Articles of Incorporation and By-laws of the Registrant defining
rights of holders of Common Stock of the Registrant.
5.1+ Legal opinion of Hunton & Williams regarding legality of securities
being registered.
23.1++ Consent of Arthur Andersen LLP.
23.2+ Consent of Hunton & Williams (included in Exhibit 5.1).
24.1++ Power of Attorney.
</TABLE>
- --------
* Incorporated by reference to exhibit of the same number in the Form S-1
Registration Statement of the Registrant (Registration No. 33-80025).
+Filed herewith.
++Previously filed.
II-1
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
Registration Statement 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 the initial bona fide offering
thereof.
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 to the question whether such indemnification
by it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
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 Securities 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, 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 the initial bona fide offering hereof.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS AMENDMENT NO. 2
TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF ATLANTA, STATE OF GEORGIA ON THE
25TH DAY OF JUNE, 1998.
K&G Men's Center, Inc.
/s/Stephen H. Greenspan
By: _________________________________
Stephen H. Greenspan
Chairman, President and Chief
Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT NO. 2 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES INDICATED ON JUNE 25, 1998.
SIGNATURE TITLE
/s/Stephen H. Greenspan Chairman of the Board, President and
- ------------------------------------- Chief Executive Officer (principal
STEPHEN H. GREENSPAN executive officer)
/s/John C. Dancu Chief Operating Officer, Chief
- ------------------------------------- Financial Officer (principal
JOHN C. DANCU financial and accounting officer),
Assistant Secretary and Director
Campbell B. Lanier, III* Director
- -------------------------------------
CAMPBELL B. LANIER, III
Donald W. Burton* Director
- -------------------------------------
DONALD W. BURTON
W. Paul Ruben* Director
- -------------------------------------
W. PAUL RUBEN
James W. Inglis* Director
- -------------------------------------
JAMES W. INGLIS
/s/John C. Dancu
*By:_________________________________
JOHN C. DANCU,
AS ATTORNEY-IN-FACT
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
1.1+ Form of Underwriting Agreement.
3.1+ Articles of Amendment to the Amended and Restated Articles of
Incorporation of the Company.
4.1* Form of certificate representing shares of the Registrant's Common
Stock.
4.2* See Exhibits 3.1 and 3.2 for provisions of the Amended and Restated
Articles of Incorporation and By-laws of the Registrant defining rights
of holders of Common Stock of the Registrant.
5.1+ Legal opinion of Hunton & Williams regarding legality of securities
being registered.
23.1++ Consent of Arthur Andersen LLP.
23.2+ Consent of Hunton & Williams (included in Exhibit 5.1).
24.1++ Power of Attorney.
</TABLE>
- --------
* Incorporated by reference to exhibit of the same number in the Form S-1
Registration Statement of the Registrant (Registration No. 33-80025).
+Filed herewith.
++Previously filed.
II-4
<PAGE>
EXHIBIT 1.1
1,650,000 SHARES
K&G MEN'S CENTER, INC.
Common Stock
UNDERWRITING AGREEMENT
Dated June __, 1998
<PAGE>
TABLE OF CONTENTS
SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................2
A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY...........................2
Compliance with Registration Requirements...............................2
Offering Materials Furnished to Underwriters............................3
Distribution of Offering Material By the Company........................3
The Underwriting Agreement..............................................3
Authorization of the Common Shares......................................3
No Applicable Registration or Other Similar Rights......................3
No Material Adverse Change..............................................3
Independent Accountants.................................................4
Preparation of the Financial Statements.................................4
Incorporation and Good Standing of the Company and its
Subsidiaries..........................................................4
Capitalization and Other Capital Stock Matters..........................5
Stock Exchange Listing..................................................5
Non-Contravention of Existing Instruments; No Further
Authorizations or Approvals Required..................................5
No Material Actions or Proceedings......................................6
Intellectual Property Rights............................................6
All Necessary Permits, etc..............................................6
Title to Properties.....................................................6
Tax Law Compliance......................................................7
Company Not an Investment Company.......................................7
Insurance...............................................................7
No Price Stabilization or Manipulation..................................7
Related Party Transactions..............................................7
Exchange Act Compliance.................................................7
No Unlawful Contributions or Other Payments.............................7
Company's Accounting System.............................................8
Compliance with Environmental Laws......................................8
B) REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDERS..............9
The Underwriting Agreement..............................................9
The Custody Agreement and Power of Attorney.............................9
Title to Common Shares to be Sold; All Authorizations Obtained..........9
Delivery of the Common Shares to be Sold................................9
Non-Contravention; No Further Authorizations or Approvals Required.....10
No Registration or Other Similar Rights................................10
No Further Consents, etc...............................................10
Disclosure Made by Such Selling Shareholder in the Prospectus..........10
No Price Stabilization or Manipulation.................................10
Confirmation of Company Representations and Warranties.................11
No Unlawful Contributions or Other Payments............................11
SECTION 2. PURCHASE, SALE AND DELIVERY OF COMMON SHARES....................11
The Firm Common Shares.................................................11
The First Closing Date.................................................11
The Optional Common Shares; the Second Closing Date....................12
Public Offering of the Common Shares...................................12
Payment for the Common Shares..........................................12
Delivery of the Common Shares..........................................13
Delivery of Prospectus to the Underwriters.............................13
i
<PAGE>
SECTION 3. ADDITIONAL COVENANTS............................................13
A) COVENANTS OF THE COMPANY...............................................13
Underwriters' Review of Proposed Amendments and Supplements............13
Securities Act Compliance..............................................14
Amendments and Supplements to the Prospectus and Other Securities
Act Matters..........................................................14
Copies of any Amendments and Supplements to the Prospectus.............14
Blue Sky Compliance....................................................14
Use of Proceeds........................................................15
Transfer Agent.........................................................15
Earnings Statement.....................................................15
Periodic Reporting Obligations.........................................15
Agreement Not To Offer or Sell Additional Securities...................15
Future Reports to the Underwriters.....................................15
Exchange Act Compliance................................................15
B) COVENANTS OF THE SELLING SHAREHOLDERS..................................16
Agreement Not to Offer or Sell Additional Securities...................16
Delivery of Forms W-8 and W-9..........................................16
SECTION 4. PAYMENT OF EXPENSES.............................................16
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS...............17
Accountants' Comfort Letter............................................17
Compliance with Registration Requirements; No Stop Order, No
Objection from NASD..................................................17
No Material Adverse Change or Ratings Agency Change....................18
Opinion of Counsel for the Company.....................................18
Opinion of Counsel for the Underwriters................................18
Officers' Certificate..................................................18
Bring-down Comfort Letter..............................................19
Opinion of Counsel for the Selling Shareholders........................19
Selling Shareholders' Certificate......................................19
Selling Shareholders' Documents........................................19
Lock-Up Agreement from Certain Shareholders of the Company Other
Than Selling Shareholders............................................19
Additional Documents...................................................20
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES.........................20
SECTION 7. EFFECTIVENESS OF THIS AGREEMENT.................................20
SECTION 8. INDEMNIFICATION.................................................20
Indemnification of the Underwriters....................................20
Indemnification of the Company, its Directors and Officers.............22
Notifications and Other Indemnification Procedures.....................22
Settlements............................................................23
SECTION 9. CONTRIBUTION....................................................24
SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS..............25
SECTION 11. TERMINATION OF THIS AGREEMENT...................................25
SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY.............26
SECTION 13. NOTICES.........................................................26
SECTION 14. SUCCESSORS......................................................27
ii
<PAGE>
SECTION 15. PARTIAL UNENFORCEABILITY.......................................28
SECTION 16. GOVERNING LAW PROVISIONS.......................................28
SECTION 17. FAILURE OF ONE OR MORE OF THE SELLING SHAREHOLDERS TO SELL AND
DELIVER COMMON SHARES..........................................28
SECTION 18. GENERAL PROVISIONS.............................................28
iii
<PAGE>
UNDERWRITING AGREEMENT
June __, 1998
NATIONSBANC MONTGOMERY SECURITIES LLC
THE ROBINSON-HUMPHREY COMPANY, LLC
J. C. BRADFORD & CO.
c/o NATIONSBANC MONTGOMERY SECURITIES LLC
600 Montgomery Street
San Francisco, California 94111
Ladies and Gentlemen:
INTRODUCTORY. K&G Men's Center, Inc., a Georgia corporation (the
"Company"), proposes to issue and sell to NationsBanc Montgomery Securities LLC
("NMSI"), The Robinson-Humphrey Company, LLC and J.C. Bradford & Co.
(collectively, the "Underwriters") an aggregate of 88,263 shares of its Common
Stock, par value $.01 per share (the "Common Stock"); and the shareholders of
the Company named in Schedule B (collectively, the "Selling Shareholders")
----------
severally propose to sell to the Underwriters an aggregate of 1,561,737 shares
of Common Stock. The 88,263 shares of Common Stock to be sold by the Company
and the 1,561,737 shares of Common Stock to be sold by the Selling Shareholders
are collectively called the "Firm Common Shares." In addition, the Selling
Shareholders have severally granted to the Underwriters an option to purchase up
to an additional 247,500 shares (the "Optional Common Shares") of Common Stock,
as provided in Section 2, each Selling Shareholder selling up to the amount set
forth opposite such Selling Shareholder's name in Schedule B. The Firm Common
----------
Shares and, if and to the extent such option is exercised, the Optional Common
Shares are collectively called the "Common Shares."
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-3 (File No.
333-55895), which contains a form of prospectus to be used in connection with
the public offering and sale of the Common Shares. Such registration statement,
as amended, including the financial statements, exhibits and schedules thereto,
in the form in which it was declared effective by the Commission under the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder (collectively, the "Securities Act"), including all documents
incorporated or deemed to be incorporated by reference therein, any information
deemed to be a part thereof at the time of effectiveness pursuant to Rule 430A
or Rule 434 under the Securities Act, or the Securities Exchange Act of 1934 and
the rules and regulations promulgated thereunder (collectively, the "Exchange
Act") is called the "Registration Statement." Any registration statement filed
by the Company pursuant to Rule 462(b) under the Securities Act is called the
"Rule 462(b) Registration Statement," and from and after the date and time of
filing of the
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<PAGE>
Rule 462(b) Registration Statement, the term "Registration Statement" shall
include the Rule 462(b) Registration Statement. Such prospectus, in the form
first used by the Underwriters to confirm sales of the Common Shares, is called
the "Prospectus"; provided, however, if the Company has, with the consent of
NMSI, elected to rely upon Rule 434 under the Securities Act, the term
"Prospectus" shall mean the Company's prospectus subject to completion (each, a
"preliminary prospectus") dated June 9, 1998 and all documents incorporated by
reference therein (such preliminary prospectus is called the "Rule 434
preliminary prospectus"), together with the applicable term sheet (the "Term
Sheet") prepared and filed by the Company with the Commission under Rules 434
and 424(b) under the Securities Act and all references in this Agreement to the
date of the Prospectus shall mean the date of the Term Sheet. All references in
this Agreement to the Registration Statement, the Rule 462(b) Registration
Statement, a preliminary prospectus, the Prospectus or the Term Sheet, or any
amendments or supplements to any of the foregoing, shall include any copy
thereof filed with the Commission pursuant to its Electronic Data Gathering,
Analysis and Retrieval System ("EDGAR").
All references in this Agreement to financial statements and schedules
and other information which is "contained," "included" or "stated" in the
Registration Statement or the Prospectus (and all other references of like
import) shall be deemed to mean and include all such financial statements and
schedules and other information which is or is deemed to be incorporated by
reference in the Registration Statement or the Prospectus, as the case may be;
and all references in this Agreement to amendments or supplements to the
Registration Statement or the Prospectus shall be deemed to mean and include the
filing of any document under the Exchange Act which is or is deemed to be
incorporated by reference in the Registration Statement or the Prospectus, as
the case may be.
The Company and each of the Selling Shareholders hereby confirm their
respective agreements with the Underwriters as follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
A. Representations and Warranties of the Company. The Company hereby
represents, warrants and covenants to each Underwriter as follows:
(a) Compliance with Registration Requirements. The Registration
Statement and any Rule 462(b) Registration Statement have been declared
effective by the Commission under the Securities Act. The Company has
complied to the Commission's satisfaction with all requests of the Commission
for additional or supplemental information. No stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement is in effect and no proceedings for such purpose have been
instituted or are pending or, to the best knowledge of the Company, are
contemplated or threatened by the Commission.
