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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 14, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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FRIEDMAN'S INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 5944 58-2058362
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer Identification
of incorporation or organization) Classification Code Number) Number)
</TABLE>
4 WEST STATE STREET
SAVANNAH, GEORGIA 31401
(912) 233-9333
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
BRADLEY J. STINN
CHAIRMAN OF THE BOARD OF DIRECTORS AND CHIEF EXECUTIVE OFFICER
FRIEDMAN'S INC.
4 WEST STATE STREET
SAVANNAH, GEORGIA 31401
(912) 233-9333
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
THE COMMISSION IS REQUESTED TO SEND COPIES OF ALL COMMUNICATIONS TO:
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M. HILL JEFFRIES JEFFREY M. STEIN
MARK F. MCELREATH KING & SPALDING
ALSTON & BIRD 191 PEACHTREE STREET
ONE ATLANTIC CENTER ATLANTA, GEORGIA 30303
1201 WEST PEACHTREE STREET (404) 572-4600
ATLANTA, GEORGIA 30309
(404) 881-7000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / / ______
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / / ______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: /X/
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SHARES AMOUNT TO AGGREGATE AGGREGATE AMOUNT OF
TO BE REGISTERED BE REGISTERED(1) PRICE PER UNIT(2) OFFERING PRICE(2) REGISTRATION FEE
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Class A Common Stock, $.01 par
value per share................. 2,530,000 $25.75 $65,147,500 $22,465
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(1) Includes 330,000 shares subject to the Underwriters' over-allotment option.
(2) Estimated solely for the purpose of determining the registration fee based
upon the average of the high and low prices of the Class A Common Stock
reported on the Nasdaq Stock Market's National Market on May 9, 1996.
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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.
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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 MAY 14, 1996
2,200,000 SHARES
[FRIEDMAN'S LOGO]
CLASS A COMMON STOCK
Of the 2,200,000 shares of Class A Common Stock ("Class A Common Stock")
offered hereby (the "Offering"), 2,000,000 shares are being sold by the Company
and 200,000 are being sold by a certain selling stockholder of the Company. See
"Principal and Selling Stockholders." The Company will not receive any of the
proceeds from the sale of shares by the selling stockholder.
The Company's Common Stock ("Common Stock") consists of Class A Common
Stock and Class B Common Stock ("Class B Common Stock"). The holders of Class A
Common Stock, voting as a class, have the right to elect that minimum number of
directors constituting 25% of the Company's Board of Directors. Other than such
right to elect directors, unless all of the shares of Class B Common Stock are
converted into shares of Class A Common Stock and except as required by the laws
of the State of Delaware, holders of the Class A Common Stock currently have no
voting rights. Subject to the foregoing limitations on voting rights and certain
other exceptions, the rights and privileges of each class of Common Stock are
substantially identical. For a discussion of the control of the Class B Common
Stock and the effects thereof, see "Risk Factors -- Control of Company;
Relationship to Underwriter."
The Class A Common Stock is traded on the Nasdaq National Market under the
symbol "FRDM." On May 9, 1996, the closing sale price for the Class A Common
Stock was $25.50 per share. See "Price Range of Class A Common Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE CLASS A 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.
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Proceeds to
Price to Underwriting Proceeds to Selling
Public Discount(1) Company(2) Stockholder(2)
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Per Share.............................. $ $ $ $
Total(3)............................... $ $ $ $
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(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting estimated offering expenses of $750,000 payable by the
Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
330,000 additional shares of Class A Common Stock solely to cover
over-allotments, if any. If the Underwriters exercise this option in full,
the Price to Public will total $ , the Underwriting Discount will
total $ and the Proceeds to Company will total $ . See
"Underwriting."
The shares of Class A Common Stock are offered by the several Underwriters
named herein when, as and if delivered to and accepted by the Underwriters and
subject to their right to reject any orders in whole or in part. It is expected
that delivery of the certificates representing the shares will be made against
payment therefor at the office of Montgomery Securities on or about May ,
1996.
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MONTGOMERY SECURITIES
GOLDMAN, SACHS & CO.
MORGAN KEEGAN & COMPANY, INC.
MORGAN SCHIFF & CO., INC.
May , 1996.
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[MAP]
A map indicating the store locations for the Company as of May 14, 1996.
The map includes the following states and the number of stores in each state:
Alabama (14 stores); Arkansas (7 stores); Florida (20 stores); Georgia (57
stores); Indiana (1 store); Kentucky (11 stores); Louisiana (19 stores);
Mississippi (21 stores); Missouri (1 store); North Carolina (47 stores); Ohio (5
stores); South Carolina (31 stores); Tennessee (17 stores); Texas (6 stores);
and, Virginia (8 stores). This map appears in the paper format version of the
document and not in this electronic filing.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A COMMON
STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. IN CONNECTION
WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP MEMBERS) MAY ENGAGE
IN PASSIVE MARKET MAKING TRANSACTIONS IN THE CLASS A COMMON STOCK ON THE NASDAQ
NATIONAL MARKET, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE IN ACCORDANCE WITH
RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
2
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. Unless otherwise indicated, all references to the Company or
Friedman's also include the Company's predecessors and all statements made in
this Prospectus assume no exercise of the Underwriters' over-allotment option.
See "Underwriting." "Fiscal 1991," "fiscal 1992," "fiscal 1993," "fiscal 1994,"
and "fiscal 1995" refer to fiscal years ended on September 30th of each year.
Prospective investors should carefully consider the information set forth under
the heading "Risk Factors."
THE COMPANY
Friedman's Inc. ("Friedman's" or the "Company") is a rapidly growing
specialty retailer of fine jewelry currently operating 265 stores in 15 states
located primarily in the southern United States. Management believes that the
Friedman's business model and target customer differentiate the Company from its
competitors, and that, based on its experience the Company's stores have
historically produced higher store level financial returns than those of
traditional mall-based jewelry retailers. The Company positions itself as "The
Value Leader(R)" by offering competitive prices, a broad merchandise selection,
a high level of customer service and a disciplined credit program that appeal to
its target customer of low to middle income consumers aged 18 to 45 years old.
The Company's real estate expansion strategy focuses primarily on opening new
stores in power strip centers in small cities and towns which management
believes present the Company with substantial growth opportunities. Friedman's
seeks to be the leading specialty retailer of fine jewelry in its target markets
and believes it has developed a distinctive franchise based on, among other
things, its value orientation, loyal customer base and strong name recognition,
having served the southeast since 1925.
The Company strengthened its management team and made significant
investments in infrastructure in 1992 and since then has achieved rapid and
profitable growth. Friedman's store base has grown at a compound annual rate of
57.5% over the last three fiscal years, establishing the Company as the third
largest and fastest growing specialty retailer of fine jewelry in the United
States based upon the number of stores in operation. Over the same period, the
Company's sales grew at a compound annual rate of 47.9% and net income has
increased to $10.4 million in fiscal 1995 from a loss in fiscal 1992. In the six
months ended March 31, 1996, the Company added 39 net new stores and increased
total revenues and net income by 46.9% and 52.7%, respectively, over the prior
year period. The Company plans to continue to increase market share and improve
overall performance by continuing to expand its store base as well as increasing
sales and profitability as existing stores mature. The Company plans to open
between 60 to 80 stores during calendar 1996 to have 290 to 310 stores in
operation by the 1996 Christmas season.
THE FRIEDMAN'S RETAILING FORMULA
Friedman's believes it is uniquely positioned in the market serving the low
to middle income consumer aged 18 to 45 years old. In order to serve this target
market most effectively and profitably, Friedman's executes the following
business strategies:
- "THE VALUE LEADER(R)." The Company is committed to offering its
customers value through a combination of competitive prices, a broad
selection of quality merchandise targeted to its customer base, a high
level of customer service and a convenient credit program for qualified
purchasers. Through these programs Friedman's seeks to develop long-term
customer relationships and believes this has resulted in a significant
percentage of repeat customers.
- SMALL TOWN/POWER STRIP STRATEGY. Friedman's real estate strategy
focuses on opening new stores in power strip locations in small cities and
towns. These centers are typically anchored by a major discounter, such as
Wal-Mart, whose target customers management believes are similar to those
of Friedman's. The Company believes this strategy provides it with certain
competitive advantages including numerous expansion opportunities,
comparatively low operating expenses, an attractive return on capital and
more limited competition than is faced by many of the national jewelry
retailers. Through the pursuit of this strategy, Friedman's has become the
largest operator of jewelry stores in power strip centers.
- LOW COST OPERATOR. In order to provide its customers with value
while maximizing return on investment, the Company is focused on
maintaining an efficient, low cost operating structure. Key elements of
this focus include the Company's lean corporate overhead, comparatively low
rent structures, strict store-level expense controls and an emphasis on
performance-based compensation. The Company
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also expects to continue to leverage advertising and supervisory costs
through the addition of new stores in existing markets.
- STORE PARTNER PHILOSOPHY. Each of the Company's stores is operated
under the direction of a Store Partner, a title that reflects the Company's
philosophy that each store should be operated to the greatest extent
possible as an independent business. Friedman's maintains strict operating
disciplines to manage its business on a daily basis. Clear financial
standards and guidelines relating to credit management, cost control and
store performance are strictly enforced and monitored to maximize financial
returns. These disciplines permeate the Friedman's culture and result in
individual accountability for areas of responsibility, conservative
management of credit risk, low expense ratios and consistent store
profitability.
GROWTH STRATEGY
The Company's small town and power strip-based expansion strategy offers
substantial growth opportunities in a fragmented segment of the fine jewelry
industry which is primarily characterized by local independent operators. The
Company believes this market is underserved and plans to continue its rapid
store expansion by opening 60 to 80 stores in calendar 1996 in both existing and
new markets, focusing primarily on power strip centers with selective expansion
into regional malls.
Based on the Company's historical experience, new stores yield attractive
returns on invested assets and demonstrate improving sales and profitability as
they mature. Having opened more than 200 stores since October 1, 1992,
Friedman's has developed the capability to expand rapidly and has proven the
attractive unit economics of its store growth strategy. The Company believes
that these economic characteristics and the significant number of potentially
suitable new store sites should facilitate rapid store expansion in the future.
THE OFFERING
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Common Stock offered:
by the Company............................. 2,000,000 shares of Class A Common Stock
by the Selling Stockholder................. 200,000 shares of Class A Common Stock
Common Stock to be outstanding after the
Offering(1)................................ 12,297,550 shares of Class A Common Stock
1,773,582 shares of Class B Common Stock
Use of proceeds.............................. To reduce indebtedness, finance new store
openings and for general corporate purposes
including working capital. See "Use of
Proceeds."
Limited voting rights........................ Holders of Class A Common Stock, voting as a
class, are entitled to elect that minimum
number of directors constituting 25% of the
Company's Board of Directors (currently two
of six directors). Other than such right to
elect directors, unless all of the shares of
Class B Common Stock are converted into
shares of Class A Common Stock and except as
required by the laws of the State of
Delaware, holders of Class A Common Stock
have no voting rights. See "Description of
Capital Stock."
Nasdaq National Market symbol................ FRDM
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(1) The number of shares of Class A Common Stock outstanding excludes shares
issuable upon exercise of outstanding options to purchase 672,680 shares of
Class A Common Stock at a weighted average exercise price of $13.60 and
shares issuable upon the conversion of 1,773,582 shares of Class B Common
Stock.
4
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SUMMARY FINANCIAL AND OPERATING DATA
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
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SIX MONTHS ENDED
FISCAL YEAR ENDED SEPTEMBER 30, MARCH 31,
---------------------------------------------------- -------------------
1991 1992 1993(1) 1994 1995 1995 1996
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
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STATEMENT OF OPERATIONS DATA:
Net merchandise sales..................... $ 36,584 $ 37,817 $ 47,396 $ 75,534 $122,350 $ 67,557 $ 98,543
Finance charges and other................. 2,040 2,284 5,747 9,765 15,249 7,235 11,362
-------- -------- -------- -------- -------- -------- --------
Total revenue............................. 38,624 40,101 53,143 85,299 137,599 74,792 109,905
Net income (loss)(2)...................... (3,028) (16,656) 2,043 5,855 10,427 7,690 11,743
Earnings (loss) per share(3).............. -- $ (2.97) $ 0.23 $ 0.63 $ 0.97 $ 0.80 $ 0.96
Weighted average common shares
outstanding............................. -- 5,607 5,607 9,292 10,722 9,614 12,273
OTHER OPERATING DATA:
Number of stores (end of periods)......... 51 55 85 141 215 172 254
Percentage increase in number of stores
(end of periods)(4)..................... 6.3% 7.8% 54.5% 65.9% 52.5% 59.3% 47.7%
Percentage increase (decrease) in
comparable store sales(5)............... (1.1)% (1.9)% 10.0% 8.2% 13.3% 13.8% 5.9%
</TABLE>
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MARCH 31, 1996
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AS
ACTUAL ADJUSTED(6)
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(UNAUDITED)
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BALANCE SHEET DATA:
Accounts receivable, net............................................................. $62,247 $ 62,247
Inventories.......................................................................... 57,893 57,893
Working capital...................................................................... 94,436 110,575
Total assets......................................................................... 147,602 163,741
Long-term debt....................................................................... 29,476 0
Stockholders' equity................................................................. 86,936 132,551
</TABLE>
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(1) In May 1990, certain assets currently held by the Company were purchased
from Friedman's Jewelers, Inc. and its affiliates ("FJI") by MS Jewelers
Limited Partnership (the "Acquisition"). The Company was incorporated in
July 1993 and substantially all of the assets and liabilities of MS Jewelers
Limited Partnership (the "Partnership") were transferred to the Company in
October 1993 in exchange for 5,606,700 shares of the Class B Common Stock of
the Company.
(2) Includes special charges in fiscal 1992 of $12,477,000 which reflect the
write-off of certain intangible assets ($11,598,000) and the cost of
terminating two employment contracts ($879,000) in the fourth quarter of
fiscal 1992.
(3) Earnings (loss) per share for fiscal 1992 and fiscal 1993 is computed on a
pro forma basis based on the weighted average number of shares of Common
Stock outstanding assuming substantially all of the assets and liabilities
of the Partnership had been exchanged for 5,606,700 shares of Class B Common
Stock on October 1, 1991. Additionally, pro forma income taxes of $776,000
are subtracted from net income (loss) for fiscal 1993 in order to calculate
earnings (loss) per share for fiscal 1993.
(4) Percentages for March 31, 1995 and 1996 are based on the number of stores
opened in the 12 month periods ended March 31, 1995 and 1996, respectively.
(5) A new store becomes a comparable store in the first full month following the
anniversary of the opening of such store.
(6) Adjusted to give effect to the application of the net proceeds of the
Offering, estimated to be approximately $47.4 million. The prepayment of the
senior subordinated indebtedness will result in the payment of an amount
equal to the present value of future interest payments to maturity
discounted at a defined rate ("Make Whole Amount") of approximately $1.8
million net of income tax. The Make Whole Amount will be recorded by the
Company in the fiscal quarter ending June 30, 1996 as an extraordinary item.
See "Use of Proceeds."
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RISK FACTORS
In evaluating the Offering, prospective investors should consider carefully
all of the information contained in this Prospectus and, in particular, the
following factors relating to the Company and the Class A Common Stock.
EXPANSION PROGRAM
The success of the Company's growth strategy will depend on its ability to
expand its operations through the opening of new stores in existing and new
markets and to operate these stores on a profitable basis. The Company plans to
open 60 to 80 stores in calendar 1996 and intends thereafter to continue to
expand its store base rapidly. Accomplishing the Company's expansion goals will
depend on a number of factors, including general economic conditions and the
Company's ability to identify and secure suitable locations on acceptable terms,
open new stores in a timely manner, hire and train additional store personnel
and integrate new stores into its operations. The Company anticipates that there
will be significant competition among specialty retailers for desirable store
sites. Accordingly, there can be no assurance that the Company will be able to
open and operate new stores on a timely and profitable basis. If the Company
expands more rapidly than its current plans anticipate or if the Company fails
to generate sufficient cash flow, the Company may require additional capital (in
addition to the net proceeds of the Offering) in order to finance such
expansion. The Company is also likely to require additional capital to finance
its expansion after 1997. Furthermore, the Company will need to continually
evaluate the adequacy of its management information and distribution systems to
manage its planned expansion. There can be no assurance that the Company will
anticipate all of the changing demands that its expanding operations will impose
on such systems and the failure to adapt its systems and procedures could have a
material adverse effect on the Company's business. In addition, as the Company
enters new markets or expands its presence in certain markets, the Company may
experience initial uncertainty in its credit portfolio as the Company evaluates
the credit characteristics of the new customer base. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
COMPETITION
The retail jewelry business is highly competitive. The Company competes
with national and regional jewelry chains, department stores, local
independently owned jewelry stores and chains, catalog showrooms, discounters,
direct mail suppliers and televised home shopping networks, credit card
companies and other providers of consumer credit. Certain of the Company's
competitors are substantially larger and have greater financial resources than
the Company. The Company also believes that it competes for consumers'
discretionary spending dollars with retailers that offer merchandise other than
fine jewelry. The foregoing competitive conditions may adversely affect the
Company's revenues, profitability and ability to expand. See
"Business -- Competition."
SENSITIVITY TO GENERAL ECONOMIC CONDITIONS
Jewelry purchases are discretionary for customers. As a result, sales of
merchandise such as that offered by the Company are likely to be particularly
affected by adverse trends in the general economy. Sales of jewelry products may
also be affected adversely by negative developments in local economic conditions
such as plant closings, industry slowdown and government employment cutbacks.
In addition, because a majority of the Company's sales are made on credit,
any downturn in general economic conditions or increases in interest rates may
have a material adverse effect on the Company's revenues and profitability.
Furthermore, the Company expects that any downturn in general or local economic
conditions in the markets in which it operates would adversely affect its
collection of outstanding credit accounts receivable. The Company maintains an
allowance for uncollectible accounts based on historical experience. At
September 30, 1995, the Company's allowance for uncollectible accounts was 10.0%
of accounts receivable, and net charge-offs as a percentage of credit revenues
increased to 8.8% for fiscal 1995 from 6.7% for fiscal 1994. See "Selected
Financial and Operating Data" and "Business -- Credit Operations."
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SEASONALITY
The Company's business is highly seasonal. Historically, the Company's
first fiscal quarter (ending December 31) has accounted for significant
percentages of the Company's annual net sales and net income. Any substantial
decrease in first fiscal quarter sales could have a material adverse effect on
the Company's profitability for the entirety of such fiscal year. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Seasonality."
DEPENDENCE ON KEY PERSONNEL
The Company is substantially dependent on the continued services of its
executive officers, including Bradley J. Stinn, Chairman of the Board of
Directors and Chief Executive Officer, and Robert S. Morris, President and Chief
Operating Officer. Mr. Stinn is also Chairman of the Board of Directors and
Chief Executive Officer of Crescent Jewelers Inc. ("Crescent Jewelers"), a
retail jewelry chain which is an affiliate of the Company. Should Mr. Stinn, Mr.
Morris or any of the Company's other executive officers not continue as an
officer of the Company, the Company's prospects might be adversely affected. The
Company does not have and is not contemplating obtaining key-man life insurance
for any executive officer of the Company. See "Management."
