<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 17, 1999
REGISTRATION NO. 333-72693
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
DAVID'S BRIDAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
FLORIDA 5632 65-0214563
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NO.) IDENTIFICATION NO.)
</TABLE>
44 WEST LANCASTER AVENUE, SUITE 250
ARDMORE, PA 19003
(610) 896-2111
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
STEVEN ERLBAUM
CHAIRMAN OF THE BOARD
44 WEST LANCASTER AVENUE, SUITE 250
ARDMORE, PA 19003
(610) 896-2111
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES OF ALL COMMUNICATIONS TO:
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<S> <C>
ALAN SINGER SARAH BESHAR
MORGAN, LEWIS & BOCKIUS LLP DAVIS POLK & WARDWELL
1701 MARKET STREET 450 LEXINGTON AVENUE
PHILADELPHIA, PA 19103-2921 NEW YORK, NY 10017
(215) 963-5000 (212) 450-4000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________
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, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH
SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
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SUBJECT TO COMPLETION -- MAY 17, 1999
PROSPECTUS
, 1999
[DAVID'S BRIDAL, INC. LOGO]
8,000,000 SHARES OF COMMON STOCK
- --------------------------------------------------------------------------------
DAVID'S BRIDAL, INC.:
- We are the largest retailer of bridal gowns and bridal-related
apparel in the United States.
- David's Bridal, Inc.
44 West Lancaster Avenue, Suite 250
Ardmore, PA 19003
(610) 896-2111
SYMBOL AND MARKET:
- DABR/NASDAQ NATIONAL MARKET
THE OFFERING:
- - We are offering 1,613,000 of the shares and existing shareholders are
offering 6,387,000 of the shares.
- - The underwriters have an option to purchase an additional 322,581
shares from us and 877,419 shares from the selling shareholders to
cover over-allotments.
- - This is our initial public offering, and no public market currently
exists for our shares.
- - We plan to use the proceeds from this offering to repay bank debt, to
fund new store growth, for capital expenditures and for general
corporate purposes. We will not receive any proceeds from the shares
sold by the selling shareholders.
<TABLE>
<CAPTION>
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Per Share Total
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<S> <C> <C>
Public offering price (Estimated): $14.50 - $16.50 $
Underwriting fees:
Proceeds to David's Bridal:
Proceeds to selling shareholders:
- ------------------------------------------------------------------------------------------
</TABLE>
THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 8.
- --------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
- --------------------------------------------------------------------------------
DONALDSON, LUFKIN & JENRETTE LEGG MASON WOOD WALKER
INCORPORATED
The undersigned is facilitating Internet distribution.
DLJdirect INC.
WE WILL AMEND AND COMPLETE THE INFORMATION IN THIS PROSPECTUS. ALTHOUGH WE ARE
PERMITTED BY US FEDERAL SECURITIES LAWS TO OFFER THESE SECURITIES USING THIS
PROSPECTUS, WE MAY NOT SELL THEM OR ACCEPT YOUR OFFER TO BUY THEM UNTIL THE
DOCUMENTATION FILED WITH THE SEC RELATING TO THESE SECURITIES HAS BEEN DECLARED
EFFECTIVE BY THE SEC. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES
OR OUR SOLICITATION OF YOUR OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION
WHERE THAT WOULD NOT BE PERMITTED OR LEGAL.
<PAGE> 3
TABLE OF CONTENTS
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<CAPTION>
PAGE
<S> <C>
Prospectus Summary.............. 3
Risk Factors.................... 8
Forward-Looking Statements...... 14
Use of Proceeds................. 15
Dividend Policy................. 15
Capitalization.................. 16
Dilution........................ 17
Selected Consolidated Historical
Financial and Operating
Data.......................... 19
Management's Discussion and
Analysis of Financial
Conditions and Results of
Operations.................... 21
Business........................ 30
Management...................... 40
</TABLE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Certain Relationships and
Related Transactions.......... 46
Principal and Selling
Shareholders.................. 47
Description of Capital Stock.... 50
Shares Eligible for Future
Sale.......................... 52
Underwriting.................... 54
Legal Matters................... 56
Experts......................... 56
Available Information........... 56
Reports to Security Holders..... 57
Index to Consolidated Financial
Statements.................... F-1
</TABLE>
<PAGE> 4
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
You should read the entire prospectus carefully.
DAVID'S BRIDAL
OVERVIEW
We are a leading retailer of bridal gowns and bridal-related apparel and
accessories in the United States. We believe that we are the largest bridal
retailer in terms of sales, operating 86 stores in 32 states as of May 13, 1999.
We have created a distinctive shopping experience designed to attract a majority
of potential bridal customers. We provide our customers with excellent value by
offering a broad, in-stock assortment of bridal gowns and bridal-related apparel
at popular prices, together with service designed to exceed customers'
expectations.
Our broad in-stock assortments enable us to offer the convenience of
one-stop shopping for the bridal party, including brides, bridesmaids,
mothers-of-the-bride and -groom and flower girls. We also offer a variety of
special occasion dresses and accessories for events such as proms, pageants,
homecomings and other formal affairs. We believe that the breadth and depth of
our in-stock assortments in our primary bridal and bridal-related products far
exceeds those of other bridal retailers. This belief is based upon our knowledge
of the bridal business derived from discussions with manufacturers, our
principal suppliers and customers. Our in-house staff coordinates the design
and, through a Hong Kong-based joint venture, procures virtually all of our
bridal gowns. This results in lower product costs and a shorter time period
between order and delivery than we have experienced in the past and allows us to
frequently update our product assortment. Our merchandising strategy is to
target customers across a wide range of income levels and offer apparel of
excellent value at everyday prices typically ranging from $99 to $899. We
recognize that the bridal customer expects a higher level of customer service
than the typical retail customer. We seek to exceed our customers' expectations
for service by providing attentive and knowledgeable sales assistance,
convenient store design and extended hours of operation relative to other bridal
retailers.
In mid-1995, we commenced key initiatives which we continue to build upon
to increase profitability and support controlled growth. While the immediate
effect was decreased profitability in fiscal 1996, we believe that these
measures have facilitated controlled growth and enhanced profitability in fiscal
1997 and fiscal 1998. We have achieved comparable store sales growth of 13.2% in
fiscal 1997, 18.8% in fiscal 1998 and 26.5% in the first quarter of fiscal 1999.
In addition, our total revenues increased by 36.7% in fiscal 1997, 44.7% in
fiscal 1998 and 51.1% in the first quarter of fiscal 1999, and our operating
margin increased from 5.5% in fiscal 1997 to 7.9% in fiscal 1998 and from 13.1%
in the first quarter of fiscal 1998 to 13.5% in the first quarter of fiscal
1999.
INDUSTRY OVERVIEW
We believe the bridal market is highly fragmented, with approximately 7,500
stores nationwide and estimate that less than five percent of bridal retailers
operate more than one store. We estimate the domestic market for the various
apparel and accessories purchased by brides, bridesmaids and other members of
the bridal party to be in excess of $4 billion per year. Historically, no
retailer has been dominant in the bridal retailing industry.
Most bridal retailers are small and do not have significant bargaining
power with the manufacturers of bridal apparel. As a result, the manufacturers
dictate the styles that will be available to the retailers and require retailers
to make a significant investment in samples of those styles during each selling
season. Typically, bridal apparel retailers offer a limited selection of bridal
gowns and bridesmaid dresses and provide samples in only the most common sizes,
8 and 10. In general, customers are not able to purchase bridal gowns or
bridesmaid dresses off-the-rack. The majority of bridal gown purchases are made
by placing a substantial deposit to order the gown,
3
<PAGE> 5
waiting up to 20 weeks for delivery, and tailoring the fit of the gown through
multiple fittings and alterations. These factors can make the bridal shopping
experience time consuming, inconvenient and stressful.
KEY COMPETITIVE STRENGTHS
Largest Bridal Apparel Retailer. Our size enables us to spread fixed
operating and marketing expenses over a larger revenue base, advertise
nationally, and offer one-stop shopping to the bridal party.
Unique Merchandising Strategy. Our merchandising strategy is to offer the
broadest in-stock selection of bridal-related apparel in sizes 2 through 26, and
special occasion dresses, headpieces, shoes, handbags and accessories to outfit
the entire bridal party. This enables our customers to try on, purchase and take
their gowns home on the same day.
Control of Product Design, Procurement and Distribution. We control the
production process for a majority of our products from design through
distribution. Our in-house design staff and direct relationships with
manufacturers result in lower product costs, shorter time periods between order
and delivery and a continuous flow of updated merchandise to our stores
throughout the year.
Superior Customer Service. Our objective is to exceed our customers'
expectations for service. Purchasing a wedding gown is an emotional experience,
and we devote significant effort to developing an attentive and knowledgeable
sales staff.
GROWTH STRATEGY
We believe we are well positioned to capitalize on growth opportunities and
can achieve profitable and controlled growth through opening new stores and
increasing sales productivity of existing stores. We plan to continue to
diversify geographically throughout the United States by opening 22 stores in
new and existing markets in fiscal 1999 and 22-25 stores in fiscal 2000. We also
seek to increase the sales productivity of existing stores by using our
multi-media marketing strategy to promote David's Bridal as the dominant
national brand name in bridal retailing. In addition, we strive to create a
favorable experience for the bride to encourage referrals to additional members
of the bridal party and other brides-to-be and, as a result, increase sales.
RISK FACTORS
Our business will be adversely affected if, among other things, we do not
effectively manage our growth, offer products that are accepted by our
customers, and obtain sufficient quantities of merchandise on a cost-effective
basis. There is strong competition in our industry. We compete with local bridal
stores, regional chains and bridal warehouses on the basis of reputation,
service and price. We also compete with department stores that may have greater
financial and other resources than we do. These and other risks are addressed
under the caption "Risk Factors" beginning on page 8 of this prospectus.
4
<PAGE> 6
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by:
David's Bridal....................... 1,613,000 shares
The selling shareholders............. 6,387,000 shares
-----------------
Total........................... 8,000,000 shares
Common stock to be outstanding after this
offering................................ 19,041,827 shares
Nasdaq National Market Symbol............. DABR
</TABLE>
- ------------------------
The table above includes 145,162 shares to be sold in the offering, which
are to be issued immediately prior to completion of the offering in connection
with the exercise of stock options. The table above excludes an aggregate of
1,256,388 shares issuable upon exercise of stock options outstanding at April 3,
1999, plus an additional 1,048,450 shares reserved for issuance in connection
with future stock options and other awards under our stock option plan. See
"Management--Stock Option Plan".
------------------------
We are a successor to a bridal retailing business that began in Ft.
Lauderdale, Florida in 1950 and were incorporated in Florida in 1990. Our
principal executive offices are located at 44 West Lancaster Avenue, Suite 250,
Ardmore, Pennsylvania 19003. Our telephone number is (610) 896-2111. Our world
wide web address is http:/www.davidsbridal.com. OUR WEB SITE IS NOT PART OF THIS
PROSPECTUS.
------------------------
Generally, the information in this prospectus:
- assumes that the over-allotment option is not exercised
- gives effect to a 1.473 for 1 common stock split that occurred on April
23, 1999 for all periods
- unless otherwise noted, reflects the conversion of all outstanding shares
of class A, B, C and D preferred stock into an aggregate of 7,543,817
shares of common stock at the closing of this offering
- gives effect to an increase in the number of shares reserved for issuance
under our stock option plan by 977,000 shares to a total of 2,450,000
shares, that occurred on April 16, 1999
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<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS EXCEPT PER SHARE, NET SALES PER SQUARE FOOT AND
NUMBER OF STORES DATA)
Our fiscal year consists of 52 or 53 weeks, ends on a Saturday near
December 31 and is named for the calendar year ending on that December 31. All
fiscal years presented include 52 weeks of operations except for fiscal 1996,
which includes 53 weeks of operations.
You should read the following summary consolidated financial and operating
data together with Management's Discussion and Analysis of Financial Condition
and Results of Operations and our consolidated financial statements and related
notes included elsewhere in this prospectus.
In addition, when reading this summary, you should be aware that:
- diluted earnings per share assumes that preferred stock has been
converted at historical conversion rates
- comparable store sales include net sales plus alterations income
- stores that have been relocated within the same market are considered
comparable stores and stores become comparable in the first month
following 12 full months of operation
- average net sales per square foot includes net sales plus alterations
income for stores open for the entire period indicated
- net sales per square foot is calculated by dividing net sales plus
alterations income by the total square footage of stores open for the
entire period indicated
- pro forma, as adjusted, balance sheet data gives effect to the exercise
of stock options to purchase 145,162 shares of common stock and the sale
of the shares offered by us at an assumed initial public offering price
of $15.50 less applicable discounts, commissions and expenses, and the
repayment of bank debt with a portion of these proceeds
<TABLE>
<CAPTION>
THIRTEEN WEEKS
ENDED
FISCAL YEAR -------------------
------------------------------------------------ APRIL 4, APRIL 3,
1994 1995 1996 1997 1998 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................ $27,523 $45,453 $62,836 $85,381 $123,540 $35,628 $54,087
Other income, primarily
alterations and third party
promotional fees.............. 1,331 2,634 4,188 6,228 9,062 1,969 2,717
Total revenues................ 28,854 48,087 67,024 91,609 132,602 37,597 56,804
Gross profit, net of buying,
distribution and occupancy
costs......................... 14,258 21,569 26,287 38,727 57,991 17,461 27,835
Selling, general and
administrative expenses....... 11,930 19,114 26,424 33,702 47,571 12,532 20,191
Income (loss) from operations.... 2,328 2,455 (137) 5,025 10,420 4,929 7,644
Interest expense, net............ 491 467 586 1,249 1,087 309 272
Net income (loss)(a)............. 1,107 700 (515) 2,480 5,755 2,823 4,570
Net income (loss) per common
share (a):
Basic......................... $ 0.08 $ 0.06 $ (0.05) $ 0.25 $ 0.59 $ 0.29 $ 0.47
Diluted....................... $ 0.08 $ 0.04 $ (0.05) $ 0.14 $ 0.31 $ 0.15 $ 0.25
Weighted average shares
outstanding:
Basic......................... 13,743 12,153 10,207 9,849 9,751 9,784 9,740
Diluted....................... 14,702 16,791 10,207 17,472 18,375 18,359 18,614
Pro forma basic earnings per
common share(b)............... $ 0.33 $ 0.26
Pro forma basic weighted average
shares outstanding(b)......... 17,295 17,284
</TABLE>
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<TABLE>
<CAPTION>
THIRTEEN WEEKS
ENDED
FISCAL YEAR -------------------
------------------------------------------------ APRIL 4, APRIL 3,
1994 1995 1996 1997 1998 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C>
STORE DATA:
Number of stores, end of
period........................ 23 36 48 59 77 63 81
Total square feet, end of
period........................ 200 328 455 569 766 619 812
Comparable store sales
increase...................... 20.9% 11.3% 0.5% 13.2% 18.8% 25.3% 26.5%
Average net sales per store...... $ 1,816 $ 1,769 $ 1,672 $ 1,803 $ 2,023 $ 613 $ 723
Net sales per square foot........ $ 193 $ 204 $ 184 $ 190 $ 207 $ 63 $ 73
OPERATING DATA:
Gross profit margin, net of
buying, distribution and
occupancy costs............... 49.4% 44.9% 39.2% 42.3% 43.7% 46.4% 49.0%
Selling, general and
administrative expense
percentage.................... 41.3% 39.8% 39.4% 36.8% 35.8% 33.3% 35.5%
Operating income (loss) margin... 8.1% 5.1% (0.2)% 5.5% 7.9% 13.1% 13.5%
Capital expenditures............. $ 1,109 $ 5,029 $ 4,931 $ 7,470 $ 8,105 $2,121 $ 3,361
Depreciation and amortization,
excluding amortization of debt
discount and debt issuance
costs......................... $ 284 $ 632 $ 1,393 $ 2,022 $ 2,896 $ 645 $ 887
</TABLE>
<TABLE>
<CAPTION>
APRIL 3, 1999
----------------------
PRO FORMA
AS
ACTUAL ADJUSTED
<S> <C> <C>
BALANCE SHEET DATA:
Inventories............................................... $35,339 $35,339
Working capital........................................... 18,545 35,210
Total assets.............................................. 68,242 83,340
Long-term debt and capital lease obligations, excluding
current portion........................................ 9,974 2,974
Shareholders' equity...................................... 31,808 54,536
</TABLE>
- -----------------------------
(a) Fiscal 1995 reflects a net loss of $550 from early extinguishment of debt,
net of income tax benefit of $323. Net income before extraordinary item for
fiscal year 1995 was $0.10 per common share (basic) and $0.07 per common
share (diluted).
(b) Reflects the conversion of all outstanding shares of class A, B, C and D
preferred stock into an aggregate of 7,543,817 shares of common stock upon
the consummation of this offering.
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RISK FACTORS
You should carefully consider the following factors and other information
in this prospectus before deciding to invest in shares of our common stock.
RISKS RELATING TO OUR BUSINESS:
IF WE ARE NOT ABLE TO EFFECTIVELY MANAGE OUR GROWTH, OUR PROFITABILITY WILL BE
MATERIALLY ADVERSELY AFFECTED
Our strategy is designed to enhance profitability by increasing sales in
existing stores and generating sales in new stores. However, we must
successfully manage our growth to realize this strategy. Our growth will be
adversely affected if we are unable to:
- identify suitable markets and sites for new stores
- negotiate leases on acceptable terms
- maintain levels of service that are expected by customers
- provide a diverse inventory of bridal gowns and flower girl, bridesmaid,
mothers-of-the-bride and -groom and other special occasion dresses,
accessories and other product offerings in attractive styles
- avoid reducing sales and profitability at existing stores when opening
new stores in the same region or market area
- offer prices that appeal to a broad range of consumers
- manage inventory on an effective basis
- deliver products on a timely basis
- test new product offerings on an effective basis
- hire, train and retain competent managers and personnel capable of
providing high levels of customer service
- improve, upgrade and expand our infrastructure to accommodate our growth
- expand our distribution facility or add additional distribution
facilities, as necessary
Our profitability will be materially adversely affected if we are unable to
successfully manage our growth.
IF OUR MANAGEMENT INFORMATION SYSTEMS ARE DISRUPTED OR WE ARE NOT ABLE TO
EFFECTIVELY UPGRADE AND EXPAND OUR MANAGEMENT INFORMATION SYSTEMS, OUR
PROFITABILITY, BUSINESS OPERATIONS AND EXPANSION WILL BE ADVERSELY AFFECTED
We depend on management information systems for all major aspects of our
business. We will be materially adversely affected if our management information
systems are disrupted or we are unable to improve, upgrade and expand our
systems on an effective basis. Our expansion strategy may be adversely affected
if we are not able to successfully expand our current hardware and network
infrastructure, including the development of a communications infrastructure and
the creation of data warehouses for store, marketing and customer information to
improve controls and enhance sales and operational capabilities. We cannot
assure you that our planned expansion or upgrades will be completed on a timely
basis and successfully. See "Business--Management Information Systems."
IF WE ARE NOT ABLE TO ANTICIPATE AND RESPOND TO CONSUMER DEMAND, WE WILL BE
COMPELLED TO REDUCE PRICES AND MAY BE LEFT WITH EXCESS INVENTORY, AND THIS WILL
MATERIALLY ADVERSELY AFFECT OUR SALES AND PROFITABILITY
Our success will depend on our ability to anticipate and respond to
consumer demand. We must identify and respond to changing consumer preferences
with respect to bridal gowns and related bridal wear, accessories and our other
product offerings. Fashion trends can be volatile. This is particularly true for
bridesmaid and special occasion dresses. Our success depends on our ability to
anticipate and effectively respond to these trends. If we do not provide
merchandise that is desired by a sufficient number
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of customers, we will be compelled to reduce prices and we may be left with
excess inventory. Our sales and profitability will be materially adversely
affected if we do not anticipate and effectively respond to customer demands.
IF OUR ASIAN MANUFACTURERS ARE NOT ABLE TO PROVIDE US WITH SUFFICIENT
MERCHANDISE TO MEET CUSTOMER DEMAND OR IF OUR IMPORTS ARE DISRUPTED, OUR SALES
AND PROFITABILITY WILL BE MATERIALLY ADVERSELY AFFECTED
Substantially all of our bridal gowns and flower girl dresses are
manufactured in Asia. Substantially all of our other product offerings are
currently manufactured domestically. We may in the future seek to manufacture a
portion of this apparel internationally. Our sales and profitability could be
materially adversely affected by our reliance on international manufacturing.
Some of the risks in manufacturing overseas include:
- changes in laws and regulations
- compliance with labor laws and ethical standards
- tariffs, quotas and other trade barriers
- work stoppages
- political and financial instability
- fluctuations in currency exchange rates
- increases in freight costs
Virtually all of our bridal gowns are manufactured in China. There have
been a number of recent trade disputes between China and the United States
during which the Unites States has threatened to impose punitive tariffs and
duties on products imported from China and to withdraw China's "most favored
nation" trade status. Since a substantial portion of our total revenues is
derived from the sale of bridal gowns, we are particularly vulnerable to the
risk of loss of the most favored nation status for China, changes in the current
tariff or duty structures or the adoption by the United States of other trade
policies or sanctions adverse to China.
In addition, the violation of labor laws by an independent manufacturer, or
the divergence of a manufacturer's labor practices from those generally accepted
as ethical in the United States, could have a material adverse effect on our
image and reputation and as a result, adversely effect our sales and
profitability. We cannot control the actions of our manufacturers and we cannot
assure you that they will conduct their business using ethical labor practices.
Furthermore, our import operations are subject to constraints imposed by
bilateral textile agreements between the United States and a number of foreign
countries. These agreements and other applicable treaties impose quotas on the
amounts and types of merchandise which may be imported into the United States
from these countries. These agreements and other applicable treaties also allow
the United States to impose restraints at any time on the importation of
categories of merchandise that, under the terms of the agreements, are not
currently subject to specified limits. Our sales and profitability may be
materially adversely affected if the United States or the countries in which our
products are produced impose new quotas, duties, tariffs or other restrictions,
or adversely adjust the prevailing quota, duty or tariff levels.
WE RELY ON OUR JOINT VENTURE PARTNER TO INSURE THE QUALITY OF IMPORTED GOODS,
AND OUR QUALITY CONTROL COULD BE NEGATIVELY AFFECTED IF OUR JOINT VENTURE
PARTNER DOES NOT PERFORM ACCEPTABLY
We depend on our Hong Kong based joint venture to handle our relationships
with international manufacturers of our bridal wear. The quality of our product
may be materially adversely affected if our joint venture partner does not
perform its responsibilities on an acceptable basis or terminates our
relationship and we are unable to replace our joint venture partner on a prompt
basis. See note 5 to our consolidated financial statements. This joint venture
is equally owned by us and one of our shareholders, Addwood Limited. We handle
negotiations with the manufacturers with respect to basic economic terms
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and product design. We depend on our joint venture partner to identify suitable
manufacturers and insure that our manufacturers are meeting design
specifications, adhering to shipping requirements and complying with our
business standards.
IF OUR MANUFACTURERS, MANY OF WHOM HAVE LIMITED RESOURCES, ARE UNABLE TO
SUPPORT THE CONTINUED EXPANSION OF OUR BUSINESS, OUR SALES AND PROFITABILITY
WILL BE MATERIALLY ADVERSELY AFFECTED
Many of the third parties we use to manufacture our apparel have limited
resources, production capabilities and operating histories. These manufacturers
may be unable to support the continued expansion of our business. Our
relationships with our manufacturers are not on a contractual basis and do not
assure adequate supply or quality or acceptable pricing on a long-term basis. A
manufacturer could discontinue selling to us at any time. Our sales and
profitability may be materially adversely affected if we are unable to promptly
replace a manufacturer who is unwilling or unable to satisfy our requirements.
IF WE ARE NOT ABLE TO MAINTAIN OUR COMPARABLE STORE SALES GROWTH OR PREVENT
FLUCTUATIONS IN COMPARABLE STORE SALES, OUR PROFITABILITY MAY BE MATERIALLY
ADVERSELY AFFECTED
Our comparable store sales have fluctuated significantly in the past.
Comparable store sales will continue to fluctuate. Comparable store sales may be
affected by many factors, including:
- competition and economic conditions
- fashion trends
- weather conditions
- new store openings in existing markets
- procurement and management of merchandise inventory
- customer response to new and existing styles
- store relocations
We are not likely to maintain comparable store sales growth at our current
levels. Our profitability may be materially adversely affected by declines and
fluctuations in our comparable store sales.
IF OUR FINANCIAL RESULTS DO NOT MEET EXPECTATIONS AS A RESULT OF FLUCTUATIONS
IN OUR QUARTERLY FINANCIAL RESULTS, THE MARKET PRICE OF OUR COMMON STOCK IS
LIKELY TO DECLINE
Our financial results may substantially fluctuate during any reporting
period due to a number of factors. Historical trends indicate that our sales are
typically highest from January through April and lowest from October through
December. Our financial results may also fluctuate as a result of:
- performance of new and existing stores
- pre-opening expenditures for new stores
- the timing of new store openings
- the timing of holidays
- competition and economic conditions
- fashion trends
- weather conditions
- procurement and management of merchandise inventory
- customer response to new and existing styles
10
<PAGE> 12
Our expenditures for inventory, personnel and other pre-opening items for
new stores may adversely affect period-to-period financial results. New stores
may fail to generate sales as promptly as planned. New stores may also depress
sales in our other stores that are located in the same regions or market areas.
Our financial results may not meet the expectations of analysts and
investors. The market price of our common stock is likely to decline when we do
not meet these expectations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Quarterly Results and
Seasonality."
IF ADDITIONAL FINANCING IS NOT AVAILABLE, WE MAY BE UNABLE TO RESPOND TO
COMPETITIVE PRESSURES OR UNANTICIPATED REQUIREMENTS
Our business may be adversely affected if the unavailability of additional
financing prevents us from responding to competitive pressures or unanticipated
requirements. We may need additional financing if we accelerate our expansion
program or our operating results decline. Additional funds may also be necessary
to respond to competitive pressures or unanticipated requirements. Additional
financing may not be available on satisfactory terms or at all. Any additional
equity financing may cause investors to experience dilution. Any debt financing
may result in restrictions on our spending or payment of dividends. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
IF WE ARE NOT ABLE TO RETAIN OR REPLACE OUR KEY PERSONNEL, OUR BUSINESS MAY BE
MATERIALLY ADVERSELY AFFECTED
Our success will depend on the continued employment of our executive
management team after this offering. If one or more members of our management
team do not continue in their present positions, our business could be
materially adversely affected.
Steven H. Erlbaum, our Chairman and Chief Executive Officer, will resign
from his position as Chief Executive Officer upon the closing of this offering.
Robert D. Huth, our President and Chief Operating Officer, will also become our
Chief Executive Officer upon the closing of this offering. Although Mr. Huth has
been primarily responsible for running our day-to-day operations since joining
us in 1995, we will be materially adversely affected if Mr. Huth is unable to
assume these added responsibilities on a timely and effective basis. See
"Management -- Executive Officers and Directors."
We have employment agreements with Robert D. Huth and with Philip Youtie
that will become effective upon completion of this offering. Mr. Huth's
employment agreement will provide for a three year term. Mr. Youtie's employment
agreement will provide for a two year term. In addition, effective following
completion of this offering, Steven H. Erlbaum will become a consultant to us.
We will have a three year consulting agreement with Steven H. Erlbaum. We have
no employment or consulting agreement with any of our other employees or
consultants. See "Management -- Employment and Consulting Agreements."
Our expansion strategy will depend on our ability to hire capable managers
and other store level personnel. The need for such personnel is particularly
important because purchasers of bridal wear typically expect a high level of
service and attentiveness. We will be materially adversely affected if we do not
hire capable store managers and other store level personnel.
IF OUR SYSTEMS ARE NOT YEAR 2000 COMPLIANT, WE MAY NOT BE ABLE TO CONDUCT
NORMAL BUSINESS ACTIVITIES
Historically, many computerized systems have used two digits rather than
four to define the applicable year. Computer equipment and software and devices
with imbedded technology that are time-sensitive may recognize a date using "00"
as the year 1900 rather than the year 2000. This could result in system failure
or miscalculations. This problem is generally referred to as the "Year 2000
issue."
As a result of the Year 2000 issue, possible adverse consequences to our
business include the inability to engage in normal business activities resulting
from one or more of the following:
- loss of communications links with one or more of our store locations
11
<PAGE> 13
- disruptions in the movement of inventory to and from our distribution
center and between store locations
- failure of our inventory management systems
- the inability to process transactions with customers
- the inability to send purchase orders
- the inability to fulfill customer orders in a timely fashion
- failure of our vendors to provide us with suitable products
- failure of our credit card processors to correctly process customer
transactions
- failure of our telecommunications service
Not all of our information systems are Year 2000 compliant and not all of
the third parties with whom we conduct our business have indicated that their
information systems are Year 2000 compliant. If we and these third parties do
not effectively change, or replace, our management information systems to make
them Year 2000 compliant, our business will be materially adversely affected. We
discuss the impact that the Year 2000 issue may have on our business, our
expected costs to address our Year 2000 issues and our contingency plans in the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" section of this prospectus.
RISKS RELATING TO OUR INDUSTRY:
A DETERIORATION OF ECONOMIC CONDITIONS COULD HAVE A NEGATIVE IMPACT ON OUR
BUSINESS, SALES AND PROFITABILITY
Our business, sales and profitability could be materially adversely
affected by unfavorable economic conditions. Purchases of bridal wear and
accessories may decline during recessionary periods. Prices that consumers may
be willing to pay for bridal wear and accessories may be lower during times of
economic duress. Our business, sales and profitability will likely be materially
adversely affected by a deterioration in general economic conditions.
IF WE ARE UNABLE TO RESPOND TO COMPETITION IN THE BRIDAL WEAR BUSINESS, OUR
SALES AND PROFITABILITY MAY BE ADVERSELY AFFECTED
The retail bridal wear business is highly competitive. We compete with
local stores, regional chains and bridal warehouses that may have an established
following in a community. We also compete with department stores that may also
sell through catalogs and that have substantially greater financial and other
resources. Specialty stores and a larger number of department stores provide
additional competition in the sale of bridesmaid and special occasion dresses.
Many retailers of other products that follow a growth strategy similar to
ours rely on large selections and comparatively low prices to compete. However,
the purchase of bridal wear is a very personal and emotional decision. We must
provide a high level of service to compete effectively. Our business, sales and
profitability will be materially adversely affected if we do not compete
successfully. See "Business--Competition in the Bridal Industry."
RISKS RELATING TO THIS OFFERING:
BECAUSE A SMALL NUMBER OF SHAREHOLDERS MAY CONTROL ALL MAJOR CORPORATE
DECISIONS DUE TO SIGNIFICANT OWNERSHIP CONCENTRATION OF OUR COMMON STOCK, OUR
OTHER SHAREHOLDERS MAY NOT BE ABLE TO INFLUENCE ANY OF THESE CORPORATE DECISIONS
Our major shareholders will have the power to elect our board of directors
and approve actions requiring the approval of the majority of our shareholders
if they decide to act together. Upon the consummation of this offering, Steven
H. Erlbaum, Michael C. Erlbaum, Gary E. Erlbaum, Philip Youtie,
12
<PAGE> 14
and Steven J. Sidewater, together with members of their immediate family, trusts
for the benefit of members of their immediate family, and family partnerships in
which members of their immediate family are partners, will own 8.8%, 2.3%, 6.6%,
6.2% and 3.3%, respectively, of our outstanding common stock. The Clipper Group
partnership will own 24.9% of our outstanding common stock. These shareholders
will own 52.1% in the aggregate. Steven, Michael and Gary Erlbaum are brothers
and directors. The interests of these significant shareholders could conflict
with the interests of our other shareholders.
SINCE OUR COMMON STOCK HAS NEVER BEEN PUBLICLY TRADED, WE CANNOT PREDICT THE
EXTENT TO WHICH A TRADING MARKET WILL DEVELOP FOR OUR COMMON STOCK, OR WHETHER
YOU WILL BE ABLE TO SELL YOUR STOCK
There has not been a public market for our common stock. We cannot predict
the extent to which a trading market will develop or how liquid that market
might become. The initial public offering price will be determined by
negotiations between representatives of the underwriters, the selling
shareholders and us and may not be indicative of prices that will prevail in the
trading market.
ANTI-TAKEOVER PROVISIONS COULD DELAY OR PREVENT A SALE OF DAVID'S BRIDAL,
WHICH MAY ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK
We are a Florida corporation. There are anti-takeover provisions of Florida
law that could make it more difficult for a third party to acquire control of
our company, even if such a change in control would be beneficial to our
shareholders. Our articles of incorporation divide our board into three classes
and provide that our board of directors may issue preferred stock without
shareholder approval. The existence of a classified board or issuance of
preferred stock could make it more difficult for a third party to acquire our
company.
IF OUR SHAREHOLDERS SELL SUBSTANTIAL AMOUNTS OF OUR COMMON STOCK, INCLUDING
SHARES ISSUED UPON THE EXERCISE OF OUTSTANDING OPTIONS, IN THE PUBLIC MARKET
FOLLOWING THIS OFFERING, THEN THE MARKET PRICE OF OUR COMMON STOCK COULD DECLINE
Restrictions under the securities laws and lock-up agreements signed by
several of our significant shareholders limit the number of shares of common
stock available for sale in the public market. Effective upon completion of this
offering, the holders of 11,041,827 shares of common stock and options
exercisable into an aggregate of 729,800 shares of common stock have agreed,
subject to some exceptions, not to sell any such securities for 180 days after
this offering without the prior written consent of Donaldson, Lufkin and
Jenrette Securities Corporation.
Following completion of the offering, holders of 11,041,827 shares of
common stock will have demand or piggy-back registration rights. The demand
registration rights may only be exercised by The Clipper Group, but all holders
of registration rights are permitted to include shares in the demand offering on
the same basis as The Clipper Group. The exercise of such rights could adversely
affect the market price of our common stock. We plan to file a registration
statement to register all shares of common stock under our stock option plan.
After such registration statement is effective, shares issued upon exercise of
stock options will be eligible for resale in the public market without
restriction.
13
<PAGE> 15
FORWARD-LOOKING STATEMENTS
This prospectus contains forward looking statements under the captions
"Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business" and elsewhere in this
prospectus. These forward-looking statements include statements about the
following:
- the competitiveness of the bridal industry
- the future availability and prices of materials used in our business
- our business and growth strategies and other statements contained herein
that are not historical facts
When used in this prospectus, the words "anticipate," "believe," "estimate"
and similar expressions are generally intended to identify forward-looking
statements. There are important factors that could cause actual results to
differ materially from those expressed or implied by such forward-looking
statements, including:
- changes in general economic and business conditions and those in the
bridal industry in particular
- actions of competitors
- our ability to recover our costs in the pricing of our products
- the extent to which we are able to develop new products and expand our
business into new markets
- our inability to effectively manage our growth
- the level of demand for our products
- changes in our business strategies
- developments in international markets
- our inability to obtain financing when required
- other factors discussed under "Risk Factors"
14
<PAGE> 16
USE OF PROCEEDS
The net proceeds we will receive from the sale of 1,613,000 shares in this
offering will be approximately $22.0 million. This is based upon an assumed
initial public offering price of $15.50 per share, after deducting underwriting
discounts and commissions and estimated offering expenses payable by us. We will
not receive any proceeds from the sale of shares of common stock by the selling
shareholders.
We intend to use approximately $6.0 million of the net proceeds to fund
capital expenditures relating to new store growth, $3.5 million for improvements
to existing stores, $1.2 million for various capital investment activities,
$825,000 for the introduction of a new warehouse management system and the
balance of the net proceeds to repay the outstanding balance under our revolving
credit agreement and for general corporate purposes. Pending such uses, we will
invest the net proceeds of this offering in short-term, investment grade
securities. The outstanding balance under our revolving credit agreement was
$7.0 million on April 3, 1999. Borrowings under the revolving credit agreement
bear interest at variable rates which averaged 6.2% at April 3, 1999. We may
reborrow amounts under our revolving credit agreement, which will be available
for future borrowings through July 31, 2001.
DIVIDEND POLICY
We have not paid cash dividends on our common stock since converting from a
subchapter S-corporation in 1993. We currently intend to retain all future
earnings to fund the development and growth of our business. We do not currently
anticipate paying any cash dividends. Future decisions regarding cash dividends
on our common stock will be made by our board of directors. These decisions will
depend on our results of operations, financial position, capital requirements,
general business conditions and restrictions imposed by any financing
arrangements. Our revolving credit agreement currently prohibits the payment of
dividends. We may also face legal and regulatory restrictions on the payment of
dividends.
15
<PAGE> 17
CAPITALIZATION
The following table sets forth our actual, pro forma and pro forma, as
adjusted, capitalization. Our pro forma capitalization gives effect to:
- the conversion of all outstanding shares of preferred stock into an
aggregate of 7,543,817 shares of common stock upon the consummation of
this offering;
- the issuance of 145,162 shares to be sold in the offering, which are to
be issued immediately prior to completion of the offering in connection
with the exercise of stock options for an aggregate purchase price of
$714,197.
Our pro forma, as adjusted, capitalization gives effect to the pro forma
adjustments and:
- the sale of the 1,613,000 shares of common stock offered by us; and
- the application of the estimated net proceeds based on an assumed initial
public offering price of $15.50 per share.