Each preliminary prospectus and the Prospectus when filed complied in all
material respects with the Securities Act and, if filed by electronic
transmission pursuant to EDGAR (except as may be permitted by Regulation S-T
under the Securities Act), was identical to the copy thereof delivered to the
Underwriters for use in connection with the offer and sale of the Common
Shares. Each of the Registration Statement, any Rule 462(b) Registration
Statement and any post-effective amendment thereto, at the time it became
effective and at all subsequent times during the Prospectus Delivery Period
(as hereinafter defined), complied and will comply in all material respects
with the Securities Act and did not and will not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading. The
Prospectus, as amended or supplemented, as of its date and at all subsequent
times during the
-2-
<PAGE>
Prospectus Delivery Period, did not and will not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. The representations and
warranties set forth in the two immediately preceding sentences do not apply
to statements in or omissions from the Registration Statement, any Rule 462(b)
Registration Statement, or any post-effective amendment thereto, or the
Prospectus, or any amendments or supplements thereto, made in reliance upon
and in conformity with information relating to any Underwriter furnished to
the Company in writing by the Underwriters expressly for use therein. There
are no contracts or other documents required to be described in the Prospectus
or to be filed as exhibits to the Registration Statement which have not been
described or filed as required.
(b) Offering Materials Furnished to Underwriters. The Company has
delivered to the Underwriters three complete copies of the manually signed
Registration Statement and of each consent and certificate of experts filed as
a part thereof, and conformed copies of the Registration Statement (without
exhibits) and preliminary prospectuses and the Prospectus, as amended or
supplemented, in such quantities and at such places as the Underwriters have
reasonably requested for each of the Underwriters.
(c) Distribution of Offering Material By the Company. The Company has
not distributed and will not distribute, prior to the later of the Second
Closing Date (as defined below) and the completion of the Underwriters'
distribution of the Common Shares, any offering material in connection with
the offering and sale of the Common Shares other than a preliminary
prospectus, the Prospectus or the Registration Statement.
(d) The Underwriting Agreement. This Agreement has been duly
authorized, executed and delivered by, and is a valid and binding agreement
of, the Company, enforceable in accordance with its terms, except as rights to
indemnification and contribution hereunder may be limited by applicable law
and except as the enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting the
rights and remedies of creditors or by general equitable principles.
(e) Authorization of the Common Shares. The Common Shares to be
purchased by the Underwriters from the Company have been duly authorized for
issuance and sale pursuant to this Agreement and, when issued and delivered by
the Company pursuant to this Agreement, will be validly issued, fully paid and
nonassessable.
(f) No Applicable Registration or Other Similar Rights. There are no
persons with registration or other similar rights to have any equity or debt
securities registered for sale under the Registration Statement or included in
the offering contemplated by this Agreement, other than the Selling
Shareholders with respect to the Common Shares included in the Registration
Statement, except for such rights as have been duly waived.
(g) No Material Adverse Change. Except as otherwise disclosed in the
Prospectus, subsequent to the respective dates as of which information is
given in the Prospectus and through the First Closing Date and the Second
Closing Date, as the case may be: (i) there has been no material adverse
change, or any development that could reasonably be expected to result in a
material adverse change, in the condition, financial or otherwise, or in the
earnings, business, operations or prospects, whether or not arising from
transactions in the ordinary course of business, of the Company and its
subsidiaries, considered as one entity (any such change is called a "Material
Adverse Change"); (ii) the Company and its subsidiaries, considered as one
entity,
-3-
<PAGE>
have not incurred any material liability or obligation, indirect, direct or
contingent, not in the ordinary course of business nor entered into any
material transaction or agreement not in the ordinary course of business; and
(iii) there has been no dividend or distribution of any kind declared, paid or
made by the Company or, except for dividends paid to the Company or other
subsidiaries, any of its subsidiaries on any class of capital stock or
repurchase or redemption by the Company or any of its subsidiaries of any
class of capital stock.
(h) Independent Accountants. Arthur Andersen LLP, who has expressed its
opinion with respect to the financial statements (which term as used in this
Agreement includes the related notes thereto) and supporting schedules filed
with the Commission or incorporated by reference as a part of the Registration
Statement and included or incorporated by reference in the Prospectus, are, to
the best of the Company's knowledge, independent public or certified public
accountants as required by the Securities Act and the Exchange Act.
(i) Preparation of the Financial Statements. The financial statements
filed with the Commission or incorporated by reference as a part of the
Registration Statement and included or incorporated by reference in the
Prospectus present fairly the consolidated financial position of the Company
and its subsidiaries as of and at the dates indicated and the results of their
operations and cash flows for the periods specified. The supporting schedules
included in the Registration Statement or incorporated by reference therein
present fairly the information required to be stated therein. Such financial
statements and supporting schedules have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis
throughout the periods involved, except as may be expressly stated in the
related notes thereto. No other financial statements or supporting schedules
are required to be included in the Registration Statement. The financial data
set forth in the Prospectus under the captions "Prospectus Summary--Summary
Financial Information and Operating Data," "Selected Consolidated Financial
Data" and "Capitalization" fairly present the information set forth therein on
a basis consistent with that of the audited financial statements contained or
incorporated by reference in the Registration Statement.
(j) Incorporation and Good Standing of the Company and its Subsidiaries.
Each of the Company and its subsidiaries has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation and has corporate power and authority to
own, lease and operate its properties and to conduct its business as described
in the Prospectus and, in the case of the Company, to enter into and perform
its obligations under this Agreement. Each of the Company and each subsidiary
is duly qualified as a foreign corporation to transact business and is in good
standing in the State of Georgia and each other jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except for such jurisdictions (other than
the State of Georgia) where the failure to so qualify or to be in good
standing would not, individually or in the aggregate, result in a Material
Adverse Change. All of the issued and outstanding capital stock of each
subsidiary has been duly authorized and validly issued, is fully paid and
nonassessable and, except as otherwise disclosed in the Registration
Statement, is owned by the Company, directly or through subsidiaries, free and
clear of any security interest, mortgage, pledge, lien, encumbrance or claim.
The Company does not own or control, directly or indirectly, any corporation,
association or other entity other than the subsidiaries listed in Exhibit 21.1
to the Company's Annual Report on Form 10-K for the fiscal year ended February
1, 1998.
-4-
<PAGE>
(k) Capitalization and Other Capital Stock Matters. The authorized,
issued and outstanding capital stock of the Company is as set forth in the
Prospectus under the caption "Capitalization" (other than for subsequent
issuances, if any, pursuant to employee benefit plans described in the
Prospectus or upon exercise of outstanding options described in the
Prospectus). The Common Stock (including the Common Shares) conforms in all
material respects to the description thereof contained in the Prospectus. All
of the issued and outstanding shares of Common Stock (including the shares of
Common Stock owned by Selling Shareholders) have been duly authorized and
validly issued, are fully paid and nonassessable and have been issued in
compliance with federal and state securities laws. None of the outstanding
shares of Common Stock were issued in violation of any preemptive rights,
rights of first refusal or other similar rights to subscribe for or purchase
securities of the Company. There are no authorized or outstanding options,
warrants, preemptive rights, rights of first refusal or other rights to
purchase, nor equity or debt securities convertible into or exchangeable or
exercisable for, any capital stock of the Company or any of its subsidiaries
other than those described in the Prospectus. The description of the
Company's stock option, stock bonus and other stock plans or arrangements, and
the options or other rights granted thereunder, set forth in the Prospectus
accurately and fairly presents the information required to be shown with
respect to such plans, arrangements, options and rights.
(l) Stock Exchange Listing. The Common Shares have been approved for
inclusion on the Nasdaq National Market, subject only to official notice of
issuance.
(m) Non-Contravention of Existing Instruments; No Further Authorizations
or Approvals Required. Neither the Company nor any of its subsidiaries is in
violation of its charter or by-laws or is in default (or, with the giving of
notice or lapse of time, would be in default) ("Default") under any indenture,
mortgage, loan or credit agreement, note, contract, franchise, lease or other
instrument to which the Company or any of its subsidiaries is a party or by
which it or any of them may be bound (including, without limitation, the
Company's Revolving Credit Agreement with SunTrust Bank, Atlanta, as lender),
or to which any of the property or assets of the Company or any of its
subsidiaries is subject (each, an "Existing Instrument"), except for such
Defaults as would not, individually or in the aggregate, result in a Material
Adverse Change. The Company's execution, delivery and performance of this
Agreement and consummation of the transactions contemplated hereby and by the
Prospectus (i) have been duly authorized by all necessary corporate action and
will not result in any violation of the provisions of the charter or by-laws
of the Company or any subsidiary, (ii) will not conflict with or constitute a
breach of, or Default under, or result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company or any
of its subsidiaries pursuant to, or require the consent of any other party to,
any Existing Instrument, except for such conflicts, breaches, Defaults, liens,
charges or encumbrances as would not, individually or in the aggregate, result
in a Material Adverse Change and (iii) will not result in any violation of any
law, administrative regulation or administrative or court decree applicable to
the Company or any subsidiary. No consent, approval, authorization or other
order of, or registration or filing with, any court or other governmental or
regulatory authority or agency, is required for the Company's execution,
delivery and performance of this Agreement and consummation of the
transactions contemplated hereby and by the Prospectus, except such as have
been obtained or made by the Company and are in full force and effect or are
-5-
<PAGE>
required under the Securities Act, applicable state securities or blue sky
laws and from the National Association of Securities Dealers, Inc. (the
"NASD").
(n) No Material Actions or Proceedings. There are no legal or
governmental actions, suits or proceedings pending or, to the best of the
Company's knowledge, threatened (i) against or affecting the Company or any of
its subsidiaries, (ii) which has as the subject thereof any officer or
director of, or property owned or leased by, the Company or any of its
subsidiaries or (iii) relating to environmental or discrimination matters,
where in any such case (A) there is a reasonable possibility that such action,
suit or proceeding might be determined adversely to the Company or such
subsidiary and (B) any such action, suit or proceeding, if so determined
adversely, would reasonably be expected to result in a Material Adverse Change
or adversely affect the consummation of the transactions contemplated by this
Agreement. No material labor dispute with the employees of the Company or any
of its subsidiaries exists or is threatened or imminent, and, to the best of
the Company's knowledge, no material labor dispute with the employees of any
principal supplier of the Company exists or is threatened or imminent.
(o) Intellectual Property Rights. The Company and its subsidiaries own
or possess sufficient trademarks, trade names, patent rights, copyrights,
licenses, approvals, trade secrets and other similar rights (collectively,
"Intellectual Property Rights") reasonably necessary to conduct their
businesses as now conducted; and the expected expiration of any of such
Intellectual Property Rights would not result in a Material Adverse Change.
Neither the Company nor any of its subsidiaries has received any notice of
infringement or conflict with asserted Intellectual Property Rights of others,
which infringement or conflict, if the subject of an unfavorable decision,
would result in a Material Adverse Change.
(p) All Necessary Permits, etc. The Company and each subsidiary
possess such valid and current certificates, authorizations or permits issued
by the appropriate state, federal or foreign regulatory agencies or bodies
necessary to conduct their respective businesses, except such certificates,
authorizations and permits with respect to which the failure to possess would
not result in a Material Adverse Change, and neither the Company nor any
subsidiary has received any notice of proceedings relating to the revocation
or modification of, or non-compliance with, any such certificate,
authorization or permit which, singly or in the aggregate, if the subject of
an unfavorable decision, ruling or finding, could result in a Material Adverse
Change.
(q) Title to Properties. The Company and each of its subsidiaries has
good and marketable title to all the properties and assets reflected as owned
in the financial statements referred to in Section 1(A)(i) above, in each case
free and clear of any security interests, mortgages, liens, encumbrances,
equities, claims and other defects, except such as are described in the
financial statements referenced in Section 1(A)(i) above or such as do not
materially and adversely affect the value of such property and do not
materially interfere with the use made or proposed to be made of such property
by the Company or such subsidiary. The real property, improvements, equipment
and personal property held under lease by the Company or any subsidiary are
held under valid and enforceable leases, with such exceptions as are not
material and do not materially interfere with the use made or proposed to be
made of such real property, improvements, equipment or personal property by
the Company or such subsidiary.
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(r) Tax Law Compliance. The Company and its consolidated subsidiaries
have filed all necessary federal, state and foreign income and franchise tax
returns or have properly requested extensions thereof and have paid all taxes
required to be paid by any of them and, if due and payable, any related or
similar assessment, fine or penalty levied against any of them, except as may
be being contested in good faith and by appropriate proceedings. The Company
has made adequate charges, accruals and reserves in the applicable financial
statements referred to in Section 1 (A)(i) above in respect of all federal,
state and foreign income and franchise taxes for all periods as to which the
tax liability of the Company or any of its consolidated subsidiaries has not
been finally determined.
(s) Company Not an "Investment Company." The Company is not, and after
receipt of payment for the Common Shares will not be, an "investment company"
within the meaning of the Investment Company Act of 1940, as amended (the
"Investment Company Act") and will conduct its business in a manner so that it
will not become subject to the Investment Company Act.