INCENTIVE COMPENSATION PROGRAM
In October 1994, when the price of the Class A Common Stock was
approximately $16.38 per share, Mr. Stinn and Sterling B. Brinkley, Chairman of
the Executive Committee of the Board of Directors, were each advanced $1.5
million, the repayment of which will be forgiven upon the attainment of specific
targets for the price of the Company's Class A Common Stock. Upon forgiveness of
principal and interest, the Company will incur compensation expense as of the
date of the respective forgiveness. The first stock price target ($22.50 per
share) was attained in July 1995 and compensation expense totaling $900,000,
which represents forgiveness of principal and related income tax costs, was
charged to operations during that period. The second stock price target ($25.00
per share) was attained in April 1996 and compensation expense totaling $900,000
will be charged to operations in the quarter ending June 30, 1996. If additional
stock price targets are achieved, the Company will incur up to an additional
$4.2 million of compensation expense as a result of the forgiveness of these
advances. The incurrence of such amounts of compensation expense will negatively
impact the earnings per share of the Class A Common Stock. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
FLUCTUATIONS IN COMPARABLE STORE SALES RESULTS
A variety of factors affect the Company's comparable store sales results
including, among others, economic conditions, the retail sales environment and
the Company's ability to execute its business strategy efficiently. The Company
experienced a 13.3% increase in comparable store sales in fiscal 1995 and a 5.9%
increase for the first six months of fiscal 1996. The Company expects comparable
store sales increases to be lower in the future and there can be no assurance
that the Company will continue to achieve comparable store sales gains in any
period. Variations in the Company's comparable store sales results could cause
the price of the Class A Common Stock to fluctuate substantially. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
TRADENAME
The Company has been doing business under the "Friedman's Jewelers"
tradename for approximately 70 years. Another jewelry retailer, A.A. Friedman's
Co., Inc. ("AAFCO"), also conducts business under the tradename "Friedman's
Jewelers." AAFCO has approximately 118 stores in several of the states in which
the Company operates. While there was in the past a familial connection between
the Company and AAFCO, the two jewelry retailers are no longer affiliated in any
manner. On October 19, 1994, AAFCO filed a lawsuit
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<PAGE> 9
against the Company alleging that the Company's use of the service mark
"Friedman's Jewelers" in certain geographic areas constitutes service mark
infringement, unfair competition, and false advertising. The Company is
vigorously defending the litigation. The Company's position in the litigation is
that, as between the two parties, the Company has superior rights to the use of
the Friedman's Jewelers mark and tradename. Management believes that the
litigation is not reasonably likely to have a material adverse effect on the
Company's financial condition or results of operations; however, there can be no
assurance that the Company will be successful in its defense, or that this
litigation will not have a material adverse effect on Friedman's financial
condition or results of operations. At March 31, 1996, the Company had an
allowance of approximately $2.0 million for legal expenses associated with this
litigation. See "Business -- Legal Proceedings."
MERCHANDISE SUPPLY
The Company does not manufacture its own merchandise. The jewelry industry
generally is affected by fluctuations in the prices of gold and diamonds and, to
a lesser extent, other precious and semi-precious metals and stones. The Company
does not maintain long-term inventories or otherwise hedge against fluctuations
in the cost of diamonds or gold. A significant increase in prices or decrease in
the availability of gold or diamonds could have a material adverse effect on the
Company's business. The supply and price of diamonds in the principal world
markets are significantly influenced by a single entity, the Central Selling
Organization (the "CSO"), a marketing arm of DeBeers Consolidated Mines Ltd. of
South Africa. The CSO has traditionally controlled the marketing of a
substantial majority of the world's supply of diamonds and sells rough diamonds
to worldwide diamond cutters from its London office in quantities and at prices
determined in its sole discretion. The availability of diamonds to the CSO and
the Company's suppliers is to some extent dependent on the political situation
in diamond producing countries, such as South Africa, Botswana, Zaire, the
Russian republics and Australia, and on the continuation of the prevailing
supply and marketing arrangements for raw diamonds. Until alternate sources
could be developed, any sustained interruption in the supply of diamonds from
the producing countries could adversely affect the Company and the retail
jewelry industry as a whole. See "Business -- Purchasing."
CONTROL OF COMPANY; RELATIONSHIP TO UNDERWRITER
Mr. Phillip E. Cohen owns 100% of the issued and outstanding stock of MS
Jewelers Corporation ("MS Jewelers"), a Delaware corporation, which is the sole
general partner of MS Jewelers Limited Partnership (the "Partnership"). The
Partnership owns 100% of the Class B Common Stock of the Company. Through MS
Jewelers, Mr. Cohen alone controls virtually all of the decisions made with
respect to the Partnership, including the disposition and voting of the Class B
Common Stock held by the Partnership. As a result of his control of the Class B
Common Stock, Mr. Cohen can, without the concurrence of the remaining
stockholders of the Company, elect 75% of the directors of the Company and
control the outcome of votes by the Company's stockholders on major corporate
transactions, including mergers, sales of substantial assets and going-private
transactions. Mr. Cohen could also, subject to certain limitations, unilaterally
transfer such voting power to a third party by transferring such shares of Class
B Common Stock or the stock of MS Jewelers. There also is no prohibition or
limitation on Mr. Cohen's ownership of Class A Common Stock. If all of the
outstanding shares of Class B Common Stock were converted into shares of Class A
Common Stock, the Partnership would own approximately 14.7% of the Class A
Common Stock (approximately 12.6% after the Offering). Mr. Cohen also owns 100%
of Morgan Schiff & Co., Inc. ("Morgan Schiff"), which is one of the underwriters
of the Offering. Morgan Schiff has acted, and continues to act, as financial
advisor to the Company for which it has received and continues to receive
significant fees of a minimum of $400,000 per year on a non-accountable basis in
addition to the fees it will receive as an underwriter. See "Principal and
Selling Stockholders" and "Underwriting."
LIMITED VOTING RIGHTS OF CLASS A COMMON STOCK
Holders of the Class A Common Stock, voting as a class, have the right to
elect that minimum number of directors constituting 25% of the Company's Board
of Directors (rounding the number of directors to the next
8
<PAGE> 10
highest whole number if the application of such percentage does not result in a
whole number), currently two of six. Other than the right to elect directors,
unless all of the shares of Class B Common Stock are converted into Class A
Common Stock and except as may be required by the laws of the State of Delaware,
holders of Class A Common Stock have no voting rights. The Partnership owns 100%
of the outstanding shares of the Company's Class B Common Stock. Consequently,
the Partnership controls the outcome of substantially all matters submitted to a
vote of the stockholders.
The disproportionate voting rights between the Class A Common Stock and the
Class B Common Stock could have an adverse effect on the market price of the
Class A Common Stock. Such disproportionate voting rights may make the Company a
less attractive target for a takeover than it otherwise might be, or render more
difficult or discourage a merger proposal, a tender offer or a proxy contest,
even if such actions were favored by holders of the Company's Class A Common
Stock. Such disproportionate voting rights may also deprive holders of Class A
Common Stock of an opportunity to sell their shares at a premium over then
prevailing market prices for the Class A Common Stock. In addition, holders of
Class B Common Stock may be able to transfer voting control to a third party at
a premium without obtaining such premium for holders of Class A Common Stock.
GOVERNMENT REGULATION
The extension of credit by the Company, as well as its sale of insurance
products, is highly regulated by Federal and state authorities. A failure on the
part of the Company to comply with such regulations would expose it to
potentially substantial penalties. In addition, any restrictive change in such
regulation, including the imposition of interest rate ceilings or restrictions
on the sale of insurance products by the Company, could have a material adverse
effect on the Company.
SHARES ELIGIBLE FOR FUTURE SALE
After completion of the Offering, the Company will have 12,297,550 shares
of Class A Common Stock outstanding (12,627,550 shares if the Underwriters'
over-allotment option is exercised in full). Of those shares, the 2,200,000
shares of Class A Common Stock offered hereby (2,530,000 if the Underwriters'
over-allotment option is exercised in full) will be freely tradeable without
restriction or further registration under the Securities Act of 1933, as amended
(the "Securities Act"), unless purchased by "affiliates" of the Company, as that
term is defined in Rule 144 under the Securities Act ("Rule 144").
The Company, its directors and officers, the Selling Stockholder and
certain other stockholders of the Company, including FJI, who beneficially own
an aggregate of 2,848,837 shares of Class A Common Stock and the Partnership
which beneficially owns an aggregate of 1,773,582 shares of Class B Common Stock
have each agreed, subject to certain limited exceptions, that they will not,
without the prior written consent of Montgomery Securities, offer, sell or
otherwise dispose of any shares of Common Stock, or any right to acquire such
shares, for a period of 90 days from the date of this Prospectus. See "Principal
and Selling Stockholders" and "Underwriting."
Approximately 2,400,000 of the currently outstanding shares of Class A
Common Stock are tradeable subject to compliance with the volume and manner of
sale limitations of Rule 144. The approximately 2,400,000 shares include
1,899,771 shares subject to the lock-up agreement described in the preceding
paragraph. The holding period imposed upon these shares by Rule 144 began to run
in October 1993. All of such shares of Class A Common Stock are held by former
limited partners of the Partnership who received shares of Class A Common Stock
in connection with their withdrawal from the Partnership.
9
<PAGE> 11
USE OF PROCEEDS
At an assumed public offering price of $25.50 per share, the net proceeds
to the Company from the sale of the Class A Common Stock offered by the Company
hereby will be approximately $47.4 million ($55.4 million if the Underwriters'
over-allotment option is exercised in full) after deducting underwriting
discounts and estimated offering expenses. The Company intends to use the net
proceeds of the Offering to (i) prepay all outstanding amounts, including
accrued interest, on its junior subordinated indebtedness (approximately $7.4
million in principal amount at March 31, 1996), (ii) prepay all outstanding
amounts, including accrued interest, on its senior subordinated indebtedness
(approximately $15.0 million in principal amount at March 31, 1996) as well as
the Make Whole Amount (approximately $1.8 million net of taxes), (iii) repay all
outstanding amounts, including accrued interest, on its lines of credit
(approximately $11.9 million at May 10, 1996), and (iv) finance the Company's
store expansion program. In addition, the Company may use a portion of the net
proceeds of the Offering for general corporate purposes including working
capital requirements of its business (principally inventory and accounts
receivable) or to acquire new stores. Although the Company identifies potential
acquisitions from time to time, there are presently no negotiations concerning
such acquisitions.
The Company's junior subordinated indebtedness, payable to FJI, is payable
in full on November 24, 2000 and bears interest at 13.0%. The Company's senior
subordinated indebtedness, payable to Teachers Insurance and Annuity Association
of America ("Teachers"), is payable in full on May 1, 2000 and bears interest at
14.25%. The prepayment of the senior subordinated indebtedness will result in
the payment of a Make Whole Amount of approximately $1.8 million net of taxes.
This Make Whole Amount will be recorded by the Company in the fiscal quarter
ending June 30, 1996, as an extraordinary item. The Company's lines of credit
are from two separate lenders, are secured by accounts receivable and inventory
and bear interest at varying rates which ranged from 7.85% to 8.55% during the
six months ended March 31, 1996.
Pending the uses described above, the Company intends to invest the net
proceeds from the Offering in short-term, investment grade, interest-bearing
securities.
10
<PAGE> 12
PRICE RANGE OF CLASS A COMMON STOCK
The Company's Class A Common Stock is traded on the Nasdaq National Market
(trading symbol "FRDM"). The following table sets forth the quarterly high and
low last sale prices per share as reported by the Nasdaq National Market since
the Class A Common Stock began trading publicly on October 14, 1993. These
over-the-counter market quotations reflect inter-dealer prices, without retail
mark-ups, mark-downs, or commissions, and may not necessarily represent actual
transactions. The last sale price of the Class A Common Stock on May 9, 1996 was
$25.50 per share.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
FISCAL YEAR ENDED SEPTEMBER 30, 1994
First Quarter (October 14, 1993 -- December 31, 1993)........ $ 13.75 $ 9.25
Second Quarter............................................... 14.00 10.88
Third Quarter................................................ 14.75 12.00
Fourth Quarter............................................... 15.75 11.50
FISCAL YEAR ENDING SEPTEMBER 30, 1995
First Quarter................................................ $ 18.50 $ 14.88
Second Quarter............................................... 19.50 16.25
Third Quarter................................................ 19.63 17.25
Fourth Quarter............................................... 25.00 18.88
FISCAL YEAR ENDING SEPTEMBER 30, 1996
First Quarter................................................ $ 23.25 $ 18.88
Second Quarter............................................... 20.00 16.25
Third Quarter (through May 13, 1996)......................... 27.00 19.00
</TABLE>
As of May 9, 1996, there were 86 record holders of the Class A Common
Stock, and the Company estimates that there are approximately 2,600 beneficial
owners of the Class A Common Stock.
DIVIDEND POLICY
The policy of the Company's Board of Directors is to retain earnings to
provide funds for the operation and expansion of the Company's business and,
therefore, the Board of Directors has not paid any cash dividends in the past
and does not anticipate paying any cash dividends in the foreseeable future.
Future dividends, if any, will be determined by the Board of Directors and will
be based upon the earnings, capital requirements and the operating and financial
condition of the Company, among other factors, at the time any such dividends
are considered. In addition, the Company's ability to pay dividends is
restricted by its long-term debt facilities, which prescribe certain income and
asset tests that affect the amount of any dividend payments.
11
<PAGE> 13
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1996, and as adjusted to reflect the sale of the 2,000,000 shares of
Class A Common Stock offered hereby by the Company and the application of the
net proceeds therefrom (at an assumed public offering price of $25.50 per share
and after deducting underwriting discounts and estimated offering expenses):
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt............................................. $ 0 $ 0
======== =========
Long-term debt:
Revolving credit lines.................................... $ 7,107 $ 0
Senior subordinated notes................................. 15,000 0
Junior subordinated notes................................. 7,369 0
-------- -----------
Total long-term debt.............................. 29,476 0
Stockholders' equity:
Preferred Stock, $.01 par value; 10,000,000 shares
authorized; no shares issued........................... 0 0
Class A Common Stock, $.01 par value; 25,000,000 shares
authorized; 9,663,607 shares issued; 11,863,607 shares
issued as adjusted(1).................................. 97 119
Class B Common Stock, $.01 par value; 7,000,000 shares
authorized; 2,402,905 shares issued; 2,202,905 shares
issued as adjusted..................................... 24 22
Additional paid-in capital................................ 58,790 106,215
Retained earnings(2)...................................... 28,025 26,195
-------- -----------
Total stockholders' equity........................ 86,936 132,551
-------- -----------
Total capitalization......................... $116,412 $ 132,551
======== =========
</TABLE>
- ---------------
(1) The number of shares issued at March 31, 1996 and as adjusted excludes
2,402,905 shares and 2,202,905 shares, respectively, of Class A Common Stock
issuable upon conversion of the Class B Common Stock and 672,680 shares
issuable upon the exercise of stock options.
(2) The prepayment of the senior subordinated indebtedness will result in the
payment of the Make Whole Amount of approximately $1.8 million net of taxes.
The Make Whole Amount will be recorded by the Company in the fiscal quarter
ending June 30, 1996 as an extraordinary item. See "Use of Proceeds."
12
<PAGE> 14
SELECTED FINANCIAL AND OPERATING DATA
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
The following statement of operations and balance sheet data for fiscal
years 1991 through 1995 were derived from the Consolidated Financial Statements
of the Company audited by Ernst & Young LLP, independent auditors. The financial
data for the six months ended March 31, 1995 and 1996 were derived from
unaudited financial statements. The unaudited financial statements include all
adjustments, consisting of normal recurring accruals, which the Company
considers necessary for a fair presentation of the financial position and the
results of operations for these periods. The Company's business is highly
seasonal and, accordingly, operating results for the six month period ended
March 31, 1996, are not indicative of results that may be expected for fiscal
1996. The following Selected Financial and Operating Data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," appearing elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH
FISCAL YEAR ENDED SEPTEMBER 30, 31,
-------------------------------------------------------------- -----------------------
1991 1992 1993(1) 1994 1995 1995 1996
--------- --------- --------- --------- ---------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net merchandise sales.................. $ 36,584 $ 37,817 $ 47,396 $ 75,534 $ 122,350 $ 67,557 $ 98,543
Finance charges and other.............. 2,040 2,284 5,747 9,765 15,249 7,235 11,362
--------- --------- --------- --------- ---------- --------- ----------
Total revenues......................... 38,624 40,101 53,143 85,299 137,599 74,792 109,905
Cost of goods sold, including
occupancy, distribution and buying... 19,639 20,729 23,426 37,373 61,840 33,242 49,224
Selling, general and administrative
expenses............................. 12,830 13,819 17,791 27,739 46,338 20,846 29,717
Depreciation and amortization.......... 2,883 3,035 1,599 2,137 2,516 1,185 1,512
Provision for doubtful accounts........ 1,124 1,523 2,484 4,611 9,311 4,697 8,505
Special charges(2)..................... -- 12,477 -- -- -- -- --
Interest expense....................... 5,176 5,174 5,800 3,998 4,102 2,418 1,696
--------- --------- --------- --------- ---------- --------- ----------
Income (loss) before income taxes...... (3,028) (16,656) 2,043 9,441 13,492 12,404 19,251
Income tax expense..................... -- -- -- 3,586 3,065 4,714 7,508
--------- --------- --------- --------- ---------- --------- ----------
Net income (loss)...................... $ (3,028) $ (16,656) $ 2,043 $ 5,855 $ 10,427 $ 7,690 $ 11,743
======== ======== ======== ======== ========= ======== =========
Net income (loss) as reported.......... $ (16,656) $ 2,043
Pro forma income tax provision(3)...... -- 776
--------- ---------
Pro forma net income (loss)(4)......... $ (16,656) $ 1,267
======== ========
Earnings (loss) per share(4)........... $ (2.97) $ 0.23 $ 0.63 $ 0.97 $ 0.80 $ 0.96
======== ======== ======== ========= ======== =========
Weighted average common shares
outstanding.......................... 5,607 5,607 9,292 10,722 9,614 12,273
OTHER OPERATING DATA:
Number of stores (end of periods)...... 51 55 85 141 215 172 254
Percentage increase in number of stores
(end of periods)(5).................. 6.3% 7.8% 54.5% 65.9% 52.5% 59.3% 47.7%
Percentage increase (decrease) in
comparable store sales(6)............ (1.1)% (1.9)% 10.0% 8.2% 13.3% 13.8% 5.9%
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
-------------------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
------- -------- -------- ------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Accounts receivable, net................................ $ 9,631 $ 9,574 $ 17,585 $29,052 $ 45,020 $41,384 $ 62,247
Inventories............................................. 13,508 11,094 17,308 27,207 45,175 40,001 57,893
Working capital......................................... 15,021 4,886 9,272 43,708 77,779 60,736 94,436
Total assets............................................ 41,080 27,270 43,548 67,119 121,738 99,326 147,602
Long-term debt.......................................... 38,416 32,369 37,083 34,624 22,369 50,112 29,476
Stockholders' equity (deficit).......................... (5,618) (22,274) (20,231) 19,121 74,963 27,045 86,936
</TABLE>
13
<PAGE> 15
- ---------------
(1) In May 1990, certain assets currently held by the Company were purchased
from FJI by the Partnership. The Company was incorporated in July 1993 and
substantially all of the assets and liabilities of the Partnership were
transferred to the Company in October 1993 in exchange for 5,606,700 shares
of the Class B Common Stock of the Company.
(2) Special charges in fiscal 1992 of $12,477,000 reflect the write-off of
certain intangible assets ($11,598,000) and the cost of terminating two
employment contracts ($879,000) in the fourth quarter of fiscal 1992.
(3) Pro forma income taxes reflect the Company's provision for income taxes for
fiscal 1993 as if it had been a corporation for the entire period, without
consideration of net operating loss carryforwards which would not be
available to the corporation for periods subsequent to June 30, 1993. For
fiscal 1990, fiscal 1991 and fiscal 1992, the Company experienced losses
which would have resulted in no provision for income taxes in these periods
had it been a corporation. Prior to the Acquisition, the Predecessor was
organized as a group of affiliated Subchapter S corporations and as such any
tax liabilities were borne by the Predecessor's shareholders.
(4) Earnings (loss) per share for fiscal 1992 and fiscal 1993 is computed on a
pro forma basis based on the weighted average number of shares of Common
Stock outstanding assuming substantially all of the assets and liabilities
of the Partnership had been exchanged for 5,606,700 shares of Class B Common
Stock on October 1, 1991. Additionally, pro forma taxes of $776,000 are
subtracted from net income (loss) for fiscal 1993 in order to calculate
earnings per share for fiscal 1993.
(5) Percentages for March 31, 1995 and 1996 are based on the number of stores
opened in the 12 month periods ended March 31, 1995 and 1996, respectively.
(6) A new store becomes a comparable store in the first full month following the
anniversary of the opening of such store.
14
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
In October 1993, the Company completed its initial public offering of Class
A Common Stock. The Company used the net proceeds of its initial public
offering, approximately $33.2 million, to repay approximately $24.0 million of
outstanding indebtedness and to finance its expansion program. Since October
1993, the Company has concentrated its efforts principally on improving its
value-oriented retailing formula, opening new stores, identifying future
opportunities for new store growth and strengthening the Company's
infrastructure to support rapid unit expansion. In April 1995, the Company
completed a second public offering of Class A Common Stock. The Company used the
net proceeds of such offering, approximately $44.8 million, to repay
approximately $27.7 million of outstanding indebtedness and to finance its
expansion program. The Company has increased its total store base from 88 stores
at the time of its initial public offering in October 1993 to 265 stores as of
May 14, 1996. At the same time, net merchandise sales increased 158.1% to $122.4
million in fiscal 1995, from $47.4 million in fiscal 1993.