<TABLE>
<CAPTION>
AS OF APRIL 3, 1999
-----------------------------------
PRO FORMA,
ACTUAL PRO FORMA AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents.................................. $ 1,946 $ 2,660 $17,981
Short-term debt, including current portion of capitalized
lease obligations........................................ $ 401 $ 401 $ 401
======= ======= =======
Capitalized lease obligations, less current portion........ 752 752 752
Long-term debt............................................. 9,222 9,222 2,222
------- ------- -------
Total long-term debt............................. 9,974 9,974 2,974
------- ------- -------
Shareholders' equity:
Preferred stock, par value $0.01 per share; 1,850,000
shares authorized actual; 5,000,000 shares authorized
pro forma and pro forma, as adjusted; 171,792 shares
of class A preferred stock; 114,104 shares of class B
preferred stock; 114,104 shares of class C preferred
stock; and 686,402 shares of class D preferred stock
issued and outstanding actual; no shares issued and
outstanding pro forma and pro forma, as adjusted...... 11 -- --
Common stock, par value $0.01 per share; 100,000,000
shares authorized; 9,739,848 shares issued and
outstanding actual; 17,428,827 shares issued and
outstanding pro forma and 19,041,827 shares issued and
outstanding pro forma, as adjusted.................... 97 174 190
Additional paid-in capital............................... 18,282 18,930 40,928
Retained earnings........................................ 13,418 13,418 13,418
------- ------- -------
Total shareholders' equity............................ 31,808 32,522 54,536
------- ------- -------
Total capitalization............................. $41,782 $42,496 $57,510
======= ======= =======
</TABLE>
The table above excludes an aggregate of 1,256,388 shares issuable upon
exercise of stock options outstanding at April 3, 1999, plus an additional
1,048,450 shares reserved for issuance in connection with future stock options
and other awards under our stock option plan. See note 10 to our consolidated
financial statements.
16
<PAGE> 18
DILUTION
The dilution table sets forth our net tangible book value after giving
effect to the conversion of preferred stock into 7,543,817 shares of common
stock and the issuance of 145,162 shares of common stock to be sold in the
offering, which are to be issued immediately prior to completion of the offering
in connection with the exercise of stock options with an aggregate exercise
price of $714,197. Our net tangible book value as of April 3, 1999 was $32.4
million or $1.86 per share. Our net tangible book value per share is determined
by subtracting the total amount of our liabilities from the total amount of our
tangible assets and dividing the remainder by the number of shares of our common
stock outstanding after giving effect to the conversion of preferred stock and
exercise of stock options noted above. The price per share to the public of the
shares of common stock offered by this prospectus exceeds the net tangible book
value per share prior to this offering. Therefore, purchasers of shares of
common stock in this offering will realize immediate and substantial dilution in
the net tangible book value of their shares. The following table, based upon our
net tangible book value as of April 3, 1999, illustrates the dilution to
purchasers of our common stock in this offering, based on an assumed initial
public offering price of $15.50 per share.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $ 15.50
Net tangible book value per share as of April 3, 1999,
after giving effect to the conversion of the preferred
stock and the exercise of stock options as described
above.................................................. $ 1.86
Increase in net tangible book value per share attributable
to new investors....................................... 1.00
-------
Pro forma net tangible book value per share after this
offering.................................................. 2.86
-------
Dilution per share purchased in this offering............... $ 12.64
=======
</TABLE>
The following table presents, as of April 3, 1999 and assuming an initial
public offering price of $15.50 per share:
- the number of shares of our common stock purchased from us
- the total cash consideration paid
- the issuance of 145,162 shares of common stock to be sold in the
offering, which are to be issued immediately prior to completion of the
offering in connection with the exercise of stock options with an
aggregate exercise price of $714,197
- the average price per share paid by the existing holders of common stock
including the holders of common stock after giving effect to the
conversion of preferred stock
- the average price per share paid by new investors before deducting
estimated underwriting discounts and commissions and estimated offering
expenses payable by us
<TABLE>
<CAPTION>
SHARES
PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
Existing shareholders................ 17,428,827 91.5% $36,102,275 59.1% $ 2.07
New investors........................ 1,613,000 8.5 25,001,500 40.9 15.50
---------- ----- ----------- -----
Total...................... 19,041,827 100.0% $61,103,775 100.0%
========== ===== =========== =====
</TABLE>
The tables on this page exclude all outstanding stock options, other than
stock options to purchase 145,162 shares that will be sold in the offering. See
"Management--Stock Option Plan" and note 10 to our consolidated financial
statements. The exercise of outstanding options having an exercise price less
than the initial public offering price would increase the dilution effect to new
investors that is shown on the tables.
Also, the second table on this page does not give effect to sales of shares
by the selling shareholders. Sales by the selling shareholders in this offering
will reduce the number of shares held by existing shareholders to 11,041,827
shares, or 58.0% of the shares outstanding, and will increase the number of
shares held by new investors to 8,000,000 shares, or 42.0% of the shares
outstanding.
17
<PAGE> 19
Our current shareholders, including members of management, will recognize
significant benefits from this offering. These benefits include the creation of
a public market for our common stock which will allow some of our existing
shareholders to sell shares in this offering and enable our shareholders to
liquidate their investments in the future. The selling shareholders, including
our Chairman and President and several members of our board of directors, will
sell a significant number of shares in this offering. The excess of the initial
public offering price over amounts paid for common stock being sold by the
selling shareholders that are our executive officers and directors, together
with members of their immediate family, trusts for the benefit of members of
their immediate family, and family partnerships in which members of their
immediate family are partners, including the amounts payable upon the exercise
of stock options, is approximately $47.6 million, or $15.19 per share based on
an assumed offering price of $15.50 per share. The excess of the initial public
offering price over amounts paid for common stock held by our executive officers
and directors, together with members of their immediate family, trusts for the
benefit of members of their immediate family, and family partnerships in which
members of their immediate family are partners, following completion of this
offering is approximately $80.8 million, or $14.88 per share based on an assumed
offering price of $15.50 per share.
18
<PAGE> 20
SELECTED CONSOLIDATED HISTORICAL FINANCIAL AND OPERATING DATA
The following table sets forth our selected consolidated statement of
operations and store, operating and balance sheet data. Our statement of
operations data for fiscal 1996, 1997 and 1998 and our balance sheet data as of
the end of fiscal 1997 and 1998 have been derived from our consolidated
financial statements, which have been audited by Arthur Andersen LLP,
independent public accountants, and are included elsewhere in this prospectus.
Our statement of operations data for fiscal 1994 and 1995 and the selected
balance sheet data as of the end of fiscal 1994, 1995 and 1996 have been derived
from consolidated financial statements which have been audited by Arthur
Andersen LLP, independent public accountants, and are not included in this
prospectus. The selected financial data as of April 3, 1999 and the 13 weeks
ended April 4, 1998 and April 3, 1999 have been derived from our unaudited
interim financial statements and, in management's opinion, include all
adjustments necessary for a fair presentation of the results of operations for
those periods. Our fiscal year consists of 52 or 53 weeks, ends on a Saturday
near December 31 and is named for the calendar year ending on that December 31.
All fiscal years presented include 52 weeks of operations except for fiscal
1996, which includes 53 weeks of operations. You should read the data set forth
below together with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements and notes
thereto appearing elsewhere in this prospectus.
In addition, when reading the following financial data, you should be aware
that:
- diluted earnings per share assumes that preferred stock has been
converted at historical conversion rates
- comparable store sales include net sales plus alterations income
- stores that have been relocated within the same market are considered
comparable stores and stores become comparable in the first month
following 12 full months of operation
- average net sales per square foot includes net sales plus alterations
income for stores open for the entire period indicated
- net sales per square foot is calculated by dividing net sales plus
alterations income by the total square footage of stores open for the
entire period indicated
<TABLE>
<CAPTION>
THIRTEEN WEEKS
ENDED
FISCAL YEAR ---------------------
-------------------------------------------------------- APRIL 4, APRIL 3,
1994 1995 1996 1997 1998 1998 1999
(IN THOUSANDS EXCEPT PER SHARE, NET SALES PER SQUARE FOOT AND NUMBER OF
STORES DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................ $27,523 $45,453 $62,836 $85,381 $123,540 $35,628 $54,087
Other income, primarily alterations and
third party promotional fees........... 1,331 2,634 4,188 6,228 9,062 1,969 2,717
------- ------- ------- ------- -------- ------- -------
Total revenues......................... 28,854 48,087 67,024 91,609 132,602 37,597 56,804
Cost of sales, including buying,
distribution and occupancy costs....... 14,596 26,518 40,737 52,882 74,611 20,136 28,969
------- ------- ------- ------- -------- ------- -------
Gross profit........................... 14,258 21,569 26,287 38,727 57,991 17,461 27,835
Selling, general and administrative
expenses............................... 11,930 19,114 26,424 33,702 47,571 12,532 20,191
------- ------- ------- ------- -------- ------- -------
Income (loss) from operations.......... 2,328 2,455 (137) 5,025 10,420 4,929 7,644
Interest expense, net.................... 491 467 586 1,249 1,087 309 272
------- ------- ------- ------- -------- ------- -------
Income (loss) before income taxes...... 1,837 1,988 (723) 3,776 9,333 4,620 7,372
Income tax provision (benefit)........... 730 738 (208) 1,296 3,578 1,797 2,802
------- ------- ------- ------- -------- ------- -------
Income (loss) before extraordinary
item................................... 1,107 1,250 (515) 2,480 5,755 2,823 4,570
Extraordinary item, net of tax(a)........ -- (550) -- -- -- -- --
------- ------- ------- ------- -------- ------- -------
Net income (loss)...................... $ 1,107 $ 700 $ (515) $ 2,480 $ 5,755 $ 2,823 $ 4,570
======= ======= ======= ======= ======== ======= =======
</TABLE>
19
<PAGE> 21
<TABLE>
<CAPTION>
THIRTEEN WEEKS
ENDED
FISCAL YEAR ---------------------
-------------------------------------------------------- APRIL 4, APRIL 3,
1994 1995 1996 1997 1998 1998 1999
(IN THOUSANDS EXCEPT PER SHARE, NET SALES PER SQUARE FOOT AND NUMBER OF
STORES DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Net income (loss) per common share(a):
Basic.................................. $ 0.08 $ 0.06 $ (0.05) $ 0.25 $ 0.59 $ 0.29 $ 0.47
Diluted................................ $ 0.08 $ 0.04 $ (0.05) $ 0.14 $ 0.31 $ 0.15 $ 0.25
Weighted average shares outstanding:
Basic.................................. 13,743 12,153 10,207 9,849 9,751 9,784 9,740
Diluted................................ 14,702 16,791 10,207 17,472 18,375 18,359 18,614
Pro forma basic earnings per common
share(b)............................... $ 0.33 $ 0.26
Pro forma basic weighted average share
outstanding(b)......................... 17,295 17,284
STORE DATA:
Number of stores, end of period.......... 23 36 48 59 77 63 81
Total square feet, end of period......... 200 328 455 569 766 619 812
Comparable store sales increase.......... 20.9% 11.3% 0.5% 13.2% 18.8% 25.3% 26.5%
Average net sales per store.............. $ 1,816 $ 1,769 $ 1,672 $ 1,803 $ 2,023 $ 613 $ 723
Net sales per square foot................ $ 193 $ 204 $ 184 $ 190 $ 207 $ 63 $ 73
OPERATING DATA:
Gross profit margin, net of buying,
distribution and occupancy costs....... 49.4% 44.9% 39.2% 42.3% 43.7% 46.4% 49.0%
Selling, general and administrative
expense percentage..................... 41.3% 39.8% 39.4% 36.8% 35.8% 33.3% 35.5%
Operating income (loss) margin........... 8.1% 5.1% (0.2)% 5.5% 7.9% 13.1% 13.5%
Capital expenditures..................... $ 1,109 $ 5,029 $ 4,931 $ 7,470 $ 8,105 $ 2,121 $ 3,361
Depreciation and amortization, excluding
amortization of debt discount and debt
issuance costs......................... $ 284 $ 632 $ 1,393 $ 2,022 $ 2,896 $ 645 $ 887
BALANCE SHEET DATA:
Inventories.............................. $ 9,916 $20,415 $20,247 $32,452 $ 37,799 $31,070 $35,339
Working capital.......................... 4,824 14,149 18,192 23,805 27,053 22,318 18,545
Total assets............................. 13,492 31,171 35,347 53,699 65,558 55,034 68,242
Long-term debt and capitalized lease
obligations, excluding current
portion................................ 2,894 134 12,654 16,331 19,647 13,839 9,974
Redeemable common stock.................. -- 7,744 3,607 628 -- -- --
Shareholders' equity..................... 3,707 11,949 11,071 21,506 27,238 24,306 31,808
</TABLE>
- ----------------------------
(a) Fiscal 1995 reflects net loss of $550 from early extinguishment of debt, net
of income tax benefit of $323. Net income before extraordinary item for
fiscal year 1995 was $0.10 per common share (basic) and $0.07 per common
share (diluted).
(b) Reflects the conversion of all outstanding shares of class A, B, C, and D
preferred stock into an aggregate of 7,543,817 shares of common stock upon
the consummation of this offering.
20
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
David's Bridal is a successor to a bridal retailing business that began in
Ft. Lauderdale, Florida in 1950. We were incorporated and commenced operations
by opening a store in Hallandale, Florida in 1990. We experienced rapid growth
in fiscal 1994 and fiscal 1995, when the number of stores increased from 14 to
36 over these two fiscal years. This growth placed considerable strain on our
inventory controls, information systems, personnel and capital resources. During
fiscal 1995, we determined that we had accumulated excessive inventories of a
large number of wedding gowns and other apparel. In mid-1995 we commenced key
initiatives which we continue to build upon to increase profitability and
support controlled growth. These initiatives have included:
- enhancing our management team
- focusing our merchandising strategy on building and expanding an
assortment of best selling styles
- upgrading our management information systems
- opening a distribution facility to improve inventory management
- improving our recruiting and training programs for store personnel
While the immediate effect of these initiatives was to decrease
profitability in fiscal 1996, we believe that these measures have facilitated
controlled growth and enhanced profitability in fiscal 1997 and fiscal 1998. We
have achieved comparable store sales growth of 13.2% in fiscal 1997, 18.8% in
fiscal 1998 and 26.5% in the first quarter of fiscal 1999 compared to the same
prior year period. In addition, our total revenues increased by 36.7% in fiscal
1997, 44.7% in fiscal 1998 and 51.1% in the first quarter of fiscal 1999
compared to the same quarter in the prior year, and our operating margin
increased from 5.5% in fiscal 1997 to 7.9% in fiscal 1998 and from 13.1% in the
first quarter of fiscal 1998 to 13.5% in the first quarter of fiscal 1999. See
"Risk Factors -- If we are not able to maintain our comparable store sales
growth or prevent fluctuations in comparable store sales, our profitability may
be materially adversely affected."
We opened our distribution center in 1996 in Conshohocken, Pennsylvania.
This facility is 54,000 square feet. More than half of our unit merchandise is
shipped from suppliers to our distribution center, where we inspect and monitor
shipments to our stores. In early 1998, we completed the initial development of
an inventory replenishment system that is designed to improve service levels and
inventory turnover among various merchandise categories. This system, which is
linked to our distribution center and merchandise systems, was used during
fiscal 1998 to replenish accessory items. We have recently expanded the use of
this system to replenish bridal gowns and expect to further expand this system
to replenish other products that are back-stocked by the distribution center.
Our replenishment system creates computer generated forecasts of future sales in
each store. This system then establishes stock levels based upon the sales
forecasts. Orders are then generated to replenish merchandise from our warehouse
to our stores. We believe the use of our distribution center to rapidly fulfill
our merchandise needs has facilitated the expansion of our assortment of bridal
and other dress categories.
We operate on a 52/53-week fiscal year. Our fiscal year ends on a Saturday
near December 31 and is named for the calendar year ending on that December 31.
Fiscal 1996, 1997 and 1998 include 53, 52 and 52 weeks, respectively.
Total revenues principally include merchandise sales, alterations income
and third party promotional fees. Selling, general and administrative expenses
include store expenses, general and administrative expenses and media expense.
Comparable store sales are based on net sales and alterations revenue but
exclude third party promotional fee income. A store becomes comparable in the
first month following 12 full months of operation. Stores that have been
relocated within the same market are considered comparable stores.
21
<PAGE> 23
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, selected items in
the consolidated statements of operations as a percentage of total revenues.
<TABLE>
<CAPTION>
THIRTEEN WEEKS
PERCENTAGE OF TOTAL REVENUES ENDED
FISCAL YEAR --------------------
---------------------------- APRIL 4, APRIL 3,
1996 1997 1998 1998 1999
<S> <C> <C> <C> <C> <C>
Total revenues.................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales, including buying, distribution
and store occupancy costs..................... 60.8 57.7 56.3 53.6 51.0
----- ----- ----- ----- -----
Gross profit.................................. 39.2 42.3 43.7 46.4 49.0
Selling, general and administrative expenses.... 39.4 36.8 35.8 33.3 35.5
----- ----- ----- ----- -----
Income (loss) from operations................. (0.2) 5.5 7.9 13.1 13.5
Interest expense net............................ 0.9 1.4 0.9 0.8 0.5
----- ----- ----- ----- -----
Income (loss) before income taxes............. (1.1) 4.1 7.0 12.3 13.0
Income tax provision (benefit).................. (0.3) 1.4 2.7 4.8 5.0
----- ----- ----- ----- -----
Net income (loss)............................. (0.8)% 2.7% 4.3% 7.5% 8.0%
===== ===== ===== ===== =====
</TABLE>
THIRTEEN WEEKS ENDED APRIL 3, 1999 VERSUS THIRTEEN WEEKS ENDED APRIL 4, 1998
Total revenues. Total revenues for the thirteen weeks ended April 3, 1999
(first quarter of fiscal 1999) were $56.8 million, an increase of $19.2 million,
or 51.1%, from the thirteen weeks ended April 4, 1998 (first quarter of fiscal
1998). We attribute the $19.2 million increase to a $9.8 million, or 26.5%,
increase in comparable store sales, $0.7 million from stores opened in fiscal
1999, $8.6 million from stores opened in fiscal 1998 but not qualifying as
comparable stores and the balance to an increase in third party promotional
fees.
Gross profit. Gross profit for the first quarter of fiscal 1999 was $27.8
million (49.0% of total revenues) as compared with $17.5 million (46.4% of total
revenues) in the first quarter of fiscal 1998. We were able to achieve higher
gross profit as a percentage of total revenues due to an improvement in
merchandise margins coupled with decreases in buying and store occupancy costs
as a percentage of total revenues. Buying costs decreased to 1.2% of total
revenues for the first quarter of fiscal 1999 from 2.1% of total revenues for
the first quarter of fiscal 1998 due to the application of fixed costs over a
larger total revenue base. Store occupancy costs decreased to 7.9% of total
revenues for the first quarter of fiscal 1999 from 8.5% of total revenues for
the first quarter of fiscal 1998, primarily due to the 26.5% increase in
comparable store sales, the timing of new store openings and the volume of new
store sales. We were able to achieve higher merchandise margins through our
international and domestic direct sourcing efforts, which have resulted in lower
product costs.
Selling, general and administrative expenses. Selling, general and
administrative expenses were $20.2 million (35.5% of total revenues) for the
first quarter of fiscal 1999 as compared with $12.5 million (33.3% of total
revenues) for the first quarter of fiscal 1998. The significant components of
selling, general and administrative expenses include store personnel costs,
store selling expenses, back office support costs and advertising expenses. The
$7.7 million increase in selling, general and administrative expenses reflects
our continued investment in personnel and infrastructure to support the 18 new
stores opened in the last four quarters and our continued future growth plans.
The increase in selling, general and administrative expenses as a percentage of
total revenues was primarily due to increases in advertising, store personnel
and back office expenses, partially offset by a decrease in store selling
expenses as a percentage of total revenues. Advertising expense increased as a
percentage of total revenues due to heightened levels of national and local
advertising. Store personnel costs increased as a percentage of total revenues
due to higher employee benefit costs coupled with an increase in store payroll
expense. Back office support costs increased as a percentage of total revenues
primarily due to higher personnel costs. Store selling expenses decreased as a
percentage of total revenues due to decreases in our variable costs as a
percentage of total revenues.
22
<PAGE> 24
Interest Expense. Interest expense for the first quarter of fiscal 1999
was $272,000, as compared to $309,000 for the first quarter of fiscal 1998. The
decrease was due to lower interest rates coupled with lower debt levels as a
result of financing more of our growth with cash provided by operations.
Taxes. Our effective tax rate was 38.0% for the first quarter of fiscal
1999, compared to 38.9% for the first quarter of fiscal 1998. The decrease was
due primarily to a decrease in other non-deductible expenses.
Net Income. As a result of the factors described above, our net income for
the first quarter of fiscal 1999 was $4.6 million, an increase of 61.9%, or $1.8
million, over our first quarter of fiscal 1998 net income of $2.8 million.
FISCAL 1998 VERSUS FISCAL 1997
Total revenues. Total revenues for fiscal 1998 were $132.6 million, an
increase of $41.0 million, or 44.7%, from fiscal 1997. We attribute the increase
to a $17.0 million, or 18.8%, increase in comparable store sales, $11.9 million
from stores opened in fiscal 1998, $11.7 million from stores opened in fiscal
1997 but not qualifying as comparable stores and the balance to an increase in
third party promotional fees.
Gross profit. Gross profit for fiscal 1998 was $58.0 million (43.7% of
total revenues) as compared with $38.7 million (42.3% of total revenues) for
fiscal 1997. We were able to achieve higher gross profit as a percentage of
total revenues due to an improvement in merchandise margins coupled with a
decrease in store occupancy costs from 11.8% of total revenues for fiscal 1997
to 11.0% of total revenues for fiscal 1998. We were able to achieve higher
merchandise margins through our international and domestic direct procurement
efforts, which have resulted in lower product costs. In addition, we took fewer
markdowns as a result of increased sales of our best selling styles which
generally maintain a higher margin. Our store occupancy costs were lower as a
percentage of total revenues primarily due to the 18.8% increase in comparable
store sales, the timing of new store openings and the volume of new store sales.
Selling, general and administrative expenses. Selling, general and
administrative expenses were $47.6 million (35.8% of total revenues) for fiscal
1998 as compared with $33.7 million (36.8% of total revenues) for fiscal 1997.
The significant components of selling, general and administrative expenses
include store personnel costs, store selling expenses, back office support costs
and advertising expenses. The decrease in selling, general and administrative
expenses as a percentage of total revenues was primarily achieved through
spreading advertising costs over a greater total revenue base. Store personnel
costs, store selling expenses and back office costs remained relatively flat as
a percentage of total revenues for fiscal 1998 as compared with fiscal 1997.
Store personnel expenses generally increase proportionally with increases in
revenues. The $13.9 million increase in selling, general and administrative
expenses reflects our investment in personnel and infrastructure as well as an
increase in variable store selling expenses to support the addition of 18 new
stores and our continued future growth plans.
Interest expense. Interest expense for fiscal 1998 was $1.1 million, as
compared to $1.2 million for fiscal 1997. The decrease in interest expense was
due to lower interest rates, partially offset by higher debt levels used to fund
our expansion.
Taxes. Our effective tax rate was 38.3% for fiscal 1998 as compared to
34.3% for fiscal 1997. The increase was primarily due to a higher effective
state tax rate.
Net income. As a result of the factors described above, our net income for
fiscal 1998 was $5.8 million, a $3.3 million increase over our fiscal 1997 net
income of $2.5 million.
FISCAL 1997 VERSUS FISCAL 1996
Total revenues. Total revenues for fiscal 1997, which included 52 weeks,
were $91.6 million, an increase of $24.6 million, or 36.7%, from fiscal 1996,
which included 53 weeks. We attribute the increase to a $8.6 million, or 13.2%,
increase in comparable store sales, $4.2 million from stores opened in fiscal
1997, $11.4 million from stores opened for fiscal 1996 but not qualifying as
comparable stores and the balance to an increase in third party promotional
fees.
Gross profit. Gross profit for fiscal 1997 was $38.7 million (42.3% of
total revenues) as compared with $26.3 million (39.2% of total revenues) for
fiscal 1996. We were able to achieve higher gross profit as a percentage of
total revenues due to an improvement in merchandise margins coupled with a
decrease in
23
<PAGE> 25
buying costs from 2.2% of total revenues for fiscal 1996 to 1.6% of total
revenues for fiscal 1997. These improvements were partially offset by an
increase in distribution costs from 0.6% of total revenues for fiscal 1996 to
1.4% for fiscal 1997 and an increase in store occupancy costs from 11.4% of
total revenues for fiscal 1996 to 11.8% for fiscal 1997. We were able to achieve
higher merchandise margins through our international and domestic direct
procurement efforts, which have resulted in lower product costs. Our buying
costs were lower as a percentage of total revenues primarily through the
application of fixed costs over a larger total revenue base. Our distribution
center expenses increased as a percentage of total revenues because fiscal 1997
was the first full year of operation for our distribution center. Our store
occupancy costs increased as a percentage of total revenues as a result of the
impact of rent and real estate tax expenses associated with new stores opened in
fiscal 1997.
Selling, general and administrative expenses. Selling, general
administrative expenses were $33.7 million (36.8% of total revenues) in fiscal
1997 as compared with $26.4 million (39.4% of total revenues) in fiscal 1996.
The significant components of selling, general and administrative expenses
include store personnel costs, store selling expenses, back office support costs
and advertising expenses. The decrease in selling, general and administrative
expenses as a percentage of total revenues was primarily achieved through
spreading store selling and advertising costs over a greater total revenue base.
Store personnel costs and back office costs remained relatively flat as a
percentage of total revenues in fiscal 1997 as compared with fiscal 1996. Store
personnel expenses generally increase proportionally with increases in revenues.
The $7.3 million increase in selling, general and administrative expenses
reflects our investment in personnel and infrastructure as well as an increase
in variable store selling expenses to support the addition of 11 new stores and
our continued future growth plans.
Interest expense. Interest expense was $1.2 million in fiscal 1997 as
compared to $586,000 in fiscal 1996. The increase in interest expense was due to
higher debt levels used to fund our store expansion. Interest rates remained
relatively constant in fiscal 1997 as compared to fiscal 1996.
Taxes. Our effective tax rate was 34.3% in fiscal 1997, compared to a
28.8% benefit in fiscal 1996. The fiscal 1997 provision reflects the federal
statutory rate plus relevant state taxes. The 1996 federal tax benefit was due
to our operating loss, which was offset by a state tax provision and other
non-deductible items.
Net income. As a result of the factors described above, our net income in
fiscal 1997 was $2.5 million as compared to a net loss of $515,000 in fiscal
1996.
LIQUIDITY AND CAPITAL RESOURCES
We require cash principally to finance capital investment in new stores,
new store inventory and seasonal working capital. We opened 12 stores in fiscal
1996, 11 stores in fiscal 1997, 18 stores in fiscal 1998 and 4 stores in the
first quarter of fiscal 1999. In recent years, we have financed our operations
and new store openings primarily with cash from operations, borrowings under
bank financing agreements and equity financing.
We currently estimate that our capital expenditures will be approximately
$11.0-$12.0 million in fiscal 1999, including the $3.4 million incurred during
the first quarter of fiscal 1999. Our capital expenditures will be incurred to
open new stores, remodel or expand existing stores and fund capital investment
activities. We anticipate spending approximately:
- $6.0 million for new stores,
- $3.5 million for improvements to existing stores,
- $825,000 for the introduction of a new warehouse management system and
- $1.2 million for various capital investment activities.
Based on our past experience, we estimate that our aggregate initial
investment in inventory for new stores opened and to be opened in fiscal 1999
will be approximately $5.7 million. However, inventory purchases may be affected
by factors such as the timing of store openings. Therefore, actual investment in
inventory may differ from our estimate. We intend to fund inventory purchases in
our stores using cash from operations or borrowings under our revolving credit
agreement.
24
<PAGE> 26
In future years, our lease payments are expected to increase substantially
as we open new stores. In addition, we expect to relocate our offices to larger
offices within the next 18 months. If we purchase our new offices, we anticipate
funding the purchase through mortgage financing and cash from operations.
We believe that our cash flow from operations, the net proceeds from this
offering and amounts available under our revolving credit agreement will be
sufficient to fund anticipated capital expenditures and working capital
requirements, including increased lease payments, for at least the next 12
months.
Our cash flows provided by operating activities were $15.2 million for the
first quarter of fiscal 1999 as compared to $6.4 million in the first quarter of
fiscal 1998. The increase was primarily due to higher net income coupled with
increases in accrued expenses and income taxes payable and a higher reduction in
inventory levels. Our cash flows provided by our operating activities were $4.2
million in fiscal 1998 as compared to cash used of $3.8 million in fiscal 1997.
This increase was primarily due to higher net income and a lower increase in
inventory levels in fiscal 1998 as compared to fiscal 1997. Our cash used in
operating activities in fiscal 1997 primarily reflected the increase in
inventory levels related to new store openings and support of sales growth,
partially offset by net income. Cash flows provided by operating activities were
$2.1 million in fiscal 1996.
Our net cash used in investing activities in the first quarter of fiscal
1999 was $3.2 million as compared to $2.1 million in the first quarter of fiscal
1998. Our cash used in investing activities primarily represents our capital
expenditures in opening new stores. Our net cash used in investing activities in
fiscal 1998 was $7.6 million, as compared to $7.9 million in fiscal 1997 and
$4.9 million in fiscal 1996. Our cash used in investing activities primarily
represents our capital expenditures in opening new stores. While we opened seven
more stores in fiscal 1998 than in fiscal 1997, we purchased land and one
building in fiscal 1997.
Our net cash used in financing activities in the first quarter of fiscal
1999 was $10.4 million as compared to $3.2 million in the first quarter of
fiscal 1998. The increase was primarily due to repayments on our revolving
credit agreement. Our primary financing activity involved continual borrowings
and repayments under our revolving credit agreement. Our net cash provided by
financing activities in fiscal 1998 was $3.3 million, as compared to $11.7
million in fiscal 1997 and $2.8 million in fiscal 1996. Over the last three
years our primary financing activities have involved continual borrowings and
repayments under our revolving credit agreement, increases in bank overdrafts,
periodic issuances of long-term debt and sales of equity securities.
Our cash provided by financing activities in fiscal 1998 was primarily
derived from:
- $2.2 million of net borrowings under our revolving credit agreement,
- $1.4 million from the issuance of long-term debt, and
- an increase of $1.0 million in bank overdrafts.
Bank overdrafts represent checks that have been written by us that have not been
presented to our bank for payment. These sources of cash in fiscal 1998 were
partially offset by repayments of long-term debt and capital leases of $680,000
and the repurchase of common stock for $651,000. Our cash provided by financing
activities in fiscal 1997 was primarily provided by $5.0 million from the sale
of class D preferred stock, $3.9 million of net borrowings under our revolving
credit agreement and an increase of $2.7 million of bank overdrafts.
Our revolving credit agreement provides for borrowings of up to $30.0
million, of which up to $25.0 million may be used for letters of credit. Cash
borrowings and letters of credit under our revolving credit agreement are
secured by all of our assets. Our borrowings under this agreement are restricted
to a specified percentage of our accounts receivable and inventory.
Specifically, we are not permitted to borrow amounts that are greater than the
sum of 80% of our eligible accounts receivable and 60% of our eligible
inventory. The revolving credit agreement provides some exceptions to these
limitations. These exceptions allow us to exceed these limitations by $3.0
million from December 31, 1998 to March 31, 1999, $3.0 million from October 31,
1999 to March 31, 2000 and $2.0 million from October 1, 2000 to March 31, 2001.
The interest rates that we are charged under our revolving credit agreement are
variable.
We can choose to have our interest rate based on:
25
<PAGE> 27
- the higher of the U.S. federal funds rate plus 0.50% and our bank's prime
rate, or
- adjusted LIBOR plus an applicable margin of between 1.25% and 1.75%
depending on our financial performance.
As of April 3, 1999, we had cash borrowings of $7.0 million and $3.4 million of
letters of credit issued, with $14.7 million available to borrow under our
revolving credit agreement. We intend to use a portion of the net proceeds of
this offering to repay the outstanding balance under our revolving credit
agreement, although we may reborrow amounts under the revolving credit
agreement, which will remain available for future borrowings. The revolving
credit agreement is available through July 31, 2001.
We currently intend to retain all future earnings to fund the development
and growth of our business. We do not currently anticipate paying any cash
dividends. Our board of directors will make future decisions regarding cash
dividends on our common stock. These decisions will depend on our results of
operations, financial position, capital requirements, general business
conditions and restrictions imposed by any financing arrangements. Our revolving
credit agreement currently prohibits the payment of dividends.
QUARTERLY RESULTS AND SEASONALITY
Our business is subject to seasonal variations and our revenues and income
historically have been higher from January through April and lower from October
through December. Our working capital requirements tend to fluctuate throughout
the year and increase during the months of November and December. This is
because we increase our inventory in these months to support sales, which tend
to be higher from January through April.
The following table presents our unaudited quarterly operating results for
our nine most recent quarterly periods and the number of stores open at the end
of each period.
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
-----------------------------------------------------------------
APRIL 5, JULY 5, OCTOBER 4, JANUARY 3, APRIL 4, JULY 4,
1997 1997 1997 1998 1998 1998
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total Revenues................... $25,117 $24,028 $24,322 $18,142 $37,597 $35,189
Gross Profit(a).................. $11,068 $10,325 $10,217 $ 7,117 $17,461 $15,573
Income (loss) from operations.... $ 2,408 $ 1,657 $ 1,553 $ (593) $ 4,929 $ 3,517
Net income (loss)................ $ 1,360 $ 877 $ 806 $ (563) $ 2,823 $ 2,061
Quarterly total revenues as a
percentage of annual
total revenues................. 27.4% 26.2% 26.5% 19.9% 28.4% 26.5%
Quarterly operating income (loss)
as a percentage of annual
operating income............... 47.9% 33.0% 30.9% (11.8)% 47.3% 33.8%
Quarterly operating income (loss)
as a percentage of quarterly
total revenues................. 9.6% 6.9% 6.4% (3.3)% 13.1% 10.0%
Stores open at end of period..... 50 52 54 59 63 69
<CAPTION>
THIRTEEN WEEKS ENDED
----------------------------------
OCTOBER 3, JANUARY 2, APRIL 3,
1998 1999 1999
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Total Revenues................... $34,456 $25,360 $56,804
Gross Profit(a).................. $14,714 $10,243 $27,835
Income (loss) from operations.... $ 2,166 $ (192) $ 7,644
Net income (loss)................ $ 1,181 $ (310) $ 4,570
Quarterly total revenues as a
percentage of annual
total revenues................. 26.0% 19.1% N/A
Quarterly operating income (loss)
as a percentage of annual
operating income............... 20.8% (1.9)% N/A
Quarterly operating income (loss)
as a percentage of quarterly
total revenues................. 6.3% (0.8)% 13.5%
Stores open at end of period..... 71 77 81
</TABLE>
- -----------------------------
(a) Net of buying, distribution and store occupancy costs.
YEAR 2000 COMPLIANCE
The Year 2000 issue results from the writing of computer programs using two
digits rather than four to define the applicable year. In other words,
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in system failures or miscalculations
causing disruptions of operations. In this section we will describe our current
state of readiness for the Year 2000 issue and other information relating to the
Year 2000 issue.
WILL DAVID'S BRIDAL BE READY?
Information Technology Systems--Our core information technology system is
the STS integrated retail system. The system supports our major business
functions, including merchandise planning, finance and accounting, and point of
sale systems. With STS we have completed an analysis of all modules included in
this retail system to insure that they are Year 2000 compliant. Year 2000
remediation has been
26
<PAGE> 28
completed for all STS modules except for point of sale and decision support. The
decision support remediation solution has been issued for implementation and is
scheduled to be completed in the second quarter of 1999. The point of sale
remediation is being tested and is scheduled to be completed in the third
quarter of fiscal 1999.
Our other information technology systems are either internally developed
legacy systems or "off the shelf" applications. The most significant legacy
system is our distribution system, which supports distribution center operations
and inventory transfers among stores. Our new warehouse system, which will
replace our distribution system will be Year 2000 compliant. We have scheduled
this new system to be implemented in the third quarter of fiscal 1999. Other
legacy systems support special order warehouse processing allocation and
replenishment systems. Our assessment of the Year 2000 readiness of these
systems is underway, and remediation is expected to be completed in the third
quarter of fiscal 1999. Our "off the shelf" applications have been inventoried
and assessed for compliance. In all instances the applications are compliant,
scheduled for remediation or not critical to the daily operations or decision
support processes. We do not believe that non-compliance of "off the shelf"
applications would materially adversely affect our operations.
Non-Information Technology Systems--Non-information technology systems are
systems that contain embedded technology such as microcontrollers. Our
non-technology systems include security systems, fax machines, elevators and
HVAC systems. Our preliminary assessment of non-information technology indicates
that the non-information technologies do not have embedded date functions for
the models utilized in our corporate and field facilities and, therefore, are
not subject to Year 2000 issues.
Material Third Party Relationships--We have made inquiries of our principal
suppliers and service providers to determine the effect on our business if these
third parties fail to remediate their own Year 2000 issues. These parties
include our joint venture partner that manages the procurement of merchandise
from Asia and our merchandise and business service vendors, such as
telecommunications and credit and processing companies. All principal suppliers
and service providers have been contacted by us to assess compliance efforts and
the risk to us related to Year 2000 issues. These communications were completed
either by direct mail, electronic mail, or researching Year 2000 Internet sites.
We have received replies from approximately 75% of our merchandise vendors, and
each has either provided a statement regarding the status of their compliance or
signed a statement provided by us regarding the status of their compliance.
These communications are retained in our Year 2000 archives in order for us to
monitor the progress these third parties are making to remediate their Year 2000
issues. The assessment of the remaining 25% is in-progress with an expected
completion date of May 1999. We have considered the responses from all of our
service vendors and are in the process of remediating non-compliant systems.
HOW MUCH WILL IT COST TO ADDRESS YEAR 2000 ISSUES?