(t) Insurance. Each of the Company and its subsidiaries are insured by
recognized, financially sound and reputable institutions with policies in such
amounts and with such deductibles and covering such risks as are generally
deemed adequate and customary for their businesses, including, but not limited
to, policies covering real and personal property owned or leased by the
Company and its subsidiaries against theft, damage, destruction, acts of
vandalism and earthquakes. The Company has no reason to believe that it or
any subsidiary will not be able (i) to renew its existing insurance coverage
as and when such policies expire or (ii) to obtain comparable coverage from
similar institutions as may be necessary or appropriate to conduct its
business as now conducted and at a cost that would not result in a Material
Adverse Change.
(u) No Price Stabilization or Manipulation. The Company has not taken
and will not take, directly or indirectly, any action designed to or that
might be reasonably expected to cause or result in stabilization or
manipulation of the price of the Common Stock to facilitate the sale or resale
of the Common Shares.
(v) Related Party Transactions. There are no business relationships or
related-party transactions involving the Company or any subsidiary or any
other person required to be contained or incorporated by reference in the
Prospectus which have not been described as required.
(w) Exchange Act Compliance. The documents incorporated or deemed to be
incorporated by reference in the Prospectus, at the time they were or
hereafter are filed with the Commission, complied and will comply in all
material respects with the requirements of the Exchange Act, and, when read
together with the other information in the Prospectus, at the time the
Registration Statement and any amendments thereto become effective and at the
First Closing Date and the Second Closing Date, as the case may be, will not
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the fact required to
be stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
(x) No Unlawful Contributions or Other Payments. Neither the Company
nor any of its subsidiaries nor, to the best of the Company's knowledge, any
employee or agent of the Company or any subsidiary, has made
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any contribution or other payment to any official of, or candidate for, any
federal, state or foreign office in violation of any law or of the character
required to be disclosed in the Prospectus.
(y) Company's Accounting System. The Company maintains a system of
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii) access
to assets is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
(z) Compliance with Environmental Laws. Except as would not,
individually or in the aggregate, result in a Material Adverse Change (i)
neither the Company nor any of its subsidiaries is in violation of any
federal, state, local or foreign law or regulation relating to pollution or
protection of human health or the environment (including, without limitation,
ambient air, surface water, groundwater, land surface or subsurface strata) or
wildlife, including without limitation, laws and regulations relating to
emissions, discharges, releases or threatened releases of chemicals,
pollutants, contaminants, wastes, toxic substances, hazardous substances,
petroleum and petroleum products (collectively, "Materials of Environmental
Concern"), or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Materials of
Environment Concern (collectively, "Environmental Laws"), which violation
includes, but is not limited to, noncompliance with any permits or other
governmental authorizations required for the operation of the business of the
Company or its subsidiaries under applicable Environmental Laws, or
noncompliance with the terms and conditions thereof, nor has the Company or
any of its subsidiaries received any written communication, whether from a
governmental authority, citizens group, employee or otherwise, that alleges
that the Company or any of its subsidiaries is in violation of any
Environmental Law; (ii) there is no claim, action or cause of action filed
with a court or governmental authority, no investigation with respect to which
the Company has received written notice, and no written notice by any person
or entity alleging potential liability for investigatory costs, cleanup costs,
governmental responses costs, natural resources damages, property damages,
personal injuries, attorneys' fees or penalties arising out of, based on or
resulting from the presence, or release into the environment, of any Material
of Environmental Concern at any location owned, leased or operated by the
Company or any of its subsidiaries, now or in the past (collectively,
"Environmental Claims"), pending or, to the best of the Company's knowledge,
threatened against the Company or any of its subsidiaries or any person or
entity whose liability for any Environmental Claim the Company or any of its
subsidiaries has retained or assumed either contractually or by operation of
law; and (iii) to the best of the Company's knowledge, there are no past or
present actions, activities, circumstances, conditions, events or incidents,
including, without limitation, the release, emission, discharge, presence or
disposal of any Material of Environmental Concern, that reasonably could
result in a violation of any Environmental Law or form the basis of a
potential Environmental Claim against the Company or any of its subsidiaries
or against any person or entity whose liability for any Environmental Claim
the Company or any of its subsidiaries has retained or assumed either
contractually or by operation of law.
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(aa) Except as otherwise disclosed in the Prospectus, 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.
Any certificate signed by an officer of the Company and delivered to
the Underwriters or to counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to each Underwriter as to the matters
set forth therein.
B. Representations and Warranties of the Selling Shareholders. Each
Selling Shareholder represents, warrants and covenants to each Underwriter as
follows:
(a) The Underwriting Agreement. This Agreement has been duly
authorized, executed and delivered by or on behalf of such Selling Shareholder
and is a valid and binding agreement of such Selling Shareholder, enforceable
in accordance with its terms, except as rights to indemnification hereunder
may be limited by applicable law and except as the enforcement hereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting the rights and remedies of creditors or by
general equitable principles.
(b) The Custody Agreement and Power of Attorney. Each of the (i)
Custody Agreement signed by such Selling Shareholder and Hunton & Williams, as
custodian (the "Custodian"), relating to the deposit of the Common Shares to
be sold by such Selling Shareholder (the "Custody Agreement") and (ii) Power
of Attorney appointing certain individuals named therein as such Selling
Shareholder's attorneys-in-fact (each, an "Attorney-in-Fact") to the extent
set forth therein relating to the transactions contemplated hereby and by the
Prospectus (the "Power of Attorney"), of such Selling Shareholder has been
duly authorized, executed and delivered by such Selling Shareholder and is a
valid and binding agreement of such Selling Shareholder, enforceable in
accordance with its terms, except as rights to indemnification thereunder may
be limited by applicable law and except as the enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting the rights and remedies of creditors or by
general equitable principles.
(c) Title to Common Shares to be Sold; All Authorizations Obtained.
Such Selling Shareholder has, and on the First Closing Date and the Second
Closing Date (as defined below) will have, good and valid title to all of the
Common Shares that may be sold by such Selling Shareholder pursuant to this
Agreement on such date and the legal right and power, and all authorizations
and approvals required by law and under its charter or by-laws, partnership
agreement, trust agreement or other organizational documents to enter into
this Agreement and its Custody Agreement and Power of Attorney, to sell,
transfer and deliver all of the Common Shares that may be sold by such Selling
Shareholder pursuant to this Agreement and to comply with its other
obligations hereunder and thereunder.
(d) Delivery of the Common Shares to be Sold. Delivery of the Common
Shares that are sold by such Selling Shareholder pursuant to this Agreement
will pass good and valid title to such Common Shares, free and clear of any
security interest, mortgage, pledge, lien, encumbrance or other claim.
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<PAGE>
(e) Non-Contravention; No Further Authorizations or Approvals Required.
The execution and delivery by such Selling Shareholder of, and the performance
by such Selling Shareholder of its obligations under, this Agreement, the
Custody Agreement and the Power of Attorney will not contravene or conflict
with, result in a breach of, or constitute a Default under, or require the
consent of any other party to, the charter or by-laws, partnership agreement,
or other organizational documents of such Selling Shareholder or any other
agreement or instrument to which such Selling Shareholder is a party or by
which it is bound or under which it is entitled to any right or benefit, any
provision of applicable law or any judgment, order, decree or regulation
applicable to such Selling Shareholder of any court, regulatory body,
administrative agency, governmental body or arbitrator having jurisdiction
over such Selling Shareholder. No consent, approval, authorization or other
order of, or registration or filing with, any court or other governmental
authority or agency, is required for the consummation by such Selling
Shareholder of the transactions contemplated in this Agreement, except such as
have been obtained or made and are in full force and effect under the
Securities Act, applicable state securities or blue sky laws and from the
NASD.
(f) No Registration or Other Similar Rights. Such Selling Shareholder
does not have any registration or other similar rights to have any equity or
debt securities registered for sale by the Company under the Registration
Statement or included in the offering contemplated by this Agreement, except
for such rights as are being exercised in the offering contemplated by this
Agreement or such rights as have been duly waived.
(g) No Further Consents, etc. Except for the (i) exercise by such
Selling Shareholder of certain registration rights pursuant to the
Registration Rights Agreement dated as of May 10, 1995 (which registration
rights have been duly exercised pursuant thereto), (ii) consent of such
Selling Shareholder to the respective number of Common Shares to be sold by
all of the Selling Shareholders pursuant to this Agreement and (iii) waiver by
certain other holders of Common Stock of certain registration rights pursuant
to such Registration Rights Agreement, no consent, approval or waiver is
required under any instrument or agreement to which such Selling Shareholder
is a party or by which it is bound or under which it is entitled to any right
or benefit, in connection with the offering, sale or purchase by the
Underwriters of any of the Common Shares which may be sold by such Selling
Shareholder under this Agreement or the consummation by such Selling
Shareholder of any of the other transactions contemplated hereby.
(h) Disclosure Made by Such Selling Shareholder in the Prospectus. All
information furnished by or on behalf of such Selling Shareholder in writing
expressly for use in the Registration Statement and Prospectus is, and on the
First Closing Date and the Second Closing Date will be, true, correct, and
complete in all material respects, and does not, and on the First Closing Date
and the Second Closing Date will not, contain any untrue statement of a
material fact or omit to state any material fact necessary to make such
information not misleading. Such Selling Shareholder confirms as accurate the
number of shares of Common Stock set forth opposite such Selling Shareholder's
name in the Prospectus under the caption "Principal and Selling Shareholders"
(both prior to and after giving effect to the sale of the Common Shares).
(i) No Price Stabilization or Manipulation. Such Selling Shareholder
has not taken and will not take, directly or indirectly, any action designed
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to or that might be reasonably expected to cause or result in stabilization or
manipulation of the price of the Common Stock to facilitate the sale or resale
of the Common Shares.
(j) Confirmation of Company Representations and Warranties. Such
Selling Shareholder has no reason to believe that the representations and
warranties of the Company contained in Section 1(A) hereof are not true and
correct, is familiar with the Registration Statement and the Prospectus and
has no knowledge of any material fact, condition or information not disclosed
in the Registration Statement or the Prospectus that has had or may have a
Material Adverse Effect and is not prompted to sell shares of Common Stock by
any information concerning the Company that is not set forth in the
Registration Statement and the Prospectus.
(k) No Unlawful Contributions or Other Payments. Such Selling
Shareholder has not made any contribution or other payment on behalf of the
Company to any official of, or candidate for, any federal, state or foreign
office in violation of any law or of the character required to be disclosed in
the Prospectus.
Any certificate signed by or on behalf of any Selling Shareholder and
delivered to the Underwriters or to counsel for the Underwriters shall be deemed
to be a representation and warranty by such Selling Shareholder to each
Underwriter as to the matters covered thereby.
SECTION 2.PURCHASE, SALE AND DELIVERY OF THE COMMON SHARES.
(a) The Firm Common Shares. Upon the terms herein set forth, (i) the
Company agrees to issue and sell to the several Underwriters an aggregate of
88,263 Firm Common Shares and (ii) the Selling Shareholders agree to sell to
the several Underwriters an aggregate of 1,561,737 Firm Common Shares, each
Selling Shareholder selling the number of Firm Common Shares set forth
opposite such Selling Shareholder's name on Schedule B. On the basis of the
----------
representations, warranties and agreements herein contained, and upon the
terms but subject to the conditions herein set forth, the Underwriters agree,
severally and not jointly, to purchase from the Company and the Selling
Shareholders the respective number of Firm Common Shares set forth opposite
their names on Schedule A. The purchase price per Firm Common Share to be
----------
paid by the several Underwriters to the Company and the Selling Shareholders
shall be $[___] per share.
(b) The First Closing Date. Delivery of certificates for the Firm
Common Shares to be purchased by the Underwriters and payment therefor shall
be made at the offices of NMSI, 600 Montgomery Street, San Francisco,
California (or such other place as may be agreed to by the Company and the
Underwriters) at 6:00 a.m. San Francisco time, on [___], or such other time
and date not later than 10:30 a.m. San Francisco time, on [___] as the
Underwriters shall designate by notice to the Company (the time and date of
such closing are called the "First Closing Date"). The Company and the
Selling Shareholders hereby acknowledge that circumstances under which the
Underwriters may provide notice to postpone the First Closing Date as
originally scheduled include, but are in no way limited to, any determination
by the Company, the Selling Shareholders or the Underwriters to recirculate to
the public copies of an amended or supplemented Prospectus or a delay as
contemplated by the provisions of Section 10.
