<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 18, 1997.
REGISTRATION NO. 333-32409
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
GOODY'S FAMILY CLOTHING, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
TENNESSEE 62-0793974
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
</TABLE>
400 GOODY'S LANE, KNOXVILLE, TENNESSEE 37922
(423) 966-2000
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
ROBERT M. GOODFRIEND
GOODY'S FAMILY CLOTHING, INC.
400 GOODY'S LANE
KNOXVILLE, TENNESSEE 37922
(423) 966-2000
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
---------------------
Copies to:
<TABLE>
<C> <C>
RICHARD A. GOLDBERG, ESQ. HELEN T. FERRARO, ESQ.
SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN, LLP SMITH, GAMBRELL & RUSSELL, LLP
919 THIRD AVENUE ATLANTA FINANCIAL CENTER, SUITE 1800
NEW YORK, NEW YORK 10022 3343 PEACHTREE ROAD, N.E.
(212) 758-9500 ATLANTA, GEORGIA 30326-1010
(212) 758-9526 FAX (404) 264-2620
(404) 264-2652 FAX
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being offered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8 (A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8 (A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED AUGUST 18, 1997
2,044,500 SHARES
[GOODYS LOGO]
COMMON STOCK
---------------------
All of the 2,044,500 shares of Common Stock (the "Common Stock") of Goody's
Family Clothing, Inc. ("Goody's" or the "Company") offered hereby (the
"Offering") are being sold by certain shareholders of the Company named herein
(the "Selling Shareholders"). See "Principal and Selling Shareholders." The
Company will not receive any proceeds from the sale of the Common Stock sold
hereby.
The Common Stock is quoted on the Nasdaq National Market under the symbol
"GDYS". On August 15, 1997, the last sale price of the Common Stock as reported
on the Nasdaq National Market was $34.50 per share. See "Price Range of Common
Stock."
SEE "RISK FACTORS" ON PAGES 6 THROUGH 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
==================================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) SHAREHOLDERS(2)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.............................. $ $ $
- ------------------------------------------------------------------------------------------------------------------
Total(3)............................... $ $ $
==================================================================================================================
</TABLE>
(1) See "Underwriting" for a description of the indemnification arrangements
with the Underwriters.
(2) Before deducting estimated expenses of $275,000 payable by the Selling
Shareholders.
(3) The principal Selling Shareholder has granted the Underwriters a 30-day
option to purchase up to 300,000 additional shares of Common Stock solely to
cover over-allotments, if any. If such option is exercised in full, the
total Price to Public will be $ , the total Underwriting Discount
will be $ and the total Proceeds to Selling Shareholders will be
$ . See "Underwriting."
---------------------
The Common Stock is offered severally by the Underwriters named herein,
subject to prior sale, when, as and if received and accepted by them, subject to
their right to reject orders, in whole or in part, and to certain other
conditions. It is expected that delivery of the certificates representing the
Common Stock will be made on or about , 1997.
THE ROBINSON-HUMPHREY COMPANY, INC. J.C. BRADFORD & CO.
, 1997
<PAGE> 3
[INSIDE FRONT COVER OF PROSPECTUS DISPLAYING MAP OF SOUTHERN AND MIDWESTERN
UNITED STATES THAT INDICATES BOTH EXISTING AND PROPOSED GOODY'S STORE
LOCATIONS.]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS AND THE IMPOSITION
OF PENALTY BIDS. FOR A DISCUSSION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M.
SEE "UNDERWRITING."
[FOLD-OUT PAGE 1 OF INSIDE FRONT COVER OF PROSPECTUS WITH PHOTOGRAPHS OF (i) AN
EXTERIOR FACADE OF A GOODY'S STORE, (ii) A DENIM DEPARTMENT, AND (iii) A MENS'
DEPARTMENT - ACTIVEWEAR.]
[FOLD-OUT PAGE 2 OF INSIDE FRONT COVER OF PROSPECTUS CONTAINING GOODY'S FAMILY
CLOTHING, INC. LOGO, AND PHOTOGRAPHS OF (i) A MEN'S DEPARTMENT - GFC SHOP, (ii)
A WOMEN'S DEPARTMENT - MONTANA BLUES JEAN COMPANY SHOP, (iii) A CHILDREN'S
DEPARTMENT, AND (iv) A MEN'S DEPARTMENT - IVY CREW SHOP.]
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety to the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere, or incorporated by reference, in this Prospectus. Except as otherwise
indicated, all information in this Prospectus assumes no exercise of the
Underwriters' over-allotment option. Unless the context otherwise indicates, all
references in this Prospectus to the "Company" or "Goody's" refer to Goody's
Family Clothing, Inc., a Tennessee corporation, and its subsidiaries. The
Company's fiscal year ends on the Saturday nearest the last day of January. The
terms "fiscal 1997," "fiscal 1996," "fiscal 1995," "fiscal 1994," "fiscal 1993"
and "fiscal 1992" refer to the Company's fiscal years ending or ended on January
31, 1998 (52 weeks), February 1, 1997 (52 weeks), February 3, 1996 (53 weeks),
January 28, 1995 (52 weeks), January 29, 1994 (52 weeks) and January 30, 1993
(53 weeks), respectively.
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this Prospectus.
THE COMPANY
Goody's is a retailer of moderately-priced apparel for women, men and
children, operating 213 stores in 15 Southeastern and Midwestern states.
Incorporated in 1954, Goody's continually develops and refines its merchandising
strategy to meet the tastes and lifestyles of its customer base. The Company
primarily locates its stores in small to midsize markets that have demographic
characteristics consistent with its targeted value-conscious customer. Its
stores, all of which are leased and which are generally located in strip
shopping centers, average approximately 27,000 gross square feet. The Company
manages its core functions, including purchasing, pricing, marketing and
advertising, distribution, finance and information systems, from its centrally
located corporate office and distribution center in Knoxville, Tennessee.
The Company's objective is to be the leading retailer of brand name apparel
in each of the markets it serves by providing its customers with a broad
selection of current-season, quality branded apparel at value prices. Key brands
offered by the Company include Adidas, Alfred Dunner, Bugle Boy, Dockers, Lee,
Leslie Fay, Levi's, Nike, Reebok, Requirements and Sag Harbor, among many
others. These well-known brands, combined with the Company's outstanding private
label collections, Montana Blues Jean Company and Mountain Lake for women;
Authentic GFC, Bobby G and Ivy Crew for men; and GoodKidz for children, enable
the Company to compete effectively with other retailers operating in its
markets.
The central elements of the Company's competitive strategy include its (i)
appeal to value-conscious customers, (ii) ability to offer a broad range of
merchandise for the entire family, (iii) emphasis on current-season,
first-quality brands, (iv) strategic use of private label merchandise, (v) focus
on small to midsize markets and (vi) strong marketing and advertising.
The Company continues to experience significant growth in the number of its
stores as well as in its sales. During the period from fiscal 1992 through
fiscal 1996, the number of stores increased from 125 to 203 and sales increased
from $455.3 million to $819.1 million. During fiscal 1995, the Company began to
implement important strategic initiatives related to merchandise assortment,
inventory levels and customer focus. The Company believes that its financial
results began significantly improving in the third quarter of fiscal 1996 as a
result of the successful implementation of these strategic initiatives. These
improvements have included comparable store sales increases in each subsequent
quarter. This trend has continued into the first quarter of fiscal 1997 when,
compared with the corresponding period of the previous fiscal year, sales
increased 26% from $150.8 million to $190.1 million, including a comparable
store sales increase of 14.9%, net earnings increased 129% from $2.2 million to
$5.1 million and earnings per share increased 114% from $0.14 per share to $0.30
per share.
The Company's expansion strategy for each of fiscal 1997 and fiscal 1998 is
to open 20 to 24 new stores (including 12 stores opened to date in fiscal 1997)
in markets generally located within 800 miles of its distribution center. The
Company believes that significant opportunities exist to expand its presence
within its
3
<PAGE> 5
current markets and into the neighboring states of Louisiana, Oklahoma and
Texas. In addition, the Company plans to relocate approximately 10 stores and
expand or remodel approximately three stores in each such fiscal year.
The principal executive offices of the Company are located at 400 Goody's
Lane, Knoxville, Tennessee 37922, and the Company's telephone number is (423)
966-2000.
RECENT DEVELOPMENTS
Sales for the thirteen weeks ended August 2, 1997 increased 15.7% to $212.2
million compared with $183.4 million for the thirteen weeks ended August 3,
1996. Comparable store sales for the second quarter increased 7.3% over the
second quarter of the prior year. For the thirteen weeks ended August 2, 1997,
net earnings were $5.4 million, or $0.32 per share, compared with net earnings
of $1.4 million, or $0.08 per share, for the thirteen weeks ended August 3,
1996.
Sales for the twenty-six weeks ended August 2, 1997 were $402.3 million, an
increase of 20.4% over the $334.2 million reported for the twenty-six weeks
ended August 3, 1996. Comparable store sales for the first half of fiscal 1997
increased 10.9% over the first half of fiscal 1996. Net earnings for the
twenty-six weeks ended August 2, 1997 were $10.5 million, or $0.62 per share,
compared with $3.6 million, or $0.22 per share, for the twenty-six weeks ended
August 3, 1996.
These results are not necessarily indicative of the results that may be
expected for the full fiscal year ending January 31, 1998. See "Recent Financial
Developments."
THE OFFERING
Common Stock offered by the Selling
Shareholders........................... 2,044,500 shares
Common Stock outstanding after the
Offering............................... 16,339,907 shares(1)
Use of proceeds........................ The Company will not receive any
proceeds from the sale of Common
Stock offered hereby.
Nasdaq National Market symbol.......... GDYS
- ---------------
(1) As of August 12, 1997 and excludes 1,837,353 shares of Common Stock (after
giving effect to the exercise of stock options for 44,500 shares of Common
Stock by certain Selling Shareholders in connection with the Offering)
issuable upon exercise of stock options outstanding under the Company's
various stock option plans at a weighted average exercise price of $14.13
per share.
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk. See "Risk
Factors."
Authentic GFC, Chandler Hill, GFC, GFC Trading Co., GoodKidz and Goody's
Family Clothing are registered trademarks of the Company. The Company has
applied for registration of the following trademarks: Bobby G, Fireside
Flannels, Ivy Crew, Montana Blues Jean Company, Mountain Lake and Old College
Inn. The following trademarks and tradenames used in this Prospectus are owned
by (and in certain cases registered to) third parties: Adidas, Alfred Dunner,
Arrow, Body I.D., Braetan, Bugle Boy, Burnes of Boston, Byer, California
Concepts, Capezio, Cathy Daniels, Converse, Counterparts, Cradle Togs, Dawn Joy,
Dockers, Drummer Boy, Esprit, Fila, Fundamental Things, Hanes, Herman Kay,
Jantzen, Jessica Howard, Keds, L.A. Gear, LaBlanca/Sassafras, Lee, Leslie Fay,
Levi's, Lovable, Maidenform, Mickey & Co., My Michelle, Nike, Ocean Pacific,
Olga, Plaza South, Positive Attitude, Reebok, Requirements, Rosetti, Russell,
Sag Harbor, Scarlett, Speedo, Stephanie K by Koret, Trends, Union Bay, Warner's,
Winlet, Winnie the Pooh and Wrapper.
4
<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL DATA
(dollars in thousands, except per share amounts and sales per gross square foot)
<TABLE>
<CAPTION>
THIRTEEN WEEKS
ENDED(1)
FISCAL YEAR -------------------
------------------------------------------------------------------- MAY 3, MAY 4,
1996 1995(2) 1994 1993 1992(2) 1997 1996
----------- ----------- ----------- ----------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales................................. $819,056 $696,868 $613,664 $504,964 $455,330 $190,057 $150,766
Gross profit.......................... 209,372 170,717 154,807 130,405 122,603 54,977 42,645
Earnings from operations.............. 26,744 15,816 12,052 19,499 24,485 7,732 3,370
Earnings before income taxes.......... 27,442 16,527 10,772 21,200 25,424 8,093 3,555
Net earnings.......................... 17,151 10,464 6,872 13,815 16,214 5,058 2,204
Earnings per common share(3).......... $ 1.04 $ 0.65 $ 0.43 $ 0.86 $ 1.00 $ 0.30 $ 0.14
Weighted average common shares
outstanding (in 000's)(3)........... 16,509 16,123 16,097 16,130 16,202 16,629 16,125
SELECTED OPERATING DATA:
Stores open at period end............. 203 184 171 146 125 209 193
Comparable store sales increase
(decrease)(4)....................... 6.9% 1.3% 3.4% (1.2)% 9.4% 14.9% (5.7)%
Sales per gross square foot(5)........ $ 156 $ 150 $ 150 $ 148 $ 156 $ 34 $ 31
Average sales per store(6)............ $ 4,090 $ 3,922 $ 3,741 $ 3,766 $ 3,906 $ 924 $ 753
Gross store square footage at period
end (in 000's)...................... 5,498 4,913 4,505 3,695 3,205 5,689 5,173
Capital expenditures.................. $ 16,070 $ 10,632 $ 39,388 $ 15,077 $ 11,043 $ 2,654 $ 3,133
Depreciation and amortization......... $ 10,595 $ 9,141 $ 6,185 $ 5,594 $ 5,409 $ 2,614 $ 2,290
BALANCE SHEET DATA (AT PERIOD END):
Working capital............................................................................................ $ 50,182
Total assets............................................................................................... 278,802
Long-term debt............................................................................................. 871
Shareholders' equity....................................................................................... 129,433
</TABLE>
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(1) The business of the Company is seasonal and the results for any period
within a fiscal year are not necessarily indicative of the results that may
be achieved for an entire fiscal year.
(2) Consists of 53 weeks.
(3) Weighted average common shares outstanding for fiscal 1996 and for the
thirteen weeks ended May 3, 1997 include common equivalent shares to account
for the dilutive effect of stock options. Common equivalent shares were not
materially dilutive in other periods presented and therefore were not
included in the earnings per share computations for such periods.
(4) Comparable store sales beginning with the first quarter of fiscal 1996 are
based on stores which operated throughout the period (including relocated,
remodeled, and expanded stores) and which were in operation for the entire
previous year (computed on comparable 52-week periods in the case of fiscal
years). Prior to fiscal 1996, new stores were included in such calculation
beginning the first full month following the anniversary of their opening.
(5) Sales per gross square foot is calculated by dividing (i) comparable store
sales by (ii) the gross square footage related to the comparable stores.
(6) Average sales per store is calculated by dividing (i) total sales during the
period less sales attributable to new stores opened and stores closed during
the period by (ii) the number of stores open at the end of the period less
new stores opened during the period.
5
<PAGE> 7
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should carefully consider the following
risk factors, in addition to other information contained in this Prospectus, in
evaluating an investment in the Common Stock offered hereby.
This Prospectus contains statements that constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Securities Exchange Act
of 1934, as amended (the "1934 Act"), which generally can be identified by the
use of forward-looking terminology such as "may," "will," "expect," "estimate,"
"anticipate," "believe," "target," "plan," "project" or "continue" or the
negatives thereof or other variations thereon or similar terminology. These
statements appear in a number of places in this Prospectus and include
statements regarding the intent, belief or current expectations of the Company,
its directors or its officers with respect to, among other things: (i) the
timely availability of branded and private label merchandise in sufficient
quantities to satisfy customer demand; (ii) the timing, magnitude and costs of
opening new stores; (iii) the Company's financing plans; (iv) trends affecting
the Company's financial condition or results of operations; and (v) the
Company's business and growth strategies. Prospective investors are cautioned
that any such forward-looking statement is not a guarantee of future performance
and involves risks and uncertainties, and that actual results may differ
materially from those projected in the forward-looking statement as a result of
various factors. The accompanying information contained in this Prospectus,
including, without limitation, the information set forth below in this section
and under the sections "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business," identifies important
factors that could cause such differences. The Company does not undertake to
publicly update or revise its forward-looking statements even if experience or
future changes make it clear that any projected results expressed or implied
therein will not be realized.
HIGHLY COMPETITIVE NATURE OF THE RETAIL APPAREL INDUSTRY
The Company faces intense competition for customers, access to quality
merchandise and suitable store locations from traditional department stores,
specialty retailers and off-price retail chains. Many of these competitors are
larger and have significantly greater financial and marketing resources than the
Company. In addition, many department stores have become more promotional and
have reduced their price points, and certain finer department stores have opened
outlet stores which offer off-price merchandise in competition with the Company.
Further, in view of the Company's strategy of offering merchandise at prices
targeted to be 10% to 30% lower than those of traditional department stores,
aggressive department store pricing could adversely affect the Company's
margins. Accordingly, the Company faces intense competition, the effect of which
could require the Company to reduce prices on merchandise for sale or increase
spending on marketing and advertising, any of which could have a material
adverse effect on the Company.
SEASONALITY, CYCLICAL NATURE OF THE RETAIL APPAREL INDUSTRY AND FLUCTUATION IN
QUARTERLY RESULTS
The Company's business is seasonal by nature. The Christmas season
(beginning the Sunday before Thanksgiving and ending on the first Saturday after
Christmas), the back-to-school season (beginning approximately the first week of
August and continuing through the first week of September) and the Easter season
(beginning approximately two weeks before Easter Sunday and ending on the
Saturday preceding Easter) collectively accounted for approximately 36% of the
Company's annual sales, based on the last three fiscal years ended February 1,
1997. In general, sales volume varies directly with customer traffic, which is
heaviest during the third and fourth quarters of a fiscal year. Any adverse
trend in sales for such periods, including trends caused by weather conditions,
could have a material adverse effect upon the Company's profitability and could
adversely affect the Company's results of operations for the entire year.
In addition to seasonality, the Company's results of operations have
fluctuated in the past, and are expected to fluctuate in the future, as a result
of a variety of factors, including the timing of store openings and related
advertising and pre-opening expenses, weather conditions, price increases by
suppliers, actions by competitors and general conditions in the retail apparel
market.
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<PAGE> 8
MERCHANDISING AND FASHION SENSITIVITY
The Company's success is largely dependent upon its ability to gauge the
fashion tastes of its customers and to provide merchandise that satisfies
customer demand in a timely manner. The Company's failure to anticipate,
identify or react appropriately to changes in fashion trends could have a
material adverse effect on the Company. Misjudgments or unanticipated changes in
fashion trends as well as economic conditions could lead to excess inventories
and higher markdowns, and continued fashion misjudgments could have a material
adverse effect on the Company's image with customers. The Company has
implemented strategic initiatives to increase inventory levels in certain
departments in order to eliminate out-of-stock positions, thereby making it more
vulnerable to such changes.
INVENTORY CONTROL
The Company maintains systems of controls over its merchandise inventories
to mitigate possible risks associated with shrinkage. These risks include losses
primarily from (i) customer and employee theft, (ii) merchandise transferred
between the distribution center and stores, (iii) store to store transfers, (iv)
customer returns, and (v) merchandise returned to vendors. The Company conducts
a complete count of physical inventory at each fiscal year end. For interim
financial reporting purposes, the Company provides a reserve for shrinkage based
upon its historical shrinkage experience. The Company's actual shrinkage results
from physical inventory counts taken at fiscal year end could vary significantly
from shrinkage reserves recorded in its interim financial statements throughout
the year and, accordingly, could have a material adverse effect on the Company's
results of operations and financial position for that year and previously
reported interim periods within such year.
DEPENDENCE ON PRIVATE LABEL MERCHANDISE
Sales from the Company's private label merchandise represented
approximately 15% of the Company's sales in fiscal 1996. Because the Company's
private label merchandise generally carries higher merchandise margins than its
other merchandise, the Company's failure to anticipate, identify and react
appropriately to changes in fashion trends with its private label merchandise,
particularly if the percentage of sales derived from private label merchandise
continues to increase, could have an adverse effect on the Company. In addition,
delays in receiving such private label merchandise, or any deterioration in the
quality thereof, could have a material adverse effect on the Company. See
"-- Foreign Merchandise Sourcing."
RELIANCE ON KEY VENDORS AND PRIVATE LABEL CONTRACT MANUFACTURERS
The Company does not own or operate any manufacturing facilities and does
not have any long term contractual relationships with its vendors and contract
manufacturers. The success of the Company's business is largely dependent upon
its ability to purchase current-season, brand name apparel at competitive prices
in adequate quantities and with timely deliveries. The inability or
unwillingness of key vendors to increase their sales to the Company to keep pace
with the Company's growth, or the loss of one or more key vendors for any
reason, could have a material adverse effect on the Company. During each of
fiscal 1996 and in the first thirteen weeks of fiscal 1997, the Company's
largest vendor, Levi Strauss & Co. (which also manufactures the popular Dockers
brand), accounted for approximately 20% of the Company's total purchases. There
can be no assurance that the Company will be able to acquire brand name
merchandise in sufficient quantities and on favorable terms, if at all, in the
future. See "Business -- Purchasing."
GEOGRAPHIC CONCENTRATION
All of the Company's stores are located in the Southeast and the Midwest,
and the Company plans to expand within these regions. As a result, the Company
will be susceptible to fluctuations in its business caused by severe weather,
natural disasters or adverse economic conditions in one or more of these
geographic regions, any of which could have a material adverse effect on the
Company. See "Business -- Store Locations."
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EXPANSION AND MANAGEMENT OF GROWTH
During the last several years, the Company has experienced significant
growth by opening new stores. The Company intends to continue to pursue an
aggressive growth strategy for the foreseeable future, and its future operating
results will be affected by its ability to identify suitable markets and sites
for new stores, negotiate leases with acceptable terms and maintain adequate
working capital. In addition, the Company must be able to continue to hire,
train and retain competent managers and store personnel. There can be no
assurance that the Company will be able to expand its market presence in its
existing markets or successfully enter new or contiguous markets by opening new
stores or that any such expansion will not adversely affect the Company.
Further, if the Company's management is unable to manage its growth effectively,
the Company could be materially and adversely affected. See
"Business -- Expansion Strategy."
TRADEMARK CHALLENGES TO CERTAIN PRIVATE LABELS
The Company's trademarks on several of its private labels, such as Ivy
Crew, Old College Inn, Montana Blues Jean Company, GFC and GFC Trading Co., have
been challenged and, in the case of certain of these trademarks, litigation is
pending to resolve competing claims. Although the Company is vigorously
protecting its trademarks, where necessary, the outcome of these disputes could
require the Company to abandon one or more of these trademarks and thereby
adversely affect sales of the associated products. The Company could also be
required to pay monetary damages. See "Business -- Trademarks."
FOREIGN MERCHANDISE SOURCING
The Company's private label programs are largely supported by products
directly purchased from vendors located abroad. Sales from such products
represented approximately 10% of total sales for fiscal 1996. In addition, the
Company believes that a substantial portion of the goods the Company purchases
from domestic vendors are manufactured abroad. These arrangements are subject to
the risks of relying on products manufactured abroad, including import duties
and quotas, loss of "most favored nation" trading status, currency fluctuations,
work stoppages, economic uncertainties including inflation, foreign government
regulations, lack of compliance by foreign manufacturers with U.S. consumer
protection laws (for which the Company may be responsible as the importer of
record) and intellectual property laws, political unrest and trade restrictions,
including U.S. retaliation against unfair foreign practices. While the Company
believes that it could find alternative sources of supply, an interruption or
delay in supply from these foreign sources, or the imposition of additional
duties, taxes or other charges on these imports, could have a material adverse
effect on the Company unless and until alternative supply arrangements are
secured. Moreover, products from alternative sources may be of lesser quality or
more expensive than those currently purchased by the Company. See
"Business -- Purchasing."
RELIANCE ON KEY PERSONNEL
The Company believes that its future success will depend to a significant
extent upon the efforts and abilities of its senior executives, and in
particular of Robert M. Goodfriend, Chairman of the Board of Directors and Chief
Executive Officer, and Harry M. Call, President and Chief Operating Officer. The
loss of the services of Mr. Goodfriend, Mr. Call or other members of the
Company's senior management could have a material adverse effect upon the
Company. Such senior executives, other than Messrs. Goodfriend and Call, include
Edward R. Carlin, Executive Vice President and Chief Financial Officer; Thomas
R. Kelly, Jr., Executive Vice President and General Merchandise Manager; David
R. Mullins, Executive Vice President -- Stores; Stanley B. Latacha, Senior Vice
President -- Marketing and Advertising; and Marcus H. Smith Jr., Senior Vice
President -- Real Estate. The Company has employment agreements with Messrs.
Call, Carlin, Kelly, Mullins, Latacha and Smith and is currently negotiating an
employment agreement with Mr. Goodfriend. The Company maintains key man life
insurance policies on Mr. Goodfriend in the amount of $6.0 million. The Company
believes that its future success will also largely depend upon its ability to
attract and retain qualified employees. Competition for such personnel is
intense and there can be no assurance that the Company will continue to be
successful in attracting and retaining such personnel. See "Management."
8
<PAGE> 10
CONTROL OF THE COMPANY
Following the completion of the Offering, Robert M. Goodfriend will
beneficially own approximately 44.2% of the outstanding Common Stock and will
retain sufficient voting power to effectively control the outcome of all matters
requiring a vote of shareholders of the Company, including the power to elect
all the directors of the Company and to take action with respect to
extraordinary matters such as a sale of assets, merger or consolidation. See
"Principal and Selling Shareholders."
ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER AND BYLAW PROVISIONS
Certain provisions of the Company's charter and bylaws may be deemed to
have anti-takeover effects and may discourage, delay or prevent a takeover
attempt that might be considered to be in the best interests of the shareholders
of the Company. These provisions, among other things: (i) classify the Company's
Board of Directors into three classes of directors with each class serving
staggered three-year terms and (ii) authorize the issuance of "blank check"
preferred stock and class B common stock having such designations, rights and
preferences as may be determined from time to time by the Board of Directors,
without any vote or further action by the shareholders of the Company.
SHARES ELIGIBLE FOR FUTURE SALE
The market price of the Common Stock could be adversely affected by the
availability for sale of additional Common Stock owned by the Company's
principal shareholder, Mr. Goodfriend. Mr. Goodfriend will beneficially own
7,369,605 shares of Common Stock after the Offering and has agreed not to sell
these shares for a period of 120 days following the date of this Prospectus
without the prior written consent of The Robinson-Humphrey Company, Inc. on
behalf of the Underwriters. After the expiration of such 120-day period, such
shares may be sold in accordance with Rule 144 promulgated under the Securities
Act, or sold upon registration under such Act without regard to the volume
limitations of Rule 144. In addition, as of August 12, 1997, stock options for
1,837,353 shares of Common Stock (excluding the stock options to be exercised by
the Selling Shareholders in connection with the Offering) are outstanding under
the Company's various stock option plans at a weighted average exercise price of
$14.13 per share. The sale of a substantial number of such shares (including
shares underlying such stock options), or the perception that such sales could
occur, could adversely affect the market price of the Common Stock and could
impair the Company's future ability to obtain capital through offerings of
equity securities. See "Principal and Selling Shareholders" and "Underwriting."
VOLATILITY OF MARKET PRICE
The market price of the Common Stock has fluctuated substantially since the
Company's initial public offering in October 1991. The Common Stock is quoted on
the Nasdaq National Market, which has experienced, and is likely to experience
in the future, significant price and volume fluctuations that could adversely
affect the market price of the Common Stock without regard to the operating
performance of the Company. In addition, the Company believes that factors such
as monthly comparable store sales announcements, quarterly operating results,
changes in earnings estimates by analysts, general conditions in the economy,
the financial markets or the retail apparel industry, or other developments
affecting the Company could cause the price of the Common Stock to fluctuate
substantially. See "Price Range of Common Stock."
9
<PAGE> 11
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the shares of
Common Stock sold by the Selling Shareholders in the Offering.
PRICE RANGE OF COMMON STOCK
The Common Stock is quoted on the Nasdaq National Market under the symbol
"GDYS". The following table sets forth, for the Company's fiscal periods
indicated, the range of high and low prices per share for the Common Stock, as
reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL 1995
First Quarter............................................. $ 9.50 $ 8.19
Second Quarter............................................ 13.00 8.25
Third Quarter............................................. 14.75 9.38
Fourth Quarter............................................ 11.75 7.25
FISCAL 1996
First Quarter............................................. $ 9.38 $ 6.75
Second Quarter............................................ 11.00 7.13
Third Quarter............................................. 14.88 8.75
Fourth Quarter............................................ 20.81 13.25
FISCAL 1997
First Quarter............................................. $24.38 $16.38
Second Quarter............................................ 39.75 15.75
Third Quarter (through August 15, 1997)................... 36.50 31.50
</TABLE>
On August 15, 1997, the last reported sale price of the Common Stock as
reported on the Nasdaq National Market was $34.50 per share. As of August 12,
1997, there were 439 shareholders of record and approximately 4,800 persons or
entities who held Common Stock in nominee name.
RECENT FINANCIAL DEVELOPMENTS
Sales for the thirteen weeks ended August 2, 1997 increased 15.7% to $212.2
million compared with $183.4 million for the thirteen weeks ended August 3,
1996. Comparable store sales for the second quarter increased 7.3% over the
second quarter of the prior year. For the thirteen weeks ended August 2, 1997,
net earnings were $5.4 million, or $0.32 per share, compared with net earnings
of $1.4 million, or $0.08 per share, for the thirteen weeks ended August 3,
1996.
Sales for the twenty-six weeks ended August 2, 1997 were $402.3 million, an
increase of 20.4% over the $334.2 million reported for the twenty-six weeks
ended August 3, 1996. Comparable store sales for the first half of fiscal 1997
increased 10.9% over the first half of fiscal 1996. Net earnings for the
twenty-six weeks ended August 2, 1997 were $10.5 million, or $0.62 per share,
compared with $3.6 million, or $0.22 per share, for the twenty-six weeks ended
August 3, 1996.