We have entered into a contract with an external contractor to provide
business solutions for a portion of our efforts to address year 2000 issues. The
scope of the contract includes network, server and desktop remediation at all
corporate facilities and the installation of a point-of-sale upgrade, provided
by STS, our point-of-sale software vendor, at store level. In addition, the
contractor will complete an independent certification of important vendors who
have provided us with Year 2000 letters of compliance to validate risk and cost
estimates. We have assigned one full time employee to manage the Year 2000
project team. The project team is comprised of seven of our employees, each of
whom represents one of our principal business units. The team meets on a weekly
basis to assess our progress and reports on a biweekly basis to our Year 2000
committee which is comprised of several members of executive management.
Through April 3, 1999, we have incurred approximately $5,000 in remediation
costs, exclusive of employee time and effort, associated with Year 2000 issues.
All of these costs relate to upgrades to the STS retail system. We estimate that
an additional $600,000 will be incurred during the remainder of fiscal 1999 to
complete our Year 2000 remediation. The significant components of this cost
includes $100,000 to upgrade our point-of-sale system, $115,000 to remediate our
network hardware, $75,000 for application software remediation, $50,000 for Year
2000 testing of systems and software and $40,000 on vendor supply chain
compliance.
27
<PAGE> 29
WHAT ARE THE POSSIBLE CONSEQUENCES OF YEAR 2000 ISSUES CONFRONTING DAVID'S
BRIDAL?
If STS is unable to remedy non-compliant modules, we will have to process
key business functions with less efficient systems. These key business functions
include the following functions:
- Merchandising
- Finance and Accounting
- Point-of-Sale
- Distribution
- Replenishment
The current point-of-sale system supports the sales and returns of
merchandise, inventory receipts, transfer of merchandise between locations and
price change functions. This information is collected through a nightly polling
process initiated from our corporate data center. The system also supports
credit authorization and settlement processing with our financial settlement
vendors. In the case where the point-of-sale system is not available, we
anticipate that manual processing would be necessary at the store level. In
addition, manual processing and recording of information would be required for
accurate financial reporting. If credit services were not available the store
would initiate manual telephone authorizations and batch settlements. These
efforts would be manually intensive and would result in a delay in daily
financial reporting. The utilization of these manual processes on a broad scale
would substantially disrupt our operations and would involve substantial cost.
The failure to have the new warehouse management system implemented on a
timely basis could disrupt the movement of inventory into and out of our
distribution center and our ability to transfer gowns from store to store. This
could have an adverse effect on our ability to supply merchandise on a timely
basis, and therefore on our revenues. The remediation of our current
distribution system is part of the new warehouse management system project plan
and we would rely on this remediation if the new warehouse management system is
not completed on schedule. We do not believe that difficulties with regard to
our other legacy systems would materially adversely affect our operations.
If our joint venture partner or a large number of our merchandise vendors
are not Year 2000 compliant, our ability to purchase merchandise and take
delivery of merchandise on a timely basis may be materially adversely affected.
If our business service vendors are not Year 2000 compliant, a variety of
functions essential to the operation of our business, such as
telecommunications, could be severely impaired. If our telecommunications and
credit card processing service providers are not Year 2000 compliant on a timely
basis, our operations could be materially adversely affected. If our
telecommunication providers are not compliant, we would be required to migrate
our service to a compliant vendor. If our credit card processor is not
compliant, we would be required to approve and settle credit requests manually.
This may require the imposition of credit limits in the absence of direct
approval by the credit card processor, a highly cumbersome process when applied
to individual sales.
WHAT ARE DAVID'S BRIDAL'S CONTINGENCY PLANS?
Our new distribution system, scheduled for implementation in September
1999, is designed to remediate Year 2000 distribution and allocation system
issues. As a contingency, the project schedule includes a plan to remediate the
current systems.
Remediation of our point-of-sale systems is scheduled for June 1999. Our
contingency plan is to apply additional store staff to process transactions
manually and to use additional staff at our headquarters to ensure accurate
financial reporting. The contingency procedure will be paper based, manually
intensive, slower and more costly.
We have not yet established a contingency plan with respect to
non-compliant STS modules or telecommunications service providers. If, by the
end of the third quarter of fiscal 1999, we determine that a contingency plan is
required with regard to non-compliant STS modules or telecommunications service
providers, we will formulate a contingency plan, which we anticipate will be
completed by the end of the fourth quarter of 1999.
28
<PAGE> 30
INFLATION
We do not believe that inflation has had a material effect on our financial
position or results of operations during the past three years. We cannot predict
what effect inflation will have in the future. Our operating results may be
materially adversely affected by future inflation.
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BUSINESS
OVERVIEW
We are a leading retailer of bridal gowns and bridal-related apparel and
accessories in the United States. We believe that we are the largest bridal
retailer in terms of sales, operating 86 stores in 32 states as of May 13, 1999.
We have created a distinctive shopping experience designed to attract a majority
of potential bridal customers. We provide our customers with excellent value by
offering a broad, in-stock assortment of bridal gowns and bridal-related apparel
at popular prices, together with service that is designed to exceed customers'
expectations.
Our broad in-stock assortments enable us to offer the convenience of
one-stop shopping for the bridal party, including brides, bridesmaids,
mothers-of-the-bride and-groom and flower girls. We also offer a variety of
special occasion dresses and accessories for events such as proms, pageants,
homecomings and other formal affairs. We believe that the breadth and depth of
our in-stock assortments in our primary bridal and bridal-related products far
exceeds those of other bridal retailers. This belief is based upon our knowledge
of the bridal business derived from discussions with manufactures, our principal
suppliers and customers. Our in-house staff coordinates the design and, through
a Hong Kong-based joint venture, procures virtually all of our bridal gowns.
This results in lower product costs and a shorter time period between order and
delivery than we have experienced in the past and allows us to more frequently
update our product assortment. Our merchandising strategy is to target customers
across a wide range of income levels and offer apparel of excellent value at
everyday prices, typically ranging from $99 to $899. We recognize that the
bridal customer expects a higher level of customer service than the typical
retail customer. We seek to exceed our customers' expectations for service by
providing attentive and knowledgeable sales assistance, convenient store design
and extended hours of operation relative to other bridal retailers.
DESCRIPTION OF BRIDAL INDUSTRY
According to the U.S. Department of Health and Human Services, since 1990
there have been an average of approximately 2.3 million marriages per year in
the United States. This number is expected to increase during the next decade,
as the children of the "Baby Boomer" generation reach adulthood. We believe that
a substantial majority of marriages in the United States involve a formal
wedding ceremony.
Demographic surveys indicate that the age of brides is increasing.
According to the U.S. Bureau of the Census, the median age of a bride in the
United States has increased from 21 in 1970 to 27 in 1998. We believe that the
trend towards older brides is continuing and has resulted in an increasing
number of brides paying for some or all of their wedding expenses. As a result,
brides place greater emphasis on value and service.
Based on our research, we believe that a bride typically will spend
approximately $700-800 for her wedding gown. Brides also usually purchase a
headpiece, a slip and other foundation items, as well as accessories such as
shoes and a handbag. The wedding party normally includes four or five
bridesmaids, each of whom usually purchases a dress, shoes, handbag, jewelry and
other accessory items.
We believe the bridal market is highly fragmented, with approximately 7,500
stores nationwide, and estimate that less than five percent of bridal retailers
operate more than one store. We estimate the domestic market for the various
apparel and accessories purchased by brides, bridesmaids and other members of
the bridal party to be in excess of $4 billion per year. Historically, no
retailer has been dominant in the bridal retailing industry.
The manufacture of a bridal gown requires a significant amount of skill and
typically involves more than 100 hours of labor per gown. Due to this high labor
component, most manufacturers contract with independent, locally owned and
operated factories in Asia, predominantly in China, for production of the gown.
The manufacturers sell to bridal retailers which have generally become highly
reliant upon the manufacturers. In order to gain efficiency and reduce costs,
some manufacturers often will not forward
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orders to the factories until they have received a minimum number of orders from
bridal retailers. This delay in order placement and the labor intensive nature
of bridal gown production contributes to the lengthy time period often
experienced between order and receipt of a bridal gown.
We believe that most bridal retailers are considerably smaller than most
bridal manufacturers and do not have significant bargaining power with the
manufacturers. Therefore, manufacturers can often exert a considerable amount of
influence on bridal retailers. Typically, the manufacturers dictate the styles
that will be available to the bridal retailers and require retailers to make a
significant investment in samples of those styles during each selling season.
Typically, bridal wear retailers offer a limited selection of bridal gowns
and bridesmaid dresses and provide samples in only the most common sizes,
typically size 8 or 10. In addition, they carry limited inventory, therefore
customers generally cannot purchase bridal gowns and bridesmaid dresses
"off-the-rack." The customer generally places a substantial deposit for her gown
and waits for an extended period of time, often up to 20 weeks, before the gown
arrives from the manufacturer. As a result, the traditional purchasing process
involves a number of drawbacks for the customer, including the inability of most
bridal customers to try on gowns in their sizes, the wait involved in the
delivery process, and uncertainty relating to the appearance and fit of the
final product. These factors can make the bridal shopping experience time
consuming, inconvenient and stressful.
COMPETITION IN THE BRIDAL INDUSTRY
The high level of service required by bridal customers and the difficulties
of dealing with manufacturers make bridal retailing a challenging business.
Currently, the bridal market can be categorized into four segments:
Bridal Salons--This group includes the largest number of bridal retailers.
Typically, these are single store operations managed by the owner. They offer a
limited number of lines and sizes and generally operate a sample only, special
order business. They may offer a limited selection of off-the-rack dresses. We
believe that many of these operators have limited resources and little influence
with manufacturers over style availability or order delivery times. These stores
often have only limited hours of operation and require appointments. However, we
face competition from bridal salons and other bridal retailers that compete on
the basis of customer service and personalized attention, or that have
established strong reputations within a given community.
Bridal Warehouses--This relatively small group of stores sell limited
assortments including old samples, discontinued styles and manufacturer
overruns. They generally do not offer a full line of in-stock bridal apparel,
although they may special order bridal wear. Store hours are typically more
flexible than bridal salons, although service levels are low and these stores
generally do not accept appointments. We can face competition from bridal
warehouses in terms of prices.
Department Stores--Several department stores offer bridal gowns and
bridesmaid dresses in their own or leased departments and through their
catalogs. These locations generally operate a sample-only, special-order
business and tend to offer higher priced couture merchandise. Bridal department
hours of operation are usually based on typical retail department store hours.
Customer appointments are generally required. We also compete with department
stores that sell through catalogs and that have substantially greater financial
and other resources.
Multi-Store Chains--There are a small number of bridal retail chains
operating two or more stores in a region. These retailers may offer a selection
of off-the-rack merchandise as well as the traditional sample model retailing
offered by bridal salons and department stores. Store hours are generally
flexible and customers may, in most cases, either walk-in or make an
appointment.
Bridesmaid and other special occasion dresses are available at a large
number of retailers, including department stores and specialty dress retailers.
In addition, because the complexity and customization involved in special
occasion garments are usually far less than in bridal wear, customer service
expectations are somewhat lower. However, retailers must devote care to insure
that bridesmaid dresses are uniform in
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style and color for the entire bridal party. Because bridesmaid dresses are
often selected by the bride, her overall satisfaction with the bridal retailer
is a large factor in deciding whether to also purchase the bridesmaid dresses
from the same bridal retailer.
BUSINESS STRATEGY
Our principal strategies are as follows:
Offer a Wide Selection of In-Stock Bridal Apparel
Our customer research reveals that bridal customers value selection more
than any other single attribute in deciding where to shop for their wedding
gowns. As a result, our merchandising strategy is to offer the broadest in-stock
selection of bridal-related apparel. Of our total product assortment,
approximately 225 of our best-selling styles, which we call our core assortment,
are typically featured in our advertising and are maintained in stock, either in
stores or in the distribution center. We believe these styles typically endure
over time and result in less fashion risk and markdown exposure. We also provide
special occasion dresses, headpieces and accessories, including shoes, handbags,
jewelry and gloves to offer one-stop shopping to the entire bridal party. To
meet the needs of additional customers, we are continuing to expand and refine
our assortment in terms of number of styles, silhouettes, fabrics, prices and
sizes.
We produce our gowns under our own private labels, as well as under
exclusive licenses with Gloria Vanderbilt and Oleg Cassini. We maintain a broad
in-stock selection of bridal gowns in many sizes so that customers can often try
on, purchase and take their gowns home on the same day. We believe that this
provides us with a competitive advantage over typical bridal retailers whose
bridal customers often wait up to 20 weeks for delivery of their gowns.
Offer Excellent Everyday Value
Our pricing strategy is to offer our bridal gowns, flower girl, bridesmaid,
mothers-of-the-bride and -groom and other special occasion dresses at everyday
prices equal to or below comparable product offerings of our competitors. We
target customers across a wide range of income levels and offer apparel at
prices typically ranging from $99 to $899. The excellent value of our apparel,
coupled with a wide in-stock selection and high level of customer service, are
key elements of our strategy. We are able to support our pricing strategy while
maintaining attractive margins because we deal directly with the factories that
manufacture the majority of our merchandise.
Control Product Design, Procurement and Distribution
We design and obtain the majority of our merchandise directly from
factories. Based on our in-house design expertise and our direct relationship
with the factories that manufacture our merchandise, we are able to offer our
customers a broad assortment of fashionable styles at popular prices, while
maintaining high quality and fit standards. We have eliminated the middleman and
established relationships with important manufacturers through our Hong Kong
joint venture. This has significantly reduced the cost of our bridal gowns and
related apparel and has shortened the time period between order and delivery
that we have experienced in the past. Currently, the time between order and
delivery is 8-12 weeks. This reduced order lead time enables us to replenish our
merchandise quickly and react swiftly to fashion trends. By controlling the
distribution of our product, we are able to:
- reinforce our brand name, David's Bridal, in the eyes of our customers
- provide a broad in-stock assortment of our products
- control our pricing and flow of goods
- test new products on an ongoing basis
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Emphasize High Levels of Service
We are committed to providing a high level of customer service. We believe
this often leads to establishing an ongoing relationship with our customers and
results in repeat and/or referral purchases. Key elements of our customer
service include the following:
- Attentive and knowledgeable personnel. We recognize that purchasing a
wedding gown is an emotional experience, and that bridal customers expect
a higher level of attentiveness and product knowledge than is typically
provided by other apparel retailers. We understand that it is critical to
have experienced, highly trained employees in this role. Our recruiting
focus is to attract candidates with experience in the retailing of
products requiring significant interaction with the customer, such as
furniture, jewelry and cosmetics. We also provide initial training for
our personnel as well as training on an ongoing basis. Finally, we
regularly monitor service performance and customer satisfaction, and we
have a compensation structure that rewards store management for sales
performance and customer service.
- Convenient store design and hours. Our store design encourages purchases
in a customer friendly environment. Our current prototype, which exists
in over half of our stores, averages approximately 10,000 square feet and
has approximately 30 conveniently located fitting rooms and a central,
well-lit mirrored platform. This prototype presents merchandise in a
highly accessible format and enables us to provide personalized service
and to cross-merchandise related accessories. Our stores are open during
convenient hours, typically seven days a week, including evening hours on
all weekdays. Unlike many bridal retailers who require appointments, we
welcome customers to shop with or without an appointment.
- In-store alterations service. As an added convenience for our customers,
all of our stores, except for two outlet stores, provide an in-store full
service alterations department. This enables us to ensure that gowns and
dresses are well-tailored. The alterations department can also be a
crucial element in the sales process to enhance our relationship with the
customer. We believe that on-site alterations is a significant
competitive advantage because most retailers do not provide this service
on-site.
Open Stores in New and Existing Markets
Our store expansion strategy is to continue our geographic diversification
throughout the United States and to open additional stores in existing markets.
We believe this should create greater access and convenience for our customers
and increase the efficiency of our marketing, distribution and management
expenses. We opened 12 stores in fiscal 1996, 11 stores in fiscal 1997 and 18
stores in fiscal 1998. No stores were closed during this period, other than
relocations within the same market. We plan to open approximately 22 stores in
fiscal 1999 and 22-25 stores in fiscal 2000. As of May 13, 1999, we have already
opened nine of the stores we plan to open in fiscal 1999.
Increase Sales Productivity of Existing Stores
We employ two complementary strategies to increase the productivity of our
existing stores. First, we seek to increase the flow of traffic into our stores
by increasing consumer awareness of our brand. Through our multi-media marketing
strategy and our continuing geographic expansion, we strive to establish David's
Bridal as the dominant national brand name in bridal retailing. In addition, the
bride typically determines where the bridesmaid dresses are purchased. As a
result, we strive to create a favorable experience for the bride. This enhances
our ability to outfit her bridesmaids as well as other members of the bridal
party, and encourages referrals, a significant factor in generating additional
business.
OUR MERCHANDISE ASSORTMENT
We carry an extensive assortment of bridal gowns and other special occasion
dresses, including mother-of-the-bride and -groom, bridesmaid, flower girl and
other dresses. Our average store carries
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approximately 2,600 gowns and dresses including our core assortment plus
numerous other styles. Our non-bridal dresses are often suitable for a variety
of occasions. We also carry a broad assortment of headpieces and other
accessories to satisfy the needs of the bride and the entire bridal party. Our
merchandise is classified in the following merchandise categories:
<TABLE>
<CAPTION>
CATEGORY DESCRIPTION TYPICAL PRICE RANGES
<S> <C> <C>
Bridal Gowns............ Hundreds of styles are available in all stores in $199-$899
sizes 2-26. Gowns represent current fashion trends
as well as traditional looks. Styles range from
simple and elegant to highly embellished. Fabrics
include silk, satin, chiffon, tulle and organza.
Bridesmaid Dresses...... Through both in-store inventory and rapid $99-$250
fulfillment through our distribution center,
customers can select from over 100 styles that
include a variety of colors and fabrics available in
sizes 2-24. An additional special order program is
available for sizes up to 48.
Other Dresses........... A broad assortment of mothers-of-the-bride and $99-$298
-groom and special occasion dresses is available in
sizes 2-24. Fashion trends are represented in both
traditional and seasonal color palates.
Flower Girl Dresses..... A broad assortment of styles is available in sizes $99-$119
2-12. Fabrics include satin, tulle and organza.
Bridal Headpieces....... A broad selection of headpieces, from informal $69-$185
wreaths to long veils, that compliment bridal gown
styles.
Accessories and Gifts... Undergarments (such as slips and bras), bridal and $7-$79
fashion shoes, costume jewelry, gloves, handbags and
wedding gift items (such as candles, wedding books
and disposable cameras).
</TABLE>
To reduce risk, we test our apparel prior to rolling out new products to
gauge customer appeal. We produce gowns under our own private labels, including
Michelangelo, Lady Eleanor, St. Tropez and Santa Monica, as well as under
exclusive licenses from popular fashion designers, Gloria Vanderbilt and Oleg
Cassini. We believe these brands reinforce the exclusivity of our product
offerings and enhance our store brand recognition.
We believe that a crucial component of our success is our ability to
satisfy the needs and preferences of bridesmaids in a timely fashion. Because a
number of bridesmaid dresses of the same style and color are typically sold to a
wedding party, stores may not carry sufficient quantities of bridesmaid dresses
to permit off-the-rack purchases by the entire wedding party. We utilize rapid
fulfillment from our distribution center to ensure that appropriate quantities
and sizes of bridesmaid dresses in matching styles and dye lots can be made
available within a short period of time. If necessary, we can special order
dresses directly from factories with whom we have an established relationship.
This enables members of the bridal party to purchase their bridesmaid dresses at
different stores throughout the country while still ensuring that the dresses
are consistent in style and color. This flexibility helps to improve merchandise
turnover and reduce markdowns.
DEVELOPMENT AND PROCUREMENT OF BRIDAL AND BRIDAL RELATED APPAREL
We control the production process for the majority of our products from
design through distribution. We obtain virtually all of our bridal gowns and
flower girl dresses from overseas manufacturers located principally in Asia.
Our product development staff, together with our merchandising group,
selects the fabrics, silhouettes, colors and price ranges for our designs. Our
in-house design staff interprets industry trends and develops
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exclusive designs for our stores. Unlike most manufacturers which update their
lines only two to three times per year, we design and develop styles for our
customers continually throughout the year.
We do not operate any manufacturing plants. We have established
relationships with important manufacturers through our Hong Kong joint venture.
Our joint venture partner is responsible for identifying the providers of and
for the purchasing of our bridal gowns and for ensuring that manufacturers
adhere to design and other business standards. We select manufacturers based on
their ability to support our growth, meet defined quality and fit standards and
make timely deliveries. These strategic relationships reduce our product costs
and shorten the time between order and receipt. They also enable us to avoid
depending on traditional bridal manufacturers which can dictate the styles,
quantities and order lead times.
For bridesmaids dresses, we either procure the products directly from
factories or purchase them from domestic dress manufacturers. We have
implemented a system for our bridesmaid dresses that monitors and controls the
production process from the acquisition of piece goods through final delivery.
Bridesmaids dresses that are not sourced through this system are purchased from
traditional domestic dress manufacturers.
We purchase other special occasion merchandise and accessories from a
variety of domestic vendors.
STORE DESIGN AND STAFFING
Our store design encourages purchases in a friendly environment. Most of
our stores range in size from 8,000 to 12,000 square feet. Our current
prototype, which exists in over half of our stores, averages approximately
10,000 square feet and has approximately 30 conveniently located fitting rooms
and a central, well-lit mirrored platform. This prototype presents merchandise
in a highly accessible format and enables us to provide personalized service and
to cross merchandise related accessories.
A typical store has 16-18 employees, including:
- a store manager
- an assistant manager
- a lead customer service representative
- an alterations manager
- bridal consultants
- seamstresses
- other support personnel.
We believe that appropriate personnel training is critical to ensure high
levels of customer service expected by purchasers of bridal wear. Accordingly,
we have developed a comprehensive training program for our personnel that is
supported by a training staff located at designated regional training stores.
This training staff focuses on the areas of product knowledge, sales techniques
and key elements of excellent service that we require. Management candidates for
a new store are typically hired approximately three to six months in advance.
During this period, a management candidate is expected to complete our formal
training program. In addition, the candidate is required to spend a considerable
amount of time in a store to gain experience in all facets of operations and
learn selling and management techniques appropriate for our stores. Management
candidates for existing stores must successfully complete a six week training
program before they assume store manager or assistant manager responsibilities.
Supplemental training is provided periodically to managers and assistant
managers.
OUR APPROACH TO CUSTOMER SERVICE
We strive to provide a level of service that exceeds our customers'
expectations. We believe that referrals are a principal source of new customers.
We have found that customers who are pleased with
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their experience are more likely to refer others to our stores. They are also
more likely to consider our stores to satisfy their future special occasion
needs.
Our principal customer service focus is the relationship between the
customer and her bridal consultant. Our bridal consultants typically have
experience in selling items requiring a high degree of interaction with the
customer and have completed our training program. They are expected to be highly
attentive to each customer's needs and to assist them throughout each stage of
the purchase process, from selecting a style to altering their gown. Since the
purchase decision may involve several visits to the store, bridal consultants
place follow-up telephone calls to customers to maintain contact with them and
thereby increase the likelihood of a return visit. After a purchase, bridal
consultants are expected to continue to contact customers to build an ongoing
relationship and enhance our ability to extend sales to the entire bridal party.
Other aspects of our operations underscore our commitment to customer
service. We also facilitate the availability of credit to our customers by
offering qualified customers a credit card from an independent financial
services company. This independent financial services company makes all credit
decisions, assumes all credit risk, processes all charge and credit slips, mails
statements and maintains account information.
LOCATIONS AND EXPANSION
As of May 13, 1999, we operated 86 stores in 32 states. Presently, we lease
84 of these sites and own the other sites. In addition, we have entered into
lease agreements for the opening of 8 new stores. Two of our stores in Texas are
outlet stores.
<TABLE>
<S> <C> <C>
Alabama--1 Louisiana--1 North
Arizona--1 Maine--1 Carolina--3
California--3 Maryland--2 Ohio--5
Colorado--2 Massachusetts--2 Oklahoma--2
Connecticut--2 Michigan--3 Pennsylvania--7
Delaware--1 Minnesota--2 South
Florida--7 Missouri--1 Carolina--1
Georgia--3 Nevada--1 Tennessee--3
Illinois--5 New Jersey--6 Texas--6
Kansas--1 New Mexico--1 Utah--1
Kentucky--1 New York--6 Virginia--4
Wisconsin--1
</TABLE>
In determining store locations, we consider, among other things, the
population in a metropolitan market, marriage rates, household income levels and
the availability of suitable sites. We currently seek locations in high traffic
areas with convenient access to major commercial roads. We typically open stores
in larger strip centers with one or more larger and well-recognized tenants, in
stand-alone locations with high visibility and near regional shopping malls. We
believe that our strategy of selecting highly visible sites enables us to build
additional brand awareness.
The cost of opening a store in fiscal 1998, was approximately $720,000.
This amount includes approximately $260,000 of inventory, approximately $430,000
for leasehold improvements and fixtures, prior to tenant improvement allowances,
if any, and approximately $30,000 for pre-opening expenses. We expense our
pre-opening expenses as they are incurred. Our cost to open new stores will vary
in the future. Our costs will depend on factors such as local construction
expenses, changes in store format and tenant improvement allowances.
We continually evaluate our existing real estate positioning. Based on
demographic trends and shifts in traffic patterns, we may occasionally relocate
stores. In addition, as our store design evolves, some of our older, smaller
stores may be relocated and conformed to our new prototype. Three stores were
relocated in fiscal 1998 and we plan to relocate three stores in 1999.
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Our headquarters are located in Ardmore, Pennsylvania and consist of
approximately 16,000 square feet. We have leased these offices through June
2000. We may move our headquarters to a larger facility within the next 12
months.
We expect to relocate our offices to larger offices within the next 18
months. If we purchase our new offices, we anticipate funding the purchase
through mortgage financing and cash from operations.
OUR MARKETING STRATEGY
We employ a multi-media marketing strategy that uses magazines, television,
radio, newspaper and our internet website. We also actively use our product
catalog, which we make available to walk-in shoppers, mail directly to potential
customers and distribute at bridal fashion shows to reinforce the breadth of our
assortment and to facilitate sales.
Our industry research indicates that many brides-to-be purchase one or more
bridal magazines shortly after becoming engaged. We believe that we are among
the largest advertisers in two of the largest national bridal magazines. Our
extensive advertising in these magazines, which can consist of up to 30 pages
per magazine, enables us to showcase style, variety and value of our
merchandise. We believe that we are the only bridal retailer that advertises on
a national basis in these magazines. We also advertise in regional bridal
magazines in many of our markets. Because of the availability of customer
information and the ease of access to our target market through multi-media, we
are able to deploy our marketing dollars efficiently.
Television and radio advertising supplement our regional efforts. We
generally direct our television advertising to regional markets. In addition,
selected national television advertising is purchased to target audiences of
18-35 year old women. Radio advertising is utilized selectively, particularly in
areas where the cost of television advertising can be very expensive. Our radio
and television advertising further emphasizes our brand and enables us to
advertise special events, grand openings and sales. We believe that this
advertising provides a competitive advantage over most bridal retailers who do
not advertise on radio or television.
We also utilize direct mail to enhance brand awareness and promote select
events. A significant direct mail tool is our product catalog, which is mailed
to targeted lists of recently engaged brides-to-be. We obtain lists of potential
bridal and special occasion customers from our own bridal registry and from
lists that we purchase from regional bridal magazines and other third parties.
We distributed over 500,000 copies of our catalogs in fiscal 1998.
In December 1998, we launched our website, www.davidsbridal.com, which
allows customers to register with us online and subsequently receive information
on upcoming store events. On the website, customers can browse our catalog and
identify our store nearest to them using a state-by-state store locator.
Our public relations efforts are designed to emphasize our leadership role
in the bridal industry. Because we are the only national bridal chain, we are
often called on as an authority on bridal fashion and retailing trends. Our
spokespersons have made many television appearances during which they have
discussed current fashion trends for bridal and special occasion attire.
Additionally, we focus our marketing efforts on community, social,
educational, religious and cultural organizations. We cooperate with these
organizations by participating in local bridal and fashion shows, speaking
engagements on fashion trends and other special events.
DISTRIBUTION AND INVENTORY MANAGEMENT
Our distribution center is located in Conshohocken, Pennsylvania. We leased
a 30,000 square foot distribution center in 1996, which was expanded to 54,000
square feet in 1998. Currently, this facility ships over half of our merchandise
items to our stores, five days a week via third party delivery services. The
remaining merchandise is shipped directly from suppliers to our retail stores.
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Our distribution center utilizes a management information system to inspect
and monitor shipments to our stores. The system facilitates the timely delivery
of store shipments and the accurate accounting and balancing of inventory among
stores. We are typically able to make gowns, dresses and other products that are
not in stock in a particular store available to customers within 3-5 weeks of
purchase, a much shorter time period than the 12-20 weeks that we estimate is
usual in our industry. Once a delivery arrives at a store, inventory items are
inspected, sorted and placed on the selling floor by in-store personnel. We have
been able to reduce the amount of inventory that we must carry at our stores by
using the distribution center to support merchandise replenishment and our rapid
fulfillment program for bridesmaid dresses.
We believe that we will need to continue to increase the use of our rapid
fulfillment program as we expand the breadth of our assortments. Accordingly,
our distribution center will increase in importance as a greater portion of our
sales are fulfilled from inventory in our distribution center. In early 1998, we
completed the development of an inventory replenishment system that is designed
to further improve service levels and turnover in various accessory categories.
This system, which is linked to our distribution center and our merchandise
systems, facilitates the replenishment of merchandise upon sale. During fiscal
1998, this system was used to replenish accessory items. We have recently
expanded the use of this system to replenish our bridal gowns and expect to
further expand the use of this system to replenish other products that are
back-stocked by our distribution center.
We lease our distribution facility under a lease that expires in December
2002. We have the option to renew this lease through December 2005. We believe
that our distribution center, which was expanded in March 1998, will be
sufficient to meet our expected needs for the next two years based on our
current expansion plans. However, we may add an additional distribution center
in another geographic region or require additional space in our current
facility.
MANAGEMENT INFORMATION SYSTEMS
We seek to maintain management information systems that provide high
quality information and that enable us to manage and control our business.
Our operational systems are based on an STS fully integrated retail system.
This system operates in a UNIX environment on an IBM RISC 6000 and supports all
major business functions including sales, purchase order management,
distribution, store transfer, inventory control, merchandise planning and
financial systems. At the store level, we utilize a point-of-sale system that
includes bar code scanning capability, price look-up and dial-up credit
authorization, check authorization and financing authorization. This system also
supports a number of non-sales functions including inventory receipt, store
transfer, markdown notification, return to vendor, UPC look up and style locator
function. Our management information system is integrated among all major
aspects of our business, including sales, warehousing, distribution, purchasing,
inventory control, merchandise planning and replenishment and financial systems.
Stores are polled nightly, which supports the analysis of detailed sales and
merchandise information. Our management information systems have also been
supplemented with systems tailored for us such as our special order and an STS
EnVue systems. EnVue provides a merchandise data warehouse that enables us to
better analyze and improve our merchandise performance.
We are expanding our current hardware and network infrastructure, including
the development of an improved inventory management communications
infrastructure and the creation of data warehouses for store, marketing and
customer information to improve controls and enhance sales and operational
capabilities. We also intend to upgrade our systems to accommodate our planned
marketing strategy and inventory management, including the implementation of a
new warehouse management system. We will also seek to expand our store bridal
registry information to enhance communications with customers and target our
promotions. See "Risk Factors -- If our management information systems are
disrupted or we are not able to effectively upgrade and expand our management
information systems, our profitability, business operations and expansion could
be adversely affected."
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EMPLOYEES
We had a total of approximately 2,200 employees as of April 3, 1999.
Approximately 820 were part-time employees. None of our employees are covered by
collective bargaining agreements. We consider our relations with our employees
to be satisfactory.
LEGAL PROCEEDINGS
We are involved in litigation that we believe ordinarily accompanies a
retail business. A competitor has advised us that it believes that three of our
wedding gown styles infringe the trade dress of, and unfairly compete with,
three of the competitor's gown styles. The competitor has threatened several
actions, including the institution of litigation. We emphatically deny these
allegations and will vigorously defend any legal claims that are asserted by
this competitor. These three styles are not material to our overall product line
or our profitability.
We do not believe that any of our pending or threatened litigation will
result in an outcome that would materially adversely affect our business.
39
<PAGE> 41
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table provides information regarding our directors and
executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Steven H. Erlbaum......................... 50 Chairman of the Board
Robert D. Huth............................ 53 Chief Executive Officer, President and
Director
Philip Youtie............................. 51 Executive Vice President, Bridal Product
Development/Sourcing
Edward S. Wozniak......................... 53 Senior Vice President and Chief Financial
Officer
Marlene Karp.............................. 49 Senior Vice President, General Merchandise
Manager
Susan Zeitz............................... 42 Senior Vice President, Marketing
Kathy L. Kennedy.......................... 43 Senior Vice President, Sales
Fred A. Postelle.......................... 53 Senior Vice President, Human Resources
Gary E. Erlbaum........................... 54 Secretary, Treasurer and Director
Michael C. Erlbaum........................ 53 Director
Robert B. Calhoun, Jr. ................... 56 Director
Steven J. Sidewater....................... 55 Director
Eugene P. Lynch........................... 37 Director
</TABLE>
Prior to this offering, Steven H. Erlbaum served as our Chairman and Chief
Executive Officer. Upon consummation of this offering, Robert D. Huth, who has
been primarily responsible for running our day-to-day operations and has served
as our President and Chief Operating Officer since joining us in 1995, will
become our Chief Executive Officer and President. Steven H. Erlbaum will
continue as our Chairman of the Board and become a consultant to our business.
This will complete a transition that has occurred gradually over the past three
years.
Steven, Gary and Michael Erlbaum are brothers. There are no other family
relationships among the directors and executive officers.
Our articles of incorporation divide our board of directors into three
classes, with each director serving for a three-year term. Eugene P. Lynch and
Steven J. Sidewater are in a class of directors with a term ending at the annual
meeting of shareholders held in 2000. Robert B. Calhoun, Jr., Gary E. Erlbaum
and Michael C. Erlbaum are in a class of directors with a term ending at the
annual meeting of shareholders held in 2001. Robert D. Huth and Steven H.
Erlbaum are in a class of directors with a term ending at the annual meeting of
shareholders held in 2002. To the extent there is an increase in the number of
directors, we will distribute the additional directorships so that, as nearly as
possible, each class will consist of an equal number of directors. We intend to
appoint or elect one additional independent director within 90 days after the
completion of this offering.
Under a stockholders agreement among all of the current shareholders that
terminates upon the completion of this offering, The Clipper Group has
designated three directors, and the remaining shareholders have designated the
other four directors. Messrs. Huth, Calhoun and Lynch have been designated by
The Clipper Group. Steven H. Erlbaum, Michael C. Erlbaum, Gary E. Erlbaum and
Steven J. Sidewater have been designated by the other shareholders.
Our current directors and executive officers, along with their backgrounds,
are as follows:
Steven H. Erlbaum has been our Chairman of the Board and Chief Executive
Officer since 1990 and is a co-founder of David's Bridal. Mr. Erlbaum is also a
private investor in real estate and other private business ventures and was a
founder of Mr. Goodbuys, a chain of home improvement retail stores.
40
<PAGE> 42
Robert D. Huth has been our President, Chief Operating Officer and one of
our directors since July 1995. Mr. Huth has been primarily responsible for
running our day-to-day operations since joining us in 1995. Prior to joining us,
from 1987 to 1995, Mr. Huth was the Executive Vice President and Chief Financial
Officer of Melville Corporation, a specialty retailer operating diversified
businesses. Mr. Huth also served on the Melville Board of Directors. From 1971
to 1987, Mr. Huth practiced accounting at KPMG Peat Marwick where he became a
partner in 1981. Mr. Huth also serves on the board of directors of Stage Stores,
Inc.
Philip Youtie has been our Executive Vice President of Bridal Product
Development/Sourcing since 1990. Mr. Youtie was our co-founder in 1990. Prior to
our founding, Mr. Youtie was President of David's by Minerva, a chain of bridal
shops based in Florida. Mr. Youtie was First Vice President and co-founder of
the Bridal Marketing Association of America and has served on the advisory panel
of Modern Bride magazine.
Edward S. Wozniak has been our Senior Vice President and Chief Financial
Officer since April 1998. Mr. Wozniak was Senior Vice President, Chief
Administrative Officer of Things Remembered, Inc., a subsidiary of Cole National
Corporation, from November 1996 through April 1998. Mr. Wozniak served as Vice
President, Chief Financial Officer and Secretary of Egghead, Inc., a computer
software and hardware provider, from May 1996 to November 1996. From 1990
through April 1996, Mr. Wozniak was employed by Thom McAn Shoe Company, a
division of Melville Corporation, most recently as Senior Vice President and
Chief Financial Officer.
Marlene Karp has been our Senior Vice President, General Merchandise
Manager since July 1996. Previously, Ms. Karp served as General Merchandise
Manager for the retail outlet division of Spiegel, Inc. from June 1995 until
July 1996. Ms. Karp was the Divisional Merchandise Manager for Spiegel's retail
outlet division from September 1993 through June 1995. From March 1989 through
April 1992, Ms. Karp was Divisional Merchandise Manager at Mervyn's.
Susan Zeitz has been Senior Vice President of Marketing at David's Bridal
since February 1998. From June 1996 to February 1998, Ms. Zeitz managed her own
brand marketing consulting company. From 1990-June 1996, Ms. Zeitz was Vice
President of Marketing and New Business Development at The Franklin Mint. From
1988 to 1990, Ms. Zeitz was Director of Marketing at Revlon, Inc. From 1982 to
1988, Ms. Zeitz held several brand marketing and product development positions
at Elizabeth Arden, Inc.