The Company plans to continue to expand significantly over the next several
years. The Company operated 231 stores during the 1995 Christmas season, and
anticipates opening approximately 60 to 80 stores in calendar 1996 to have 290
to 310 stores in operation during the 1996 Christmas season. Additionally, while
the Company's expansion has focused primarily on southeastern states, the
Company anticipates it will continue to expand into the midwest and southwest
during calendar 1996. Accomplishing the Company's expansion goals will depend on
a number of factors, including general economic conditions and the Company's
ability to identify and secure suitable locations on acceptable terms, open new
stores in a timely manner, hire and train additional store personnel and
integrate new stores into its operations. Accordingly, there can be no assurance
that the Company will be able to open and operate new stores on a timely and
profitable basis.
The Company expects to record an extraordinary charge of approximately $1.8
million net of taxes in its quarter ended June 30, 1996 relating to the payment
of the Make Whole Amount with regard to the prepayment of its senior
subordinated debt. See "Use of Proceeds." In addition, the Company will incur
compensation expense related to its incentive compensation plan during this
quarter. This incentive plan was instituted in October 1994 when the Class A
Common Stock price was $16.38. The incentive compensation plan provides for the
forgiveness of advances to certain executive officers at various rates at stock
prices ranging from $22.50 to $32.50 in the first five years of the plan. The
plan was structured such that if the Company were able to achieve nearly 100%
appreciation in its stock price within a designated period the entire amount of
all advances would be forgiven and related tax consequences would be paid by the
Company. The first stock price target ($22.50 per share) was attained in July
1995 and the second stock price target ($25.00 per share) was attained in April
1996. The Company incurred a $900,000 charge in the quarter ended September 30,
1995 related to the attainment of the $22.50 price target and will incur an
additional charge of $900,000 in the quarter ended June 30, 1996 related to the
attainment of the $25.00 price target. If additional stock price targets are
achieved, the Company will incur up to an additional $4.2 million of
compensation expense as a result of the forgiveness of such advances.
15
<PAGE> 17
RESULTS OF OPERATIONS
The following table sets forth certain percentage relationships based on
the Company's Statement of Operations for the periods indicated.
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS
ENDED ENDED
SEPTEMBER 30, MARCH 31,
-------------- --------------
1994 1995 1995 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net merchandise sales......................................... 88.6% 88.9% 90.3% 89.7%
Finance charges and other..................................... 11.4 11.1 9.7 10.3
----- ----- ----- -----
Total revenues................................................ 100.0 100.0 100.0 100.0
Cost of goods sold, including occupancy, distribution and
buying(1)................................................... 49.5 50.5 49.2 50.0
Selling, general and administrative expenses(2)............... 32.5 33.7 27.9 27.0
Provision for doubtful accounts............................... 5.4 6.8 6.3 7.7
Depreciation and amortization................................. 2.5 1.8 1.6 1.4
Interest expense.............................................. 4.7 3.0 3.2 1.5
----- ----- ----- -----
Income before income taxes.................................... 11.1 9.8 16.6 17.5
Income tax expense............................................ 4.2 2.2 6.3 6.8
----- ----- ----- -----
Net income.................................................... 6.9% 7.6% 10.3% 10.7%
===== ===== ===== =====
</TABLE>
- ---------------
(1) Cost of goods sold, including occupancy, distribution and buying is
expressed as a percentage of net merchandise sales. All other percentages
are expressed as a percentage of total revenues.
(2) Selling, general and administrative expenses for the year ended September
30, 1995 include a $3.2 million provision for legal costs and $900,000 of
compensation expense related to the Company's incentive compensation
program. Excluding the two charges, selling, general and administrative
expenses as a percentage of total revenues would be 30.7%.
Six Months Ended March 31, 1996 Compared to Six Months Ended March 31, 1995
Total revenues, consisting of net merchandise sales and finance charges and
other revenues, increased 46.9% to $109.9 million from $74.8 million for the six
months ended March 31, 1995. Net merchandise sales increased approximately $31.0
million, or 45.9%, for the six month period, compared to the same period in the
prior year. Of the $31.0 million increase in net merchandise sales, $27.1
million, or 87.5% of the increase, is attributable to new stores and $3.9
million, or 12.5% of the increase, results from a 5.9% increase in comparable
store sales. Finance charges and other revenues increased 57.1% for the six
month period ended March 31, 1996, compared to the same period in the prior year
principally due to higher sales levels.
Cost of goods sold, including occupancy, distribution and buying, for the
six months ended March 31, 1996 was $49.2 million, or 50.0% of net merchandise
sales compared with $33.2 million, or 49.2% of net merchandise sales for the
same period in 1995. For the six months ended March 31, 1996, more aggressive
merchandise pricing was the primary factor resulting in the increase over the
same period in the prior year in cost of goods sold as a percent of net
merchandise sales.
Selling, general and administrative expenses increased 42.6% to $29.7
million, from $20.8 million for the six months ended March 31, 1995. Selling,
general, and administrative expenses decreased to 27.0% of total revenues for
the six months ended March 31, 1996 from 27.9% of total revenues in the
comparable period in 1995. This decrease was attributable primarily to the
Company's ability to leverage its operating expenses, principally payroll and
advertising expense, across a larger volume of sales.
The provision for doubtful accounts increased 81.1% to $8.5 million from
$4.7 million during the same period in the prior year. The increase in the
provision for doubtful accounts for the six months ended March 31, 1996 is
attributable to (i) increased levels of sales and accounts receivable during the
periods arising from increases in the number of stores in operation and in
comparable store net merchandise sales, and (ii) an increase in the provision
for doubtful accounts as a percent of credit sales.
16
<PAGE> 18
Depreciation and amortization expenses increased 27.6% to $1.5 million
compared with $1.2 million during the same period in the prior year. These
increases are the result of depreciation of increased capital expenditures
related to new and existing stores.
Interest expense for the six months ended March 31, 1996 decreased 29.9% to
$1.7 million compared with $2.4 million for the six months ended March 31, 1995.
The decrease for the six months ended March 31, 1996 versus the same period in
the prior year is due principally to the repayment of bank debt with the
proceeds from the May 1995 stock offering.
As a result of the factors above, net income increased 52.7% to $11.7
million from $7.7 million for the same period in the prior year. Earnings per
share for the six months ended March 31, 1996 increased to $0.96 per share from
$0.80 per share for the same period in the prior year on weighted average common
shares and share equivalents outstanding of 12,273,000 and 9,614,000
respectively.
Fiscal Year 1995 Compared to Fiscal Year 1994
Total revenues increased 61.3% to $137.6 million in the fiscal year ended
September 30, 1995, from $85.3 million in the fiscal year ended September 30,
1994. Net merchandise sales in fiscal 1995 increased approximately $46.8
million, or 62.0%, compared to fiscal 1994. Of the $46.8 million increase in net
merchandise sales, $37.1 million, or 79.2% of the increase resulted from
additional sales contributions from 74 net new stores opened during fiscal 1995,
and $9.7 million, or 20.8% of the increase, resulted from a 13.3% increase in
comparable store sales in fiscal 1995. Finance charges and other revenue
increased 56.2% to $15.2 million for fiscal 1995 from $9.8 million in fiscal
1994 due to increased credit sales and increased accounts receivable, which are
the primary factors for determining finance charge revenues.
Cost of goods sold, including occupancy, distribution and buying, increased
65.5% to $61.8 million, or 50.5% of net merchandise sales, for fiscal 1995
versus $37.4 million, or 49.5% of net merchandise sales, for fiscal 1994. The
fiscal 1995 increase as a percentage of net merchandise sales reflects more
aggressive merchandise pricing and a higher cost of traded and returned goods,
partially offset by lower occupancy, distribution and buying costs.
Selling, general, and administrative expenses increased 67.1% to $46.3
million for fiscal 1995 from $27.7 million for fiscal 1994. As a percentage of
total revenues, these expenses increased to 33.7% during fiscal 1995 from 32.5%
in fiscal 1994. The increase as a percentage of total revenues is attributed to
a $3.2 million provision for anticipated legal costs related to the Company's
trademark litigation and additional compensation expense of $900,000 related to
the Company's long-term incentive program. Excluding these two charges, selling,
general and administrative expenses as a percentage of total revenues would have
decreased to 30.7% in fiscal 1995 from 32.5% in fiscal 1994, due primarily to
advertising efficiencies resulting from an increase in the number of stores in
existing advertising markets and other leveraging of overhead expense.
The provision for doubtful accounts increased 101.9% to $9.3 million for
fiscal 1995 from $4.6 million for fiscal 1994. The provision for doubtful
accounts as a percentage of total revenues increased to 6.8% in fiscal 1995 from
5.4% in fiscal 1994. The increase in the provision for doubtful accounts is due
to the growth in the accounts receivable balance to $50.0 million at September
30, 1995 from $32.3 million at September 30, 1994 and the corresponding increase
in the allowance for doubtful accounts to $5.0 million at September 30, 1995
from $3.2 million at September 30, 1994. Additionally, the Company experienced
increased charge-offs of uncollectible accounts as a percentage of accounts
receivable during fiscal 1995 as compared to fiscal 1994.
Depreciation and amortization expenses increased 17.7% to $2.5 million in
fiscal 1995 compared to $2.1 million in fiscal 1994. The increase of $380,000 in
depreciation and amortization expenses in fiscal 1995 resulted primarily from
depreciation expenses related to increases in depreciable equipment and
improvements due to more stores in operation.
17
<PAGE> 19
Interest expense increased to $4.1 million in fiscal 1995 from $4.0 million
in fiscal 1994. As a percentage of total revenues, interest expense decreased to
3.0% in fiscal 1995 from 4.7% in fiscal 1994. This decrease resulted from the
repayment of bank borrowings with proceeds from the Company's May 1995 equity
offering and investment income from the net proceeds of the offering, combined
with the increase in total revenues.
Income tax expense decreased 14.5% to $3.1 million in fiscal 1995 from $3.6
million in fiscal 1994. The decrease in income tax expense is principally due to
an income tax benefit realized through the reversal of a deferred tax asset
valuation reserve account upon determination that the realizability of the
deferred tax assets was more likely than not.
Improvements in sales volume, finance charges and other revenues and the
recording of an income tax benefit, offset by increased cost of goods sold and
provision for doubtful accounts, combined to increase net income 78.1% to $10.4
million in fiscal 1995 compared to $5.9 million in fiscal 1994.
18
<PAGE> 20
QUARTERLY RESULTS AND SEASONALITY
The Company has in the past experienced a well-defined seasonality in its
business with respect to both total revenues and profitability. Generally, the
Company experiences substantially increased sales volume in the days preceding
major holidays, including Christmas, Valentine's Day and Mother's Day. The
Company experiences the strongest results of operations in the first quarter of
its fiscal year, due to the impact of the Christmas shopping season. If for any
reason the Company's sales were below those normally expected for the first
quarter, the Company's annual results could be materially adversely affected.
The seasonality of the Company's business puts a significant demand on working
capital resources to provide for an inventory buildup for the Christmas season.
Furthermore, the Christmas season typically leads to a seasonal buildup of
customer receivables that are paid down during subsequent months. However, as
the Company's expansion program continues, it can be expected that increased
levels of accounts receivable related to such expansion may affect the
historical seasonal decline in customer receivables.
The Company's quarterly results of operations may fluctuate materially
depending on, among other things, the timing of new store openings, sales
contributed by new stores and increases or decreases in comparable store sales.
The following table sets forth certain consolidated statement of income data for
each of the Company's last ten fiscal quarters.
<TABLE>
<CAPTION>
FISCAL 1994
-------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total revenues...................................... $30,678 $15,644 $20,385 $18,592
Cost of goods sold,
including occupancy, distribution and buying...... 13,295 6,644 8,944 8,490
Income before income taxes.......................... 6,563 631 1,687 560
Net income.......................................... 4,069 391 1,047 348
Earnings per share.................................. $ 0.47 $ 0.04 $ 0.11 $ 0.04
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1995
-------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total revenues...................................... $51,265 $23,527 $32,582 $30,225
Cost of goods sold,
including occupancy, distribution and buying...... 22,887 10,355 14,713 13,885
Income (loss) before income taxes................... 11,144 1,260 3,064 (1,976)
Net income.......................................... 6,909 781 1,900 837
Earnings per share.................................. $ 0.72 $ 0.08 $ 0.17 $ 0.07
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1996
-------------------
FIRST SECOND
QUARTER QUARTER
------- -------
<S> <C> <C>
Total revenues...................................... $76,180 $33,725
Cost of goods sold,
including occupancy, distribution and buying...... 34,322 14,902
Income before income taxes.......................... 16,497 2,754
Net income.......................................... 10,063 1,680
Earnings per share.................................. $ 0.82 $ 0.14
</TABLE>
19
<PAGE> 21
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1995, net cash used in the Company's operating activities was
$15.5 million compared to $21.9 million for the comparable period in 1994.
Although the Company experienced a significant increase in earnings in both
fiscal 1995 and fiscal 1994, the Company continued to use cash in its
operations. Cash used in operations was the result of the growth in accounts
receivable and inventories, both principally from the net addition of 74 stores
in fiscal 1995 and 56 stores in fiscal 1994. Cash used in operations in fiscal
1995 was also affected by an increase in accounts payable in fiscal 1995 and a
decrease in accounts payable in fiscal 1994. As the Company continues to expand
rapidly, it will continue to experience significant increases in credit sales
and related increases in customer accounts receivable as well as increases in
inventories which will likely produce negative cash flows from operations. For
the six months ended March 31, 1996, net cash used in operations was $9.8
million compared to $11.3 million for the comparable period in 1995. For the six
months ended March 31, 1996 and 1995, the deficit in cash flow from operating
activities was due to the growth in accounts receivable resulting from increased
credit sales and higher inventory levels associated with the net additions of 39
and 31 stores, respectively.
Investing activities used cash of $9.6 million and $4.6 million in fiscal
1995 and fiscal 1994, respectively. Capital spending was primarily for the net
addition of 74 stores, 56 stores, 39 stores and 31 stores for fiscal 1995,
fiscal 1994 and for the six months ended March 31, 1996 and 1995, respectively.
Financing activities provided $33.2 million in fiscal 1995 and $26.4
million in fiscal 1994 resulting from net proceeds of $44.8 million and $33.2
million from the Company's public equity offerings in May 1995 and October 1993,
respectively. The net proceeds from these two offerings were used, in part, to
repay $32.3 million in bank debt in May 1995 and to pay down $10.0 million in
subordinated debt and $9.2 million in bank debt in October 1993. The Company
currently has two secured lines of credit with two banks subject to renewal in
1998. In the aggregate, the amounts available under these lines will be $55.0
million after the completion of this Offering.
The lines of credit contain certain financial covenants such as interest
coverage ratios, minimum net worth and cash flow requirements. At May 10, 1996,
approximately $11.9 million was outstanding under these lines of credit.
Management believes that the Company's lines of credit and the proceeds from
this Offering will be sufficient to fund the Company's working capital
requirements through fiscal 1997.
The Company has outstanding $15.0 million of senior subordinated
indebtedness and $7.4 million of junior subordinated indebtedness. The Company
intends to prepay all of its senior and junior indebtedness with the proceeds
from this Offering. The prepayment of the senior subordinated indebtedness will
result in the payment of a Make Whole Amount of approximately $1.8 million net
of taxes. This amount will be recorded by the Company in the fiscal quarter
ending June 30, 1996, as an extraordinary item. See "Use of Proceeds."
The Company anticipates that its store expansion program will require an
additional net capital investment of approximately $8.6 million through the end
of calendar 1996, principally to finance inventory, fixtures and leasehold
improvements. This amount will be provided from the proceeds of the Offering
supplemented by the Company's lines of credit.
INFLATION
The impact of inflation on the Company's operating results has been
moderate in recent years, reflecting generally lower rates of inflation in the
economy and relative stability in the prices of diamonds, gemstones and gold.
Substantially all of the leases for the Company's retail stores located in malls
provide for contingent or volume-related rental increases. In prior years, the
Company has been able to adjust its selling prices to substantially recover
increased costs. While inflation has not had, and the Company does not expect
that it will have, a material impact upon operating results, there is no
assurance that the Company's business will not be affected by inflation in the
future.
20
<PAGE> 22
BUSINESS
INTRODUCTION
Friedman's is a rapidly growing specialty retailer of fine jewelry
currently operating 265 stores in 15 states located primarily in the southern
United States. Management believes that the Friedman's business model and target
customer differentiate the Company from its competitors, and that, based on
historical experience the Company's stores have produced higher store level
financial returns than those of traditional mall-based jewelry retailers. The
Company positions itself as "The Value Leader(R)" by offering competitive
prices, a broad merchandise selection, a high level of customer service and a
disciplined credit program that appeal to its target customer of low to middle
income consumers aged 18 to 45 years old. The Company's real estate expansion
strategy focuses primarily on opening new stores in power strip centers in small
cities and towns which management believes present the Company with substantial
growth opportunities. Friedman's seeks to be the leading specialty retailer of
fine jewelry in its target markets and believes it has developed a distinctive
franchise based on, among other things, its value orientation, loyal customer
base and strong name recognition, having served the southeast since 1925.
RETAIL JEWELRY INDUSTRY OPPORTUNITY
The retail jewelry industry in the United States is large and highly
fragmented. Total retail jewelry sales in the United States in 1994 were
approximately $16.9 billion and have grown at a compounded annual rate of
approximately 3.3% for the past five years, according to reports published by
the United States Department of Commerce.
Management believes that the retail jewelry industry presents considerable
opportunity for a growth-oriented retailer such as Friedman's, particularly in
power strip centers. The Company is the largest operator of jewelry stores in
these power strip centers, and it plans to continue to concentrate its new store
openings in these centers. While the Company's power strip stores generally face
local competition from independent jewelers, Friedman's believes that it enjoys
certain competitive advantages over these jewelers, such as a greater depth and
breadth of product selection, generally lower prices, more extensive advertising
and promotion, greater financial resources to support proprietary customer
credit programs and a daily focus on targeting and serving its customer base.
OPERATING STRATEGY
Friedman's believes it is uniquely positioned in the market serving the low
to middle income consumer ages 18 to 45 years old. In order to serve this target
market most effectively and profitably, Friedman's executes the following
business strategies:
- "THE VALUE LEADER(R)." The Company is committed to offering its
customers value through a combination of competitive prices, a broad
selection of quality merchandise targeted to its customer base, a high
level of customer service and a convenient credit program for qualified
purchasers. Through these programs Friedman's seeks to develop long-term
customer relationships and believes this has resulted in a significant
percentage of repeat customers.
- SMALL TOWN/POWER STRIP STRATEGY. Friedman's real estate strategy
focuses on opening new stores in power strip locations in small cities and
towns. These centers are typically anchored by a major discounter such as
Wal-Mart whose target customers management believes are similar to those of
Friedman's. The Company believes this strategy provides it with certain
competitive advantages including numerous expansion opportunities,
comparatively low expenses, an attractive return on capital and more
limited competition than is faced by many of the national jewelry
retailers. Through the pursuit of this strategy, Friedman's has become the
largest operator of jewelry stores in power strip centers.
- LOW COST OPERATOR. In order to provide its customers with value
while maximizing return on investment, the Company is focused on
maintaining an efficient, low cost operating structure. Key elements of
this focus include the Company's lean corporate overhead, comparatively low
rent structures,
21
<PAGE> 23
strict store-level expense controls and a focus on performance-based
compensation. The Company also expects to continue to leverage advertising
and supervisory costs through the addition of new stores in existing
markets.
- STORE PARTNER PHILOSOPHY. Each of the Company's stores is operated
under the direction of a Store Partner, a title that reflects the Company's
philosophy that each store should be operated to the greatest extent
possible as an independent business. Friedman's maintains strict operating
disciplines to manage its business on a daily basis. Clear financial
standards and guidelines relating to credit management, cost control and
store performance are strictly enforced and monitored to maximize financial
returns. These disciplines permeate the Friedman's culture and result in
individual accountability for areas of responsibility, conservative
management of credit risk, low expense ratios and consistent store
profitability.
EXPANSION STRATEGY
The Company plans to continue its rapid store expansion by opening new
stores in both existing and new markets, focusing primarily on power strip
centers with selective expansion into regional malls. The Company anticipates
opening between 60 and 80 new stores during calendar 1996, the majority of which
will be opened in existing markets. The Company typically expands from existing
markets into contiguous new markets and attempts to concentrate its stores
within a market in order to leverage advertising and supervisory costs. The
Company has opened 34 stores since January 1, 1996, and has signed leases for 31
additional stores.