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(c) The Optional Common Shares; the Second Closing Date. In addition,
on the basis of the representations, warranties and agreements herein
contained, and upon the terms but subject to the conditions herein set forth,
the Selling Shareholders hereby grant an option to the several Underwriters to
purchase, severally and not jointly, up to an aggregate of 247,500 Optional
Common Shares from the Selling Shareholders at the purchase price per share to
be paid by the Underwriters for the Firm Common Shares. The option granted
hereunder is for use by the Underwriters solely in covering any over-
allotments in connection with the sale and distribution of the Firm Common
Shares. The option granted hereunder may be exercised at any time (but not
more than once) upon notice by the Underwriters to the Selling Shareholders
(with a copy to the Company), which notice may be given at any time within 30
days from the date of this Agreement. Such notice shall set forth (i) the
aggregate number of Optional Common Shares as to which the Underwriters are
exercising the option, (ii) the names and denominations in which the
certificates for the Optional Common Shares are to be registered and (iii) the
time, date and place at which such certificates will be delivered (which time
and date may be simultaneous with, but not earlier than, the First Closing
Date; and in such case the term "First Closing Date" shall refer to the time
and date of delivery of certificates for the Firm Common Shares and the
Optional Common Shares). Such time and date of delivery, if subsequent to the
First Closing Date, is called the "Second Closing Date" and shall be
determined by the Underwriters and shall not be earlier than three nor later
than five full business days after delivery of such notice of exercise. If any
Optional Common Shares are to be purchased, (a) each Underwriter agrees,
severally and not jointly, to purchase the number of Optional Common Shares
(subject to such adjustments to eliminate fractional shares as the
Underwriters may determine) that bears the same proportion to the total number
of Optional Common Shares to be purchased as the number of Firm Common Shares
set forth on Schedule A opposite the name of such Underwriter bears to the
----------
total number of Firm Common Shares and (b) each Selling Shareholder agrees,
severally and not jointly, to sell the number of Optional Common Shares
(subject to such adjustments to eliminate fractional shares as the
Underwriters may determine) that bears the same proportion to the total number
of Optional Common Shares to be sold as the number of Optional Common Shares
set forth in Schedule B opposite the name of such Selling Shareholder bears to
----------
the total number of Optional Common Shares.
(d) Public Offering of the Common Shares. The Underwriters hereby
advise the Company and the Selling Shareholders that the Underwriters intend
to offer for sale to the public, as described in the Prospectus, their
respective portions of the Common Shares as soon after this Agreement has been
executed and the Registration Statement has been declared effective as the
Underwriters, in their sole judgment, have determined is advisable and
practicable.
(e) Payment for the Common Shares. Payment for the Common Shares to be
sold by the Company shall be made at the First Closing Date by wire transfer
of immediately available funds to the order of the Company. Payment for the
Common Shares to be sold by the Selling Shareholders shall be made at the
First Closing Date (and, if applicable, at the Second Closing Date) by wire
transfer of immediately available funds to the order of such Selling
Shareholders.
It is understood that the Underwriters have been authorized, for
their own account and the accounts of the several Underwriters, to accept
delivery of and receipt for, and make payment of the purchase price for, the
Firm Common Shares and any Optional Common Shares the Underwriters have agreed
to purchase. NMSI, individually and not as
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<PAGE>
representative of the Underwriters, may (but shall not be obligated to) make
payment for any Common Shares to be purchased by any Underwriter whose funds
shall not have been received by the Underwriters by the First Closing Date or
the Second Closing Date, as the case may be, for the account of such
Underwriter, but any such payment shall not relieve such Underwriter from any
of its obligations under this Agreement.
Each Selling Shareholder hereby agrees that it will pay all stock
transfer taxes, stamp duties and other similar taxes, if any, payable upon the
sale or delivery of the Common Shares to be sold by such Selling Shareholder
to the several Underwriters, or otherwise in connection with the performance
of such Selling Shareholder's obligations hereunder.
(f) Delivery of the Common Shares. The Company and the Selling
Shareholders shall deliver, or cause to be delivered, to the Underwriters for
the accounts of the several Underwriters certificates for the Firm Common
Shares to be sold by them at the First Closing Date, against the irrevocable
release of a wire transfer of immediately available funds for the amount of
the purchase price therefor. The Selling Shareholders shall also deliver, or
cause to be delivered, to the Underwriters for the accounts of the several
Underwriters, certificates for the Optional Common Shares the Underwriters
have agreed to purchase from them at the First Closing Date or the Second
Closing Date, as the case may be, against the irrevocable release of a wire
transfer of immediately available funds for the amount of the purchase price
therefor. The certificates for the Common Shares shall be in definitive form
and registered in such names and denominations as the Underwriters shall have
requested at least two full business days prior to the First Closing Date (or
the Second Closing Date, as the case may be) and shall be made available for
inspection on the business day preceding the First Closing Date (or the Second
Closing Date, as the case may be) at a location in New York City as the
Underwriters may designate. Time shall be of the essence, and delivery at the
time and place specified in this Agreement is a further condition to the
obligations of the Underwriters.
(g) Delivery of Prospectus to the Underwriters. Not later than 12:00
p.m. on the second business day following the date the Common Shares are
released by the Underwriters for sale to the public, the Company shall deliver
or cause to be delivered copies of the Prospectus in such quantities and at
such places as the Underwriters shall request.
SECTION 3. ADDITIONAL COVENANTS.
A. COVENANTS OF THE COMPANY. The Company further covenants and agrees
with each Underwriter as follows:
(a) Underwriters' Review of Proposed Amendments and Supplements.
During such period beginning on the date hereof and ending on the later of the
First Closing Date or such date, as in the opinion of counsel for the
Underwriters, the Prospectus is no longer required by law to be delivered in
connection with sales by an Underwriter or dealer (the "Prospectus Delivery
Period"), prior to amending or supplementing the Registration Statement
(including any registration statement filed under Rule 462(b) under the
Securities Act) or the Prospectus (including any amendment or supplement
through incorporation by reference of any report filed under the Exchange
Act), the Company shall furnish to the Underwriters for review a
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<PAGE>
copy of each such proposed amendment or supplement, and the Company shall not
file any such proposed amendment or supplement to which the Underwriters
reasonably object.
(b) Securities Act Compliance. After the date of this Agreement, the
Company shall promptly advise the Underwriters in writing (i) of the receipt
of any comments of, or requests for additional or supplemental information
from, the Commission, (ii) of the time and date of any filing of any post-
effective amendment to the Registration Statement or any amendment or
supplement to any preliminary prospectus or the Prospectus, (iii) of the time
and date that any post-effective amendment to the Registration Statement
becomes effective and (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or any post-
effective amendment thereto or of any order preventing or suspending the use
of any preliminary prospectus or the Prospectus, or of any proceedings to
remove, suspend or terminate from listing or quotation the Common Stock from
any securities exchange upon which it is listed for trading or included or
designated for quotation, or of the threatening or initiation of any
proceedings for any of such purposes. If the Commission shall enter any such
stop order at any time, the Company will use its best efforts to obtain the
lifting of such order at the earliest possible moment. Additionally, the
Company agrees that it shall comply with the provisions of Rules 424(b), 430A
and 434, as applicable, under the Securities Act and will use its reasonable
efforts to ensure that any filings made by the Company under such Rule 424(b)
are received in a timely manner by the Commission.
(c) Amendments and Supplements to the Prospectus and Other Securities Act
Matters. If, during the Prospectus Delivery Period, any event shall occur or
condition exist as a result of which it is necessary to amend or supplement
the Prospectus in order to make the statements therein, in the light of the
circumstances when the Prospectus is delivered to a purchaser, not misleading,
or if in the opinion of the Underwriters or counsel for the Underwriters it is
otherwise necessary to amend or supplement the Prospectus to comply with law,
the Company agrees to promptly prepare (subject to Section 3(A)(a) hereof),
file with the Commission and furnish at its own expense to the Underwriters
and to dealers, amendments or supplements to the Prospectus so that the
statements in the Prospectus as so amended or supplemented will not, in the
light of the circumstances when the Prospectus is delivered to a purchaser, be
misleading or so that the Prospectus, as amended or supplemented, will comply
with law.
(d) Copies of any Amendments and Supplements to the Prospectus. The
Company agrees to furnish the Underwriters, without charge, during the
Prospectus Delivery Period, as many copies of the Prospectus and any
amendments and supplements thereto as the Underwriters may request.
(e) Blue Sky Compliance. The Company shall cooperate with the Underwriters
and counsel for the Underwriters to qualify or register the Common Shares for
sale under (or obtain exemptions from the application of) the state securities
or blue sky laws or Canadian provincial securities laws of those jurisdictions
designated by the Underwriters, shall comply with such laws and shall continue
such qualifications, registrations and exemptions in effect so long as
required for the distribution of the Common Shares. The Company shall not be
required to qualify as a foreign corporation or to take any action that would
subject it to general service of process in any such jurisdiction where it is
not presently qualified or where it would be subject to taxation as a foreign
corporation. The Company will advise the Underwriters promptly of the
suspension of the qualification or registration of (or any such exemption
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<PAGE>
relating to) the Common Shares for offering, sale or trading in any
jurisdiction or any initiation or threat of any proceeding for any such
purpose, and in the event of the issuance of any order suspending such
qualification, registration or exemption, the Company shall use its best
efforts to obtain the withdrawal thereof at the earliest possible moment.
(f) Use of Proceeds. The Company shall apply the net proceeds from the
sale of the Common Shares sold by it in the manner described under the caption
"Use of Proceeds" in the Prospectus.
(g) Transfer Agent. The Company shall engage and maintain, at its
expense, a registrar and transfer agent for the Common Stock.
(h) Earnings Statement. As soon as practicable, the Company will make
generally available to its security holders and to the Underwriters an
earnings statement (which need not be audited), covering the twelve-month
period beginning no later than the first day of the fiscal quarter next
following the effective date of the Registration Statement, that satisfies the
provisions of Section 11(a) of the Securities Act.
(i) Periodic Reporting Obligations. During the Prospectus Delivery Period,
the Company shall file, on a timely basis, with the Commission and the Nasdaq
National Market all reports and documents required to be filed under the
Exchange Act.
(j) Agreement Not To Offer or Sell Additional Securities. During the
period of 90 days following the date of the Prospectus, the Company will not,
without the prior written consent of NMSI (which consent may be withheld at
the sole discretion of NMSI), directly or indirectly, sell, offer, contract or
grant any option to sell, pledge, transfer or establish an open "put
equivalent position" within the meaning of Rule 16a-1(h) under the Exchange
Act, or otherwise dispose of or transfer, or announce the offering of, or file
any registration statement under the Securities Act in respect of, any shares
of Common Stock, options or warrants to acquire shares of the Common Stock or
securities exchangeable or exercisable for or convertible into shares of
Common Stock (other than as contemplated by this Agreement with respect to the
Common Shares); provided, however, that the Company may issue shares of its
Common Stock or options to purchase its Common Stock, or Common Stock upon
exercise of options, pursuant to any stock option, stock bonus or other stock
plan or arrangement described in the Prospectus.
(k) Future Reports to the Underwriters. During the period of five years
hereafter the Company will furnish to the Underwriters at 600 Montgomery
Street, San Francisco, CA 94111 Attention: Debra Somberg (i) as soon as
practicable after the end of each fiscal year, copies of the Annual Report of
the Company containing the balance sheet of the Company as of the close of
such fiscal year and statements of income, shareholders' equity and cash flows
for the year then ended and the opinion thereon of the Company's independent
public or certified public accountants; (ii) as soon as practicable after the
filing thereof, copies of each proxy statement, Annual Report on Form 10-K,
Quarterly Report on Form 10-Q, Current Report on Form 8-K or other report
filed by the Company with the Commission, the NASD or any securities exchange;
and (iii) as soon as available, copies of any report or communication of the
Company mailed generally to holders of its capital stock.
(l) Exchange Act Compliance. During the Prospectus Delivery Period, the
Company will file all documents required to be filed with the Commission
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pursuant to Section 13, 14 or 15 of the Exchange Act in the manner and within
the time periods required by the Exchange Act.
B. COVENANTS OF THE SELLING SHAREHOLDERS. Each Selling Shareholder
further covenants and agrees with each Underwriter:
(a) Agreement Not to Offer or Sell Additional Securities. Such Selling
Shareholder will not, without the prior written consent of NMSI (which consent
may be withheld in its sole discretion), directly or indirectly, sell, offer,
contract or grant any option to sell (including without limitation any short
sale), pledge, transfer, establish an open "put equivalent position" within the
meaning of Rule 16a-1(h) under the Exchange Act, or otherwise dispose of any
shares of Common Stock, options or warrants to acquire shares of Common Stock,
or securities exchangeable or exercisable for or convertible into shares of
Common Stock currently or hereafter owned either of record or beneficially (as
defined in Rule 13d-3 under the Exchange Act) by such Selling Shareholder, or
publicly announce such Selling Shareholder's intention to do any of the
foregoing, for a period commencing on the date hereof and continuing through the
close of trading on the date 90 days after the date of the Prospectus.
(b) Delivery of Forms W-8 and W-9. To deliver to the Underwriters prior to
the First Closing Date a properly completed and executed United States Treasury
Department Form W-8 (if the Selling Shareholder is a non-United States person)
or Form W-9 (if the Selling Shareholder is a United States Person).