Kathy L. Kennedy has been our Senior Vice President, Sales since January
1996. From 1986 through January 1996, Ms. Kennedy held various positions with
Casual Corner and Group, including Regional Director from 1994 to 1996, Regional
Manager from 1990 to 1994, and District Manager from 1986 to 1990.
Fred A. Postelle has been our Senior Vice President, Human Resources since
July 1998. From September 1995 through July 1998, Mr. Postelle served as a human
resources consultant to us. Prior to joining us, Mr. Postelle served as Senior
Vice President, Human Resources of Woodward & Lothrop/ John Wanamaker in
Washington, D.C. from January 1995 through September 1995. From 1993 to 1995,
Mr. Postelle served as Senior Vice President, Human Resources at Goody's Family
Clothing and from 1990 through 1993, he was Vice President, Corporate Human
Resources at Melville Corporation.
Gary E. Erlbaum has been our Secretary and one of our directors since
August 1992. Since 1983, Mr. Erlbaum has been involved in real estate and other
business ventures. Mr. Erlbaum is also a director and a member of the executive
committee of DBT Online, Inc., an on-line provider of database services. Mr.
Erlbaum also serves as a director of several privately owned companies.
Michael C. Erlbaum has been one of our directors since January 1994. Mr.
Erlbaum has been the President of Floors, USA, a retail floor covering chain,
since 1976. Mr. Erlbaum is also the President of MCE Associates, a real estate
firm.
Robert B. Calhoun, Jr. has been one of our directors since July 1995. Mr.
Calhoun is a founder and has been a Managing Director of Monitor Clipper
Partners, Inc. since its formation in June 1997.
41
<PAGE> 43
Mr. Calhoun also founded The Clipper Group, L.P. in 1990 and has served as its
President since such date. Prior to forming The Clipper Group, Mr. Calhoun was a
Managing Director of Credit Suisse First Boston Corporation, which he had joined
in 1965. Mr. Calhoun also serves on the boards of directors of Avondale
Incorporated, Hvide Marine, Inc., Interstate Bakeries, Inc. and TravelCenters of
America, Inc., as well as several privately-held companies.
Steven J. Sidewater has been one of our directors since August 1992. Mr.
Sidewater is currently President of RP Management, a real estate holding and
management company, a position he has held since June 1991. Mr. Sidewater served
in various capacities at Charming Shoppes, Inc. for approximately 25 years,
including President, Chief Operating Officer and Vice Chairman of the board of
directors from 1988 through 1990.
Eugene P. Lynch was one of the founders of The Clipper Group where he has
been a Managing Director since 1993. Prior to joining The Clipper Group, Mr.
Lynch was a Vice President of Credit Suisse First Boston, which he joined in
1983. Mr. Lynch also serves as a director of AVTEAM, Inc., Owosso Corp.,
TravelCenters of America, Inc. as well as several privately-held companies.
COMMITTEES OF THE BOARD OF DIRECTORS
Our board of directors has a compensation committee comprised of Steven H.
Erlbaum, Steven J. Sidewater and Robert B. Calhoun, Jr. The compensation
committee is responsible for the administration of all salary and incentive
compensation plans for all of our officers, including bonuses and options
granted under our stock option plan. Within 90 days following the consummation
of this offering, we plan to elect an audit committee consisting of at least two
independent directors. It is anticipated that the audit committee will be
responsible for reviewing with our management our financial controls and
accounting and reporting activities. In addition, the audit committee will
review the qualifications of our independent auditors, make recommendations to
our board of directors regarding the selection of independent auditors, review
the scope, fees and results of any audit and review any non-audit services and
related fees.
DIRECTOR COMPENSATION
We will reimburse our directors for out-of-pocket expenses incurred in
connection with their rendering of services as directors. We also intend to pay
cash fees or grant stock options to non-management directors for attendance at
meetings, in such amounts as may be determined by our board of directors from
time to time. In addition, effective upon the consummation of this offering,
Steven H. Erlbaum will continue as Chairman of the Board and become a consultant
to us for a three year term. He will be paid a consulting fee in each of the
first two years of $425,000. In addition, he will receive a fee of $200,000 for
the third year. Gary E. Erlbaum has assisted us, and will continue to assist us,
in bank financing, real estate matters and as a liaison with legal counsel. He
has received aggregate cash compensation of $60,600 in fiscal 1997 and $68,748
in fiscal 1998. We intend to continue compensating Gary E. Erlbaum for his
services.
42
<PAGE> 44
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation paid by
us to our chief executive officer and our four other most highly compensated
executive officers (the "named executive officers") for services rendered to us
during fiscal 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ALL OTHER
ANNUAL COMPENSATION COMPENSATION(a)
------------------------------------------------ ---------------
OTHER ANNUAL
NAME AND POSITION YEAR SALARY($) BONUS($) COMPENSATION($)
<S> <C> <C> <C> <C> <C>
Steven H. Erlbaum.............. 1998 $425,000 $ -- $ -- $ 924
Chairman of the Board and
Chief Executive Officer
Robert D. Huth................. 1998 400,000 -- -- 985
President and Chief Operating
Officer
Philip Youtie.................. 1998 183,000 38,659 -- 518
Executive V.P. Bridal Product
Development/Sourcing
Marlene Karp................... 1998 177,300 45,630 40,470 1,000
Senior V.P., General
Merchandise Manager
Kathy L. Kennedy............... 1998 153,650 39,293 -- 1,000
Senior V.P., Sales
</TABLE>
- ---------------
(a) Represents our contributions for the account of the named executive officers
under the David's Bridal 401(k) Plan and Trust.
Effective on the date of this prospectus, we expect to grant a stock option
to purchase 106,056 shares of our common stock to Steven H. Erlbaum, and a stock
option to purchase 106,056 shares of common stock to Robert Huth, at an exercise
price equal to the price at which shares of our common stock are sold in this
offering. These options will be immediately exercisable. In addition, effective
upon completion of this offering, we expect to grant a stock option to purchase
190,418 shares of our common stock to Robert Huth, at an exercise price equal to
the price at which shares of our common stock are sold in this offering. These
options will vest on the third anniversary of the date of grant.
The following table contains information regarding stock options held at
the end of the last fiscal year end by our Chief Executive Officer and our other
named executive officers, none of whom were granted any stock options in fiscal
1998. The value of unexercised in-the-money options is based upon an assumed
public offering price of $15.50.
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-MONEY
OPTIONS HELD AT JANUARY 2, 1999 OPTIONS AT JANUARY 2, 1999
-------------------------------- ----------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
Steven H. Erlbaum................... -- -- -- --
Robert D. Huth...................... 441,900 -- $4,675,302 --
Philip Youtie....................... -- -- -- --
Marlene Karp........................ 33,879 17,676 $ 318,125 $165,978
Kathy L. Kennedy.................... 51,555 -- $ 484,103 --
</TABLE>
43
<PAGE> 45
STOCK OPTION PLAN
Under our stock option plan, our designated employees or consultants and
non-employee members of our board of directors may receive grants of incentive
stock options and nonqualified stock options. The aggregate number of shares of
our common stock that may be issued under the stock option plan is 2,450,000
shares. As of April 3, 1999, options to purchase 1,401,550 shares were
outstanding under the stock option plan. In addition, effective on the date of
this prospectus, we expect to grant stock options to purchase an aggregate of
762,530 shares of common stock. The maximum number of shares that may be subject
to grants to any individual in 1999 is 330,000 shares, and for future years is
150,000 shares. Employees may receive incentive stock options or nonqualified
stock options and restricted stock under the stock option plan. Non-employee
directors and consultants may receive nonqualified stock options and restricted
stock. If options terminate or expire, or if restricted stock is forfeited the
shares attributable to such grants may again be subject to grants under the
stock option plan. The stock option plan will terminate on September 30, 2005,
unless sooner terminated pursuant to its terms.
The stock option plan is currently administered by the compensation
committee of our board. Grants and other actions by the committee are subject to
ratification by the board of directors.
The option price of an option may be equal to, greater than or less than
the fair market value of a share of common stock on the date of grant, provided
that:
- the option price of an incentive stock option may not be less than the
fair market value of a share of common stock on the date of grant and
- an incentive stock option that is granted to a person who owns more than
10% of our stock or a subsidiary must have an option price of not less than 110%
of the fair market of the common stock on the date of grant.
The committee determines the term of each option, which cannot exceed ten
years from the date of grant. However, an incentive stock option granted to a
10% shareholder may not have a term longer than five years from the date of
grant.
Unless the committee determines otherwise, upon a change of control where
we are not the surviving corporation, outstanding options will be assumed by the
surviving corporation and will continue to vest following the change of control.
In other cases, unless the committee determines otherwise, outstanding grants
will automatically vest in full in the event of a change of control.
Alternatively, in the event of a change of control, the committee may require
that grantees surrender their outstanding options in exchange for payment by us,
in cash or common stock, of an amount equal to the amount by which the fair
market value of the common stock exceeds the option price.
The committee may grant restricted stock with such vesting or other terms
as the committee deems appropriate.
A change of control will be deemed to occur if
- any person acquires securities representing more than 25% of the voting
power of our then outstanding securities or
- shareholders approve an agreement providing for
- a merger or consolidation where our shareholders immediately before
the transaction will not hold, immediately after the transaction, more
than 50% of the stock of the surviving corporation and where,
immediately after the transaction, persons who were our directors
immediately before the transaction do not constitute a majority of the
board of the surviving corporation,
- a sale of substantially all of our assets,
- a liquidation or dissolution of our company,
44
<PAGE> 46
- any person begins a tender offer for 25% or more of our stock or
- directors are elected such that a majority of the directors have been
members of the board for less than two years, unless the election or
nomination of the directors was approved by at least two-thirds of the
directors then in office who were directors at the beginning of the
period.
EMPLOYMENT AND CONSULTING AGREEMENTS
We have entered into an employment agreement with Philip Youtie, effective
on the date of this prospectus. The principal terms of the employment agreement
are as follows:
- Term: two years.
- Base Salary: $200,000 in the first year, $210,000 in the second year.
- Bonus: eligible for an annual bonus in accordance with our bonus plan.
- Severance: in the event of termination of Mr. Youtie by us without cause,
we will continue to pay Mr. Youtie's salary for the lesser of 12 months
or the remaining term of the employment agreement.
Mr. Youtie has also agreed to non-competition and non-solicitation
covenants as set forth in his employment agreement.
We have entered into an employment agreement with Robert D. Huth, effective
upon completion of this offering. The principal terms of the employment
agreement are as follows:
- Term: three years.
- Base Salary: $500,000 per year, subject to annual review by the
Compensation Committee of the board of directors.
- Bonus: eligible to participate in a bonus plan to be adopted by the
Compensation Committee of our board of directors.
- Severance: in the event of termination of Mr. Huth by us without cause,
we will continue to pay Mr. Huth's salary over the 12 months following
termination.
- Options: Mr. Huth will receive options to purchase 190,418 shares of our
common stock, at an exercise price equal to the price at which shares of
our common stock are sold in this offering. These options will vest on
the third anniversary of the date of grant.
Mr. Huth has also agreed to non-competition and non-solicitation covenants
as set forth in his employment agreement.
We have entered into a consulting agreement with Steven H. Erlbaum,
effective upon completion of this offering. The principal terms of the
consulting agreement are as follows:
- Term: three years.
- Base Compensation: $425,000 in the first two years, $200,000 in the third
year.
- Bonus: eligible for a bonus based upon a comparison of actual to budgeted
earnings for 1999.
Steven H. Erlbaum has also agreed to non-competition and non-solicitation
covenants as set forth in his consulting agreement.
45
<PAGE> 47
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SALES OF CLASS D PREFERRED STOCK
On August 15, 1997, pursuant to the terms of a series of subscription
agreements, we sold an aggregate of 686,402 shares of class D preferred stock
for an aggregate purchase price of $5.0 million or $7.25 per share. These shares
were sold to our existing shareholders, including 448,651 shares to The Clipper
Group, an aggregate of 69,842 shares that are beneficially owned by Steven J.
Sidewater, 36,371 shares to Michael C. Erlbaum, 24,317 shares that are
beneficially owned by Gary E. Erlbaum. Each outstanding share of class D
preferred stock will convert upon the consummation of this offering into 1.473
shares of common stock, or an aggregate of 1,011,070 shares of common stock.
MDR ASSOCIATES
In December 1997, we purchased a one-third interest in MDR Associates LLC
("MDR") for $460,000. We borrowed this amount from Gary E. Erlbaum which loan
was evidenced by a demand note that bore interest at 7.75%, and was repaid in
full in January 1998. MDR owns a one-eighth interest in an aircraft. We made
this investment to facilitate travel between our locations. On November 23,
1998, Steven H. Erlbaum and Gary E. Erlbaum repurchased our interest in MDR and
reimbursed us for all expenses relating to MDR paid by us since December 1997.
After such purchase, each of Steven H. Erlbaum, our Chief Executive Officer and
Chairman of the Board, and Gary E. Erlbaum, a director, individually own a
one-half interest in MDR and each is also responsible for one-half of such
expenses allocated to MDR.
STOCK REDEMPTIONS
On March 30, 1996, we redeemed 526,173 shares of our Class A Common Stock
from Steven Erlbaum, for consideration equal to $3.76 per share. On March 30,
1996, we redeemed 271,055 shares of our Class A Common Stock from Gary Erlbaum,
for consideration equal to $3.76 per share, and on October 24, 1996, we redeemed
77,252 shares of our Class A Common Stock from Gary Erlbaum, for consideration
equal to $3.88 per share. On June 11, 1996, we redeemed 225,173 shares of our
Class A Common Stock from Philip Youtie, for consideration equal to $5.33 per
share, and on February 2, 1998 we redeemed 109,555 shares of our Class A Common
Stock from Philip Youtie, for consideration equal to $5.94 per share.
FLOORS USA
During fiscal 1997 and fiscal 1998 we purchased an aggregate of $159,056
and $297,217 in leasehold improvements from Floors USA. Michael C. Erlbaum, is
the controlling shareholder of Floors USA. The terms upon which we purchased
such leasehold improvements from Mr. Erlbaum are no more favorable to Mr.
Erlbaum than those that are available from non-affiliated third-parties.
RELATED PARTY TRANSACTIONS
Our board of directors has adopted a policy that we will not enter into any
related-party transactions unless they are approved by the disinterested members
of our board of directors and are on terms that are representative of the terms
that are available from non-affiliated third-parties.
46
<PAGE> 48
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock by:
- Our chief executive officer, our four other most highly compensated
executive officers and our directors
- Each selling shareholder
- All directors and executive officers as a group
- Each person known to us to own beneficially more than 5% of our
outstanding shares
A person has beneficial ownership of shares if he has the power to vote or
dispose of the shares. This power can be exclusive or shared, direct or
indirect. In addition, a person beneficially owns shares underlying options that
are presently exercisable or will become exercisable within 60 days of the date
of this prospectus.
As of April 23, 1999, there were 9,739,848 shares of our common stock
outstanding and 7,543,817 shares of common stock issuable upon conversion of all
outstanding preferred stock.
To calculate a shareholder's percentage of beneficial ownership, we must
include in the numerator and denominator those shares underlying options
beneficially owned by that shareholder. Options held by other shareholders,
however, are disregarded in this calculation. Therefore, the denominator used in
calculating beneficial ownership among our shareholders may differ.
The table below assumes that the underwriters' have not exercised their
over-allotment option. In addition, the symbol "*" means that the percentage is
less than 1.0%.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP NUMBER OF BENEFICIAL OWNERSHIP
PRIOR TO OFFERING SHARES AFTER OFFERING
-------------------- TO BE SOLD --------------------
NAME SHARES PERCENT* IN THIS OFFERING SHARES PERCENT*
<S> <C> <C> <C> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Steven H. Erlbaum(a).................... 2,894,372 16.6% 1,205,427 1,688,945 8.8%
Philip Youtie(b)........................ 1,533,057 8.9% 343,124 1,189,933 6.2%
Gary E. Erlbaum(c)...................... 2,112,649 12.2% 778,443 1,250,514 6.6%
Michael C. Erlbaum(d)................... 733,404 4.2% 214,551 435,161 2.3%
Robert D. Huth(e)....................... 547,956 3.1% 96,775 451,181 2.3%
Steven J. Sidewater(f).................. 1,036,072 6.0% 411,989 624,083 3.3%
Marlene Karp(g)......................... 33,879 * -- 33,879 *
Kathy L. Kennedy(h)..................... 51,555 * -- 51,555 *
Eugene P. Lynch......................... -- -- -- -- --
Robert B. Calhoun, Jr.(i)............... -- * -- -- --
All executive officers and directors as
a group (10 persons)(j)............... 8,942,944 49.6% 3,050,309 5,725,251 29.1%
FIVE PERCENT HOLDERS
The Clipper Group(k).................... 7,193,615 41.6% 2,457,621 4,735,994 24.9%
</TABLE>
47
<PAGE> 49
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP NUMBER OF BENEFICIAL OWNERSHIP
PRIOR TO OFFERING SHARES AFTER OFFERING
-------------------- TO BE SOLD --------------------
NAME SHARES PERCENT* IN THIS OFFERING SHARES PERCENT*
<S> <C> <C> <C> <C> <C>
OTHER SELLING SHAREHOLDERS
The Vederman Family Partnership......... 518,305 3.0% 206,004 312,301 1.6%
Jon Erlbaum............................. 45,810 * 18,207 27,603 *
Marc Erlbaum............................ 45,810 * 18,207 27,603 *
Daniel Erlbaum(l)....................... 45,810 * 18,207 27,603 *
Michael Moore........................... 97,969 * 38,938 59,031 *
Shelly Shapiro(m)....................... 217,264 1.3% 48,627 168,637 *
Mordechai Kafry(n)...................... 152,388 * 60,567 91,821 *
First Union Corporation................. 489,997 2.8% 194,753 295,244 1.6%
Michael Erlbaum and Gary Erlbaum as
Trustees under the Agreement of Trust
of S.H. Erlbaum(o).................... 193,593 1.1% 83,692 109,901 *
Addwood Limited(p)...................... 225,284 1.3% 89,540 135,744 *
Eileen Rae Winkler Youtie, Custodian for
Haleigh R. Youtie..................... 108,720 * 24,333 84,387 *
Eileen Rae Winkler Youtie, Custodian for
Maxwell Evan Youtie................... 132,288 * 29,608 102,680 *
Andrew Taussig(q)....................... 220,950 1.3% 48,387 172,563 *
</TABLE>
- ------------------------------
(a) Mr. Steven Erlbaum is our Chairman and Chief Executive Officer. His address
is 44 West Lancaster Avenue, Suite 250, Ardmore, Pennsylvania 19003.
Includes currently exercisable options to purchase 106,056 shares of common
stock granted on the date of this prospectus.
(b) Mr. Youtie is our Executive Vice President, Bridal Product Development
Servicing. His address is 44 West Lancaster Avenue, Suite 250, Ardmore,
Pennsylvania 19003. Includes 14,273 shares of common stock held by Philip
Youtie as custodian for Haleigh Youtie, 2,031 shares of common stock held by
Philip Youtie as custodian for Maxwell Youtie. Excludes 108,720 shares of
common stock held by Eileen Youtie as custodian for Haleigh Youtie and
132,288 shares of common stock held by Eileen Youtie as custodian for
Maxwell Youtie. Mr. Youtie disclaims beneficial ownership of the shares held
by Eileen Youtie as custodian for each of Haleigh Youtie and Maxwell Youtie.
Number of shares to be sold in this offering includes 3,194 shares to be
sold by Philip Youtie as custodian for Haleigh Youtie, and 454 shares to be
sold by Philip Youtie as custodian for Maxwell Youtie.
(c) Includes 152,112 shares of common stock, and 35,818 shares of Class D
Preferred Stock held by the Erlbaum Family LP and excludes 137,430 shares
held by Mr. Gary Erlbaum's three children. Mr. Gary Erlbaum is the President
of the general partner of the Erlbaum Family LP. Mr. Gary Erlbaum disclaims
beneficial ownership of the shares held by his children. Includes 193,593
shares of common stock held by Michael Erlbaum and Gary Erlbaum as Trustees
under the Agreement of Trust of S.H. Erlbaum. Includes 450,441 shares of
common stock held by Gary Erlbaum as Trustee for Adam Erlbaum. Mr. Gary
Erlbaum's address is 44 West Lancaster Avenue, Suite 250, Ardmore,
Pennsylvania 19003. Mr. Gary Erlbaum is our Secretary and Treasurer and is a
member of our board of directors. Number of shares to be sold in this
offering includes 74,694 shares to be sold by the Erlbaum Family LP and
194,731 shares to be sold by Gary Erlbaum as Trustee for Adam Erlbaum.
Number of shares sold in this offering does not include 83,692 shares to be
sold by Michael Erlbaum and Gary Erlbaum as Trustees under the Agreement of
Trust of S.H. Erlbaum. Beneficial ownership after the offering includes
109,901 shares of common stock held by Michael Erlbaum and Gary Erlbaum as
Trustees under the Agreement of Trust of S.H. Erlbaum.
(d) Includes 167,922 shares of common stock held by the MCE Family Limited
Partnership. Mr. Michael Erlbaum is the general partner of the MCE Family
Limited Partnership. Includes 193,593 shares of common stock held by Michael
Erlbaum and Gary Erlbaum as Trustees under the Agreement of Trust of S.H.
Erlbaum. Mr. Michael Erlbaum is a member of our board of directors. Number
of shares to be sold in this offering include 66,742 shares to be sold by
MCE Family Limited Partnership. Number of shares to be sold in this offering
does not include 83,692 shares to be sold by Michael Erlbaum and Gary
Erlbaum as Trustees under the Agreement of Trust of S.H. Erlbaum. Beneficial
ownership after the offering includes 109,901 shares of common stock held by
Michael Erlbaum and Gary Erlbaum as Trustees under the Agreement of Trust of
S.H. Erlbaum.
48
<PAGE> 50
(e) Represents 441,900 shares of common stock underlying presently exercisable
options. Also includes currently exercisable options to purchase 106,056
shares of common stock granted on the date of this prospectus. Mr. Huth has
a .155% interest in the shares of our stock owned by The Clipper Group. He
disclaims beneficial interest in the shares owned by The Clipper Group.
(f) Includes (i) 200,099 shares of common stock held by Steven J. Sidewater,
Wendy Sidewater and Peter Sidewater as Trustees of the Grantor Retained
Annuity Trust of Steven J. Sidewater and (ii) 200,099 shares of common stock
held by SPWJ Associates, L.P. Mr. Sidewater is the general partner of SPWJ
Associates, L.P. Includes 36,713 shares of common stock held by the 1998
Irrevocable Deed of Trust of Steven Sidewater for Wendy Sidewater, 36,713
shares of common stock held by the 1998 Irrevocable Deed of Trust of Steven
Sidewater for Peter Sidewater and 516,802 shares of common stock held by the
Nancy Sidewater Agreement of Trust. Includes 1,000 shares of common stock
owned by Janet Sidewater, 1,000 shares of common stock owned by Maurice
Sidewater and 1,000 shares of common stock owned by Catherine Sidewater. Mr.
Sidewater is a member of our board of directors. Number of shares to be sold
in this offering includes 79,530 shares to be sold by Steven J. Sidewater,
Wendy Sidewater and Peter Sidewater as Trustees of the Grantor Retained
Annuity Trust of Steven J. Sidewater, 79,530 shares to be sold by SPWJ
Associates, L.P., 14,591 shares to be sold by the 1998 Irrevocable Deed of
Trust of Steven Sidewater for Wendy Sidewater, 14,591 shares to be sold by
the 1998 Irrevocable Deed of Trust of Steven Sidewater for Peter Sidewater
and 206,004 shares to be sold by the Nancy Sidewater Agreement of Trust.
(g) Represents 33,879 shares of common stock underlying presently exercisable
options. Ms. Karp is our Senior Vice President, General Merchandise Manager.
(h) Represents 51,555 shares of common stock underlying presently exercisable
options. Ms. Kennedy is our Senior Vice President, Sales.
(i) Excludes 7,193,615 shares of common stock held by The Clipper Group. Mr.
Calhoun is the sole shareholder and a director of the ultimate general
partner of The Clipper Group and is deemed to beneficially own all shares of
common stock beneficially owned by The Clipper Group. Mr. Calhoun is a
member of our board of directors.
(j) Includes 739,446 shares of common stock underlying presently exercisable
options.
(k) Includes shares beneficially owned by Clipper/Merchant Partners, L.P.,
Clipper Equity Partners I, L.P., Clipper/ Merban, L.P., and Clipper Capital
Associates, L.P. and Clipper/European Re, L.P. The address for each of these
entities is 650 Madison Avenue, New York, New York 10022. Clipper Capital
Associates, L.P. is the general partner of all of The Clipper Group
partnerships. The general partner of Clipper Capital Associates, L.P. is
Clipper Capital Associates, Inc. Robert B. Calhoun is the sole shareholder
and a director of Clipper Capital Associates, Inc. As a result, each of Mr.
Calhoun, Clipper Capital Associates, L.P. and Clipper Capital Associates,
Inc. is deemed to beneficially own all shares of common stock beneficially
owned by The Clipper Group.
(l) Mr. Daniel Erlbaum is employed by us.
(m) Mr. Shapiro is employed by us.
(n) Mr. Kafry is a principal owner of Addwood Limited, our Hong Kong joint
venture partner.
(o) 193,593 shares owned prior to this offering by Gary Erlbaum and Michael
Erlbaum as Trustees under the Agreement of Trust of S.H. Erlbaum are also
included in the beneficial ownership table for each of Gary Erlbaum and
Michael Erlbaum.
(p) Addwood Limited is our Hong Kong joint venture partner.
(q) Includes 220,950 shares of common stock underlying presently exercisable
options. Mr. Taussig has a .188% interest in the shares of our stock owned
by The Clipper Group. He disclaims beneficial interest in the shares owned
by The Clipper Group.
49
<PAGE> 51
DESCRIPTION OF CAPITAL STOCK
The following summarizes the terms of our common stock you will receive in
this offering. Please read our Articles of Incorporation, which are included as
an exhibit to the Registration Statement of which this prospectus is a part.
OUR AUTHORIZED CAPITAL STOCK
- 100 million shares of common stock, par value $0.01 per share;
- 5 million shares of preferred stock, par value $0.01 per share;
- Immediately after the sale of the shares of common stock in this
offering, we will have 19,041,827 shares of common stock outstanding and
no shares of preferred stock outstanding.
COMMON STOCK
Voting:
- One vote for each share held of record on all matters submitted to a vote
of shareholders;
- No cumulative voting rights;
- Election of directors by plurality of votes cast; and
- All other matters by majority of the votes cast.
Dividends:
- Subject to preferential dividend rights of outstanding shares of
preferred stock, common shareholders are entitled to receive ratably
declared dividends; and
- The Board may only declare dividends out of legally available funds.
Additional Rights:
- Subject to the preferential liquidation rights of outstanding shares of
preferred stock, common shareholders are entitled to receive ratably net
assets (available after payment of debts and other liabilities) upon our
liquidation, dissolution or winding up;
- No preemptive rights;
- No subscription rights;
- No redemption rights;
- No sinking fund rights; and
- No conversion rights.
The rights and preferences of common shareholders are subject to the rights of
any class of preferred stock we may issue in the future.
PREFERRED STOCK
By resolution of our board of directors, we may, without any further vote
or action by our shareholders, authorize and issue, subject to limitations
prescribed by law, an aggregate of 5 million shares of preferred stock. The
preferred stock may be issued in one or more classes or class. With respect to
any classes or class, the Board may determine the designation and the number of
shares, preferences, limitations and special rights, including dividend rights,
conversion rights, voting rights, redemption rights and liquidation preferences.
Because of the rights that may be granted, the issuance of preferred stock may
delay, defer or prevent a change of control.
50
<PAGE> 52
Prior to this offering, we had 171,792 shares of Class A preferred stock,
114,104 shares of Class B preferred stock, 114,104 shares of Class C preferred
stock and 686,402 shares of Class D preferred stock issued and outstanding. Upon
the consummation of this offering, all of our outstanding shares of preferred
stock will be subject to mandatory conversion, into an aggregate of 7,543,817
shares of common stock.
FLORIDA ANTI-TAKEOVER LAWS AND PROVISIONS OF OUR ARTICLES OF INCORPORATION
The provisions of the Florida Business Corporation Act and our Articles of
Incorporation, which are described below, could make it more difficult for a
third party to acquire control of us, even if such change of control would be
beneficial to the shareholders.
Section 607.0901 of the Florida Business Corporation Act generally requires
that, in merger, consolidation, specified asset sales or other specified
transactions between an "interested shareholder" (or an affiliate of the
interested shareholder) and a Florida public corporation, all of the
shareholders receive an amount equal to the greater of:
1) the highest price per share, including brokerage commissions and
other specified fees, paid by the interested shareholder for any shares
acquired by it (the "Highest Per Share Price") within the two-year period
immediately preceding the date on which it became an interested shareholder
or the announcement date of the transaction, whichever is higher;
2) the fair market value per share on the date on which it became an
interested shareholder or the announcement date of the transaction,
whichever is higher, or
3) the fair market value per share determined under (2) above,
multiplied by the ratio of the Highest Per Share Price within the two year
period immediately preceding the announcement date of the transaction to
the fair market value per share on the date of the interested shareholder's
first share acquisition during such two year period.
An "interested shareholder" is generally defined as a person that owns more than
10 percent of the voting shares of a corporation. The "fair market value" per
share generally means the highest closing sale price during the immediately
preceding 30-day period. The fair price provisions do not apply:
1) to a transaction approved by two-thirds of the shareholders other
than the interested shareholder;
2) to a transaction approved by a majority of the directors who are
not affiliated with the interested shareholder;
3) to a corporation which has not had more than 300 shareholders of
record at any time during the preceding three years;
4) if the interested shareholder has owned at least 80 percent of the
outstanding shares for at least five years; or
5) if the interested shareholder owns at least 90 percent of the
outstanding shares other than shares acquired from the corporation.
Section 607.0902 of the Florida Business Corporation Act generally provides
that, in the event any person acquires a control share, which is defined as 20
percent or more of the outstanding voting shares of a Florida public
corporation, all of the shares acquired by the acquiror within 90 days before
and after the date on which the acquiror reached the 20 percent threshold will
not have voting rights, unless the remaining disinterested shareholders approve
voting rights for such shares by a majority vote at a special meeting called for
that purpose. In addition to the 20 percent threshold, a control share
acquisition also takes place when an acquiror acquires 33 1/3 percent and 50
percent of the voting shares of a corporation. Among other things, the voting
disqualification provisions do not apply to:
1) the acquisition of shares of a corporation which has been approved
in advance by the board of directors of the corporation;
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<PAGE> 53
2) a merger or share exchange effected in compliance with the Florida
corporate laws; or
3) a corporation with neither 10 percent of its shareholders resident
in Florida, 10 percent of its shares owned by Florida residents nor 1,000
shareholders resident in Florida.
If the control shares are a majority of the outstanding shares and are accorded
full voting rights by the disinterested shareholders, all of the disinterested
shareholders will have dissenters' rights to receive in cash from the
corporation the fair value of their shares. Fair value of the shares cannot be
less than the highest price paid per share by the acquiror in the control share
acquisition.
Our Articles of Incorporation provide that shareholders may call special
meetings of the shareholders only if the holders of at least 20 percent of all
votes entitled to be cast on any issue proposed to be considered at the meeting
make a demand. In addition, the Articles of Incorporation provide that
shareholders must act at a meeting and not by written consent. The Articles of
Incorporation also provide for a classified board. See "Management--Executive
Officers and Directors".
REGISTRATION RIGHTS
Following completion of the offering, holders of 11,041,827 shares of
common stock, including The Clipper Group, Steven H. Erlbaum, Gary E. Erlbaum,
Philip Youtie, Michael C. Erlbaum and Steven J. Sidewater, will have demand or
piggyback registration rights. These rights are provided under the terms of
agreements between us and the holders of such securities. Such agreements
provide, in specific instances, demand registration rights. In particular, the
Clipper Group may demand that we register their shares on not more than three
occasions, in which event the holders of all shares of common stock and
preferred stock prior to the offering would have specific rights to participate
in the registration. In addition, pursuant to these agreements, the holders are
entitled, subject to specific limitations, to require us to include their
registrable securities in future registration statements we file under the
Securities Act of 1933. The holders of all outstanding shares of common stock on
the date of this prospectus have specific piggyback registration rights, subject
to reduction in the discretion of an underwriter. Registration of shares of
common stock pursuant to the exercise of demand registration rights or piggyback
registration rights would result in such shares becoming freely tradable without
restriction under the Securities Act of 1933 immediately upon the effectiveness
of such registration and may adversely affect our stock price.
TRANSFER AGENT
The transfer agent for our common stock is The Bank of New York.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market
following this offering could adversely affect the market price of our common
stock and adversely affect our ability to raise capital at a time and on terms
favorable to us.
Of the 19,041,827 shares to be outstanding after this offering (assuming
that the underwriters do not exercise their over-allotment option), the
8,000,000 shares of common stock offered hereby will be freely tradeable without
restriction in the public market unless such shares are held by "affiliates," as
that term is defined in Rule 144 under the Securities Act of 1933. The remaining
shares of common stock to be outstanding after this offering are "restricted
securities" under the Securities Act of 1933 and may be sold in the public
market under Rule 144, subject to the manner of sale and other limitations of
Rule 144.
In addition, as of April 3, 1999, there were options to purchase 1,401,550
shares of common stock, of which 939,038 options were fully vested and
exercisable. An additional 1,048,450 shares were reserved for issuance under our
stock option plan, of which options to purchase 762,530 shares are being granted
on or prior to the completion of this offering. We intend to register the shares
of common stock issued, issuable or reserved for issuance under the plan
following the date of this prospectus.
52
<PAGE> 54
Following completion of the offering, holders of 11,041,827 shares of
common stock are entitled to registration rights with respect to such shares for
resale under the Securities Act. If such holders, by exercising their
registration rights, cause a large number of shares to be registered and sold in
the public market, will likely cause an adverse effect on the market price for
our common stock. These registration rights may not be exercised prior to the
expiration of 180 days from the date of this prospectus. See "Description of
Capital Stock--Registration Rights."
LOCK-UP ARRANGEMENTS
Along with our officers and directors and all of the holders of the
preferred stock we have agreed not to sell or otherwise dispose of any shares of
common stock for a period of 180 days after the date of this prospectus without
the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation.
After the completion of this offering, we intend to file a registration
statement on Form S-8 under the Securities Act to register all shares of common
stock reserved for issuance under our stock option plan.
53
<PAGE> 55
UNDERWRITING
Subject to the terms and conditions of an underwriting agreement dated
, 1999 the underwriters named below, who are represented by
Donaldson, Lufkin & Jenrette Securities Corporation and, Legg Mason Wood Walker,
Incorporated have severally agreed to purchase from us and the selling
shareholders the respective number of shares set forth opposite their names
below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.........
Legg Mason Wood Walker, Incorporated........................
---------
TOTAL............................................. 8,000,000
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares included in this
offering are subject to approval of legal matters by their counsel and to other
specified conditions. The underwriters are obligated to purchase and accept
delivery of all the shares (other than those shares covered by the
over-allotment option described below) if they purchase any of the shares.
The underwriters initially propose to offer some of the shares directly to
the public at the public offering price set forth on the cover page of this
prospectus and some of the shares to dealers at the public offering price less a
concession not in excess of $ per share. The underwriters may allow, and
such dealers may re-allow, a concession not in excess of $ per share on
sales to other dealers. After the initial offering of the shares to the public,
the representatives may change the public offering price and such concessions at
any time without notice.
We and the selling shareholders have granted the underwriters an option,
exercisable for 30 days from the date of this prospectus, to purchase, from time
to time, in whole or in part, up to 1,200,000 additional shares at the public
offering price less the underwriting fees. The underwriters may exercise such
option solely to cover overallotments, if any, made in connection with this
offering. To the extent that the underwriters exercise such option, each
underwriter will become obligated, subject to specified conditions, to purchase
a number of additional shares approximately proportionate to such underwriter's
initial purchase commitment.
The following table shows the underwriting fees to be paid to the
underwriters by us and the selling shareholders in connection with this
offering. These amounts are shown assuming both no exercise and full exercise of
the underwriters' option to purchase additional shares of common stock.
<TABLE>
<CAPTION>
PAID BY THE COMPANY PAID BY SELLING STOCKHOLDERS
---------------------------- ----------------------------
NO EXERCISE FULL EXERCISE NO EXERCISE FULL EXERCISE
<S> <C> <C> <C> <C>
Per Share.................................. $ $ $ $
Total...................................... $ $ $ $
</TABLE>
We and the selling shareholders have agreed to indemnify the underwriters
against specified civil liabilities, including liabilities under the Securities
Act of 1933, or to contribute to payments that the underwriters may be required
to make in respect of any of those liabilities.
The underwriters have reserved for sale, at the initial public offering
price, up to 400,000 shares of the common stock for employees, directors and
other persons associated with us who have expressed an interest in purchasing
such shares of common stock in this offering. The number of shares of common
stock available for sale to the general public in this offering will be reduced
to the extent such persons purchase the reserved shares. Any reserved shares not
so purchased will be offered by the underwriters to the general public on the
same terms as the other shares offered hereby.
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<PAGE> 56
DLJdirect Inc., an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation and a member of the selling group, is facilitating the distribution
of the shares sold in this offering over the Internet. The underwriters have
agreed to allocate a limited number of shares to DLJdirect Inc. for sale to
brokerage account holders.
We estimate that expenses of the offering will total $1,300,000.