Site Selection. Friedman's real estate strategy focuses primarily on
opening new stores in power strip locations in small cities and towns. The
Company believes this strategy provides it with certain competitive advantages
including numerous expansion opportunities, comparatively low expenses, a high
return on capital and more limited competition than is faced by many of the
national jewelry retailers. As defined by the Company, power strip centers are
shopping centers which are anchored by major discount retailers such as Wal-Mart
Stores, Inc. or K-Mart Corporation and often include other mass merchandisers.
The Company believes that these retailers appeal to many of the Company's target
customers and, as a result, the Company's stores benefit from additional
customer traffic. Management believes the Company's power strip locations and
mall stores complement each other to serve Friedman's target customers in both
small town and metropolitan environments. Management believes the significant
number of potentially suitable power strip store locations will facilitate its
planned rapid store expansion in the future.
Attractive Power Strip Economics. The Company believes its store opening
and operating disciplines have resulted in attractive store level returns on
invested assets. The Company's power strip stores generate higher returns as
compared to its mall stores due to the lower occupancy costs and lower initial
capital investment and also limit the Company's financial exposure as a result
of more flexible lease arrangements.
The Company's typical capital investment to open a new power strip location
is approximately $195,000, including $135,000 in inventory (net of payables) and
$60,000 in leasehold improvements. The Company also incurs approximately $5,000
in preopening expenses (expensed as incurred). Compared to malls, power strip
locations offer relatively low fixed occupancy costs and short term leases
(generally three years), with two to three year lease renewal options. In
addition, in the majority of power strip locations the Company is able to
negotiate an exclusivity agreement that allows Friedman's to be the only
specialty retailer of fine jewelry in the center.
Power strip center stores which had been open for at least three Christmas
seasons generated an average of $715,000 of net merchandise sales in calendar
1995.
Ability to Quickly Roll Out Stores. The Company believes that an important
element of its aggressive expansion plans is its ability to quickly open new
stores. The Company has developed a standard power strip store design and a
standard mall store design which can be adapted to a particular store's size and
location. The Company also utilizes standard store opening disciplines which
provide customers with a consistent shopping experience, reduce initial start-up
costs and facilitate rapid store openings. The Company's power strip stores
generally take one week to build out and open. In addition, Friedman's has a
Store Partner
22
<PAGE> 24
development program designed to train store-level personnel for future store
management. The majority of Friedman's Store Partners have been promoted from
within the Company's store-level personnel.
The Company has significant experience rolling out new stores, having
opened more than 200 stores since October 1, 1992. The following table sets
forth the Company's store openings and closings for its last three full fiscal
years and from October 1, 1995 through May 14, 1996:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPTEMBER 30, OCTOBER 1, 1995
---------------------- THROUGH
1993 1994 1995 MAY 14, 1996
---- ---- ---- ---------------
<S> <C> <C> <C> <C>
Number of Stores:
Beginning of Period......................... 55 85 141 215
Opened...................................... 33 56 77 51
Closed...................................... 3 0 3 1
---- ---- ---- -----
Total at Period End......................... 85 141 215 265
==== ==== ==== ===========
Percentage growth over prior period end....... 54.5% 65.9% 52.5% 23.3%
</TABLE>
It is the Company's policy, generally, to allow a new store two Christmas
seasons to attain the profitability and sales goals set by the Company before
considering closing a store.
STORE LOCATIONS
As of May 14, 1996, the Company operated 265 stores in fifteen states. The
following table provides information regarding the location and number of stores
operated by the Company as of September 30, 1993, 1994 and 1995 and as of May
14, 1996.
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------
STATE 1993 1994 1995 MAY 14, 1996
------------------------------------------------- ----- ----- ----- ------------
<S> <C> <C> <C> <C>
Georgia.......................................... 32 43 53 57
North Carolina................................... 18 33 40 47
South Carolina................................... 21 28 29 31
Mississippi...................................... 0 7 19 21
Florida.......................................... 7 15 19 20
Louisiana........................................ 0 0 13 19
Tennessee........................................ 1 2 10 17
Alabama.......................................... 3 7 11 14
Kentucky......................................... 2 3 5 11
Virginia......................................... 1 3 7 8
Arkansas......................................... 0 0 4 7
Texas............................................ 0 0 1 6
Ohio............................................. 0 0 3 5
Missouri......................................... 0 0 1 1
Indiana.......................................... 0 0 0 1
----- ----- ----- ---
Total.................................. 85 141 215 265
==== ==== ==== ==========
</TABLE>
At May 14, 1996, the Company operated 172 stores in power strip centers, 91
stores in regional malls and two stores in Power Centers. The Power Center
stores are larger than the Company's standard store model, with 4,000 to 5,000
square feet of space, and are located in large metropolitan areas in shopping
centers dominated by super stores like Circuit City and Home Depot.
CUSTOMER SERVICE
Friedman's has been dedicated to providing quality customer service to its
customer base, comprised primarily of low to middle income consumers in the 18
to 45 year-old age group, for approximately 70 years. Pursuant to Company
guidelines, the Company features a flexible trade-in and 30-day return policy,
convenient credit to qualified purchasers, guaranteed trade-ins on all diamond
merchandise and numerous
23
<PAGE> 25
customer appreciation events throughout each year. Pursuant to Company
guidelines, Store Partners are primarily responsible for cultivating and
maintaining relationships with customers and are authorized to make
discretionary decisions necessary to maximize customer satisfaction. Friedman's
believes that in the highly competitive retail jewelry industry, customer
satisfaction cannot be emphasized enough and further believes that its customer
satisfaction program is crucially important in order to continue to create and
maintain successful relationships with its customers.
CREDIT OPERATIONS
The Company's credit programs are an integral part of its business
strategy. Opening a credit account allows Friedman's sales personnel to build
relationships with customers that the Company believes engender customer loyalty
and facilitate repeat purchases. To support this strategy, the Company has
developed a standardized system for extending credit and collecting accounts
receivable according to its strict credit disciplines. Credit applications can
be quickly processed at each store, which provides customers with access to
convenient credit. The Company encourages its credit customers to make monthly
payments in person at a store and the majority do so, generating additional
store traffic and potential purchases. The Company also accepts major credit
cards and accounts for credit card purchases as cash sales.
Consistent with industry practice, Friedman's encourages the purchase of
credit insurance products in connection with sales of merchandise on credit. The
Company sells such products as an agent for a third-party insurance company.
As of March 31, 1996, the Company had approximately 187,000 credit accounts
with an average net principal balance per account of approximately $333.
Credit Extension. As a customer service and control measure, credit
applications, references and credit bureau reports are evaluated by store
personnel using the Company's proprietary computer-based credit analysis system.
The system allows the Store Partner to assess the risk level for each customer
on a statistically objective basis and assists the Company in determining the
appropriate credit limit as well as stipulations regarding the type of credit
contract, suggested down payment and terms for which the customer is eligible.
The Company seeks to limit the risk associated with its credit portfolio by
limiting the average term of credit contracts. At March 31, 1996, the Company's
credit portfolio had an average term of approximately eight months.
Collections. Collection of accounts is, to a large extent, managed at the
store level. Accounts are processed five times each month in the Company's
central office, with the first three past due notices being sent from the
central office. An installment contract is considered delinquent if the customer
is seven days past due, at which time the customer receives the first of three
notices from the central office. When an account is 14 days past due, the
customer incurs a late charge, which is generally the lesser of 5% of the amount
due or $5.00. If a payment is not received within 21 days after the due date, a
more forceful reminder is sent to the customer, which is the third and last
notice sent from the central office. If a payment has not been received within
30 days after the due date, a report known as the delinquency report is
generated at the central office and distributed to the appropriate store, and
the store than takes over all collection activity. This collection activity
consists of phone calls and further notices being sent seven days apart with
house calls as a last resort. When the Company deems it appropriate, legal
action, such as pursuing remedies in small claims or other courts, may be
approved by the supervisor.
The Company's policy is to write-off in full any credit account receivable
if no payments have been received for 120 days, and any other credit accounts
receivable, regardless of payment history, if judged uncollectible (for example,
in the event of fraud in the credit application or bankruptcy). Once the account
has been written off, it is referred to an outside collection agency. The
Company maintains an allowance for uncollectible accounts based in part on
historical experience. In fiscal 1995 the allowance was maintained at 10.0%. The
Company expects that any downturn in general economic conditions in the markets
in which it operates would adversely affect its collection of outstanding credit
accounts receivable.
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<PAGE> 26
The following table presents certain information related to the Company's
credit operations for the last five fiscal years:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
------------------------------------------------
1991 1992 1993 1994 1995
------- ------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total revenues.......................... $38,624 $40,101 $53,143 $85,299 $137,599
Revenues attributable to credit
sales(1).............................. 23,512 23,372 32,614 53,495 85,524
Accounts receivable(2).................. 10,713 10,661 19,561 32,283 50,044
Allowance for doubtful accounts as a
percentage of accounts receivable..... 10.1% 10.2% 10.1% 10.0% 10.0%
Net charge-offs as a percentage of
credit sales revenue.................. 4.1% 6.5% 4.9% 6.7% 8.8%
</TABLE>
- ---------------
(1) Revenues attributable to credit sales constitute merchandise and diamond
warranties sold pursuant to Company's proprietary credit program as well as
earned finance charges and credit insurance.
(2) Accounts receivable are stated net of unearned finance charges and credit
insurance.
The Company's policy is to review net write-offs on a monthly basis and
adjust the monthly provision for doubtful accounts so that the accounts are
stated at estimated net realizable value.
STORE MANAGEMENT
Each of the Company's stores is operated under the direction of a Store
Partner, a title which reflects the Company's philosophy that each store should
be operated to the greatest extent possible as an independent business unit.
Store Partners are responsible for management of all store-level operations
including sales, credit extension and collection and payroll and personnel
matters. Store Partners are assisted by a staff which includes an assistant
manager, and two to five sales associates. The Company's manager trainees
complete a manager training and development program, and are one of the
principal sources for future Store Partners. Sales associates are provided with
written manuals containing Company policies and procedures and other training
materials and are also trained on-site by supervisory personnel. Twelve "Senior
Partners," each responsible for approximately 15 stores, and 16 "District
Partners," each responsible for approximately two to six stores including their
own, oversee the operations of the Company's stores and evaluate the performance
of the Store Partners. Senior Partners report to six Regional Vice Presidents,
each responsible for approximately 30 to 50 stores. Senior Partners and Regional
Vice Presidents interact on a daily basis with the Company's senior management
to review individual store performance. The Company believes that its
decentralized store management structure enables senior management as well as
Senior Partners and Regional Vice Presidents to maintain a focus on the
Company's daily operating disciplines and the needs of the Company's target
customers while allowing the Company to continue its rapid expansion.
The Company believes that the quality of its sales personnel is a key to
its success in the highly competitive jewelry industry. The Company seeks to
motivate its store employees by linking a substantial percentage of their
compensation to store performance, specifically sales and cash flow, as well as
by offering opportunities for promotion within the Company. In addition, the
Company has granted stock option awards under the Company's stock option plans
to each of the Store Partners on an annual basis in order to relate the Store
Partners' and the stockholders' long-term interest by creating a strong and
direct link to compensation and stockholder return. Friedman's also offers an
employee stock purchase plan. In fiscal 1995, 17.5% of the Company's employees
participated in the stock purchase plan with a total of 41,873 shares of Class A
Common Stock purchased under the plan since its inception in August 1994, for a
total purchase price of approximately $627,000.
ADVERTISING AND PROMOTIONS
Friedman's advertising seeks to position the Company as "The Value Leader"
in the specialty retail fine jewelry business in the markets that it serves.
Frequent special promotions such as diamond remount events and clearance sales
are designed to boost traffic through the Company's stores and generate an
urgency for
25
<PAGE> 27
customers to make purchases. Store grand openings are a key ingredient of the
Company's overall advertising plan. The Company has formulated a unique "work
the town" advertising effort around the grand opening and Store Partners
personally invite key local residents and businesses to attend.
The Company's credit program is also utilized as a promotional vehicle to
engender customer loyalty and facilitate repeat business. The Company's
principal advertising vehicles consist of direct mailings, promotions within
stores, television and radio commercials, local and regional newspaper
advertisements and advertising circulars. All of the Company's advertising
inserts and circulars are created and designed by Friedman's own marketing
department. The Company believes the efficiency of its advertising activities is
enhanced as store density continues to increase in the Company's major
advertising markets.
MERCHANDISING
Each Friedman's store offers a wide variety of affordable jewelry products,
including diamonds, gemstones, rings, gold jewelry and chains, watches and other
fine jewelry. The Company principally sells diamonds and gemstones, and for
fiscal 1994 and fiscal 1995, these products represented approximately 65.8% and
64.6% respectively, of the Company's net merchandise sales. Friedman's stores
offer a broad range of diamonds up to one carat and occasionally place special
orders for larger diamonds.
The gold jewelry sold in the Company's stores are primarily 10 and 14
karat, and for fiscal 1994 and fiscal 1995, these products represented
approximately 26.8% and 27.5% of the Company's net merchandise sales.
Sales of wedding-related products accounted for approximately 30.0% of the
Company's sales in fiscal 1995. Although the Company's wide range of products
and prices is designed to appeal to a broad customer base, its wedding-related
and other products particularly attract young adults. The purchase of a wedding
set or other significant jewelry item is often a Friedman's customer's first
major use of credit and establishes a relationship that the Company seeks to
expand as the customer's financial capabilities grow.
The Company believes there is significant opportunity in the merchandising
area as the Company grows its store base. With the addition of a new vice
president of merchandising, the Company is making more effective use of its new
purchasing power, has developed a program to direct source selected products and
is enhancing the styling of selected merchandise categories, such as the bridal
category.
PURCHASING
Friedman's central buying department selects and test-markets its
merchandise, develops relationships with suppliers, and monitors the inventory
levels and margins achieved by product lines. The Company's buyers establish,
and periodically revise, a model inventory plan by product classification for
each store.
The Company does not manufacture its merchandise. The Company purchases
complete diamond and other gemstone jewelry, watches and gold jewelry from
vendors, in the United States and abroad. The Company also subcontracts with
jewelry finishers to set the loose gems into rings and jewelry, using styles
selected by Friedman's. The Company maintains a quality control program, with
all items being inspected upon receipt at the Company's offices after setting.
The Company believes that it is not reliant upon any one supplier or
subcontractor, in that it could replace without material difficulty any single
supplier or subcontractor with a competing firm.
The jewelry industry generally is affected by fluctuations in the prices of
gold and diamonds and, to a lesser extent, other precious and semi-precious
metals and stones. The Company does not maintain long-term inventories or
otherwise hedge against fluctuations in the cost of diamonds and gold. A
significant increase in prices or decrease in the availability of gold or
diamonds could have a material adverse effect on the Company's business. The
supply and price of diamonds in the principal world markets are significantly
influenced by a single entity, the Central Selling Organization (the "CSO"), a
marketing arm of DeBeers Consolidated Mines Ltd. of South Africa. The CSO has
traditionally controlled the marketing of a substantial majority of the world's
supply of diamonds and sells rough diamonds to worldwide diamond cutters from
its London office in quantities and at prices determined in its sole discretion.
The availability of diamonds to the CSO and the Company's suppliers is to some
extent dependent on the political situation in diamond producing
26
<PAGE> 28
countries, such as South Africa, Botswana, Zaire, the Russian republics and
Australia, and on the continuance of the prevailing supply and marketing
arrangements for raw diamonds. Until alternate sources could be developed, any
sustained interruption in the supply of diamonds from the producing countries
could adversely affect the Company and the retail jewelry industry as a whole.
SYSTEMS AND CONTROLS
The Company's management information system utilizes an IBM AS 400-based
system. The Company continually evaluates its system's capacity and will make
improvements necessary to support the Company's planned expansion. The
management information system uses customized software which was specifically
designed for the retail jewelry industry. Utilizing the system, the Company can
monitor sales, gross margin and inventory performance by location, merchandise
category and individual item.
The Company uses the management information system to track each type of
individual item of merchandise from receipt to ultimate sale. As a result,
management can closely monitor inventory levels, shifting inventory among stores
when necessary, and identify slow moving inventory which the Company then
disposes of through discount sales.
The system also enables management to monitor and control the Company's
credit operations, generating management reports on a daily, monthly and annual
basis for each store and for every transaction. Supervisors and senior
management can therefore review and analyze credit activity by store, amount of
sale, terms of sale or employees who approved the sale. The entire credit
extension and collection process is automated and the system maintains all
customer data to facilitate future credit transactions. Credit collections are
simplified by the system which automatically prints reminder letters to
customers with past due accounts.
The system also facilitates repeat business by maintaining a detailed file
of all credit transactions with each customer. This enables credit transactions
with existing customers to be completed rapidly and allows sales personnel to
process a greater number of credit transactions.
Utilizing the management information system, senior management and regional
supervisors can closely monitor each store's and each employee's productivity
and performance. The system automatically provides a daily reconciliation of
such store's transactions so that Store Partners can investigate discrepancies
on a timely basis. Overall, the system provides information that enables the
Company to monitor merchandise trends and variances in performance and improve
the efficiency of its inventory and personnel management.
COMPETITION
The retail jewelry industry is highly competitive. Management believes that
the primary elements of competition in the industry are breadth and depth of
merchandise offered, pricing, quality of sales, personnel, advertising, the
ability to offer in-house credit, store location and reputation. The ability to
compete effectively is also dependent on volume purchasing capability, regional
market focus and credit control and information systems.
The Company is the sole retail jewelry store in the majority of the power
strip centers in which it operates. However, Friedman's power strip center
stores face competition from small independent jewelers in the local area, many
of which are family owned. The Company believes that its ability to offer
greater breadth and depth of product selection, generally lower prices, more
extensive advertising and promotion and proprietary customer credit programs
provides Friedman's with a competitive advantage over these local jewelers.
The Company's mall stores compete with major national jewelry chains, such
as Zale Corporation, Gordon Jewelry Corporation, Sterling, Inc. and Helzberg's
Diamond Shops, Inc., regional jewelry chains, independent jewelers and major
department stores. Typically, one or more of these competitors are located in
the same regional mall as the Company's mall stores. In addition, recently some
of the Company's competitors have established non-mall based stores in major
metropolitan areas which offer a large selection of jewelry products. The
Company also competes with catalog showrooms, discount stores, direct suppliers
and home-shopping television programs, as well as credit card companies and
other providers of consumer credit. Certain
27
<PAGE> 29
of the Company's competitors are substantially larger and have greater financial
resources than the Company. The Company also believes that it competes for
consumers' discretionary spending dollars with retailers that offer merchandise
other than fine jewelry. The foregoing competitive conditions may adversely
affect the Company's revenues, profitability and ability to expand.
TRADENAME
The Company has been doing business under the "Friedman's Jewelers"
tradename for approximately 70 years. Another jewelry retailer which also
conducts business in the Southeast under the tradename "Friedman's Jewelers."
While there was in the past some familial connection between Friedman's and such
retailer, the two jewelry retailers are no longer affiliated in any manner. The
use of the "Friedman's Jewelers" tradename is the subject of a recent lawsuit
filed against the Company by such retailer. The Company's position is that, as
between the two parties, the Company has superior rights to the use of the
Friedman's Jewelers mark and tradename. Management believes that the action is
not reasonably likely to have a material adverse effect on the Company's
financial condition or results of operations; however, there can be no assurance
that the Company will be successful in its defense, or that this litigation will
not have a material adverse effect on Friedman's financial condition or results
of operations. See " -- Legal Proceedings" for a complete discussion.
The Company also uses the "Regency Jewelers" tradename in 22 locations as
of March 31, 1996. The Company first began use of this tradename in 1979 when
the Company opened a second retail jewelry store in a mall, but decided it did
not want to operate both stores under the same tradename and continued the use
of the name where advantageous for advertising or marketing purposes. The
Company presently has no plans to change any of the Regency Jewelers stores to
Friedman's Jewelers stores.
PROPERTIES
The Company leases all of its stores. The Company's typical mall lease is
for a period of 7 to 10 years and includes a minimum base rent, a percentage
rent based on store sales and a significant common area maintenance charge. The
Company's power strip store leases typically have a 3-year lease term with
several 3-year options to renew the lease and have lower occupancy costs than
the mall store leases. Generally, under the terms of all of its leases, the
Company is required to maintain and conform its usage of the premises to agreed
standards, often including required advertising expenditures as a percentage of
sales.
FJI owns the buildings in which the Company's headquarters and one store
are located in Savannah, Georgia. The Company paid rent of $89,725 to FJI in
fiscal 1995 for use of the space it occupies in these buildings. The building in
which the Company's headquarters are located in total contains approximately
19,000 square feet of office and administrative space. The lease on this
building expires in May 1998, with one option to renew for an additional
two-year term.