NMSI, on behalf of the several Underwriters, may, in its sole discretion,
waive in writing the performance by the Company or any Selling Shareholder of
any one or more of the foregoing covenants or extend the time for their
performance.
SECTION 4. PAYMENT OF EXPENSES. The Company agrees to pay all costs, fees
and expenses incurred in connection with the performance of its obligations
hereunder and in connection with the transactions contemplated hereby, including
without limitation (i) all expenses incident to the issuance and delivery of the
Common Shares (including all printing and engraving costs), (ii) all fees and
expenses of the registrar and transfer agent of the Common Stock, (iii) all
necessary issue, transfer and other stamp taxes in connection with the issuance
and sale of the Common Shares to be sold by the Company to the Underwriters,
(iv) all fees and expenses of the Company's counsel, independent public or
certified public accountants and other advisors, (v) all costs and expenses
incurred in connection with the preparation, printing, filing, shipping and
distribution of the Registration Statement (including financial statements,
exhibits, schedules, consents and certificates of experts), each preliminary
prospectus and the Prospectus, and all amendments and supplements thereto, and
this Agreement, (vi) all filing fees, attorneys' fees and expenses incurred by
the Company or the Underwriters in connection with qualifying or registering (or
obtaining exemptions from the qualification or registration of) all or any part
of the Common Shares for offer and sale under the state securities or blue sky
laws or the provincial securities laws of Canada, and, if requested by the
Underwriters, preparing and printing a "Blue Sky Survey" or memorandum, and any
supplements thereto, advising the Underwriters of such qualifications,
registrations and exemptions, (vii) the filing fees incident to, and the
reasonable fees and expenses of counsel for the Underwriters in connection with,
the NASD's review and approval of the Underwriters' participation in the
offering and distribution of the Common Shares, (viii) the fees and expenses
associated with including the Common Shares on the Nasdaq National Market and
(ix) all other fees, costs and expenses referred to in Item 14 of Part II of the
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Registration Statement. Except as provided in this Section 4, Section 6, Section
8 and Section 9 hereof, the Underwriters shall pay their own expenses, including
the fees and disbursements of their counsel.
The Selling Shareholders further agree with each Underwriter to pay
(directly or by reimbursement) all fees and expenses incident to the performance
of their obligations under this Agreement which are not otherwise specifically
provided for herein, including but not limited to (i) fees and expenses of
counsel and other advisors for such Selling Shareholders, (ii) fees and expenses
of the Custodian and (iii) expenses and taxes incident to the sale and delivery
of the Common Shares to be sold by such Selling Shareholders to the Underwriters
hereunder.
This Section 4 shall not affect or modify any separate, valid agreement
relating to the allocation of payment of expenses between the Company, on the
one hand, and the Selling Shareholders, on the other hand.
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the Common
Shares as provided herein on the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date, shall be subject to the
accuracy of the representations and warranties on the part of the Company and
the Selling Shareholders set forth in Sections 1(A) and 1(B) hereof as of the
date hereof and as of the First Closing Date as though then made and, with
respect to the Optional Common Shares, as of the Second Closing Date as though
then made, to the timely performance by the Company and the Selling Shareholders
of their respective covenants and other obligations hereunder, and to each of
the following additional conditions:
(a) Accountants' Comfort Letter. On the date hereof, the Underwriters
shall have received from Arthur Andersen LLP, independent public or certified
public accountants for the Company, a letter dated the date hereof addressed
to the Underwriters, in form and substance satisfactory to the Underwriters,
containing statements and information of the type ordinarily included in
accountant's "comfort letters" to underwriters, delivered according to
Statement of Auditing Standards No. 72 (or any successor bulletin), with
respect to the audited and unaudited financial statements and certain
financial information contained or incorporated by reference in the
Registration Statement and the Prospectus.
(b) Compliance with Registration Requirements; No Stop Order; No
Objection from NASD. For the period from and after effectiveness of this
Agreement and prior to the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date:
(i) the Company shall have filed the Prospectus with the Commission
(including the information required by Rule 430A under the Securities Act)
in the manner and within the time period required by Rule 424(b) under the
Securities Act; or the Company shall have filed a post-effective amendment
to the Registration Statement containing the information required by such
Rule 430A, and such post-effective amendment shall have become effective;
or, if the Company elected to rely upon Rule 434 under the Securities Act
and obtained the Underwriters' consent thereto, the Company shall have
filed a Term Sheet with the Commission in the manner and within the time
period required by such Rule 424(b);
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(ii) no stop order suspending the effectiveness of the Registration
Statement, any Rule 462(b) Registration Statement, or any post-effective
amendment to the Registration Statement, shall be in effect and no
proceedings for such purpose shall have been instituted or threatened by
the Commission; and
(iii) the NASD shall have raised no objection to the fairness and
reasonableness of the underwriting terms and arrangements.
(c) No Material Adverse Change or Ratings Agency Change. For the period
from and after the date of this Agreement and prior to the First Closing Date
and, with respect to the Optional Common Shares, the Second Closing Date:
(i) in the judgment of the Underwriters there shall not have
occurred any Material Adverse Change; and
(ii) there shall not have occurred any downgrading, nor shall any
notice have been given of any intended or potential downgrading or of any
review for a possible change that does not indicate the direction of the
possible change, in the rating accorded any securities of the Company or
any of its subsidiaries by any "nationally recognized statistical rating
organization" as such term is defined for purposes of Rule 436(g)(2) under
the Securities Act.
(d) Opinion of Counsel for the Company. On each of the First Closing
Date and the Second Closing Date the Underwriters shall have received the
favorable opinion of Hunton & Williams, counsel for the Company, dated as of
such Closing Date, substantially as set forth in Exhibit A.
---------
(e) Opinion of Counsel for the Underwriters. On each of the First
Closing Date and the Second Closing Date the Underwriters shall have received
the favorable opinion of Troutman Sanders LLP, counsel for the Underwriters,
dated as of such Closing Date, with respect to the matters set forth in
paragraphs (i), (vii) (with respect to subparagraph (i) only), (viii), (ix),
(x) (xi) and (xiii) (with respect to the captions "Description of Capital
Stock" and "Underwriting" under subparagraph (i) only), (xii), and the next-
to-last paragraph of Exhibit A.
---------
(f) Officers' Certificate. On each of the First Closing Date and the
Second Closing Date the Underwriters shall have received a written certificate
executed by the Chairman of the Board, Chief Executive Officer or President of
the Company and the Chief Financial Officer or Chief Accounting Officer of the
Company, dated as of such Closing Date, to the effect set forth in subsections
(b)(ii) and (c)(ii) of this Section 5, and further to the effect that:
(i) for the period from and after the date of this Agreement and
prior to such Closing Date, there has not occurred any Material Adverse
Change;
(ii) the representations, warranties and covenants of the Company set
forth in Section 1(A) of this Agreement are true and correct with the same
force and effect as though expressly made on and as of such Closing Date;
and
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(iii) the Company has complied with all the agreements and satisfied
all the conditions on its part to be performed or satisfied under this
Agreement at or prior to such Closing Date.
(g) Bring-down Comfort Letter. On each of the First Closing Date and the
Second Closing Date the Underwriters shall have received from Arthur Andersen
LLP, independent public or certified public accountants for the Company, a
letter dated such date, in form and substance satisfactory to the
Underwriters, to the effect that they reaffirm the statements made in the
letter furnished by them pursuant to subsection (a) of this Section 5, except
that the specified date referred to therein for the carrying out of procedures
shall be no more than three business days prior to the First Closing Date or
Second Closing Date, as the case may be.
(h) Opinion of Counsel for the Selling Shareholders. On each of the
First Closing Date and the Second Closing Date the Underwriters shall have
received the favorable opinion of Hunton & Williams, counsel for the Selling
Shareholders, dated as of such Closing Date, the form of which is attached as
Exhibit B.
---------
(i) Selling Shareholders' Certificate. On each of the First Closing
Date and the Second Closing Date the Underwriters shall have received a
written certificate executed by the Attorney-in-Fact of each Selling
Shareholder, dated as of such Closing Date, to the effect that:
(i) the representations, warranties and covenants of such Selling
Shareholder set forth in Section 1(B) of this Agreement are true and
correct with the same force and effect as though expressly made by such
Selling Shareholder on and as of such Closing Date; and
(ii) such Selling Shareholder has complied with all the agreements
and satisfied all the conditions on its part to be performed or satisfied
under this Agreement at or prior to such Closing Date.
(j) Selling Shareholders' Documents. On the date hereof, the Company
and the Selling Shareholders shall have furnished for review by the
Underwriters copies of the Powers of Attorney and Custody Agreements executed
by each of the Selling Shareholders and such further information, certificates
and documents as the Underwriters may reasonably request.
(k) Lock-Up Agreement from Certain Shareholders of the Company Other
Than Selling Shareholders. On the date hereof, the Company shall have
furnished to the Underwriters an agreement in the form of Exhibit C hereto
---------
from each director and executive officer and each beneficial owner of 5% or
more of the outstanding Common Stock (as defined and determined according to
Rule 13d-3 under the Exchange Act, except that a one hundred fifty day period
shall be used rather than the sixty day period set forth therein) other than
Northwestern Mutual Life Insurance Company, and such agreement shall be in
full force and effect on each of the First Closing Date and the Second Closing
Date.
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(l) Additional Documents. On or before each of the First Closing Date
and the Second Closing Date, the Underwriters and counsel for the Underwriters
shall have received such information, documents and opinions as they may
reasonably require for the purposes of enabling them to pass upon the issuance
and sale of the Common Shares as contemplated herein, or in order to evidence
the accuracy of any of the representations and warranties, or the satisfaction
of any of the conditions or agreements, herein contained.
If any condition specified in this Section 5 is not satisfied when and as
required to be satisfied, this Agreement may be terminated by the Underwriters
by notice to the Company and the Selling Shareholders at any time on or prior to
the First Closing Date and, with respect to the Optional Common Shares, at any
time prior to the Second Closing Date, which termination shall be without
liability on the part of any party to any other party, except that Section 4,
Section 6, Section 8 and Section 9 shall at all times be effective and shall
survive such termination.
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If this Agreement is
terminated by the Underwriters pursuant to Section 5, Section 11 (with respect
to subsections (i), (iv) or (v) thereof) or Section 17, or if the sale to the
Underwriters of the Common Shares on the First Closing Date is not consummated
because of any refusal, inability or failure on the part of the Company or the
Selling Shareholders to perform any agreement herein or to comply with any
provision hereof, the Company agrees to reimburse the Underwriters (or such
Underwriters as have terminated this Agreement with respect to themselves),
severally, upon demand for all out-of-pocket expenses that shall have been
reasonably incurred by the Underwriters in connection with the proposed purchase
and the offering and sale of the Common Shares, including but not limited to
fees and disbursements of counsel, printing expenses, travel expenses, postage,
facsimile and telephone charges.
SECTION 7. EFFECTIVENESS OF THIS AGREEMENT.
This Agreement shall not become effective until the later of (i) the
execution of this Agreement by the parties hereto and (ii) notification by the
Commission to the Company and the Underwriters of the effectiveness of the
Registration Statement under the Securities Act.
Prior to such effectiveness, this Agreement may be terminated by any
party by notice to each of the other parties hereto, and any such termination
shall be without liability on the part of (a) the Company or the Selling
Shareholders to any Underwriter, except that the Company and the Selling
Shareholders shall be obligated to reimburse the expenses of the Underwriters
pursuant to Sections 4 and 6 hereof in the event that this Agreement is
terminated by the Company or the Selling Shareholders, (b) of any Underwriter to
the Company or the Selling Shareholders, or (c) of any party hereto to any other
party except that the provisions of Section 8 and Section 9 shall at all times
be effective and shall survive such termination.
SECTION 8. INDEMNIFICATION.