We and our executive officers and directors and several of our shareholders
who are the selling shareholders have agreed that, subject to some exceptions
for a period of 180 days from the date of this prospectus, they will not,
without the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, any shares of common stock or any securities convertible into
or exercisable or exchangeable for common stock;
- purchase any option or contract to sell, any shares of common stock or
any securities convertible into or exercisable or exchangeable for common
stock;
- grant any option, right or warrant to purchase or otherwise transfer or
dispose of, directly or indirectly, any shares of common stock or any
securities convertible into or exercisable or exchangeable for common
stock;
- enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of any common
stock (regardless of whether any of the transactions described above is
to be settled by the delivery of common stock, or such other securities,
in cash or otherwise).
In addition, during such period, we have also agreed not to file any
registration statement with respect to, and each of our executive officers and
directors and several of our shareholders (including the selling shareholders)
have agreed not to make any demand for, or exercise any right with respect to,
the registration of any shares of common stock or any securities convertible
into or exercisable or exchangeable for common stock without the prior written
consent of Donaldson, Lufkin & Jenrette Securities Corporation.
Our common stock has been approved for listing on the Nasdaq National
Market under the symbol "DABR".
This offering is being conducted in accordance with Rule 2710 of the
Conduct Rules of the NASD ("Rule 2710"), which requires that a "qualified
independent underwriter" meeting certain standards (a "QIU") recommend a maximum
price per share of common stock under certain circumstances. In accordance with
this requirement, Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ")
has assumed the responsibilities of acting as QIU and has recommended a maximum
price per share of common stock in compliance with the requirements of Rule
2710. In connection with the offering, DLJ has performed due diligence
investigations and reviewed and participated in the preparation of this
prospectus and the registration statement of which this prospectus forms a part.
As compensation for the services of DLJ as QIU, the Company has agreed to pay
DLJ $2,500.
The representatives of the underwriters have advised us that the
underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
Other than in the United States, no action has been taken by us, the
selling shareholders or the underwriters that would permit a public offering of
the shares of common stock included in this offering in any jurisdiction where
action for that purpose is required. The shares included in this offering may
not be offered or sold, directly or indirectly, nor may this prospectus or any
other offering material or advertisement in connection with the offer and sale
of any such shares be distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable rules and
regulations of such jurisdiction. Persons who receive this prospectus are
advised to inform themselves about and to observe any restrictions relating to
this offering and the distribution of this prospectus. This prospectus is not an
offer to sell or a solicitation of an offer to buy any shares of common stock
included in this offering in any jurisdiction where that would not be permitted
or legal.
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<PAGE> 57
In connection with this offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
common stock. Specifically, the underwriters may overallot this offering,
creating a syndicate short position. In addition, the underwriters may bid for
and purchase shares of common stock in the open market to cover such syndicate
short position or to stabilize the price of the common stock. These activities
may stabilize or maintain the market price of the common stock above independent
market levels. The underwriters are not required to engage in these activities,
and may end any of these activities at any time.
PRICING OF THIS OFFERING
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for our common stock was
determined by negotiation among us, the selling shareholders and the
representatives of the underwriters. Among the factors considered in determining
the public offering price were:
- prevailing market conditions;
- our results of operations in recent periods;
- the present stage of our development;
- the market capitalization and stages of development of other companies
which the representatives of the underwriters believe to be comparable
to us; and
- estimates of our business potential.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania and Miami, Florida.
Certain legal matters in connection with this offering will be passed upon for
the Underwriters by Davis Polk & Wardwell, New York, New York.
EXPERTS
Our consolidated financial statements as of January 3, 1998 and January 2,
1999 and for the fiscal years ended January 4, 1997, January 3, 1998 and January
2, 1999, included in this prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said report.
AVAILABLE INFORMATION
This prospectus constitutes a part of a registration statement on Form S-1
filed by us with the Commission under the Securities Act, with respect to the
securities offered in this prospectus. This prospectus does not contain all the
information which is in the registration statement. Certain parts of the
registration statement are omitted as allowed by the rules and regulations of
the Commission. We refer to the registration statement and to the exhibits to
such registration statement for further information with respect to us and the
securities offered in this prospectus. Statements contained in this prospectus
concerning the provisions of documents are necessarily summaries of the material
provisions of such documents, and each statement is qualified in its entirety by
reference to the copy of the applicable document filed with the Commission.
Copies of the registration statement are on file at the offices of the
Securities and Exchange Commission and may be inspected without charge at the
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549, and
copies of the registration statement may be obtained from the Public Reference
Section of the Commission upon payment of the fee prescribed by the Commission.
Information on David's Bridal can be obtained from the Public Reference Room by
calling 1-800-SEC-0330. The Commission maintains a Web site that contains all
information filed electronically by us, including reports, proxy and information
statements. The address of the Commission's Web site is (http://www.sec.gov).
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<PAGE> 58
We intend to list our common stock on the Nasdaq National Market. Reports,
proxy statements and other information concerning us can be inspected at: the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
REPORTS TO SECURITY HOLDERS
We intend to distribute to our shareholders annual reports containing
audited financial statements and will make available copies of our quarterly
reports for the first three quarters of each fiscal year containing unaudited
interim financial information.
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<PAGE> 59
DAVID'S BRIDAL, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report Of Independent Public Accountants.................... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements Of Operations....................... F-4
Consolidated Statements Of Redeemable Common Stock And
Shareholders' Equity...................................... F-5
Consolidated Statements Of Cash Flows....................... F-6
Notes To Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 60
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To David's Bridal, Inc.:
We have audited the accompanying consolidated balance sheets of David's
Bridal, Inc. (a Florida corporation) and subsidiaries as of January 3, 1998 and
January 2, 1999, and the related consolidated statements of operations,
redeemable common stock and shareholders' equity and cash flows for each of the
three years in the period ended January 2, 1999. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of David's Bridal, Inc. and
subsidiaries as of January 3, 1998 and January 2, 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
January 2, 1999 in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Philadelphia, Pa.
February 10, 1999 (except for the items
discussed in Note 2, as to
which the date is April 23, 1999)
F-2
<PAGE> 61
DAVID'S BRIDAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PROFORMA
APRIL 3,
JANUARY 3, JANUARY 2, APRIL 3, 1999
1998 1999 1999 (SEE NOTE 2)
---------- ---------- ----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 464 $ 320 $ 1,946 $ 1,946
Accounts receivable....................................... 1,468 2,423 2,396 2,396
Inventories............................................... 32,452 37,799 35,339 35,339
Prepaid expenses and other assets......................... 1,929 2,323 2,301 2,301
Deferred tax asset........................................ 296 -- -- --
---------- ---------- ----------- ------------
Total current assets................................ 36,609 42,865 41,982 41,982
---------- ---------- ----------- ------------
PROPERTY AND EQUIPMENT, net................................. 15,581 20,650 23,776 23,776
---------- ---------- ----------- ------------
DEFERRED TAX ASSET.......................................... 616 1,066 1,066 1,066
---------- ---------- ----------- ------------
OTHER ASSETS, net of accumulated amortization of $36, $79,
$103 and $103, respectively............................... 893 977 1,418 1,418
---------- ---------- ----------- ------------
$ 53,699 $ 65,558 $ 68,242 $ 68,242
========== ========== =========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdrafts........................................... $ 3,003 $ 4,033 $ 3,881 $ 3,881
Current portion of capitalized lease obligations.......... 126 134 251 251
Current portion of long-term debt......................... 551 147 150 150
Accounts payable.......................................... 4,394 6,070 6,658 6,658
Accrued expenses.......................................... 3,985 4,837 9,895 9,895
Income taxes payable...................................... 745 355 2,366 2,366
Deferred tax liabilities.................................. -- 236 236 236
---------- ---------- ----------- ------------
Total current liabilities........................... 12,804 15,812 23,437 23,437
---------- ---------- ----------- ------------
DEFERRED RENT............................................... 2,430 2,861 3,023 3,023
---------- ---------- ----------- ------------
CAPITALIZED LEASE OBLIGATIONS, net of current portion....... 415 281 752 752
---------- ---------- ----------- ------------
LONG-TERM DEBT.............................................. 15,916 19,366 9,222 9,222
---------- ---------- ----------- ------------
COMMITMENTS AND CONTINGENCIES (NOTE 13)
REDEEMABLE COMMON STOCK..................................... 628 -- -- --
---------- ---------- ----------- ------------
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value 5,000,000 shares
authorized, none issued or outstanding, proforma........ -- -- -- --
Convertible Preferred stock, liquidation value $33,977 at
January 2, 1999 and April 3, 1999....................... 11 11 11 --
Common stock--
Common Stock, $.01 par value, 100,000,000 shares
authorized, 17,283,665 issued and outstanding,
proforma.............................................. -- -- -- 173
Class A, $.01 par value, 16,250,000 shares authorized,
9,849,403, 9,739,848 and 9,739,848 shares issued and
outstanding........................................... 98 97 97 --
Class B, $.01 par value, 1,500,000 shares authorized,
none issued or outstanding............................ -- -- -- --
Class C, $.01 par value, 3,750,000 shares authorized,
none issued or outstanding............................ -- -- -- --
Additional paid-in capital................................ 18,304 18,282 18,282 18,217
Retained earnings......................................... 3,093 8,848 13,418 13,418
---------- ---------- ----------- ------------
21,506 27,238 31,808 31,808
---------- ---------- ----------- ------------
$ 53,699 $ 65,558 $ 68,242 $ 68,242
========== ========== =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-3
<PAGE> 62
DAVID'S BRIDAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THIRTEEN WEEKS
FISCAL YEAR ENDED ENDED
-------------------------------------- --------------------
JANUARY 4, JANUARY 3, JANUARY 2, APRIL 4, APRIL 3,
1997 1998 1999 1998 1999
---------- ---------- ---------- -------- --------
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
REVENUES:
Net sales...................................... $62,836 $85,381 $123,540 $35,628 $54,087
Other income................................... 4,188 6,228 9,062 1,969 2,717
------- ------- -------- ------- -------
Total revenues............................. 67,024 91,609 132,602 37,597 56,804
COST OF SALES, including buying, distribution
and occupancy costs.......................... 40,737 52,882 74,611 20,136 28,969
------- ------- -------- ------- -------
Gross profit............................... 26,287 38,727 57,991 17,461 27,835
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES... 26,424 33,702 47,571 12,532 20,191
------- ------- -------- ------- -------
INCOME (LOSS) FROM OPERATIONS.................. (137) 5,025 10,420 4,929 7,644
INTEREST EXPENSE, net.......................... 586 1,249 1,087 309 272
------- ------- -------- ------- -------
Income (loss) before income taxes.......... (723) 3,776 9,333 4,620 7,372
INCOME TAX PROVISION (BENEFIT)................. (208) 1,296 3,578 1,797 2,802
------- ------- -------- ------- -------
NET INCOME (LOSS).............................. $ (515) $ 2,480 $ 5,755 $ 2,823 $ 4,570
======= ======= ======== ======= =======
Net income (loss) per common share:
Basic........................................ $ (0.05) $ 0.25 $ 0.59 $ 0.29 $ 0.47
======= ======= ======== ======= =======
Diluted...................................... $ (0.05) $ 0.14 $ 0.31 $ 0.15 $ 0.25
======= ======= ======== ======= =======
Weighted average shares outstanding:
Basic........................................ 10,207 9,849 9,751 9,784 9,740
Diluted...................................... 10,207 17,472 18,375 18,359 18,614
Pro forma basic earnings per common share
(unaudited) (Note 2)......................... $ 0.33 $ 0.26
======== =======
Pro forma basic weighted average number of
shares outstanding (unaudited) (Note 2)...... 17,295 17,284
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE> 63
DAVID'S BRIDAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF REDEEMABLE COMMON STOCK AND SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY
REDEEM- --------------------------------------------------------------------------
ABLE PREFERRED STOCK COMMON STOCK ADDITIONAL
COMMON ------------------ ------------------- PAID-IN RETAINED
STOCK SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL
------- --------- ------ ---------- ------ ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 30, 1995....... $7,744 400,000 $ 4 10,949,056 $109 $10,708 $ 1,128 $11,949
Purchase of Redeemable Common
stock........................ (4,500) -- -- (1,099,653) (11) 11 -- --
Accretion of Common stock
redemption value............. 363 -- -- -- -- (363) -- (363)
Net loss....................... -- -- -- -- -- -- (515) (515)
------ --------- --- ---------- ---- ------- ------- -------
BALANCE, JANUARY 4, 1997......... 3,607 400,000 4 9,849,403 98 10,356 613 11,071
Sale of preferred stock........ -- 686,402 7 -- -- 4,969 -- 4,976
Modification of Common stock
redemption agreement......... (3,120) -- -- -- -- 3,120 -- 3,120
Accretion of Common stock
redemption value............. 141 -- -- -- -- (141) -- (141)
Net income..................... -- -- -- -- -- -- 2,480 2,480
------ --------- --- ---------- ---- ------- ------- -------
BALANCE, JANUARY 3, 1998......... 628 1,086,402 11 9,849,403 98 18,304 3,093 21,506
Purchase of Redeemable Common
stock........................ (651) -- -- (109,555) (1) 1 -- --
Accretion of Common stock
redemption value............. 23 -- -- -- -- (23) -- (23)
Net income..................... -- -- -- -- -- -- 5,755 5,755
------ --------- --- ---------- ---- ------- ------- -------
BALANCE, JANUARY 2, 1999......... -- 1,086,402 11 9,739,848 97 18,282 8,848 27,238
Net income (unaudited)......... -- -- -- -- -- -- 4,570 4,570
------ --------- --- ---------- ---- ------- ------- -------
BALANCE, APRIL 3, 1999
(UNAUDITED).................... $ -- 1,086,402 $11 9,739,848 $ 97 $18,282 $13,418 $31,808
====== ========= === ========== ==== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE> 64
DAVID'S BRIDAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THIRTEEN WEEKS
FISCAL YEAR ENDED ENDED
------------------------------------ -------------------
JANUARY 4, JANUARY 3, JANUARY 2, APRIL 4, APRIL 3,
1997 1998 1999 1998 1999
---------- ---------- ---------- -------- --------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................ $ (515) $ 2,480 $ 5,755 $ 2,823 $ 4,570
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities--
Depreciation and amortization.......................... 1,393 2,022 2,896 645 887
Amortization of debt issuance costs.................... -- 74 42 22 15
Provision for deferred rent............................ 645 782 431 126 161
Loss on sale or disposal of property and equipment..... 70 8 144 77 --
Equity income in affiliate............................. -- -- (166) (25) (50)
Deferred income taxes.................................. (33) (479) 82 -- --
Changes in assets and liabilities--
(Increase) decrease in--
Accounts receivable.................................. (247) (116) (955) (52) 27
Prepaid expenses and other assets.................... (930) 375 (780) (172) (510)
Inventories.......................................... 168 (12,204) (5,347) 1,381 2,460
Increase (decrease) in--
Accounts payable..................................... 1,585 816 1,676 (834) 588
Accrued expenses..................................... (27) 1,668 852 2,013 5,058
Income taxes payable................................. (41) 785 (390) 366 2,011
-------- -------- -------- ------- --------
Net cash provided by (used in) operating
activities......................................... 2,068 (3,789) 4,240 6,370 15,217
-------- -------- -------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures..................................... (4,931) (7,470) (8,105) (2,121) (3,361)
(Investment in) distribution from affiliate.............. -- (460) 460 -- 170
-------- -------- -------- ------- --------
Net cash used in investing activities................ (4,931) (7,930) (7,645) (2,121) (3,191)
-------- -------- -------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt................. 1,086 -- 1,400 -- --
Repayments of long-term debt and capital leases.......... (40) (203) (680) (516) (105)
Borrowings on revolving credit agreement................. 25,804 42,356 41,500 11,000 8,900
Repayments on revolving credit agreement................. (20,256) (38,461) (39,300) (13,435) (19,000)
Borrowings on short-term debt............................ -- 460 -- -- --
(Decrease) increase in bank overdrafts................... (276) 2,732 1,030 444 (152)
Proceeds from subscription receivable.................... 1,000 -- -- -- --
Proceeds from sale of Preferred stock.................... -- 4,976 -- -- --
Repurchase of Common stock............................... (4,500) -- (651) (651) --
Payment of debt issuance costs........................... -- (185) (38) (6) (43)
-------- -------- -------- ------- --------
Net cash provided by (used in) financing
activities......................................... 2,818 11,675 3,261 (3,164) (10,400)
-------- -------- -------- ------- --------
Net increase (decrease) in cash...................... (45) (44) (144) 1,085 1,626
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............. 553 508 464 464 320
-------- -------- -------- ------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD................... $ 508 $ 464 $ 320 $ 1,549 $ 1,946
======== ======== ======== ======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for--
Income taxes........................................... $ 76 $ 330 $ 3,744 $ 1,287 $ 791
======== ======== ======== ======= ========
Interest, net of amounts capitalized................... $ 555 $ 1,240 $ 1,018 $ 198 $ 305
======== ======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE> 65
DAVID'S BRIDAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF APRIL 3, 1999 AND FOR THE 13 WEEKS ENDED
APRIL 4, 1998 AND APRIL 3, 1999 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BACKGROUND
David's Bridal, Inc. was organized on August 29, 1990 and is engaged in the
retail sale of bridal gowns and bridal related merchandise. As of January 3,
1998 and January 2, 1999, the Company operated 59 stores in 27 states and 77
stores in 29 states, respectively, throughout the United States.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of David's Bridal, Inc. and
subsidiaries (the Company) include the accounts of David's Bridal, Inc. (a
Florida corporation) and all of its wholly owned subsidiaries. Material
intercompany balances and transactions have been eliminated in consolidation.
FISCAL YEAR-END
The Company operates under a 52/53-week fiscal year ending on a Saturday
near December 31. The accompanying consolidated financial statements for the
years ended January 4, 1997 (fiscal 1996), January 3, 1998 (fiscal 1997) and
January 2, 1999 (fiscal 1998), include 53, 52 and 52 weeks of operations,
respectively.
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
The accompanying consolidated financial statements as of April 3, 1999 and
for the 13 weeks ended April 4, 1998 and April 3, 1999 are unaudited and, in the
opinion of management include all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the financial
position and results of operations for those interim periods. The results of
operations for the 13 weeks ended April 4, 1998 and April 3, 1999 are not
necessarily indicative of the results to be expected for any other interim
period or the full year.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents for the purpose of
determining cash flows. Checks issued in excess of cash balances are reflected
as bank overdrafts. Cash and cash equivalents includes investments of $100,000
in overnight securities as of April 3, 1999.
INVENTORIES
Merchandise inventories are stated at the lower of cost (first-in,
first-out) or market. Costs associated with certain buying, receiving and
distribution activities are included in inventories.
F-7
<PAGE> 66
DAVID'S BRIDAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF APRIL 3, 1999 AND FOR THE 13 WEEKS ENDED
APRIL 4, 1998 AND APRIL 3, 1999 IS UNAUDITED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Additions or improvements are
capitalized, while repairs and maintenance are charged to expense. Gains or
losses on sale or disposal are reflected in net income. Depreciation and
amortization is computed on the straight-line method over the estimated useful
life of the asset. The estimated useful lives are as follows:
<TABLE>
<S> <C>
Land improvements............................ 20 years
Buildings and improvements................... 20 to 30 years
Equipment.................................... 3 to 10 years
Leasehold improvements....................... Lesser of useful life or lease term
Furniture and fixtures....................... 5 to 10 years
</TABLE>
Certain personnel costs and out-of-pocket costs directly associated with
the construction or remodeling of stores are capitalized and amortized over the
lease term.
The Company capitalizes interest in connection with the construction of new
stores which is amortized over the lesser of the assets' estimated useful life
or lease term. During fiscal 1997 and fiscal 1998 and the 13 weeks ended April
4, 1998 and April 3, 1999 $70,000, $59,000, $29,000 and $35,000, respectively,
of interest was capitalized.
ACCOUNTING FOR LONG-LIVED ASSETS
The Company follows Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of." Accordingly, in the event that facts and circumstances indicate
that property and equipment, and intangible or other assets, may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future undiscounted cash flows associated with the assets is
compared to the assets' carrying amount to determine if a write-down to market
value or discounted cash flow value is necessary. Management believes that there
has been no impairment of the Company's long-lived assets.
DEFERRED RENT
Rent expense on leases is recorded on a straight-line basis over the lease
period. The excess of rent expense over actual cash paid has been recorded as
deferred rent in the accompanying consolidated balance sheets.
REVENUE RECOGNITION
The Company records revenue when an item is sold and delivered to a
customer. Revenue is recognized on special orders when the customer orders the
goods, the goods are owned by the Company and the Company receives 100% payment
for the goods. The Company's policy is not to accept returns of special order
goods. Layaway deposits are recorded as a liability and recognized as a sale
upon receipt of full payment. Alterations revenues are deferred until the work
is completed. Other income consists primarily of alterations revenue.
STORE OPENING
Store opening costs incurred at new store locations are charged to expense
as incurred.
F-8
<PAGE> 67
DAVID'S BRIDAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF APRIL 3, 1999 AND FOR THE 13 WEEKS ENDED
APRIL 4, 1998 AND APRIL 3, 1999 IS UNAUDITED)
ADVERTISING
Advertising costs are expensed the first time the advertising takes place.
For fiscal 1996, 1997 and 1998 and for the 13 weeks ended April 4, 1998 and
April 3, 1999, advertising expense, net of reimbursements received from vendors
for specific advertising events, was $4,910,000, $6,295,000, $8,088,000,
$2,602,000 and $4,837,000 respectively.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
Under SFAS No. 109, deferred income tax assets and liabilities are determined
based on differences between the financial reporting and income tax basis of
assets and liabilities measured using enacted income tax rates and laws that are
expected to be in effect when the differences reverse.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument represents the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced sale or liquidation. Differences can arise between the
fair value and carrying amount of financial instruments that are recognized at
historical cost. The Company's financial instruments consist primarily of cash
and cash equivalents, accounts receivable, accounts payable, accrued expenses
and debt instruments.
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable, accrued expenses and current maturities of long-term debt
approximate fair value due to the short maturity of these instruments.
Debt instruments consist primarily of borrowings under a revolving credit
agreement which charges a variable rate of interest consistent with current
market rates, and mortgages with interest rates consistent with current market
rates. As of January 3, 1998, January 2, 1999 and April 3, 1999, the fair value
of these instruments approximated carrying value.
BUSINESS AND CREDIT RISK CONCENTRATION
Financial instruments which potentially subject the Company to
concentrations of credit risk are cash and cash equivalents and accounts
receivable. The Company limits its credit risk associated with cash and cash
equivalents by placing its investments in highly liquid funds. Receivables
associated with third party credit cards are processed by financial institutions
which are monitored for financial stability.
The Company utilizes international manufacturers (mainly in China) to
provide all of its bridal gowns and flower girl dresses. Should there be
significant changes in areas such as quotas, tariffs and fluctuations in
exchange rates, among others, the Company's ability to obtain merchandise at a
reasonable cost and in a timely manner could be significantly impaired.
Management monitors these risks and believes that its relationships are such
that alternative sourcing arrangements would be available.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-9
<PAGE> 68
DAVID'S BRIDAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF APRIL 3, 1999 AND FOR THE 13 WEEKS ENDED
APRIL 4, 1998 AND APRIL 3, 1999 IS UNAUDITED)
RECENTLY ADOPTED ACCOUNTING PRINCIPLES
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income." This statement establishes standards
for reporting and disclosure of comprehensive income. In June 1997, the FASB
issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." This statement establishes standards for reporting of information
about operating segments and requires the reporting of selected information
about operating segments in interim financial statements. These standards were
adopted by the Company on January 4, 1998 and had no impact as the Company has
no "other comprehensive income" and operated as a single segment.
2. PROPOSED INITIAL PUBLIC OFFERING:
In 1999, the Board of Directors authorized the filing of a registration
statement for the sale of common stock to the public in an initial public
offering. On April 22, 1999 the Company changed its authorized common stock to
eliminate Class A, B and C common stock, and authorized 100,000,000 shares of
common stock. All outstanding shares of Class A common stock became common
stock. In addition, the Company authorized 5,000,000 shares of Preferred Stock.
Effective April 23, 1999, the Company effected a split of the Company's common
shares on a 1.473 to 1 basis. All references in the financial statements to the
number of common shares and to per share amounts have been retroactively
restated to reflect the common share split.
If an initial public offering is completed, all outstanding shares of
Preferred stock will be converted into 7,543,817 shares of Common stock upon
consummation of the offering. The pro forma balance sheet and pro forma basic
earnings per share (unaudited) include the conversion of the Class A, B and C
Preferred stock at a conversion rate of 16.332 to 1 and the conversion of the
Class D Preferred at a conversion rate of 1.473 to 1 (see Note 9 for conversion
features).
On April 16, 1999, the Company increased the number of shares of Common
stock available for grant under the stock option plan to 2,450,000. The Company
expects to grant stock options to purchase 762,530 shares of common stock to
employees at an exercise price equal to the price at which shares of common
stock are sold in the offering.
Effective upon the consummation of the offering, the current Chairman of
the Board and Chief Executive Officer will become a consultant to the Company
for a three year term and be paid a consulting fee of $425,000 in each of the
first two years and $200,000 for the third year.
3. NET INCOME (LOSS) PER SHARE:
Net income (loss) per share is calculated utilizing the principles of
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share"
(EPS).
Basic EPS excludes dilution and is computed by dividing net income
available to common shareholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS is computed assuming the conversion or
exercise of all dilutive securities such as preferred stock, options and
warrants.
F-10
<PAGE> 69
DAVID'S BRIDAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF APRIL 3, 1999 AND FOR THE 13 WEEKS ENDED
APRIL 4, 1998 AND APRIL 3, 1999 IS UNAUDITED)
Under SFAS No. 128, the Company's granting of certain stock options and
convertible preferred stock resulted in potential dilution of basic EPS. The
following table summarizes the differences between basic weighted average shares
outstanding and diluted weighted average shares outstanding used to compute
diluted EPS.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THIRTEEN WEEKS ENDED
------------------------------------ -----------------------
JANUARY 4, JANUARY 3, JANUARY 2, APRIL 4, APRIL 3,
1997 1998 1999 1998 1999
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Basic weighted average number of
shares outstanding................. 10,206,764 9,849,419 9,751,000 9,784,409 9,739,848
Incremental shares from assumed
exercise or conversion of:
Stock options...................... -- -- 381,605 332,021 632,451
Preferred stock (see Note 9)....... -- 7,622,725 8,242,144 8,242,144 8,242,144
---------- ---------- ---------- ---------- ----------
Diluted weighted average number of
shares outstanding................. 10,206,764 17,472,144 18,374,749 18,358,574 18,614,443
========== ========== ========== ========== ==========
</TABLE>
The number of incremental shares from the assumed exercise of stock options
is calculated applying the treasury stock method. Preferred stock convertible
into 7,231,073 weighted average common shares was excluded from the fiscal 1996
calculation as it would be anti-dilutive due to the fiscal 1996 net loss. Common
stock options outstanding at January 4, 1997 and January 3, 1998 to purchase
950,085 and 1,053,195 shares of Common Stock, respectively, were not included in
the computation of diluted EPS in fiscal 1996 and 1997 because they were
antidilutive.
4. PROPERTY AND EQUIPMENT (IN THOUSANDS):
<TABLE>
<CAPTION>
JANUARY 3, JANUARY 2, APRIL 3,
1998 1999 1999
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Property and equipment consist of:
Land............................................... $ 1,047 $ 1,047 $ 1,047
Land improvements.................................. 149 149 149
Buildings and improvements......................... 1,275 2,635 2,641
Equipment.......................................... 3,198 5,145 6,340
Leasehold improvements............................. 7,622 10,798 11,041
Furniture and fixtures............................. 3,936 5,646 5,888
Construction in progress........................... 2,462 2,062 4,390
------- ------- -----------
19,689 27,482 31,496
Less--Accumulated depreciation and amortization.... (4,108) (6,832) (7,720)
------- ------- -----------
$15,581 $20,650 $ 23,776
======= ======= ===========
</TABLE>
5. INVESTMENTS IN AFFILIATES:
In December 1997, the Company purchased an equity interest in MDR
Associates LLC (MDR) for $460,000 which owns an interest in an aircraft. Two
shareholders of the Company also hold an indirect equity interest in MDR. The
investment was accounted for under the equity method of accounting and was
included in other assets in fiscal 1997. The equity interest was redeemed in
fiscal 1998 for $460,000.
F-11
<PAGE> 70
DAVID'S BRIDAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF APRIL 3, 1999 AND FOR THE 13 WEEKS ENDED
APRIL 4, 1998 AND APRIL 3, 1999 IS UNAUDITED)
In August 1995, the Company entered into a joint venture agreement with
Addwood Limited for a 50% ownership in a newly formed Hong Kong corporation,
Fillberg Limited (Fillberg). The Company contributed nominal capital to Fillberg
and loaned $170,000 in a noninterest-bearing loan with no stated maturity. The
loan was repaid subsequent to January 2, 1999. Addwood Limited is indirectly
owned by a shareholder of the Company based in Hong Kong.
Under a buying agency agreement, Fillberg will be the exclusive buying
agent of the Company for ready made bridal garments from certain territories, as
defined, and the Company will be the primary client of Fillberg. Under the
agreement, the Company pays Fillberg commissions of 7% for merchandise purchased
by the Company.
The investment is accounted for under the equity method of accounting with
profits eliminated from net income in the application of the equity method to
the extent that the Company has not yet sold the merchandise. As of January 2,
1999, the investment and receivable of $170,000 are included in other assets.
Equity income of $166,000 was recognized in fiscal 1998. Commissions of
$683,000, $1,157,000, $1,294,000, $156,000 and $270,000 were recorded for
merchandise purchased during fiscal 1996, 1997, 1998 and the 13 weeks ended
April 4, 1998 and April 3, 1999, respectively, of which $999,000, $1,212,000 and
$986,000, were included in the cost of inventories on the accompanying
consolidated balance sheets at January 3, 1998, January 2, 1999 and April 3,
1999, respectively.
6. ACCRUED EXPENSES AND OTHER (IN THOUSANDS):
<TABLE>
<CAPTION>
JANUARY 3, JANUARY 2, APRIL 3,
1998 1999 1999
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Payroll and related expenses....................... $1,370 $1,432 $3,018
Sales tax expense.................................. 203 275 1,236
Other.............................................. 2,412 3,130 5,641
------ ------ ------
$3,985 $4,837 $9,895
====== ====== ======
</TABLE>
7. DEBT (IN THOUSANDS):
<TABLE>
<CAPTION>
JANUARY 3, JANUARY 2, APRIL 3,
1998 1999 1999
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Revolving credit agreement......................... $14,900 $17,100 $7,000
Mortgages.......................................... 769 2,139 2,120
Demand note........................................ 460 -- --
Other.............................................. 338 274 252
------- ------- ------
16,467 19,513 9,372
Less--Current portion.............................. (551) (147) (150)
------- ------- ------
$15,916 $19,366 $9,222
======= ======= ======
</TABLE>
In April 1994, the Company entered into a revolving credit agreement with a
bank which was amended on March 12, 1996 to provide borrowings up to $17
million. Interest was calculated at prime plus 0% to 1% or LIBOR plus 2.5% to
3.5% based on certain ratios, as defined. This agreement was terminated in
August 1997.
On August 1, 1997, the Company entered into a new revolving credit
agreement with a bank which was amended on December 30, 1998 providing for
borrowings up to $30 million including a sublimit of
F-12
<PAGE> 71
DAVID'S BRIDAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF APRIL 3, 1999 AND FOR THE 13 WEEKS ENDED
APRIL 4, 1998 AND APRIL 3, 1999 IS UNAUDITED)
$25 million for letters of credit. Borrowings are limited to the sum of 80% of
eligible receivables and 60% of eligible inventory, as defined. The Company may
exceed its borrowing base by $3 million during the months of October through
March for the period beginning December 1998 and October 1999 and by $2 million
for the period beginning October 2000. At the Company's election, interest is
calculated at (i) the Base Rate (higher of U.S. Federal Funds Rate plus .5% or
the bank's Prime Rate), or (ii) the adjusted LIBOR Rate, as defined, plus an
applicable margin ranging from 1.25% to 1.75% based on earnings ratios, as
defined. Interest will be increased by 2% for the duration of any events of
default. Interest is payable monthly on Base Rate borrowings and at the end of
each elected interest period on each LIBOR Rate borrowing. The weighted average
interest rate on Base Rate loans was 7.75% and the weighted average interest
rate on LIBOR Rate loans was 6.49% at January 2, 1999. The weighted average
interest on LIBOR Rate loans was 6.19% at April 3, 1999. There were no Base Rate
borrowings at April 3, 1999. Principal is payable July 31, 2001. An unutilized
commitment fee of .25% per annum is due quarterly.
The revolving credit agreement requires the Company to comply with various
covenants which include, among other things, the maintenance by the Company of
certain fixed charge, leverage and debt ratios at the end of each fiscal
quarter, as defined. The revolving credit agreement is secured by all tangible
and intangible assets of the Company and restricts distributions related to
equity interests which include the payment of dividends. In the event of
termination of the commitment or an event of default, the Bank may require the
Company to deliver cash or U.S. Treasury Bills in the amount of 105% of the
outstanding undrawn letters of credit.
The highest amount outstanding under these agreements was $11,005,000,
$15,018,000, $17,600,000, $15,900,000 and $18,300,000 during fiscal 1996, fiscal
1997, fiscal 1998 and the 13 weeks ended April 4, 1998 and April 3, 1999,
respectively. The average amount outstanding under these agreements was
$6,871,000, $11,740,000, $13,034,000, $14,210,000 and $13,133,000 and the
weighted average interest rate was 7.81%, 7.75%, 7.21%, 7.7% and 6.7% in fiscal
1996, 1997, 1998 and the 13 weeks ended April 4, 1998 and April 3, 1999,
respectively. The Company was contingently liable for open letters of credit of
$2,840,000, $4,145,000 and $3,356,000 at January 3, 1998, January 2, 1999 and
April 3, 1999, respectively.
In fiscal 1998, the Company entered into a master lease agreement with a
leasing company which provides for $1,819,000 for leasing equipment. The
agreement requires that the leases be capital in nature. During first quarter
1999, the Company financed $652,000 of equipment under the agreement. This
agreement expires in July, 1999.
In fiscal 1996, the Company entered into a $800,000 mortgage agreement with
a bank which is payable in monthly installments with interest, as defined
through 2011. The interest rate at January 2, 1999 and April 3, 1999 was 8%. The
mortgage is collateralized by the underlying property.
In fiscal 1998, the Company entered into a $1.4 million mortgage note with
a bank which is payable in monthly installments of principal and interest of
$14,000 with a final payment of $1,123,000 due on December 1, 2003. The note
bears interest at 8% and is subject to a prepayment penalty of 2%, as defined,
until December 1, 2000. The note is collateralized by the underlying property.
In December 1997, the Company issued a demand note in connection with its
borrowing of $460,000 from a shareholder. This note bears interest at 7.75% and
was repaid in January 1998.
The Company has agreements with certain landlords whereby the Company
received advances for construction of leasehold improvements which will be
repaid by the Company during the lease periods. Interest ranges from 8%-11% and
the notes are due through 2006. At January 3, 1998, January 2, 1999 and April 3,
1999, $338,000, $274,000 and $252,000, respectively, were outstanding under
these agreements.
F-13
<PAGE> 72
DAVID'S BRIDAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF APRIL 3, 1999 AND FOR THE 13 WEEKS ENDED
APRIL 4, 1998 AND APRIL 3, 1999 IS UNAUDITED)
Future long-term debt maturities are as follows (in thousands).
<TABLE>
<CAPTION>
AS OF AS OF
JANUARY 2, 1999 APRIL 3, 1999
FISCAL --------------- -------------
(UNAUDITED)
<S> <C> <C>
1999.............................. $ 147 $ 106
2000.............................. 132 132
2001.............................. 17,222 7,122
2002.............................. 131 131
2003.............................. 1,246 1,246
2004 and thereafter............... 635 635
------- ------
$19,513 $9,372
======= ======
</TABLE>
8. INCOME TAXES:
The income tax provision (benefit) consists of the following components (in
thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------
JANUARY 4, JANUARY 3, JANUARY 2,
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal........................................... $ (90) $1,538 $3,339
State............................................. 21 30 412
----- ------ ------
(69) 1,568 3,751
----- ------ ------
Deferred:
Federal........................................... (139) (272) (173)
State............................................. -- -- --
----- ------ ------
(139) (272) (173)
----- ------ ------
$(208) $1,296 $3,578
===== ====== ======
</TABLE>
F-14
<PAGE> 73
DAVID'S BRIDAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF APRIL 3, 1999 AND FOR THE 13 WEEKS ENDED
APRIL 4, 1998 AND APRIL 3, 1999 IS UNAUDITED)
The deferred tax effect of temporary differences giving rise to the
Company's deferred tax assets and liabilities consists of the following
components (in thousands):
<TABLE>
<CAPTION>
JANUARY 3, JANUARY 2,
1998 1999
---------- ----------
<S> <C> <C>
Deferred tax assets--
Deferred rent............................................... $ 826 $ 973
Uniform inventory capitalization............................ 395 148
Benefits payable............................................ 93 --
Other....................................................... 102 143
------ ------
1,416 1,264
------ ------
Deferred tax liabilities--
Depreciation................................................ (211) (83)
Unrealized profit........................................... (159) (223)
Other....................................................... (134) (128)
------ ------
(504) (434)
------ ------
Net deferred tax asset...................................... $ 912 $ 830
====== ======
</TABLE>
The reconciliation of the federal statutory rate to the Company's effective
income tax rate is as follows:
<TABLE>
<CAPTION>
THIRTEEN WEEKS
FISCAL YEAR ENDED ENDED
------------------------------------ -------------------
JANUARY 4, JANUARY 3, JANUARY 2, APRIL 4, APRIL 3,
1997 1998 1999 1998 1999
---------- ---------- ---------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Tax at federal statutory rate................. (34.0)% 34.0% 34.0% 34.0% 34.0%
State taxes, net of federal benefit........... 3.5 0.5 3.1 3.2 4.0
Other......................................... 1.7 (0.2) 1.2 1.7 --
----- ---- ---- ---- ----
(28.8)% 34.3% 38.3% 38.9% 38.0%
===== ==== ==== ==== ====
</TABLE>
9. REDEEMABLE COMMON STOCK AND SHAREHOLDERS' EQUITY:
In fiscal 1995, the Company entered into redemption agreements with certain
shareholders for the purchase of 1,907,902 shares of common stock for a total of
$7.4 million plus an amount calculated based on the timing of redemption, as
defined. This obligation has been reflected as Redeemable Common stock and has
been reclassified out of equity in the accompanying consolidated financial
statements. In fiscal 1996, the Company redeemed 1,099,653 shares under the
redemption agreements at a total purchase price of $4.5 million. In fiscal 1997,
in connection with the sale of the Class D Preferred stock, the redemption
agreements with certain shareholders were modified to eliminate any continuing
obligation by the Company to repurchase 698,694 of the shares. The remaining
109,555 shares were redeemed in February 1998 for $651,000.