These results are not necessarily indicative of the results that may be
expected for the full fiscal year ending January 31, 1998. In the opinion of
management, results for and at the thirteen and twenty-six week periods ended
August 2, 1997 include all adjustments, consisting primarily of normal and
recurring adjustments, necessary for a fair presentation of the Company's
financial position, results of operations and cash flows for such periods.
10
<PAGE> 12
Certain unaudited consolidated financial data for and at the period ended
August 2, 1997, including comparable prior period data, follows (in thousands
except per share amounts):
<TABLE>
<CAPTION>
TWENTY-SIX
THIRTEEN WEEKS ENDED WEEKS ENDED
--------------------- ---------------------
AUGUST 2, AUGUST 3, AUGUST 2, AUGUST 3,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales................................................. $212,206 $183,411 $402,263 $334,177
Cost of sales and occupancy expenses.................. 154,036 138,174 289,116 246,295
-------- -------- -------- --------
Gross profit.......................................... 58,170 45,237 113,147 87,882
Selling, general and administrative expenses.......... 49,800 43,235 97,045 82,510
-------- -------- -------- --------
Earnings from operations.............................. 8,370 2,002 16,102 5,372
Interest expense...................................... 94 193 219 280
Investment income..................................... 392 388 878 660
-------- -------- -------- --------
Earnings before income taxes.......................... 8,668 2,197 16,761 5,752
Provision for income taxes............................ 3,250 835 6,285 2,186
-------- -------- -------- --------
Net earnings.......................................... $ 5,418 $ 1,362 $ 10,476 $ 3,566
======== ======== ======== ========
Earnings per share(1)................................. $ 0.32 $ 0.08 $ 0.62 $ 0.22
======== ======== ======== ========
Weighted average shares outstanding(1)................ 16,932 16,126 16,895 16,126
======== ======== ======== ========
BALANCE SHEET DATA (AT PERIOD END):
Cash, investments and cash equivalents......................................... $ 43,179 $ 21,041
Inventories.................................................................... 153,653 141,610
Accounts receivable and other current assets................................... 15,836 13,606
-------- --------
Total current assets........................................................... 212,668 176,257
Property and equipment, net.................................................... 90,355 90,203
Other assets................................................................... 3,200 3,455
-------- --------
Total assets................................................................... $306,223 $269,915
======== ========
Accounts payable............................................................... $118,530 $116,220
Other current liabilities...................................................... 38,375 32,392
-------- --------
Total current liabilities...................................................... 156,905 148,612
Long-term debt................................................................. 871 1,110
Other noncurrent liabilities................................................... 12,307 10,726
Shareholders' equity........................................................... 136,140 109,467
-------- --------
Total liabilities and shareholders' equity..................................... $306,223 $269,915
======== ========
</TABLE>
- ---------------
(1) Weighted average common shares outstanding for the thirteen and twenty-six
weeks ended August 2, 1997, include common equivalent shares to account for
the dilutive effect of stock options. Common equivalent shares were not
materially dilutive in the thirteen and twenty-six weeks ended August 3,
1996 and therefore were not included in the earnings per share computation
for such periods.
11
<PAGE> 13
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following table sets forth certain selected consolidated financial data
of the Company for the fiscal years indicated which has been derived from the
audited consolidated financial statements of the Company. The selected
consolidated financial data for the thirteen week periods ended May 3, 1997 and
May 4, 1996 are derived from the unaudited consolidated financial statements of
the Company. In the opinion of management, the unaudited consolidated financial
statements include all adjustments, consisting primarily of normal and recurring
adjustments, necessary for a fair presentation of the Company's financial
position, results of operations and cash flows for the interim periods
presented. Due to the seasonal nature of the Company's business, the results of
operations for the thirteen week periods are not necessarily indicative of the
results that may be achieved for the entire year. This selected consolidated
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the consolidated
financial statements and related notes and other information appearing elsewhere
or incorporated by reference herein.
<TABLE>
<CAPTION>
THIRTEEN WEEKS
ENDED
FISCAL YEAR -------------------
---------------------------------------------------- MAY 3, MAY 4,
1996 1995(1) 1994 1993 1992(1) 1997 1996
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales.............................. $819,056 $696,868 $613,664 $504,964 $455,330 $190,057 $150,766
Cost of sales and occupancy
expenses......................... 609,684 526,151 458,857 374,559 332,727 135,080 108,121
-------- -------- -------- -------- -------- -------- --------
Gross profit....................... 209,372 170,717 154,807 130,405 122,603 54,977 42,645
Selling, general and administrative
expenses......................... 182,628 154,901 136,612 110,906 98,118 47,245 39,275
Unusual items(2)................... -- -- 6,143 -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Earnings from operations........... 26,744 15,816 12,052 19,499 24,485 7,732 3,370
Interest expense................... 762 608 1,163 1,488 980 125 87
Investment income (loss)........... 1,460 1,319 (117) 3,189 1,919 486 272
-------- -------- -------- -------- -------- -------- --------
Earnings before income taxes....... 27,442 16,527 10,772 21,200 25,424 8,093 3,555
Provision for income taxes......... 10,291 6,063 3,900 7,385 9,210 3,035 1,351
-------- -------- -------- -------- -------- -------- --------
Net earnings....................... $ 17,151 $ 10,464 $ 6,872 $ 13,815 $ 16,214 $ 5,058 $ 2,204
======== ======== ======== ======== ======== ======== ========
Earnings per common share(3)....... $ 1.04 $ 0.65 $ 0.43 $ 0.86 $ 1.00 $ 0.30 $ 0.14
======== ======== ======== ======== ======== ======== ========
Weighted average common shares
outstanding(3)................... 16,509 16,123 16,097 16,130 16,202 16,629 16,125
======== ======== ======== ======== ======== ======== ========
BALANCE SHEET DATA (AT PERIOD END):
Working capital.................... $ 44,016 $ 27,786 $ 16,707 $ 40,204 $ 33,883 $ 50,182 $ 29,565
Total assets....................... 254,347 208,443 185,744 163,803 156,329 278,802 235,134
Long-term debt..................... 871 1,110 1,327 1,525 1,704 871 1,110
Shareholders' equity............... 123,576 105,875 95,365 88,370 76,785 129,433 108,079
</TABLE>
- ---------------
(1) Consists of 53 weeks.
(2) Results of operations for fiscal 1994 included unusual charges of $6,143,000
consisting of (i) approximately $1,900,000 for the Company's portion of the
settlement of a certain class action securities litigation against the
Company, (ii) approximately $3,119,000 primarily related to severance
payments associated with certain restructuring and cost reduction measures
and (iii) approximately $1,124,000 for legal fees and other costs related to
the settlement of certain disputes between the Company and its Chairman of
the Board and Chief Executive Officer, Robert M. Goodfriend. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- General."
(3) Weighted average common shares outstanding for fiscal 1996 and for the
thirteen weeks ended May 3, 1997 include common equivalent shares to account
for the dilutive effect of stock options. Common equivalent shares were not
materially dilutive in other periods presented and therefore were not
included in the earnings per share computations for such periods.
12
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Goody's was incorporated in 1954 as Athens Outlet Inc. and originally sold
factory seconds, close-outs and previous year merchandise. By 1982, the Company
grew to $19 million in sales and changed its merchandise focus to offering
current-season, first-quality, brand name apparel at value prices. In fiscal
1991, the Company completed its initial public offering, had $362 million in
sales, and at fiscal year end operated 106 stores.
In fiscal 1992, the Company achieved record earnings before income taxes of
$25.4 million, or 5.6% of sales. Shortly thereafter, a new management team
implemented certain changes that led to disappointing earnings for fiscal 1993.
These trends worsened in fiscal 1994 as earnings before income taxes declined to
$10.8 million, or 1.8% of sales. During fiscal 1994, certain disputes arose
between the Company's then Board of Directors and its Chairman of the Board and
Chief Executive Officer, Robert M. Goodfriend. In September 1994, the Board of
Directors removed Mr. Goodfriend as Chairman of the Board and Chief Executive
Officer. These disputes were settled in January 1995 at which time the Board of
Directors was reconstituted and Mr. Goodfriend returned as the Company's
Chairman of the Board and Chief Executive Officer.
In January 1995, the Company also rehired other key members of its previous
management team. Under the leadership of these individuals, the Company
engineered a major turnaround with the goal of returning to its prior record
level of profitability. Important strategic initiatives have included:
- improving merchandise margins by reducing the Company's dependence on
denim while simultaneously increasing the emphasis on other higher margin
departments such as women's;
- increasing inventory levels principally in basic bottoms to eliminate
out-of-stock positions;
- expanding private label lines to provide customers with designer looks
and quality at the Company's value prices;
- introducing new product lines such as accessories, gifts and men's
blazers, dress pants, dress shirts, and ties;
- adding the popular Dockers brand to its women's, men's and boys'
departments in 115 stores in Spring 1997 with plans to add such brand to
the remainder of the chain during early fiscal 1998; and
- establishing a new look in most of its stores by featuring exciting
visual presentation formats and updating fixturing, allowing the Company
to showcase merchandise in a more open, accessible and customer-friendly
environment.
The Company believes that its financial results began significantly
improving in the third quarter of fiscal 1996 as a result of the successful
implementation of these strategic initiatives. In fiscal 1996, the Company
achieved sales of $819.1 million (including a comparable store sales increase of
6.9%), earnings before income taxes of $27.4 million or 3.4% of sales, and net
earnings of $17.2 million or $1.04 per share. For the thirteen weeks ended May
3, 1997 compared with the corresponding period of the previous fiscal year,
sales increased 26% from $150.8 million to $190.1 million (including a
comparable store sales increase of 14.9%), net earnings increased 129% from $2.2
million to $5.1 million and earnings per share increased 114% from $0.14 per
share to $0.30 per share.
The Company's expansion strategy for each of fiscal 1997 and fiscal 1998 is
to open 20 to 24 stores (including 12 stores opened to date in fiscal 1997) in
markets generally located within 800 miles of its distribution center in
Knoxville, Tennessee. The Company believes that significant opportunities exist
to expand its presence within its current markets and into other neighboring
states. In addition, the Company plans to relocate approximately 10 stores and
expand or remodel approximately three stores in each such fiscal year.
13
<PAGE> 15
RESULTS OF OPERATIONS
The following table sets forth the Company's results of operations, as a
percent of sales, for the periods indicated:
<TABLE>
<CAPTION>
THIRTEEN WEEKS
ENDED
FISCAL YEAR ----------------
----------------------- MAY 3, MAY 4,
1996 1995 1994 1997 1996
----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
Sales............................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales and occupancy expenses.............. 74.4 75.5 74.8 71.1 71.7
----- ----- ----- ----- -----
Gross profit...................................... 25.6 24.5 25.2 28.9 28.3
Selling, general and administrative expenses...... 22.3 22.2 22.2 24.8 26.0
Unusual items..................................... -- -- 1.0 -- --
----- ----- ----- ----- -----
Earnings from operations.......................... 3.3 2.3 2.0 4.1 2.3
Interest expense.................................. 0.1 0.1 0.2 0.1 0.1
Investment income................................. 0.2 0.2 -- 0.3 0.2
----- ----- ----- ----- -----
Earnings before income taxes...................... 3.4 2.4 1.8 4.3 2.4
Provision for income taxes........................ 1.3 0.9 0.7 1.6 0.9
----- ----- ----- ----- -----
Net earnings...................................... 2.1% 1.5% 1.1% 2.7% 1.5%
===== ===== ===== ===== =====
</TABLE>
THIRTEEN WEEKS ENDED MAY 3, 1997 COMPARED WITH THIRTEEN WEEKS ENDED MAY 4, 1996
Overview. During the first quarter of fiscal 1997, the Company opened
seven new stores, relocated two stores and closed one store, bringing the total
number of stores in operation at quarter end to 209, compared with 193 at the
end of the first quarter of fiscal 1996. In the corresponding period of the
previous fiscal year, nine new stores were opened and one store was relocated.
Net earnings for the first quarter of fiscal 1997 were $5,058,000, or 2.7% of
sales, compared with $2,204,000, or 1.5% of sales, for the first quarter of
fiscal 1996.
Sales. Sales for the first quarter of fiscal 1997 were $190,057,000, a
26.1% increase over the $150,766,000 for the first quarter of fiscal 1996. This
increase of $39,291,000 consisted of (i) a 14.9% increase in comparable store
sales of $21,598,000 from the corresponding period of the previous fiscal year
and (ii) additional sales from new and transition stores of $17,693,000. Sales
for the quarter were driven by favorable customer reaction to certain brand-name
and private label merchandise as well as strong promotions of spring and summer
fashion merchandise.
Gross profit. Gross profit for the first quarter of fiscal 1997 was
$54,977,000, or 28.9% of sales, a $12,332,000 increase over the $42,645,000, or
28.3% of sales, in gross profit for the first quarter of the previous fiscal
year. The 0.6% increase in gross profit, as a percent of sales, consists of (i)
a decrease in cost of sales by 0.3% as a result of well-positioned inventories
at the beginning of fiscal 1997 and better inventory management and control
which allowed the Company to realize higher gross margins and (ii) a decrease in
occupancy costs by 0.3% due to the excellent sales for the quarter.
Selling, general and administrative expenses. Selling, general and
administrative expenses for the first quarter of fiscal 1997 were $47,245,000,
or 24.8% of sales, an increase of $7,970,000 from $39,275,000, or 26.0% of
sales, for the first quarter of the previous fiscal year. Selling, general and
administrative expenses decreased by 1.2%, as a percent of sales, for the first
quarter of fiscal 1997 compared with the first quarter of the previous fiscal
year and is comprised of (i) a 0.1% decrease in payroll expenses, (ii) a 0.9%
decrease in advertising and promotional expenses and (iii) a 0.2% decrease in
depreciation and amortization expenses.
Interest expense. Interest expense for the first quarter of fiscal 1997
increased by $38,000 compared with the first quarter of the previous fiscal
year.
14
<PAGE> 16
Investment income. Investment income for the first quarter of fiscal 1997
increased by $214,000 compared with the first quarter of the previous fiscal
year primarily as a result of an increase in invested funds during the period.
Income taxes. The provision for income taxes for the first quarter of
fiscal 1997 was $3,035,000, for an effective tax rate of 37.5% of earnings
before income taxes, compared with $1,351,000, for an effective tax rate of 38%
of earnings before income taxes, for the first quarter of the previous fiscal
year. The decrease in the effective tax rate is primarily due to a decrease in
the overall effective state income tax rate.
FISCAL 1996 COMPARED WITH FISCAL 1995
Overview. In fiscal 1996, the Company opened 20 new stores, relocated
seven stores, remodeled one store and closed one store. This brought the total
number of stores in operation at February 1, 1997 to 203, compared with 184 at
February 3, 1996. In fiscal 1995, 13 new stores were opened, six stores were
relocated and one store was remodeled. Net earnings were $17,151,000, or 2.1% of
sales, in fiscal 1996, compared with net earnings of $10,464,000, or 1.5% of
sales, in fiscal 1995.
Sales. Sales for fiscal 1996 (52 weeks) were $819,056,000, a 17.5%
increase over the $696,868,000 for fiscal 1995 (53 weeks). This increase of
$122,188,000 consisted of (i) a 6.9% increase in comparable store sales of
$42,780,000 from the corresponding 52-week period of the previous fiscal year,
(ii) additional sales from new and transition stores of $85,613,000, which were
offset by (iii) $6,205,000 from the additional last week of sales included in
the 53-week fiscal 1995. Significant factors which contributed to the increase
in comparable store sales were (i) favorable customer reaction to certain
branded and private label merchandise, (ii) a strategic build-up of inventory,
implemented during the second quarter of fiscal 1996, in an effort to be
"in-stock" for most basic items everyday and (iii) strong promotions which
emphasized the "price-value" relationship of the Company's merchandise and a
reinforced customer awareness of Goody's presence in the markets served.
Gross profit. Gross profit for fiscal 1996 was $209,372,000, or 25.6% of
sales, a $38,655,000 increase over the $170,717,000, or 24.5% of sales, in gross
profit generated for the previous fiscal year. The 1.1% increase in gross
profit, as a percent of sales, resulted primarily from changes in the Company's
merchandising strategies, including improved merchandise selection and quality,
and inventory management. Customer acceptance of the Company's private label
merchandise during fiscal 1996 positively impacted gross margins.
Selling, general and administrative expenses. Selling, general and
administrative expenses for fiscal 1996 were $182,628,000, or 22.3% of sales, an
increase of $27,727,000 from $154,901,000, or 22.2% of sales, for fiscal 1995.
The 0.1% increase in selling, general and administrative expenses, as a percent
of sales, in fiscal 1996 compared with fiscal 1995 resulted primarily from
increases in payroll expenses. Selling, general, and administrative expenses for
fiscal 1996 included a provision of $691,000 in connection with the early
termination of a lease of one of the Company's stores which closed in August
1996, and $741,000 for the impairment of certain stores' property and equipment
pursuant to the provisions of Statement of Financial Accounting Standards No.
121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" ("SFAS No. 121").
Interest expense. Interest expense for fiscal 1996 increased by $154,000
compared with fiscal 1995 primarily from an increase in borrowings for normal
operating purposes.
Investment income. Investment income for fiscal 1996 increased by $141,000
compared with fiscal 1995 primarily from an increase in invested funds.
Income taxes. The provision for income taxes for fiscal 1996 was
$10,291,000, for an effective tax rate of 37.5% of earnings before income taxes,
compared with $6,063,000, for an effective tax rate of 36.7% of earnings before
income taxes, for fiscal 1995. The increase in the effective tax rate was
primarily due to a decrease in tax-exempt investment income and the expiration
of the Targeted Jobs Tax Credit program in June 1995, which was offset by a
decrease in the effective state income tax rates.
15
<PAGE> 17
FISCAL 1995 COMPARED WITH FISCAL 1994
Overview. In fiscal 1995, the Company opened 13 new stores, relocated six
stores and remodeled one store. This brought the total number of stores in
operation at February 3, 1996 to 184, compared with 171 at January 28, 1995. In
fiscal 1994, 25 new stores were opened, five stores were relocated and two
stores were remodeled. Net earnings were $10,464,000, or 1.5% of sales, in
fiscal 1995, compared with net earnings of $6,872,000, or 1.1% of sales, in
fiscal 1994.
Sales. Sales for fiscal 1995 (53 weeks) were $696,868,000, a 13.6%
increase over the $613,664,000 for fiscal 1994 (52 weeks). This increase of
$83,204,000 consisted of (i) a 1.3% increase in comparable store sales of
$7,850,000 from the corresponding 52-week period of the previous fiscal year,
(ii) additional sales from new and transition stores of $69,149,000 and (iii)
$6,205,000 from the additional last week of sales included in the 53-week fiscal
1995 compared with the 52-week fiscal 1994.
Gross profit. Gross profit for fiscal 1995 was $170,717,000, or 24.5% of
sales, a $15,910,000 increase over the $154,807,000, or 25.2% of sales, in gross
profit generated for the previous fiscal year. The 0.7% decrease in gross
profit, as a percent of sales, consisted of (i) an increase in cost of sales of
0.5% which resulted from markdowns taken to liquidate slow-moving items that did
not fit the Company's new merchandising strategy implemented in January 1995,
and maintaining promotional pricing as a result of the competitive and difficult
apparel retail environment, particularly in the fourth quarter and (ii) an
increase in occupancy costs of 0.2% resulting from higher lease costs as well as
additional costs of approximately $783,000 for stores relocated during fiscal
1995 and those planned for relocation in fiscal 1996.
Selling, general and administrative expenses. Selling, general and
administrative expenses for fiscal 1995 were $154,901,000, or 22.2% of sales, an
increase of $18,289,000 from $136,612,000, or 22.2% of sales, for fiscal 1994.
Although selling, general and administrative expenses did not change as a
percent of sales compared with the previous fiscal year, (i) advertising
expenses increased by 0.3%, (ii) depreciation and amortization expenses
increased by 0.3%, (iii) payroll expenses decreased by 0.5% and (iv) other
selling, general and administrative expenses decreased by 0.1% in fiscal 1995
compared with fiscal 1994.
Unusual items. Results of operations for fiscal 1994 included a charge of
$6,143,000 consisting of (i) approximately $1,900,000 for the Company's portion
of the settlement of a certain class action securities litigation against the
Company, (ii) approximately $3,119,000 primarily related to severance payments
associated with certain restructuring and cost reduction measures and (iii)
approximately $1,124,000 for legal fees and other costs related to the
settlement of certain disputes between the Company and its Chairman of the Board
and Chief Executive Officer, Robert M. Goodfriend. There were no unusual charges
in fiscal 1995.
Interest expense. Interest expense for fiscal 1995 decreased by $555,000
compared with fiscal 1994. This decrease is primarily attributable to reduced
borrowings during fiscal 1995.
Investment income. Investment income for fiscal 1995 was $1,319,000
compared with an investment loss of $117,000 for fiscal 1994. Included in the
above amount for fiscal 1995 was $997,000 related to income earned from
government-backed and investment grade securities and other interest income.
During fiscal 1994, the Company's investment loss consisted primarily of
$1,596,000 in losses associated with the sale of investment securities, offset
by $1,444,000 of interest and dividend income earned from investment activities.
Income taxes. The provision for income taxes for fiscal 1995 was
$6,063,000, for an effective tax rate of 36.7% of earnings before income taxes,
compared with $3,900,000, for an effective tax rate of 36.2% of earnings before
income taxes, for fiscal 1994. The increase in the effective tax rate is
primarily due to an increase in the effective state income tax rates and a
decrease in tax-exempt investment income.
16
<PAGE> 18
QUARTERLY RESULTS, SEASONALITY AND INFLATION
The Company's business is seasonal by nature. The Christmas season
(beginning the Sunday before Thanksgiving and ending on the first Saturday after
Christmas), the back-to-school season (beginning approximately the first week of
August and continuing through the first week of September) and the Easter season
(beginning approximately two weeks before Easter Sunday and ending on the
Saturday preceding Easter) collectively accounted for approximately 36% of the
Company's annual sales, based on the last three fiscal years ended February 1,
1997. In general, sales volume varies directly with customer traffic, which is
heaviest during the third and fourth quarters of a fiscal year. Because of the
seasonality of the Company's business, results for any quarter are not
necessarily indicative of the results that may be achieved for the full year.
The following table sets forth certain consolidated income statement data
and selected operating data for each of the Company's last nine fiscal quarters
and the percentage of sales represented by certain of the line items presented.
The quarterly income statement data and selected operating data set forth below
were derived from unaudited consolidated financial statements of the Company,
which in the opinion of management, include all adjustments (consisting
primarily of normal and recurring adjustments) necessary for a fair presentation
of the Company's financial position, results of operations and cash flows for
the interim periods presented.
<TABLE>
<CAPTION>
FISCAL
FISCAL 1995 FISCAL 1996 1997
----------------------------------------- ----------------------------------------- --------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH FIRST
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales...................... $144,932 $155,130 $168,104 $228,702 $150,766 $183,411 $211,380 $273,499 $190,057
Gross profit............... 38,538 36,644 41,904 53,631 42,645 45,237 52,183 69,307 54,977
Selling, general and
administrative
expenses................. 35,068 35,426 38,693 45,714 39,275 43,235 46,800 53,318 47,245
Earnings from operations... 3,470 1,218 3,211 7,917 3,370 2,002 5,383 15,989 7,732
Earnings before income
taxes.................... 3,625 1,468 3,295 8,139 3,555 2,197 5,426 16,264 8,093
Net earnings............... 2,266 917 2,059 5,222 2,204 1,362 3,364 10,221 5,058
Earnings per common
share.................... $ 0.14 $ 0.06 $ 0.13 $ 0.32 $ 0.14 $ 0.08 $ 0.21 $ 0.62 $ 0.30
Weighted average common
shares outstanding (in
000's)................... 16,117 16,124 16,124 16,125 16,125 16,126 16,134 16,570 16,629
AS A PERCENTAGE OF SALES:
Gross profit............... 26.6% 23.6% 24.9% 23.5% 28.3% 24.7% 24.7% 25.3% 28.9%
Selling, general and
administrative
expenses................. 24.2 22.8 23.0 20.0 26.1 23.6 22.1 19.5 24.9
Earnings from operations... 2.4 0.8 1.9 3.5 2.2 1.1 2.5 5.8 4.1
Earnings before income
taxes.................... 2.5 0.9 2.0 3.6 2.4 1.2 2.6 5.9 4.3
Net earnings............... 1.6 0.6 1.2 2.3 1.5 0.7 1.6 3.7 2.7
SELECTED OPERATING DATA:
Comparable store sales
increase (decrease)...... (0.2)% 4.1% 3.0% (0.8)% (5.7)% 2.7% 13.4% 14.1% 14.9%
Stores open at end of
period................... 174 174 178 184 193 194 197 203 209
</TABLE>
Inflation can affect the costs incurred by the Company in the purchase of
its merchandise, the leasing of its stores and certain components of its
selling, general and administrative expenses. To date, inflation has not
adversely affected the Company's business, although there can be no assurance
that inflation will not have a material adverse effect in the future.
17
<PAGE> 19
LIQUIDITY AND CAPITAL RESOURCES
Financial position. The Company's primary sources of liquidity are cash
flows from operations, including credit terms from vendors, and borrowings under
its credit agreement with a consortium of banks. At May 3, 1997, the Company's
working capital was $50,182,000 compared with $29,565,000 at May 4, 1996. At the
end of the first quarter of fiscal 1997 compared with the first quarter of the
previous fiscal year (i) cash, cash equivalents and investment securities
increased by $6,736,000, (ii) property and equipment increased by $2,392,000,
(iii) inventories increased by $31,106,000, and (iv) accounts payable increased
by $9,174,000, in anticipation of the summer selling season as well as an
increase in the number of stores and a strategic build-up of primarily basic
inventory items. Trade payables, as a percent of inventories, were 67.1% at May
3, 1997 compared with 77.6% at May 4, 1996.
At May 3, 1997, the Company had an unsecured revolving line of credit from
a consortium of banks which provides for cash borrowings for general corporate
purposes as well as for the issuance of letters of credit of up to $100,000,000.
On May 16, 1997, the Company amended its credit agreement to increase its
unsecured line of credit to $120,000,000 and extend its expiration date to May
31, 1999. The terms of this credit facility require, among other things,
maintenance of minimum levels of shareholders' equity, compliance with certain
financial ratios and Mr. Goodfriend remaining as Chairman of the Board or Chief
Executive Officer of the Company, and place restrictions on additional
indebtedness, asset disposals, investments, capital expenditures and payment of
dividends. At May 3, 1997, the Company had no cash borrowings under this credit
facility and $62,035,000 was in use for outstanding letters of credit compared
with no cash borrowings and $24,163,000 utilized for outstanding letters of
credit at May 4, 1996. In addition, there were no cash borrowings during the
first quarter of fiscal 1997 and 1996, respectively. Letters of credit
outstanding averaged $38,571,000 during the first quarter of fiscal 1997
compared with $15,884,000 during the corresponding period of the previous fiscal
year. The highest balance of letters of credit outstanding during the first
quarter of fiscal 1997 and 1996 was $62,035,000 (in May 1997) and $24,316,000
(in May 1996), respectively.
Cash flows. Operating activities used cash of $13,536,000 in the first
quarter of fiscal 1997 compared with $3,574,000 in the first quarter of the
previous fiscal year. Cash used in operating activities during the first quarter
of fiscal 1997 for seasonal inventory increases was $34,820,000 compared with
$32,942,000 for the first quarter of the previous fiscal year. Accounts payable
provided cash of $17,187,000 in the first quarter of fiscal 1997 compared with
$21,373,000 for the first quarter of the previous fiscal year. Depreciation and
amortization amounted to $2,614,000 in the first quarter of fiscal 1997 compared
with $2,290,000 for the first quarter of the previous fiscal year.
Cash flows from investing activities for the first quarter of fiscal 1997
reflected a net use of cash amounting to $2,650,000 compared with $3,075,000 for
the first quarter of the previous fiscal year. The cash was used primarily to
fund capital expenditures incurred relating to new stores opened during the
first quarter of fiscal 1997 and 1996.
Cash provided by financing activities for the first quarter of fiscal 1997
was $2,449,000 compared with cash used by financing activities of $3,437,000 for
the first quarter of the previous fiscal year. The cash management program used
by the Company provided cash of $1,899,000 in the first quarter of fiscal 1997
compared with cash used of $3,437,000 in the corresponding period of the
previous fiscal year. During the first quarter of fiscal 1997, the Company
received $550,000 from the issuance of Common Stock on the exercise of stock
options.
Outlook. The Company plans to open 20 to 24 new stores (including 12
stores opened to date during fiscal 1997), relocate approximately 10 stores and
expand or remodel approximately three stores during both fiscal 1997 and fiscal
1998. Management estimates that capital expenditures will total approximately
$23 million and $26 million in fiscal 1997 and fiscal 1998, respectively, for
opening new stores, upgrading existing stores, purchasing computer systems and
equipment, and for other capital expenditure requirements.
The Company's primary needs for capital resources are for the purchase of
store inventories, capital expenditures and for normal operating purposes.
Management believes that cash flows from operations, including credit terms from
vendors, and the borrowings available under its credit facility will be
sufficient to meet the Company's operating and capital expenditure requirements
through at least the remainder of fiscal 1997.