LEGAL PROCEEDINGS
On October 19, 1994, A.A. Friedman's Co., Inc. ("AAFCO") filed suit against
the Company, alleging, inter alia, that the Company's use in certain geographic
areas of the service mark FRIEDMAN'S JEWELERS, a mark also used by AAFCO in
connection with retail jewelry stores, constitutes service mark infringement,
unfair competition, and false advertising. A.A. Friedman's Co., Inc. v.
Friedman's Inc., Civil Action File No. CV-194-154, United States District Court
for the Southern District of Georgia, Augusta Division. In its prayer for
relief, AAFCO seeks to enjoin the Company from using the service mark in any
geographic area where AAFCO has established prior common law rights in the mark,
and in any areas of the country other than where the Company was using the mark
in September 1992. Additionally, AAFCO seeks an accounting of profits from areas
where AAFCO alleges that the Company has infringed upon AAFCO's rights in the
mark.
In February 1995, the Company filed an answer to AAFCO's complaint and a
counterclaim against AAFCO in which the Company asserts that the Company is the
prior user of the Friedman's Jewelers name and mark, that the Company is
entitled to a federal registration of the Friedman's Jewelers service mark and
28
<PAGE> 30
that AAFCO's use of the mark constitutes service mark infringement, unfair
competition and false advertising. The Company asks in its answer and
counterclaim that AAFCO's complaint be dismissed in its entirety, that the Court
order that the Company be granted a geographically unrestricted federal
registration of the Friedman's Jewelers mark, and that AAFCO be enjoined from
using the mark.
On February 24, 1995, AAFCO filed a Motion for Preliminary Injunction in
which it requested that the Court enjoin use by the Company of the Friedman's
Jewelers name and mark at nine existing store locations and enjoin the Company
from opening any new stores under the name and mark within twenty miles of any
store previously operated by AAFCO under the name and mark. Following a hearing
on the motion and a settlement conference, the Court entered an Order on March
10, 1995 in which, for a period of ninety days, it: (i) stayed all further legal
proceedings in the matter; (ii) ordered both parties to refrain from
communicating with any representative of the media concerning any matter
relating to the case without the prior approval of the Court; (iii) held that as
of the date of the Order both parties have the right to use the Friedman's
Jewelers name; (iv) ordered the Company not to open or operate any store in
Auburn, Alabama or Opelika, Alabama under the Friedman's name; (v) ordered that
neither party may open a new store under the Friedman's Jewelers name within
five miles of a store currently operated under the name by the opposing party;
(vi) ordered that neither party may open a new store under the Friedman's
Jewelers name within ten miles of a store currently operated under the name by
the opposing party without the prior approval of the Court; and (vii) directed
the parties to meet with a mediator appointed by the Court and negotiate in good
faith in an effort to resolve the dispute. Pursuant to the Court's Order, the
parties mediated the dispute but were unable to reach a resolution. The Court
then entered an Order on July 7, 1995, lifting the stay and leaving in place
rulings (ii) through (vi) above. By an Order of March 15, 1996, the Court
ordered the parties, until further notice, to place a sign in each store window
which identifies the company owning and operating the store, and to place a
notice identifying the company owning and operating the store in each printed
advertisement and on each piece of printed material used in dealing with the
public. The Company does not believe the Court's Orders will have a material
effect on the Company's expansion plans during the pendency of the litigation.
The parties have each filed motions for summary judgment which are pending
before the Court. The parties are in the discovery phase of the litigation, and
the discovery phase is currently scheduled to end June 30, 1996. The Company
intends to vigorously pursue its counterclaims and defend against AAFCO's claim.
On April 17, 1995, Barbara Frost et al., Class Action Plaintiffs, filed
suit against the Company and certain other defendants, alleging violations of
the Code of Alabama, and fraud and conspiracy arising from the sale of "extended
service contracts" in connection with the credit purchase of consumer goods.
Barbara Frost, et al. Plaintiffs, v. Sears, Roebuck & Company, Inc., Service
Merchandise Company, Inc., Friedman's Inc., Alabama Power Company, Lowe's Home
Centers, Inc., Rex Radio and Television, Inc. and Rhodes, Inc., Defendants,
Civil Action File No. CV9502683, Circuit Court of Jefferson County, Alabama. In
their prayer for relief, the Plaintiffs seek damages equal to all principal and
finance charges under the credit agreements in question, a judgment voiding the
credit agreements, appropriate injunctive relief, the reimbursement of all costs
associated with the action, and unspecified punitive damages. The Company
intends to vigorously defend this action. At this time, the Company has not
filed an answer to the complaint and no discovery has commenced. It is
management's belief that the action is not reasonably likely to have a material
adverse effect on Friedman's business, financial condition or results of
operations.
The Company is involved in certain other legal actions arising in the
ordinary course of business, but management believes that none of these actions,
either individually or in the aggregate, will have a material adverse effect on
Friedman's business, financial condition or results of operations.
29
<PAGE> 31
MANAGEMENT
The executive officers and directors of the Company as of the date of this
Prospectus are as follows:
<TABLE>
<CAPTION>
NAME AGE TITLE
- ------------------------------------------- ---- -------------------------------------------
<S> <C> <C>
Sterling B. Brinkley(1)(2)................. 43 Chairman of the Executive Committee of the
Board of Directors
Bradley J. Stinn(1)........................ 36 Chairman of the Board of Directors and
Chief Executive Officer
Robert S. Morris........................... 41 President and Chief Operating Officer;
Director
John G. Call............................... 38 Senior Vice President -- Chief Financial
Officer, Treasurer and Secretary
John Smirnoff.............................. 64 Senior Vice President
Donald J. Wright, Jr....................... 49 Vice President -- Merchandising
Robert W. Cruickshank(2)(3)................ 50 Director
David B. Parshall(2)....................... 48 Director
Mark C. Pickup(1)(2)(3).................... 46 Director
</TABLE>
- ---------------
(1) Member of Executive Committee.
(2) Member of Compensation Committee.
(3) Member of Audit Committee.
Mr. Brinkley was elected Chairman of the Executive Committee of the Board
of Directors of the Company in February 1996. Prior to that time, Mr. Brinkley
served as the Chairman of the Board of Directors from August 1993 until January
1996. Mr. Brinkley also serves in the uncompensated position of Chairman of the
Board of MS Jewelers, the general partner of MS Jewelers Limited Partnership.
From May 1990 to September 1992, Mr. Brinkley served in the uncompensated
position of President of MS Jewelers, and from January 1986 to June 1990, he
served as a Managing Director of Morgan Schiff. Mr. Brinkley currently serves as
a consultant to Morgan Schiff. Mr. Brinkley serves as a director of Crescent
Jewelers, a retail jewelry chain, and as Chairman of the Board of EZCORP, Inc.
("EZCORP"), a pawnshop chain, both affiliates of the Company. Mr. Brinkley also
serves as the chairman of other private companies which are affiliates of Morgan
Schiff.
Mr. Stinn was elected Chairman of the Board of Directors and Chief
Executive Officer of the Company in February 1996. Prior to that time, he served
as President, Chief Executive Officer and a director of the Company from August
1993 until January 1996. Mr. Stinn is also the Chairman of the Board of
Directors and Chief Executive Officer of Crescent Jewelers, a position he has
held since June 1995. Mr. Stinn served as President and Chief Executive Officer
of MS Jewelers from September 1992 until August 1993. From May 1990 to September
1992, Mr. Stinn served as the Executive Vice President of MS Jewelers, an
uncompensated position, and also as a member of the Executive Committee of the
Board of Directors of MS Jewelers. Mr. Stinn served as Executive Vice President
and Chief Financial Officer of Crescent Jewelers from September 1990 to August
1992, and as a Managing Director of Morgan Schiff from January 1986 to September
1990.
Mr. Morris was elected President and Chief Operating Officer in February
1996. Prior to that time, he served as Executive Vice President -- Store
Operations of the Company from October 1994 to January 1996, and has been a
director of the Company since February 1995. Mr. Morris served as Vice
President -- Store Operations of FJI and MS Jewelers since 1986. Mr. Morris
joined FJI in July 1980.
Mr. Call was elected Senior Vice President -- Chief Financial Officer,
Treasurer and Secretary of the Company in October 1995. Prior to that time, he
served as Vice-President -- Chief Financial Officer, Treasurer and Secretary
from August 1993 to September 1995. For more than five years prior to joining
the Company, Mr. Call held various positions with the accounting firm of Ernst &
Young LLP leaving as a Senior Manager in the San Francisco, California office in
June 1993.
30
<PAGE> 32
Mr. Smirnoff was elected Senior Vice President of the Company in October
1995. Prior to that time, he served as Senior Vice President -- Merchandising
from October 1994 to September 1995. Mr. Smirnoff served as Vice
President -- Marketing from August 1993 to October 1994, a position he held with
FJI and MS Jewelers since 1989. Mr. Smirnoff joined FJI in March 1961.
Mr. Wright joined the Company in January 1996 as Vice
President -- Merchandising. Prior to joining the Company, Mr. Wright was Vice
President of Merchandising at Reed's Jewelers for ten years. Mr. Wright has over
24 years experience in the jewelry industry.
Mr. Cruickshank was elected a director of the Company in August 1993. Since
1981, Mr. Cruickshank has been President of Robert W. Cruickshank Co., a
financial management company. Mr. Cruickshank is currently a director and
chairman of the compensation committee of Calgon Carbon Corp. and a director of
the New Canaan Bank & Trust, New Canaan, Connecticut, Data Documents Inc. of
Omaha, Nebraska, a business forms manufacturer, and Crescent Jewelers, a retail
jewelry chain that is an affiliate of the Company.
Mr. Parshall was elected a director of the Company in December 1993. Since
October 1992, Mr. Parshall has been Managing Director of Dolphin Management
Inc., an investment management firm, and a Managing Director of The Dolphin
Group, a provider of investment banking services. Mr. Parshall has also been a
Managing Director of Private Equity Investors, Inc., a company which purchases
portfolios of private equities, since April 1992. From 1988 to 1990, Mr.
Parshall was a Managing Director of Shearson Lehman Brothers Inc., and from
August 1990 to March 1992, Mr. Parshall served as a Managing Director of the
Blackstone Group, L.P., both investment banks.
Mr. Pickup was elected a director of the Company in August 1993. Mr. Pickup
served as Vice Chairman of Crescent Jewelers from December 1994 until February
1995, and served as President and Chief Executive Officer of Crescent Jewelers
from August 1993 to December 1994. From October 1992 until August 1993, Mr.
Pickup served as the Senior Vice President and Chief Financial Officer for
Crescent Jewelers. Mr. Pickup is also a director of EZCORP, an affiliate of the
Company. For more than five years prior to October 1992, Mr. Pickup held various
positions with Ernst & Young LLP, leaving as a partner in their San Francisco,
California office in October 1992.
The Company intends to add one or more additional independent members to
its Board in the future.
31
<PAGE> 33
PRINCIPAL AND SELLING STOCKHOLDERS
Based solely upon information furnished to the Company, the following table
sets forth certain information with respect to the beneficial ownership of Class
A Common Stock and Class B Common Stock as of May 10, 1996 and after giving
effect to the Offering by (i) each person who is known by the Company to
beneficially own more than five percent of either the Class A Common Stock or
the Class B Common Stock, (ii) each director and executive officer of the
Company, and (iii) all officers and directors as a group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP PRIOR TO THE BENEFICIAL OWNERSHIP AFTER THE
OFFERING NUMBER OF OFFERING
-------------------------------------- SHARES TO --------------------------------------
NAME AND ADDRESS CLASS A CLASS B BE SOLD IN CLASS A CLASS B
OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK PERCENT(1) THE OFFERING COMMON STOCK COMMON STOCK PERCENT(1)
- ----------------------------------- ------------ ------------ ---------- ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
MS Jewelers Limited -- 1,773,582 14.7% -- -- 1,773,582 12.6%
Partnership(2)...................
MS Jewelers Corporation
Phillip Ean Cohen
280 Park Avenue
East Building - 26th Fl.
New York, New York 10017
FJI(3)............................. 1,627,338 -- 13.5% -- 1,627,338 -- 11.6%
Friedman's Jewelers, Inc.
Friedman's Jewelers, Inc.,
Anniston
Friedman's Jewelers, Inc.,
Greenville
Friedman's Jewelers, Inc.,
Marietta
Friedman's Jewelers, Inc.,
Oglethorpe
Stanley Jewelers, Inc.
4402 Whitewater Creek Road
Atlanta, Georgia 30327
Gilder, Gagnon, Howe & Co.(4)...... 1,080,655 -- 9.0% -- 1,080,655 -- 7.7%
1775 Broadway
New York, New York 10019
FMR Corp.(5)....................... 829,100 -- 6.9% -- 829,100 -- 5.9%
Edward C. Johnson III
82 Devonshire Street
Boston, Massachusetts 02109
Wasatch Advisors, Inc.(6).......... 790,925 -- 6.6% -- 790,925 -- 5.6%
68 S. Main St.
Suite 400
Salt Lake City, Utah 84101
Teachers Insurance and Annuity..... 629,323 -- 5.2% 200,000 429,323 -- 3.1%
Association of America(7)
730 Third Avenue
New York, New York 10017
Chancellor Capital Management,..... 538,800 -- 4.5% -- 538,800 -- 3.8%
Inc.(8)
Chancellor Trust Company
153 East 53rd Street
New York, New York 10022
LGT Asset Management, Inc.(9)...... 474,000 -- 3.9% -- 474,000 -- 3.4%
50 California
27th Floor
San Francisco, California 94111
Norwest Bank Minnesota,............ 382,900 -- 3.2% -- 382,900 -- 2.7%
National Association(10)
Norwest Center
Sixth and Marquette
Minneapolis, Minnesota 55479
</TABLE>
32
<PAGE> 34
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP PRIOR TO THE BENEFICIAL OWNERSHIP AFTER THE
OFFERING NUMBER OF OFFERING
-------------------------------------- SHARES TO --------------------------------------
NAME AND ADDRESS CLASS A CLASS B BE SOLD IN CLASS A CLASS B
OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK PERCENT(1) THE OFFERING COMMON STOCK COMMON STOCK PERCENT(1)
- ----------------------------------- ------------ ------------ ---------- ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Stinn(11)(12)...................... 324,778 251,729 4.6% -- 324,778 251,729 4.0%
Sterling B. Brinkley(11)(13)....... 121,000 272,707 3.2% -- 121,000 272,707 2.8%
Robert W. Cruickshank(14).......... 6,000 -- * -- 6,000 -- *
David B. Parshall(14)(15).......... 7,300 -- * -- 7,300 -- *
Mark C. Pickup(14)................. 6,700 -- * -- 6,700 -- *
Robert S. Morris(11)(16)........... 24,302 25,173 * -- 24,302 25,173 *
John G. Call(11)(17)............... 11,659 16,782 * -- 11,659 16,782 *
John Smirnoff(18).................. 18,004 -- * -- 18,004 -- *
Donald J. Wright, Jr............... -- -- * -- -- -- *
All executive officers and
directors as a group (9
persons)(19)................... 519,743 566,391 8.6% 519,743 566,391 7.4%
</TABLE>
- ---------------
* Less than 1%.
(1) Percentages are based upon total number of shares of Class A Common Stock
and Class B Common Stock. Except as indicated in the footnotes set forth
below, the persons named in the table have sole voting and investment power
with respect to all shares shown as beneficially owned by them. The numbers
of shares shown include shares that are not currently outstanding but which
certain stockholders are entitled to acquire or will be entitled to acquire
within 60 days from May 1, 1996, upon the exercise of stock options. Such
shares are deemed to be outstanding for the purpose of computing the
percentage of Common Stock owned by the particular stockholder and by the
group but are not deemed to be outstanding for the purpose of computing the
percentage ownership of any other person.
(2) MS Jewelers is the general partner of the Partnership and has the sole
right to vote these shares of Class B Common Stock and to direct their
disposition. Mr. Cohen is the sole stockholder of MS Jewelers.
(3) These shares were received by FJI in March 1996 upon its withdrawal from
the Partnership.
(4) Based on a Schedule 13G filed with the Securities and Exchange Commission
("SEC") on February 15, 1995. Gilder, Gagnon, Howe & Co. disclaims
beneficial ownership of these shares which are held in (i) customer
accounts over which one or another of its partners or employees may have
discretion to purchase or dispose of securities but over which Gilder,
Gagnon, Howe & Co. does not have discretion (1,066,805 shares as of
December 31, 1994); (ii) accounts owned by its partners and by its
partners' families in accounts controlled by partners (10,200 shares as of
December 31, 1994); or, (iii) the account of its firm profit sharing plan
which is controlled by certain of its partners (3,600 shares as of December
31, 1994).
(5) Based on a Schedule 13G filed with the SEC on February 15, 1996. Of the
shares reported, Fidelity Management & Research Company, a wholly-owned
subsidiary of FMR Corp., is the beneficial owner of 593,800 shares and
Fidelity Management Trust Company, a wholly-owned subsidiary of FMR Corp.,
is the beneficial owner of 235,300 shares. FMR Corp. and Mr. Johnson, who
controls FMR Corp., have sole dispositive power over 829,100 shares and
sole voting power over 193,600 shares.
(6) Based on a Schedule 13G filed with the SEC on February 12, 1996.
(7) Based on a Schedule 13G filed with the SEC on February 15, 1995.
(8) Based on a Schedule 13G filed with the SEC on February 15, 1994.
(9) Based on a Schedule 13G filed with the SEC on February 14, 1996.
(10) Based on a Schedule 13G filed with the SEC on February 7, 1996.
(11) Shares of Class B Common Stock owned by Messrs. Stinn, Brinkley, Morris,
and Call are owned indirectly through their ownership of limited
partnership interests in the Partnership or options to purchase limited
partnership interests. Such individuals have no right to vote or to direct
the disposition of these shares.
(12) Includes 900 shares of Class A Common Stock held by Mr. Stinn's daughter,
200 shares of Class A Common Stock held by Mr. Stinn's wife and options to
purchase 300,000 shares of Class A Common Stock, of which options to
purchase 180,000 shares of Class A Common Stock are immediately exercisable
and the remainder of which are immediately exercisable in the event Mr.
Stinn is terminated by the Company for any reason.
(13) Includes options to purchase 121,000 shares of Class A Common Stock, of
which options to purchase 61,000 shares of Class A Common Stock are
immediately exercisable and the remainder of which are immediately
exercisable in the event Mr. Brinkley is terminated by the Company for any
reason.
(14) Includes options to purchase 6,000 shares of Class A Common Stock granted
under the Director Plan which are immediately exercisable.
(15) Includes 300 shares of Class A Common Stock held in trust for Mr.
Parshall's children.
(16) Includes options to purchase 20,500 shares of Class A Common Stock which
are immediately exercisable.
(17) Includes options to purchase 7,800 shares of Class A Common Stock which are
immediately exercisable.
(18) Includes options to purchase 9,000 shares of Class A Common Stock which are
immediately exercisable.
(19) Includes 566,391 shares of Class B Common Stock held by Messrs. Stinn,
Brinkley, Morris and Call indirectly through ownership of limited
partnership interests or options to purchase limited partnership interests
in the Partnership, and options to purchase 476,300 shares of Class A
Common Stock.
33
<PAGE> 35
Effective March 31, 1996, the Partnership issued a notice to the limited
partners of the Partnership granting such limited partners the option to
withdraw from the Partnership by exchanging their units of interest in the
Partnership for shares of Class A Common Stock. The shares of Class A Common
Stock which were distributed to these limited partners (the "Withdrawing Limited
Partners") constituted shares of Class B Common Stock held by the Partnership
which were converted into Class A Common Stock by the Partnership to effect the
distribution. An aggregate of 2,574,472 shares of Class A Common Stock were
distributed to the Withdrawing Limited Partners. Said shares of Class A Common
Stock are tradeable subject to compliance with the volume and manner of sale
limitations of Rule 144. An aggregate of 1,899,771 of said shares are subject to
a lock-up agreement. See "Underwriting."
In general, under Rule 144 as currently in effect, any affiliate of the
Company or any person (or persons whose shares are aggregated in accordance with
Rule 144) who has beneficially owned Restricted Securities for at least two
years would be entitled to sell within any three-month period a number of shares
that does not exceed the greater of 1% of the outstanding shares of Common Stock
or the reported average weekly trading volume in the over-the-counter market for
the four weeks preceding the sale. Sales under Rule 144 are also subject to
certain manner of sale restrictions and notice requirements and to the
availability of current public information concerning the Company. Persons who
have not been affiliates of the Company for at least three months and who have
held their shares for more than three years are entitled to sell Restricted
Securities without regard to the volume, manner of sale, notice and public
information requirements of Rule 144.