In fiscal 1997, the Company sold 686,402 shares of Class D Preferred stock
for $7.25 per share under a capital call agreement with existing shareholders.
On August 13, 1997, the Company entered into the Second Amended and Restated
Stockholder's Agreement whereby the Company has the option for a period of three
years to require certain investors to purchase up to $4 million of additional
shares of the Company's Class D Preferred stock.
F-15
<PAGE> 74
DAVID'S BRIDAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF APRIL 3, 1999 AND FOR THE 13 WEEKS ENDED
APRIL 4, 1998 AND APRIL 3, 1999 IS UNAUDITED)
The components of Preferred stock are as follows:
<TABLE>
<CAPTION>
JANUARY 3, JANUARY 2, APRIL 3,
1998 1999 1999
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Class A, $.01 par value, 175,000 shares authorized, 171,792
shares issued and outstanding, liquidation value of
$12,455,000 at January 2, 1999 and April 3, 1999.......... $1,718 $1,718 $1,718
Class B, $.01 par value, 125,000 shares authorized, 114,104
shares issued and outstanding, liquidation value of
$8,273,000 at January 2, 1999 and April 3, 1999........... 1,141 1,141 1,141
Class C, $.01 par value, 300,000 shares authorized, 114,104
shares issued and outstanding, liquidation value of
$8,273,000 at January 2, 1999 and April 3, 1999........... 1,141 1,141 1,141
Class D, $.01 par value, 1,250,000 shares authorized,
686,402 shares issued and outstanding, liquidation value
of $4,976,000 at January 2, 1999 and April 3, 1999........ 6,864 6,864 6,864
</TABLE>
The Class A, B and C Preferred had an initial conversion price of $4.92 per
share. The conversion price is subject to adjustment based on the valuation of
the Company upon a special event. A special event includes liquidating events, a
public offering, a change in control, a merger or consolidation and other
events, as defined. If a special event, as defined, had occurred at January 2,
1999, the conversion price would have been $4.01, or a conversion rate of 18.08
shares of Common stock for each share of Preferred unless the Preferred holders
had achieved a specified rate of return on their equity investment. If the
specified rate of return is achieved upon a special event, the conversion price
would be up to $4.92 and the conversion rate would be as low as 14.73 shares of
Common stock for each share of Preferred. The Class D Preferred is junior to the
Class A, B and C Preferred and has an initial conversion rate of $4.92. The
Company may require conversion of all classes of Preferred if the price per
share paid by the public in a public offering is at least equal to the
conversion price per share. The liquidation value of the Preferred is equal to
the greater of the amount that would be received if all of the Preferred were
converted into Common stock immediately prior to the liquidation or the price
originally paid.
The Class A and Class D Preferred have voting rights equal to the number of
Common shares into which they are convertible. The Class B Preferred has voting
rights equal to two votes for each share of Common into which it is convertible
and the Class C Preferred has no voting rights.
The Class A Common has voting rights equal to one vote per share. The Class
B Common has the number of votes equal to the sum of Class B and Class C Common
outstanding divided by Class B outstanding. The Class C Common has no voting
rights.
The Class A and Class D Preferred is convertible into Class A Common, the
Class B Preferred is convertible into Class B Common and the Class C Preferred
is convertible into Class C Common.
As of January 2, 1999, if converted, the Class A, B, C and D Preferred
stock would convert to 8,242,144 shares of Common stock at the conversion rates
outlined above. Assuming a specified rate of return is achieved upon a special
event, the conversion rate would be up to $4.92 for all shares if the Company
requires the Preferred to convert resulting in the issuance of at least
6,903,062 shares of Common stock. See Note 2 for information regarding the
conversion rate in the proposed initial public offering.
F-16
<PAGE> 75
DAVID'S BRIDAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF APRIL 3, 1999 AND FOR THE 13 WEEKS ENDED
APRIL 4, 1998 AND APRIL 3, 1999 IS UNAUDITED)
10. STOCK OPTIONS:
The Company's 1995 Stock Option Plan (the Plan) provides for the grant of
Common Stock and Common Stock options to key employees, members of the board of
directors and certain consultants at prices determined by the Board. The Company
has reserved 1,473,000 shares of its Common stock for awards under the Plan. The
Company accounts for the Plan under APB Opinion No. 25, under which no
compensation cost has been recognized since the options were issued at or above
fair value.
Had compensation cost for the options issued to employees or directors been
determined consistent with SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company's net income (loss), basic EPS and diluted EPS would
have been equal to the pro forma amounts indicated below (in thousands except
for per share data):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------
JANUARY 4, JANUARY 3, JANUARY 2,
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income (loss) As reported $ (515) $2,480 $5,755
Pro forma (769) 2,178 5,359
Basic EPS As reported (0.05) 0.25 0.59
Pro forma (0.08) 0.22 0.55
Diluted EPS As reported (0.05) 0.14 0.31
Pro forma (0.08) 0.12 0.29
</TABLE>
The weighted average fair value of options granted during fiscal 1996, 1997
and 1998 was $0.83, $1.76 and $1.75, respectively. The fair value of each option
grant was estimated on the date of grant using the Black-Scholes option pricing
model with the following assumptions:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------
JANUARY 4, JANUARY 3, JANUARY 2,
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Expected dividend rate.................................. -- -- --
Expected volatility..................................... 55% 55% 55%
Risk-free interest rate................................. 5.965% 6.076% 5.499%
Expected lives (years).................................. 3 3 3
</TABLE>
Because the SFAS No. 123 method of accounting is not required to be applied
to options granted prior to January 1, 1995, the resulting pro forma
compensation charge may not be representative of that to be expected in future
years.
During fiscal 1996, 1997 and through May 1998, the Company granted options
to purchase 132,570 shares of common stock, 103,110 shares of common stock and
484,604 shares of common stock, respectively, under the Plan. These options vest
over a 3-year period and were issued with exercise prices equal to or above fair
market value on the grant date. In addition, in fiscal 1996, the Company granted
to two nonemployees an option to purchase 110,475 shares and 44,190 shares of
common stock at $4.92 and $6.11, per share, respectively. The value of these
options as determined using the Black-Scholes option pricing model consistent
with SFAS 123 was not material to the consolidated financial statements. These
options vest through September 1998.
F-17
<PAGE> 76
DAVID'S BRIDAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF APRIL 3, 1999 AND FOR THE 13 WEEKS ENDED
APRIL 4, 1998 AND APRIL 3, 1999 IS UNAUDITED)
Information with respect to options outstanding is as follows:
<TABLE>
<CAPTION>
WEIGHTED
OPTION PRICE AGGREGATE AVERAGE EXERCISE
SHARES PER SHARE EXERCISE PRICE PRICE
--------- ------------- -------------- ----------------
<S> <C> <C> <C> <C>
Options outstanding, December 30,
1995............................. 662,850 $ 4.92 $3,262,500 4.92
Granted.......................... 287,235 4.92 - 6.11 1,623,750 5.65
--------- ------------- ----------
Options outstanding, January 4,
1997............................. 950,085 4.92 - 6.11 4,886,250 5.14
Granted.......................... 103,110 6.11 630,000 6.11
--------- ------------- ----------
Options outstanding, January 3,
1998............................. 1,053,195 4.92 - 6.11 5,516,250 5.24
Granted.......................... 484,604 6.11 - 6.79 3,278,500 6.77
Cancelled........................ (109,000) 6.11 - 6.79 (705,000) 6.47
--------- ------------- ----------
Options outstanding January 2,
1999............................. 1,428,799 4.92 - 6.79 8,089,750 5.66
Cancelled (unaudited)............ (27,249) 6.11 - 6.79 (173,490) 6.37
--------- ------------- ----------
Options outstanding, April 3, 1999
(unaudited)...................... 1,401,550 $4.92 - 6.79 $7,916,260 5.65
========= ============= ==========
</TABLE>
As of January 2, 1999, the weighted average contractual life of options
outstanding was 8.13 years, there were options to purchase 921,362 shares of
common stock vested at a weighted average exercise price of $5.00 and there were
44,201 shares reserved under the Plan which were not granted (See Note 2).
11. BENEFIT PLAN:
On January 1, 1995, the Company adopted a 401(k) plan for its employees
(the 401(k) Plan). The 401(k) Plan allows participants to contribute up to 15%
of their compensation and permits an employer match of up to 6% of participant
compensation, subject to certain limitations, as defined. Employer contributions
vest 20% per year. The expense was $14,000, $14,000 and $18,000 during fiscal
1996, 1997 and 1998, respectively.
12. RELATED PARTY:
The Company purchased leasehold improvements and supplies from a company
owned by a shareholder of the Company totaling $153,000, $159,000, $297,000,
$133,000 and $140,000 in fiscal 1996, 1997, 1998 and the 13 weeks ended April 4,
1998 and April 3, 1999, respectively.
13. COMMITMENTS AND CONTINGENCIES:
The Company leases its retail stores, administrative offices and
distribution facilities under noncancellable operating leases. Most store leases
have an average initial term of ten years, with two five year renewal options,
and provide for predetermined escalations in future minimum annual rents.
Certain leases provide for additional rent contingent upon store sales levels.
The pro rata portion of scheduled rent escalations has been included in deferred
rent in the accompanying consolidated balance sheets. Rent expense under all
operating leases was $4,995,000, $7,011,000, $9,817,000, $2,163,000 and
$2,991,000 in fiscal 1996, 1997, 1998 and for the 13 weeks ended April 4, 1998
and April 3, 1999, respectively, excluding common area maintenance charges.
On December 27, 1996, the Company entered into a lease for software which
has been accounted for as a capital lease. The capitalized cost of $671,000 and
related accumulated amortization of $268,000 has
F-18
<PAGE> 77
DAVID'S BRIDAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF APRIL 3, 1999 AND FOR THE 13 WEEKS ENDED
APRIL 4, 1998 AND APRIL 3, 1999 IS UNAUDITED)
been included in net property and equipment at January 2, 1999. The present
value of the minimum lease payments is as follows (in thousands):
<TABLE>
<CAPTION>
AS OF AS OF
JANUARY 2, 1999 APRIL 3, 1999
--------------- -------------
(UNAUDITED)
<S> <C> <C>
Total minimum lease payments...................... $451 $1,160
Less--Amount representing interest................ (36) (157)
---- ------
Present value of minimum lease payments........... $415 $1,003
==== ======
</TABLE>
During first quarter 1999, the Company capitalized $652,000 under a master
lease equipment (see Note 7) which has been included in net property and
equipment at April 3, 1999.
Future minimum lease payments under all of the Company's operating and
capital leases are as follows (in thousands):
<TABLE>
<CAPTION>
AS OF AS OF
JANUARY 2, 1999 APRIL 3, 1999
-------------------- --------------------
(UNAUDITED)
OPERATING CAPITAL OPERATING CAPITAL
FISCAL --------- ------- --------- -------
<S> <C> <C> <C> <C>
1999................................. $11,632 $154 $ 10,026 $ 233
2000................................. 12,028 154 13,861 310
2001................................. 12,004 143 13,849 299
2002................................. 11,757 -- 13,544 156
2003................................. 11,169 -- 12,980 156
2004 and thereafter.................. 36,265 -- 45,321 6
------- ---- -------- ------
$94,855 $451 $109,581 $1,160
======= ==== ======== ======
</TABLE>
From time to time the Company is named as a defendant in legal actions
arising from its normal business activities. Although the amount of any
liability that could arise with respect to currently pending actions of this
nature cannot be accurately predicted, in the opinion of the Company, any such
liability will not have a material adverse effect on the financial position or
results of operations of the Company.
F-19
<PAGE> 78
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 1999
[DAVID'S BRIDAL, INC. LOGO]
8,000,000 SHARES OF COMMON STOCK
------------------------
PROSPECTUS
------------------------
DONALDSON, LUFKIN & JENRETTE
LEGG MASON WOOD WALKER
INCORPORATED
-----------------------------
DLJdirect INC.
- --------------------------------------------------------------------------------
We have not authorized any dealer, sales person or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor any
sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of David's
Bridal have not changed since the date hereof.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Until , 1999 (25 days after the date of this prospectus), all
dealers, whether or not participating in this offering, that effect transactions
in these shares of common stock may be required to deliver a prospectus. This is
in addition to the dealer's obligation to deliver a prospectus when acting as an
underwriter and with respect to their unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
<PAGE> 79
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses, other than
underwriting discounts and commissions, in connection with the issuance and
distribution of the shares of common stock being registered, all of which are
being borne by the Company:
<TABLE>
<S> <C>
Registration fee............................................ $ 44,480
NASD filing fee............................................. 16,500
Transfer agent and registrar fees........................... 20,000
Printing and engraving...................................... 150,000
Legal fees.................................................. 425,000
Blue Sky fees and expenses.................................. 10,000
Nasdaq National Market listing fee.......................... 100,000
Accounting fees............................................. 475,000
Miscellaneous............................................... 59,020
----------
Total............................................. $1,300,000
==========
</TABLE>
- ------------------------------
* To be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 607.0850 of the Florida Business Corporation Act empowers a
corporation, subject to certain limitations, to indemnify any person who was or
is a party to any proceeding by reason of the fact that he or she was or is a
director, officer, employee or agent of the corporation, against liability and
expenses actually and reasonably incurred by him or her in connection with such
proceeding, including any appeal thereof, if such party acted in good faith and
in a manner reasonably believed to be in, or not opposed to, the best interests
of the corporation, and, with respect to a criminal action or proceeding, had no
reasonable cause to believe his or her conduct to have been unlawful.
Our bylaws provide a right to indemnification to the full extent permitted
by law for expenses, attorneys' fees, judgments, fines and amounts paid in
settlement, actually and reasonably incurred by any of our directors, officers,
employees or agents, who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that he
is or was our director, officer, employee or agent or that of our parent or any
of our subsidiaries, or was serving at our request, or at the request of our
parent or any of our subsidiaries as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise.
Our board of directors by resolution adopted in each specific instance may
similarly indemnify any person other than one of our directors or officers for
liabilities incurred by him in connection with services rendered by him for or
at our request, or at the request of any of our subsidiaries.
These indemnification provisions shall be applicable to all actions, suits
or proceedings commenced after the adoption of our bylaws, whether such arise
out of acts or omissions which occurred prior or subsequent to such adoption and
shall continue as to a person who has ceased to be a director or officer or to
render services for or at our request and shall inure to the benefit of the
heirs, executors and administrators of such a person. The rights of
indemnification provided for in our bylaws shall not be deemed the exclusive
rights to which any of our directors, officers, employees or agents may be
entitled.
Our bylaws provide that we may pay the expenses, including attorney's fees,
incurred by any person entitled to be indemnified by us in defending a civil or
criminal action, suit or proceeding in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking, by or on behalf of
II-1
<PAGE> 80
such person, to repay such amount if it shall ultimately be determined that he
is not entitled to be indemnified by us as authorized by law.
We may purchase and maintain insurance on behalf of any person who is or
was our director or officer, employee or agent, or who is or was serving at our
request as a director, officer, employee or agent of another corporation or
other organization, against any liability asserted against him and incurred by
him in any such capacity or arising out of his status as such, whether or not we
would have the power to indemnify him against such liability under law.
Pursuant to the Underwriting Agreement, the Underwriters have agreed to
indemnify the Company's directors and executive officers who signed the
Registration Statement against certain liabilities, including liabilities under
the Securities Act, under certain delineated circumstances, or to contribute to
payments that the directors and such officers may be required to make in respect
thereof.
The Registrant maintains, on behalf of its directors and officers,
insurance protection against certain liabilities arising out of the discharge of
their duties.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Company has issued and sold the following
unregistered securities:
1. On August 15, 1997, pursuant to the terms of a series of
subscription agreements, we sold an aggregate of 686,402 shares of class D
preferred stock for an aggregate purchase price of $5.0 million or $7.25
per share. These shares were sold to our existing shareholders, as follows:
448,651 shares to The Clipper Group, an aggregate of 69,842 shares that are
beneficially owned by Steven J. Sidewater, 36,371 shares to Michael C.
Erlbaum, 24,317 shares that are beneficially owned by Gary E. Erlbaum,
14,478 shares to Shelly Shapiro, 10,155 shares to Mordechai Kafry, 32,653
shares to First Union National Bank, 15,013 shares to Addwood Limited and
34,922 shares to the Vederman Family Partnership. Each outstanding share of
class D preferred stock will be subject to mandatory conversion upon the
consummation of this offering into 1.473 shares of common stock, or an
aggregate of 1,011,070 shares of common stock.
The Company believes that the transactions described above were exempt from
registration under Section 4(2) of the Securities Act because the subject
securities were sold to a limited group of persons, each of whom was believed to
have been a sophisticated investor, was a shareholder of the Company, and had a
pre-existing business or personal relationship with the Company or its
management and was purchasing for investment without a view to further
distribution. Restrictive legends were placed on stock certificates evidencing
the shares and/or agreements relating to the right to purchase such shares
described above.
II-2
<PAGE> 81
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
<S> <C> <C>
1.1 Form of Underwriting Agreement@
3.1 Articles of Incorporation*
3.2 Bylaws*
5.1 Opinion of Morgan, Lewis & Bockius LLP regarding legality of
shares of common stock being registered@
10.1 Amended and Restated 1995 Stock Option Plan*
10.2 Joint Venture and Shareholders Agreement dated August 1995
by and among David's Bridal Corporation and Addwood Limited*
10.3 Registration Agreement dated June 9, 1995 among David's
Bridal, Inc. and certain shareholders*
10.4 Amendment No. 1 to Registration Agreement, dated as of
August 15, 1997 by and among David's Bridal, Inc. and
certain shareholders*
10.5 Amended and Restated Credit Agreement dated December 31,
1997 among David's Bridal, Inc. and First Union Corporation*
10.6 Consulting Agreement between David's Bridal, Inc. and Steven
H. Erlbaum*
10.7 Employment Agreement between David's Bridal, Inc. and Robert
D. Huth*
10.8 Employment Agreement between David's Bridal, Inc. and Philip
Youtie*
23.1 Consent of Arthur Andersen LLP@
23.2 Consent of Morgan, Lewis & Bockius LLP (included in its
opinion filed as Exhibit 5.1 hereto)
23.3 Consent of Eugene Lynch*
24.1 Power of Attorney (included on signature page to this
Registration Statement)
24.2 Power of Attorney of Eugene Lynch*
27.1 Financial Data Schedule*
</TABLE>
- ------------------------------
* previously filed
@ filed herewith
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
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 Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE> 82
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 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 this offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 83
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 3 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in
Ardmore, Pennsylvania, on May 17, 1999.
DAVID'S BRIDAL, INC.
By /s/ STEVEN H. ERLBAUM
------------------------------------
Steven H. Erlbaum
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 3 to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME CAPACITY DATE
<S> <C> <C>
/s/ STEVEN H. ERLBAUM Chairman of the Board (principal May 17, 1999
- ------------------------------------- executive officer) and Director
Steven H. Erlbaum
/s/ EDWARD S. WOZNIAK Chief Financial Officer (principal May 17, 1999
- ------------------------------------- financial and accounting officer)
Edward S. Wozniak
* Director May 17, 1999
- -------------------------------------
Robert D. Huth
* Director May 17, 1999
- -------------------------------------
Gary E. Erlbaum
* Director May 17, 1999
- -------------------------------------
Michael C. Erlbaum
Director
- -------------------------------------
Robert B. Calhoun, Jr.
* Director May 17, 1999
- -------------------------------------
Steven J. Sidewater
* Director May 17, 1999
- -------------------------------------
Eugene P. Lynch
*By his signature set forth below,
the undersigned, pursuant to duly
authorized powers of attorney filed
with the Securities and Exchange
Commission, has signed this Amendment
to the Registration Statement on
behalf of the persons indicated.
By /s/ STEVEN H. ERLBAUM
----------------------------------
Steven H. Erlbaum
(attorney-in-fact)
</TABLE>
II-5
<PAGE> 84
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
<S> <C> <C>
1.1 Form of Underwriting Agreement@
3.1 Articles of Incorporation*
3.2 Bylaws*
5.1 Opinion of Morgan, Lewis & Bockius LLP regarding legality of
shares of common stock being registered@
10.1 Amended and Restated 1995 Stock Option Plan*
10.2 Joint Venture and Shareholders Agreement dated August 1995
by and among David's Bridal Corporation and Addwood Limited*
10.3 Registration Agreement dated June 9, 1995 among David's
Bridal, Inc. and certain shareholders*
10.4 Amendment No. 1 to Registration Agreement, dated as of
August 15, 1997 by and among David's Bridal, Inc. and
certain shareholders*
10.5 Amended and Restated Credit Agreement dated December 31,
1997 among David's Bridal, Inc. and First Union Corporation*
10.6 Consulting Agreement between David's Bridal, Inc. and Steven
H. Erlbaum*
10.7 Employment Agreement between David's Bridal, Inc. and Robert
D. Huth*
10.8 Employment Agreement between David's Bridal, Inc. and Philip
Youtie*
23.1 Consent of Arthur Andersen LLP@
23.2 Consent of Morgan, Lewis & Bockius LLP (included in its
opinion filed as Exhibit 5.1 hereto)
23.3 Consent of Eugene Lynch*
24.1 Power of Attorney (included on signature page to this
Registration Statement)
24.2 Power of Attorney of Eugene P. Lynch*
27.1 Financial Data Schedule*
</TABLE>
- ------------------------------
* previously filed
@ filed herewith
<PAGE> 1
EXHIBIT 1.1
8,000,000 SHARES
DAVID'S BRIDAL, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
May __, 1999
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
LEGG MASON WOOD WALKER,
INCORPORATED
As representatives of the several Underwriters
named in Schedule I hereto
c/o Donaldson, Lufkin & Jenrette Securities
Corporation
277 Park Avenue
New York, New York 10172
Dear Sirs:
David's Bridal, Inc., a Florida corporation (the "COMPANY"), proposes
to issue and sell to the several underwriters named in Schedule I hereto (the
"UNDERWRITERS"), and certain stockholders of the Company named in Schedule II
and Schedule III hereto (the "SELLING STOCKHOLDERS") severally propose to sell
to the several Underwriters, an aggregate of 8,000,000 shares of the common
stock, par value $.01 per share, of the Company (the "FIRM SHARES"), of which
1,613,000 shares are to be issued and sold by the Company and 6,387,000 shares
are to be sold by the Selling Stockholders, each Selling Stockholder selling the
amount set forth opposite such Selling Stockholder's name in Schedule II and
Schedule III hereto. The Company and the Selling Stockholders also severally
propose to sell to the several Underwriters not more than an additional
1,200,000 shares of common stock, par value $.01 (the "ADDITIONAL SHARES") if
requested by the Underwriters as provided in Section 2 hereof. The Firm Shares
and the Additional Shares are hereinafter referred to collectively as the
"SHARES". The
<PAGE> 2
shares of common stock of the Company to be outstanding after giving effect to
the sales contemplated hereby are hereinafter referred to as the "COMMON STOCK".
The Company and the Selling Stockholders are hereinafter sometimes referred to
collectively as the "SELLERS."
SECTION 1. Registration Statement and Prospectus. The Company has
prepared and filed with the Securities and Exchange Commission (the
"COMMISSION") in accordance with the provisions of the Securities Act of 1933,
as amended, and the rules and regulations of the Commission thereunder
(collectively, the "ACT"), a registration statement on Form S-1, including a
prospectus, relating to the Shares. The registration statement, as amended at
the time it became effective, including the information (if any) deemed to be
part of the registration statement at the time of effectiveness pursuant to Rule
430A under the Act, is hereinafter referred to as the "REGISTRATION STATEMENT";
and the prospectus in the form first used to confirm sales of Shares is
hereinafter referred to as the "PROSPECTUS". If the Company has filed or is
required pursuant to the terms hereof to file a registration statement pursuant
to Rule 462(b) under the Act registering additional shares of Common Stock (a
"RULE 462(B) REGISTRATION STATEMENT"), then, unless otherwise specified, any
reference herein to the term "Registration Statement" shall be deemed to include
such Rule 462(b) Registration Statement.
SECTION 2. Agreements to Sell and Purchase and Lock-Up Agreements. On
the basis of the representations and warranties contained in this Agreement, and
subject to its terms and conditions, (i) the Company agrees to issue and sell
1,613,000 Firm Shares, (ii) each Selling Stockholder agrees, severally and not
jointly, to sell the number of Firm Shares set forth opposite such Selling
Stockholder's name in Schedule II and III hereto and (iii) each Underwriter
agrees, severally and not jointly, to purchase from each Seller at a price per
Share of $______ (the "PURCHASE PRICE") the number of Firm Shares (subject to
such adjustments to eliminate fractional shares as you may determine) that bears
the same proportion to the total number of Firm Shares to be sold by such Seller
as the number of Firm Shares set forth opposite the name of such Underwriter in
Schedule I hereto bears to the total number of Firm Shares.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company and the Selling
Stockholders agree to sell the Additional Shares and the Underwriters shall have
the right to purchase, severally and not jointly, the Additional Shares in the
following manner; (i) up to 322,581 Additional Shares from the Company and (ii)
after such Additional Shares have been purchased from the Company, up to 877,419
Additional Shares proportionally from each Selling Stockholder, as specified in
Schedules II and III, in each case at the Purchase Price. Additional
2
<PAGE> 3
Shares may be purchased solely for the purpose of covering over-allotments made
in connection with the offering of the Firm Shares. The Underwriters may
exercise their right to purchase Additional Shares in whole or in part from time
to time by giving written notice thereof to the Company and the Selling
Stockholders, as applicable, who have agreed to sell Additional Shares within 30
days after the date of this Agreement. You shall give any such notice on behalf
of the Underwriters and such notice shall specify the aggregate number of
Additional Shares to be purchased pursuant to such exercise and the date for
payment and delivery thereof, which date shall be a business day (i) no earlier
than two business days after such notice has been given (and, in any event, no
earlier than the Closing Date (as hereinafter defined)) and (ii) no later than
ten business days after such notice has been given. If any Additional Shares are
to be purchased, each Underwriter, severally and not jointly, agrees to purchase
first from the Company, until the Company has sold all of the Additional Shares
to be sold by it, and thereafter from the Selling Stockholders the number of
Additional Shares (subject to such adjustments to eliminate fractional shares as
you may determine) which bears the same proportion to the total number of
Additional Shares to be purchased as the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I bears to the total number of
Firm Shares.
Each Seller hereby agrees not to (i) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, or otherwise transfer
or dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock or
(ii) enter into any swap or other arrangement that transfers all or a portion of
the economic consequences associated with the ownership of any Common Stock
(regardless of whether any of the transactions described in clause (i) or (ii)
is to be settled by the delivery of Common Stock, or such other securities, in
cash or otherwise), except to the Underwriters pursuant to this Agreement, for a
period of 180 days after the date of the Prospectus without the prior written
consent of Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"). The
Sellers are not subject to clauses (i) and (ii) above with respect to transfers
for family planning purposes and with respect to transfers by the Clipper
Selling Stockholders (as defined herein) to their affiliates, but only if the
transferee agrees to be subject to clauses (i) and (ii) above and such transfer
is not effective until the agreement to comply with clauses (i) and (ii) is
executed by the transferee and a copy of such agreement is received by DLJ and
by Davis Polk & Wardwell. Notwithstanding the foregoing, during such period (i)
the Company may grant stock options pursuant to the Company's existing stock
option plan and (ii) the Company may issue shares of Common Stock upon the
exercise of an option or warrant or the conversion of a security outstanding on
the date hereof. The Company also agrees not to file any registration statement,
other than a registration statement on Form S-8 covering common stock issuable
3
<PAGE> 4
pursuant to the Company's existing stock option plan, with respect to any shares
of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock for a period of 180 days after the date of the
Prospectus without the prior written consent of Donaldson, Lufkin & Jenrette
Securities Corporation. In addition, each Selling Stockholder agrees that, for a
period of 180 days after the date of the Prospectus without the prior written
consent of Donaldson, Lufkin & Jenrette Securities Corporation, it will not make
any demand for, or exercise any right with respect to, the registration of any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock. The Company shall, prior to or concurrently with
the execution of this Agreement, deliver an agreement executed by (i) each
Selling Stockholder, and (ii) each stockholder listed on Annex I hereto to the
effect that such person will not, during the period commencing on the date such
person signs such agreement and ending 180 days after the date of the
Prospectus, without the prior written consent of Donaldson, Lufkin & Jenrette
Corporation, (A) engage in any of the transactions described in the first
sentence of this paragraph (subject to the exception set forth in the second
sentence of this paragraph) or (B) make any demand for, or exercise any right
with respect to, the registration of any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock.
The Company hereby confirms its engagement of DLJ as, and DLJ hereby
confirms its agreement with the Company to render services as, a "qualified
independent underwriter," within the meaning of Section (b)(15) of Rule 2720 of
the Conduct Rules of the National Association of Securities Dealers, Inc. (the
"NASD") with respect to the offering and sale of the Shares. DLJ, solely in its
capacity as qualified independent underwriter and not otherwise, is referred to
herein as the "QIU." As compensation for the services of the QIU hereunder, the
Company agrees to pay the QIU $2,500 on the Closing Date. The price at which the
Shares will be sold to the public shall not be higher than the maximum price
recommended by DLJ acting as QIU.
SECTION 3. Terms of Public Offering. The Sellers are advised by you
that the Underwriters propose (i) to make a public offering of their respective
portions of the Shares as soon after the execution and delivery of this
Agreement as in your judgment is advisable and (ii) initially to offer the
Shares upon the terms set forth in the Prospectus.
SECTION 4. Delivery and Payment. The Shares shall be represented by
definitive certificates and shall be issued in such authorized denominations and
registered in such names as Donaldson, Lufkin & Jenrette Securities Corporation
shall request not later than 9:00 A.M. on the second business day prior to the
Closing Date or the applicable Option Closing Date (as defined below), as the
4
<PAGE> 5
case may be. The Shares shall be delivered by or on behalf of the Sellers to
Donaldson, Lufkin & Jenrette Securities Corporation through the facilities of
The Depository Trust Company ("DTC"), for the respective accounts of the several
Underwriters, against payment to the Sellers of the Purchase Price therefor by
wire transfer of Federal or other funds immediately available in Philadelphia.
The certificates representing the Shares shall be made available for inspection
not later than 12:00 noon, New York City time, on the business day prior to the
Closing Date or the applicable Option Closing Date, as the case may be, at the
office of DTC or its designated custodian (the "DESIGNATED OFFICE"). The time
and date of delivery and payment for the Firm Shares shall be 9:00 A.M., New
York City time, on __________ , 1999 or such other time on the same or such
other date as Donaldson, Lufkin & Jenrette Securities Corporation and the
Company shall agree in writing. The time and date of delivery and payment for
the Firm Shares are hereinafter referred to as the "CLOSING DATE." The time and
date of delivery and payment for any Additional Shares to be purchased by the
Underwriters shall be 9:00 A.M., New York City time, on the date specified in
the applicable exercise notice given by you pursuant to Section 2 or such other
time on the same or such other date as Donaldson, Lufkin & Jenrette Securities
Corporation and the Company shall agree in writing. The time and date of
delivery and payment for any Additional Shares are hereinafter referred to as an
"OPTION CLOSING DATE."
The documents to be delivered on the Closing Date or any Option Closing
Date on behalf of the parties hereto pursuant to Section 9 of this Agreement
shall be delivered at the offices of Morgan, Lewis & Bockius LLP, 1701 Market
Street, Philadelphia, Pennsylvania, and the Shares shall be delivered at the
Designated Office, all on the Closing Date or such Option Closing Date, as the
case may be.
SECTION 5. Agreements of the Company. The Company agrees with you:
(a) To advise you promptly and, if requested by you, to
confirm such advice in writing, (i) of any request by the Commission
for amendments to the Registration Statement or amendments or
supplements to the Prospectus or for additional information, (ii) of
the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of the suspension of
qualification of the Shares for offering or sale in any jurisdiction,
or the initiation of any proceeding for such purposes, (iii) when any
amendment to the Registration Statement becomes effective, (iv) if the
Company is required to file a Rule 462(b) Registration Statement after
the effectiveness of this Agreement, when the Rule 462(b) Registration
Statement has become effective and (v) of the happening of any event
during the period referred to in Section 5(d) below which makes any
statement of a material fact made in the Registration Statement or the
Prospectus untrue or which requires any additions to or
5
<PAGE> 6
changes in the Registration Statement or the Prospectus in order to
make the statements therein not misleading. If at any time the
Commission shall issue any stop order suspending the effectiveness of
the Registration Statement, the Company will use its best efforts to
obtain the withdrawal or lifting of such order at the earliest possible
time.
(b) To furnish to you four signed copies of the Registration
Statement as first filed with the Commission and of each amendment to
it, including all exhibits, and to furnish to you and each Underwriter
designated by you such number of conformed copies of the Registration
Statement as so filed and of each amendment to it, without exhibits, as
you may reasonably request.
(c) To prepare the Prospectus, the form and substance of which
shall be satisfactory to you in your reasonable judgment, and to file
the Prospectus in such form with the Commission within the applicable
period specified in Rule 424(b) under the Act; during the period
specified in Section 5(d) below, not to file any further amendment to
the Registration Statement and not to make any amendment or supplement
to the Prospectus of which you shall not previously have been advised
or to which you shall reasonably object after being so advised; and,
during such period, to prepare and file with the Commission, promptly
upon your reasonable request, any amendment to the Registration
Statement or amendment or supplement to the Prospectus which may be
necessary or advisable in connection with the distribution of the
Shares by you, and to use its best efforts to cause any such amendment
to the Registration Statement to become promptly effective.
(d) Prior to 10:00 A.M., New York City time, on the first
business day after the date of this Agreement and from time to time
thereafter for such period as in the opinion of counsel for the
Underwriters a prospectus is required by law to be delivered in
connection with sales by an Underwriter or a dealer, but no later than
90 days following the date of this Agreement, to furnish in New York
City to each Underwriter and any dealer as many copies of the
Prospectus (and of any amendment or supplement to the Prospectus) as
such Underwriter or dealer may reasonably request.
(e) If during the period specified in Section 5(d), any event
shall occur or condition shall exist as a result of which, in the
opinion of counsel for the Underwriters, it becomes 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,
6
<PAGE> 7
not misleading, or if, in the opinion of counsel for the Underwriters,
it is necessary to amend or supplement the Prospectus to comply with
applicable law, forthwith to prepare and file with the Commission an
appropriate amendment or supplement to the Prospectus so that the
statements in the Prospectus, as so amended or supplemented, will not
in the light of the circumstances when it is so delivered, be
misleading, or so that the Prospectus will comply with applicable law,
and to furnish to each Underwriter and to any dealer as many copies
thereof as such Underwriter or dealer may reasonably request.
(f) Prior to any public offering of the Shares, to cooperate
with you and counsel for the Underwriters in connection with the
registration or qualification of the Shares for offer and sale by the
several Underwriters and by dealers under the state securities or Blue
Sky laws of such jurisdictions as you may request, to continue such
registration or qualification in effect so long as required for
distribution of the Shares and to file such consents to service of
process or other documents as may be necessary in order to effect such
registration or qualification; provided, however, that the Company
shall not be required in connection therewith to qualify as a foreign
corporation in any jurisdiction in which it is not now so qualified or
to take any action that would subject it to general consent to service
of process or taxation other than as to matters and transactions
relating to the Prospectus, the Registration Statement, any preliminary
prospectus or the offering or sale of the Shares, in any jurisdiction
in which it is not now so subject.
(g) To make generally available to its stockholders no later
than 45 days following _______, 2000, an earnings statement covering
the twelve-month period ending [March 31,] 2000 within the meaning of
the provisions of Section 11(a) of the Act and any rules promulgated
thereunder, including Rule 158 under the Act.
(h) During the period of three years after the date of this
Agreement, to furnish to you as soon as available copies of all reports
or other communications furnished to the record holders of Common Stock
or furnished to or filed with the Commission or any national securities
exchange on which any class of securities of the Company is listed and
such other publicly available information concerning the Company and
its subsidiaries as you may reasonably request.