18
<PAGE> 20
BUSINESS
GENERAL
Goody's is a retailer of moderately-priced apparel for women, men and
children, operating 213 stores in 15 Southeastern and Midwestern states.
Incorporated in 1954, Goody's continually develops and refines its merchandising
strategy to meet the tastes and lifestyles of its customer base. The Company
primarily locates its stores in small to midsize markets that have demographic
characteristics consistent with its targeted value-conscious customer. Its
stores, all of which are leased and which are generally located in strip
shopping centers, average approximately 27,000 gross square feet. The Company
manages its core functions, including purchasing, pricing, marketing and
advertising, distribution, finance and information systems, from its centrally
located corporate office and distribution center in Knoxville, Tennessee.
The Company's objective is to be the leading retailer of brand name apparel
in each of the markets it serves by providing its customers with a broad
selection of current-season, quality branded apparel at value prices. Key brands
offered by the Company include Adidas, Alfred Dunner, Bugle Boy, Dockers, Lee,
Leslie Fay, Levi's, Nike, Reebok, Requirements and Sag Harbor among many others.
These well-known labels, combined with the Company's outstanding private label
collections, Montana Blues Jean Company and Mountain Lake for women; Authentic
GFC, Bobby G, and Ivy Crew for men; and GoodKidz for children, enable the
Company to compete effectively with other retailers operating in its markets.
COMPETITIVE STRATEGY
Central elements of the Company's competitive strategy include the
following:
- Appeal to Value-Conscious Customers. Goody's appeals to value-conscious
customers by offering quality brand name merchandise at prices targeted to
be 10% to 30% lower than those of traditional department stores.
- Offer Broad Range of Merchandise for the Entire Family. Unlike specialty
stores, the Company provides a wide selection of merchandise designed to
fully address the apparel needs of women, men and children. The Company
believes that providing one-stop apparel shopping for its customers in
convenient, accessible locations gives it an advantage over many of its
competitors.
- Emphasize Current-Season, First-Quality Brands. The Company's stores
offer brands that are not generally available to mass market and off-price
retailers. These brands include Levi, Lee, Bugle Boy, Sag Harbor and Nike,
among others. Unlike off-price retailers, Goody's offers only
current-season, first-quality merchandise.
- Strategically Use Private Label Merchandise. While the Company is
committed to maintaining a strong line-up of nationally recognized brand
name merchandise, private label programs offer important strategic
advantages. These programs offer shoppers designer looks and quality at
value prices, generate higher gross margins and allow the Company to
maintain consistent in-stock positions on basic merchandise.
- Focus on Small to Midsize Markets. The Company generally locates stores
in small to midsize markets that have demographic characteristics
consistent with its targeted value-conscious customer. Having developed a
flexible store format depending on local demographics, the Company seeks
locations that range in size from 20,000 to 35,000 gross square feet.
While the Company operates in the selected metropolitan markets of
Atlanta, Georgia; Birmingham, Alabama; and Charlotte, North Carolina,
smaller market areas offer significant strategic advantages, including
increased opportunities for expansion, lower rent and occupancy costs and
fewer competitors.
- Provide Strong Marketing and Advertising. The Company believes that
communicating frequently with customers is key to maintaining traffic flow
in its stores and creating keen awareness among shoppers. The Company
advertises in newspapers at least once each week, 52 weeks a year. The
Company reinforces its print message with radio and television campaigns
running during portions of approximately 39 weeks each year.
19
<PAGE> 21
EXPANSION STRATEGY
The Company's expansion strategy is to open new stores in small to midsize
markets generally located within 800 miles of its distribution center in
Knoxville, Tennessee. In addition, the Company considers suburban growth areas
of metropolitan markets for expansion. The Company believes that opportunities
exist to expand its presence within current markets and is also considering
expansion into the neighboring states of Louisiana, Oklahoma and Texas. The
Company would also consider a complementary acquisition opportunity should it
arise, although the Company has no understandings, arrangements or agreements
with respect to any such opportunity.
In making its decision to open a new store, the Company typically
evaluates, among other factors, market demographics, competition, location,
consumer traffic, rent and occupancy costs, advertising and other expenses
associated with the opening and operation of a new store.
Goody's plans to increase its gross store square footage by 10% per year in
each of fiscal 1997 and fiscal 1998. The Company plans to open 20 to 24 new
stores, (including 12 stores opened to date in fiscal 1997), relocate
approximately 10 stores and expand or remodel approximately three stores in each
such fiscal year.
The following table provides information regarding the number of stores in
operation, new stores opened, stores closed and stores relocated or remodeled
during the periods indicated:
<TABLE>
<CAPTION>
THIRTEEN
WEEKS
FISCAL YEAR ENDED
-------------------------------- MAY 3,
1996 1995 1994 1993 1992 1997
---- ---- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C> <C>
Stores open, beginning of period....................... 184 171 146 125 106 203
New stores opened during the period.................... 20 13 25 23 19 7
Stores closed during the period........................ (1) -- -- (2) -- (1)
--- --- --- --- --- ---
Stores open, end of period............................. 203 184 171 146 125 209
=== === === === === ===
Stores relocated or remodeled during the period........ 8 7 7 2 3 2
=== === === === === ===
</TABLE>
MERCHANDISING STRATEGY
The Company's merchandising strategy has been developed to appeal to
value-conscious, quality-oriented customers. The Company offers its merchandise
at prices targeted to be 10% to 30% below those of traditional department
stores. The Company competes (i) with department stores by offering quality,
brand name apparel at value prices, (ii) with specialty stores by offering
apparel for the entire family, (iii) with off-price apparel stores by offering a
wide selection of current-season merchandise at competitive prices and (iv) with
discount stores by offering better brand name merchandise generally unavailable
to discount retailers. The Company does not purchase factory seconds or
close-out, out-of-season or irregular merchandise. The Company believes that its
broad selection of current-season, first-quality, brand name merchandise,
combined with its private label merchandise, provides a key competitive
advantage. While nationally recognized brand name merchandise remains the
cornerstone of its merchandising strategy, the Company continues to invest in
the development of its private label brands, which offer customers designer
looks and quality at value prices. For fiscal 1996 private label merchandise
sales accounted for approximately 15% of the Company's sales.
Generally within each store, specific departments are well signed and have
direct aisleways leading to major departments. Visual merchandising and store
presentation are enhanced by fixtures that showcase merchandise in an open,
accessible and customer-friendly shopping environment. Sale items featured in
the Company's advertising campaigns are highlighted in the stores with
easy-to-read signs that help customers quickly locate items of interest. The
overall merchandise presentation is reorganized four times a year to emphasize
the fashion products for the upcoming season.
20
<PAGE> 22
A typical store has six divisions that include women's (juniors, misses,
intimate apparel, swimwear and outerwear), denim, men's (sportswear, activewear,
young men's and men's furnishings), children's (infants and toddlers, boys and
girls), accessories and, in 154 stores, shoes. Goody's carries approximately
10,700 different styles of merchandise, all of which are electronically tracked
in order to provide accurate selling data to the Company.
MERCHANDISING DIVISIONS
Women's. The broadest merchandise selection offered by the Company is in
the women's division, which contributed approximately 41% of total sales in
fiscal 1996. Goody's improved its profitability in the women's division in
fiscal 1996 by emphasizing career fashions, casual weekend wear, plus-size
merchandise in the misses department and cross-over fashions targeted at
customers whose tastes fall between those of the traditional junior and misses
customers.
Women's merchandise categories include juniors, misses, intimate apparel,
swimwear and outerwear. Juniors' merchandise lines include brand names such as
Adidas, Byer, California Concepts, Lee, Levi's, My Michelle, Nike, Reebok, Union
Bay and Wrapper. Misses' merchandise lines include popular brand names such as
Alfred Dunner, Cathy Daniels, Counterparts, Fundamental Things, Lee, Leslie Fay,
Levi's, Requirements, Sag Harbor and Stephanie K by Koret, as well as the
Company's private label brand, Mountain Lake. Fashion dresses are also an
important part of Goody's overall women's product lines and feature popular
brand names such as Dawn Joy, Jessica Howard, Leslie Fay, Plaza South, Positive
Attitude and Scarlett. Brand name undergarments include products from Hanes,
Lovable, Maidenform, Olga and Warner's. Swimwear features labels such as Body
I.D., LaBlanca/Sassafras, Ocean Pacific and Speedo. Outerwear product lines
include the Braetan, Herman Kay and Winlet brand name labels and Mountain Lake
and GFC Trading Co., the Company's private label brands.
Denim. The denim merchandise division is important to the Company's
merchandising concept and contributed approximately 25% of total sales in fiscal
1996. The Company believes that its broad selection and competitive pricing of
denim merchandise appeals to value-conscious families and generates customer
traffic for other higher margin merchandise. The Company utilizes automatic
replenishment programs using electronic data interchange ("EDI") with its major
denim suppliers to alleviate out-of-stock positions for popular styles and sizes
and improve inventory turnover. Primary brand names that are carried in the
denim division include Bugle Boy, Lee, Levi's and Union Bay. The Company's
private label brands for denim are Montana Blues Jean Company for women and
Authentic GFC for men.
Men's. The men's division contributed approximately 20% of total sales in
fiscal 1996 and consists of sportswear, activewear, young men's and men's
furnishings departments. The men's division utilizes a shop concept that
features various brand name merchandise targeted at certain lifestyles. These
concepts eliminate the need to market similar apparel to a variety of age groups
and allow, for example, denim buyers to shop one area of the store regardless of
their age. The Company introduced men's blazers and dress slacks in fiscal 1996
on a limited basis, and this program has been expanded in fiscal 1997. Featured
brand names in the men's division include Adidas, Arrow, Bugle Boy, Dockers,
Drummer Boy, Fila, Lee, Levi's, Nike, Reebok and Russell. The Company's private
label brands for men are Authentic GFC, Bobby G, GFC and Ivy Crew.
Children's. The children's division contributed approximately 7% of total
sales in fiscal 1996 by offering popular and durable apparel for children of all
ages. Primary brand names carried for children include Adidas, California
Concepts, Cradle Togs, Dockers, Lee, Levi's, Mickey & Co., My Michelle, Nike,
Reebok, Trends, Union Bay and Winnie the Pooh. The Company's private label brand
for children is GoodKidz.
Accessories. The accessories division, which includes items such as
fashion and costume jewelry, handbags, belts, wallets, hair accessories,
sunglasses for women, picture frames, gourmet foods, stationery and gift
baskets, contributed approximately 3% of total sales in fiscal 1996. Featured
brand names include Burnes of Boston, Capezio, Jantzen and Rosetti.
Shoes. The shoe division contributed approximately 3% of total sales in
fiscal 1996. Shoe departments are located in 154 of the Company's stores and are
operated by a third party under an exclusive operating
21
<PAGE> 23
license agreement. In fiscal 1996, all of the 20 new stores opened by the
Company included shoe departments. The shoe departments offer brand names such
as Adidas, Converse, Esprit, Keds and L.A. Gear. During fiscal 1997, the Company
plans to include a shoe department in each of the new stores to be opened during
fiscal 1997 and to add one in 24 existing stores.
Tuxedo rentals and service fees. The Company's revenue from tuxedo rentals
and service fees charged on layaways contributed less than 1% of total sales in
each of the last three fiscal years.
The following table shows a breakdown of the Company's total sales for the
periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
THIRTEEN WEEKS THIRTEEN WEEKS
ENDED ENDED
FISCAL 1996 FISCAL 1995 FISCAL 1994 MAY 3, 1997 MAY 4, 1996
------------------ ------------------ ------------------ ------------------ ------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Women's.............. $335,923 41.0% $286,097 41.1% $261,485 42.6% $ 86,824 45.7% $ 65,474 43.4%
Denim................ 202,263 24.7 175,754 25.2 151,245 24.7 41,217 21.7 35,813 23.8
Men's................ 165,438 20.2 144,081 20.7 128,477 20.9 32,601 17.1 26,087 17.3
Children's........... 59,705 7.3 49,229 7.1 40,148 6.5 13,290 7.0 11,841 7.8
Accessories.......... 24,972 3.0 17,666 2.5 15,444 2.5 7,043 3.7 4,497 3.0
Shoes................ 26,827 3.3 21,087 3.0 14,435 2.4 7,195 3.8 5,546 3.7
Tuxedos.............. 3,928 0.5 2,954 0.4 2,430 0.4 1,887 1.0 1,508 1.0
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
$819,056 100.0% $696,868 100.0% $613,664 100.0% $190,057 100.0% $150,766 100.0%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
PURCHASING
The Company's merchandise purchasing function is centralized at its
corporate headquarters. The Company buys its merchandise from approximately 730
vendors and does not have long-term or exclusive contracts with any manufacturer
or vendor. During each of fiscal 1996 and the first thirteen weeks of fiscal
1997, the Company's purchases from Levi Strauss & Co., its largest vendor,
represented approximately 20% of its total purchases. No more than 5% of total
purchases were attributable to any one of the Company's other vendors. The
Company intends to maintain strong, partner-type relationships with its vendors.
A significant portion of the Company's merchandise is pre-packed and
pre-ticketed by the vendors for each store, reducing the cost, and increasing
the speed, of delivering merchandise to the Company's stores.
Merchandise associated with the Company's private label brands is largely
imported. The Company employs its own designers and product development teams
who work closely with its merchants to track seasonal fashion trends, analyze
customer feedback and determine accurate order quantities. The Company controls
its private label merchandise from the initial concept to the final sale to the
consumer and monitors product quality, freight costs and other expenses in an
effort to maximize gross margins on such merchandise.
PLANNING AND ALLOCATION
The Company's planning and allocation department works closely with its
merchants, distribution center and store operations personnel to establish an
appropriate flow of merchandise on a store-by-store basis. This flow of
merchandise reflects customer preferences in each market and thereby reduces the
cost of transferring merchandise among its various stores. The Company also
utilizes automatic replenishment programs using EDI with approximately 57
vendors, which allows for more efficient replenishment of specific items of
merchandise in particular styles, sizes and colors to minimize out-of-stock
positions of basic merchandise and improve inventory turnover. The Company
expects to continue to invest in automatic replenishment programs using EDI with
new and existing vendors and increase the number of participating vendors.
CENTRALIZED DISTRIBUTION
The Company believes that its 344,000 square foot distribution center,
located in Knoxville, Tennessee, will be sufficient to supply merchandise to
approximately 350 stores. The distribution center is equipped with automated
merchandise handling equipment that facilitates efficient distribution of
merchandise to the Company's stores and provides for efficient cross docking of
pre-packed merchandise by store. In order to
22
<PAGE> 24
improve quality control, all incoming merchandise is received at the
distribution center to allow for inspection before being delivered to the
stores.
Merchandise is typically processed through the distribution center and
forwarded to individual stores within 48 hours. Furthermore, because the
distribution center is located adjacent to both a main north-south and a main
east-west interstate highway, the Company can negotiate favorable shipping terms
with its vendors for merchandise delivered to its distribution center.
The Company has also developed an effective computerized system for
tracking merchandise from the time it arrives at its distribution center until
it is delivered to the stores to ensure that shipments are delivered in an
accurate and timely manner. In delivering merchandise to the stores, the Company
utilizes a third party contract carrier.
MARKETING AND ADVERTISING
The Company's marketing and advertising functions are centralized at its
corporate headquarters. The Company's marketing and promotional strategy is
designed to reinforce its image as a value-priced, family apparel retailer. The
Company believes that its advertisements, which emphasize low prices and broad
selections for the entire family, have enabled the Company to communicate a
unique look that reinforces its niche in the marketplace.
Using a multi-media approach, Goody's develops and prepares its own
advertising materials for newspapers and internally creates radio and television
spots. The Company's media department researches each market to develop profiles
of shoppers in order to effectively plan the Company's advertising. The Company
frequently uses full-color advertising to portray the depth and selection of its
merchandise. In-store merchandise presentation is coordinated with such
advertising to maximize promotional opportunities. While the exact allocation of
advertising dollars differs from market to market, the Company generally
allocates approximately 67% of its advertising budget to print media and the
remainder to television and radio. Several of the Company's key vendors share in
the costs of mutually beneficial advertising campaigns through cooperative
advertising programs.
PRICING
The Company's pricing strategy is designed to provide value to its
customers by offering merchandise at prices targeted to be 10% to 30% below
those of traditional department stores. Denim, which is a consumer draw, is
priced very competitively and is generally positioned to increase traffic
throughout the store. All pricing decisions are made at the Company's corporate
headquarters. In order to remain competitive and enhance its sales promotion
efforts, Goody's frequently monitors its competitors' prices. In addition, the
Company's management information systems provide daily and weekly sales and
gross margin reports that, among other things, track sales and gross margins by
stock keeping unit ("SKU") and provide management with the flexibility to adjust
prices as appropriate.
CUSTOMER SERVICE
The Company's customer service training program, Customer First, was
designed to help store associates develop a customer-friendly mind-set where
customers -- not tasks -- come first in the stores. This initiative begins with
pre-employment screenings that measure job applicants' initial customer service
skills and is supported by ongoing training programs and incentives for
associates who demonstrate outstanding customer service performance. The Company
is also making operational enhancements to improve customers' overall shopping
experiences in its stores. To allow store associates more time to assist
customers, an electronic system was implemented during 1996 to reduce the time
required to manage price changes. The Company's merchandise return and exchange
policies were developed to ensure positive interactions between store associates
and customers. Additionally, the Company continues to invest in new cash
register technologies to simplify the customer checkout process and is currently
testing customer conveniences such as strollers, wheelchairs and oversized
shopping bags in new stores. To monitor the success of these new Customer First
programs, Goody's is encouraging customer feedback with newly designed in-store
survey cards.
23
<PAGE> 25
STORE OPERATIONS
Management of store operations is the responsibility of the Executive Vice
President -- Stores, who is assisted by the Vice President -- Store Operations,
three Regional Vice Presidents -- Sales, 26 district managers, and individual
store managers. Each district manager oversees six to 11 stores and reports to a
Regional Vice President -- Sales.
The Company's stores are generally open from 9:00 a.m. to 9:00 p.m. Monday
through Thursday; from 9:00 a.m. to 10:00 p.m. Friday and Saturday; and 12:00
p.m. to 6:00 p.m. on Sunday. These hours are extended during various holiday and
peak selling seasons. Each store has a manager and between one and three
assistant managers, depending upon the size of the store. Other positions of
responsibility within a store include four to five department managers, a head
cashier and a stockroom manager. The number of sales staff ranges from 12 in
smaller size stores to 25 in average size stores to 70 in larger size stores.
The majority of the sales staff are employed on a full-time basis, although
part-time workers are hired during peak selling seasons.
STORE LOCATIONS
The Company locates stores predominantly in small to midsize markets in the
Southeast and Midwest that typically have populations of 100,000 or fewer and
demographic characteristics consistent with its targeted value-conscious
customer. During fiscal 1996, the Company added an eighth store in Birmingham,
Alabama, as part of its expansion into its first large metropolitan market. By
using the same real estate strategy used in Birmingham -- i.e., locating stores
on the perimeter of a large city -- during fiscal 1996, the Company entered
metropolitan Atlanta, Georgia, with the opening of six stores, and Charlotte,
North Carolina, with the opening of three stores. Goody's primarily leases store
space in strip centers, where costs are generally lower than mall locations. The
smallest of the Company's stores has 7,600 gross square feet, and the largest
store has approximately 52,600 gross square feet; the average store size is
approximately 27,000 gross square feet.
All of the Company's stores are leased, rather than owned, which has
enabled the Company to grow without incurring indebtedness associated with
acquiring and owning real estate. The Company believes that the flexibility of
leasing its stores provides substantial benefits and avoids the inherent risks
of owning real estate. The Company believes that it has established itself as an
anchor tenant due to its operating performance, the size of its stores, its
advertising contributions in local markets, its financial position, and its
history of generally meeting its lease commitments on a timely basis.
INFORMATION SYSTEMS
The Company maintains fully integrated, point-of-sale inventory and
merchandise systems processed on an IBM SP-2 computer. The Company's information
systems provide management, buyers, planners and distributors with comprehensive
data that helps them identify emerging sales trends and, accordingly, manage
inventories. The information systems include unit and dollar planning, purchase
order management, open order reporting, open-to-buy, receiving, distribution,
EDI, basic stock replenishment, transfer management, and inventory and price
management. Daily and weekly sales reports are used by management to enhance the
timeliness and effectiveness of purchasing and markdown decisions. Merchandise
purchases are based on planned sales and inventories and are frequently revised
to reflect changing sales trends.
All of the Company's stores have NCR point-of-sale systems supported by a
back-office in-store computer system. The in-store systems feature bar coded
ticket scanning, automatic price look-up, dial-out credit and check
authorization, and nightly transmittal of detailed sales data from stores to the
corporate office. The Company's merchandising and store systems were originally
implemented in 1987 and have been continually upgraded since that time. The
Company's financial systems were substantially replaced in 1996 with a new
state-of-the-art fully-integrated system. The Company's current systems can
support a substantially expanded store base without significant additional
capital investment. However, the Company plans to replace its existing
merchandise systems over the next two years to keep current with leading
technology.
24
<PAGE> 26
PROPERTIES
The Company owns its corporate headquarters and distribution center located
at 400 Goody's Lane, Knoxville, Tennessee. The distribution center is a one
story, 344,000 square foot facility with 43 loading docks and a mezzanine level
that has an additional 14,000 square feet currently used as office space. The
corporate headquarters building is adjacent to the distribution center and
comprises approximately 140,000 square feet.
The Company currently leases all of its stores. Lease terms generally
contain renewal options and provide for a fixed minimum rent, an additional rent
based on a percent of sales above a minimum sales level, and a pro-rata share of
the taxes, insurance and common area maintenance costs.
TRADEMARKS
The United States Patent and Trademark Office (the "USPTO") has issued to
the Company federal registrations for the following trademarks: Authentic GFC,
Chandler Hill, GFC, GFC Trading Co., GoodKidz and Goody's Family Clothing. The
Company has also filed applications with the USPTO seeking federal registrations
for the following trademarks: Bobby G, Fireside Flannels, Ivy Crew, Montana
Blues Jean Company, Mountain Lake and Old College Inn. The Company's private
label programs represented approximately 15% of the Company's sales for fiscal
1996 and the thirteen weeks ended May 3, 1997.
In April 1994, the Company filed an application with the USPTO to register
the trademark Ivy Crew. Two parties have filed separate notices of opposition to
the registration. The Company believes that it has meritorious defenses to these
oppositions, but does not anticipate a determination by the USPTO on any of the
oppositions until the summer of 1998.
In August 1996, the Company filed an application with the USPTO to register
the trademark Old College Inn. In April 1997, the Company received a cease and
desist letter from a third party claiming prior rights to the trademark Old
College Inn. In May 1997, the Company filed an action for a declaratory judgment
against such party in federal court in the Eastern District of Tennessee, and
such party has asserted counterclaims against the Company seeking injunctive
relief and unspecified monetary damages. A trial has been scheduled for January
1998. The Company believes that it has meritorious defenses to the
counterclaims.
The Company filed a trademark application with the USPTO on March 27, 1995,
as supplemented on March 28, 1995, for the trademark Montana Blues Jean Company.
Such application has been refused and suspended by the USPTO pending action on
previously filed trademark applications by others.
The Company received a federal registration to the trademarks GFC Trading
Co. and GFC on January 23, 1996 and August 20, 1996, respectively. In September
1996, the Company filed an action in federal court in the Eastern District of
Tennessee seeking a declaratory judgment against a third party who had alleged
common law trademark rights to the trademark GFC. In February 1997, such party
commenced a separate action against the Company in federal court in the Southern
District of New York seeking injunctive relief and unspecified monetary damages.
A motion to dismiss the New York action is pending. The Company believes that it
has meritorious defenses to the claims against it.
There can be no assurance that the Company will prevail in any of these
disputes or that the USPTO will register the trademarks for which the Company
has applied. An unfavorable outcome in any one or more of these matters could
require the Company to abandon the applicable trademark, which could adversely
affect the Company's sales. It is also possible that damages could be awarded
against the Company.
25
<PAGE> 27
COMPETITION
The retail apparel business is highly competitive, with price, selection,
fashion, quality, location, store environment and service being the principal
competitive factors. The Company believes that it is well positioned to compete
on the basis of each of these factors. The Company competes primarily with
department stores, specialty stores, off-price apparel stores and discount
stores. Many competitors are large national chains with substantially greater
financial and other resources than those available to the Company; there is no
assurance that the Company will continue to be able to compete successfully with
any of them in the future.
26
<PAGE> 28
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding the executive
officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Robert M. Goodfriend................... 47 Chairman of the Board of Directors and Chief
Executive Officer
Harry M. Call.......................... 52 President, Chief Operating Officer and
Director
Edward R. Carlin....................... 56 Executive Vice President, Chief Financial
Officer and Secretary
Thomas R. Kelly, Jr.................... 52 Executive Vice President and General
Merchandise Manager
David R. Mullins....................... 45 Executive Vice President, Stores
Stanley B. Latacha..................... 47 Senior Vice President, Marketing and
Advertising
Marcus H. Smith, Jr.................... 40 Senior Vice President, Real Estate
Samuel J. Furrow....................... 55 Director
Robert F. Koppel....................... 50 Director
Irwin L. Lowenstein.................... 62 Director
Cheryl L. Turnbull..................... 36 Director
</TABLE>
Robert M. Goodfriend has served as Chairman of the Board of Directors since
1991 and Chief Executive Officer of the Company since 1977 (except for
approximately three months during fiscal 1994). See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- General." He joined
the Company in 1972 and became a Director in 1973.
Harry M. Call has served as Director, President and Chief Operating Officer
of the Company since January 1995 and as Director, Chief Operating Officer and
Executive Vice President of the Company from January 1988 to August 1993. He has
also served as a Director of Cush Industries (a medical supply company) since
August 1994. Previously, he served as the Director of Operations of Processed
Foods Corporation (a food processing company) from October 1993 to January 1995.
Edward R. Carlin has served as Executive Vice President, Chief Financial
Officer of the Company since July 1994 and Secretary of the Company since
February 1995. Previously, he served as Director, Executive Vice President,
Chief Financial Officer and Secretary of Oshman's Sporting Goods, Inc. (a
publicly-held retail sporting goods chain) and in various other capacities from
August 1982 to July 1994.
Thomas R. Kelly, Jr. has served as Executive Vice President, General
Merchandise Manager of the Company since January 1995 and from October 1990 to
June 1993. From June 1994 to January 1995, he was an independent consultant.
Previously, he served as Senior Vice President and General Merchandise Manager
of Solo Serve Corporation (an off-price retailer) from November 1993 to June
1994.
David R. Mullins has served as Executive Vice President, Stores of the
Company since December 1996. Previously, he served as Senior Vice President,
Store Operations from July 1994 to December 1996, Vice President, Store
Operations, from August 1980 to July 1994 and a Director of the Company from
November 1991 to October 1993.
Stanley B. Latacha joined the Company in July 1997 as Senior Vice
President, Marketing and Advertising. Previously, he served as Senior Vice
President, Marketing and Advertising of OfficeMax, Inc. (an office products
superstore) from August 1996 to July 1997 and Vice President, Marketing and
Sales Promotion of Richman Gordman 1/2 Price Stores (a regional off-price
department store) from October 1990 to June 1996. He has also served in various
capacities with Ames Discount Department Stores, Zayre Discount Stores, Young &
Rubicam Advertising and Ogilvy & Mather Advertising.
27
<PAGE> 29
Marcus H. Smith, Jr. has served as Senior Vice President, Real Estate of
the Company since April 1995. Previously, he served as Vice President of
Development of Valparaiso Realty Company (a real estate development company)
from May 1992 to April 1995 and Vice President of Real Estate of Enstar
Specialty Retail (an apparel and shoe retailer) from August 1989 to May 1992.
Samuel J. Furrow has served as a Director of the Company since January
1995. He has been the Chairman of Furrow Auction Company (a real estate and
equipment sales company) since April 1968 and the Chairman of Furrow-Justice
Machinery Corporation (a six-branch industrial and construction equipment
dealer) since September 1983. He has also been the owner of Knoxville Motor
Company (a Mercedes-Benz dealership) since December 1980, a Director of
Southeastern -- Advertising Inc. (an advertising agency) since April 1968 and a
Director of First American National Bank since September 1993.
Robert F. Koppel has served as a Director of the Company since January
1995. He has been the President of East Tennessee Children's Hospital since
August 1976.
Irwin L. Lowenstein has served as a Director of the Company since June
1996. He has been an Executive Vice President of Heilig-Meyers Company (a
publicly held specialty furniture retailer) since February 1997. He was the
Chief Executive Officer of Rhodes, Inc. (a publicly held specialty furniture
retailer) ("Rhodes") from May 1989 to January 1997. Previously, he served as
Chairman from July 1994 to February 1997, Director from March 1977 to February
1997, President from March 1977 to July 1994 and Chief Operating Officer from
March 1977 to May 1989 of Rhodes. He has served as a Director of L.A.T.
Sportswear, Inc. (a sportswear manufacturer and distributor) since July 1994.
Cheryl L. Turnbull has served as a Director of the Company since January
1995. She has been a Vice President of Banc One Capital Corporation (a merchant
bank) since July 1996. She was a private investor from July 1995 to July 1996.
Previously, she served as a Managing Director of Aston Limited Partners, L.P. (a
bank re-engineering firm) from August 1992 to June 1995, and as a Vice President
of Merchant Banking for Prudential Bache Interfunding, Inc. (a merchant bank)
and in various other capacities for Prudential Securities, Inc. from August 1987
to December 1991.