(a) Indemnification of the Underwriters. Each of the Company and each
of Stephen H. Greenspan, W. Paul Ruben and Martin Schwartz (the "Significant
Selling Shareholders"), severally and not jointly, agrees to indemnify and
hold harmless each Underwriter, its officers and employees, and each person,
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if any, who controls any Underwriter within the meaning of the Securities Act
and the Exchange Act against any loss, claim, damage, liability or expense, as
incurred, to which such Underwriter or such controlling person may become
subject, under the Securities Act, the Exchange Act or other federal or state
statutory law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the written
consent of the Company), insofar as such loss, claim, damage, liability or
expense (or actions in respect thereof as contemplated below) arises out of or
is based (i) upon any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement, or any amendment
thereto, including any information deemed to be a part thereof pursuant to
Rule 430A or Rule 434 under the Securities Act, or the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading; or (ii) upon any
untrue statement or alleged untrue statement of a material fact contained in
any preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; or (iii) in whole or
in part upon any inaccuracy in the representations and warranties of the
Company or the Selling Shareholders contained herein; or (iv) in whole or in
part upon any failure of the Company or the Selling Shareholders to perform
its their respective obligations hereunder or under law; or (v) any act or
failure to act or any alleged act or failure to act by any Underwriter in
connection with, or relating in any manner to, the Common Stock or the
offering contemplated hereby, and which is included as part of or referred to
in any loss, claim, damage, liability or action arising out of or based upon
any matter covered by clause (i) or (ii) above, provided that neither the
Company nor any Significant Selling Shareholder shall be liable under this
clause (v) to the extent that a court of competent jurisdiction shall have
determined by a final judgment that such loss, claim, damage, liability or
action resulted directly from any such acts or failures to act undertaken or
omitted to be taken by such Underwriter through its gross negligence, bad
faith or willful misconduct; and to reimburse each Underwriter and each such
controlling person for any and all expenses (including the fees and
disbursements of counsel chosen by NMSI) as such expenses are reasonably
incurred by such Underwriter or such controlling person in connection with
investigating, defending, settling, compromising or paying any such loss,
claim, damage, liability, expense or action; provided, however, that the
foregoing indemnity agreement shall not apply to any loss, claim, damage,
liability or expense to the extent, but only to the extent, arising out of or
based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with written
information furnished to the Company and the Selling Shareholders by the
Underwriters expressly for use in the Registration Statement, any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto); and
provided, further, that with respect to any preliminary prospectus, the
foregoing indemnity agreement shall not inure to the benefit of any
Underwriter from whom the person asserting any loss, claim, damage, liability
or expense purchased Common Shares, or any person controlling such
Underwriter, if copies of the Prospectus were timely delivered to the
Underwriter pursuant to Section 2 and a copy of the Prospectus (as then
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such Underwriter
to such person, if required by law so to have been delivered, at or prior to
the written confirmation of the sale of the Common Shares to such person, and
if the Prospectus (as so amended or supplemented) would have cured the defect
giving rise to such loss, claim, damage, liability or expense; and provided,
further, that the liability of each Significant Selling Shareholder under the
foregoing indemnity agreement shall be limited to an amount equal to the
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public offering price of the Common Shares sold by such Significant Selling
Shareholder, less the underwriting discount, as set forth on the cover page of
the Prospectus; and provided, further, that no Significant Shareholder shall
be required to provide indemnification under this Section 8(a) until the
underwriter, officer, employee or controlling person seeking indemnification
shall have first made a demand for payment of the company with respect to any
such loss, claim, damage, liability or expense and the Company shall have
either rejected such demand or failed to make such requested payment within 60
days thereof. The indemnity agreement set forth in this Section 8(a) shall be
in addition to any liabilities that the Company and the Selling Shareholders
may otherwise have.
(b) Indemnification of the Company, its Directors and Officers. Each
Underwriter agrees, severally and not jointly, to indemnify and hold harmless
the Company, each of its directors, each of its officers who signed the
Registration Statement, the Selling Shareholders and each person, if any, who
controls the Company or any Selling Shareholder within the meaning of the
Securities Act or the Exchange Act, against any loss, claim, damage, liability
or expense, as incurred, to which the Company, or any such director, officer,
Selling Shareholder or controlling person may become subject, under the
Securities Act, the Exchange Act, or other federal or state statutory law or
regulation, or at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of such
Underwriter), insofar as such loss, claim, damage, liability or expense (or
actions in respect thereof as contemplated below) arises out of or is based
upon any untrue or alleged untrue statement of a material fact contained in
the Registration Statement, any preliminary prospectus or the Prospectus (or
any amendment or supplement thereto), or arises out of or is 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 the
Registration Statement, any preliminary prospectus, the Prospectus (or any
amendment or supplement thereto), in reliance upon and in conformity with
written information furnished to the Company and the Selling Shareholders by
the Underwriters expressly for use therein; and to reimburse the Company, or
any such director, officer, Selling Shareholder or controlling person for any
legal and other expense reasonably incurred by the Company, or any such
director, officer, Selling Shareholder or controlling person in connection
with investigating, defending, settling, compromising or paying any such loss,
claim, damage, liability, expense or action. Each of the Company and each of
the Selling Shareholders, hereby acknowledges that the only information that
the Underwriters have furnished to the Company and the Selling Shareholders
expressly for use in the Registration Statement, any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto) are the statements set
forth (A) as the last two paragraphs on the inside front cover page of the
Prospectus concerning stabilization and passive market making by the
Underwriters and (B) as the first paragraph, including the table, and as the
second and sixth paragraphs under the caption "Underwriting" in the
Prospectus; and the Underwriters confirm that such statements are correct. The
indemnity agreement set forth in this Section 8(b) shall be in addition to any
liabilities that each Underwriter may otherwise have.
(c) Notifications and Other Indemnification Procedures. Promptly after
receipt by an indemnified party under this Section 8 of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party under this Section 8,
notify the indemnifying party in writing of the commencement thereof, but the
omission so to notify the indemnifying party will not relieve it from any
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liability which it may have to any indemnified party for contribution or
otherwise than under the indemnity agreement contained in this Section 8 or to
the extent it is not prejudiced as a proximate result of such failure. In
case any such action is brought against any indemnified party and such
indemnified party seeks or intends to seek indemnity from an indemnifying
party, the indemnifying party will be entitled to participate in, and, to the
extent that it shall elect, jointly with all other indemnifying parties
similarly notified, by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party; provided, however, if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that a conflict may arise
between the positions of the indemnifying party and the indemnified party in
conducting the defense of any such action or that there may be legal defenses
available to it and/or other indemnified parties which are different from or
additional to those available to the indemnifying party, the indemnified party
or parties shall have the right to select separate counsel to assume such
legal defenses and to otherwise participate in the defense of such action on
behalf of such indemnified party or parties. Upon receipt of notice from the
indemnifying party to such indemnified party of such indemnifying party's
election so to assume the defense of such action and approval by the
indemnified party of counsel, the indemnifying party will not be liable to
such indemnified party under this Section 8 for any legal or other expenses
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 the indemnifying party shall not be liable for the
expenses of more than one separate counsel (together with local counsel),
approved by the indemnifying party (NMSI in the case of Section 8(b) and
Section 9), representing the indemnified parties who are parties to such
action) or (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party
within a reasonable time after notice of commencement of the action, in each
of which cases the fees and expenses of counsel shall be at the expense of the
indemnifying party.
(d) Settlements. The indemnifying party under this Section 8 shall not be
liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified
party against any loss, claim, damage, liability or expense by reason of such
settlement or judgment. Notwithstanding the foregoing sentence, if at any time
an indemnified party shall have requested an indemnifying party to reimburse
the indemnified party for fees and expenses of counsel as contemplated by
Section 8(c) hereof, the indemnifying party agrees that it shall be liable for
any settlement of any proceeding effected without its written consent if (i)
such settlement is entered into more than 30 days after receipt by such
indemnifying party of the aforesaid request and (ii) such indemnifying party
shall not have reimbursed the indemnified party in accordance with such
request prior to the date of such settlement. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement, compromise or consent to the entry of judgment in any pending or
threatened action, suit or proceeding in respect of which any indemnified
party is or could have been a party and indemnity was or could have been
sought hereunder by such indemnified party, unless such settlement, compromise
or consent includes an unconditional release of such indemnified party from
all liability on claims that are the subject matter of such action, suit or
proceeding.
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SECTION 9. CONTRIBUTION.
If the indemnification provided for in Section 8 is for any reason held to
be unavailable to or otherwise insufficient to hold harmless an indemnified
party in respect of any losses, claims, damages, liabilities or expenses
referred to therein, then each indemnifying party shall contribute to the
aggregate amount paid or payable by such indemnified party, as incurred, as a
result of any losses, claims, damages, liabilities or expenses referred to
therein (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Selling Shareholders, on the one hand,
and the Underwriters, on the other hand, from the offering of the Common Shares
pursuant to this Agreement or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company and the Selling Shareholders, on the one
hand, and the Underwriters, on the other hand, in connection with the statements
or omissions or inaccuracies in the representations and warranties herein which
resulted in such losses, claims, damages, liabilities or expenses, as well as
any other relevant equitable considerations. The relative benefits received by
the Company and the Selling Shareholders, on the one hand, and the Underwriters,
on the other hand, in connection with the offering of the Common Shares pursuant
to this Agreement shall be deemed to be in the same respective proportions as
the total net proceeds from the offering of the Common Shares pursuant to this
Agreement (before deducting expenses) received by the Company and the Selling
Shareholders, and the total underwriting discount received by the Underwriters,
in each case as set forth on the front cover page of the Prospectus (or, if Rule
434 under the Securities Act is used, the corresponding location on the Term
Sheet) bear to the aggregate initial public offering price of the Common Shares
as set forth on such cover. The relative fault of the Company and the Selling
Shareholders, on the one hand, and the Underwriters, on the other hand, shall be
determined by reference to, among other things, whether any such untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact or any such inaccurate or alleged inaccurate
representation or warranty relates to information supplied by the Company or the
Selling Shareholders, on the one hand, or the Underwriters, on the other hand,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to include,
subject to the limitations set forth in Section 8(c), any legal or other fees or
expenses reasonably incurred by such party in connection with investigating or
defending any action or claim. The provisions set forth in Section 8(c) with
respect to notice of commencement of any action shall apply if a claim for
contribution is to be made under this Section 9; provided, however, that no
additional notice shall be required with respect to any action for which notice
has been given under Section 8(c) for purposes of indemnification.
The Company, the Selling Shareholders and the Underwriters agree that it
would not be just and equitable if contribution pursuant to this Section 9 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 in this Section 9.
Notwithstanding the provisions of this Section 9, no Underwriter shall be
required to contribute any amount in excess of the underwriting commissions
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received by such Underwriter in connection with the Common Shares underwritten
by it and distributed to the public. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 9 are several, and not joint, in proportion to their
respective underwriting commitments as set forth opposite their names in
Schedule A. For purposes of this Section 9, each officer and employee of an
- ----------
Underwriter and each person, if any, who controls an Underwriter within the
meaning of the Securities Act and the Exchange Act shall have the same rights to
contribution as such Underwriter, and each director of the Company, each officer
of the Company who signed the Registration Statement, and each person, if any,
who controls the Company with the meaning of the Securities Act and the Exchange
Act shall have the same rights to contribution as the Company.
SECTION 10. DEFAULT OF ONE OR MORE OF THE UNDERWRITERS. If, on the First
Closing Date or the Second Closing Date, as the case may be, any one or more of
the several Underwriters shall fail or refuse to purchase Common Shares that it
or they have agreed to purchase hereunder on such date, and the aggregate number
of Common Shares that such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase does not exceed 10% of the aggregate number of the
Common Shares to be purchased on such date, the other Underwriters shall be
obligated, severally, in the proportions that the number of Firm Common Shares
set forth opposite their respective names on Schedule A bears to the aggregate
----------
number of Firm Common Shares set forth opposite the names of all such non-
defaulting Underwriters, or in such other proportions as may be specified by the
Underwriters with the consent of the non-defaulting Underwriters, to purchase
the Common Shares that such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase on such date. If, on the First Closing Date or the
Second Closing Date, as the case may be, any one or more of the Underwriters
shall fail or refuse to purchase Common Shares and the aggregate number of
Common Shares with respect to which such default occurs exceeds 10% of the
aggregate number of Common Shares to be purchased on such date, and arrangements
satisfactory to the Underwriters and the Company for the purchase of such Common
Shares are not made within 48 hours after such default, this Agreement shall
terminate without liability of any non-defaulting Underwriter, the Company or
any Selling Shareholder to any other party except that the provisions of Section
4, Section 8 and Section 9 shall at all times be effective and shall survive
such termination. In any such case either the Underwriters or the Company shall
have the right to postpone the First Closing Date or the Second Closing Date, as
the case may be, but in no event for longer than seven days in order that the
required changes, if any, to the Registration Statement and the Prospectus or
any other documents or arrangements may be effected.