(i) Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, to pay or
cause to be paid all expenses incident to the performance of the
Sellers'
7
<PAGE> 8
obligations under this Agreement, including: (i) the fees,
disbursements and expenses of the Company's counsel, the Company's
accountants and any Selling Stockholder's counsel (in addition to the
Company's counsel) in connection with the registration and delivery of
the Shares under the Act and all other fees and expenses in connection
with the preparation, printing, filing and distribution of the
Registration Statement (including financial statements and exhibits),
any preliminary prospectus, the Prospectus and all amendments and
supplements to any of the foregoing, including the mailing and
delivering of copies thereof to the Underwriters and dealers in the
quantities specified herein but not including any subsequent
distribution by the Underwriters and dealers, (ii) all costs and
expenses related to the transfer and delivery of the Shares to the
Underwriters, including any transfer or other taxes payable thereon,
(iii) all costs of printing or producing the Registration Statement and
the Prospectus, (iv) all expenses in connection with the registration
or qualification of the Shares for offer and sale under the securities
or Blue Sky laws of the several states and all costs of printing or
producing any Preliminary and Supplemental Blue Sky Memoranda in
connection therewith (including the filing fees and fees and
disbursements of counsel for the Underwriters in connection with such
memoranda relating thereto), such expenses and costs not to exceed an
aggregate of $10,000, (v) the filing fees and disbursements of counsel
for the Underwriters in connection with the review and clearance of the
offering of the Shares by the National Association of Securities
Dealers, Inc., (vi) all fees and expenses in connection with the
preparation and filing of the registration statement on Form 8-A
relating to the Common Stock and all costs and expenses incident to the
listing of the Shares on the NASDAQ, National Market System, (vii) the
cost of printing certificates representing the Shares, (viii) the costs
and charges of any transfer agent or registrar, (ix) all fees and
expenses in connection with the directed share program, such fees and
expenses not to exceed an aggregate of $5,000 and (x) all other costs
and expenses incident to the performance of the obligations of the
Company and the Selling Stockholders hereunder for which provision is
not otherwise made in this Section 5(i). The provisions of this Section
shall not supercede or otherwise affect any agreement that the Company
and the Selling Stockholders may otherwise have for allocation of such
expenses among themselves.
(j) To use its best efforts to list the Shares on the Nasdaq
and to maintain the listing of the Shares on the NASDAQ, National
Market System for a period of three years after the date of this
Agreement.
8
<PAGE> 9
(k) If the Registration Statement at the time of the
effectiveness of this Agreement does not cover all of the Shares, and
the aggregate initial offering price of Additional Shares does not
exceed twenty percent of the maximum aggregate offering price of the
Shares set forth in the "Calculation of the Registration Fee" table
included on the front cover of the Registration Statement, to transmit
for filing a Rule 462(b) Registration Statement with the Commission
registering the Shares not so covered in compliance with Rule 462(b) in
a manner that reasonably should enable the Rule 462(b) Registration
Statement to become effective by 10:00 P.M., New York City time, on the
date of this Agreement and to pay to the Commission the filing fee for
such Rule 462(b) Registration Statement at the time of the filing
thereof or to give irrevocable instructions for the payment of such fee
pursuant to Rule 111(b) under the Act.
(l) the fees and expenses of the QIU (including the fees and
disbursements of counsel to the QIU), not to exceed $2,500.
SECTION 6. Representations and Warranties of the Company. The Company
represents and warrants to each Underwriter that:
(a) The Registration Statement has become effective (other
than any Rule 462(b) Registration Statement to be filed by the Company
after the effectiveness of this Agreement); any Rule 462(b)
Registration Statement filed after the effectiveness of this Agreement
will be transmitted for filing in a fashion that reasonably should
enable the Rule 462(b) Registration Statement to become effective no
later than 10:00 P.M., New York City time, on the date of this
Agreement; and no stop order suspending the effectiveness of the
Registration Statement is in effect, and no proceedings for such
purpose are pending before or threatened by the Commission.
(b) (i) The Registration Statement (other than any Rule 462(b)
Registration Statement to be filed by the Company after the
effectiveness of this Agreement), when it became effective, did not
contain and, as amended, if applicable, 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, (ii) the Registration Statement (other than any Rule 462(b)
Registration Statement to be filed by the Company after the
effectiveness of this Agreement) and the Prospectus comply and, as
amended or supplemented, if applicable, will comply in all material
respects with the applicable requirements of the Act, (iii) if the
Company is required to file a Rule 462(b) Registration
9
<PAGE> 10
Statement after the effectiveness of this Agreement, such Rule 462(b)
Registration Statement and any amendments thereto, when they become
effective (A) 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 and (B) will
comply in all material respects with the applicable requirements of the
Act and (iv) the Prospectus does not contain and, as amended or
supplemented, if applicable, will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading, except that the representations and
warranties set forth in this paragraph do not apply to statements or
omissions in the Registration Statement or the Prospectus based upon
information relating to any Underwriter furnished to the Company in
writing by such Underwriter through you expressly for use therein.
(c) Each of the Company and its subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation and has the
corporate power and authority to carry on its business as described in
the Prospectus and to own, lease and operate its properties, and each
is duly qualified and is in good standing as a foreign corporation
authorized to do business in each jurisdiction in which the nature of
its business or its ownership or leasing of property requires such
qualification, except where the failure to be so qualified would not
have a material adverse effect on the business, prospects, financial
condition or results of operations of the Company and its subsidiaries,
taken as a whole.
(d) There are no outstanding subscriptions, rights, warrants,
options, calls, convertible securities, commitments of sale or liens
granted or issued by the Company or any of its subsidiaries relating to
or entitling any person to purchase or otherwise to acquire any shares
of the capital stock of the Company or any of its subsidiaries, except
as otherwise disclosed in the Registration Statement.
(e) All the outstanding shares of capital stock of the Company
(including the Shares to be sold by the Selling Stockholders) have been
duly authorized and validly issued and are fully paid, non-assessable
and not subject to any preemptive or similar rights; and the Shares to
be issued and sold by the Company have been duly authorized and, when
issued and delivered to the Underwriters against payment therefor as
provided by this Agreement, will be validly issued, fully paid and
non-assessable, and the
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issuance of such Shares will not be subject to any preemptive or
similar rights.
(f) All of the outstanding shares of Classes A, B, C and D
Preferred Stock of the Company will be converted into 7,543,817 shares
of Common Stock as of the Closing Date pursuant to the Company's Third
Amended and Restated Articles of Incorporation immediately prior to or
simultaneously with the consummation of the public offering of the
Shares.
(g) All of the outstanding shares of capital stock of each of
the Company's subsidiaries have been duly authorized and validly issued
and are fully paid and non-assessable, and are owned by the Company,
directly or indirectly through one or more subsidiaries, free and clear
of any security interest, claim, lien, encumbrance or adverse interest
of any nature, except as set forth in the Prospectus and except for any
liens granted under the Second Amended and Restated Credit Agreement
among the Company and First Union National Bank, dated as of December
30, 1998, a copy of which has been filed as an Exhibit to the
Registration Statement.
(h) The authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus.
(i) Neither the Company nor any of its subsidiaries is in
violation of its respective charter or by-laws or in default in the
performance of any obligation, agreement, covenant or condition
contained in any indenture, loan agreement, mortgage, lease or other
agreement or instrument to which the Company or any of its subsidiaries
is a party or by which, to the knowledge of the Company, the Company or
any of its subsidiaries or their respective property is bound; except
for such violations, defaults or non-performances that, individually or
in the aggregate, would not result in a material adverse effect on the
Company and its subsidiaries taken as a whole.
(j) The execution, delivery and performance of this Agreement
by the Company, the compliance by the Company with all the provisions
hereof and the consummation of the transactions contemplated hereby
will not (i) require any consent, approval, authorization or other
order of, or qualification with, any court or governmental body or
agency (except such as may be required under the securities or Blue Sky
laws of the various states), (ii) conflict with or constitute a breach
of any of the terms or provisions of, or a default under, the charter
or by-laws of the Company or
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<PAGE> 12
any of its subsidiaries or any indenture, loan agreement, mortgage,
lease or other agreement or instrument that is material to the Company
and its subsidiaries, taken as a whole, to which the Company or any of
its subsidiaries is a party or by which, to the knowledge of the
Company, the Company or any of its subsidiaries or their respective
property is bound, (iii) violate or conflict with any applicable law or
any rule, regulation, judgment, order or decree of any court or any
governmental body or agency expressly applicable to the Company, any of
its subsidiaries or their respective property or (iv) result in the
suspension, termination or revocation of any Authorization (as defined
below) of the Company or any of its subsidiaries or any other
impairment of the rights of the holder of any such Authorization.
(k) There are no legal or governmental proceedings pending or
threatened to which the Company or any of its subsidiaries is a party
or to which any of their respective property is subject that are
required to be described in the Registration Statement or the
Prospectus and are not so described; nor are there any statutes,
regulations, contracts or other documents that are required to be
described in the Registration Statement or the Prospectus or to be
filed as exhibits to the Registration Statement that are not so
described or filed as required.
(l) To the knowledge of the Company, neither the Company nor
any of its subsidiaries has violated any foreign, federal, state or
local law or regulation relating to the protection of human health and
safety, the environment or hazardous or toxic substances or wastes,
pollutants or contaminants ("ENVIRONMENTAL LAWS") or any provisions of
the Employee Retirement Income Security Act of 1974, as amended, or the
Foreign Corrupt Practices Act or the rules and regulations promulgated
thereunder, except for such violations which, singly or in the
aggregate, would not have a material adverse effect on the business,
prospects, financial condition or results of operation of the Company
and its subsidiaries, taken as a whole.
(m) Each of the Company and its subsidiaries has such permits,
licenses, consents, exemptions, franchises, authorizations and other
approvals (each, an "AUTHORIZATION") of, and has made all filings with
and notices to, all governmental or regulatory authorities and
self-regulatory organizations and all courts and other tribunals,
including, without limitation, under any applicable Environmental Laws,
as are necessary to own, lease, license and operate its respective
properties and to conduct its business, except where the failure to
have any such Authorization or to make any such filing or notice would
not, singly or in the aggregate, have
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<PAGE> 13
a material adverse effect on the business, prospects, financial
condition or results of operations of the Company and its subsidiaries,
taken as a whole. Each such Authorization is valid and in full force
and effect and each of the Company and its subsidiaries is in
compliance with all the terms and conditions thereof and with the rules
and regulations of the authorities and governing bodies having
jurisdiction with respect thereto; and to the knowledge of the Company,
no event has occurred (including, without limitation, the receipt of
any notice from any authority or governing body) which allows or, after
notice or lapse of time or both, would allow, revocation, suspension or
termination of any such Authorization or which results or, after notice
or lapse of time or both, would result in any other impairment of the
rights of the Company or its subsidiaries; and such Authorizations
contain no restrictions that are burdensome to the Company or any of
its subsidiaries; except where such failure to be valid and in full
force and effect or to be in compliance, the occurrence of any such
event or the presence of any such restriction would not, singly or in
the aggregate, have a material adverse effect on the business,
prospects, financial condition or results of operations of the Company
and its subsidiaries, taken as a whole.
(n) To the knowledge of the Company, there are no costs or
liabilities associated with Environmental Laws (including, without
limitation, any capital or operating expenditures required for
clean-up, closure of properties or compliance with Environmental Laws,
any related constraints on operating activities and any potential
liabilities to third parties) which would, singly or in the aggregate,
have a material adverse effect on the business, prospects, financial
condition or results of operations of the Company and its subsidiaries,
taken as a whole.
(o) This Agreement has been duly authorized, executed and
delivered by the Company.
(p) Arthur Andersen LLP are independent public accountants
with respect to the Company and its subsidiaries as required by the
Act.
(q) The consolidated financial statements included in the
Registration Statement and the Prospectus (and any amendment or
supplement thereto), together with related schedules and notes, present
fairly the consolidated financial position, results of operations and
changes in financial position of the Company and its subsidiaries on
the basis stated therein at the respective dates or for the respective
periods to which they apply; such statements and related schedules and
notes have been prepared in accordance with generally accepted
accounting principles
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<PAGE> 14
consistently applied throughout the periods involved, except as
disclosed therein; the supporting schedules, if any, included in the
Registration Statement present fairly in accordance with generally
accepted accounting principles the information required to be stated
therein; and the other financial and statistical information and data
set forth in the Registration Statement and the Prospectus (and any
amendment or supplement thereto) in all material respects fairly
present the information and data so set forth.
(r) The Company is not and, after giving effect to the
offering and sale of the Shares and the application of the proceeds
thereof as described in the Prospectus, will not be, an "investment
company" as such term is defined in the Investment Company Act of 1940,
as amended.
(s) Except as set forth in the Registration Agreement dated as
of April 9, 1995, as amended on August 13, 1997 (the "REGISTRATION
AGREEMENT"), there are no contracts, agreements or understandings
between the Company and any person granting such person the right to
require the Company to file a registration statement under the Act with
respect to any securities of the Company or to require the Company to
include such securities with the Shares registered pursuant to the
Registration Statement.
(t) Since January 3, 1999, other than as set forth in the
Prospectus (exclusive of any amendments or supplements thereto
subsequent to the date of this Agreement), (i) there has not occurred
any material adverse change or any development involving a prospective
material adverse change in the condition, financial or otherwise, or
the earnings, business, management or operations of the Company and its
subsidiaries, taken as a whole, (ii) there has not been any material
adverse change or any development involving a prospective material
adverse change in the capital stock or in the long-term debt of the
Company or any of its subsidiaries and (iii) neither the Company nor
any of its subsidiaries has incurred any material liability or
obligation, direct or contingent, other than in the ordinary course of
business.
(u) Each certificate signed by any officer of the Company and
delivered to the Underwriters or counsel for the Underwriters shall be
deemed to be a representation and warranty by the Company to the
Underwriters as to the matters covered thereby.
SECTION 7. Representations and Warranties of the Selling Stockholders.
Each Selling Stockholder represents and warrants to each Underwriter
that:
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<PAGE> 15
(a) As of the date hereof, such Selling Stockholder has good
title to its shares of common and/or preferred stock of the Company, to
be sold by such Selling Stockholder upon conversion into Common Stock,
as applicable, pursuant to this Agreement and free of all adverse
claims.
(b) Upon the consummation of the public offering of the
Shares, all of such Selling Stockholder's shares of Classes A, B, C and
D Preferred Stock will have been converted, if applicable, into shares
of Common Stock pursuant to the Company's Third Amended and Restated
Articles of Incorporation.
(c) On the Closing Date, such Selling Stockholder will have
good title to the Shares to be sold by such Selling Stockholder
pursuant to this Agreement, free of all adverse claims.
(d) Such Selling Stockholder has, and on the Closing Date will
have, full legal right, power and authority, and all authorization and
approval required by law, to enter into this Agreement, the Custody
Agreement signed by such Selling Stockholder and The Bank of New York,
as Custodian, relating to the deposit of the Shares to be sold by such
Selling Stockholder (the "CUSTODY AGREEMENT") and the Power of Attorney
of such Selling Stockholder, except Clipper Capital Associates, L.P.,
Clipper/European Re, L.P., Clipper/Merban, L.P., Clipper Equity
Partners I, L.P. and Clipper/Merchant Partners, L.P. (the "CLIPPER
SELLING STOCKHOLDERS"), appointing certain individuals as such Selling
Stockholder's attorneys-in-fact (the "ATTORNEYS") to the extent set
forth therein, relating to the transactions contemplated hereby and by
the Registration Statement and the Custody Agreement (the "POWER OF
ATTORNEY") and to sell, transfer and deliver the Shares to be sold by
such Selling Stockholder in the manner provided herein and therein.
(e) This Agreement has been duly authorized, executed and
delivered by or on behalf of such Selling Stockholder.
(f) The Custody Agreement of such Selling Stockholder has been
duly authorized, executed and delivered by such Selling Stockholder and
is a valid and binding agreement of such Selling Stockholder,
enforceable in accordance with its terms.
(g) The Power of Attorney of such Selling Stockholder, if
applicable, has been duly authorized, executed and delivered by such
Selling Stockholder and is a valid and binding instrument of such
Selling Stockholder, but subject to any conditions or limitations set
forth therein,
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<PAGE> 16
enforceable in accordance with its terms, and, pursuant to such Power
of Attorney, such Selling Stockholder has, among other things,
authorized the Attorneys, or any one of them, to execute and deliver on
such Selling Stockholder's behalf this Agreement and any other document
that they, or any one of them, may deem necessary or desirable in
connection with the transactions contemplated hereby or thereby and to
deliver the Shares to be sold by such Selling Stockholder pursuant to
this Agreement.
(h) Upon payment for the Shares to be sold by the Selling
Stockholders as provided herein, delivery of such Shares, as directed
by the Underwriters, to Cede & Co. ("Cede") or such other nominee as
may be designated by Depoistory Trust Company ("DTC"), registration of
such Shares in the name of Cede or such other nominee and on the
Company's share registry in accordance with the Company's certificate
of incorporation, by-laws and applicable law and as required by Section
8-401 of the Uniform Commercial Code as in effect in the State of New
York (the "UCC") and an indication from DTC by book entry that in the
case of each Underwriter, the Shares being purchased by or on behalf of
such Underwriter have been credited to "securities accounts" (as
defined in Section 8-501 of the UCC) of such Underwriter with DTC
(assuming that neither DTC nor any such Underwriter has notice of any
adverse claim (as such phrase is defined in Section 8-105 of the UCC)
to such Shares), (A) DTC shall be a "protected purchaser" of such
Shares within the meaning of Section 8-303 of the Uniform Commercial
Code ("UCC"), and (B) under Section 8-501 of the UCC, each Underwriter
will acquire a valid "security entitlement" (as defined in Section
8-102 of the UCC) to the Shares being so purchased by or on behalf of
such Underwriter, and, to the extent governed by the UCC, no action
based on any "adverse claim" (as defined in Section 8-102 of the UCC)
to such Shares (or security entitlement with respect thereto) may
properly be asserted against such Underwriter with respect to such
security entitlement; it being understood that for the purpose of this
representation and warranty, such Selling Stockholder may assume that
when such payment, delivery, registration and crediting occur, (x) Cede
or such other nominee is not a "securities intermediary" (as defined in
Section 8-102 of the UCC), (y) registration of such Shares in the name
of Cede or another nominee designated by DTC is effective to register
such Shares in the name of DTC for purposes of Section 8-106 (b)(2) of
the UCC, and (z) DTC is a "clearing corporation" (as defined in Section
8-102 of the UCC).
(i) The execution, delivery and performance of this Agreement
and the Custody Agreement and Power of Attorney, if any, of such
Selling Stockholder by or on behalf of such Selling Stockholder, the
compliance by such Selling Stockholder with all the provisions hereof
and thereof and the consummation of the transactions contemplated
hereby and thereby will not (i) require any consent, approval,
authorization or other order of, or qualification with, any court or
governmental body or agency (except such as may be required under the
securities or Blue Sky laws of the various states), (ii) conflict with
or constitute a breach of any of the terms or provisions of, or a
default under, the organizational documents of such Selling
Stockholder, if such Selling Stockholder is not an individual, or any
indenture, loan agreement, mortgage, lease or other agreement or
instrument to which such Selling Stockholder is a party or by which, to
the knowledge of such Selling Stockholder, such Selling Stockholder or
any property of such Selling Stockholder is bound or (iii) violate or
conflict with any applicable law or any rule, regulation, judgment,
order or decree of any court or any governmental body or agency
expressly applicable to such Selling Stockholder or any property of
such Selling Stockholder.
(j) The information in the Registration Statement under the
caption "Principal and Selling Shareholders" which specifically relates
to such Selling Stockholder does not, and will not on the Closing Date,
contain any untrue statement of a material fact or omit to state any
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<PAGE> 17
material 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.
(k) At any time during the period described in Section 5(d),
if there is any change in the information referred to in Section 7(j),
such Selling Stockholder will immediately notify you of such change.
(l) Each certificate signed by or on behalf of such Selling
Stockholder and delivered to the Underwriters or counsel for the
Underwriters shall be deemed to be a representation and warranty by
such Selling Stockholder to the Underwriters as to the matters covered
thereby.
SECTION 8. Indemnification. (a) The Company agrees to indemnify and
hold harmless each Underwriter, its directors, its officers and each person, if
any, who controls any Underwriter within the meaning of Section 15 of the Act or
Section 20 of the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT"), from and against any and all losses, claims, damages, liabilities and
judgments (including, without limitation, any legal or other expenses incurred
in connection with investigating or defending any matter, including any action,
that could give rise to any such losses, claims, damages, liabilities or
judgments) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement (or any amendment
thereto), the Prospectus (or any amendment or supplement thereto) or any
preliminary prospectus, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or judgments are caused by any such untrue statement or
omission or alleged untrue statement or omission based upon information relating
to any Underwriter furnished in writing to the Company by such Underwriter
through you expressly for use therein; provided, however, that the foregoing
indemnity agreement with respect to any preliminary prospectus shall not inure
to the benefit of any Underwriter from whom the person asserting any such
losses, claims, damages or liabilities purchased Shares, or any person
controlling such Underwriter, if 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, prior or together with the written confirmation of the sale of the
Shares to such person, and if the Prospectus (as so amended or supplemented)
would have cured the defect giving rise to the assertion of such losses, claims,
damages or liabilities.
(b) The Sellers agree to indemnify and hold harmless the QIU, its
directors, its officers and each person, if any, who controls the QIU within the
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meaning of Section 15 of the Act or Section 20 of the Exchange Act, from and
against any and all losses, claims, damages, liabilities and judgments
(including, without limitation, any legal or other expenses incurred in
connection with defending or investigating any matter, including any action that
could give rise to any such losses, claims, damages, liabilities or judgments)
related to, based upon or arising out of the QIU's activities as QIU under its
engagement pursuant to Section 2 hereof, except insofar as any such losses,
claims, damages, liabilities or judgments are found in a final judgment by a
court of competent jurisdiction, not subject to further appeal, to have resulted
solely from the willful misconduct or gross negligence of the QIU.
Notwithstanding the foregoing, the indemnification provided by this Section 8(b)
relates only to the activities of DLJ as the QIU that it would not otherwise
have been engaged in but for its engagement as QIU pursuant to Section 2 hereof.
(c) The Selling Shareholders identified in Schedule II (referred to
each as a "MANAGEMENT SELLING SHAREHOLDER"), severally and not jointly, agree to
indemnify and hold harmless each Underwriter, its directors, its officers and
each person, if any, who controls any Underwriter within the meaning of Section
15 of the Act or Section 20 of the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT"), from and against any and all losses, claims, damages,
liabilities and judgments (including, without limitation, any legal or other
expenses incurred in connection with investigating or defending any matter,
including any action, that could give rise to any such losses, claims, damages,
liabilities or judgments) caused by any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement (or any
amendment thereto), the Prospectus (or any amendment or supplement thereto) or
any preliminary prospectus, or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or judgments are caused by any such untrue statement or
omission or alleged untrue statement or omission based upon information relating
to any Underwriter furnished in writing to the Company by such Underwriter
through you expressly for use therein; provided, however, that the foregoing
indemnity agreement with respect to any preliminary prospectus shall not inure
to the benefit of any Underwriter from whom the person asserting any such
losses, claims, damages or liabilities purchased Shares, or any person
controlling such Underwriter, if 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, prior or together with the written confirmation of the sale of the
Shares to such person, and if the Prospectus (as so amended or supplemented)
would have cured the defect giving rise to such losses, claims, damages or
liabilities. Notwithstanding the foregoing, (i) the liability of each Management
Selling Stockholder pursuant to this Section 8(c) shall be
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<PAGE> 19
limited to an amount equal to the total net proceeds (after deducting
underwriting discounts and commissions and expenses) received by such Management
Selling Stockholder from the Underwriters for the sale of the Shares sold by
such Management Selling Stockholder hereunder and (ii) the Management Selling
Stockholders shall not be required to honor any demand for indemnity from any
Underwriter pursuant to this Section 8 unless, prior to the making of such
demand by the Underwriter, such Underwriter shall have delivered a written
demand to the Company seeking indemnity and the Company shall have failed to
perform its obligations in respect thereof pursuant to this Section 8 and such
failure shall have continued for a period of 90 days.
(d) The Selling Stockholders who are listed in Schedule III (referred
to herein as the "NON-MANAGEMENT SELLING STOCKHOLDERS"), severally and not
jointly, agree to indemnify and hold harmless each Underwriter, its directors,
its officers and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT"), from and against any and all losses,
claims, damages, liabilities and judgments (including, without limitation, any
legal or other expenses incurred in connection with investigating or defending
any matter, including any action, that could give rise to any such losses,
claims, damages, liabilities or judgments) caused by any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement (or any amendment thereto), the Prospectus (or any amendment or
supplement thereto) or any preliminary prospectus, or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
such losses, claims, damages, liabilities or judgments are caused by any such
untrue statement or omission or alleged untrue statement or omission based upon
information relating to any Underwriter furnished in writing to the Company by
such Underwriter through you expressly for use therein; provided, however, that
the foregoing indemnity agreement with respect to any preliminary prospectus
shall not inure to the benefit of any Underwriter from whom the person asserting
any such losses, claims, damages or liabilities purchased Shares, or any person
controlling such Underwriter, if 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, prior or together with the written confirmation of the sale of the
Shares to such person, and if the Prospectus (as so amended or supplemented)
would have cured the defect giving rise to such losses, claims, damages or
liabilities. Notwithstanding the foregoing, (i) the liability of each
Non-Management Selling Stockholder pursuant to this Section 8(d) shall be
limited to an amount equal to the total net proceeds (after deducting
underwriting discounts and commissions and expenses) received by such
Stockholder from the Underwriters for the sale of the Shares sold by such
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Stockholder hereunder, (ii) each of the Non-Management Selling Stockholders will
be liable in any such case only to the extent that such loss, claim, damage or
liability arises out of or is based upon any untrue statement or alleged untrue
statement in or omission or alleged omission from any such document is in
reliance upon and in conformity with written information relating to such
Non-Management Selling Stockholder, furnished to the Company by such
Non-Management Selling Stockholder specifically for use therein, and (iii) the
Non-Management Selling Stockholders shall not be required to honor any demand
for indemnity from any Underwriter pursuant to this Section 8 unless, prior to
the making of such demand by the Underwriter, such Underwriter shall have
delivered a written demand to the Company seeking indemnity and the Company
shall have failed to perform its obligations in respect thereof pursuant to this
Section 8 and such failure shall have continued for a period of 90 days.
(e) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, its officers who sign the
Registration Statement, each person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, each Selling
Stockholder and each person, if any, who controls such Selling Stockholder
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act to
the same extent as the foregoing indemnity from the Sellers to such Underwriter
but only with reference to information relating to such Underwriter furnished in
writing to the Company by such Underwriter expressly for use in the Registration
Statement (or any amendment thereto), the Prospectus (or any amendment or
supplement thereto) or any preliminary prospectus.
(f) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 8 (the "INDEMNIFIED
PARTY"), the indemnified party shall promptly notify each person against whom
such indemnity is being sought (each, an "INDEMNIFYING PARTY") in writing and
the indemnifying party shall assume the defense of such action, including the
employment of counsel reasonably satisfactory to the indemnified party and the
payment of all fees and expenses of such counsel, as incurred (except that in
the case of any action in respect of which indemnity may be sought pursuant to
any of Sections 8(a), 8(b), 8(c) or 8(d) and pursuant to Section 8(e), the
Underwriter shall not be required to assume the defense of such action pursuant
to this Section 8(f), but may employ separate counsel and participate in the
defense thereof, but the fees and expenses of such counsel, except as provided
below, shall be at the expense of such Underwriter). Any indemnified party shall
have the right to employ separate counsel in any such action and participate in
the defense thereof, but the fees and expenses of such counsel shall be at the
expense of the indemnified party unless (i) the employment of such counsel shall
have been specifically authorized in writing by each indemnifying party, (ii)
each
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indemnifying party shall have failed to assume the defense of such action or
employ counsel reasonably satisfactory to the indemnified party or (iii) the
named parties to any such action (including any impleaded parties) include both
the indemnified party and an indemnifying party, and the indemnified party shall
have been advised by such counsel that there may be one or more legal defenses
available to it which are different from or additional to those available to the
indemnifying party (in which case the indemnifying party shall not have the
right to assume the defense of such action on behalf of the indemnified party).
In any such case, the indemnifying parties shall not, in connection with any one
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for (i) the fees and expenses of more than one separate firm of attorneys
(in addition to any local counsel) for all Underwriters, their officers and
directors and all persons, if any, who control any Underwriter within the
meaning of either Section 15 of the Act or Section 20 of the Exchange Act, (ii)
the fees and expenses of more than one separate firm of attorneys (in addition
to any local counsel) for the Company, its directors, its officers who sign the
Registration Statement and all persons, if any, who control the Company within
the meaning of either such Section and (iii) the fees and expenses of more than
one separate firm of attorneys (in addition to any local counsel) for all
Selling Stockholders and all persons, if any, who control any Selling
Stockholder within the meaning of either such Section, and all such fees and
expenses shall be reimbursed as they are incurred; provided, that if the QIU has
designated a separate firm of attorneys pursuant to Section 8(g) for any such
action or actions, then DLJ will not designate an additional, separate firm of
attorneys (for local counsel) pursuant to this Section 8(f). In the case of any
such separate firm for the Underwriters, their officers and directors and such
control persons of any Underwriters, such firm shall be designated in writing by
Donaldson, Lufkin & Jenrette Securities Corporation. In the case of any such
separate firm for the Company and such directors, officers and control persons
of the Company, such firm shall be designated in writing by the Company. In the
case of any such separate firm for the Clipper Selling Stockholders and such
control persons of any Clipper Selling Stockholders, said firm shall be
designated in writing by The Clipper Group, L.P. In the case of any such
separate firm for the Selling Stockholders, other than Clipper Selling
Stockholders, and such control persons of such Selling Stockholders, such firm
shall be designated in writing by the Attorneys. The indemnifying party shall
indemnify and hold harmless the indemnified party from and against any and all
losses, claims, damages, liabilities and judgments by reason of any settlement
of any action effected with its written consent. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement or compromise of, or consent to the entry of judgment with respect
to, any pending or threatened action in respect of which the indemnified party
is or reasonably could have been a party and indemnity or contribution may be or
could have been sought hereunder by the indemnified
21
<PAGE> 22
party, unless such settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all liability on claims that
are or reasonably could have been the subject matter of such action and (ii)
does not include a statement as to or an admission of fault, culpability or a
failure to act, by or on behalf of the indemnified party.
(g) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to paragraph (b) of this
Section 8 (the "QIU INDEMNIFIED PARTY"), the QIU Indemnified Party shall
promptly notify the Sellers in writing and the Sellers shall assume the defense
of such action, including the employment of counsel reasonably satisfactory to
the QIU Indemnified Party and the payment of all fees and expenses of such
counsel, as incurred. Any QIU Indemnified Party shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of the QIU
Indemnified Party unless (i) the employment of such counsel shall have been
specifically authorized in writing by the Sellers, (ii) the Sellers shall have
failed to assume the defense of such action or employ counsel reasonably
satisfactory to the QIU Indemnified Party or (iii) the named parties to any such
action (including any impleaded parties) include both the QIU Indemnified Party
and the Sellers, and the QIU Indemnified Party shall have been advised by such
counsel that there may be one or more legal defenses available to it which are
different from or additional to those available to the Sellers (in which case
the Sellers shall not have the right to assume the defense of such action on
behalf of the QIU Indemnified Party). In any such case, the Sellers shall not,
in connection with any one action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the fees and expenses of more than
one separate firm of attorneys (in addition to any local counsel) for all QIU
Indemnified Parties, which firm shall be designated by the QIU, and all such
fees and expenses shall be reimbursed as they are incurred; provided, that if
DLJ has designated a separate firm of attorneys pursuant to Section 8(f) for any
such action or actions, then DLJ will not designate an additional, separate firm
of attorneys (or local counsel) pursuant to this Section 8(g). The Sellers shall
indemnify and hold harmless the QIU Indemnified Party from and against any and
all losses, claims, damages, liabilities and judgments by reason of any
settlement of any action effected with its written consent. The Sellers shall
not, without the prior written consent of the QIU Indemnified Party, effect any
settlement or compromise of, or consent to the entry of judgment with respect
to, any pending or threatened action in respect of which the QIU Indemnified
Party is or could have been a party and indemnity or contribution may be or
could have been sought hereunder by the QUI Indemnified Party, unless such
settlement, compromise or judgment (i) includes an unconditional release of the
QIU Indemnified Party from all liability on claims that are or could have been
the subject matter of such action and (ii)
22
<PAGE> 23
does not include a statement as to or an admission of fault, culpability or a
failure to act by or on behalf of the QIU Indemnified Party.
(h) To the extent the indemnification provided for in this Section 8
is unavailable to an indemnified party or insufficient in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Sellers on the one hand and the Underwriters on the other hand from the offering
of the Shares or (ii) if the allocation provided by clause 8(h)(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 8(h)(i) above but also the
relative fault of the respective Sellers and the Underwriters in connection with
the statements or omissions which resulted in such losses, claims, damages,
liabilities or judgments, as well as any other relevant equitable
considerations. The relative benefits received by the respective Sellers and the
Underwriters shall be deemed to be in the same proportion as the total net
proceeds from the offering (after deducting underwriting discounts and
commissions but before deducting expenses) received by each such Seller, and the
total underwriting discounts and commissions received by the Underwriters, bear
to the total price to the public of the Shares, in each case as set forth in the
table on the cover page of the Prospectus. The relative fault of the respective
Sellers and the Underwriters shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company, the Management Selling Stockholders, the Non-Management
Selling Stockholders, or the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Sellers and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 8(h) 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 the immediately preceding paragraph. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses incurred by such indemnified party in
connection with investigating or defending any matter, including any action,
that could have given rise to such losses, claims, damages, liabilities or
judgments. Notwithstanding the provisions of this Section 8, no Underwriter
shall be required to contribute any amount in
23
<PAGE> 24
excess of the amount by which the total price at which the Shares underwritten
by it and distributed to the public were offered to the public exceeds the
amount of any damages which such Underwriter has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations to contribute pursuant to this Section 8(h) are several in
proportion to the respective number of Shares purchased by each of the
Underwriters hereunder and not joint.
Notwithstanding anything in this Section 8 to the contrary, the
aggregate liability of each Selling Stockholder to the Underwriters (including
the QUI), their directors, their officers and the persons who control one or
more of the Underwriters within the meaning of Section 15 of the Act of Section
20 if the Exchange Act, pursuant to this Section 8 shall be limited to the net
proceeds (after deducting underwriting discounts and commissions and expenses)
received by such Selling Stockholder from the sale of the Shares by such Selling
Stockholder hereunder. In addition, no Selling Stockholder shall be required to
make any payment to any Underwriter or any other person under this Section 8
until such time as such Underwriter or such other person has asserted a demand
against the Company and the Company shall have failed to make such payment
within a reasonable time pursuant to the provisions of Section 8.
(i) To the extent the indemnification provided for in this Section 8
is unavailable to a QIU Indemnified Party or insufficient in respect of any
losses, claims, damages, liabilities or judgments referred to therein, then the
Company, in lieu of indemnifying such QIU Indemnified Party, shall contribute to
the amount paid or payable by such QIU Indemnified Party as a result of such
losses, claims, damages, liabilities and judgments (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the QIU on the other hand from the offering of the Shares 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 QIU in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
QIU shall be deemed to be in the same proportion as the total net proceeds from
the offering (before deducting expenses) received by the Company as set forth in
the table on the cover page of the Prospectus, and the fee received by the QIU
pursuant to Section 2 hereof, bear to the sum of such total net proceeds. The
relative fault of the Company and the QIU shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the company or the QIU and the parties' relative intent,
knowledge, access to information and opportunity
24
<PAGE> 25
to correct or prevent such statement or omission and whether the QIU's
activities as QIU under its engagement pursuant to Section 2 hereof involved any
willful misconduct or gross negligence on the part of the QIU.
The Company and the QIU agree that it would not be just and equitable
if contribution pursuant to this Section 8(i) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by a QIU Indemnified Party as a result of the losses,
claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses incurred by such QIU Indemnified Party
in connection with investigating or defending any matter that could have given
rise to such losses, claims, damages, liabilities or judgments. In no event
shall any QIU Indemnified Party be required to contribute in the aggregate an
amount exceeding the fee received by DLJ pursuant to Section 2 hereof. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation.
(j) The remedies provided for in this Section 8 are not exclusive and
shall not limit any rights or remedies which may otherwise be available to any
indemnified party or to any QIU Indemnified Party at law or in equity, provided
that the aggregate liability of a Selling Stockholder to the Underwriters
(including the QUI), their directors, their officers and the persons who
control one or more of the Underwriters, within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act, pursuant to this Section 8 and such
rights or remedies shall be limited to the net proceeds (after deducting
underwriting discounts and commissions) received by such Selling Stockholders
from the sale of the Shares by such Selling Stockholders hereunder. In
addition, no rights or remedies may be asserted against a Selling Stockholder
by any Underwriter or any such director, officer or control person until such
time as such Underwriter, director, officer or control person has asserted a
claim for payment against the Company and such claim cannot be satisfied by the
Company.
(k) Each Selling Stockholder, except the Clipper Selling Stockholders,
hereby designates David's Bridal, Inc., 44 W. Lancaster Avenue, Suite 280,
Ardmore, PA 19004, as its authorized agent, upon which process may be served in
any action which may be instituted in any state or federal court in the City of
New York by any Underwriter, any director or officer of any Underwriter or any
person controlling any Underwriter asserting a claim for indemnification or
contribution under or pursuant to this Section 8, and each such Selling
Stockholder will accept the jurisdiction of such court in such action, and
waives, to the fullest extent permitted by applicable law, any defense based
upon lack of personal jurisdiction or venue. A copy of any such process shall be
sent or given to such Selling Stockholder, at the address for notices specified
in Section 11 hereof.