28
<PAGE> 30
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of the date of this Prospectus (except in the
case of FMR Corp. and the other persons and entities referenced in footnote 5),
and as adjusted to reflect the completion of the Offering, by (i) each person
known by the Company to beneficially own five percent (5%) or more of the
outstanding Common Stock; (ii) each of the Company's directors and executive
officers; (iii) each Selling Shareholder and (iv) all directors and executive
officers of the Company as a group. Except as otherwise noted below, each of the
holders listed below has sole voting and investment power with respect to the
shares shown as beneficially owned.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED PRIOR TO SHARES BENEFICIALLY
OFFERING(1) SHARES OWNED AFTER OFFERING(1)
------------------- BEING -----------------------
NAME NUMBER PERCENT OFFERED NUMBER PERCENT
- ---- --------- ------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
Robert M. Goodfriend(2)(3).............. 9,369,605 56.4% 2,000,000(4) 7,369,605(4) 44.2%(4)
FMR Corp.(5)............................ 1,612,500 9.9% -- 1,612,500 9.9%
Harry M. Call(6)........................ 105,305 * 20,000 85,305 *
Edward R. Carlin(7)..................... 34,652 * 7,000 27,652 *
Thomas R. Kelly, Jr.(8)................. 18,000 * -- 18,000 *
David R. Mullins(9)..................... 66,500 * 17,500 49,000 *
Stanley B. Latacha...................... -- -- -- -- --
Marcus H. Smith, Jr.(10)................ 10,800 * -- 10,800 *
Samuel J. Furrow(11).................... 11,948 * -- 11,948 *
Robert F. Koppel(12).................... 11,684 * -- 11,684 *
Irwin L. Lowenstein(13)................. 5,857 * -- 5,857 *
Cheryl L. Turnbull(14).................. 16,849 * -- 16,849 *
All Directors and Executive Officers as
a Group (11 Persons)(16).............. 9,651,200 57.2% 2,044,500 7,606,700 45.0%
</TABLE>
- ---------------
* Less than one percent
(1) "Beneficial Ownership" includes shares for which an individual, directly or
indirectly, has or shares voting or investment power or both and also
includes options which are exercisable within sixty days of the date
hereof. Beneficial ownership as reported in the above table has been
determined in accordance with Rule 13d-3 of the 1934 Act. The percentages
are based upon 16,295,407 shares outstanding before the Offering and
16,339,907 shares outstanding after the Offering (giving effect to the
exercise of stock options for 44,500 shares of Common Stock by certain
Selling Shareholders in connection with the Offering), except for certain
parties who hold presently exercisable stock options to purchase shares.
The percentages for those parties who hold exercisable stock options are
based upon the sum of 16,295,407 or 16,339,907, as the case may be, shares
plus the number of shares subject to presently exercisable stock options
held by them, as indicated in the following notes.
(2) The business address of Mr. Goodfriend is 400 Goody's Lane, Knoxville,
Tennessee 37922.
(3) These shares include 11,250 shares owned by Mr. Goodfriend's wife, with
whom Mr. Goodfriend shares voting and investment power with respect to such
shares, and 320,000 shares of Common Stock subject to presently exercisable
stock options. These shares do not include 417,270 shares (2.6% of the
outstanding shares of Common Stock) held in trust for Mr. Goodfriend's
children, as to which Mr. Goodfriend disclaims beneficial ownership. Mr.
Goodfriend has no voting or investment power with respect to these shares.
(4) Mr. Goodfriend has granted the Underwriters a 30-day option to purchase up
to 300,000 shares of Common Stock solely to cover over-allotments, if any.
If such option is exercised in full, the number of shares he will
beneficially own after the Offering will be 7,069,605 (42.4% of the
outstanding Common Stock).
(5) According to a Schedule 13G filed by FMR Corp. ("FMR"), Edward C. Johnson
3d, Abigail P. Johnson, Fidelity Management & Research Company, a
registered investment adviser and a wholly-owned subsidiary of FMR
("Fidelity") and Fidelity Contrafund, Mr. Johnson 3d is the Chairman of
29
<PAGE> 31
FMR and the owner of 12% of the aggregate outstanding voting stock of FMR
and Ms. Johnson is a director of FMR and the owner of 24.5% of the
aggregate outstanding voting stock of FMR and each may be deemed to be
members of a controlling group with respect to FMR. The Schedule 13G states
that, at December 31, 1996, (i) Fidelity was the beneficial owner of
1,612,500 shares of Common Stock as a result of acting as investment
advisor to various registered investment companies (the "Funds"), (ii)
Fidelity Contrafund, one of the Funds, was the beneficial owner of
1,535,300 shares of Common Stock (9.51% of the then outstanding shares of
Common Stock), (iii) each of Mr. Johnson 3d, FMR (through its control of
Fidelity) and the Funds has sole power to dispose of the 1,612,500 shares
and (iv) the power to vote all of the 1,612,500 shares resides with the
Board of Trustees of the Funds. The address of FMR, Fidelity and Fidelity
Contrafund is 82 Devonshire Street, Boston, Massachusetts 02109.
(6) Includes 100,000 shares of Common Stock subject to presently exercisable
stock options.
(7) Includes 34,500 shares of Common Stock subject to presently exercisable
stock options.
(8) Includes 18,000 shares of Common Stock subject to presently exercisable
stock options.
(9) Includes 61,250 shares of Common Stock subject to presently exercisable
stock options.
(10) Includes 10,000 shares of Common Stock subject to presently exercisable
stock options.
(11) Includes 11,948 shares of Common Stock subject to presently exercisable
stock options.
(12) Includes 11,684 shares of Common Stock subject to presently exercisable
stock options.
(13) Includes 5,857 shares of Common Stock subject to presently exercisable
stock options.
(14) Includes 16,849 shares of Common Stock subject to presently exercisable
stock options.
(15) Voting and investment power with respect to 11,950 shares are shared with
certain family members of the respective director and/or executive officer.
Includes 590,088 shares of Common Stock subject to presently exercisable
stock options. See footnotes above.
30
<PAGE> 32
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, for whom The Robinson-Humphrey Company, Inc. and J.C.
Bradford & Co. are acting as representatives (collectively, the
"Representatives"), have severally agreed to purchase from the Selling
Shareholders, and the Selling Shareholders have agreed to sell to the
Underwriters, the number of shares of Common Stock set forth opposite their
respective names.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
<S> <C>
The Robinson-Humphrey Company, Inc. ........................
J.C. Bradford & Co. ........................................
----------
2,044,500
==========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other conditions. The nature of the Underwriters'
obligations is such that they are committed to purchase all shares of Common
Stock offered hereby if any are purchased.
The Underwriters propose to offer the shares of Common Stock directly to
the public at the public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share in sales to certain
other dealers. After the Offering, the public offering price and other selling
terms may be changed.
One of the Selling Shareholders has granted to the Underwriters a 30-day
option to purchase up to an additional 300,000 shares of Common Stock at the
public offering price less the underwriting discount set forth on the cover page
of this Prospectus to cover over-allotments, if any. If the Underwriters
exercise their over-allotment option, the Underwriters have severally agreed,
subject to certain conditions, to purchase approximately the same percentage
thereof that the number of shares of Common Stock to be purchased by each of
them, as shown in the above table, bears to the 2,044,500 shares of Common Stock
offered hereby.
The Company, its executive officers and directors, and the Selling
Shareholders (beneficially owning, in the aggregate, 7,606,700 shares of Common
Stock following the Offering) have agreed that they will not offer, sell or
otherwise dispose of any shares of Common Stock (other than the shares offered
by the Selling Shareholders in the Offering), subject to certain exceptions, for
a period of 120 days from the date of this Prospectus without the prior written
consent of The Robinson-Humphrey Company, Inc. on behalf of the Underwriters.
The Company and the Selling Shareholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act.
The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
In connection with the Offering, certain Underwriters and selling group
members (if any) or their respective affiliates who are qualified registered
market makers on the Nasdaq National Market may engage in passive market-making
transactions in the Common Stock on the Nasdaq National Market in accordance
with Rule 103 of Regulation M, during the one business day prior to the pricing
of the Offering before the commencement of offers or sales of the Common Stock.
The passive market-making transactions must comply with applicable volume and
price limitations and be identified as such. In general, a passive market
31
<PAGE> 33
maker must display its bid at a price not in excess of the highest independent
bid for the security; however, if all independent bids are lowered below the
passive market maker's bid, such bid must then be lowered when certain purchase
limits are exceeded.
Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission (the "Commission") may limit the ability of
the Underwriters to bid for and purchase shares of Common Stock. As an exception
to these rules, the Representatives are permitted to engage in certain
transactions that stabilize the price of the Common Stock. Such transactions may
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the Common Stock. If the Underwriters create a short position in
the Common Stock in connection with the Offering (i.e., if they sell more shares
of the Common Stock than are set forth on the cover page of this Prospectus),
the Representatives may reduce the short position by purchasing the Common Stock
in the open market. The Representatives may elect to reduce any short position
by exercising all or part of the over-allotment option described herein.
The Representatives also may impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of the Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Stock, they may reclaim the
amount of the selling concession from the Underwriters and selling group members
who sold those shares as part of the Offering. In general, purchases of a
security for the purpose of stabilization or to reduce a syndicate short
position could cause the price of the security to be higher than it might
otherwise be in the absence of such purchases. The imposition of a penalty bid
might have an effect on the price of a security to the extent that it were to
discourage resales of the security by purchasers in the offering.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor any of the Underwriters makes any representation that the
Representatives will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
LEGAL MATTERS
Certain legal matters with respect to the validity of the shares of Common
Stock offered hereby will be passed upon for the Company and the Selling
Shareholders by Shereff, Friedman, Hoffman & Goodman, LLP, New York, New York.
Certain legal matters related to the Offering will be passed upon for the
Underwriters by Smith, Gambrell & Russell, LLP, Atlanta, Georgia.
EXPERTS
The Company's consolidated financial statements as of February 1, 1997 and
February 3, 1996 and for each of the three years in the period ended February 1,
1997 included and incorporated by reference in this Prospectus have been audited
by Deloitte & Touche LLP, independent auditors, as stated in their report, which
is included and incorporated by reference herein, and has been so included and
incorporated in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
With respect to the unaudited interim consolidated financial information
for the thirteen weeks ended May 3, 1997 and May 4, 1996 which is included and
incorporated by reference in this Prospectus, Deloitte & Touche LLP have applied
limited procedures in accordance with professional standards for a review of
such information. However, as stated in their report included in the Company's
Quarterly Report on Form 10-Q for the thirteen week period ended May 3, 1997 and
incorporated by reference herein, they did not audit and they do not express an
opinion on that interim financial information. Accordingly, the degree of
reliance on their report on such information should be restricted in light of
the limited nature of the review procedures applied. Deloitte & Touche LLP is
not subject to the liability provisions of Section 11 of the Securities Act for
their report on the unaudited interim financial information because this report
is not a "report" or a "part" of the registration statement prepared or
certified by an accountant within the meaning of Sections 7 and 11 of the Act.
32
<PAGE> 34
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the 1934 Act
and, in accordance therewith, files reports, proxy statements, information
statements and other information with the Commission. Such reports, proxy
statements, information statements and other information filed by the Company
can be inspected and copied at the public reference facilities maintained by the
Commission at the principal offices of the Commission, Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 or at its Regional Offices located in the
Citicorp Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661
and Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of
such material may also be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Commission maintains a web site that contains reports, proxy statements,
information statements and other information regarding registrants, including
the Company, that file such information electronically with the Commission. The
address of the Commission's web site is http://www.sec.gov.
The Company has filed with the Commission a Registration Statement on Form
S-3 (including all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act relating to the Common Stock offered
hereby. This Prospectus, which is part of such Registration Statement, does not
contain all of the information set forth, or incorporated by reference, in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Common Stock offered hereby,
reference is hereby made to the Registration Statement and such exhibits and
schedules, which may be inspected and copied in the manner and at the locations
described above. Statements contained in this Prospectus as to the contents of
any contract or other document referred to are not necessarily complete and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement or as previously filed with
the Commission and incorporated herein by reference.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents previously filed with the Commission (File No.
0-19526) pursuant to the 1934 Act are hereby incorporated by reference into this
Prospectus:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
February 1, 1997.
2. The Company's Quarterly Report on Form 10-Q for the thirteen weeks
ended May 3, 1997.
3. The description of the Common Stock contained in the Company's
Registration Statement on Form 8-A filed with the Commission under the 1934
Act, including any amendment or report filed for the purpose of updating
such description.
All documents subsequently filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the 1934 Act prior to the termination of the Offering
shall be deemed to be incorporated by reference in this Prospectus and to be a
part of this Prospectus from the date of filing thereof. Any statement contained
in a document incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is
incorporated or deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus has been delivered, upon the written or oral
request of any such person, a copy of any and all of the documents referred to
above which have been or may be incorporated in this Prospectus by reference
(other than exhibits). Requests for such copies should be directed to: Goody's
Family Clothing, Inc., 400 Goody's Lane, Knoxville, Tennessee 37922, Attention:
Edward R. Carlin, telephone: (423) 966-2000.
33
<PAGE> 35
GOODY'S FAMILY CLOTHING, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
YEARS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY
28, 1995:
Independent Auditors' Report.............................. F-2
Consolidated Statements of Operations for each of the
three fiscal years in the period ended February 1,
1997................................................... F-3
Consolidated Balance Sheets as of February 1, 1997 and
February 3, 1996....................................... F-4
Consolidated Statements of Cash Flows for each of the
three fiscal years in the period ended February 1,
1997................................................... F-5
Consolidated Statements of Shareholders' Equity for each
of the three fiscal years in the period ended February
1, 1997................................................ F-6
Notes to Consolidated Financial Statements................ F-7
THIRTEEN WEEKS ENDED MAY 3, 1997 AND MAY 4, 1996
(UNAUDITED):
Consolidated Statements of Operations for the thirteen
weeks ended May 3, 1997 and May 4, 1996................ F-14
Consolidated Balance Sheets as of May 3, 1997 and May 4,
1996................................................... F-15
Consolidated Statements of Cash Flows for the thirteen
weeks ended May 3, 1997 and May 4, 1996................ F-16
Notes to Interim Consolidated Financial Statements........ F-17
</TABLE>
F-1
<PAGE> 36
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Goody's Family Clothing, Inc.
We have audited the accompanying consolidated balance sheets of Goody's
Family Clothing, Inc. and subsidiaries as of February 1, 1997 and February 3,
1996, and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the three fiscal years in the period ended
February 1, 1997. 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, such financial statements present fairly, in all material
respects, the consolidated financial position of Goody's Family Clothing, Inc.
and subsidiaries as of February 1, 1997 and February 3, 1996, and the
consolidated results of their operations and their cash flows for each of the
three fiscal years in the period ended February 1, 1997 in conformity with
generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Atlanta, Georgia
March 19, 1997
F-2
<PAGE> 37
GOODY'S FAMILY CLOTHING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR
------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Sales....................................................... $819,056 $696,868 $613,664
Cost of sales and occupancy expenses........................ 609,684 526,151 458,857
-------- -------- --------
Gross profit................................................ 209,372 170,717 154,807
Selling, general and administrative expenses................ 182,628 154,901 136,612
Unusual items............................................... -- -- 6,143
-------- -------- --------
Earnings from operations.................................... 26,744 15,816 12,052
Interest expense............................................ 762 608 1,163
Investment income (loss).................................... 1,460 1,319 (117)
-------- -------- --------
Earnings before income taxes................................ 27,442 16,527 10,772
Provision for income taxes.................................. 10,291 6,063 3,900
-------- -------- --------
Net earnings................................................ $ 17,151 $ 10,464 $ 6,872
======== ======== ========
Earnings per common share................................... $ 1.04 $ 0.65 $ 0.43
======== ======== ========
Weighted average common shares outstanding.................. 16,509 16,123 16,097
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE> 38
GOODY'S FAMILY CLOTHING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3,
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 43,316 $ 32,987
Investments............................................... 1,453 1,386
Inventories............................................... 107,495 78,267
Accounts receivable and other current assets.............. 9,689 6,617
-------- --------
Total current assets.............................. 161,953 119,257
Property and equipment, net................................. 88,955 85,715
Other assets................................................ 3,439 3,471
-------- --------
Total assets...................................... $254,347 $208,443
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 75,900 $ 68,238
Accrued expenses.......................................... 34,841 21,345
Income taxes payable...................................... 6,957 1,671
Current portion of long-term debt......................... 239 217
-------- --------
Total current liabilities......................... 117,937 91,471
Long-term debt.............................................. 871 1,110
Other long-term liabilities................................. 2,578 2,239
Deferred income taxes....................................... 9,385 7,748
-------- --------
Total liabilities................................. 130,771 102,568
-------- --------
Commitments and Contingencies
Shareholders' Equity:
Preferred stock, par value $1 per share;
authorized -- 2,000,000 shares;
issued and outstanding -- none
Class B Common stock, no par value;
authorized -- 50,000,000 shares;
issued and outstanding -- none
Common stock, no par value; authorized -- 50,000,000
shares;
issued -- 16,364,832 and 16,325,212 shares,
respectively;
outstanding -- 16,164,832 and 16,125,212 shares,
respectively........................................... 26,466 26,040
Paid-in capital............................................. 3,259 3,135
Retained earnings........................................... 96,953 79,802
Treasury stock, at cost -- 200,000 shares................... (3,102) (3,102)
-------- --------
Total shareholders' equity........................ 123,576 105,875
-------- --------
Total liabilities and shareholders' equity........ $254,347 $208,443
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE> 39
GOODY'S FAMILY CLOTHING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR
------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings................................................ $ 17,151 $ 10,464 $ 6,872
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization............................. 10,595 9,141 6,185
Net loss (gain) on asset disposals and write-down......... 1,965 (22) 191
Net loss on sale of investments........................... -- -- 1,596
Changes in assets and liabilities:
Investments............................................ (67) (104) 25,323
Inventories............................................ (29,228) (13,859) (6,208)
Accounts payable....................................... 7,081 18,928 5,119
Income tax accounts.................................... 5,257 (290) 1,619
Other assets and liabilities........................... 9,739 (1,651) 4,580
-------- -------- --------
Cash provided by operating activities............. 22,493 22,607 45,277
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of property and equipment...................... (16,070) (10,632) (39,388)
Proceeds from sale of property and equipment................ 270 397 333
-------- -------- --------
Cash used in investing activities................. (15,800) (10,235) (39,055)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net advances (payments) on notes payable.................... -- (10,000) 800
Repayment of long-term debt................................. (217) (198) (179)
Issuance of common stock.................................... 347 201 94
Redemption of preferred stock purchase rights............... -- (161) --
Changes in cash management accounts......................... 3,506 7,642 (1,913)
-------- -------- --------
Cash provided by (used in) financing activities... 3,636 (2,516) (1,198)
-------- -------- --------
Net increase in cash and cash equivalents................... 10,329 9,856 5,024
Cash and cash equivalents, beginning of year................ 32,987 23,131 18,107
-------- -------- --------
Cash and cash equivalents, end of year...................... $ 43,316 $ 32,987 $ 23,131
======== ======== ========
Supplemental Disclosures:
Interest payments......................................... $ 745 $ 665 $ 1,174
Income tax payments, net of refunds received.............. 5,294 7,062 2,310
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE> 40
GOODY'S FAMILY CLOTHING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK
---------------- PAID-IN RETAINED ----------------
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT TOTAL
------ ------- ------- -------- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 29, 1994.......... 16,291 $25,712 $3,296 $62,466 (200) $(3,104) $ 88,370
Net earnings....................... -- -- -- 6,872 -- -- 6,872
Exercise of stock options.......... 11 123 -- -- -- -- 123
Cancellation of treasury stock..... -- (2) -- -- -- 2 --
------ ------- ------ ------- ---- ------- --------
BALANCE, JANUARY 28, 1995.......... 16,302 25,833 3,296 69,338 (200) (3,102) 95,365
Net earnings....................... -- -- -- 10,464 -- -- 10,464
Exercise of stock options.......... 23 207 -- -- -- -- 207
Redemption of preferred stock
purchase rights.................. -- -- (161) -- -- -- (161)
------ ------- ------ ------- ---- ------- --------
BALANCE, FEBRUARY 3, 1996.......... 16,325 26,040 3,135 79,802 (200) (3,102) 105,875
Net earnings....................... -- -- -- 17,151 -- -- 17,151
Exercise of stock options.......... 40 426 124 -- -- -- 550
------ ------- ------ ------- ---- ------- --------
BALANCE, FEBRUARY 1, 1997.......... 16,365 $26,466 $3,259 $96,953 (200) $(3,102) $123,576
====== ======= ====== ======= ==== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE> 41
GOODY'S FAMILY CLOTHING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 28, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
At February 1, 1997, Goody's Family Clothing, Inc. and subsidiaries (the
"Company") was principally engaged in the retailing of moderately priced apparel
for women, men and children in 203 retail stores located in 14 states. Its
significant accounting policies are as follows:
Fiscal Year-End -- The Company's fiscal year ends on the Saturday nearest the
last day of January. Fiscal 1996, 1995 and 1994 refer to the Company's fiscal
years ended February 1, 1997 (52 weeks), February 3, 1996 (53 weeks) and January
28, 1995 (52 weeks), respectively.
Principles of Consolidation -- The consolidated financial statements include the
accounts of Goody's Family Clothing, Inc. and its subsidiaries, all of which are
wholly-owned. All significant intercompany balances and transactions have been
eliminated.
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.
Cash and Cash Equivalents -- Cash equivalents consist of highly liquid
investments, such as money market accounts, deposit accounts, government backed
securities, and overnight repurchase agreements, each with a maturity of less
than three months. The cost of these investments approximate their fair market
value.
Amounts due banks upon the clearance of certain checks under the Company's
cash management program have been included in both accounts payable and accrued
expenses. At February 1, 1997 and February 3, 1996, the total of such amounts
were $14,497,000 and $10,991,000, respectively.
Investments -- Investments are held by a bank, as trustee, to fund certain
potential future severance payments in respect of which no liability exists at
February 1, 1997. The Company is restricted from using these funds for its
operating activities until April 1998.
Inventories -- Inventories are stated at the lower of moving weighted average
cost or market.
Property and Equipment -- Property and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation is computed by using the
straight-line method over the estimated useful lives of the assets, which are 40
years for buildings and up to 10 years for other assets. Leasehold improvements
are amortized by the straight-line method over the lesser of the useful lives of
the improvements or the initial terms of the related leases.
Store Opening and Closing Costs -- Non-capital expenditures for new or relocated
stores are expensed as incurred. The net book value of leasehold improvements
and abandoned fixtures as well as any future rents payable for stores, for which
a decision has been made to close or relocate the stores, are charged against
current earnings.
Income Taxes -- Deferred income taxes are recognized for the tax consequences of
temporary differences between the tax and financial reporting basis of the
Company's assets and liabilities based upon enacted tax laws and statutory tax
rates applicable to the future years in which the differences are expected to
affect taxable income.
Sales -- Sales include approximately $26,827,000, $21,087,000 and $14,435,000 of
leased shoe department sales for fiscal 1996, 1995 and 1994, respectively.
Earnings Per Common Share -- Weighted average common shares outstanding for
fiscal year 1996 includes common equivalent shares to account for the dilutive
effect of stock options. Common equivalent shares were
F-7
<PAGE> 42
GOODY'S FAMILY CLOTHING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
not materially dilutive in prior years and therefore are not included in the
earnings per share computations for such years.
New Accounting Pronouncement -- In February 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS No. 128"). This Statement establishes new standards
for computing and presenting earnings per share information. SFAS No. 128
simplifies the computation of earnings per share currently required by
Accounting Principles Board Opinion No. 15, "Earnings per Share" and its related
interpretations. The new Statement replaces the presentation of "primary" (and
when required "fully diluted") earnings per share with "basic" and "diluted"
earnings per share. This new Statement is effective for financial statements
issued for periods ending after December 15, 1997, including interim periods;
earlier application is not permitted. The Company's computation of basic and
diluted earnings per share under SFAS No. 128 for fiscal 1996, 1995 and 1994
will not be materially different from earnings per share previously reported for
those years.
Reclassifications -- Certain reclassifications have been made to the financial
statements of prior periods to conform to the current period presentation.
2. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3,
1997 1996
----------- -----------
<S> <C> <C>
Land........................................................ $ 3,512 $ 3,512
Buildings................................................... 25,631 25,277
Leasehold improvements...................................... 17,720 18,380
Furniture and equipment..................................... 79,647 68,520
Transportation equipment.................................... 5,762 5,597
-------- --------
Total property and equipment...................... 132,272 121,286
Less accumulated depreciation and amortization.............. 43,317 35,571
-------- --------
Net property and equipment........................ $ 88,955 $ 85,715
======== ========
</TABLE>
The Company continually evaluates its investment in long-lived assets
(principally property and equipment) used in operations on an individual store
basis. During the fourth quarter of 1996, the Company determined that, based
upon recent operating results and updated operating projections, the property
and equipment at certain stores was impaired. As a result, the Company recorded
a pre-tax charge in fiscal 1996 of approximately $741,000, or $0.03 per share,
in order to write-down the carrying value of the property and equipment to their
estimated fair value pursuant to the provisions of SFAS No. 121. No impairment
charge was necessary for fiscal 1995 based upon the results of similar analysis
performed.
3. CREDIT ARRANGEMENTS
In May 1996, the Company renewed its credit facility with a consortium of
banks for an unsecured revolving line of credit which provides for cash
borrowings for general corporate purposes as well as for the issuance of letters
of credit of up to $100,000,000. This facility extends through May 1998. The
Company is committed to pay (i) interest on the cash borrowings at a fluctuating
base rate or LIBOR plus an applicable margin, as defined, (ii) letter of credit
fees based on the number of days a letter of credit is outstanding times the
applicable fee and (iii) an annual commitment fee payable quarterly in advance.
The terms of this credit facility require, among other things, maintenance of
minimum levels of shareholders' equity and compliance with certain financial
ratios and place restrictions on additional indebtedness, asset disposals,
investments and capital expenditures. In addition, the Company is prohibited
from paying dividends.
F-8
<PAGE> 43
GOODY'S FAMILY CLOTHING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At February 1, 1997 and February 3, 1996, the Company had no cash
borrowings under this credit facility and letters of credit issued and
outstanding amounted to $28,005,000 and $10,816,000, respectively. The weighted
average interest rates on cash borrowings in fiscal 1996, 1995 and 1994 were
6.5%, 7.1% and 5.2%, respectively. Cash borrowings under the Company's line of
credit averaged $5,206,000, $3,481,000 and $14,640,000 during fiscal 1996, 1995
and 1994, respectively. The highest balances of cash borrowings were $37,000,000
in November 1996, $18,000,000 in October 1995 and $41,883,000 in November 1994.
4. LONG-TERM DEBT
Long-term debt represents a promissory note payable to the Company's
founder and former chairman, M.D. Goodfriend, and his wife, who are the parents
of the Company's current Chairman of the Board and Chief Executive Officer. The
debt is unsecured and is payable in annual installments of $350,000, including
interest at 10%, through January 26, 2001. Interest paid on this debt was
$133,000, $152,000 and $170,000 during fiscal 1996, 1995 and 1994, respectively.
Based on borrowing rates currently available to the Company for bank loans with
similar terms and maturities, the fair value of such long-term debt was not
significantly different than its carrying amount.
5. INCOME TAXES
The provision for income taxes for the years indicated consisted of the
following (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
---------------------------
1996 1995 1994
------- ------ ------
<S> <C> <C> <C>
Current
Federal............................................... $ 9,173 $3,626 $2,696
State................................................. 1,280 705 1,080
------- ------ ------
Total current................................. 10,453 4,331 3,776
------- ------ ------
Deferred
Federal............................................... (84) 1,451 105
State................................................. (78) 281 19
------- ------ ------
Total deferred................................ (162) 1,732 124
------- ------ ------
Provision for income taxes.................... $10,291 $6,063 $3,900
======= ====== ======
</TABLE>
The provision for income taxes differed from the amounts computed by
applying the federal statutory rate to earnings before income taxes as follows
(in thousands):
<TABLE>
<S> <C> <C> <C>
Tax expense at statutory rate........................... $ 9,605 $5,783 $3,670
State taxes, net of federal benefit..................... 745 726 458
Effect of tax-exempt income............................. (89) (125) (216)
Effect of other items................................... 30 (321) (12)
------- ------ ------
Provision for income taxes.................... $10,291 $6,063 $3,900
======= ====== ======
</TABLE>
F-9
<PAGE> 44
GOODY'S FAMILY CLOTHING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences were as follows (in thousands):
<TABLE>
<CAPTION>
ASSETS (LIABILITIES)
--------------------------
FEBRUARY 1, FEBRUARY 3,
1997 1996
----------- -----------
<S> <C> <C>
Current:
Inventory carrying cost................................... $ 887 $ 392
Net operating loss carryforward........................... 171 173
Capital loss carryforward................................. 108 --
Accrued expenses and other................................ 2,512 1,314
------- -------
Current deferred tax asset........................ $ 3,678 $ 1,879
======= =======
Long term:
Depreciation.............................................. $(9,934) $(9,029)
Capital loss carryforward................................. -- 549
Net operating loss carryforward........................... -- 173
Other..................................................... 549 559
------- -------
Long-term deferred tax liability.................. $(9,385) $(7,748)
======= =======
</TABLE>
At February 1, 1997, the Company had net operating loss carryforwards of
$434,000 which expire in varying amounts through 2007 and capital loss
carryforwards of $318,000 which expire in varying amounts through 2000.