As used in this Agreement, the term "Underwriter" shall be deemed to
include any person substituted for a defaulting Underwriter under this Section
10. Any action taken under this Section 10 shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
SECTION 11. TERMINATION OF THIS AGREEMENT. Prior to the First Closing Date
this Agreement may be terminated by the Underwriters by notice given to the
Company and the Selling Shareholders if at any time (i) trading or quotation in
any of the Company's securities shall have been suspended or limited by the
Commission or by the Nasdaq Stock Market or trading in securities generally on
-25-
<PAGE>
either the Nasdaq Stock Market or the New York Stock Exchange shall have been
suspended or limited, or minimum or maximum prices shall have been generally
established on any of such stock exchanges by the Commission or the NASD; (ii) a
general banking moratorium shall have been declared by any of federal, New York,
Georgia or California authorities; (iii) there shall have occurred any outbreak
or escalation of national or international hostilities or any crisis or
calamity, or any change in the United States or international financial markets,
or any substantial change or development involving a prospective substantial
change in United States' or international political, financial or economic
conditions, as in the good faith judgment of the Underwriters is material and
adverse and makes it impracticable to market the Common Shares in the manner and
on the terms described in the Prospectus or to enforce contracts for the sale of
securities; (iv) in the good faith judgment of the Underwriters there shall have
occurred any Material Adverse Change; or (v) the Company shall have sustained a
loss by strike, fire, flood, earthquake, accident or other calamity of such
character as in the good faith judgment of the Underwriters may interfere
materially with the conduct of the business and operations of the Company
regardless of whether or not such loss shall have been insured. Any termination
pursuant to this Section 11 shall be without liability on the part of (a) the
Company or the Selling Shareholders to any Underwriter, except that the Company
and the Selling Shareholders shall be obligated to reimburse the expenses of the
Underwriters pursuant to Sections 4 and 6 hereof, (b) any Underwriter to the
Company or the Selling Shareholders, or (c) of any party hereto to any other
party except that the provisions of Section 8 and Section 9 shall at all times
be effective and shall survive such termination.
SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers, of the Selling Shareholders and of
the several Underwriters set forth in or made pursuant to this Agreement will
remain in full force and effect, regardless of any investigation made by or on
behalf of any Underwriter or the Company or any of its or their partners,
officers or directors or any controlling person, or the Selling Shareholders, as
the case may be, and will survive delivery of and payment for the Common Shares
sold hereunder and any termination of this Agreement.
SECTION 13. NOTICES. All communications hereunder shall be in writing and
shall be mailed, hand delivered or telecopied and confirmed to the parties
hereto as follows:
If to the Underwriters:
NationsBanc Montgomery Securities LLC
600 Montgomery Street
San Francisco, California 94111
Facsimile: 415-249-5558
Attention: Richard A. Smith
-26-
<PAGE>
with a copy to:
NationsBanc Montgomery Securities LLC
600 Montgomery Street
San Francisco, California 94111
Facsimile: (415) 249-5553
Attention: David A. Baylor, Esq.
and to:
Troutman Sanders LLP
600 Peachtree Street, N.E., Suite 5200
Atlanta, Georgia 30308-2216
Facsimile: (404) 885-3995
Attention: James L. Smith, III, Esq.
If to the Company:
K & G Men's Center, Inc.
1225 Chattahoochee Avenue, N.W.
Atlanta, Georgia 30318
Facsimile: (404) 351-8038
Attention: John C. Dancu
If to the Selling Shareholders:
Selling Shareholders
c/o John C. Dancu
1225 Chattahoochee Avenue, N.W.
Atlanta, Georgia 30318
Facsimile: (404) 351-8038
with a copy to:
Hunton & Williams
600 Peachtree Street, N.E., Suite 4200
Atlanta, Georgia 30308
Facsimile: (404) 888-4190
Attention: B. Lynn Walsh, Esq.
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
SECTION 14. SUCCESSORS. This Agreement will inure to the benefit of
and be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 10 hereof, and to the benefit of the employees, officers and
directors and controlling persons referred to in Section 8 and Section 9, and in
each case their respective successors, and personal representatives, and no
other person will have any right or obligation hereunder. The term
-27-
<PAGE>
"successors" shall not include any purchaser of the Common Shares as such from
any of the Underwriters merely by reason of such purchase.
SECTION 15. PARTIAL UNENFORCEABILITY. The invalidity or
unenforceability of any Section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
SECTION 16. GOVERNING LAW PROVISIONS. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE.
SECTION 17. FAILURE OF ONE OR MORE OF THE SELLING SHAREHOLDERS TO SELL
AND DELIVER COMMON SHARES. If one or more of the Selling Shareholders shall
fail to sell and deliver to the Underwriters the Common Shares to be sold and
delivered by such Selling Shareholders at the First Closing Date pursuant to
this Agreement, then the Underwriters may at their option, by written notice
from the Underwriters to the Company and the Selling Shareholders, either (i)
terminate this Agreement without any liability on the part of any Underwriter
or, except as provided in Sections 4, 6, 8 and 9 hereof, the Company or the
Selling Shareholders, or (ii) purchase the shares that the Company and other
Selling Shareholders have agreed to sell and deliver in accordance with the
terms hereof. If one or more of the Selling Shareholders shall fail to sell and
deliver to the Underwriters the Common Shares to be sold and delivered by such
Selling Shareholders pursuant to this Agreement at the First Closing Date or the
Second Closing Date, then the Underwriters shall have the right, by written
notice from the Underwriters to the Company and the Selling Shareholders, to
postpone the First Closing Date or the Second Closing Date, as the case may be,
but in no event for longer than seven days in order that the required changes,
if any, to the Registration Statement and the Prospectus or any other documents
or arrangements may be effected.
SECTION 18. GENERAL PROVISIONS. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may be executed in
two or more counterparts, each one of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement may not be amended or modified unless in writing by all of the
parties hereto, and no condition herein (express or implied) may be waived
unless waived in writing by each party whom the condition is meant to benefit.
The Table of Contents and the Section headings herein are for the convenience of
the parties only and shall not affect the construction or interpretation of this
Agreement.
Each of the parties hereto acknowledges that it is a sophisticated
business person who was adequately represented by counsel during negotiations
regarding the provisions hereof,
-28-
<PAGE>
including, without limitation, the
indemnification provisions of Section 8 and the contribution provisions of
Section 9, and is fully informed regarding said provisions. Each of the parties
hereto further acknowledges that the provisions of Sections 8 and 9 hereto are
intended to fairly allocate the risks in light of the ability of the parties to
investigate the Company, its affairs and its business in order to assure that
adequate disclosure has been made in the Registration Statement, any preliminary
prospectus and the Prospectus (and any amendments and supplements thereto), as
required by the Securities Act and the Exchange Act.
-29-
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to the Company and the Custodian the enclosed
copies hereof, whereupon this instrument, along with all counterparts hereof,
shall become a binding agreement in accordance with its terms.
Very truly yours,
COMPANY
K&G MEN'S CENTER, INC.
By:
Title:
SELLING SHAREHOLDERS
By:
--------------------------
(Attorney-in-fact)
The foregoing Underwriting Agreement is hereby confirmed and accepted
by the Underwriters in San Francisco, California as of the date first above
written.
NATIONSBANC MONTGOMERY SECURITIES LLC
THE ROBINSON HUMPHREY COMPANY, LLC
J.C. BRADFORD & CO.
By: NATIONSBANC MONTGOMERY SECURITIES LLC
By:
Title:
-30-
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF FIRM
COMMON SHARES TO
UNDERWRITERS BE PURCHASED
- ------------ ----------------
<S> <C>
NationsBanc Montgomery Securities LLC........... [___]
The Robinson Humphrey Company, LLC.............. [___]
J.C. Bradford & Co.............................. [___]
Total.......................................... 1,650,000
</TABLE>
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
MAXIMUM NUMBER OF
TOTAL SHARES OF TOTAL NUMBER OF OPTIONAL SHARES TO BE
NAMES OF SELLING COMMON STOCK FIRM SHARES SOLD IF MAXIMUM
SHAREHOLDER DEPOSITED TO BE SOLD OPTION IS EXERCISED
----------------- --------------- --------------- ---------------------
<S> <C> <C> <C>
South Atlantic Venture Fund
III, Limited Partnership..... 914,737 914,737 -0-
ITC Holding Company............. 94,905 50,000 44,905
Fowler Family Limited
Partnership................... 25,000 25,000 -0-
Stephen H. Greenspan............ 299,069 220,000 79,069
Greenspan Family Limited
Partnership................... 148,944 110,000 38,944
Ruben Family Limited
Partnership................... 242,624 180,000 62,624
Martin Schwarz.................. 83,958 62,000 21,958
</TABLE>
<PAGE>
EXHIBIT A
Opinion of counsel for the Company to be delivered pursuant to
Section 5(d) of the Underwriting Agreement.
References to the Prospectus in this Exhibit A include any
---------
supplements thereto at the Closing Date.
(i) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Georgia.
(ii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under the
Underwriting Agreement.
(iii) The Company is duly qualified as a foreign corporation to
transact business and is in good standing in each other jurisdiction in which
such qualification is required, whether by reason of the ownership or leasing
of property or the conduct of business, except for such jurisdictions where
the failure to so qualify or to be in good standing would not, in the
aggregate, result in a Material Adverse Change.
(iv) Each significant subsidiary (as defined in Rule 405 under the
Securities Act) has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectus and, to
the best knowledge of such counsel, is duly qualified as a foreign corporation
to transact business and is in good standing in each jurisdiction in which
such qualification is required, whether by reason of the ownership or leasing
of property or the conduct of business, except for such jurisdictions where
the failure to so qualify or to be in good standing would not, in the
aggregate, result in a Material Adverse Change.
(v) All of the issued and outstanding capital stock of each such
significant subsidiary has been duly authorized and validly issued, is fully
paid and non-assessable and, except as disclosed in the Prospectus, is owned
by the Company, directly or through subsidiaries, free and clear of any
security interest, mortgage, pledge, lien, encumbrance or, to the best
knowledge of such counsel, any pending or threatened claim.
(vi) The authorized, issued and outstanding capital stock of the
Company (including the Common Stock) conform to the descriptions thereof set
forth or incorporated by reference in the Prospectus. All of the outstanding
shares of Common Stock (including the shares of Common Stock owned by Selling
Shareholders) have been duly authorized and validly issued, are fully paid and
nonassessable and, to the best of such counsel's knowledge, have been issued
in compliance with the registration and qualification requirements of federal
and state securities laws. The form of certificate used to evidence the Common
Stock is in due and proper form and complies with all applicable requirements
of the charter and
A-1
<PAGE>
by-laws of the Company and the Georgia Business Corporation Code. The
description of the Company's stock option, stock bonus and other stock
plans or arrangements, and the options or other rights granted and
exercised thereunder, set forth in the Prospectus accurately and fairly
presents the information required to be shown with respect to such plans,
arrangements, options and rights.
(vii) No shareholder of the Company or any other person has any
preemptive right, right of first refusal or other similar right to
subscribe for or purchase securities of the Company arising (i) by
operation of the charter or by-laws of the Company or the Georgia Business
Corporation Code or (ii) to the best knowledge of such counsel, otherwise.
(viii) The Underwriting Agreement has been duly authorized, executed
and delivered by, and is a valid and binding agreement of, the Company,
enforceable in accordance with its terms, except as rights to
indemnification and contribution thereunder may be limited by applicable
law and except as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles.
(ix) The Common Shares to be purchased by the Underwriters from the
Company have been duly authorized for issuance and sale pursuant to the
Underwriting Agreement and, when issued and delivered by the Company
pursuant to the Underwriting Agreement against payment of the consideration
set forth therein, will be validly issued, fully paid and nonassessable.
(x) Each of the Registration Statement and the Rule 462(b)
Registration Statement, if any, has been declared effective by the
Commission under the Securities Act. To the best knowledge of such counsel,
no stop order suspending the effectiveness of either of the Registration
Statement or the Rule 462(b) Registration Statement, if any, has been
issued under the Securities Act and no proceedings for such purpose have
been instituted or are pending or are contemplated or threatened by the
Commission. Any required filing of the Prospectus and any supplement
thereto pursuant to Rule 424(b) under the Securities Act has been made in
the manner and within the time period required by such Rule 424(b).
(xi) The Registration Statement, including any Rule 462(b)
Registration Statement, the Prospectus, including any document incorporated
by reference therein, and each amendment or supplement to the Registration
Statement and the Prospectus, including any document incorporated by
reference therein, as of their respective effective or issue dates (other
than the financial statements and supporting schedules included or
incorporated by reference therein or in exhibits to or excluded from the
Registration Statement, as to which no opinion need be rendered) comply as
to form in all material respects with the applicable requirements of the
Securities Act and the Exchange Act.
(xii) The Common Shares have been approved for listing on the Nasdaq
National Market, subject to official notice of issuance.
(xiii) The statements (i) in the Prospectus under the captions "Risk
Factors--Anti-Takeover Provisions," "Description of Capital Stock," and
"Shares Eligible for Future Sale"
A-2
<PAGE>
and (ii) in Item 15 of the Registration Statement, insofar as such
statements constitute matters of law, summaries of legal matters, the
Company's charter or by-law provisions, documents, or legal conclusions,
has been reviewed by such counsel and fairly present and summarize, in all
material respects, the matters referred to therein.
(xiv) To the best knowledge of such counsel, there are no legal or
governmental actions, suits or proceedings pending or threatened which are
required to be disclosed in the Registration Statement, other than those
disclosed therein.