For purposes of determining how long a Withdrawing Limited Partner has held
the Restricted Shares received upon withdrawal from the Partnership, the
Withdrawing Limited Partner is allowed to "tack" the holding period of the
Partnership with regard to the Class B Common Stock (which commenced on October
21, 1993) to the Withdrawing Limited Partner's holding period of the Restricted
Shares. Since the two year holding period is therefore satisfied, the
Withdrawing Limited Partner may sell Restricted Shares subject to the volume and
other limitations described above. For purpose of the sales volume limitation,
however, each Withdrawing Limited Partner, the Partnership and MS Jewelers will
be required to aggregate their sales of shares of Class A Common Stock until a
three year holding period is satisfied (through October 21, 1996). On and after
October 21, 1996, the restrictions of Rule 144 with respect to such shares of
Class A Common Stock will lapse, and all of the shares of Class A Common Stock
held by the Withdrawing Limited Partners will be freely tradeable.
34
<PAGE> 36
UNDERWRITING
The Underwriters named below, represented by Montgomery Securities,
Goldman, Sachs & Co., Morgan Keegan & Company, Inc. and Morgan Schiff & Co.,
Inc., have severally agreed, subject to the terms and conditions set forth in
the Underwriting Agreement, to purchase from the Company the number of shares of
Class A Common Stock indicated below opposite their respective names at the
public offering price less the underwriting discount set forth on the cover page
of this Prospectus. The Underwriting Agreement provides that the obligations of
the Underwriters are subject to certain conditions precedent and that the
Underwriters are committed to purchase all of the shares if they purchase any.
<TABLE>
<CAPTION>
NUMBER
NAME OF UNDERWRITER OF SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
Montgomery Securities.....................................................
Goldman, Sachs & Co.......................................................
Morgan Keegan & Company, Inc..............................................
Morgan Schiff & Co., Inc..................................................
---------
Total........................................................... 2,200,000
========
</TABLE>
The Representatives have advised the Company and the Selling Stockholder
that the Underwriters propose initially to offer the shares of Class A Common
Stock to the public on the terms set forth on the cover page of this Prospectus.
The Underwriters may allow to selected dealers a concession of not more than
$ per share; and the Underwriters may allow, and such dealers may reallow,
a concession of not more than $ per share to certain other dealers. After
the offering, the public offering price and other selling terms may be changed
by the Representatives. The Class A Common Stock is offered subject to receipt
and acceptance by the Underwriters, and to certain other conditions, including
the right to reject orders in whole or in part.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of 330,000 additional shares of Class A Common Stock to cover over-allotments,
if any, at the same price per share as the initial shares to be purchased by the
Underwriters. To the extent that the Underwriters exercise this option, the
Underwriters will be committed, subject to certain conditions, to purchase such
additional shares in approximately the same proportion as set forth in the above
table. The Underwriters may purchase such shares only to cover over-allotments
made in connection with this offering.
The Underwriting Agreement provides that the Company and the Selling
Stockholder will indemnify the Underwriters against certain liabilities,
including civil liabilities under the Securities Act, or will contribute to
payments the Underwriters may be required to make in respect thereof.
The Company, its directors and officers, the Selling Stockholder and
certain other existing stockholders of the Company including FJI, who
beneficially own an aggregate of 2,848,837 shares of Class A Common Stock and
the Partnership which beneficially owns an aggregate of 1,773,582 shares of
Class B Common Stock, have agreed, subject to certain limited exceptions, that
they will not, without the prior written consent of Montgomery Securities,
offer, sell or otherwise dispose of any shares of Class A Common Stock or Class
B Common Stock, or any right to acquire such shares, for a period of 90 days
from the date of this Prospectus.
35
<PAGE> 37
Certain of the Underwriters make a market in the Company's Class A Common
Stock. During the two days immediately prior to the offering and sale of the
Class A Common Stock, regulations under the Exchange Act impose restrictions on
the market making activities of such Underwriters, including price and volume
limitations. Such Underwriters may engage in permitted passive of market making
activities during the two business days immediately prior to the offering and
sale of the Class A Common Stock. One of the Underwriters, Morgan Schiff, may be
deemed an affiliate of the Company for the purposes of Schedule E to the By-Laws
of the NASD ("Schedule E") because, among other things, the Partnership owns
100% of the outstanding Class B Common Stock of the Company. Mr. Cohen is the
sole stockholder of Morgan Schiff and of MS Jewelers, the sole general partner
of the Partnership. As a result, the Offering is being conducted in accordance
with the applicable provisions of Schedule E.
The Underwriters have advised the Company that they do not intend to
confirm sales to any account over which they exercise discretionary authority.
Morgan Schiff is acting as financial advisor to the Company for which it
receives fees in addition to the fees it will receive as an Underwriter. In
December 1994, the Company entered into a Financial Advisory Services Agreement
with Morgan Schiff under which Morgan Schiff agreed to provide the Company with
certain financial advisory services with respect to capital structure, business
strategy and operations, budgeting and financial controls, and mergers,
acquisitions and other similar transactions (the "Financial Advisory Services
Agreement"). The Financial Advisory Services Agreement has a term of one year
with an automatic renewal unless either party terminates by written notice 30
days prior to the end of the term. Pursuant to the Financial Advisory Services
Agreement, the Company agreed to pay Morgan Schiff a fee of $400,000 per year on
a non-accountable basis, plus expenses. The Company also agreed to indemnify
Morgan Schiff against any losses associated with the Financial Advisory Services
Agreement.
LEGAL MATTERS
Certain legal matters in connection with the Class A Common Stock offered
hereby will be passed upon for the Company by Alston & Bird, Atlanta, Georgia,
and for the Underwriters by King & Spalding, Atlanta, Georgia.
EXPERTS
The financial statements and schedules of the Company as of and for the
fiscal years ended September 30, 1993, 1994 and 1995 incorporated by reference
into this Prospectus have been audited by Ernst & Young LLP, independent
auditors, for the periods indicated in their reports thereon. The financial
statements and schedules audited by Ernst & Young LLP have been incorporated by
reference herein in reliance on their reports given on their authority as
experts in accounting and auditing.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents have been filed by the Company with the Securities
and Exchange Commission ("Commission") pursuant to the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and are incorporated herein by
reference:
1. Annual Report on Form 10-K for the fiscal year ended September 30,
1995.
2. Quarterly Reports on Form 10-Q for the fiscal quarters ended
December 31, 1995 and March 31, 1996.
3. Registration Statement on Form 8-A dated September 9, 1993.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date hereof and prior to the termination of
the offering hereunder shall be deemed to be incorporated by reference in this
Prospectus and to be part hereof from the date of filing of such documents. Any
statement contained in a document incorporated by reference herein shall be
deemed to be modified or
36
<PAGE> 38
superseded for all purposes to the extent that a statement contained herein or
in any other subsequently filed document which is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as modified or superseded, to
constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of such person, a copy of any and all of the documents
incorporated by reference (not including the exhibits to such documents, unless
such exhibits are specifically incorporated by reference in such documents).
Requests for such copies should be directed to Mr. John G. Call, Friedman's
Inc., 4 West State Street, Savannah, Georgia 31401, or by telephone, (912)
231-6606.
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Exchange Act,
and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed by the Company with the Commission can be inspected and copied
at the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549; and at the Commission's regional offices at 7
World Trade Center, 13th Floor, New York, New York 10048, and Northwest Atrium
Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of such
material can also be obtained at prescribed rates by writing to the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington D.C.
20549. In addition, such reports, proxy statements and other information
concerning the Company may be inspected at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006-1506.
This Prospectus does not contain all the information set forth in the
Registration Statement, of which this Prospectus is a part, and exhibits
relating thereto, which the Company has filed with the Commission under the
Securities Act of 1933, as amended (the "Securities Act"). Statements contained
or incorporated by reference herein concerning the provisions of documents are
necessarily summaries of such documents, and each statement is qualified in its
entirety by reference to the copy of the applicable document filed with the
Commission.
37
<PAGE> 39
[PHOTOGRAPHS]
- ---------------
Top Left: Picture of Power Strip Center
Top Right: Picture of "Welcome to Vidalia" sign
Right center: Picture of "Welcome to Ahoskie" sign
Right bottom: Picture of "Welcome to Statesboro" sign
Bottom center: Picture of salesperson and customer
Bottom left: Picture of mall store
These pictures appear in the paper format version of the document and not
in this electronic filing.
<PAGE> 40
- ------------------------------------------------------
- ------------------------------------------------------
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representation must not
be relied upon as having been authorized by the Company, the Selling Stockholder
or the Underwriters. This Prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy, to any person in any jurisdiction in which such
offer to sell or solicitation is not authorized, or in which the person making
such offer or solicitation is not qualified to do so, or to any person to whom
it is unlawful to make such offer or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances,create any
implication that the information contained herein is correct as of any time
subsequent to the date hereof.
----------------------------
TABLE OF CONTENTS
----------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 10
Price Range of Class A Common Stock... 11
Dividend Policy....................... 11
Capitalization........................ 12
Selected Financial and Operating
Data................................ 13
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 15
Business.............................. 21
Management............................ 30
Principal and Selling Stockholders.... 32
Underwriting.......................... 35
Legal Matters......................... 36
Experts............................... 36
Documents Incorporated by Reference... 36
Available Information................. 37
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
2,200,000 SHARES
[FRIEDMAN'S LOGO]
CLASS A COMMON STOCK
---------------
PROSPECTUS
---------------
MONTGOMERY SECURITIES
GOLDMAN, SACHS & CO.
MORGAN KEEGAN & COMPANY, INC.
MORGAN SCHIFF & CO., INC.
May , 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 41
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses in connection with the issuance and distribution of the Common
Stock, other than underwriting discounts, are set forth in the following table.
All amounts except the Securities and Exchange Commission registration fee and
the NASD filing fee are estimated.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee....................... $ 22,247
NASD filing fee........................................................... 7,015
Printing and engraving expenses........................................... 150,000
Accountants' fees and expenses............................................ 100,000
Legal fees and expenses................................................... 200,000
Blue Sky fees and expenses................................................ 10,000
Transfer agent and registrar fees......................................... 5,000
Directors and officers insurance.......................................... 150,000
Miscellaneous............................................................. 105,738
--------
Total........................................................... $750,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware
empowers a Delaware corporation to indemnify present and former directors,
officers, employees or agents of the corporation. Article Ninth of the
Certificate of Incorporation, as amended, of the Registrant provides:
NINTH: Limitation of Liability; Indemnification
A. Limitation of Directors' Liability
To the fullest extent that the General Corporation Law of the State of
Delaware, as it exists on the date hereof or as it may hereafter be
amended, permits the limitation or elimination of the liability of
directors, no director of the Company shall be liable to the Company or
its stockholders for monetary damages for beach of fiduciary duty as a
director. No amendment to or repeal of this Section A of this Article
shall apply to or have any effect on the liability or alleged liability of
any director of the Company for or with respect to any acts or omissions
of such director occurring prior to such amendment or repeal.
B. Indemnification
(1) Right to Indemnification. The Company shall to the fullest extent
permitted by applicable law as then in effect indemnify any person (the
"Indemnitee") who was or is involved in any manner (including, without
limitation, as a party or witness) or is threatened to be made so involved
in any threatened, pending or completed investigation, claim, action, suit
or proceeding, whether civil, criminal, administrative or investigative
(including, without limitation, any action, suit or proceeding by or in the
right of the Company to procure a judgment in its favor) (a "Proceeding")
by reason of the fact that he is or was a director or officer of the
Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise (including, without limitation, any
employee benefit plan) against all expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such Proceeding. Such indemnification
shall be a contract right and shall include the right to receive payment in
advance of any expenses incurred by the Indemnitee in connection with such
Proceeding, consistent with the provisions of applicable law as then in
effect.
(2) Insurance, Contracts and Funding. The Company may purchase and
maintain insurance to protect itself and any Indemnitee against any
expenses, judgments, fines and amounts paid in settlement
II-1
<PAGE> 42
as specified in Section B-1 of this Article or incurred by any Indemnitee
in connection with any Proceeding referred to in Section B-1 of this
Article, to the fullest extent permitted by applicable law as then in
effect. The Company may enter into contracts with any director or officer
of the Company in furtherance of the provisions of this Article and may
create a trust fund, grant a security interest or use other means
(including, without limitation, a letter of credit) to ensure the payment
of such amounts as may be necessary to effect indemnification as provided
in this Article.
(3) Indemnification Not Exclusive Right. The right of indemnification
provided in this Article shall not be exclusive of any other rights to
which those seeking indemnification may otherwise be entitled, and the
provisions of this Article shall inure to the benefit of the heirs and
legal representatives of any person entitled to indemnity under this
Article and shall be applicable to proceedings commenced or continuing
after the adoption of this Article, whether arising from acts or omissions
occurring before or after such adoption.
(4) Advancement of Expenses; Procedures; Presumptions and Effects of
Certain Proceedings; Remedies. In furtherance but not in limitation of the
foregoing provisions, the following procedures, presumptions and remedies
shall apply with respect to the advancement of expenses and the right to
indemnification under this Article:
(a) Advancement of Expenses. All reasonable expenses incurred by
or on behalf of an Indemnitee in connection with any proceeding shall be
advanced to the Indemnitee by the Company within 20 days after the
receipt by the Company of a statement or statements from the Indemnitee
requesting such advance or advances from time to time, whether prior to
or after final disposition of such Proceeding. Such statement or
statements shall reasonably evidence the expenses incurred by the
Indemnitee and, if required by law at the time of such advance, shall
include or be accompanied by an undertaking by or on behalf of the
Indemnitee to repay the amounts advanced if it should ultimately be
determined that the Indemnitee is not entitled to be indemnified against
such expenses pursuant to this Article.
(b) Procedure for Determination of Entitlement to
Indemnification. (i) To obtain indemnification under this Article, an
Indemnitee shall submit to the Secretary of the Company a written
request, including such documentation as is reasonably available to the
Indemnitee and reasonably necessary to determine whether and to what
extent the Indemnitee is entitled to indemnification (the "Supporting
Documentation"). The determination of the Indemnitee's entitlement to
indemnification shall be made no later than 60 days after receipt by the
Company of the written request for indemnification together with the
Supporting Documentation. The Secretary of the Company shall, promptly
upon receipt of such a request for indemnification, advise the Board of
Directors in writing that the Indemnitee has requested indemnification.
(ii) The Indemnitee's entitlement to indemnification under this
Article shall be determined in one of the following ways: (A) by a
majority vote of the Disinterested Directors (as hereinafter defined),
if they constitute a quorum of the Board of Directors; (B) by a written
opinion of Independent Counsel (as hereinafter defined) if a quorum of
the board of Directors consisting of Disinterested Directors is not
obtainable or, even if obtainable, a majority of such Disinterested
Directors so directs; (C) by the stockholders of the Company entitled to
vote; or (D) as provided in Section B-4(c) of this Article.
(iii) In the event the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section
B-4(b)(ii) of this Article, a majority of the Disinterested Directors
shall select the Independent Counsel, but only an Independent Counsel to
which the Indemnitee does not reasonably object.
(c) Presumptions and Effect of Certain Proceedings. Except as
otherwise expressly provided in this Article, the Indemnitee shall be
presumed to be entitled to indemnification under this Article upon
submission of a request for indemnification together with the Supporting
Documentation in accordance with Section B-4(b)(i), and thereafter the
Company shall have the burden of proof to
II-2
<PAGE> 43
overcome that presumption in reaching a contrary determination. In any
event, if the person or persons empowered under Section B-4(b) of this
Article to determine within 60 days after the receipt by the Company of
the request therefor together with the Supporting Documentation, the
Indemnitee shall be entitled to indemnification unless (A) the
Indemnitee misrepresented or failed to disclose a material fact in
making the request for indemnification or in the Supporting
Documentation or (B) such indemnification is prohibited by law. The
termination of any Proceeding described in Section B-1, or of any claim,
issue or matter therein, by judgment, order, settlement or conviction,
or upon a plea of nolo contendere or its equivalent, shall not, of
itself, adversely affect the right of the Indemnitee to indemnification
or create a presumption that the Indemnitee did not act in good faith
and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Company or, with respect to any criminal
proceeding, that the Indemnitee had reasonable cause to believe that his
conduct was unlawful.
(d) Remedies of Indemnitee. (i) In the event that a determination
is made pursuant to Section B-4(b) of this Article that the Indemnitee
is not entitled to indemnification under this Article, (A) the
Indemnitee shall be entitled to seek an adjudication of his entitlement
to such indemnification either, at the Indemnitee's sole option, in (x)
an appropriate court of the State of Delaware or any other court of
competent jurisdiction or (y) an arbitration to be conducted by a single
arbitrator pursuant to the rules of the American Arbitration
Association; (B) any such judicial proceeding or arbitration shall be de
novo and the Indemnitee shall not be prejudiced by reason of such
adverse determination; and (C) in any such judicial proceeding or
arbitration the Company shall have the burden of proving that the
Indemnitee is not entitled to indemnification under this Article.
(ii) If a determination shall have been made or deemed to have been
made, pursuant to Section B-4(b) or (c), that the Indemnitee is
entitled to indemnification, the Company shall be obligated to pay the
amounts constituting such indemnification within five days after such
determination has been made or deemed to have been made and shall be
conclusively bound by such determination unless (A) the Indemnitee
misrepresented or failed to disclose a material fact in making the
request for indemnification or in the Supporting Documentation or (B)
such indemnification is prohibited by law. In the event that (C)
advancement of expenses is not timely made pursuant to Section B-4(a)
or (D) payment of indemnification is not made within five days after a
determination if entitlement to indemnification has been made or deemed
to have been made pursuant to Section B-4(b) or (c), the Indemnitee
shall be entitled to seek judicial enforcement of the Company's
obligation to pay to the Indemnitee such advancement of expenses or
indemnification. Notwithstanding the foregoing, the Company may bring
an action, in an appropriate court of the State of Delaware or any
other court of competent jurisdiction, contesting the right of the
Indemnitee to receive indemnification hereunder due to the occurrence
of an event described in subclause (A) or (B) of this clause (ii) (a
"Disqualifying Event"); provided, however, that in any such action the
Company shall have the burden or proving the occurrence of such
Disqualifying Event.
(iii) The Company shall be precluded from asserting in any judicial
proceeding or arbitration commenced pursuant to this Section B-4(d) that
the procedures and presumptions of this Article are not valid, binding
and enforceable and shall stipulate in any such court or before any such
arbitrator that the Company is bound by all the provisions of this
Article.
(iv) In the event that the Indemnitee, pursuant to this Section
B-4(d), seeks a judicial adjudication of or an award in arbitration to
enforce his rights under, or to recover damages for breach of, this
Article, the Indemnitee shall be entitled to recover from the Company,
and shall be indemnified by the Company against, any expenses actually
and reasonably incurred by him if the Indemnitee prevails in such
judicial adjudication. If it shall be determined in such judicial
adjudication or arbitration that the Indemnitee is entitled to receive
part but not all of the indemnification or advancement of expenses
sought, the expenses incurred by the Indemnitee in connection with such
judicial adjudication or arbitration shall be prorated accordingly.
II-3
<PAGE> 44
(e) Definitions. For purposes of this Section B-4:
(i) "Disinterested Director" means a director of the Company who
is not or was not a party to the Proceeding in respect of which
indemnification is sought by the Indemnitee.
(ii) "Independent Counsel" means a law firm or a member of a law
firm that neither presently is, nor in the past five years has been,
retained to represent (A) the Company or the Indemnitee in any matter
material to either such party or (B) any other party to the
Proceeding giving rise to a claim for indemnification under this
Article. Notwithstanding the foregoing, the term "Independent
Counsel" shall not include any person who, under the applicable
standards of professional conduct then prevailing under the law of
the State of Delaware, would have a conflict of interest in
representing either the Company or the Indemnitee in an action to
determine the Indemnitee's rights under this Article.
(5) Severability. If any provisions of this Article shall be held to
be invalid, illegal or unenforceable for any reason whatsoever: (a) the
validity, legality and enforceability of the remaining provisions of this
Article (including, without limitation, all portions of any paragraph of
this Article containing any such provision held to be invalid, illegal or
unenforceable that are not themselves invalid, illegal or unenforceable)
shall not in any way be affected or impaired thereby; and (b) to the
fullest extent possible, the provisions of this Article (including, without
limitation, all portions of any paragraph of this Article containing any
such provision held to be invalid, illegal or unenforceable that are not
themselves invalid, illegal or unenforceable) shall be construed so as to
give effect to the intent manifested by the provision held invalid, illegal
or unenforceable.