6. CAPITAL STOCK
In October 1994, the Company amended its Charter to create a new series of
Preferred Stock (issuable from existing authorized preferred stock), par value
$1 per share, designated as Series A Junior Participating Preferred Stock,
adopted a Share Purchase Rights Plan (the "Rights Plan") and declared a dividend
of one right (a "Right") for each outstanding share of Common Stock of the
Company. The Rights were redeemed in June 1995 for $161,000.
In August 1995, the Company amended its Charter to authorize 50,000,000
shares of a new class of Common Stock designated as "Class B Common Stock," none
of which is issued and outstanding. The Amended and Restated Charter further
empowered the Board of Directors to issue the Preferred Stock and the Class B
Common Stock in one or more series without further shareholder approval (unless
required in a specific case by applicable law, regulation, or stock exchange or
Nasdaq rule) and to determine (i) the designations and the powers, preferences
and relative, participating, optional or other special rights and
qualifications, limitations or restrictions of each series of Class B Common
Stock, including, without limitation, the dividend rate, voting rights,
conversion rights, redemption price and liquidation preference and (ii) the
number of shares constituting such series.
7. STOCK OPTIONS
As of February 1, 1997, the Company had three stock option plans: the
Goody's Family Clothing, Inc. 1991 Stock Incentive Plan (the "1991 Plan"), the
Goody's Family Clothing, Inc. 1993 Stock Option Plan (the "1993 Plan") and the
Discounted Stock Option Plan for Directors (the "Directors Plan").
The 1991 Plan and 1993 Plan provide for the grant of nonqualified and
incentive stock options to key associates and formula options to non-associate
directors. The Compensation Committee of the Board of Directors determines the
exercise price (not to be less than fair market value of the Company's common
stock (the "Common Stock") for incentive options or formula options) on the date
of grant, the vesting and exercise periods. The options generally vest in equal
installments over five years from the date of grant and are
F-10
<PAGE> 45
GOODY'S FAMILY CLOTHING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
generally exercisable up to 10 years from the date of grant. The Company is
authorized to issue 1,825,000 shares of Common Stock under the 1991 Plan and
1993 Plan.
Under the Directors Plan, non-associate directors may elect to receive
options to purchase Common Stock at an exercise price equal to 50% of the fair
market value of the Common Stock on the date of grant in lieu of cash for their
director fees. These options vest one year from the date of grant and are
exercisable up to 20 years from the date of grant. The expense recorded in
connection with stock options issued under this plan has been immaterial. The
Company is authorized to issue 150,000 shares of Common Stock under the
Directors Plan.
A summary of the stock option activity and the related weighted average
exercise prices for the various plans is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
RESERVED SHARES OUTSTANDING OPTIONS EXERCISE PRICE
--------------- ------------------- ----------------
<S> <C> <C> <C>
Outstanding at January 29, 1994..... 1,033,048 751,382 $14.11
Granted........................... (311,237) 311,237 13.29
Exercised......................... -- (11,000) 8.50
Forfeited......................... 46,948 (46,948) 11.40
--------- ---------
Outstanding at January 28, 1995..... 768,759 1,004,671 13.32
Granted........................... (781,466) 781,466 9.56
Exercised......................... -- (23,700) 8.50
Forfeited......................... 615,250 (615,250) 15.99
--------- ---------
Outstanding at February 3, 1996..... 602,543 1,147,187 9.43
Reserved.......................... 100,000 -- --
Granted........................... (564,698) 564,698 13.97
Exercised......................... -- (39,620) 8.80
Forfeited......................... 80,480 (80,480) 9.28
--------- ---------
Outstanding at February 1, 1997..... 218,325 1,591,785 11.06
========= =========
</TABLE>
The following table summarizes information about stock options outstanding
at February 1, 1997:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
------------------------------------------- EXERCISABLE OPTIONS
WEIGHTED- ----------------------------
AVERAGE WEIGHTED- WEIGHTED-
OPTIONS REMAINING AVERAGE OPTIONS AVERAGE
RANGE OF OUTSTANDING AT CONTRACTUAL EXERCISE EXERCISABLE AT EXERCISE
EXERCISE PRICES FEBRUARY 1, 1997 LIFE (YEARS) PRICE FEBRUARY 1, 1997 PRICE
--------------- ---------------- ------------ --------- ---------------- ---------
<S> <C> <C> <C> <C> <C>
$ 4.82 to $5.69............ 32,584 19.0 $ 5.20 14,060 $ 5.69
7.38 to 11.00............ 982,751 7.5 8.86 463,251 8.57
11.25 to 15.00............ 250,950 8.2 12.18 83,150 12.21
17.44..................... 325,500 5.0 17.44 320,000 17.44
--------- -------
1,591,785 880,461
========= =======
</TABLE>
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123") encourages, but does not require,
companies to record compensation cost for stock-based employee compensation
plans at fair value. The Company has chosen to adopt the disclosure-only
provisions of SFAS No. 123 and to continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and
its related interpretations. Accordingly, no compensation cost has been
recognized for the stock options granted under the various stock option plans.
Had compensation cost for the Company's stock option plans been determined based
on the fair value on the date of grant for awards in fiscal 1996 and 1995
consistent with
F-11
<PAGE> 46
GOODY'S FAMILY CLOTHING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the provisions of SFAS No. 123, the Company's net earnings and earnings per
common share would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
FISCAL 1996 FISCAL 1995
----------------------- -----------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Net earnings (in thousands)................. $17,151 $15,157 $10,464 $9,678
Earnings per common share................... 1.04 0.92 0.65 0.60
</TABLE>
The fair value of the options granted under the Company's various stock
option plans during fiscal 1996 and 1995 was estimated on their date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions: no dividend yield; expected volatility of 49% and 47%,
respectively; risk free interest rates of 6.4% and 6.8%, respectively; and
expected lives of 4.7 and 7.0 years, respectively.
8. PROFIT SHARING PLAN
The Company maintains a profit sharing plan for all full-time associates
who are eligible to participate under the plan. The plan provides for
discretionary contributions by the Company that are approved by its Board of
Directors. The Company's contributions related to this plan for fiscal 1996,
1995 and 1994 were $525,000, $350,000 and $300,000, respectively.
9. LEASE OBLIGATIONS
The Company leases its stores under operating leases, the majority of which
expire at various times during the next 10 years. The Company can, at its
option, renew most of these leases at rents which are fixed based at their then
current fair rental value. Payments under store leases consist of a fixed
minimum rent, additional rent based on a percent of sales in excess of
stipulated amounts and a share of taxes, insurance and common area maintenance
costs. The Company also leases certain data processing, transportation and other
equipment.
The future minimum rental payments under operating leases having initial or
remaining non-cancelable lease terms in excess of one year at February 1, 1997,
are as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
-----------
<S> <C>
1997........................................................ $ 37,105
1998........................................................ 33,177
1999........................................................ 28,038
2000........................................................ 24,936
2001........................................................ 23,269
Thereafter.................................................. 93,695
--------
Total............................................. $240,220
========
</TABLE>
Rent expense for fiscal 1996, 1995 and 1994 was $37,965,000, $33,394,000
and $27,925,000, respectively, including percentage rent of $451,000, $481,000
and $473,000, respectively.
10. RELATED PARTY TRANSACTIONS
The Company has entered into various related party transactions with Robert
M. Goodfriend (the Company's Chairman of the Board and Chief Executive Officer
and beneficial owner of approximately 56% of the Common Stock) as described
below.
The Company paid premiums of $54,000, $54,000 and $201,000 in fiscal 1996,
1995 and 1994, respectively, for split-dollar life insurance policies insuring
the life of Mr. Goodfriend. The beneficiary of these policies is a trust
established for Mr. Goodfriend's children. The trust has assigned to the Company
an interest
F-12
<PAGE> 47
GOODY'S FAMILY CLOTHING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
in the cash value of the life insurance policies to the extent of cumulative
premiums paid by the Company. Included in "Other Assets" at February 1, 1997 and
February 3, 1996, are $2,041,000 and $1,987,000, respectively, related to these
policies.
The Company paid rent and taxes amounting to $442,000, $443,000 and
$438,000 for fiscal 1996, 1995 and 1994, respectively, for a store leased from
another trust benefiting Mr. Goodfriend's children. Future commitments at
February 1, 1997, under this related party lease are approximately $764,000.
The Company paid $6,000 in fiscal 1995 and $176,000 in fiscal 1994 for the
use of Mr. Goodfriend's property, contiguous to the corporate headquarters and
distribution center, as a retention basin. The Company purchased this property
from Mr. Goodfriend at its fair market value, as determined by a third party
appraiser, of approximately $519,000 in March 1995.
The Company paid $15,000 in fiscal 1995 and $38,000 in fiscal 1994 for the
use of Mr. Goodfriend's property, adjacent to the corporate complex, as a
staging area in connection with the expansion of the Company's corporate
headquarters and distribution center.
During fiscal 1994, the Company sold its former distribution center located
in Athens, Tennessee, to a local bank, of which Mr. Goodfriend is a director and
shareholder, at its fair market value, as determined by a third party appraiser,
of $520,000 and realized a gain of $20,000. The Company subsequently leased this
property for a period of three years and paid rent amounting to $40,000, $40,000
and $3,000 for fiscal 1996, 1995 and 1994, respectively.
11. UNUSUAL ITEMS
Results of operations for fiscal 1994 included unusual charges of
$6,143,000 consisting of (i) approximately $1,900,000 for the Company's portion
of the settlement of a certain class action securities litigation against the
Company, (ii) approximately $3,119,000 primarily related to severance payments
associated with certain restructuring and cost reduction measures and (iii)
approximately $1,124,000 for legal fees and other costs related to the
settlement of certain disputes between the Company and its Chairman of the Board
and Chief Executive Officer, Robert M. Goodfriend.
F-13
<PAGE> 48
GOODY'S FAMILY CLOTHING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
--------------------------
MAY 3, 1997 MAY 4, 1996
----------- -----------
<S> <C> <C>
Sales....................................................... $190,057 $150,766
Cost of sales and occupancy expenses........................ 135,080 108,121
-------- --------
Gross profit................................................ 54,977 42,645
Selling, general and administrative expenses................ 47,245 39,275
-------- --------
Earnings from operations.................................... 7,732 3,370
Interest expense............................................ 125 87
Investment income........................................... 486 272
-------- --------
Earnings before income taxes................................ 8,093 3,555
Provision for income taxes.................................. 3,035 1,351
-------- --------
Net earnings................................................ $ 5,058 $ 2,204
-------- --------
Earnings per common share................................... $ 0.30 $ 0.14
======== ========
Weighted average common shares outstanding.................. 16,629 16,125
======== ========
</TABLE>
See accompanying notes to interim consolidated financial statements
F-14
<PAGE> 49
GOODY'S FAMILY CLOTHING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MAY 3, MAY 4,
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 29,579 $ 22,901
Investments............................................... 1,461 1,403
Inventories............................................... 142,315 111,209
Accounts receivable and other current assets.............. 13,152 9,725
-------- --------
Total current assets.............................. 186,507 145,238
Property and equipment, net................................. 88,850 86,458
Other assets................................................ 3,445 3,438
-------- --------
Total assets................................................ $278,802 $235,134
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 95,477 $ 86,303
Accrued expenses.......................................... 36,546 26,989
Income taxes payable...................................... 4,063 2,164
Current portion of long-term debt......................... 239 217
-------- --------
Total current liabilities......................... 136,325 115,673
Long-term debt.............................................. 871 1,110
Other long-term liabilities................................. 2,621 2,290
Deferred income taxes....................................... 9,552 7,982
-------- --------
Total liabilities................................. 149,369 127,055
-------- --------
Commitments and Contingencies
Shareholders' Equity:
Preferred stock $1.00 par value;
authorized -- 2,000,000 shares; issued and
outstanding -- none
Class B Common stock no par value;
authorized -- 50,000,000 shares; issued and
outstanding -- none
Common stock no par value; authorized -- 50,000,000
shares; issued -- 16,421,982 and 16,325,212 shares;
outstanding -- 16,221,982 and 16,125,212 shares........ 27,016 26,040
Paid-in capital........................................... 3,508 3,135
Retained earnings......................................... 102,011 82,006
Treasury stock, at cost -- 200,000 shares................. (3,102) (3,102)
-------- --------
Total shareholders' equity........................ 129,433 108,079
-------- --------
Total liabilities and shareholders' equity.................. $278,802 $235,134
======== ========
</TABLE>
See accompanying notes to interim consolidated financial statements
F-15
<PAGE> 50
GOODY'S FAMILY CLOTHING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
-------------------------
MAY 3, 1997 MAY 4, 1996
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net earnings.............................................. $ 5,058 $ 2,204
Adjustments to reconcile net earnings to net cash used in
operating activities:
Depreciation and amortization.......................... 2,614 2,290
Net loss on asset disposals and write-down............. 141 42
Changes in assets and liabilities:
Inventories.......................................... (34,820) (32,942)
Accounts payable..................................... 17,187 21,373
Income taxes......................................... (3,543) 709
Other assets & liabilities........................... (173) 2,750
-------- --------
Cash used in operating activities................. (13,536) (3,574)
-------- --------
Cash Flows from Investing Activities:
Acquisitions of property and equipment................. (2,654) (3,133)
Proceeds from sale of property and equipment........... 4 58
-------- --------
Cash used in investing activities................. (2,650) (3,075)
-------- --------
Cash Flows from Financing Activities:
Exercise of stock options.............................. 550 --
Changes in cash management accounts.................... 1,899 (3,437)
-------- --------
Cash provided by (used in) financing activities... 2,449 (3,437)
-------- --------
Cash and cash equivalents:
Net decrease for the period................................. (13,737) (10,086)
Balance, beginning of period................................ 43,316 32,987
-------- --------
Balance, end of period...................................... $ 29,579 $ 22,901
======== ========
Supplemental Disclosures:
Interest payments...................................... $ 89 $ 50
Income tax payments.................................... 6,631 868
</TABLE>
See accompanying notes to interim consolidated financial statements.
F-16
<PAGE> 51
GOODY'S FAMILY CLOTHING, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(1) UNAUDITED FINANCIAL INFORMATION
In the opinion of the Company's management, the accompanying unaudited
consolidated financial statements of Goody's Family Clothing, Inc. and
subsidiaries (the "Company") include all adjustments, consisting primarily of
normal and recurring adjustments, necessary for a fair presentation of the
Company's financial position, results of operations and cash flows for the
interim periods presented. Due to the seasonal nature of the Company's business,
the results of operations for the interim periods are not necessarily indicative
of the results that may be achieved for the entire year. These financial
statements should be read in conjunction with the audited consolidated financial
statements and the notes thereto contained elsewhere in this Registration
Statement.
(2) 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.
(3) CREDIT ARRANGEMENTS
The Company has a credit agreement with a consortium of banks for an
unsecured revolving line of credit which provides for cash borrowings for
general corporate purposes as well as for the issuance of letters of credit of
up to $100,000,000. On May 16, 1997, the Company amended its credit agreement to
increase its unsecured revolving line of credit to $120,000,000 and extend its
expiration date to May 31, 1999. The Company is committed to pay (i) interest on
the cash borrowings at a fluctuating base rate or LIBOR plus an applicable
margin, as defined, (ii) letter of credit fees based on the number of days a
letter of credit is outstanding times the applicable fee and (iii) an annual
commitment fee payable quarterly in advance. The terms of this credit facility
require, among other things, maintenance of minimum levels of shareholders'
equity and compliance with certain financial ratios and place restrictions on
additional indebtedness, asset disposals, investments, capital expenditures and
payment of dividends.
(4) EARNINGS PER SHARE
Weighted average common shares outstanding for the first quarter of fiscal
1997 includes common equivalent shares to account for the dilutive effect of
stock options. Common equivalent shares were not materially dilutive in the
first quarter of fiscal 1996 and therefore were not included in the earnings per
share computations for such period.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No.
128"). This Statement establishes new standards for computing and presenting
earnings per share ("EPS") information. SFAS No. 128 simplifies the computation
of earnings per share currently required by Accounting Principles Board Opinion
No. 15, "Earnings per Share" and its related interpretations. The new Statement
replaces the presentation of "primary" (and when required "fully diluted")
earnings per share with "basic" and "diluted" earnings per share. This new
Statement is effective for financial statements issued for periods ending after
December 15, 1997, including interim periods; earlier application is not
permitted. The Company's computation of basic and diluted EPS under SFAS No. 128
for the thirteen-week periods ended May 3, 1997 and May 4, 1996 will not be
materially different than EPS currently reported for those periods.
(5) RECLASSIFICATIONS
Certain reclassifications have been made to the financial statements of
prior periods to conform to the current period presentation.
F-17
<PAGE> 52
[INSIDE BACK COVER OF PROSPECTUS CONTAINING PHOTOGRAPHS OF
EXTERIOR OF CORPORATE HEADQUARTERS AND INTERIOR OF DISTRIBUTION CENTER.]
<PAGE> 53
======================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY,
THE SELLING SHAREHOLDERS OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE COMMON STOCK IN
ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO
THE DATE HEREOF, OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE SUCH DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 10
Price Range of Common Stock........... 10
Recent Financial Developments......... 10
Selected Consolidated Financial
Data................................ 12
Management's Discussion and Analysis
of Financial Condition and Results of
Operations....................... 13
Business.............................. 19
Management............................ 27
Principal and Selling Shareholders.... 29
Underwriting.......................... 31
Legal Matters......................... 32
Experts............................... 32
Available Information................. 33
Incorporation of Certain Information
by Reference........................ 33
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
===================================================================
2,044,500 SHARES
[GOODY'S FAMILY CLOTHING, INC, (R) LOGO]
COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
THE ROBINSON-HUMPHREY
COMPANY, INC.
J.C. BRADFORD & CO.
, 1997
===================================================================
<PAGE> 54
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... $ 25,596
NASD Filing Fee............................................. 8,947
Printing and Engraving...................................... 90,000
Legal Fees and Expenses (other than Blue Sky)............... 75,000
Blue Sky Fees and Expenses (including counsel fees)......... 2,500
Accounting Fees and Expenses................................ 58,000
Transfer Agent Fees......................................... 1,900
Travel and Miscellaneous.................................... 38,057
--------
Total............................................. $300,000
========
</TABLE>
All of the above items, except the Securities and Exchange Commission
registration fee and the NASD filing fee, are estimated. All expenses incurred
in connection with the Offering (other than travel expenses estimated to be
$25,000, which will be paid by the Company) will be borne ratably by the Selling
Shareholders on the basis of the number of shares of Common Stock sold by each
Selling Shareholder in the Offering.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The indemnification of officers and directors of the Registrant is governed
by Section 48-18-501 et seq. of the Tennessee Business Corporation Act (the
"TBCA") and the Amended and Restated Charter (the "Charter") and By-laws of the
Registrant.
The Charter and the By-laws of the Registrant provide for the
indemnification of the directors, officers, employees and agents of the
Registrant to the fullest extent permitted by the TBCA. Among other things, the
TBCA permits a corporation's indemnification of a director, officer, employee or
agent made a party to a proceeding by reason of the fact of such relationship
with such corporation against liability incurred in the proceeding if (i) such
person acted in good faith, (ii) such person reasonably believed, (a) in the
case of conduct in his official capacity with the corporation, that his conduct
was in its best interests or (b) in all other cases, that his conduct was at
least not opposed to its best interests, and (iii) in the case of any criminal
proceeding, such person had no reasonable cause to believe his conduct was
unlawful. A director's conduct with respect to an employee benefit plan for a
purpose he reasonably believed to be in the interests of the participants in and
beneficiaries of the plan is conduct that satisfies the provisions of clause
(ii)(b) above. However, pursuant to the TBCA, a corporation may not indemnify a
director (i) in connection with a proceeding brought by or in the right of the
corporation in which the director was adjudged liable to the corporation or (ii)
in connection with any other proceeding charging improper personal benefit to
him, whether or not involving action in his official capacity, in which he was
adjudged liable on the basis that personal benefit was improperly received by
him. Under the TBCA, unless limited by its charter, a corporation shall
indemnify a director or officer who was wholly successful, on the merits or
otherwise, in the defense of any proceeding to which he was a party because he
is or was a director or officer (as applicable) of the corporation against
reasonable expenses incurred by him in connection with the proceeding. Under
certain circumstances, the TBCA also permits a corporation to pay for or
reimburse the reasonable expenses incurred by a director who is a party to a
proceeding in advance of final disposition of the proceeding. The TBCA also
permits a corporation to purchase and maintain insurance on behalf of its
directors, officers, employees and agents regardless of whether the corporation
would have statutory power to indemnify such persons against the liabilities
insured and the TBCA further provides that indemnification and advances of
expenses permitted thereunder are not to be exclusive of any rights to which
those seeking indemnification or advancement of expenses may be entitled,
provided that a corporation may not indemnify a director if a judgment or other
final adjudication adverse to him establishes his liability (i) for any breach
of the duty of loyalty to the corporation
II-1
<PAGE> 55
or its shareholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law or (iii) under
Section 48-18-304 of the TBCA (liability for unlawful distribution).
The Charter and By-laws of the Registrant also provide that no director of
the Registrant shall be personally liable to the Registrant or its shareholders
for monetary damages for breach of fiduciary duty as a director except for
liability (i) for any breach of the director's duty of loyalty to the Registrant
or its shareholders, (ii) for acts of omissions not in good faith or that
involve intentional misconduct or a knowing violation of law, or (iii) arising
under Section 47-18-304 of the TBCA.
The Registrant also has entered into agreements with its directors to
further memorialize and reaffirm the Registrant's obligations to indemnify them
as authorized by its Charter and By-laws of the Registrant. Furthermore, the
Registrant has Directors and Officers Liability Insurance, which, subject to the
policy's conditions, provides coverage for indemnification amounts payable by
the Registrant with respect to its directors and officers.
ITEM 16. EXHIBITS
The following exhibits are filed as part of this Registration Statement.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
1.1 -- Form of Underwriting Agreement.**
4.1 -- See Amended and Restated Charter of the Registrant
(incorporated by reference to Exhibit 3.1 in Registrant's
Quarterly Report on Form 10-Q for the quarter ended July 29,
1995 (file no. 0-19526)) and Amended and Restated Bylaws of
the Registrant (incorporated by reference to Exhibit 3.1 in
Registrant's Annual Report on Form 10-K for the year ended
January 28, 1995 (file no. 0-19526)) for provisions defining
rights of holders of Common Stock of the Registrant.
5.1 -- Opinion of Shereff, Friedman, Hoffman & Goodman, LLP.**
15.1 -- Accountants' Awareness Letter.*
23.1 -- Consent of Deloitte & Touche LLP.**
23.2 -- Consent of Shereff, Friedman, Hoffman & Goodman, LLP
(included in Exhibit 5.1).
24.1 -- Power of Attorney.*
</TABLE>
- ---------------
* Previously filed.
** Filed herewith.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in this Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
herein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 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
II-2
<PAGE> 56
whether such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of Prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
Prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 57
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of Knoxville, State of Tennessee on August
15, 1997.
Goody's Family Clothing, Inc.
By: /s/ ROBERT M. GOODFRIEND
------------------------------------
Robert M. Goodfriend
Chairman of the Board and
Chief Executive Officer
II-4
<PAGE> 58
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed below by the following
persons and in the capacities and on the 15th day of August, 1997.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<C> <S>
/s/ ROBERT M. GOODFRIEND Chairman of the Board and Chief Executive
- ----------------------------------------------------- Officer
Robert M. Goodfriend
/s/ HARRY M. CALL Director, President and Chief Operating
- ----------------------------------------------------- Officer
Harry M. Call
/s/ EDWARD R. CARLIN Executive Vice President, Chief Financial
- ----------------------------------------------------- Officer and Secretary (Principal Financial
Edward R. Carlin Officer)
/s/ DAVID G. PEEK Vice President, Corporate Controller and Chief
- ----------------------------------------------------- Accounting Officer (Principal Accounting
David G. Peek Officer)
* Director
- -----------------------------------------------------
Samuel J. Furrow
* Director
- -----------------------------------------------------
Robert F. Koppel
* Director
- -----------------------------------------------------
Irwin L. Lowenstein
* Director
- -----------------------------------------------------
Cheryl L. Turnbull
* By: /s/ HARRY M. CALL
------------------------------------------------
Harry M. Call
Attorney-in-Fact
</TABLE>
II-5
<PAGE> 59
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
1.1 -- Form of Underwriting Agreement.**
4.1 -- See Amended and Restated Charter of the Registrant
(incorporated by reference to Exhibit 3.1 in Registrant's
Quarterly Report on Form 10-Q for the quarter ended July 29,
1995 (file no. 0-19526)) and Amended and Restated Bylaws of
the Registrant (incorporated by reference to Exhibit 3.1 in
Registrant's Annual Report on Form 10-K for the year ended
January 28, 1995 (file no. 0-19526)) for provisions defining
rights of holders of Common Stock of the Registrant.
5.1 -- Opinion of Shereff, Friedman, Hoffman & Goodman, LLP.**
15.1 -- Accountants' Awareness Letter.*
23.1 -- Consent of Deloitte & Touche LLP.**
23.2 -- Consent of Shereff, Friedman, Hoffman & Goodman, LLP
(included in Exhibit 5.1).
24.1 -- Power of Attorney.*
</TABLE>
- ---------------
* Previously filed.
** Filed herewith.
II-6
<PAGE> 1
EXHIBIT 1.1
GOODY'S FAMILY CLOTHING, INC.
COMMON STOCK
------------
UNDERWRITING AGREEMENT
, 1997
--------------
THE ROBINSON-HUMPHREY COMPANY, INC.
J.C. BRADFORD & CO.
As representatives of the several Underwriters
named in Schedule I hereto,
c/o The Robinson-Humphrey Company, Inc.
3333 Peachtree Road, NE
Atlanta, Georgia 30326
Dear Sirs:
Certain shareholders of Goody's Family Clothing, Inc., a Tennessee
corporation (the "Company"), named in Schedule II hereto (the "Selling
Shareholders") propose, subject to the terms and conditions stated herein, to
sell to the Underwriters (the "Underwriters") named in Schedule I hereto an
aggregate of 2,044,500 shares of common stock of the Company, no par value
("Common Stock"), in the respective amounts set forth opposite their names in
Schedule II hereto (the "Firm Shares"), and, at the election of the
Underwriters, subject to the terms and conditions stated herein, one of the
Selling Shareholders proposes to sell to the Underwriters up to 300,000
additional shares of Common Stock (the "Optional Shares") (the Firm Shares and
the Optional Shares that the Underwriters elect to purchase pursuant to Section
2 hereof are collectively called the "Shares"). In your capacity as
representatives of the several Underwriters, you are referred to herein as the
"Representatives."
1. REPRESENTATIONS AND WARRANTIES
(a) REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company represents and warrants to, and agrees with, each of the Underwriters
that:
(i) A registration statement on Form S-3 (File
No. 333-32409) with respect to the Shares, including a
prospectus subject to completion, has been filed by the
Company with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended
(the "Act"), and one or more amendments to such registration
statement may have been so filed. After the execution of this
Agreement, the Company will file with the Commission either
(A) if such registration statement, as it may have been
amended, has become effective under the Act and information
has been omitted therefrom in accordance with Rule 430A under
the Act, a prospectus in the form most recently included in
an amendment to such registration statement (or, if no such
amendment shall have been filed, in such registration
statement) with such changes or insertions as are required by
Rule 430A or permitted by Rule 424(b) under the Act and as
have been provided to and approved by the Representatives, or
(B) if such registration statement, as it may have been
amended, has not become effective under the Act, an amendment
to such registration statement, including a form of
prospectus, a copy of which amendment has been provided to
and approved by the Representatives prior to the execution of
this Agreement. As used in this Agreement, the term
"Registration Statement" means such registration statement,
as hereafter amended,
1
<PAGE> 2
including a registration statement filed pursuant to Rule
462(b) and also including (i) all financial statement
schedules and exhibits thereto, (ii) all documents
incorporated by reference therein filed under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and
(iii) any information omitted therefrom pursuant to Rule 430A
under the Act and included in the Prospectus (as hereinafter
defined); the term "Preliminary Prospectus" means each
prospectus subject to completion included in such
registration statement or any amendment (or post-effective
amendment) thereto (including the prospectus subject to
completion, if any, included in the Registration Statement at
the time it was or is declared effective), including all
documents incorporated by reference therein filed under the
Exchange Act; and the term "Prospectus" means the prospectus
first filed with the Commission pursuant to Rule 424(b) under
the Act or, if no prospectus is required to be so filed, such
term means the prospectus included in the Registration
Statement in either case, including all documents
incorporated by reference therein filed under the Exchange
Act. Any reference in this Agreement to an "amendment or
supplement" to any Preliminary Prospectus or the Prospectus
or an "amendment" to any registration statement (including
the Registration Statement) shall be deemed to include any
document incorporated by reference therein and filed with the
Commission under the Exchange Act after the date of such
Preliminary Prospectus, Prospectus or Registration Statement,
as the case may be. For purposes of the preceding sentence,
any reference to the "effective date" of an amendment to a
registration statement shall, if such amendment is effected
by means of the filing with the Commission under the Exchange
Act of a document incorporated by reference in such
registration statement, be deemed to refer to the date on
which such document was so filed with the Commission. As used
herein, any reference to any statement or information as
being "made", "included", "contained", "disclosed", or "set
forth" in any Preliminary Prospectus, a Prospectus or any
amendment or supplement thereto, or the Registration
Statement or any amendment thereto (or other similar
references) shall refer both to information and statements
actually appearing in such document as well as information
and statements incorporated by reference therein. For
purposes of the following representations and warranties, to
the extent reference is made to the Prospectus and at the
relevant time the Prospectus is not yet in existence, such
reference shall be deemed to be to the most recent
Preliminary Prospectus.