(xv) To the best knowledge of such counsel, there are no Existing
Instruments required to be described or referred to in the Registration
Statement or to be filed as exhibits thereto other than those described or
referred to therein or filed or incorporated by reference as exhibits
thereto; and the descriptions thereof and references thereto are correct in
all material respects.
(xvi) No consent, approval, authorization or other order of, or
registration or filing with, any court or other governmental authority or
agency, is required for the Company's execution, delivery and performance
of the Underwriting Agreement and consummation of the transactions
contemplated thereby and by the Prospectus, except as required under the
Securities Act, applicable state securities or blue sky laws and from the
NASD.
(xvii) The execution and delivery of the Underwriting Agreement by the
Company and the performance by the Company of its obligations thereunder
(other than performance by the Company of its obligations under the
indemnification section of the Underwriting Agreement, as to which no
opinion need be rendered) (i) have been duly authorized by all necessary
corporate action on the part of the Company; (ii) will not result in any
violation of the provisions of the charter or by-laws of the Company or any
subsidiary; (iii) will not constitute a breach of, or Default under, or
result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company or any of its subsidiaries
pursuant to, (A) the Company's Revolving Credit Agreement with SunTrust
Bank, Atlanta, as lender, or (B) to the best knowledge of such counsel, any
other material Existing Instrument; or (iv) to the best knowledge of such
counsel, will not result in any violation of any law, administrative
regulation or administrative or court decree applicable to the Company or
any subsidiary.
(xviii) The Company is not, and after receipt of payment for the Common
Shares will not be, an "investment company" within the meaning of the
Investment Company Act.
(xix) To the best knowledge of such counsel, there are no persons with
registration or other similar rights to have any equity or debt securities
registered for sale under the Registration Statement or included in the
offering contemplated by the Underwriting Agreement, other than the Selling
Shareholders, except for such rights as have been duly waived.
(xx) To the best knowledge of such counsel, neither the Company nor
any subsidiary is in violation of its charter or by-laws or any law,
administrative regulation or administrative or court decree applicable to
the Company or any subsidiary or is in Default in the
A-3
<PAGE>
performance or observance of any obligation, agreement, covenant or
condition contained in any material Existing Instrument, except in each
such case for such violations or Defaults as would not, in the aggregate,
result in a Material Adverse Change.
(xxi) Each document filed pursuant to the Exchange Act (other than the
financial statements and supporting schedules included therein, as to which
no opinion need be rendered) and incorporated or deemed to be incorporated
by reference in the Prospectus complied when so filed as to form in all
material respects with the Exchange Act.
In addition, such counsel shall state that they have participated in
conferences with officers and other representatives of the Company,
representatives of the independent public or certified public accountants
for the Company and with representatives of the Underwriters at which the
contents of the Registration Statement and the Prospectus, and any
supplements or amendments thereto, and related matters were discussed and,
although such counsel is not passing upon and does not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectus (other than as
specified above), and any supplements or amendments thereto, on the basis
of the foregoing, nothing has come to their attention which would lead them
to believe that either the Registration Statement or any amendments
thereto, at the time the Registration Statement or such amendments became
effective, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading or that the Prospectus, as of its
date or at the First Closing Date or the Second Closing Date, as the case
may be, contained an untrue statement of a material fact or omitted to
state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading
(it being understood that such counsel need express no belief as to the
financial statements or schedules or other financial or statistical data
derived therefrom, included or incorporated by reference in the
Registration Statement or the Prospectus or any amendments or supplements
thereto).
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than (i) the General
Corporation Law of the State of Delaware, (ii) the jurisdictions in which such
counsel is admitted or (iii) the federal law of the United States, to the extent
they deem proper and specified in such opinion, upon the opinion (which shall be
dated the First Closing Date or the Second Closing Date, as the case may be,
shall be satisfactory in form and substance to the Underwriters, shall expressly
state that the Underwriters may rely on such opinion as if it were addressed to
them and shall be furnished to the Underwriters) of other counsel of good
standing whom they believe to be reliable and who are satisfactory to counsel
for the Underwriters; and (B) as to matters of fact, to the extent they deem
proper, on certificates of responsible officers of the Company and public
officials.
A-4
<PAGE>
EXHIBIT B
The opinion of such counsel pursuant to Section 5(h) shall be
rendered to the Underwriters at the request of the Company and shall so state
therein. References to the Prospectus in this Exhibit B include any supplements
---------
thereto at the Closing Date.
(i) The Underwriting Agreement has been duly authorized, executed and
delivered by or on behalf of, and is a valid and binding agreement of, such
Selling Shareholder, enforceable in accordance with its terms, except as
rights to indemnification and contribution thereunder may be limited by
applicable law and except as the enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general
equitable principles.
(ii) The execution and delivery by such Selling Shareholder of, and the
performance by such Selling Shareholder of its obligations under, the
Underwriting Agreement and its Custody Agreement and its Power of Attorney
will not contravene or conflict with, result in a breach of, or constitute
a default under, the charter or by-laws, partnership agreement, trust
agreement or other organizational documents, as the case may be, of such
Selling Shareholder, or, to the best of such counsel's knowledge, violate
or contravene any provision of applicable law or regulation, or, to the
best of such counsel's knowledge, violate, result in a breach of or
constitute a default under the terms of any other agreement or instrument
to which such Selling Shareholder is a party or by which it is bound, or
any judgment, order or decree applicable to such Selling Shareholder of any
court, regulatory body, administrative agency, governmental body or
arbitrator having jurisdiction over such Selling Shareholder.
(iii) To the best of such counsel's knowledge, such Selling Shareholder
has the legal right and power, and all authorizations and approvals
required under its charter and by-laws, partnership agreement or other
organizational documents, as the case may be, to enter into the
Underwriting Agreement and its Custody Agreement and its Power of Attorney,
to sell, transfer and deliver good and valid title to all of the Common
Shares which may sold by such Selling Shareholder under the Underwriting
Agreement and to comply with its other obligations under the Underwriting
Agreement, its Custody Agreement and its Power of Attorney.
(iv) Each of the Custody Agreement and Power of Attorney of such
Selling Shareholder has been duly authorized, executed and delivered by
such Selling Shareholder and is a valid and binding agreement of such
Selling Shareholder, enforceable in accordance with its terms, except as
rights to indemnification and contribution thereunder may be limited by
applicable law and except as the enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general
equitable principles.
(v) Assuming that the Underwriters purchase the Common Shares that
are sold by such Selling Shareholder pursuant to the Underwriting Agreement
for value, in good faith and without notice of any adverse claim, the
delivery of such Common Shares pursuant to
B-1
<PAGE>
the Underwriting Agreement will pass good and valid title to such Common
Shares, free and clear of any security interest, mortgage, pledge, lieu
encumbrance or other claim.
(vi) To the best of such counsel's knowledge, no consent, approval,
authorization or other order of, or registration or filing with, any court
or governmental authority or agency, is required for the consummation by
such Selling Shareholder of the transactions contemplated in the
Underwriting Agreement, except as required under the Securities Act,
applicable state securities or blue sky laws, and from the NASD, as to
which laws such counsel need express no opinion.
In rendering such opinion as it relates to selling shareholders that
are corporations, partnership or limited liability companies, such counsel may
rely, to the extent they deem proper and specified in such opinion, upon the
opinion (which shall be dated the First Closing Date or the Second Closing Date,
as the case may be, shall be satisfactory in form and substance to the
Underwriters, shall expressly state that the Underwriters may rely on such
opinion as if it were addressed to them and shall be furnished to the
Underwriters) of other counsel of good standing whom they believe to be reliable
and who are satisfactory to counsel for the Underwriters; and (B) as to matters
of fact, to the extent they deem proper, on certificates of the Selling
Shareholders and public officials.
B-2
<PAGE>
EXHIBIT C
[Date]
NationsBanc Montgomery Securities LLC
The Robinson-Humphrey Company, LLC
J.C. Bradford & Co.
c/o NationsBanc Montgomery Securities LLC
600 Montgomery Street
San Francisco, California 94111
RE: K&G Men's Center, Inc. (the "Company")
Ladies & Gentlemen:
The undersigned is an owner of record or beneficially of certain shares of
Common Stock of the Company ("Common Stock") or securities convertible into or
exchangeable or exercisable for Common Stock. The Company proposes to carry out
a public offering of Common Stock (the "Offering") for which you will act as
underwriters. The undersigned recognizes that the Offering will be of benefit
to the undersigned and will benefit the Company by, among other things, raising
additional capital for its operations. The undersigned acknowledges that you
are relying on the representations and agreements of the undersigned contained
in this letter in carrying out the Offering and in entering into underwriting
arrangements with the Company with respect to the Offering.
In consideration of the foregoing, the undersigned hereby agrees that the
undersigned will not, without the prior written consent of NationsBanc
Montgomery Securities LLC ("NMSI") (which consent may be withheld in its sole
discretion), directly or indirectly, sell, offer, contract or grant any option
to sell (including without limitation any short sale), pledge, transfer,
establish an open "put equivalent position" within the meaning of Rule 16a-1(h)
under the Securities Exchange Act of 1934, as amended, or otherwise dispose of
any shares of Common Stock, options or warrants to acquire shares of Common
Stock, or securities exchangeable or exercisable for or convertible into shares
of Common Stock currently or hereafter owned either of record or beneficially
(as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended)
by the undersigned, or publicly announce the undersigned's intention to do any
of the foregoing, for a period commencing on the date hereof and continuing
through the close of trading on the date 90 days after the date of the
Prospectus. The undersigned also agrees and consents to the entry of stop
transfer instructions with the Company's transfer agent and registrar against
the transfer of shares of Common Stock or securities convertible into or
exchangeable or exercisable for Common Stock held by the undersigned except in
compliance with the foregoing restrictions.
With respect to the Offering only, the undersigned waives any registration
rights relating to registration under the Securities Act of 1933, as amended, of
any Common Stock owned either of record or beneficially by the undersigned,
including any rights to receive notice of the Offering.
This agreement is irrevocable and will be binding on the undersigned and
the respective successors, heirs, personal representatives, and assigns of the
undersigned.
C-1
<PAGE>
Printed Name of Holder
By:
----------------------------
Signature
Printed Name of Person Signing
(and indicate capacity of person signing if
signing as custodian, trustee, or on behalf
of an entity)
C-2
<PAGE>
EXHIBIT 3.1
ARTICLES OF AMENDMENT
TO THE AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
K & G MEN'S CENTER, INC.
Pursuant to the provisions of Section 14-2-1006 of the Georgia Business
Corporation Code, the undersigned corporation adopts the following Amendment to
its Amended and Restated Articles of Incorporation:
1. The name of the corporation is K & G Men's Center, Inc. (the
"Corporation");
2. The first sentence of ARTICLE IV of the Amended and Restated Articles of
Incorporation of K & G Men's Center, Inc. shall be amended to increase
the total number of shares of all classes of stock which the Corporation
has authority to issue from twenty-two million (22,000,000) to forty-two
million (42,000,000) and to increase the number of authorized shares of
"Common Stock" from twenty million (20,000,000) to forty million
(40,000,000) so that, as amended, the first sentence of ARTICLE IV shall
read in its entirety as follows:
ARTICLE IV
The total number of shares of all classes of stock which the
Corporation has authority to issue shall be forty-two million
(42,000,000) shares, of which forty million (40,000,000) shares,
having a par value of One Cent ($.01) per share, shall be designated
as "Common Stock," and two million (2,000,000) shares, having a par
value of One Cent ($.01) per share, shall be designated as "Preferred
Stock."
3. The above amendment was adopted on June 5, 1998.
4. The above amendment was duly approved by the board of directors and the
shareholders of the Corporation in accordance with the provisions of the
Georgia Business Corporation Code.
IN WITNESS WHEREOF, the undersigned authorized officer of the Corporation
has executed this amendment on behalf of the Corporation, this 8th day of June,
1998.
K & G MEN'S CENTER, INC.
By: /s/ John C. Dancu
--------------------------------
Name: John C. Dancu
Title: Chief Financial Officer
<PAGE>
EXHIBIT 5.1
June __, 1998
K&G Men's Center, Inc.
1225 Chattahoochee Avenue, N.W.
Atlanta, Georgia 30318
Re: Registration Statement on Form S-3
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-3 (the "Registration Statement"), of a proposed public offering of
1,650,000 shares (the "Shares") of the Company's authorized common stock, $.01
par value, of which 88,263 Shares are to be sold by the Company and 1,561,737
Shares are to be sold by Selling Shareholders. In addition, 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 247,500
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 1,561,737 Shares to be sold by the Selling Shareholders are
legally and validly issued, fully paid and non-assessable, and the 88,263 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
2. The 247,500 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.
<PAGE>
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,
/s/ Hunton & Williams
---------------------
Hunton & Williams