(l) Each Clipper Selling Stockholder hereby designates Clipper Capital
Associates, Inc., 650 Madison Avenue, 9th floor, New York, NY 10022, as its
authorized agent, upon which process may be served in any action which may be
instituted in any state or federal court in the City of New York by any
Underwriter, any director or officer of any Underwriter or any person
controlling any Underwriter asserting a claim for indemnification or
contribution under or pursuant to this Section 8, and each such Clipper Selling
Stockholder will accept
25
<PAGE> 26
the jurisdiction of such court in such action, and waives, to the fullest extent
permitted by applicable law, any defense based upon lack of personal
jurisdiction or venue. A copy of any such process shall be sent or given to such
Clipper Selling Stockholder, at the address for notices specified in Section 11
hereof.
SECTION 9. Conditions of Underwriters' Obligations. The several
obligations of the Underwriters to purchase the Firm Shares under this Agreement
are subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company
contained in this Agreement shall be true and correct on the Closing
Date with the same force and effect as if made on and as of the Closing
Date.
(b) If the Company is required to file a Rule 462(b)
Registration Statement after the effectiveness of this Agreement, such
Rule 462(b) Registration Statement shall have become effective by 10:00
P.M., New York City time, on the date of this Agreement; and no stop
order suspending the effectiveness of the Registration Statement shall
have been issued and no proceedings for that purpose shall have been
commenced or shall be pending before or contemplated by the Commission.
(c) You shall have received on the Closing Date a certificate
dated the Closing Date, signed by Steven H. Erlbaum, Robert D. Huth and
Edward S. Wozniak, in their capacities as the Chairman, the Chief
Executive Officer and President, and Chief Financial Officer of the
Company, confirming to their knowledge, the matters set forth in
Sections 6(t), 9(a) and 9(b) and that the Company has complied in all
material respects with all of the agreements and satisfied all of the
conditions herein contained and required to be complied with or
satisfied in all material respects by the Company on or prior to the
Closing Date.
(d) Since January 3, 1999, other than as set forth in the
Prospectus (exclusive of any amendments or supplements thereto
subsequent to the date of this Agreement), (i) there shall not have
occurred any change or any development involving a prospective change
in the condition, financial or otherwise, or the earnings, business,
management or operations of the Company and its subsidiaries, taken as
a whole, (ii) there shall not have been any change or any development
involving a prospective change in the capital stock or in the long-term
debt of the Company or any of its subsidiaries and (iii) neither the
Company nor any of its subsidiaries shall have incurred any liability
or obligation, direct or contingent other than in the ordinary course
of business, the effect of which, in any such case described in clause
9(d)(i), 9(d)(ii) or 9(d)(iii), in
26
<PAGE> 27
your reasonable judgment, is so material and adverse as to make it
impracticable to market the Shares on the terms and in the manner
contemplated in the Prospectus.
(e) All the representations and warranties of each Selling
Stockholder contained in this Agreement shall be true and correct on
the Closing Date with the same force and effect as if made on and as of
the Closing Date and you shall have received on the Closing Date a
certificate dated the Closing Date from each Selling Stockholder (or
their attorney-in-fact) to such effect and to the effect that such
Selling Stockholder has complied with all of the agreements and
satisfied all of the conditions herein contained and required to be
complied with or satisfied by such Selling Stockholder on or prior to
the Closing Date.
(f) You shall have received on the Closing Date an opinion
reasonably satisfactory to you and counsel for the Underwriters, dated
the Closing Date, of Morgan, Lewis & Bockius LLP, counsel for the
Company and the Selling Stockholders (except the Clipper Selling
Stockholders, Adwood/Kafry and Michael Moore), to the effect set forth
in Exhibit A.
The opinion of Morgan, Lewis & Bockius LLP described in Section
9(f) above and set forth in Exhibit B shall be rendered to you at
the request of the Company and the Selling Stockholders and shall
so state therein.
(g) You shall have received on the Closing Date an opinion
reasonably satisfactory to you and counsel for the Underwriters, dated
the Closing Date, of Kirkland & Ellis, counsel to the Clipper Selling
Stockholders, to the effect set forth in Exhibit B.
(h) You shall have received on the Closing Date an opinion
reasonably satisfactory to you and counsel for the Underwriters dated
the Closing Date, of Steve Antal, general counsel for First Union
Corporation, to the effect set forth in Exhibit D.
(i) You shall have received on the Closing Date an opinion,
dated the Closing Date, of Davis Polk & Wardwell, counsel for the
Underwriters, as to the matters referred to in Exhibit A, Sections
(iv), (v) (but only with respect to the Company), (ix) (but only with
respect to the statements under the caption "Underwriting") and (xv).
27
<PAGE> 28
(j) You shall have received, on each of the date hereof and
the Closing Date, a letter dated the date hereof or the Closing Date,
as the case may be, reasonable to you, from Arthur Andersen LLP,
independent public accountants, containing the information and
statements as set forth in Exhibit C with respect to the financial
statements and certain financial information contained in the
Registration Statement and the Prospectus.
(k) The Company shall have delivered to you the agreements
specified in the last sentence of Section 2 hereof which agreements
shall be in full force and effect on the Closing Date.
(l) The Shares shall have been duly listed, subject to notice
of issuance, on the NASDAQ, National Market System.
(m) The Company and the Selling Stockholders shall not have
failed on or prior to the Closing Date to perform or comply in any
material respect with any of the agreements herein contained and
required to be performed or complied with by the Company or the Selling
Stockholders, as the case may be, on or prior to the Closing Date.
(n) You shall have received on the Closing Date, a certificate
of each Selling Stockholder who is not a U.S. Person (as defined under
applicable U.S. federal tax legislation) to the effect that such
Selling Stockholder is not a U.S. Person, which certificate may be in
the form of a properly completed and executed United States Treasury
Department Form W-8 (or other applicable form or statement specified by
Treasury Department regulations in lieu thereof).
The several obligations of the Underwriters to purchase any Additional Shares
hereunder are subject to the delivery to you on the applicable Option Closing
Date of such documents as you may reasonably request with respect to the good
standing of the Company, the due authorization and issuance of such Additional
Shares and other matters related to the issuance of such Additional Shares.
SECTION 10. Effectiveness of Agreement and Termination. This
Agreement shall become effective upon the execution and delivery of this
Agreement by the parties hereto.
This Agreement may be terminated at any time on or prior to the Closing
Date by you by written notice to the Sellers if any of the following has
occurred: (i) any outbreak or escalation of hostilities or other national or
international calamity or crisis or change in economic conditions or in the
financial markets of
28
<PAGE> 29
the United States or elsewhere that, in your judgment, is so material and
adverse as to make it impracticable to market the Shares on the terms and in the
manner contemplated in the Prospectus, (ii) the suspension or material
limitation of trading in securities on the New York Stock Exchange, the American
Stock Exchange, the Chicago Board of Options Exchange, the Chicago Mercantile
Exchange, the Chicago Board of Trade or the Nasdaq National Market or limitation
on prices for securities or other instruments on any such exchange or the Nasdaq
National Market, (iii) the suspension of trading of any securities of the
Company on any exchange or in the over-the-counter market, (iv) the enactment,
publication, decree or other promulgation of any federal or state statute,
regulation, rule or order of any court or other governmental authority which in
your opinion materially and adversely affects, or will materially and adversely
affect, the business, prospects, financial condition or results of operations of
the Company and its subsidiaries, taken as a whole, (v) the declaration of a
banking moratorium by either federal or New York State authorities or (vi) the
taking of any action by any federal, or New York state government or agency in
respect of its monetary or fiscal affairs which in your opinion has a material
adverse effect on the financial markets in the United States.
If on the Closing Date or on an Option Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase the
Firm Shares or Additional Shares, as the case may be, which it has or they have
agreed to purchase hereunder on such date and the aggregate number of Firm
Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase is not more
than one-tenth of the total number of Firm Shares or Additional Shares, as the
case may be, to be purchased on such date by all Underwriters, each
non-defaulting Underwriter shall be obligated severally, in the proportion which
the number of Firm Shares set forth opposite its name in Schedule I bears to the
total number of Firm Shares which all the non-defaulting Underwriters have
agreed to purchase, or in such other proportion as you may specify, to purchase
the Firm Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase on such
date; provided that in no event shall the number of Firm Shares or Additional
Shares, as the case may be, which any Underwriter has agreed to purchase
pursuant to Section 2 hereof be increased pursuant to this Section 10 by an
amount in excess of one-ninth of such number of Firm Shares or Additional
Shares, as the case may be, without the written consent of such Underwriter. If
on the Closing Date any Underwriter or Underwriters shall fail or refuse to
purchase Firm Shares and the aggregate number of Firm Shares with respect to
which such default occurs is more than one-tenth of the aggregate number of Firm
Shares to be purchased by all Underwriters and arrangements satisfactory to you,
the Company and the Selling Stockholders for purchase of such Firm Shares are
not made within 48 hours after such default, this Agreement
29
<PAGE> 30
will terminate without liability on the part of any non-defaulting Underwriter,
the Company or the Selling Stockholders. In any such case which does not result
in termination of this Agreement, either you or the Sellers shall have the right
to postpone the Closing Date, but in no event for longer than seven days, in
order that the required changes, if any, in the Registration Statement and the
Prospectus or any other documents or arrangements may be effected. If, on an
Option Closing Date, any Underwriter or Underwriters shall fail or refuse to
purchase Additional Shares and the aggregate number of Additional Shares with
respect to which such default occurs is more than one-tenth of the aggregate
number of Additional Shares to be purchased on such date, the non-defaulting
Underwriters shall have the option to (i) terminate their obligation hereunder
to purchase such Additional Shares or (ii) purchase not less than the number of
Additional Shares that such non-defaulting Underwriters would have been
obligated to purchase on such date in the absence of such default. Any action
taken under this paragraph shall not relieve any defaulting Underwriter from
liability in respect of any default of any such Underwriter under this
Agreement.
SECTION 11. Miscellaneous. Notices given pursuant to any provision of
this Agreement shall be addressed as follows: (i) if to the Company, to David's
Bridal, Inc., 44 West Lancaster Avenue, Suite 250, Ardmore, Pennsylvania 19003,
(ii) if to the Clipper Selling Stockholders, to Clipper Capital Associates,
Inc., 650 Madison Avenue, 9th floor, New York, NY 10022, with a copy to Kirkland
& Ellis, att: Stephen L. Ritchie, 200 East Randolph Drive, Chicago, Illinois
60601, (iii) if to the other Selling Stockholders, to Steven H. Erlbaum and
Robert D. Huth c/o David's Bridal, Inc., 44 West Lancaster Avenue, Suite 250,
Ardmore, PA 19003 and (iv) if to any Underwriter or to you, to you c/o
Donaldson, Lufkin & Jenrette Securities Corporation, 277 Park Avenue, New York,
New York 10172, Attention: Syndicate Department, or in any case to such other
address as the person to be notified may have requested in writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of the Company, the Selling Stockholders and the
several Underwriters set forth in or made pursuant to this Agreement shall
remain operative and in full force and effect, and will survive delivery of and
payment for the Shares, regardless of (i) any investigation, or statement as to
the results thereof, made by or on behalf of any Underwriter, the officers or
directors of any Underwriter, any person controlling any Underwriter, any QIU
Indemnified Party, the Company, the officers or directors of the Company, any
person controlling the Company, any Selling Stockholder or any person
controlling such Selling Stockholder, (ii) acceptance of the Shares and payment
for them hereunder and (iii) termination of this Agreement.
30
<PAGE> 31
If for any reason the Shares are not delivered by or on behalf of any
Seller as provided herein (other than as a result of any termination of this
Agreement pursuant to Section 10 or breach of this Agreement by any
Underwriter), the non-delivering Sellers agree, jointly and severally, to
reimburse the several Underwriters for all out-of-pocket expenses (including the
fees and disbursements of counsel) incurred by them. Notwithstanding any
termination of this Agreement, the Company shall be liable for all expenses
which it has agreed to pay pursuant to Section 5(i) hereof. The Sellers also
agree, jointly and severally, to reimburse the several Underwriters, their
directors and officers and any persons controlling any of the Underwriters for
any and all fees and expenses (including, without limitation, the fees and
disbursements of counsel) incurred by them in connection with enforcing their
rights hereunder (including, without limitation, pursuant to Section 8 hereof);
provided that the adjudication of such rights is determined by a court of
competent jurisdiction, not subject to further review and appeal, and the
Underwriter involved in such a dispute is the prevailing party.
Except as otherwise provided, this Agreement has been and is made
solely for the benefit of and shall be binding upon the Company, the Selling
Stockholders, the Underwriters, the Underwriters' directors and officers, any
controlling persons referred to herein, QIU Indemnified Parties, the Company's
directors and the Company's officers who sign the Registration Statement and
their respective successors and assigns, all as and to the extent provided in
this Agreement, and no other person shall acquire or have any right under or by
virtue of this Agreement. The term "successors and assigns" shall not include a
purchaser of any of the Shares from any of the several Underwriters merely
because of such purchase.
This Agreement shall be governed and construed in accordance with the
laws of the State of New York.
This Agreement may be signed in various counterparts which together
shall constitute one and the same instrument.
31
<PAGE> 32
Please confirm that the foregoing correctly sets forth the agreement
among the Company, the Selling Stockholders and the several Underwriters.
Very truly yours,
DAVID'S BRIDAL, INC.
By:
-----------------------------------------
Title:
CLIPPER/MERCHANT PARTNERS, L.P.
By: Clipper Capital Associates, L.P.
Its: General Partner
By: Clipper Capital Associates, Inc.
Its: General Partner
By:
-----------------------------------------
Eugene P. Lynch
Its:
----------------------------------
CLIPPER EQUITY PARTNERS I, L.P.
By: Clipper Capital Associates, L.P.
Its: General Partner
By: Clipper Capital Associates, Inc.
Its: General Partner
By:
-----------------------------------------
Eugene P. Lynch
Its:
----------------------------------
32
<PAGE> 33
CLIPPER/MERBAN, L.P.
By: Clipper Capital Associates, L.P.
Its: General Partner
By: Clipper Capital Associates, Inc.
Its: General Partner
By:
-----------------------------------------
Eugene P. Lynch
Its:
----------------------------------
CLIPPER CAPITAL ASSOCIATES, L.P.
By: Clipper Capital Associates, Inc.
Its: General Partner
By:
-----------------------------------------
Eugene P. Lynch
Its:
----------------------------------
CLIPPER/EUROPEAN RE, L.P.
By: Clipper Capital Associates, L.P.
Its: Investment General Partner
By: Clipper Capital Associates, Inc.
Its: General Partner
By:
-----------------------------------------
Eugene P. Lynch
Its:
----------------------------------
33
<PAGE> 34
THE SELLING STOCKHOLDERS
NAMED IN SCHEDULE II AND III
HERETO, ACTING SEVERALLY
(EXCEPT FOR THE CLIPPER
SELLING STOCKHOLDERS)
By:
-----------------------------------------
Steven H. Erlbaum
Attorney-in-fact
By:
-----------------------------------------
Robert D. Huth
Attorney-in-fact
34
<PAGE> 35
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
LEGG MASON WOOD WALKER,
INCORPORATED
Acting severally on behalf of themselves and the
several Underwriters named in Schedule I
hereto
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:
---------------------------------------
Steve Puccinelli
Title: Managing Director
35
<PAGE> 36
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF FIRM SHARES
UNDERWRITERS TO BE PURCHASED
- ------------ ---------------------
<S> <C>
Donaldson, Lufkin & Jenrette Securities
Corporation
Legg Mason Wood Walker, Incorporated
---------
Total 8,000,000
=========
</TABLE>
<PAGE> 37
SCHEDULE II
MANAGEMENT SELLING STOCKHOLDERS
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF FIRM ADDITIONAL SHARES
NAME SHARES BEING SOLD BEING SOLD
- ---- ----------------- ----------
<S> <C> <C>
Steven H. Erlbaum 1,205,427 165,600
Philip Youtie 339,476 46,636
Gary E. Erlbaum 509,018 69,928
Michael C. Erlbaum 147,810 40,305
Robert D. Huth 96,775 13,294
Steven J. Sidewater 17,743 2,417
--------- -------
Total 2,316,249 338,180
========= =======
</TABLE>
<PAGE> 38
SCHEDULE III
NON-MANAGEMENT SELLING STOCKHOLDERS
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF FIRM ADDITIONAL
NAME SHARES BEING SOLD SHARES BEING SOLD
- ---- ----------------- -----------------
<S> <C> <C>
Clipper Equity Partners I, L.P. 529,460 72,738
Clipper Capital Associates, L.P. 163,296 22,433
Clipper/Merchant Partners, L.P. 705,946 96,981
Clipper/European Re, L.P. 352,973 48,491
Clipper/Merban, L.P. 705,946 96,981
The Vederman Family Partnership 206,004 28,300
Jon Erlbaum 18,207 2,501
Marc Erlbaum 18,207 2,501
Daniel Erlbaum 18,207 2,501
Michael Moore 38,938 5,349
Shelly Shapiro 48,627 6,680
Mordechai Kafry 60,567 8,320
First Union Corporation 194,753 26,754
Michael Erlbaum and Gary 83,692 11,497
Erlbaum as Trustees under
the Agreement of Trust of
S.H. Erlbaum
Addwood Limited 89,540 12,300
</TABLE>
<PAGE> 39
SCHEDULE III (CONTINUED)
<TABLE>
<S> <C> <C>
Eileen Rae Winkler Youtie, 24,333 3,342
Custodian for Haleigh R.
Youtie
Eileen Rae Winkler Youtie, 29,608 4,067
Custodian for Maxwell Evan
Youtie
Andrew Taussig 48,387 6,647
Erlbaum Family L.P. 74,694 10,261
Haleigh Youtie, PY as 3,194 338
custodian
Maxwell Youtie, PY as 454 62
custodian
MCE Family Limited 66,741 9,168
Partnership
Retained Annuity Trust of 79,530 10,925
S.Sidewater
SPWJ Associates, L.P. 79,530 10,925
Adam Erlbaum, Gary and 194,731 26,751
Michael Erlbaum as Trustees
Wendy Sidewater Trust 14,591 2,004
Peter Sidewater Trust 14,591 2,004
Nancy Sidewater Trust 206,004 28,300
--------- -------
Total 4,070,751 559,121
========= =======
</TABLE>
2
<PAGE> 40
ANNEX I
PARTIES TO EXECUTE LOCK UPS
<TABLE>
<S> <C>
Steven H. Erlbaum Eileen Rae Winkler Youtie,
Custodian for Haleigh R. Youtie
Philip Youtie
Eileen Rae Winkler Youtie,
Gary E. Erlbaum Custodian for Maxwell Evan Youtie
Michael C. Erlbaum Andrew Taussig
Robert D. Huth Erlbaum Family L.P.
Steven J. Sidewater Haleigh Youtie, PY as custodian
Edward S. Wozniak Maxwell Youtie, PY as custodian
Susan Zeitz MCE Family Limited Partnership
Fred A. Postelle Retained Annuity Trust of
S.Sidewater
Marlene Karp
SPWJ Associates, L.P.
Kathy L. Kennedy
Adam Erlbaum, Gary and
Eugene P. Lynch Michael Erlbaum as Trustees
Robert B. Calhoun, Jr. Wendy Sidewater Trust
Clipper/Merchant Partners, L.P. Peter Sidewater Trust
Clipper Equity Partners I, L.P. Nancy Sidewater Trust
Clipper/Merban, L.P. Daniel Erlbaum
Clipper Capital Associates, L.P. Michael Moore
Clipper/European Re, L.P. Shelly Shapiro
The Vederman Family Partnership Mordechai Kafry
Jon Erlbaum First Union Corporation
Marc Erlbaum
</TABLE>
<PAGE> 41
ANNEX I
(continued)
Michael Erlbaum and Gary Addwood Limited
Erlbaum as Trustees under
the Agreement of Trust
of S.H. Erlbaum
1
<PAGE> 42
EXHIBIT A
Form of opinion from Morgan, Lewis & Bockius LLP, counsel for the
Company and the Selling Stockholders (except for the Clipper Selling
Stockholders and First Union Corporation), will include the following:
(i) the Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the state
of Florida and has the corporate power and authority to carry on its
business as described in the Prospectus and to own, lease and operate
its properties;
(ii) all the outstanding shares of capital stock of the
Company (including the Shares to be sold by the Selling Stockholders)
have been duly authorized and validly issued and are fully paid,
non-assessable and not subject to any statutory preemptive or, to such
counsel's knowledge, similar rights;
(iii) the Shares to be issued and sold by the Company
hereunder have been duly authorized and, when issued and delivered to
the Underwriters against payment therefor as provided by this
Agreement, will be validly issued, fully paid and non-assessable, and
the issuance of such Shares will not be subject to any statutory
preemptive or, to such counsel's knowledge, similar rights;
(iv) this Agreement has been duly authorized, executed and
delivered by the Company;
(v) the authorized capital stock of the Company conforms as
to legal matters to the description thereof contained in the
Prospectus;
(vi) based on the oral advisement of a member of the staff of
the Commission, the Registration Statement has become effective under
the Act, no stop order suspending its effectiveness has been issued and
no proceedings for that purpose are, to such counsel's knowledge,
pending before the Commission;
(vii) the statements under the captions "Stock Option Plan",
"Shares Eligible for Future Sale", and "Description of Capital Stock"
in the Prospectus and Item 14 of Part II of the Registration Statement,
insofar as such statements constitute a summary of the legal matters or
documents
1
<PAGE> 43
referred to therein, fairly present the information called for with
respect to such legal matters, documents and proceedings;
(viii) the execution, delivery and performance of this
Agreement by the Company, the compliance by the Company with all the
provisions hereof and the consummation by the Company of the
transactions contemplated hereby will not (A) require any material
consent, approval, authorization or other order of, or qualification
with, any court or governmental body or agency (except such as may be
required under the securities or Blue Sky laws of the various states),
(B) conflict with or constitute a breach of any of the terms or
provisions of, or a default under, the charter or by-laws of the
Company or to such counsel's knowledge, any indenture, loan agreement,
mortgage, lease or other agreement or instrument that is material to
the Company and its subsidiaries, taken as a whole, to which the
Company or any of its subsidiaries is a party, (C) to such counsel's
knowledge, violate or conflict with any applicable law or any rule,
regulation, or any judgment, order or decree of any court or any
governmental body or agency expressly applicable to the Company, any of
its subsidiaries or their respective property;
(iv) such counsel does not know of any legal or governmental
proceedings pending or threatened to which the Company or any of its
subsidiaries is a party or to which any of their respective property is
subject that are required to be described in the Registration Statement
or the Prospectus and are not so described, or of any statutes,
regulations, contracts or other documents that are required to be
described in the Registration Statement or the Prospectus or to be
filed as exhibits to the Registration Statement that are not so
described or filed as required;
(x) the Company is not and, after giving effect to the
offering and sale of the Shares and the application of the proceeds
thereof as described in the Prospectus, will not be, an "investment
company" as such term is defined in the Investment Company Act of 1940,
as amended;
(xi) to such counsel's knowledge, there are no contracts,
agreements or understandings between the Company and any person
granting such person the right to require the Company to file a
registration statement under the Act with respect to any securities of
the Company or to require the Company to include such securities with
the Shares registered pursuant to the Registration Statement except as
set forth in the Registration Agreement dated as of June 9, 1995, as
amended on August 15, 1997.
2
<PAGE> 44
(xii) the Registration Statement and the Prospectus and any
supplement thereto (except for the financial statements and other
financial and statistical data included therein as to which no opinion
need be expressed) comply as to form in all material respects with the
Act; and
(xiii) upon payment pursuant to the Underwriting Agreement for
the Shares to be sold by the Selling Stockholders (except the Clipper
Selling Stockholders and First Union Corporation) pursuant thereto,
delivery of such Shares, as directed by the Underwriters, to Cede or
such other nominee as may be designated by DTC, registration of such
Shares in the name of Cede or such other nominee as may be designated
by DTC on the Company's share registry in accordance with the Company's
certificate of incorporation, bylaws and applicable law and as required
by Section 8-401 of the Uniform Commercial Code as in effect in the
State of New York ("UCC") and an indication from DTC by book entry that
in the case of each Underwriter the Shares being purchased by or on
behalf of such Underwriter have been credited to "securities accounts"
(as defined in Section 8-501 of the UCC) of such Underwriter with DTC
(assuming that neither DTC nor any such Underwriter has notice of any
adverse claim (as such phrase is defined in Section 8-105 of the UCC)
to such Shares): (A) DTC shall be a "protected purchaser" of such
Shares within the meaning of Section 8-303 of the UCC, and (B) under
Section 8-501 of the UCC, each Underwriter will acquire a valid
"security entitlement" (as defined in Section 8-102 of the UCC) to the
Shares being so purchased by or on behalf of such Underwriter, and, to
the extent governed by the UCC, no action based on any "adverse claim"
(as defined in Section 8-102 of the UCC) to such Shares (or security
entitlement with respect thereto) may properly be asserted against such
Underwriter with respect to such security entitlement; provided that
the Underwriters do not have notice of such adverse claims within the
meaning of Section 8-105 of the UCC, and it being understood that for
the purpose of this opinion, such counsel has assumed without
independent verification, that the UCC is the law applicable to the
sale of the Shares and that when such payment, delivery, registration
and crediting occur, (x) Cede or such other nominee is not a "security
intermediary" (as defined in Section 8-102 of the UCC), (y)
registration of such Shares in the name of Cede or another nominee
designated by DTC is effective to register such Shares in the name of
DTC for purposes of Section 8-106 (b)(2) of the UCC and (z) DTC is a
"clearing corporation" (as defined in Section 8-102 of the UCC).
In addition, such counsel has participated in conferences with
representatives of the Underwriters, officers and other representatives of the
Company and representatives of the independent certified public accountants of
the Company, at which conferences the contents of the Registration Statement and
the prospectus and related matters discussed and, although such counsel does not
pass upon and does not assume any responsibility for the accuracy, completeness
or fairness of the statements contained in the Registration Statement and the
Prospectus, on the basis of the foregoing (relying as to materiality on the
factual representations of, and discussions with, officers and other
representatives of the Company), no facts have come to such counsel's attention
which cause such counsel to believe that (i) the Registration Statement, as of
the time it became effective under Securities Act, 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 (ii) the
Prospectus, as of the date thereof and as of the Closing Date, includes any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading; except that such counsel expresses no
3
<PAGE> 45
comment with respect to the financial statements and notes thereto, financial
schedules, and other financial and statistical information contained in the
Prospectus.
The foregoing opinions are limited to the federal laws of the United
States, the laws of the Commonwealth of Pennsylvania, and the Florida Business
Corporation Act. Such counsel's opinions in paragraph (ii) regarding the
validity of all issued shares of capital stock of the Company is based in part
on such counsel's assumption that the stock books of the Company provided to
such counsel document all issuances of capital stock of the Company since the
dates of its incorporation. No facts have come to such counsel's attention that
cause such counsel to believe that such assumption is not correct. In addition,
such counsel's opinion expressed in paragraph (i) above as to the existence in
good standing of the Company is based solely on a certificate of good standing
issued by the Secretary of State of the State of Florida, and has the meaning
imparted by such certificate.
In rendering the foregoing opinions and advisements, whenever a
statement, opinion or advisement set forth therein is qualified to "our
knowledge," or any similar phrase, it is intended to indicate that, during the
course of such counsel's representation of the Company in the subject
transaction, no information that would give such counsel current actual
knowledge of the inaccuracy of such statement, opinion or advisement has come to
the attention of those attorneys of such counsel who have rendered legal
services in connection with the preparation of the Registration Statement and
Prospectus. However, such counsel has not undertaken any independent
investigation to determine the accuracy of such statement, opinion or advisement
and no inference as to such counsel's knowledge of any matters bearing on the
accuracy of any such statement, opinion or advisement should be drawn from the
fact of such counsel's representation of the Company.
4
<PAGE> 46
EXHIBIT B
Form of opinion from Kirkland & Ellis, counsel for The Clipper Group
L.P., will include the following:
(i) Each of Clipper Capital Associates, L.P., Clipper European
Re, L.P., Clipper/Merban, L.P., Clipper Equity Partners I, L.P., and
Clipper/Merchant Partners, L.P. is a limited partnership existing and
in good standing under the __________ Act.
(ii) the General Partner of each of the Clipper Selling
Stockholders has adopted by requisite vote the resolutions necessary to
authorize such Clipper Selling Stockholder's execution, delivery and
performance of the Underwriting Agreement. Each of the Clipper Selling
Stockholders has duly executed and delivered the Underwriting Agreement
and a Custody Agreement.
(iii) Each of the Clipper Selling Stockholders has the
partnership power to enter into the Underwriting Agreement and the
Custody Agreement and to sell, assign, transfer and deliver the Clipper
Shares to be sold by such Clipper Selling Stockholder in the manner
provided in the Underwriting Agreement.
(iv) Each Custody Agreement executed by a Clipper Selling
Stockholder is a valid and binding obligation of such Clipper Selling
Stockholder and (assuming the due authorization, execution and delivery
thereof by the other parties thereto) is enforceable against such
Clipper Selling Stockholder in accordance with its terms.
(v) Upon the Underwriters' payment to the Clipper Selling
Stockholders of the purchase price specified in the Underwriting
Agreement, assuming that (i) the Clipper Shares to be sold by each
Clipper Selling Stockholder are registered securities in certificated
form and not held in any securities account or by or through a
securities intermediary within the meaning of the Uniform Commercial
Code as adopted by the State of New York (the "NYUCC"), (ii) the
certificate or certificates representing the Clipper Shares to be sold
by each such Clipper Selling Stockholder pursuant to the Underwriting
Agreement have been effectively endorsed in blank in accordance with
the NYUCC, (iii) the transfer agent, in its capacity as custodian for
the Underwriters, is not acting as a securities intermediary, (iv) Cede
& Co. is acting as DTC's nominee and is not a securities intermediary
and (v) DTC has no notice of
1
<PAGE> 47
any adverse claim to the Clipper Shares, then, by delivery of such
certificate or certificates to the Underwriters, each Underwriter will
be a "protected purchaser" of the Clipper Shares to be purchased
(within the meaning of Section 8-303 of the NYUCC) and will acquire its
interest in such Clipper Shares (including, without limitation, all
rights that such Clipper Selling Stockholder had or has the power to
transfer in such Clipper Shares) free of any adverse claim (assuming
the Underwriters are without notice of any adverse claim).
(vi) None of the Clipper Selling Stockholders were required to
obtain any consent, approval, authorization or order of or from any
governmental agency or body for the sale of the Clipper Shares being
sold by such Clipper Selling Stockholder or the consummation of the
transactions contemplated by the Underwriting Agreement, or the Custody
Agreement to which such Clipper Selling Stockholder is a party, except
for the order by the Commission declaring the Registration Statement
effective, and except registration of such Clipper Shares under the
Securities Act and such as may be required under state securities or
blue sky laws in connection with the offer, sale and distribution of
such Clipper Shares by the Underwriters.
(vii) the execution, delivery and performance of the
Underwriting Agreement and the Custody Agreement by each Clipper
Selling Stockholder and the sale of the Clipper Shares to you in
accordance with the Underwriting Agreement do not (A) violate the
[partnership agreement] of such Clipper Selling Stockholder or (B)
constitute a violation by such Clipper Selling Stockholder of any
applicable provision of any law, statute or regulation (except that we
express no opinion in this paragraph as to compliance with any
disclosure requirement or any prohibition against fraud or
misrepresentation or as to whether performance of the indemnification
or contribution provision in the Underwriting Agreement would be
permitted).
2
<PAGE> 48
EXHIBIT C
Form of comfort letter from Arthur Andersen LLP, independent public
accountants, will contain the following information and statements with respect
to the financial statements and certain financial information contained in the
Registration Statement and the Prospectus:
(i) that in their opinion the financial statements examined by
them and included or incorporated by reference in the Registration
Statement comply as to form in all material respects with the
applicable accounting requirements of the Act and the related rules and
regulations adopted by the SEC;
(ii) that they have performed the procedures specified by the
American Institute of Certified Public Accountants for a review of
interim financial information as described in Statement of Auditing
Standards No. 71, Interim Financial Information, on the unaudited
financial statements included in the Registration Statement;
(iii) that on the basis of the review referred to in clause
(ii) above, a reading of the latest available interim financial
statements of the Company, inquiries of officials of the Company who
have responsibility for financial and accounting matters and other
specified procedures, nothing came to their attention that caused them
to believe that:
(A) the unaudited financial statements included in the
Registration Statement do not comply as to form in all
material respects with the applicable accounting requirements
of the Act and the related rules and regulations adopted by
the SEC or any material modifications should be made to such
unaudited financial statements for them to be in conformity
with generally accepted accounting principles;
(B) at the date of the latest available balance sheet
read by such accountants, or at a subsequent specified date
not more than [five] business days prior to the date of this
Agreement, there was any change in the capital stock or any
increase in long-term debt or decrease in consolidated
Stockholders' equity of the Company; or
(C) for the period from the latest income statement
included in the Prospectus to the date of the latest available
income statement read by such accountants there were any
decreases, as
1
<PAGE> 49
compared with the corresponding period of the previous year
included in the Prospectus, in consolidated net sales or net
operating income;
except in all cases set forth in clauses (B) and (C) above for changes,
increases or decreases which the Prospectus discloses have occurred or may occur
or which are described in such letter; and
(iv) for specified dollar amounts (or percentages derived from
such dollar amounts) and other financial information contained in the
Registration Statement, they have performed additional procedures, as
detailed in the tickmarks contained in such letter, noting agreement
except as otherwise specified in such letter.
2
<PAGE> 50
EXHIBIT D
Form of opinion of counsel for First Union Corporation
Form of opinion from Steve Antal, general counsel for First Union
Corporation (the "CORPORATION"), will include the following:
(i) the Corporation has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the state
of [ ];
(ii) this Agreement has been duly authorized, executed and
delivered by the Corporation;
(iii) immediately prior to the sale of Shares to be sold by
the Corporation under this Agreement, the Corporation was the sole
registered owner of the Shares to be sold under this Agreement, and the
certificates evidencing all of such Shares bore no restrictive legends
other than legends relating to limitations on transferability under
Federal and state securities laws;
(iv) the Corporation has full legal right and capacity to
enter into this Agreement and the Custody Agreement and the Power of
Attorney and to sell, assign, transfer and deliver the Shares to be
sold by the Selling Stockholder in the manner provided herein and
therein;
(v) the Custody Agreement is a valid and binding agreement of
the Corporation enforceable in accordance with its terms;
(vi) the Power of Attorney is a valid and binding instrument
of the Corporation enforceable in accordance with its terms;
(vii) upon delivery of and payment for the Shares to be sold
by the Corporation pursuant to this Agreement, good title to such
Shares will pass to the Underwriters, free of all adverse claims; and
(viii) the execution, delivery and performance of this
Agreement, the Custody Agreement and Power of Attorney by the
Corporation, the compliance by the Corporation with all the provisions
hereof and thereof and the consummation of the transactions
contemplated hereby and thereby will not (A) require any consent,
approval, authorization or other order of, or qualification with, any
court or governmental body or agency, (B) conflict with or constitute a
breach of any of the terms or provisions
<PAGE> 51
of, or a default under, the partnership agreement of the Corporation,
(C) violate or conflict with any applicable law or any rule,
regulation, or any judgment, order or decree of any court or any
governmental body or agency expressly applicable to the Corporation.
<PAGE> 1
EXHIBIT 5.1
May 17, 1999
David's Bridal, Inc.
44 West Lancaster Avenue
Suite 250
Ardmore, PA 19003
Re: David's Bridal, Inc.
Registration Statement on Form S-1 (No. 333-72693)
Ladies and Gentlemen:
We have acted as counsel to David's Bridal, Inc., a Florida corporation (the
"Company"), in connection with the preparation of the above-referenced
Registration Statement on Form S-1 (the "Registration Statement"), relating to
the offering of up to 8,000,000 shares of the Company's common stock, .01 par
value (the "Common Stock"). Of such shares, 1,613,000 shares (the "Company
Shares") of Common Stock will be sold by the Company and 6,387,000 shares (the
"Selling Shareholders Shares") of Common Stock will be sold by certain
shareholders and holders of options of the Company.
In rendering the opinion set forth below, we have reviewed (a) the Registration
Statement and the exhibits thereto; (b) the Company's Articles of Incorporation,
as amended; (c) the Company's Bylaws, as amended; (d) certain records of the
Company's corporate proceedings as reflected in its minute and stock books; (e)
a draft of the Underwriting Agreement pertaining to the proposed offering
subject to the Registration Statement; and (f) such other documents as we have
deemed relevant. In our examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals and
the conformity with the original of all documents submitted to us as copies
thereof.
Based upon the foregoing, we are of the opinion that, (i) when issued by the
Company and paid for by the underwriters in the manner contemplated in the
Registration Statement, the
<PAGE> 2
David's Bridal, Inc.
May 17, 1999
Page 2
Company Shares will be duly authorized, validly issued, fully paid and
nonassessable and (ii) the Selling Shareholders Shares are duly authorized,
validly issued, fully paid and nonassessable.
Our opinion set forth above is limited to the Florida Business Corporation Act,
including interpretations thereof under relevant case law.
We hereby consent to the use of this opinion as Exhibit 5 to the Registration
Statement and to the reference to this firm under the caption "Legal Matters."
In giving such opinion, we do not thereby admit that we are acting within the
category of persons whose consent is required under Section 7 of the Act or the
rules or regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Morgan, Lewis & Bockius LLP
- -------------------------------
Morgan, Lewis & Bockius LLP
<PAGE> 1
Exhibit 23.1
As independent public accountants, we hereby consent to the use in this
registration statement no. 333-72693 of our report included herein and
to all references to our Firm included in this registration statement.
/s/ Arthur Andersen LLP
Philadelphia, Pa
May 14, 1999