(ii) No order preventing or suspending the use of
any Preliminary Prospectus has been issued and no proceeding
for that purpose has been instituted or overtly threatened by
the Commission or the securities authority of any state or
other jurisdiction. If the Registration Statement has become
effective under the Act, no stop order suspending the
effectiveness of the Registration Statement or any part
thereof has been issued and no proceeding for that purpose
has been instituted or overtly threatened or, to the
knowledge of the Company, contemplated by the Commission or
the securities authority of any state or other jurisdiction.
(iii) When any Preliminary Prospectus and any
amendment or supplement thereto was filed with the Commission
it (A) contained all statements required to be stated therein
in accordance with, and complied in all material respects
with the requirements of, the Act and the rules and
regulations of the Commission thereunder and (B) did not
include any untrue statement of a material fact or omit to
state any material fact necessary in order to make the
statements therein, in the light of the circumstances under
which they were made, not misleading. When the Registration
Statement or any amendment thereto was or is declared
effective, and at each Time of Delivery (as hereinafter
defined), it (A) contained or will contain all statements
required to be stated therein in accordance with, and
complied or will comply in all material respects with the
requirements of, the Act and the rules and
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<PAGE> 3
regulations of the Commission thereunder and (B) did not or
will not include any untrue statement of a material fact or
omit to state any material fact necessary to make the
statements therein not misleading. When the Prospectus or any
amendment or supplement thereto is filed with the Commission
pursuant to Rule 424(b) (or, if the Prospectus or such
amendment or supplement is not required to be so filed, when
the Registration Statement or the amendment thereto
containing such amendment or supplement to the Prospectus was
or is declared effective) and at each Time of Delivery, the
Prospectus, as amended or supplemented at any such time, (A)
contained or will contain all statements required to be
stated therein in accordance with, and complied or will
comply in all material respects with the requirements of, the
Act and the rules and regulations of the Commission
thereunder and (B) did not or will not include any untrue
statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made,
not misleading. The foregoing provisions of this paragraph
(iii) do not apply to statements or omissions made in any
Preliminary Prospectus and any amendment or supplement
thereto, the Registration Statement or any amendment thereto
or the Prospectus or any amendment or supplement thereto in
reliance upon and in conformity with written information
furnished to the Company by any Underwriter through you
specifically for use therein.
(iv) The descriptions in the Registration Statement
and the Prospectus of statutes, legal and governmental
proceedings or contracts and other documents are accurate in
all material respects and fairly present in all material
respects the information required to be shown; and there are
no statutes or legal or governmental proceedings required to
be described in the Registration Statement or the Prospectus
that are not described as required and there are no contracts
or documents of a character that are required to be described
in the Registration Statement or the Prospectus or to be
filed as exhibits to the Registration Statement that are not
described or filed as required.
(v) Each of the Company and its subsidiaries has
been duly incorporated or organized, is validly existing as a
corporation or limited partnership in good standing under the
laws of its jurisdiction of incorporation or organization and
has all requisite power and authority (corporate and other)
to own or lease its properties and conduct its business as
described in the Prospectus. The Company has full power and
authority (corporate and other) to enter into this Agreement
and to perform its obligations hereunder. Each of the Company
and its subsidiaries is duly qualified to transact business
as a foreign corporation or limited partnership and is in
good standing under the laws of each other jurisdiction in
which it owns or leases properties, or conducts any business,
so as to require such qualification, except where the failure
to so qualify would not have a material adverse effect on the
financial position, results of operations, or business of the
Company and its subsidiaries taken as a whole.
(vi) The Company's authorized, issued and
outstanding common stock is as disclosed in the Prospectus.
All of the issued shares of common stock of the Company have
been duly authorized and validly issued, are fully paid and
nonassessable and conform to the description of the Common
Stock contained in the Prospectus. None of the issued shares
of common stock of the Company, or issued shares of common
stock or limited partnership interests of any of its
subsidiaries, has been issued or is owned or held in
violation of any preemptive rights of shareholders, and no
person or entity (including any holder of outstanding shares
of common stock or limited partnership interests of the
Company or its
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<PAGE> 4
subsidiaries) has any statutory preemptive or, to the
Company's knowledge, other rights to subscribe for any of the
Shares.
(vii) The issued shares of common stock or limited
partnership interests of each of the Company's subsidiaries
have been duly authorized and validly issued, are fully paid
and nonassessable and, except for directors qualifying shares
and as otherwise disclosed in the Prospectus, are directly or
indirectly owned beneficially by the Company free and clear
of all liens, security interests, pledges, charges,
encumbrances, defects, shareholders' agreements, voting
trusts, equities or claims of any nature whatsoever. Other
than the subsidiaries listed on Exhibit 21 to the Company's
Annual Report on Form 10-K for the year ended February 1,
1997 (which are herein referred to as the "subsidiaries") and
except for short-term working capital cash investments, the
Company does not own, directly or indirectly, any capital
stock or other equity securities of any other corporation or
any partnership interest in any partnership, joint venture or
other association other than as disclosed in the Prospectus.
(viii) Except as disclosed in the Prospectus and
except for forfeitures, grants and exercises of stock options
pursuant to existing stock option plans of the Company in the
ordinary course of business after the date of the Preliminary
Prospectus, there are no outstanding (A) securities or
obligations of the Company or any of its subsidiaries
convertible into or exchangeable for any capital stock of the
Company or any such subsidiary, (B) warrants, rights or
options to subscribe for or purchase from the Company or any
such subsidiary any such capital stock or any such
convertible or exchangeable securities or obligations, or (C)
obligations of the Company or any such subsidiary to issue
any shares of capital stock, any such convertible or
exchangeable securities or obligations, or any such warrants,
rights or options.
(ix) Since the date of the most recent audited
financial statements included in the Prospectus, neither the
Company nor any of its subsidiaries has sustained any
material loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental
action, order or decree, otherwise than as disclosed in or
contemplated by the Prospectus.
(x) Since the respective dates as of which
information is given in the Registration Statement and the
Prospectus, (A) neither the Company nor any of its
subsidiaries has incurred any liabilities or obligations,
direct or contingent, or entered into any transactions, not
in the ordinary course of business, that are material to the
Company and its subsidiaries taken as a whole, (B) the
Company has not purchased any of its outstanding capital
stock or declared, paid or otherwise made any dividend or
distribution of any kind on its capital stock, (C) there has
not been any change in the capital stock (except as a result
of shares issued upon exercise of stock options pursuant to
existing stock option plans of the Company), or, otherwise
than in the ordinary course of business consistent with past
practice, long-term debt or short-term debt of the Company or
any of its subsidiaries, and (D) there has not been any
material adverse change, or any development involving a
prospective material adverse change, in or affecting the
financial position, results of operations or business of the
Company and its subsidiaries taken as a whole, in each case
other than as disclosed in or contemplated by the Prospectus.
(xi) Except as disclosed in the Prospectus, there
are no contracts, agreements or understandings between the
Company and any person granting such person the right to
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<PAGE> 5
require the Company to file a registration statement under
the Act with respect to any securities of the Company owned
or to be owned by such person or to require the Company to
include such securities in the securities registered pursuant
to the Registration Statement (or any such right has been
effectively waived) or any securities being registered
pursuant to any other registration statement filed by the
Company under the Act.
(xii) All offers and sales of the Company's capital
stock by the Company prior to the date hereof were at all
relevant times duly registered under the Act or exempt from
the registration requirements of the Act by reason of
Sections 3(b), 4(2) or 4(6) thereof and were duly registered
or the subject of an available exemption from the
registration requirements of the applicable state securities
or blue sky laws.
(xiii) Neither the Company nor any of its
subsidiaries is, or with the giving of notice or passage of
time or both would be, in violation of its Articles of
Incorporation or Bylaws or in default under any indenture,
mortgage, deed of trust, loan agreement, lease or other
material agreement or instrument to which the Company or any
of its subsidiaries is a party or to which any of their
respective properties or assets are subject, except where
such default (other than in respect of its Articles of
Incorporation and Bylaws) would not have a material adverse
effect on the financial position, results of operations, or
business of the Company and its subsidiaries, taken as a
whole ("Material Adverse Effect").
(xiv) The sale of the Shares and the performance of
this Agreement and the consummation of the transactions
herein contemplated will not conflict with, or (with or
without the giving of notice or the passage of time or both)
result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement, lease, or other
material agreement or instrument to which the Company or any
of its subsidiaries is a party or to which any of their
respective properties or assets is subject, nor will such
action conflict with or violate any provision of the Articles
of Incorporation or Bylaws of the Company or any of its
subsidiaries or any statute, rule or regulation or any order,
judgment or decree of any court or governmental agency or
body having jurisdiction over the Company or any of its
subsidiaries or any of their respective properties or assets,
except where such breach, violation, or default (other than
in respect of its Articles of Incorporation or Bylaws) would
not have a Material Adverse Effect.
(xv) The Company and its subsidiaries have good and
marketable title in fee simple to all real property, if any,
and good title to all personal property owned by them, in
each case free and clear of all liens, security interests,
pledges, charges, encumbrances, mortgages and defects, except
such as are disclosed in the Prospectus or such as do not
materially and adversely affect the value of such property
and do not interfere with the use made or proposed to be made
of such property by the Company and its subsidiaries; and any
real property and buildings held under lease by the Company
or any of its subsidiaries are held under valid, subsisting
and enforceable leases, with such exceptions as are disclosed
in the Prospectus or are not material and do not interfere
with the use made or proposed to be made of such property and
buildings by the Company or such subsidiaries.
(xvi) No consent, approval, authorization, order or
declaration of or from, or registration, qualification or
filing with, any court or governmental agency or body is
required for the sale of the Shares or the consummation of
the transactions contemplated by this Agreement, except the
registration of the Shares under the Act (which, if the
Registration Statement is not effective as of the time of
execution hereof, shall be obtained as provided
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<PAGE> 6
in this Agreement) and such as may be required under state
securities or blue sky laws or the bylaws and rules and
regulations of the National Association of Securities
Dealers, Inc. ("NASD") in connection with the offer, sale and
distribution of the Shares by the Underwriters.
(xvii) Other than as disclosed in the Prospectus,
there is no litigation, arbitration, claim, proceeding
(formal or informal) or investigation pending or, to the
Company's knowledge, threatened, in which the Company or any
of its subsidiaries is a party or of which any of their
respective properties or assets are the subject which, if
determined adversely to the Company or any such subsidiary,
would individually or in the aggregate have a material
adverse effect on the financial position, results of
operations or business of the Company and its subsidiaries,
taken as a whole. Neither the Company nor any of its
subsidiaries is in violation of, or in default with respect
to, any statute, rule, regulation, order, judgment or decree,
except as described in the Prospectus or such as do not and
will not individually or in the aggregate have a material
adverse effect on the financial position, results of
operations or business of the Company and its subsidiaries
taken as a whole, and neither the Company nor any of its
subsidiaries is required to take any action in order to avoid
any such violation or default.
(xviii) Deloitte & Touche LLP, who have rendered a
report with respect to certain financial statements of the
Company and its consolidated subsidiaries, is and was during
the periods covered by its report included in the
Registration Statement and the Prospectus, independent public
accountants as required by the Act and the Exchange Act and
the respective rules and regulations of the Commission
thereunder.
(xix) The consolidated financial statements and
schedules (including the related notes) of the Company and
its consolidated subsidiaries included in the Registration
Statement, the Prospectus or any Preliminary Prospectus were
prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods
involved (except as may be otherwise indicated in the notes
thereto) and fairly present (subject, in the case of
unaudited statements, to normal recurring audit adjustments)
the financial position and results of operations of the
Company and its subsidiaries, on a consolidated basis, at the
dates and for the periods presented. The other financial and
statistical information and data included in the Registration
Statement, the Prospectus or any Preliminary Prospectus, set
forth under the captions "Prospectus Summary," "Selected
Consolidated Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations,"
and "Business" in the Prospectus are, in all material
respects, accurately presented and prepared on a basis
consistent with such financial statements and the books and
records of the Company.
(xx) This Agreement has been duly authorized,
executed and delivered by the Company and constitutes the
valid and binding agreement of the Company enforceable
against the Company in accordance with its terms, subject, as
to enforcement, to applicable bankruptcy, insolvency,
reorganization and moratorium laws and other laws relating to
or affecting the enforcement of creditors' rights generally
and to general equitable principles, and except as the
enforceability of rights to indemnity and contribution under
this Agreement may be limited under applicable securities
laws or the public policy underlying such laws.
(xxi) Except in connection with the administration
of the Company's Employee Payroll Investment Plan in the
ordinary course of business, neither the Company nor, to the
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<PAGE> 7
Company's knowledge, any of its officers, directors or
affiliates has (A) taken, directly or indirectly, any action
designed to cause or result in, or that has constituted or
might reasonably be expected to constitute, the stabilization
or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Shares or (B) since
the filing of the Registration Statement (1) sold, bid for,
purchased or paid anyone any compensation for soliciting
purchases of, the Shares or (2) paid or agreed to pay to any
person any compensation for soliciting another to purchase
any other securities of the Company.
(xxii) The Company has obtained for the benefit of
the Company and the Underwriters from each of its directors
and executive and certain other officers a written agreement
which generally provides that for a period of 120 days from
the date of the Prospectus such director or officer will not,
without the prior written consent of The Robinson-Humphrey
Company, Inc., offer, pledge, sell, contract to sell, grant
any option for the sale of, or otherwise dispose (or announce
any offer, pledge, sale, grant of an option to purchase or
other disposition) of, directly or indirectly, any shares of
Common Stock or securities convertible into, or exercisable
or exchangeable for, shares of Common Stock except under
certain prescribed circumstances.
(xxiii) Neither the Company, any of its
subsidiaries, nor, to the Company's knowledge, any director,
officer, agent, employee or other person associated with and
acting on behalf of the Company or any such subsidiary has,
directly or indirectly: used any corporate funds for unlawful
contributions, gifts, entertainment or other unlawful
expenses relating to political activity; made any unlawful
payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or
campaigns from corporate funds; violated any provision of the
Foreign Corrupt Practices Act of 1977, as amended; or made
any bribe, rebate, payoff, influence payment, kickback or
other unlawful payment.
(xxiv) To the Company's knowledge, the operations of
the Company and its subsidiaries with respect to any real
property currently leased or owned or by any means controlled
by the Company or any subsidiary (the "Real Property") are in
compliance with all federal, state, and local laws,
ordinances, rules, and regulations relating to occupational
health and safety and the environment (collectively, "Laws"),
except where such noncompliance would not have a Material
Adverse Effect; and the Company and its subsidiaries have all
licenses, permits and authorizations necessary to operate its
business under all Laws and are in compliance in all material
respects with all terms and conditions of such licenses,
permits and authorizations; neither the Company nor any
subsidiary has authorized, conducted or has knowledge of the
generation, transportation, storage, use, treatment, disposal
or release of any hazardous substance, hazardous waste,
hazardous material, hazardous constituent, toxic substance,
pollutant, contaminant, petroleum product, natural gas,
liquefied gas or synthetic gas defined or regulated under any
environmental law on, in or under any Real Property in
violation of any Laws except which individually or in the
aggregate would not have a Material Adverse Effect, and there
is no pending or threatened claim, litigation or any
administrative agency proceeding, nor has the Company or any
subsidiary received any written or oral notice from any
governmental entity or third party, that: (A) alleges a
violation of any Laws by the Company or any subsidiary; (B)
alleges the Company or any subsidiary is a liable party under
the Comprehensive Environmental Response, Compensation, and
Liability Act, 42 U.S.C. ss. 9601 et seq. or any state
superfund law; (C) alleges possible contamination of the
environment by the Company or any subsidiary; or (D) alleges
possible contamination of the Real Property, except those, in
any such case, which would not have a Material Adverse
Effect.
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<PAGE> 8
(xxv) Other than as disclosed in the Prospectus,
the Company and its subsidiaries own or have the right
to use all patents, patent applications, trademarks,
trademark applications, trade names, service marks,
copyrights, franchises, trade secrets, proprietary or other
confidential information and intangible properties and assets
(collectively, "Intangibles") necessary to their respective
businesses as presently conducted or as the Prospectus
indicates the Company or such subsidiary proposes to conduct;
to the knowledge of the Company, except as otherwise
disclosed in the Prospectus, neither the Company nor any
subsidiary has infringed or is infringing, and neither the
Company nor any subsidiary has received notice of
infringement with respect to, asserted Intangibles of others;
and, to the knowledge of the Company, there is no
infringement by others of Intangibles of the Company or any
of its subsidiaries except those, in any case, which
individually or in the aggregate would not have a Material
Adverse Effect.
(xxvi) The Company and each of its subsidiaries are
insured by insurers of recognized financial responsibility
against such losses and risks and in such amounts as are
prudent in the businesses in which they are engaged; and
neither the Company nor any such subsidiary has any reason to
believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be
necessary to continue its business at a comparable cost
which, if not so renewed or obtained, would have a Material
Adverse Effect.
(xxvii) The Company is taking steps to replace
and/or modify its software systems to include the requisite
design, performance and functionality so that the Company
does not reasonably expect to experience invalid or incorrect
results or abnormal software operation related to calendar
year 2000.
(xxviii) Each of the Company and its subsidiaries
makes and keeps accurate books, records and accounts, which,
in reasonable detail, accurately and fairly reflect the
transactions and dispositions of its assets and maintains a
system of internal accounting controls sufficient to provide
reasonable assurance that (A) transactions are executed in
accordance with management's general or specific
authorization, (B) transactions are recorded as necessary to
permit preparation of the Company's consolidated financial
statements in accordance with generally accepted accounting
principles and to maintain accountability for the assets of
the Company, (C) access to the assets of the Company and each
of its subsidiaries is permitted only in accordance with
management's general or specific authorization, and (D) the
recorded accountability for assets of the Company and each of
its subsidiaries is compared with existing assets at
reasonable intervals and appropriate action is taken with
respect to any differences.
(xxix) No subsidiary of the Company is currently
prohibited, directly or indirectly, from paying any dividends
to the Company, from making any other distributions on such
subsidiary's capital stock to the Company, from repaying to
the Company any loans or advances to such subsidiary or from
transferring any of such subsidiary's property or assets to
the Company or any other subsidiary of the Company, except as
disclosed in the Prospectus.
(xxx) The Company and its subsidiaries have filed
all foreign, federal, state and local tax returns that are
required to be filed by them or have requested extensions
thereof and have paid all taxes shown as due on such returns
as well as all other taxes, assessments and governmental
charges that are due and payable except for any such
assessment or charge
8
<PAGE> 9
currently being contested in good faith and of which, to the
extent material, the Company has advised the Representatives.
(xxxi) The Company is not, will not become as a
result of the transactions contemplated hereby, and does not
intend to conduct its business in a manner that would cause
it to become, an "investment company" or a company
"controlled" by an "investment company" within the meaning of
the Investment Company Act of 1940.
(xxxii) The Common Stock is registered pursuant to
Section 12(g) of the Exchange Act and is qualified as a
Nasdaq National Market security of The Nasdaq Stock Market,
Inc. The Company has taken no action designed to terminate,
or likely to have the effect of terminating, the registration
of the Common Stock under the Exchange Act or qualification
of the Common Stock on the Nasdaq National Market, nor has
the Company received any notification that the Commission or
the NASD is contemplating terminating such registration or
qualification.
(xxxiii) The conditions for use of a Registration
Statement on Form S-3 set forth in the General Instructions
to Form S-3 have been satisfied with respect to the Company
and the transactions contemplated by this Agreement and the
Registration Statement.
(b) REPRESENTATIONS AND WARRANTIES OF THE SELLING
SHAREHOLDERS. Each Selling Shareholder, severally and not jointly, represents
and warrants to, and agrees with, each of the several Underwriters and the
Company that:
(i) Such Selling Shareholder has full right,
power and authority to enter into this Agreement, the
Power of Attorney and the Custody Agreement (as hereinafter
defined) and to sell, assign, transfer and deliver to the
Underwriters the Shares to be sold by such Selling
Shareholder hereunder; and the execution and delivery of this
Agreement, the Power of Attorney and the Custody Agreement
have been duly authorized by all necessary action of such
Selling Shareholder.
(ii) Such Selling Shareholder has duly executed
and delivered this Agreement, the Power of Attorney and
the Custody Agreement, and each constitutes the valid and
binding agreement of such Selling Shareholder enforceable
against such Selling Shareholder in accordance with its
terms, subject, as to enforcement, to applicable bankruptcy,
insolvency, reorganization and moratorium laws and other laws
relating to or affecting the enforcement of creditors' rights
generally and to general equitable principles and, with
respect to this Agreement, except as the enforceability of
rights to indemnity and contribution under this Agreement may
be limited under applicable securities laws or the public
policy underlying such laws.
(iii) No consent, approval, authorization, order
or declaration of or from, or registration, qualification or
filing with, any court or governmental agency or body is
required for the sale of the Shares to be sold by such
Selling Shareholder or the consummation of the transactions
contemplated by this Agreement, the Power of Attorney or the
Custody Agreement, except the registration of such Shares
under the Act (which, if the Registration Statement is not
effective as of the time of execution hereof, shall be
obtained as provided in this Agreement) and such as may be
required under state securities or blue sky laws or the
bylaws and rules and regulations of the NASD in connection
with the offer, sale and distribution of such Shares by the
Underwriters.
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<PAGE> 10
(iv) The sale of the Shares to be sold by such
Selling Shareholder and the performance of this Agreement,
the Power of Attorney and the Custody Agreement and the
consummation of the transactions herein and therein
contemplated will not conflict with, or (with or without the
giving of notice or the passage of time or both) result in a
breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of
trust, loan agreement, lease, or other material agreement or
instrument to which such Selling Shareholder is a party or to
which any of his respective properties or assets is subject,
nor will such action conflict with or violate any provisions
of any statute, rule or regulation or any order, judgment or
decree of any court or governmental agency or body having
jurisdiction over such Selling Shareholder or any of such
Selling Shareholder's properties or assets, except those, in
each such case, which would not have a material adverse
effect on the ability of such Selling Shareholder to
consummate the transactions contemplated by this Agreement.
(v) Such Selling Shareholder has, or immediately
prior to the First Time of Delivery (as hereinafter defined),
such Selling Shareholder will have, good and valid title to
the Shares to be sold by such Selling Shareholder hereunder,
without notice of any adverse claim, free and clear of all
liens, security interests, pledges, charges, encumbrances,
defects, shareholders' agreements, voting trusts, equities or
claims of any nature whatsoever; and, upon delivery of such
Shares against payment therefor as provided herein (assuming
that such Shares are purchased in good faith without notice
of adverse claim) good and valid title to such Shares, free
and clear of all liens, security interests, pledges, charges,
encumbrances, defects, shareholders' agreements, voting
trusts, equities or claims of any nature whatsoever, will
pass to the several Underwriters.
(vi) Such Selling Shareholder has not (A) taken,
directly or indirectly, any action designed to cause or
result in, or that has constituted or might reasonably be
expected to constitute, the stabilization or manipulation of
the price of any security of the Company to facilitate the
sale or resale of the Shares or (B) since the filing of the
Registration Statement (1) sold, bid for, purchased or paid
anyone any compensation for soliciting purchases of, the
Shares or (2) paid or agreed to pay to any person any
compensation for soliciting another to purchase any other
securities of the Company.
(vii) When the Registration Statement or any
amendment thereto was or is declared effective and at each
Time of Delivery, to the knowledge of such Selling
Shareholder, it did not or will not include any untrue
statement of a material fact or omit to state any material
fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
The foregoing provisions of this paragraph (vii) do not apply
to statements or omissions made in the Registration Statement
or any amendment thereto in reliance upon and in conformity
with written information furnished to the Company by any
Underwriter through the Representatives specifically for use
therein.
In order to document the Underwriters' compliance with the reporting
and withholding provisions of the Internal Revenue Code of 1986, as amended,
with respect to the transactions herein contemplated, each of the Selling
Shareholders agrees to deliver to the Representatives prior to or at the First
Time of Delivery a properly completed and executed United States Treasury
Department Form W-9 (or other applicable form or statement specified by
Treasury Department regulations in lieu thereof).
Each of the Selling Shareholders represents and warrants that
certificates in negotiable form representing all of the Shares to be sold by
such Selling Shareholder hereunder have been placed in
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<PAGE> 11
custody (or, in the case of the contemplated exercise of stock options, a duly
executed notice of exercise of stock options to purchase the Shares to be sold
by the Selling Shareholders hereunder has been placed in custody) under a
custody agreement, in the form heretofore furnished to and approved by you (the
"Custody Agreement"), duly executed and delivered by such Selling Shareholder
to Wachovia Bank of North Carolina, N.A., as custodian (the "Custodian"), and
that such Selling Shareholder has duly executed and delivered a Power of
Attorney, in the form heretofore furnished to and approved by you, appointing
the persons indicated in Schedule II hereto as such Selling Shareholder's
attorney-in-fact (the "Attorneys- in-Fact") with authority to execute and
deliver this Agreement on behalf of such Selling Shareholder, to determine the
purchase price to be paid by the Underwriters to the Selling Shareholders as
provided in Section 2 hereof, to authorize the delivery of the Shares to be
sold by such Selling Shareholder hereunder and otherwise to act on behalf of
such Selling Shareholder in connection with the transactions contemplated by
this Agreement and the Custody Agreement.
Each of the Selling Shareholders specifically agrees that the Shares
represented by the certificates held in custody for such Selling Shareholder
under the Custody Agreement are subject to the interests of the Underwriters
hereunder, and that the arrangements made by such Selling Shareholder for such
custody, and the appointment by such Selling Shareholder of the
Attorneys-in-Fact by the Power of Attorney, are irrevocable. Each of the
Selling Shareholders specifically agrees that the obligations of the Selling
Shareholders hereunder shall not be terminated by operation of law, whether by
the death or incapacity of any individual Selling Shareholder, or by the
occurrence of any other event.
2. PURCHASE AND SALE OF SHARES. Subject to the terms and conditions
herein set forth, (a) each Selling Shareholder agrees, severally and not
jointly, to sell to each of the Underwriters, and each of the Underwriters
agrees, severally and not jointly, to purchase from the Selling Shareholders,
at a purchase price of $______ per share, the number of Firm Shares (to be
adjusted by the Representatives so as to eliminate fractional shares)
determined by multiplying the aggregate number of Shares to be sold by the
Selling Shareholders as set forth opposite their respective names in Schedule
II hereto by a fraction, the numerator of which is the aggregate number of Firm
Shares to be purchased by such Underwriter as set forth opposite the name of
such Underwriter in Schedule I hereto, and the denominator of which is the
aggregate number of Firm Shares to be purchased by all of the Underwriters from
the Selling Shareholders hereunder and (b) in the event and to the extent that
the Underwriters shall exercise the election to purchase Optional Shares as
provided below, Robert M. Goodfriend agrees to sell to each of the
Underwriters, and each of the Underwriters agrees, severally and not jointly,
to purchase from Robert M. Goodfriend, at the purchase price per share set
forth in clause (a) of this Section 2, that portion of the number of Optional
Shares as to which such election shall have been exercised (to be adjusted by
the Representatives so as to eliminate fractional shares) determined by
multiplying such number of Optional Shares by a fraction, the numerator of
which is the maximum number of Optional Shares that such Underwriter is
entitled to purchase as set forth opposite the name of such Underwriter in
Schedule I hereto and the denominator of which is the maximum number of the
Optional Shares that all of the Underwriters are entitled to purchase
hereunder.
Robert M. Goodfriend hereby grants to the Underwriters the right to
purchase at their election in whole or in part from time to time up to 300,000
Optional Shares, at the purchase price per share set forth in clause (a) in the
paragraph above plus, if the purchase and sale of any Optional Shares take
place after the First Time of Delivery and after the Firm Shares are traded
"ex-dividend," an amount equal to the dividend payable on such Optional Shares,
for the sole purpose of covering over-allotments in the sale of Firm Shares.
Any such election to purchase Optional Shares may be exercised by written
notice from the Representatives to Robert M. Goodfriend, given not more than
twice within a period of 30 calendar days after the date of this Agreement and
setting forth the aggregate number of Optional Shares to be purchased and the
date on which such Optional Shares are to be delivered, as determined by the
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Representatives but in no event earlier than the First Time of Delivery or,
unless the Representatives and Robert M. Goodfriend otherwise agree in writing,
earlier than two or later than ten business days after the date of such notice.
In the event the Representatives elect to purchase all or a portion of the
Optional Shares, the Company and Robert M. Goodfriend agree to furnish or cause
to be furnished to the Representatives the certificates, letters and opinions,
and to satisfy all conditions, set forth in Section 7 hereof at each Subsequent
Time of Delivery (as hereinafter defined).
3. OFFERING BY THE UNDERWRITERS. Upon the authorization by the
Underwriters of the release of the Shares, the several Underwriters propose to
offer the Shares for sale upon the terms and conditions disclosed in the
Prospectus.