The Registrant has purchased directors' and officers; liability insurance
covering many of the possible actions and omissions of persons acting or failing
to act in such capacities.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ ------------------------------------------------------------------------
<S> <C> <C>
1 -- Form of Underwriting Agreement.
3.1 -- Registrant's Certificate of Incorporation, as amended (incorporated by
reference from Exhibit 4(a) to the Registrant's Registration Statement
on Form S-8 (File No. 33-78820) dated May 11, 1994).
3.2 -- Bylaws of the Registrant (incorporated by reference from Exhibit 3.2 to
the Registrant's Registration Statement on Form S-1 (File No. 33-67662),
and amendments thereto, originally filed on August 19, 1993).
3.3 -- Certificate of Amendment to the Registrant's Certificate of
Incorporation dated March 1, 1995 (incorporated by reference from
Exhibit 3.3 to the Registrant's Registration Statement on Form S-3 (File
No. 33-90386) dated March 17, 1995).
4.1 -- See Exhibits 3.1, 3.2 and 3.3 for provisions of the Certificate of
Incorporation and Bylaws of the Registrant defining rights of holders of
Class A and Class B Common Stock of the Registrant.
4.2 -- Form of Class A Common Stock certificate of the Registrant (incorporated
by reference from Exhibit 4.2 to the Registrant's Registration Statement
on Form S-1 (File No. 33-67662), and amendments thereto, originally
filed on August 19, 1993).
5 -- Opinion of Alston & Bird.
23.1 -- Consent of Alston & Bird (included in Exhibit 5 above).
23.2 -- Consent of Ernst & Young LLP.
24 -- Power of Attorney (included on signature page of this Registration
Statement).
</TABLE>
II-4
<PAGE> 45
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 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 the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein and the offering of such securities at that time shall be deemed the
initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
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-5
<PAGE> 46
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 Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Savannah, and State of Georgia, on May 14, 1996.
FRIEDMAN'S INC.
By: /s/ BRADLEY J. STINN
----------------------------------
Bradley J. Stinn
Chairman of the Board of Directors
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Bradley J. Stinn and Robert S. Morris his
attorneys-in-fact, with power of substitution for him in any and all capacities,
to sign any amendments to this Registration Statement, and to file the same,
with the exhibits thereto, and other documents in connection therewith,
including a Registration Statement filed under Rule 462(b) of the Securities Act
of 1933, as amended, with the Securities and Exchange Commission hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on May 14, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- --------------------------------------------
<C> <S>
/s/ BRADLEY J. STINN Chairman of the Board of Directors
--------------------------- and Chief Executive Officer
Bradley J. Stinn (Principal Executive Officer)
/s/ JOHN G. CALL Senior Vice President and
--------------------------- Chief Financial Officer
John G. Call (Principal Financial and Accounting
Officer)
/s/ STERLING B. BRINKLEY Director
---------------------------
Sterling B. Brinkley
/s/ ROBERT W. CRUICKSHANK Director
---------------------------
Robert W. Cruickshank
/s/ ROBERT S. MORRIS President and Chief Operating Officer and
---------------------------
Robert S. Morris Director
/s/ DAVID B. PARSHALL Director
---------------------------
David B. Parshall
/s/ MARK C. PICKUP Director
---------------------------
Mark C. Pickup
</TABLE>
II-6
<PAGE> 47
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ ------------------------------------------------------------------------
<C> <S> <C>
1 -- Form of Underwriting Agreement.
3.1 -- Registrant's Certificate of Incorporation, as amended (incorporated by
reference from Exhibit 4(a) to the Registrant's Registration Statement
on Form S-8 (File No. 33-78820) dated May 11, 1994).
3.2 -- Bylaws of the Registrant (incorporated by reference from Exhibit 3.2 to
the Registrant's Registration Statement on Form S-1 (File No. 33-67662),
and amendments thereto, originally filed on August 19, 1993).
3.3 -- Certificate of Amendment to the Registrant's Certificate of
Incorporation dated March 1, 1995 (incorporated by reference from
Exhibit 3.3 to the Registrant's Registration Statement on Form S-3 (File
No. 33-90386) dated March 17, 1995).
4.1 -- See Exhibits 3.1 and 3.2 for provisions of the Certificate of
Incorporation and Bylaws of the Registrant defining rights of holders of
Class A and Class B Common Stock of the Registrant.
4.2 -- Form of Class A Common Stock certificate of the Registrant (incorporated
by reference from Exhibit 4.2 to the Registrant's Registration Statement
on Form S-1 (File No. 33-67662), and amendments thereto, originally
filed on August 19, 1993).
5 -- Opinion of Alston & Bird.
23.1 -- Consent of Alston & Bird (included in Exhibit 5 above).
23.2 -- Consent of Ernst & Young LLP.
24 -- Power of Attorney (included on signature page of this Registration
Statement).
</TABLE>
<PAGE> 1
2,200,000 Shares
FRIEDMAN'S INC.
Class A Common Stock
UNDERWRITING AGREEMENT
May __, 1996
MONTGOMERY SECURITIES
GOLDMAN, SACHS & CO.
MORGAN KEEGAN & COMPANY, INC.
MORGAN SCHIFF & CO. INC.
As Representatives of the several Underwriters
c/o MONTGOMERY SECURITIES
600 Montgomery Street
San Francisco, California 94111
Dear Sirs:
SECTION 1. Introductory. Friedman's Inc., a Delaware
corporation (the "Company"), proposes to issue and sell 2,000,000 shares of its
authorized but unissued Class A Common Stock (the "Class A Common Stock") and
Teachers Insurance and Annuity Association of America (the "Selling
Stockholder") proposes to sell an aggregate of 200,000 shares of the Company's
issued and outstanding Class A Common Stock to the several underwriters named
in Schedule A annexed hereto (the "Underwriters"), for whom you are acting as
Representatives. Said aggregate of 2,200,000 shares are herein called the
"Firm Common Shares." In addition, the Company proposes to grant to the
Underwriters an option to purchase up to 330,000 additional shares of Class A
Common Stock (the "Optional Common Shares"), as provided in Section 5 hereof.
The Firm Common Shares and, to the extent such option is exercised, the
Optional Common Shares are hereinafter collectively referred to as the "Common
Shares."
You have advised the Company and the Selling Stockholder that the
Underwriters propose to make a public offering of their respective portions of
the Common Shares on the effective date of the registration statement
hereinafter referred to, or as soon thereafter as in your judgment is
advisable.
The Company and the Selling Stockholder hereby confirm their
respective agreements with respect to the purchase of the Common Shares by the
Underwriters as follows:
SECTION 2. Representations and Warranties of the
Company. The Company represents and warrants to the several Underwriters that:
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(a) A registration statement on Form S-3 (File No.
333-____) with respect to the Common Shares has been prepared by the
Company in conformity with the requirements of the Securities Act of
1933, as amended (the "Act"), and the rules and regulations (the
"Rules and Regulations") of the Securities and Exchange Commission
(the "Commission") thereunder, and has been filed with the Commission.
The Company has prepared and has filed or proposes to file prior to
the effective date of such registration statement an amendment or
amendments to such registration statement, which amendment or
amendments have been or will be similarly prepared. There have been
delivered to you two signed copies of such registration statement and
amendments, together with two copies of each exhibit filed therewith.
Conformed copies of such registration statement and amendments (but
without exhibits) and of the related preliminary prospectus have been
delivered to you in such reasonable quantities as you have requested
for each of the Underwriters. The Company will next file with the
Commission one of the following: (i) prior to effectiveness of such
registration statement, a further amendment thereto, including the
form of final prospectus, (ii) a final prospectus in accordance with
Rules 430A and 424(b) of the Rules and Regulations or (iii) a term
sheet (the "Term Sheet") as described in and in accordance with Rules
434 and 424(b) of the Rules and Regulations. As filed, the final
prospectus, if one is used, or the Term Sheet and Preliminary
Prospectus, if a final prospectus is not used, shall include all Rule
430A Information and, except to the extent that you shall agree in
writing to a modification, shall be in all substantive respects in the
form furnished to you prior to the date and time that this Agreement
was executed and delivered by the parties hereto, or, to the extent
not completed at such date and time, shall contain only such specific
additional information and other changes (beyond that contained in the
latest Preliminary Prospectus) as the Company shall have previously
advised you in writing would be included or made therein.
The term "Registration Statement" as used in this Agreement
shall mean such registration statement at the time such registration
statement becomes effective and, in the event any post- effective
amendment thereto becomes effective prior to the First Closing Date
(as hereinafter defined), shall also mean such registration statement
as so amended; provided however, that such term shall also include (i)
all Rule 430A Information deemed to be included in such registration
statement at the time such registration statement becomes effective as
provided by Rule 430A of the Rules and Regulations and (ii) any
registration statement filed pursuant to 462(b) of the Rules and
Regulations relating to the Common Shares. The term "Preliminary
Prospectus" shall mean any preliminary prospectus referred to in the
preceding paragraph and any preliminary prospectus included in the
Registration Statement at the time it becomes effective that omits
Rule 430A Information. The term "Prospectus" as used in this Agreement
shall mean either (i) the prospectus relating to the Common Shares in
the form in which it is first filed with the Commission pursuant to
Rule 424(b) of the Rules and Regulations or, (ii) if a Term Sheet is
not used and no filing pursuant to Rule 424(b) of the Rules and
Regulations is required, shall mean the form of final prospectus
included in the Registration Statement at the time such registration
statement becomes effective or (iii) if a Term Sheet is used, the Term
Sheet in the form in which it is first filed with the Commission
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pursuant to Rule 424(b) of the Rules and Regulations, together
with the Preliminary Prospectus included in the Registration Statement
at the time it becomes effective. The term "Rule 430A Information"
means information with respect to the Common Shares and the offering
thereof permitted to be omitted from the Registration Statement when
it becomes effective pursuant to Rule 430A of the Rules and
Regulations. Any reference herein to any Preliminary Prospectus or the
Prospectus shall be deemed to refer to and include the documents
incorporated by reference therein pursuant to Form S-3 under the Act,
as of the date of such Preliminary Prospectus or Prospectus, as the
case may be.
(b) The Commission has not issued any order
preventing or suspending the use of any Preliminary Prospectus, and
each Preliminary Prospectus has conformed in all material respects to
the requirements of the Act and the Rules and Regulations and as of
its date, has not included any untrue statement of a material fact or
omitted to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading; and at the time the Registration Statement becomes
effective, and at all times subsequent thereto up to and including
each Closing Date hereinafter mentioned, the Registration Statement
and the Prospectus, and any amendments or supplements thereto, will
contain all material statements and information required to be
included therein by the Act and the Rules and Regulations and will in
all material respects conform to the requirements of the Act and the
Rules and Regulations, and neither the Registration Statement nor the
Prospectus, nor any amendment or supplement thereto, will include any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading; provided, however, no representation or
warranty contained in this subsection 2(b) shall be applicable to
information contained in or omitted from any Preliminary Prospectus,
the Registration Statement, the Prospectus or any such amendment or
supplement in reliance upon and in conformity with written information
furnished to the Company by or on behalf of any Underwriter, directly
or through the Representatives, specifically for use in the
preparation thereof. The documents incorporated by reference in the
Prospectus, when they were filed with the Commission, conformed in all
material respects to the requirements of the Exchange Act and the
rules and regulations of the Commission thereunder, and none of such
documents contained an untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading.
(c) The Company does not own or control, directly
or indirectly, any corporation, association or other entity other than
the subsidiaries listed in Exhibit 22 to the Annual Report on Form
10-K for the Company's most recent fiscal year. The Company and each
of its subsidiaries have been duly incorporated and are validly
existing as corporations in good standing under the laws of their
respective jurisdictions of incorporation, with full power and
authority (corporate and other) to own and lease their properties and
conduct their respective businesses as described in the Prospectus;
the Company owns all of the outstanding capital stock of its
subsidiaries free and clear of all claims, liens, charges and
encumbrances; the Company and each of its subsidiaries are in
possession of and operating in compliance with
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all authorizations, licenses, permits, consents, certificates
and orders material to the conduct of their respective businesses, all
of which are valid and in full force and effect; the Company and each
of its subsidiaries are duly qualified to do business and in good
standing as foreign corporations in each jurisdiction in which the
ownership or leasing of properties or the conduct of their respective
businesses requires such qualification, except for jurisdictions in
which the failure to so qualify would not have a material adverse
effect upon the Company or the subsidiary.
(d) The Company has an authorized and outstanding
capital stock as set forth under the heading "Capitalization" in the
Prospectus; the issued and outstanding shares of Common Stock have
been duly authorized and validly issued, are fully paid and
nonassessable, are duly listed on the Nasdaq Stock Market's National
Market, have been issued in compliance with all federal and state
securities laws, were not issued in violation of or subject to any
preemptive rights or other rights to subscribe for or purchase
securities, and conform to the description thereof contained in the
Prospectus. All issued and outstanding shares of capital stock of each
subsidiary of the Company have been duly authorized and validly issued
and are fully paid and nonassessable. Except as disclosed in or
contemplated by the Prospectus and the financial statements of the
Company, and the related notes thereto, included in the Prospectus,
neither the Company nor any subsidiary has outstanding any options to
purchase, or any preemptive rights or other rights to subscribe for or
to purchase, any securities or obligations convertible into, or any
contracts or commitments to issue or sell, shares of its capital stock
or any such options, rights convertible securities or obligations.
The description of the Company's stock option, stock bonus and other
stock plans or arrangements, and the options or other rights granted
and exercised thereunder, set forth in the Prospectus accurately and
fairly presents the information required to be shown with respect to
such plans, arrangements, options and rights.
(e) The Common Shares to be sold by the Company
have been duly authorized and, when issued, delivered and paid for in
the manner set forth in this Agreement, will be duly authorized,
validly issued, fully paid and nonassessable, and will conform to the
description thereof contained in the Prospectus. No preemptive rights
or other rights to subscribe for or purchase exist with respect to the
issuance and sale of the Common Shares by the Company pursuant to this
Agreement. No stockholder of the Company has any right which has not
been waived to require the Company to register the sale of any shares
owned by such stockholder under the Act in the public offering
contemplated by this Agreement. No further approval or authority of
the stockholders or the Board of Directors of the Company will be
required for the transfer and sale of the Common Shares to be sold by
the Selling Stockholder or the issuance and sale of the Common Shares
to be sold by the Company as contemplated herein.
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(f) The Company has full legal right, power and
authority to enter into this Agreement and perform the transactions
contemplated hereby. This Agreement has been duly authorized,
executed and delivered by the Company and constitutes a valid and
binding obligation of the Company in accordance with its terms. The
making and performance of this Agreement by the Company and the
consummation of the transactions herein contemplated will not violate
any provisions of the certificate of incorporation or bylaws, or other
organizational documents, of the Company or any of its subsidiaries,
and will not conflict with, result in the breach or violation of, or
constitute, either by itself or upon notice or the passage of time or
both, a default under any material agreement, mortgage, deed of trust,
lease, franchise, license, indenture, permit or other instrument to
which the Company or any of its subsidiaries is a party or by which
the Company or any of its subsidiaries or any of its respective
properties may be bound or affected, any statute or any authorization,
judgment, decree, order, rule or regulation of any court or any
regulatory body, administrative agency or other governmental body
applicable to the Company or any of its subsidiaries or any of its
respective properties. No consent, approval, authorization or other
order of any court, regulatory body, administrative agency or other
governmental body is required for the execution and delivery of this
Agreement or the consummation of the transactions contemplated by this
Agreement, except for compliance with the Act, the Blue Sky laws
applicable to the public offering of the Common Shares by the several
Underwriters and the clearance of such offering with the National
Association of Securities Dealers, Inc. (the "NASD").
(g) Ernst & Young LLP, who have expressed their
opinion with respect to the financial statements and schedules filed
with the Commission as a part of the Registration Statement and
included in the Prospectus and in the Registration Statement, are
independent accountants as required by the Act and the Rules and
Regulations.
(h) The financial statements and schedules of the
Company and the related notes thereto, included in the Registration
Statement and the Prospectus present fairly the financial position of
the Company as of the respective dates of such financial statements
and schedules, and the results of operations and changes in financial
position of the Company for the respective periods covered thereby.
Such statements, schedules and related notes have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis as certified by the independent accountants named in
subsection 2(g). No other financial statements or schedules are
required to be included in the Registration Statement. The selected
financial data set forth in the Prospectus under the captions
"Capitalization" and "Selected Financial Data" fairly present the
information set forth therein on the basis stated in the Registration
Statement.
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(i) Except as disclosed in the Prospectus, and
except as to defaults which individually or in the aggregate would not
be material to the Company, neither the Company nor any of its
subsidiaries is in violation or default of any provision of its
certificate of incorporation or bylaws, or other organizational
documents, or is in breach of or default with respect to any provision
or any agreement, judgment, decree, order, mortgage, deed of trust,
lease, franchise, license, indenture, permit or other instrument to
which it is a party or by which it or any of its properties are bound
except as disclosed in the Prospectus, and except as to defaults which
individually or in the aggregate would not be material to the Company.
(j) There are no contracts or other documents
required to be described in the Registration Statement or to be filed
as exhibits to the Registration Statement by the Act or by the Rules
and Regulations which have not been described or filed as required.
The description of such contracts in the Prospectus is accurate and
complete; and neither the Company nor any of its subsidiaries, nor to
the best of the Company's knowledge, any other party is in breach of
or default under any of such contracts.
(k) Except as disclosed in the Prospectus, there
are no legal or governmental actions, suits or proceedings pending or,
to the best of the Company's knowledge, threatened to which the
Company or any of its subsidiaries is or may be a party or of which
property owned or leased by the Company or any of its subsidiaries is
or may be the subject, or related to environmental or discrimination
matters, which actions, suits or proceedings might, individually or in
the aggregate, prevent or adversely affect the transactions
contemplated by this Agreement or result in a material adverse change
in the condition (financial or otherwise), properties, business,
results of operations or prospects of the Company and its
subsidiaries; and no labor disturbance by the employees of the Company
or any of its subsidiaries exists or is imminent which might be
expected to affect adversely such condition, properties, business,
results of operations or prospects. Neither the Company nor any of its
subsidiaries is a party or subject to the provisions of any material
injunction, judgment, decree or order of any court, regulatory body,
administrative agency or other governmental body.
(l) The Company or the subsidiary has good and
marketable title to all the properties and assets reflected as owned
in the financial statements hereinabove described (or elsewhere in the
Prospectus), subject to no lien, mortgage, pledge, charge or
encumbrance of any kind except (i) those, if any, reflected in such
financial statements (or elsewhere in the Prospectus), or (ii) those
which are not material in amount and do not adversely affect the
use made and proposed to be made of such property by the Company and
its subsidiaries. The Company or the applicable subsidiary holds its
leased properties under valid and binding leases, with such exceptions
as are not materially significant in relation to the business of the
Company. Except as disclosed in the Prospectus, the Company owns or
leases all such
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properties as are necessary to its operations as now conducted
or as proposed to be conducted.
(m) Since the respective dates as of which
information is given in the Registration Statement and Prospectus, and
except as described in or specifically contemplated by the Prospectus:
(i) the Company and its subsidiaries have not incurred any material
liabilities or obligations, indirect, direct or contingent, or entered
into any material verbal or written agreement or other transaction
which is not in the ordinary course of business or which could result
in a material reduction in the future earnings of the Company and its
subsidiaries; (ii) the Company and its subsidiaries have not sustained
any material loss or interference with their respective businesses or
properties from fire, flood, windstorm, accident or other calamity,
whether or not covered by insurance; (iii) the Company has not paid or
declared any dividends or other distributions with respect to its
capital stock and the Company and its subsidiaries are not in default
in the payment of principal or interest on any outstanding debt
obligations; (iv) there has not been any change in the capital stock
(other than upon the sale of the Common Shares hereunder or
indebtedness material to the Company and its subsidiaries (other than
in the ordinary course of business); and (v) there has not been any
material adverse change in the condition (financial or otherwise),
business, properties, results of operations or prospects of the
Company and its subsidiaries.