4. DELIVERY OF SHARES; CLOSING. Certificates in definitive form for
the Shares to be purchased by each Underwriter hereunder, and in such
denominations and registered in such names as The Robinson-Humphrey Company,
Inc. may request upon at least 48 hours' prior notice to the Company shall be
delivered by or on behalf of the Selling Shareholders to the Representatives
for the account of such Underwriter, against payment by such Underwriter on its
behalf of the purchase price therefor by official bank check or checks (payable
in next day funds) drawn on an Atlanta, Georgia bank, payable to the order of
the Selling Shareholders. The closing of the sale and purchase of the Shares
shall be held at the offices of Smith, Gambrell & Russell, LLP, Suite 1800,
East Tower, Atlanta Financial Center, 3343 Peachtree Road, N.E., Atlanta,
Georgia 30326, except that physical delivery of such certificates shall be made
at the office of The Depository Trust Company, 55 Water Street, New York, New
York 10041. The time and date of such delivery and payment shall be, with
respect to the Firm Shares, at 10:00 a.m., Atlanta time, on the fourth full
business day after this Agreement is executed or at such other time and date as
the Representatives, the Company and the Attorneys-in-Fact on behalf of the
Selling Shareholders may agree upon in writing, and, with respect to the
Optional Shares, at 10:00 a.m., Atlanta time, on the date specified by the
Representatives in the written notice given by the Representatives of the
Underwriters' election to purchase all or part of such Optional Shares, or at
such other time and date as the Representatives and the Company may agree upon
in writing. Such time and date for delivery of the Firm Shares is herein called
the "First Time of Delivery," such time and date for delivery of any Optional
Shares, if not the First Time of Delivery, is herein called a "Subsequent Time
of Delivery," and each such time and date for delivery is herein called a "Time
of Delivery." The Company will make such certificates available for checking
and packaging at least 24 hours prior to each Time of Delivery at the office of
The Depository Trust Company, 55 Water Street, New York, New York 10041 or at
such other location in New York, New York specified by the Underwriters in
writing at least 48 hours prior to such Time of Delivery.
5. COVENANTS.
(a) COVENANTS OF THE COMPANY. The Company covenants and
agrees with each of the Underwriters:
(i) If the Registration Statement has been declared
effective prior to the execution and delivery of this
Agreement, the Company will file the Prospectus with the
Commission pursuant to and in accordance with Rule 424(b)(1)
(or, if applicable and if consented to by the
Representatives, Rule 424(b)(4)) not later than the earlier
of (A) the second business day following the execution and
delivery of this Agreement or (B) the fifth business day
after the date on which the Registration Statement is
declared effective. The Company will advise the
Representatives promptly of any such filing pursuant to Rule
424(b). The Company will file promptly all reports and any
definitive proxy or information statements required to be
filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to
the date of the Prospectus and
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for so long as the delivery of a prospectus is required in
connection with the offering, sale and distribution of the
Shares.
(ii) The Company will not file with the Commission
the Prospectus or the amendment referred to in the second
sentence of Section l(a)(i) hereof, any amendment or
supplement to the Prospectus or any amendment to the
Registration Statement unless the Representatives have
received a reasonable period of time to review any such
proposed amendment or supplement and consented to the filing
thereof and will use its best efforts to cause any such
amendment to the Registration Statement to be declared
effective as promptly as possible. Upon the request of the
Representatives or counsel for the Underwriters, the Company
will promptly prepare and file with the Commission, in
accordance with the rules and regulations of the Commission,
any amendments to the Registration Statement or amendments or
supplements to the Prospectus that may be necessary or
advisable in connection with the distribution of the Shares
by the several Underwriters and will use its best efforts to
cause any such amendment to the Registration Statement to be
declared effective as promptly as possible. If required, the
Company will file any amendment or supplement to the
Prospectus with the Commission in the manner and within the
time period required by Rule 424(b) under the Act. The
Company will advise the Representatives, promptly after
receiving notice thereof, of the time when the Registration
Statement or any amendment thereto has been filed or declared
effective or the Prospectus or any amendment or supplement
thereto has been filed and will provide evidence to the
Representatives of each such filing or effectiveness.
(iii) The Company will advise the Representatives
promptly after receiving notice or obtaining knowledge of (A)
the issuance by the Commission of any stop order suspending
the effectiveness of the Registration Statement or any part
thereof or any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, (B) the suspension of the qualification
of the Shares for offer or sale in any jurisdiction or of the
initiation or threatening of any proceeding for any such
purpose, or (C) any request made by the Commission or any
securities authority of any other jurisdiction for amending
the Registration Statement, for amending or supplementing the
Prospectus or for additional information. The Company will
use its best efforts to prevent the issuance of any such stop
order and, if any such stop order is issued, to obtain the
withdrawal thereof as promptly as possible.
(iv) If the delivery of a prospectus relating to
the Shares is required under the Act at any time prior to the
expiration of nine months after the date of the Prospectus
and if at such time any events have occurred as a result of
which the Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to
state any material fact necessary in order to make the
statements therein, in light of the circumstances under which
they were made, not misleading, or if for any reason it is
necessary during such same period to amend or supplement the
Prospectus or to file under the Exchange Act any document
incorporated by reference in the Prospectus to comply with
the Act or the Exchange Act or the respective rules and
regulations thereunder, the Company will promptly notify the
Representatives and upon the request of the Representatives
(but at the Company's expense) prepare and file with the
Commission an amendment or supplement to the Prospectus or
any such document incorporated by reference that corrects
such statement or omission or effects such compliance and
will furnish without charge to each Underwriter and to any
dealer in securities as many copies of such amended or
supplemented Prospectus as the Representatives may from time
to time reasonably request. If the delivery of a
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<PAGE> 14
prospectus relating to the Shares is required under the Act
at any time nine months or more after the date of the
Prospectus, upon the request of the Representatives but at
the expense of such Underwriter, the Company will prepare and
deliver to such Underwriter as many copies as the
Representatives may request of an amended or supplemented
Prospectus complying with Section 10(a)(3) of the Act.
Neither the Representatives' consent to, nor the
Underwriters' delivery of, any such amendment or supplement
shall constitute a waiver of any of the conditions set forth
in Section 7.
(v) The Company promptly from time to time will
take such action as the Representatives may reasonably
request to qualify the Shares for offering and sale under the
securities or blue sky laws of such jurisdictions as the
Representatives may request and will continue such
qualifications in effect for as long as may be necessary to
complete the distribution of the Shares, provided that in
connection therewith the Company shall not be required to
qualify as a foreign corporation or to file a general consent
to service of process in any jurisdiction.
(vi) The Company will promptly provide the
Representatives, without charge, (A) two manually executed
copies of the Registration Statement as originally filed with
the Commission and of each amendment thereto, including all
documents or information incorporated by reference therein,
(B) for each other Underwriter a conformed copy of the
Registration Statement as originally filed and of each
amendment thereto, without exhibits but including all
documents or information incorporated by reference therein,
and (C) so long as a prospectus relating to the Shares is
required to be delivered under the Act, as many copies of
each Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto as the Representatives may
reasonably request.
(vii) As soon as practicable, the Company will make
generally available to its security holders and the
Representatives an earnings statement of the Company and its
subsidiaries, if any, covering a period of at least 12 months
beginning after the effective date of the Registration
Statement (which need not be audited) complying with Section
11(a) of the Act and the rules and regulations thereunder.
(viii) During the period beginning from the date
hereof and continuing to and including the date 120 days
after the date of the Prospectus, the Company will not,
without the prior written consent of The Robinson-Humphrey
Company, Inc., offer, pledge, issue, sell, contract to sell,
grant any option for the sale of, or otherwise dispose (or
announce any offer, pledge, sale, grant of an option to
purchase or other disposition) of, directly or indirectly,
any shares of Common Stock or securities convertible into,
exercisable or exchangeable for, shares of Common Stock,
except as provided in Section 2 and except for the issuance
of Common Stock upon the exercise of stock options
outstanding on the date of this Agreement to the extent that
such stock options are disclosed in the Prospectus and except
for the grant of stock options under the Company's existing
stock option plans.
(ix) During a period of three years from the
effective date of the Registration Statement, the Company
will furnish to the Representatives and, upon request, to
each of the other Underwriters, without charge, (A) copies of
all reports or other communications (financial or other)
furnished to shareholders, (B) as soon as they are available,
copies of any reports and financial statements furnished to
or filed with the Commission or any national securities
exchange, and (C) such additional information concerning the
business and
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<PAGE> 15
financial condition of the Company and its subsidiaries, if
any, as the Representatives may reasonably request.
(x) Except in connection with the administration
of the Company's Employee Payroll Investment Plan in the
ordinary course of business, neither the Company nor, to the
Company's knowledge, any of its officers, directors or
affiliates will prior to the termination of the underwriting
syndicate contemplated by this Agreement, (A) take, directly
or indirectly, any action designed to cause or to result in,
or that might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of any of the
Shares, (B) sell, bid for, purchase or pay anyone any
compensation for soliciting purchases of, the Shares, or (C)
pay or agree to pay to any person any compensation for
soliciting another to purchase any other securities of the
Company.
(xi) At each Time of Delivery, the Company will use
its best efforts to cause the Shares to continue to be listed
on the Nasdaq National Market.
(xii) If at any time during the period beginning on
the date the Registration Statement becomes effective and
ending on the later of (A) the date 30 days after such
effective date and (B) the date on which the Company next
files with the Commission a Quarterly Report on Form 10-Q
after such effective date, any rumor, publication or event
relating to or affecting the Company shall occur as a result
of which in the opinion of the Company's counsel the Company
is obligated to publicly respond to such rumor, publication,
or event (regardless of whether such rumor, publication or
event necessitates an amendment of or supplement to the
Prospectus), the Company will provide to the Representatives,
in advance of its dissemination, a copy of any press release
or other public statement responding to or commenting on such
rumor, publication or event.
(b) COVENANTS OF THE SELLING SHAREHOLDERS. Each Selling
Shareholder, severally and not jointly, covenants and agrees with each of the
Underwriters:
(i) A duly executed lock-up agreement has been
delivered to the Representatives generally providing that
during the period beginning from the date hereof and
continuing to and including the date 120 days after the date
of the Prospectus, such Selling Shareholder will not, without
the prior written consent of The Robinson-Humphrey Company,
Inc., offer, pledge, issue, sell, contract to sell, grant any
option for the sale of, or otherwise dispose (or announce any
offer, pledge, sale, grant of an option to purchase or other
disposition) of, directly or indirectly, any shares of Common
Stock or securities convertible into, exercisable or
exchangeable for, shares of Common Stock, except as provided
in Section 2 hereof and except under certain prescribed
circumstances.
(ii) Such Selling Shareholder, prior to the
termination of the underwriting syndicate contemplated by
this Agreement, will not (A) take, directly or indirectly,
any action designed to cause or to result in, or that might
reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company to
facilitate the sale or resale of any of the Shares, (B) sell,
bid for, purchase or pay anyone any compensation for
soliciting purchases of, the Shares or (C) pay to or agree to
pay any person any compensation for soliciting another to
purchase any other securities of the Company.
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<PAGE> 16
6. EXPENSES. The Company and the Selling Shareholders will pay all
costs and expenses incident to the performance of their obligations under this
Agreement, in such proportions as they may agree among themselves, whether or
not the transactions contemplated hereby are consummated or this Agreement is
terminated pursuant to Section 10 hereof, including, without limitation, all
costs and expenses incident to (i) the fees, disbursements and expenses of the
Company's counsel and accountants in connection with the registration of the
Shares under the Act and all other expenses in connection with the preparation,
printing and, if applicable, filing of the Registration Statement (including
all amendments thereto), any Preliminary Prospectus, the Prospectus and any
amendments and supplements thereto, this Agreement and any blue sky memoranda;
(ii) the delivery of copies of the foregoing documents to the Underwriters;
(iii) the filing fees of the Commission and the National Association of
Securities Dealers, Inc. relating to the Shares; (iv) the preparation, issuance
and delivery to the Underwriters of any certificates evidencing the Shares,
including transfer agent's and registrar's fees; (v) the qualification of the
Shares for offering and sale under state securities and blue sky laws,
including filing fees and reasonable fees and disbursements of counsel for the
Underwriters relating thereto; (vi) any listing of the Shares on the Nasdaq
National Market and (vii) any expenses for travel, lodging and meals incurred
by the Company and any of its officers, directors and employees in connection
with any meetings with prospective investors in the Shares. In addition, each
Selling Shareholder will pay all costs and expenses incident to (i) the fees,
disbursements and expenses of separate counsel for such Selling Shareholder,
(ii) such Selling Shareholder's pro rata share of the fees and expenses of the
Attorneys-In-Fact and the Custodian, and (iii) the sale and delivery of the
Shares to be sold by such Selling Shareholder to the Underwriters hereunder. It
is understood, however, that, except as provided in this Section, Section 8 and
Section 10 hereof, the Underwriters will pay all of their own costs and
expenses, including the fees of their counsel, stock transfer taxes on resale
of any of the Shares by them, and any advertising expenses relating to the
offer and sale of the Shares.
7. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligations of the
Underwriters hereunder to purchase and pay for the Shares to be delivered at
each Time of Delivery shall be subject, in their discretion, to the accuracy of
the representations and warranties of the Company and the Selling Shareholders
contained herein as of the date hereof and as of such Time of Delivery, to the
accuracy of the statements of Company officers made pursuant to the provisions
hereof, to the performance by the Company and the Selling Shareholders of their
respective covenants and agreements hereunder, and to the following additional
conditions precedent:
(a) If the Registration Statement as amended to date has not
become effective prior to the execution of this Agreement, such Registration
Statement shall have been declared effective not later than 11:00 a.m., Atlanta
time, on the date of this Agreement or such later date and/or time as shall
have been consented to by the Representatives in writing. The Prospectus and
any amendment or supplement thereto shall have been filed with the Commission
pursuant to Rule 424(b) within the applicable time period prescribed for such
filing and in accordance with Section 5(a) of this Agreement; no stop order
suspending the effectiveness of the Registration Statement or any part thereof
shall have been issued and no proceedings for that purpose shall have been
instituted, threatened or, to the knowledge of the Company and the
Representatives, contemplated by the Commission; and all requests for
additional information on the part of the Commission shall have been complied
with to the Representatives' reasonable satisfaction.
(b) Smith, Gambrell & Russell, LLP, counsel for the
Underwriters, shall have furnished to the Representatives such opinion or
opinions, dated such Time of Delivery, with respect to the incorporation of the
Company, the validity of the Shares being delivered at such Time of Delivery,
the Registration Statement, the Prospectus, and other related matters as the
Representatives may reasonably request, and the Company shall have furnished to
such counsel such documents as they request for the purpose of enabling them to
pass upon such matters. In rendering such opinion, such counsel may rely
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<PAGE> 17
as to all matters of Tennessee law upon the opinion of Company counsel referred
to in paragraphs (c) and (d) below.
(c) The Representatives shall have received an opinion, dated
such Time of Delivery, of Shereff, Friedman, Hoffman & Goodman, LLP, counsel
for the Company, in form and substance satisfactory to the Representatives and
its counsel, to the effect that:
(i) The Company has been duly incorporated, is
validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation and has all
requisite corporate power and authority to own or lease its
properties and conduct its business as described in the
Registration Statement and the Prospectus and to enter into
this Agreement and perform its obligations hereunder. The
Company is duly qualified to transact business as a foreign
corporation and is in good standing under the laws of each
other jurisdiction in which it owns or leases property, or
conducts any business, so as to require such qualification,
except where the failure to so qualify would not have a
material adverse effect on the financial position, results of
operations or business of the Company and its subsidiaries
taken as a whole.
(ii) Each of the subsidiaries of the Company has
been duly incorporated or organized, is validly existing as a
corporation or limited partnership in good standing under the
laws of its jurisdiction of incorporation or organization,
and has all requisite corporate power and authority to own or
lease its properties and conduct its business as described in
the Registration Statement and the Prospectus. Each such
subsidiary is duly qualified to transact business as a
foreign corporation or limited partnership and is in good
standing under the laws of each other jurisdiction in which
its owns or leases property, or conducts any business, so as
to require such qualification, except where the failure to so
qualify would not have a material adverse effect on the
financial position, results of operations, or business of the
Company and its subsidiaries taken as a whole.
(iii) The Company's authorized common and preferred
stock is as disclosed in the Prospectus. The common stock of
the Company conforms in all material respects to the
description of the common stock contained in the Prospectus.
None of the issued shares of common stock of the Company or
its predecessors or any of its subsidiaries has been issued
or is owned or held in violation of any statutory preemptive
rights of shareholders, and no person or entity (including
any holder of outstanding shares of common stock or limited
partnership interests of the Company or its subsidiaries) has
any statutory preemptive or, to the knowledge of such
counsel, other rights to subscribe for any of the Shares.
(iv) To such counsel's knowledge, all of the issued
shares of capital stock or, in the case of limited
partnerships, limited partnership interests, of each of the
Company's subsidiaries have been duly authorized and validly
issued, are fully paid and nonassessable, and are owned
beneficially by the Company free and clear of all liens,
security interests, pledges, charges, encumbrances, defects,
equities or claims of any nature whatsoever, except as
otherwise disclosed in the Prospectus.
(v) To such counsel's knowledge, except as
disclosed in the Prospectus and except for forfeitures,
grants and exercises of stock options pursuant to the
Company's existing stock option plans in the ordinary course
of business after the date of the Prospectus, there are no
outstanding (A) securities or obligations of the Company or
any of its subsidiaries convertible into or exercisable or
exchangeable for any capital stock of the
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<PAGE> 18
Company or any such subsidiary, (B) warrants, rights or
options to subscribe for or purchase from the Company or any
such subsidiary any such capital stock or any such
convertible or exchangeable securities or obligations, or (C)
obligations of the Company or any such subsidiary to issue
any shares of capital stock, any such convertible or
exchangeable securities or obligations, or any such warrants,
rights or options.
(vi) Except as disclosed in the Prospectus, there
are no contracts, agreements or understandings known to such
counsel between the Company and any person granting such
person the right to require the Company to file a
registration statement under the Act with respect to any
securities of the Company owned or to be owned by such person
or to require the Company to include such securities in the
securities registered pursuant to the Registration Statement
(or any such right has been effectively waived) or in any
securities being registered pursuant to any other
registration statement filed by the Company under the Act.
(vii) All sales of the Company's capital stock by
the Company during the three years preceding the date of the
Prospectus were at the time of each sale duly registered
under the Act or exempt from the registration requirements of
the Act.
(viii) Neither the Company nor any of its
subsidiaries is in violation of its Articles of Incorporation
or Certificate of Limited Partnership, as applicable.
(ix) The sale of the Shares being sold at such Time
of Delivery and the performance of this Agreement and the
consummation of the transactions herein contemplated will not
conflict with, or (with or without the giving of notice or
the passage of time or both) result in a breach or violation
of any of the terms or provisions of, or constitute a default
under, any indenture, mortgage, deed of trust, loan
agreement, lease, or other material agreement or instrument
known to such counsel to which the Company or any such
subsidiary is a party or to which any of their respective
properties or assets is subject, except where such conflict,
breach, or violation would not have a material adverse effect
on the financial position, results of operations or business
of the Company and its subsidiaries taken as a whole, nor
will such action conflict with or violate any provision of
the Articles of Incorporation or Certificate of Limited
Partnership, as applicable, or Bylaws of the Company or any
of its subsidiaries or any statute, rule or regulation or to
such counsel's knowledge any order, judgment or decree of any
court or governmental agency or body having jurisdiction over
the Company or any of its subsidiaries or any of their
respective properties or assets, except where such conflict,
breach, or violation would not have a material adverse effect
on the financial position, results of operations or business
of the Company and its subsidiaries taken as a whole.
(x) No consent, approval, authorization, order or
declaration of or from, or registration, qualification or
filing with, any court or governmental agency or body is
required for the sale of the Shares or the consummation of
the transactions contemplated by this Agreement, except the
registration of the Shares under the Act and such as may be
required under state securities or blue sky laws or the
bylaws and rules and regulations of the NASD in connection
with the offer, sale and distribution of the Shares by the
Underwriters.
(xi) To such counsel's knowledge and other than as
disclosed in or contemplated by the Prospectus, there is no
litigation, arbitration, claim, proceeding (formal or
informal)
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<PAGE> 19
or investigation pending or overtly threatened in which the
Company or any of its subsidiaries is a party or of which any
of their respective properties or assets is the subject
which, if determined adversely to the Company or any such
subsidiary, would individually or in the aggregate have a
material adverse effect on the financial position, results of
operations or business of the Company and its subsidiaries
taken as a whole;
(xii) This Agreement has been duly authorized,
executed and delivered by the Company.
(xiii) The Registration Statement and the Prospectus
and each amendment or supplement thereto (other than the
financial statements and related schedules therein, as to
which such counsel need express no opinion), as of their
respective effective or issue dates, complied as to form in
all material respects with the requirements of the Act and
the Exchange Act and the respective rules and regulations
thereunder. The descriptions in the Registration Statement
and the Prospectus of statutes, legal and governmental
proceedings or contracts and other documents (pertaining to
legal matters) are accurate in all material respects and
fairly present in all material respects the information
required to be shown;
(xiv) The Registration Statement is effective under
the Act; any required filing of the Prospectus pursuant to
Rule 424(b) has been made in the manner and within the time
period required by Rule 424(b); and to such counsel's
knowledge, no stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued
and, to such counsel's knowledge, no proceedings for that
purpose have been instituted or threatened or are
contemplated by the Commission.
(xv) The Company is not, and will not be as a
result of the consummation of the transactions contemplated
by this Agreement, an "investment company," or a company
"controlled" by an "investment company," within the meaning
of the Investment Company Act of 1940.
Such counsel shall also state that no facts have come to
their attention that have caused such counsel to believe that the Registration
Statement, or any further amendment thereto made prior to such Time of
Delivery, on its effective date and as of such Time of Delivery, contained or
contains any untrue statement of a material fact or omitted or omits to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus, or any amendment or
supplement thereto made prior to such Time of Delivery, as of its issue date
and as of such Time of Delivery, contained or contains any untrue statement of
a material fact or omitted 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 (provided that such counsel need express no belief
regarding the financial statements and related schedules and other financial
data contained in the Registration Statement, any amendment thereto, or the
Prospectus, or any amendment or supplement thereto).
In rendering any such opinion, such counsel may rely, as to
matters of fact, to the extent such counsel deems proper, on certificates of
responsible officers of the Company and certificates, telegrams and other
statements of public officials and, as to matters involving the application of
laws of any jurisdiction other than the State of New York or the United States
and as to real estate and trademark matters, to the extent reasonably
satisfactory in form and scope to counsel for the Underwriters, upon the
opinions of local, in-house and other counsel, provided that copies of such
opinions are delivered to the Representatives and counsel for the Underwriters.
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(d) The Representatives shall have received an opinion, dated
such Time of Delivery, of Regis Hebbeler, Vice President, General Counsel of
the Company, in form and substance satisfactory to the Representatives and
their counsel, to the effect that:
(i) The Company's authorized, issued and
outstanding capital stock is as disclosed in the Prospectus.
All of the issued shares of the capital stock of the Company
have been duly authorized and validly issued, are fully paid
and nonassessable and conform to the description contained in
the Prospectus.
(ii) To such counsel's knowledge, other than the
subsidiaries listed on Exhibit 21 to the Company's Annual
Report on Form 10-K for the year ended February 1, 1997, the
Company does not own, directly or indirectly, any capital
stock or other equity securities of any other corporation or
any ownership interest in any partnership, joint venture or
other association.
(iii) Neither the Company nor any of its
subsidiaries is in violation of its Articles of Incorporation
or Certificate of Limited Partnership, as applicable, or
Bylaws or in default under any indenture, mortgage, deed of
trust, loan agreement, or other material agreement or
instrument known to such counsel to which the Company or any
such subsidiary is a party or to which any of their
respective properties or assets is subject.
(iv) Any real property and buildings held under
lease by the Company or any of its subsidiaries are held by
the Company or such subsidiary under valid, subsisting and
enforceable leases with such exceptions as are disclosed in
the Prospectus or are not material and do not interfere with
the use made and proposed to be made of such property and
buildings by the Company or such subsidiary.
(v) To such counsel's knowledge, neither the
Company nor any of its subsidiaries is in violation of,or in
default with respect to, any statute, rule, regulation,
order, judgment or decree, except as described in the
Prospectus, nor is the Company or any subsidiary required to
take any action in order to avoid any such violation or
default.
(vi) Such counsel does not know of any statutes or
legal or governmental proceedings required to be described in
the Registration Statement or Prospectus that are not
described as required or of any contract or documents of a
character required to be described in the Registration
Statement or Prospectus or to be filed as exhibits to the
Registration Statement which are not described or filed as
required.
Such counsel shall also state that no facts have come to his
attention that have caused such counsel to believe that the Registration
Statement, or any further amendment thereto made prior to such Time of
Delivery, on its effective date and as of such Time of Delivery, contained or
contains any untrue statement of a material fact or omitted or omits to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus, or any amendment or
supplement thereto made prior to such Time of Delivery, as of its issue date
and as of such Time of Delivery, contained or contains any untrue statement of
a material fact or omitted 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 (provided that such counsel need express no belief
regarding the financial statements and related schedules and other financial
data contained in the Registration Statement, any amendment thereto, or the
Prospectus, or any amendment or supplement thereto).
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(e) The Representatives shall have received an opinion, dated such
Time of Delivery, of Shereff, Friedman, Hoffman & Goodman, LLP, counsel for the
Selling Shareholders, in form and substance satisfactory to the Representatives
and their counsel, to the effect that:
(i) Each of the Selling Shareholders has all
requisite power and authority to enter into this Agreement,
the Power of Attorney and the Custody Agreement and to sell,
assign, transfer and deliver to the Underwriters the Shares
to be sold by such Selling Shareholder hereunder and the
execution and delivery of this Agreement, the Power of
Attorney and the Custody Agreement have been duly authorized
by all necessary action of such Selling Shareholder.
(ii) This Agreement, the Power of Attorney and the
Custody Agreement have been duly executed and delivered by
such Selling Shareholder, each of which is enforceable
against such Selling Shareholder in accordance with its terms
subject, as to enforcement, to applicable bankruptcy,
insolvency, reorganization and moratorium laws and other laws
relating to or affecting the enforcement of creditors' rights
generally and to general equitable principles and except as
the enforceability of rights to indemnity under this
Agreement may be limited under applicable securities laws or
the public policy underlying such laws (provided that such
counsel need express no opinion regarding the irrevocability
of the Power of Attorney and the Custody Agreement).
(iii) No consent, approval, authorization, order or
declaration of or from, or registration, qualification or
filing with, any court or governmental agency or body is
required for the sale of the Shares being sold by such
Selling Shareholder or the consummation of the transactions
contemplated by this Agreement, the Power of Attorney or the
Custody Agreement, except the registration of such Shares
under the Act and such as may be required under state
securities or blue sky laws in connection with the offer,
sale and distribution of such Shares by the Underwriters.
(iv) Based solely upon such counsel's review of the
stock certificates representing the Shares and certificates
of the Selling Shareholders, upon delivery of such Shares
against payment therefor as provided herein, good and valid
title to such Shares, free and clear of all liens, security
interests, pledges, charges, encumbrances, defects,
shareholders' agreements, voting trusts, equities or claims
of any nature whatsoever, will pass to the several
Underwriters; provided that the Underwriters purchase such
Shares in good faith and without notice of any adverse claim
within the meaning of the Uniform Commercial Code as in
effect in the State of Georgia.
In rendering any such opinion, such counsel may
rely, as to matters of fact, to the extent such counsel deems
proper, on certificates of responsible officers of the
Company, the Selling Shareholders and public officials, and,
as to matters involving the application of laws of any
jurisdiction other than the State of New York or the United
States, to the extent reasonably satisfactory in form and
scope to counsel for the Underwriters, upon the opinion of
local counsel, provided that copies of such opinion are
delivered to the Representatives and counsel for the
Underwriters.
(f) The Representatives shall have received from Deloitte &
Touche LLP letters dated, respectively, the date hereof (or, if the
Registration Statement has been declared effective prior to the execution and
delivery of this Agreement, dated such effective date and the date of this
Agreement) and each Time of Delivery, in form and substance satisfactory to
you, to the effect set forth in Annex I hereto.
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<PAGE> 22
In the event that the letters referred to in this Section 7(f) set forth any
changes, decreases or increases in the items specified in paragraph (iv) of
Annex I, it shall be a further condition to the obligations of the Underwriters
that (i) such letters shall be accompanied by a written explanation by the
Company as to the significance thereof, unless the Representatives deem such
explanation unnecessary, and (ii) such changes, decreases or increases do not,
in the sole judgment of the Representatives, make it impracticable or
inadvisable to proceed with the purchase, sale and delivery of the Shares being
delivered at such Time of Delivery as contemplated by the Registration
Statement, as amended as of the date of such letter.
(g) Since the date of the latest audited financial statements
included in the Prospectus, neither the Company nor any of its subsidiaries
shall have sustained (i) any loss or interference with their respective
businesses from fire, explosion, flood, hurricane or other calamity, whether or
not covered by insurance, or from any labor dispute or court or governmental
action, order or decree, otherwise than as disclosed in or contemplated by the
Prospectus, or (ii) any change, or any development involving a prospective
change (including without limitation a change in management or control of the
Company), in or affecting the position (financial or otherwise), results of
operations, net worth or business prospects of the Company and its
subsidiaries, otherwise than as disclosed in or contemplated by the Prospectus,
the effect of which, in either such case, is in the judgment of the
Representatives so material and adverse as to make it impracticable or
inadvisable to proceed with the purchase, sale and delivery of the Shares being
delivered at such Time of Delivery as contemplated by the Registration
Statement, as amended as of the date hereof.
(h) Subsequent to the date hereof there shall not have
occurred any of the following: (i) any suspension or limitation in trading in
securities generally on the New York Stock Exchange, or any setting of minimum
prices for trading on such exchange, or in the Common Stock by the Commission
or the Nasdaq National Market; (ii) a moratorium on commercial banking
activities in New York declared by either federal or state authorities; or
(iii) any outbreak or escalation of hostilities involving the United States,
declaration by the United States of a national emergency or war or any other
national or international calamity or emergency if the effect of any such event
specified in this clause (iii) in the judgment of the Representatives makes it
impracticable or inadvisable to proceed with the purchase, sale and delivery of
the Shares being delivered at such Time of Delivery as contemplated by the
Registration Statement, as amended as of the date hereof.
(i) The Company and the Selling Shareholders shall have
furnished to the Representatives at such Time of Delivery certificates of
officers of the Company and certificates of the Selling Shareholders,
satisfactory to the Representatives, as to the accuracy of the representations
and warranties of the Company and such Selling Shareholders herein at and as of
such Time of Delivery, as to the performance by the Company and such Selling
Shareholders of all of their respective obligations hereunder to be performed
at or prior to such Time of Delivery, and the Company shall have furnished or
caused to be furnished certificates as to the matters set forth in subsections
(a) and (f) of this Section 7, and as to such other matters as the
Representatives may reasonably request.
(j) The Shares shall be listed on the Nasdaq National Market.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon: (i) any untrue statement or
alleged untrue statement made by the Company in Section 1(a) of this Agreement;
(ii) any untrue statement or alleged untrue statement of any
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<PAGE> 23
material fact contained in (A) the Registration Statement or any amendment
thereto, any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or (B) any application or other document, or any amendment
or supplement thereto, executed by the Company or based upon written
information furnished by or on behalf of the Company filed in any jurisdiction
in order to qualify the Shares under the securities or blue sky laws thereof or
filed with the Commission or any securities association or securities exchange
(each an "Application"); or (iii) the omission or alleged omission to state in
the Registration Statement or any amendment thereto, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto, or any
Application a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse each Underwriter for
any legal or other expenses reasonably incurred by such Underwriter in
connection with investigating, defending against or appearing as a third-party
witness in connection with any such loss, claim, damage, liability or action;
provided, however, that the Company shall not be liable in any such case to the
extent that any such loss, claim, damage, liability or action arises out of or
is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in the Registration Statement or any amendment thereto,
any Preliminary Prospectus, the Prospectus or any amendment or supplement
thereto or any Application in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the
Representatives expressly for use therein; provided, further, however, that the
Company shall not be liable to any Underwriter in respect of any untrue
statement or alleged untrue statement or omission or alleged omission made in
any Preliminary Prospectus to the extent that (i) the Prospectus did not
contain such untrue statement or alleged untrue statement or omission or
alleged omission giving rise to such loss, claim, damage, liability or action,
(ii) the Prospectus was not sent or given to the purchaser of the Shares in
question at or prior to the time at which the written confirmation of the sale
of such Shares was sent or given to such person, and (iii) the failure to
deliver such Prospectus was not the result of the Company's noncompliance with
its obligations under Sections 5(a)(ii) and 5(a)(vi) hereof. The Company will
not, without the prior written consent of each Underwriter, settle or
compromise or consent to the entry of any judgment in any pending or threatened
claim, action, suit or proceeding (or related cause of action or portion
thereof) in respect of which indemnification may be sought hereunder (whether
or not such Underwriter is a party to such claim, action, suit or proceeding),
unless such settlement, compromise or consent includes an unconditional release
of such Underwriter from all liability arising out of such claim, action, suit
or proceeding (or related cause of action or portion thereof).
(b) Each of the Selling Shareholders, severally and not jointly,
agrees to indemnify and hold harmless each Underwriter against any losses,
claims, damages or liabilities, joint or several, to which such Underwriter may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon: (i) any untrue statement or alleged untrue statement made by any
such Selling Shareholder in Section 1(b) of this Agreement; or (ii) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement or any amendment thereto, any Preliminary Prospectus,
the Prospectus or any amendment or supplement thereto, or any Application or
arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse each Underwriter for any
legal or other expenses reasonably incurred by such Underwriter in connection
with investigating, defending against or appearing as a third-party witness in
connection with any such loss, claim, damage, liability or action; provided,
however, that no such Selling Shareholder shall be liable in any such case to
the extent that any such loss, claim, damage, liability or action arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in the Registration Statement or any amendment thereto,
any Preliminary Prospectus, the Prospectus or any amendment or supplement
thereto or any Application in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the
Representatives expressly for use therein; provided, further, however, that no
Selling
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<PAGE> 24
Shareholder shall be liable to any Underwriter in respect of any Preliminary
Prospectus to the extent that (i) the Prospectus did not contain the untrue
statement or alleged untrue statement or omission or alleged omission giving
rise to such loss, claim, damage, liability or action, (ii) the Prospectus was
not sent or given to the purchaser of the Shares in question at or prior to the
time at which the written confirmation of sale of such Shares was sent or given
to such person, and (iii) the failure to deliver such Prospectus was not the
result of the Company's noncompliance with its obligations under Sections
5(a)(ii) and 5(a)(vi) hereof. No Selling Shareholder will, without the prior
written consent of each Underwriter, settle or compromise or consent to the
entry of any judgment in any pending or threatened claim, action, suit or
proceeding (or related cause of action or portion thereof) in respect of which
indemnification may be sought hereunder (whether or not such Underwriter is a
party to such claim, action, suit or proceeding), unless such settlement,
compromise or consent includes an unconditional release of such Underwriter
from all liability arising out of such claim, action, suit or proceeding (or
related cause of action or portion thereof).
(c) Each Underwriter, severally but not jointly, agrees to indemnify
and hold harmless the Company and each Selling Shareholder against any losses,
claims, damages or liabilities to which the Company or any Selling Shareholder
may become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement or any amendment thereto, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto,
or any Application or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by such
Underwriter through the Representatives expressly for use therein; and will
reimburse the Company and each Selling Shareholder for any legal or other
expenses reasonably incurred by the Company or such Selling Shareholder in
connection with investigating or defending any such loss, claim, damage,
liability or action. No Underwriter will, without the prior written consent of
the Company or any affected Selling Shareholder, settle or compromise or
consent to the entry of any judgment in any pending or threatened claim,
action, suit, or proceeding (or related cause of action or portion thereof) in
respect of which indemnification may be sought hereunder (whether or not the
Company or such Selling Shareholder is a party to such claim, action, suit, or
proceeding), unless such settlement, compromise, or consent includes an
unconditional release of the Company or such affected Selling Shareholder from
all liability arising out of such claim, action, suit, or proceeding (or
related cause of action or portion thereof).
(d) Promptly after receipt by an indemnified party under subsection
(a), (b) or (c) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against
the indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection or unless the
indemnifying party is materially prejudiced by such omission. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party (who
shall not, except with the consent of the indemnified party, be counsel to the
indemnifying party); provided, however, that if the defendants in any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded based upon the advice of
counsel that there may be one or more legal defenses available to it or other
indemnified parties which are different from or
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<PAGE> 25
additional to those available to the indemnifying party, the indemnifying party
shall not have the right to assume the defense of such action on behalf of such
indemnified party and such indemnified party shall have the right to select
separate counsel to defend such action on behalf of such indemnified party.
After such notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof and approval by such indemnified
party of counsel appointed to defend such action, the indemnifying party will
not be liable to such indemnified party under this Section 8 for any legal or
other expenses, other than reasonable costs of investigation, subsequently
incurred by such indemnified party in connection with the defense thereof,
unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the next preceding sentence (it being
understood, however, that in connection with such action the indemnifying party
shall not be liable for the expenses of more than one separate counsel (in
addition to local counsel) in any one action or separate but substantially
similar actions in the same jurisdiction arising out of the same general
allegations or circumstances, which separate counsel shall be designated by the
Representatives in the case of indemnity arising under paragraphs (a) or (b) of
this Section 8), or (ii) the indemnifying party has authorized the employment
of counsel for the indemnified party at the expense of the indemnifying party
or (iii) the indemnifying party shall have failed to assume the defense
thereof. Nothing in this Section 8(d) shall preclude an indemnified party from
participating at its own expense in the defense of any such action so assumed
by the indemnifying party. Notwithstanding any exceptions to the obligation to
indemnify contained in the provisos of the first sentence of paragraphs (a)
(b) and (c) of this section, and unless and until it is finally judicially
determined by a court of competent jurisdiction that the indemnified party is
not entitled to indemnification by virtue thereof or otherwise, the obligation
of the indemnifying party to make reimbursement payments for the costs and
expenses of an indemnifiable claim shall arise, and such payment shall be made
against proper documentation thereof, on a quarterly basis to the indemnified
party. In the event that such payments are made and it is subsequently finally
judicially determined by a court of competent jurisdiction that the indemnified
party is not entitled to indemnification by virtue of the provisions as
aforesaid or otherwise, the indemnified party who received such indemnity
payments shall reimburse the same, with interest from the date of disbursement
by the indemnifying party, to the indemnifying party to the extent such
indemnified party was not entitled to the same in the first instance.
(e) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a), (b) or (c) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities
(or actions in respect thereof) in such proportion as is appropriate to reflect
the relative benefits received by the Company and the Selling Shareholders on
the one hand and the Underwriters on the other from the offering of the Shares.
If, however, the allocation provided by the immediately preceding sentence is
not permitted by applicable law or if the indemnified party failed to give the
notice required under subsection (d) above, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but
also the relative fault of the Company and the Selling Shareholders on the one
hand and the Underwriters on the other in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities (or
actions in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Selling
Shareholders on the one hand and the Underwriters on the other shall be deemed
to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company and the Selling
Shareholders bear to the total underwriting discounts and commissions received
by the Underwriters. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company and the Selling Shareholders on
the one hand or the Underwriters on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct
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or prevent such statement or omission. The Company, the Selling Shareholders
and the Underwriters agree that it would not be just and equitable if
contributions pursuant to this subsection (e) were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of
the equitable considerations referred to above in this subsection (e). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to
above in this subsection (e) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (e), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the Shares underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (e) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(f) The obligations of the Company and the Selling
Shareholders under this Section 8 shall be in addition to any liability which
the Company or such Selling Shareholders may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability which
the respective Underwriters may otherwise have and shall extend, upon the same
terms and conditions, to each officer and director of the Company and any
Selling Shareholder and to each person, if any, who controls the Company or any
Selling Shareholder within the meaning of the Act. Notwithstanding the
foregoing, the liability of the Selling Shareholders to the Underwriters
arising on account of the offering, whether such liability arises under this
Agreement or otherwise, shall not exceed the amounts set forth in Section 8(g)
of this Agreement.
(g) Notwithstanding anything to the contrary in this
Section 8, the Selling Shareholders shall be liable for indemnification and/or
reimbursement under Section 8(b) only if the Company shall have failed to
indemnify or reimburse the Underwriters pursuant to Sections 8(a) and 8(d)
within 90 days after demand therefor made to the Company by the Underwriters.
The liability of each Selling Shareholder other than Robert M. Goodfriend for
indemnification and contribution under this Section 8 shall be limited to an
amount equal to the total or aggregate public offering price of the Shares sold
by such Selling Shareholder to the Underwriters minus (i) the amount of the
underwriting discount paid thereon to the Underwriters by such Selling
Shareholder, (ii) the pro rata expenses of the offering paid by such Selling
Shareholder, and (iii) the amount of income tax paid by such Selling
Shareholder with respect to the sale of the Shares. The liability of Robert M.
Goodfriend for indemnification and contribution under this Section 8 shall be
limited to an amount equal to the total or aggregate public offering price of
the Shares sold by Mr. Goodfriend to the Underwriters minus the amount of the
underwriting discount paid thereon to the Underwriters by Mr. Goodfriend. The
Company and the Selling Shareholders may agree, as among themselves and without
limiting the rights of the Underwriters under this Agreement, as to the
respective amounts of such liability for which they each shall be responsible.
9. DEFAULT OF UNDERWRITERS.
(a) If any Underwriter defaults in its obligation to purchase
Shares at a Time of Delivery, the Representatives may in their discretion
arrange for the Representatives or another party or other parties to purchase
such Shares on the terms contained herein. If within thirty-six (36) hours
after such default by any Underwriter the Representatives do not arrange for
the purchase of such Shares, the Company and
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<PAGE> 27
the Selling Shareholders shall be entitled to a further period of thirty-six
(36) hours within which to procure another party or other parties satisfactory
to the Representatives to purchase such Shares on such terms. In the event
that, within the respective prescribed periods, the Underwriters notify the
Company and the Selling Shareholders that the Representatives have so arranged
for the purchase of such Shares, or the Company and the Selling Shareholders
notify the Representatives that they have so arranged for the purchase of such
Shares, the Representatives or the Company and the Selling Shareholders, as the
case may be, shall have the right to postpone a Time of Delivery for a period
of not more than seven days in order to effect whatever changes may thereby be
made necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees to file promptly any
amendments to the Registration Statement or the Prospectus that in the opinion
of the Representatives may thereby be made necessary. The cost of preparing,
printing and filing any such amendments shall be paid for by the Underwriters.
The term "Underwriter" as used in this Agreement shall include any person
substituted under this Section with like effect as if such person had
originally been a party to this Agreement with respect to such Shares. The
thirty-six (36) hour periods referred to in this subsection (a) shall not
include the hours between (i) 5:00 p.m., Atlanta time, on any Friday through
9:00 a.m., Atlanta time, the following Monday or (ii) 5:00 p.m., Atlanta time,
on the day preceding a day on which the New York Stock Exchange is closed for
trading (a "holiday") through 9:00 a.m., Atlanta time, on the day following
that holiday.
(b) If, after giving effect to any arrangements for the
purchase of the Shares of a defaulting Underwriter or Underwriters by the
Representatives and the Company and the Selling Shareholders as provided in
subsection (a) above, the aggregate number of such Shares which remains
unpurchased does not exceed 10% of the aggregate number of Shares to be
purchased at such Time of Delivery, then the Company and the Selling
Shareholders shall have the right to require each non-defaulting Underwriter to
purchase the number of Shares which such Underwriter agreed to purchase
hereunder at such Time of Delivery and, in addition, to require each
non-defaulting Underwriter to purchase its pro rata share (based on the number
of Shares which such Underwriter agreed to purchase hereunder) of the Shares of
such defaulting Underwriter or Underwriters for which such arrangements have
not been made, but nothing herein shall relieve a defaulting Underwriter from
liability for its default.
10. TERMINATION.
(a) This Agreement may be terminated with respect to the Firm
Shares or any Optional Shares in the sole discretion of the Representatives by
notice to the Company given prior to the First Time of Delivery or any
Subsequent Time of Delivery, respectively, in the event that (i) any condition
to the obligations of the Underwriters set forth in Section 7 hereof has not
been satisfied, or (ii) the Company or the Selling Shareholders shall have
failed, refused or been unable to deliver the Shares or to perform all
obligations and satisfy all conditions on their parts to be performed or
satisfied hereunder at or prior to such Time of Delivery, in either case other
than by reason of a default by any of the Underwriters. If this Agreement is
terminated pursuant to this Section 10(a) (other than pursuant to Section
7(h)), the Company and the Selling Shareholders will reimburse the Underwriters
severally upon demand for all reasonable out-of-pocket expenses (including
counsel fees and disbursements) that shall have been incurred by them in
connection with the proposed purchase and sale of the Shares. Neither the
Company nor any Selling Shareholder shall in any event be liable to any of the
Underwriters for the loss of anticipated profits from the transactions covered
by this Agreement.
(b) If, after giving effect to any arrangements for the
purchase of the Shares of a defaulting Underwriter or Underwriters by the
Representatives and the Company and the Selling Shareholders as provided in
Section 9(a), the aggregate number of such Shares which remains unpurchased
exceeds 10% of the aggregate number of Shares to be purchased at such Time of
Delivery, or if the Company and the
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<PAGE> 28
Selling Shareholders shall not exercise the right described in Section 9(b) to
require non-defaulting Underwriters to purchase Shares of a defaulting
Underwriter or Underwriters, then this Agreement (or, with respect to a
Subsequent Time of Delivery, the obligations of the Underwriters to purchase
and of Robert M. Goodfriend to sell the Optional Shares) shall thereupon
terminate, without liability on the part of any non-defaulting Underwriter, the
Company or the Selling Shareholders, except for the expenses to be borne by the
Company, the Selling Shareholders and the Underwriters as provided in Section 6
hereof and the indemnity and contribution agreements in Section 8 hereof; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
11. SURVIVAL. The respective indemnities, agreements, representations,
warranties and other statements of the Company, its officers, the Selling
Shareholders and the several Underwriters, as set forth in this Agreement or
made by or on behalf of them, respectively, pursuant to this Agreement, shall
remain in full force and effect, regardless of any investigation (or any
statement as to the results thereof) made by or on behalf of any Underwriter or
any controlling person referred to in Section 8(e) or the Company, any Selling
Shareholder, or any officer or director or controlling person of the Company or
any Selling Shareholder referred to in Section 8(e), and shall survive delivery
of and payment for the Shares. The respective agreements, covenants,
indemnities and other statements set forth in Sections 6 and 8 hereof shall
remain in full force and effect, regardless of any termination or cancellation
of this Agreement.
12. NOTICES. All communications hereunder shall be in writing and, if
sent to any of the Underwriters, shall be mailed (certified, return receipt
requested), delivered or telegraphed and confirmed in writing to the
Representatives in care of The Robinson-Humphrey Company, Inc., 3333 Peachtree
Road, N.E., Atlanta, Georgia 30326, Attention: Corporate Finance Department,
with a copy to Smith, Gambrell & Russell, LLP, Suite 1800, East Tower Atlanta
Financial Center, 3343 Peachtree Road, N.E., Atlanta, Georgia 30326; if to any
Selling Shareholder it shall be sufficient in all respects if delivered or sent
by mail (certified, return receipt requested) to counsel for such Selling
Shareholder at its address set forth in Schedule II hereto; and if sent to the
Company, shall be mailed (certified, return receipt requested), delivered or
telegraphed and confirmed in writing to the Company at 400 Goody's Lane,
Knoxville, Tennessee 37922, Attention: President, with a copy to counsel for
the Company.
13. BINDING EFFECT. This Agreement shall be binding upon, and inure
solely to the benefit of, the Underwriters, the Company and the Selling
Shareholders and to the extent provided in Sections 8 and 10 hereof, the
officers and directors and controlling persons referred to therein and their
respective heirs, executors, administrators, successors and assigns, and no
other person shall acquire or have any right under or by virtue of this
Agreement. No purchaser of any of the Shares from any Underwriter shall be
deemed a successor or assign by reason merely of such purchase.
14. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Georgia without giving effect to
any provisions regarding conflicts of laws.
15. COUNTERPARTS. This Agreement may be executed by any one or more of
the parties hereto in any number of counterparts, each of which shall be deemed
to be an original, but all such counterparts shall together constitute one and
the same instrument.
If the foregoing is in accordance with the Representatives'
understanding of our agreement, please sign and return to us one of the
counterparts hereof, and upon the acceptance hereof by The Robinson-Humphrey
Company, Inc., on behalf of each of the Underwriters, this letter will
constitute a binding agreement among the Underwriters, the Company and the
Selling Shareholders. It is understood that the Representatives' acceptance of
this letter on behalf of each of the Underwriters is pursuant to the authority
28
<PAGE> 29
set forth in the Master Agreement among Underwriters, a copy of which shall be
submitted to the Company and the Selling Shareholders for examination, upon
request.
Very truly yours,
GOODY'S FAMILY CLOTHING, INC.
By:
Robert M. Goodfriend
Chairman of the Board
and Chief Executive Officer
SELLING SHAREHOLDERS
By: , as Attorney-in-Fact
--------------------
acting on behalf of Robert M. Goodfriend,
Harry M. Call, Edward R. Carlin and
David R. Mullins
The foregoing Agreement is hereby confirmed
and accepted as of the date first written above
at Atlanta, Georgia.
THE ROBINSON-HUMPHREY COMPANY, INC.
J.C. BRADFORD & CO.
By: The Robinson-Humphrey Company, Inc.
By:
(Authorized Representative)
On behalf of each of the Underwriters
29
<PAGE> 30
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF
OPTIONAL
TOTAL SHARES TO BE
NUMBER OF FIRM PURCHASED IF
SHARES TO BE MAXIMUM OPTION
UNDERWRITER PURCHASED EXERCISED
- ----------- --------- ---------
<S> <C> <C>
The Robinson-Humphrey Company, Inc..........................
J.C. Bradford & Co..........................................
-------- -------
Total....................................................... ======== =======
</TABLE>
<PAGE> 31
SCHEDULE II
<TABLE>
<CAPTION>
TOTAL NUMBER OF
FIRM SHARES TO BE
SELLING SHAREHOLDERS(1) SOLD
- ----------------------- -----------------
<S> <C>
Robert M. Goodfriend 2,000,000
Harry M. Call 20,000
Edward R. Carlin 7,000
David R. Mullins 17,500
---------
2,044,500
</TABLE>
- -----------------------
(1) Each of the Selling Shareholders has executed and delivered a Power of
Attorney appointing Harry M. Call and Edward R. Carlin such Selling
Shareholder's Attorneys-in-Fact. Each of the Selling Shareholders is
represented by Shereff, Friedman, Hoffman & Goodman, LLP, 919 Third
Avenue, New York, New York 10022, Attention: Richard A. Goldberg, Esq.
<PAGE> 32
ANNEX I
Pursuant to Section 7(e) of the Underwriting Agreement, Deloitte &
Touche LLP shall furnish letters to the Underwriters to the effect that:
(i) they are independent public accountants with respect to
the Company and its consolidated subsidiaries within the meaning the
Act and the Exchange Act and the applicable published rules and
regulations thereunder;
(ii) in their opinion, the consolidated financial statements
audited by them and included in the Prospectus and the Registration
Statement comply as to form in all material respects with the
applicable accounting requirements of the Act and the Exchange Act and
the related published rules and regulations thereunder;
(iii) the financial statements of the Company as of and for
the thirteen weeks ended May 3, 1997 and May 4, 1996 were reviewed by
them in accordance with the standards established by the American
Institute of Certified Public Accountants and based upon their review
they are not aware of any material modifications that should be made
to such financial statements for them to be in conformity with
generally accepted accounting principles, and such financial
statements comply as to form in all material respects with the
applicable accounting requirements of the Act and the applicable rules
and regulations thereunder;
(iv) on the basis of limited procedures, not constituting an
audit in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and
other information referred to below, a reading of the latest available
interim financial statements of the Company and its subsidiaries,
inspection of the minute books of the Company and its subsidiaries
since the date of the latest audited financial statements included in
the Prospectus, inquiries of officials of the Company and its
subsidiaries responsible for financial accounting matters and such
other inquiries and procedures as may be specified in such letter,
nothing came to their attention that caused them to believe that:
(A) the unaudited consolidated condensed financial
statements of the Company and its consolidated subsidiaries
included in the Registration Statement and the Prospectus do
not comply in form in all material respects with the
applicable accounting requirements of the Act and the related
published rules and regulations thereunder or are not in
conformity with generally accepted principles applied on the
basis substantially consistent with that of the audited
consolidated financial statements included in the
Registration Statement and the Prospectus;
(B) as of a specified date not more than 5 days prior
to the date of such letter, there were any changes in the
capital stock (other than the issuance of capital stock upon
exercise of options which were outstanding on the date of the
latest balance sheet included in the Prospectus) or any
increase in the long-term debt or short-term debt of the
Company and its subsidiaries, or any decreases in net current
assets or net assets or other items specified by the
Representatives, or any increases in any items specified by
the Representatives, in each case as compared with amounts
shown in the latest balance sheet included in the Prospectus,
except in each case for changes, increases or decreases which
the Prospectus discloses have occurred or may occur or which
are described in such letter; and
<PAGE> 33
(C) for the period from the date of the latest
financial statements included in the Prospectus to the
specified date referred to in Clause (C) there were any
decreases in net sales or the total or per share amounts of
net income or other items specified by the Representatives,
or any increases in any items specified by the
Representatives, in each case as compared with the comparable
period of the preceding year and with any other period of
corresponding length specified by the Representatives, except
in each case for increases or decreases which the Prospectus
discloses have occurred or may occur which are described in
such letter; and
(v) In addition to the audit referred to in their report(s)
included in the Prospectus and the limited procedures, inspection of
minute books, inquiries and other procedures referred to in paragraph
(iii) above, they have carried out certain specified procedures, not
constituting an audit in accordance with generally accepted auditing
standards, with respect to certain amounts, percentages and financial
information specified by the Representatives which are derived from
the general accounting records of the Company and its subsidiaries,
included in the Registration Statement and the Prospectus, or which
appear in Part II of, or in exhibits and schedules to, the
Registration Statement specified by the Representatives, and have
compared certain of such amounts, percentages and financial
information with the accounting records of the Company and its
subsidiaries and have found them to be in agreement.
References to the Registration Statement and the Prospectus in this
Annex I shall include any amendment or supplement thereto at the date of such
letter.
2
<PAGE> 1
EXHIBIT 5.1
[LETTERHEAD OF SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN, LLP]
August 18, 1997
Goody's Family Clothing, Inc.
400 Goody's Lane
Knoxville, Tennessee 37922
Ladies and Gentlemen:
Goody's Family Clothing, Inc., a Tennessee corporation (the "Company"),
intends to transmit, for filing with the Securities and Exchange Commission,
Amendment No. 1 to a registration statement on Form S-3 under the Securities Act
of 1933, as amended (the "Registration Statement"), relating to 2,344,500 shares
(the "Shares") of the Company's common stock, no par value per share (the
"Common Stock"), including up to 300,000 Shares that may be purchased by the
underwriters to cover over-allotments, if any. The Shares are being offered for
sale by the selling shareholders named in the Registration Statement (the
"Selling Shareholders"). All of the Shares are either currently outstanding or
issuable upon exercise of outstanding employee stock options. This opinion is an
exhibit to the Registration Statement.
We have at times acted as special counsel to the Company with respect to
certain corporate and securities matters, and in such capacity we are familiar
with the various corporate and other proceedings taken by or on behalf of the
Company in connection with the proposed offer and sale of the Shares as
contemplated by the Registration Statement.
We have examined copies (in each case signed, certified or otherwise proved
to our satisfaction) of the Company's Amended and Restated Charter and By-Laws
as presently in effect, minutes and other instruments evidencing actions taken
by the Company's directors and shareholders, and such other documents and
instruments relating to the Company and the proposed offering as we have deemed
necessary under the circumstances. In our examination of all such agreements,
documents, certificates and instruments, we have assumed the genuineness of all
signatures and the authenticity of all agreements, documents, certificates and
instruments submitted to us as originals and the conformity with the originals
of all agreements, documents, certificates and instruments submitted to us as
copies. With respect to the opinions expressed in the first sentence of
paragraph 1 below, as to the legal conclusions expressed therein, we have relied
solely upon both a Certificate of Existence and a certified copy of the
Company's Amended and Restated Charter, as presently in effect, which have been
obtained from the Secretary of State of the State of Tennessee.
We note that we are members of the Bar of the State of New York and that we
are not admitted to the Bar in the State of Tennessee. To the extent that the
opinions expressed herein involve the law of the State of Tennessee, such
opinions are based solely upon our reading of the Tennessee Business Corporation
Act, as reported by Prentice-Hall Legal and Financial Services, without any
investigation of the legal decisions or other statutory provisions in effect in
such state that may relate to the opinions expressed herein.
Based on the foregoing, and subject to and in reliance on the accuracy and
completeness of the information relevant thereto provided to us, it is our
opinion that:
1. The Company has been duly incorporated under the laws of the State of
Tennessee. The Company has an authorized capital stock consisting of
50,000,000 shares of Common Stock, 50,000,000 shares of Class B
common stock, no par value per share, and 2,000,000 shares of
preferred stock, $1.00 par value per share.
2. The Shares have been duly authorized, and are, or when issued in
accordance with the terms of either the Company's 1991 Stock
Incentive Plan or the Company's 1993 Stock Option Plan, as
<PAGE> 2
Goody's Family Clothing, Inc.
August 18, 1997
Page 2
the case may be, and the various stock option agreements will be,
legally and validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and as an exhibit to any application under the securities
or other laws of any state of the United States that relate to the offering that
is the subject of this opinion, and to the reference to this firm appearing
under the heading "Legal Matters" in the prospectus which is contained in the
Registration Statement.
This opinion is furnished to you in connection with the filing of the
Registration Statement, and is not to be used, circulated, quoted or otherwise
relied upon for any other purpose, except as expressly provided in the preceding
paragraph, without our express written consent, and no party other than you is
entitled to rely on it. This opinion is rendered to you as of the date hereof
and we undertake no obligation to advise you of any change, whether legal or
factual, after the date hereof.
Very truly yours,
/s/ SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN, LLP
----------------------------------------------------
SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN, LLP
SFH&G, LLP:RAG:DSR:TSS
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent (i) to the incorporation by reference in this Registration
Statement of Goody's Family Clothing, Inc. on Form S-3 of our report dated March
19, 1997 incorporated by reference in the Annual Report on Form 10-K of Goody's
Family Clothing, Inc. for the year ended February 1, 1997, and (ii) to the use
in this Registration Statement of our report dated March 19, 1997, appearing in
the Prospectus, which is part of this Registration Statement. We also consent to
the reference to us under the heading "Experts" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
- --------------------------------------
DELOITTE & TOUCHE LLP
Atlanta, Georgia
August 15, 1997