(n) Except as disclosed in or specifically
contemplated by the Prospectus, the Company and its subsidiaries have
sufficient trademarks, trade names, patent rights, mask works,
copyrights, licenses, approvals and governmental authorizations to
conduct their businesses as now conducted; the expiration of any
trademarks, trade names, patent rights, mask works, copyrights,
licenses, approvals or governmental authorizations would not have a
material adverse effect on the condition (financial or otherwise),
business, results of operations or prospects of the Company or its
subsidiaries; and the Company has no knowledge of any material
infringement by it or its subsidiaries of trademark, trade name
rights, patent rights, mask works, copyrights, licenses, trade secret
or other similar rights of others, and there is no claim being made
against the Company or its subsidiaries regarding trademark, trade
name, patent, mask work, copyright, license, trade secret or other
infringement which could have a material adverse effect on the
condition (financial or otherwise), business, results of operations or
prospects of the Company and its subsidiaries.
(o) The Company has not been advised, and has no
reason to believe, that either it or any of its subsidiaries is not
conducting business in compliance with all applicable laws, rules and
regulations of the jurisdictions in which it is conducting business,
including, without limitation, all applicable local, state and federal
environmental laws and regulations; except where failure to be so in
compliance would not materially adversely affect the condition
(financial or otherwise), business, results of operations or prospects
of the Company and its subsidiaries.
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(p) The Company and its subsidiaries have filed
all necessary federal, state and foreign income and franchise tax
returns and have paid all taxes shown as due thereon; and the Company
has no knowledge of any tax deficiency which has been or might be
asserted or threatened against the Company or its subsidiaries which
could materially and adversely affect the business, operations or
properties of the Company and its subsidiaries.
(q) The Company is not an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
(r) The Company has not distributed any will not
distribute prior to the First Closing Date any offering material in
connection with the offering and sale of the Common Shares other than
the Prospectus, the Registration Statement and the other materials
permitted by the Act.
(s) Each of the Company and its subsidiaries
maintain insurance of the types and in the amounts generally deemed
adequate for its business, including, but not limited to, insurance
covering real and personal property owned or leased by the Company and
its subsidiaries against theft, damage, destruction, acts of vandalism
and all other risks customarily insured against, all of which
insurance is in full force and effect.
(t) Neither the Company nor any of its
subsidiaries has at any time during the last five years (i) made any
unlawful contribution to any candidate for foreign office, or failed
to disclose fully any contribution in violation of law, or (ii) made
any payment to any federal or state governmental officer or official,
or other person charged with similar public or quasi--public duties,
other than payments required or permitted by the laws of the United
States or any jurisdiction thereof.
(u) The Company has not taken and will not take,
directly or indirectly, any action designed to or that might be
reasonably expected to cause or result in stabilization or
manipulation of the price of the Class A Common Stock.
(v) 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.
(w) The Company has complied with all provisions
of Florida Statutes Section 517.075, relating to issues doing business
in Cuba.
SECTION 3. Representations, Warranties and Covenants of
the Selling Stockholder.
(a) The Selling Stockholder represents and warrants to,
and agrees with, the several Underwriters that:
(i) This Agreement has been duly authorized,
executed and delivered by such Selling Stockholder.
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(ii) The Custody Agreement has been duly
authorized, executed and delivered by such Selling Stockholder
and constitutes the valid and binding agreement of such
Selling Stockholder enforceable against such Selling
Stockholder 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.
(iii) The performance of this Agreement, the Custody
Agreement and the consummation of the transactions contemplated
hereby will not result in a breach or violation by such
Selling Stockholder of any of the terms or provisions of, or
constitute a default by such Selling Stockholder under, any
indenture, mortgage, deed of trust, trust (constructive or
other), loan agreement, lease, franchise, license or other
agreement or instrument to which such Selling Stockholder is a
party or by which such Selling Stockholder or any of its
properties is bound, any statute, or any judgment, decree,
order, rule or regulation of any court or governmental agency
or body applicable to such Selling Stockholder or any of its
properties.
(iv) Such Selling Stockholder has not taken and
will not take, directly or indirectly, any action designed to
or which has constituted or which might reasonably
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be expected to cause or result in stabilization or
manipulation of the price of any security of the Company to
facilitate the sale or resale of the Common Shares.
(v) Each Preliminary Prospectus and the
Prospectus, insofar as it has related to such Selling
Stockholder has conformed in all material respects to the
requirements of the Act and the Rules and Regulations and has
not included any untrue statement of a material fact or omitted
to state a material fact necessary to make the statements
therein not misleading in light of the circumstances under
which they were made; and neither the Registration Statement
nor the Prospectus, nor any amendment or supplement thereto, as
it relates to such Selling Stockholder, will include any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make statements
therein not misleading.
(vi) Immediately prior to and on the First Closing
Date, such Selling Stockholder will have valid and unencumbered
title to the Common Shares to be sold by such Selling
Stockholder hereunder, and, upon delivery of such Common Shares
against payment therefor as provided herein, valid and
unecumbered title to such shares will pass to the several
Underwriters (assuming that such Common Shares have been validly
authorized and issued by the Company and the Underwriters are
"bona fide purchasers" within the meaning of Section 8-302 of
the Uniform Commercial Code).
(vii) The Selling Stockholder is not affiliated with
or associated with any member of the National Association of
Securities Dealers, Inc. other than TIAA-CREF Individual &
Institutional Services, Inc. The Selling Stockholder has not
entered into any financial consulting agreement or any
arrangement contemplating the payment of advisory of finder's
fees that would result in additional compensation to the
Underwriters.
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
Stockholders agrees to deliver to you prior to or at the Closing Time (as
hereinafter defined) a properly completed and executed United States Treasury
Department Form W-9 (or other applicable form or statement specified by Treasury
Department regulatons in lieu thereof).
The Selling Stockholder represents and warrants that certificates in
negotiable form representing all of the Shares to be sold by such Selling
Stockholder hereunder have been placed in custody under a Custody Agreement, in
the form heretofore furnished to and approved by you, duly executed and
delivered by such Selling Stockholder to First Union National Bank of North
Carolina, as custodian (the "Custodian").
The Selling Stockholders specifically agrees that the Shares
represented by the certificates held in custody for such Selling Stockholder
under the Custody Agreement are subject to the interests of the Underwriters
hereunder, and that the arrangements made by such Selling Stockholder for such
custody are irrevocable. The Selling Stockholder specifically agrees that the
obligations of the Selling Stockholder hereunder shall not be terminated by
operation of law of by the dissolution of the Selling Stockholder or by the
occurrence of any other event.
(b) The Selling Stockholder agrees with the Company and the
Underwriters not to offer to sell, sell or contract to sell or
otherwise dispose of any shares of Class A Common Stock or securities
convertible into or exchangeable for any shares of Class A Common
Stock, for a period of 90 days after the first date that any of the
Common Shares are released by you for sale to the public, without the
prior written consent of either Montgomery Securities or each of the
Representatives, which consent may be withheld at the sole discretion
of Montgomery Securities or each of the Representatives, as the case
may be.
SECTION 4. Representations and Warranties of the
Underwriters. The Representatives, on behalf of the several Underwriters,
represent and warrant to the Company and to the Selling Stockholder that the
information set forth (i) on the cover page of the Prospectus with respect to
price, underwriting discounts and commissions and terms of offering and (ii) in
the first paragraph, including the table immediately following such paragraph
and the second paragraph under "Underwriting" in the Prospectus was furnished
to the Company by and on behalf of the Underwriters for use in connection with
the preparation of the Registration Statement and the Prospectus and is correct
in all material respects. The Representatives represent and warrant that they
have been authorized by each of the other Underwriters as the Representatives
to enter into this Agreement on its behalf and to act for it in the manner
herein provided.
SECTION 5. Purchase, Sale and Delivery of Common Shares.
On the basis of the representations, warranties and agreements herein
contained, but subject to the terms and conditions herein set forth, (i) the
Company agrees to issue and to sell to the Underwriters 2,000,000 of the
Firm Common Shares, and (ii) the Selling Stockholder agrees, to sell to the
Underwriters an aggregate of 200,000 of the Firm Common Shares. The
Underwriters agree, severally and not jointly, to purchase from the Company and
the Selling Stockholder, the number of Firm Common Shares described
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below. The purchase price per share to be paid by the several Underwriters to
the Company and to the Selling Stockholder shall be $___________ per share.
The obligation of each Underwriter to the Company shall be to purchase from the
Company that number of full shares which (as nearly as practicable, as
determined by you) bears to 2,000,000 the same proportion as the number of
shares set forth opposite the name of such Underwriter in Schedule I hereto
bears to the total number of Firm Common Shares. The obligation of each
Underwriter to the Selling Stockholder shall be to purchase from the Selling
Stockholder that number of full shares which (as nearly as practicable, as
determined by you) bears to 200,000 proportion as the number of shares set
forth opposite the name of such Underwriter in Schedule A hereto bears to the
total number of Firm Common Shares.
Delivery of certificates for the Firm Common Shares to be purchased by the
Underwriters and payment therefor shall be made at the offices of Montgomery
Securities, 600 Montgomery Street, San Francisco, California (or such other
place as may be agreed upon by the Company and the Representatives) at such
time and date, not later than the third (or, if the Firm Common Shares are
priced, as contemplated by Rule 15c6-1(c) under the Securities Exchange Act of
1934, after 4:30 P.M. Washington, D.C. time, the fourth) full business day
following the first date that any of the Common Shares are released by you for
sale to the public, as you shall designate by at least 48 hours prior notice to
the Company (the "First Closing Date"); provided, however, that if the
Prospectus is at any time prior to the First Closing Date recirculated to the
public, the First Closing Date shall occur upon the later of the third or
fourth, as the case may be, full business day following the first date that any
of the Common Shares are released by you for sale to the public or the date
that is 48 hours after the date that the Prospectus has been so recirculated.
Delivery of certificates for the Firm Common Shares shall be made by or on
behalf of the Company and the Selling Stockholder to you, for the respective
accounts of the Underwriters with respect to the Firm Common Shares to be sold
by the Company and by the Selling Stockholder against payment by you, for the
accounts of the several Underwriters, of the purchase price therefor by fed
funds to the order of the Company and of the Agent in proportion to the number
of Firm Common Shares to be sold by the Company and the Selling Stockholder,
respectively. The certificates for the Firm Common Shares shall be registered
in such names and denominations as you shall have requested at least two full
business days prior to the First Closing Date, and shall be made available for
checking and packaging on the business day preceding the First Closing Date at
a location in New York, New York, as may be designated by you. Time shall be
of the essence, and delivery at the time and place specified in this Agreement
a further condition to the obligations of the Underwriters.
In addition, on the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company hereby grants an option to the several Underwriters to purchase up to
an aggregate of 330,000 Optional Common Shares at the purchase price per share
to be paid for the Firm Common Shares, for use solely in covering any
over-allotments made by you for the account of the Underwriters in the sale and
distribution of the Firm Common Shares. The option granted hereunder may be
exercised at any time (but not more than
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once) within 30 days after the first date that any of the Common Shares are
released by you for sale to the public, upon notice by you to the Company said
Selling Stockholder setting forth the aggregate number of Optional Common
Shares as to which the Underwriters are exercising the option, the names and
denominations in which the certificates for such shares are to be registered
and the time and place at which such certificates will be delivered. Such time
of delivery (which may not be earlier than the First Closing Date), being
herein referred to as the "Second Closing Date," shall be determined by you,
but if at any time other than the First Closing Date shall not be earlier than
three nor later than five full business days after delivery of such notice of
exercise. The number of Optional Common Shares to be purchased by each
Underwriter shall be determined by multiplying the number of Optional Common
Shares to be sold by the Company pursuant to such notice of exercise by a
fraction, the numerator of which is the number of Firm Common Shares to be
purchased by such Underwriter as set forth opposite its name in Schedule and
the denominator of which is ______ (subject to such adjustments to eliminate
any fractional share purchases as you in your discretion may make).
Certificates for the Optional Common Shares will be made available for checking
and packaging on the business day preceding the Second Closing Date at a
location in New York, New York, as may be designated by you. The manner of
payment for and delivery of the Optional Common Shares shall be the same as for
the Firm Common Shares purchased from the Company said Selling Stockholder as
specified in the two preceding paragraphs. At any time before lapse of the
option, you may cancel such option by giving written notice of such
cancellation to the Company. If the option is canceled or expires unexercised
in whole or in part, the Company will deregister under the Act the number of
Option Shares as to which the option has not been exercised.
You have advised the Company and the Selling Stockholder that each Underwriter
has authorized you to accept delivery of its Common Shares, to make payment and
to receipt therefor. You, individually and not as the Representatives of the
Underwriters, may (but shall not be obligated to) make payment for any Common
Shares to be purchased by any Underwriter whose funds shall not have been
received by you by the First Closing Date or the Second Closing Date, as the
case may be, for the account of such Underwriter, but any such payment shall
not relieve such Underwriter from any of its obligations under this Agreement.
Subject to the terms and conditions hereof, the Underwriters propose to make a
public offering of their respective portions of the Common Shares as soon after
the effective date of the Registration Statement as in the judgment of the
Representatives is advisable and at the public offering price set forth on the
cover page of and on the terms set forth in the final prospectus, if one is
use, or on the first page of the Term Sheet, if one is used.
SECTION 6. Covenants of the Company. The Company
covenants and agrees that:
(a) The Company will use its best efforts to cause the
Registration Statement and any amendment thereof, if not effective at
the time and date that this Agreement is executed and delivered by the
parties hereto, to become effective. If the Registration Statement
has become or becomes effective pursuant to Rule 430A of the Rules and
Regulations, or the filing of the Prospectus is otherwise required
under Rule 424(b) of the Rules and Regulations,
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<PAGE> 13
the Company will file the Prospectus, properly completed, pursuant to
the applicable paragraph of Rule 424(b) of the Rules and Regulations
within the time period prescribed and will provide evidence
satisfactory to you of such timely filing. The Company will promptly
advise you in writing (i) of the receipt of any comments of the
Commission, (ii) of any request of the Commission for amendment of or
supplement to the Registration Statement (either before or after it
becomes effective), any Preliminary Prospectus or the Prospectus or
for additional information, (iii) when the Registration Statement
shall have become effective, and (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or of the institution of any proceedings for
that purpose. If the Commission shall enter any such stop order at
any time, the Company will use its best efforts to obtain the lifting
of such order at the earliest possible moment. The Company will not
file any amendment or supplement to the Registration Statement (either
before or after it becomes effective), any Preliminary Prospectus or
the Prospectus of which you have not been furnished with a copy a
reasonable time prior to such filing or to which you reasonably object
or which is not in compliance with the Act and the Rules and
Regulations.
(b) The Company will prepare and file with the
Commission, promptly upon your request, any amendments or supplements
to the Registration Statement or the Prospectus which in your judgment
may be necessary or advisable to enable the several Underwriters to
continue the distribution of the Common Shares and will use its best
efforts to cause the same to become effective as promptly as possible.
The Company will fully and completely comply with the provisions of
Rule 430A of the Rules and Regulations with respect to information
omitted from the Registration Statement in reliance upon such Rule.
(c) If at any time within the nine-month period referred
to in Section 10(a)(3) of the Act during which a prospectus relating
to the Common Shares is required to be delivered under the Act any
event occurs, as a result of which the Prospectus, including any
amendments or supplements, would include an untrue statement of a
material fact, or omit to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading, or if it is necessary at any time to amend the Prospectus,
including any amendments or supplements, to comply with the Act or the
Rules and Regulations, the Company will promptly advise you thereof
and will promptly prepare and file with the Commission, at its own
expense, an amendment or supplement which will correct such statement
or omission or an amendment or supplement which will effect such
compliance and will use its best efforts to cause the same to become
effective as soon as possible; and, in case any Underwriter is
required to deliver a prospectus after such nine-month period, the
Company upon request, but at the expense of such Underwriter, will
promptly prepare such amendment or amendments to the Registration
Statement and such Prospectus or Prospectuses as may be necessary to
permit compliance with the requirements of Section 10(a)(3) of the
Act.
(d) As soon as practicable, but not later than 45 days
after the end of the first quarter ending after one year following the
"effective date of the Registration Statement" (as
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<PAGE> 14
defined in Rule 158(c) of the Rules and Regulations), the Company will
make generally available to its security holders an earnings statement
(which need not be audited) covering a period of 12 consecutive months
beginning after the effective date of the Registration Statement which
will satisfy the provisions of the last paragraph of Section 11(a) of
the Act.
(e) During such period as a prospectus is required by law
to be delivered in connection with sales by an Underwriter or dealer,
the Company, at its expense, but only for the nine-month period
referred to in Section 10(a)(3) of the Act, will furnish to you or
mail to your order copies of the Registration Statement, the
Prospectus, the Preliminary Prospectus and all amendments and
supplements to any such documents in each case as soon as available
and in such quantities as you may request, for the purposes
contemplated by the Act.
(f) The Company shall cooperate with you and your counsel
in order to qualify or register the Common Shares for sale under (or
obtain exemptions from the application of) the Blue Sky laws of such
jurisdictions as you designate, will comply with such laws and will
continue such qualifications, registrations and exemptions in effect
so long as reasonably required for the distribution of the Common
Shares. The Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any
such jurisdiction where it is not presently qualified or where it
would be subject to taxation as a foreign corporation. The Company
will advise you promptly of the suspension of the qualification or
registration of (or any such exemption relating to) the Common Shares
for offering, sale or trading in any jurisdiction or any initiation or
threat of any proceeding for any such purpose, and in the event of the
issuance of any order suspending such qualification, registration or
exemption, the Company, with your cooperation, will use its best
efforts to obtain the withdrawal thereof.
(g) During the period of five years hereafter, the
Company will furnish to the Representatives and, upon request of the
Representatives, to each of the other Underwriters: (i) as soon as
practicable after the end of the each fiscal year, copies of the
Annual Report of the Company containing the balance sheet of the
Company as of the close of such fiscal year and statements of income,
stockholders' equity and cash flows for the year then ended and the
opinion thereon of the Company's independent public accountants; (ii)
as soon as practicable after the filing thereof, copies of each proxy
statement, Annual Report on Form 10-K, Quarterly Report on Form 10-Q,
Report on Form 8-K or other report filed by the Company with the
Commission, the NASD or any securities exchange; and (iii) as soon as
available, copies of any report or communication of the Company mailed
generally to holders of its Class A Common Stock.
(h) During the period of 90 days after the first date
that any of the Common Shares are released by you for sale to the
public, without the prior written consent of either Montgomery
Securities or each of the Representatives (which consent maybe
withheld at the sole discretion of the Montgomery Securities or the
Representatives, as the case may be), the
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<PAGE> 15
Company will not, directly or indirectly, other than pursuant to
outstanding stock options and warrants disclosed in the Prospectus
issue, offer, sell, contract or grant options to purchase or otherwise
dispose of any of the Company's equity securities or any other
securities convertible into or exchangeable with its Class A Common
Stock or other equity security.
(i) The Company will apply the net proceeds of the sale
of the Common Shares sold by it substantially in accordance with its
statements under the caption "Use of Proceeds" in the Prospectus.
(j) The Company will use its best efforts to qualify or
register its Class A Common Stock for sale in non-issuer transactions
under (or obtain exemptions from the application of) the Blue Sky laws
of the State of California (and thereby permit market making
transactions and secondary trading in the Company's Class A Common
Stock in California), will comply with such Blue Sky laws and will
continue such qualifications, registrations and exemptions in effect
for a period of five years after the date hereof.
(k) The documents incorporated by reference in the
Prospectus (except for any financial statements and schedules included
in such documents as to which such counsel need express no opinion),
when they were filed with the Commission, complied as to form in all
material respects with the requirements of the Exchange Act and the
rules and regulations of the Commission thereunder; and such counsel
has no reason to believe that any of such documents (except for any
financial statements and schedules included in such documents as to
which such counsel need express no opinion), when they were so filed,
contained an untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made when such
documents were so filed, not misleading.
You, on behalf of the Underwriters, may, in your sole
discretion, waive in writing the performance by the Company of any one or more
of the foregoing covenants or extend the time for their performance.
SECTION 7. Payment of Expenses. Whether or not the
transactions contemplated hereunder are consummated or this Agreement becomes
effective or is terminated, the Company agrees to pay all costs, fees and
expenses incurred in connection with the performance of the transactions
contemplated hereby, including without limiting the generality of the
foregoing, (i) all expenses incident to the issuance and delivery of the common
Shares (including all printing and engraving costs), (ii) all fees and expenses
of the registrar and transfer agent of the Class A Common Stock, (iii) all
necessary issue, transfer and other stamp taxes in connection with the issuance
and sale of the Common Shares to the Underwriters, (iv) all fees and expenses
of the Company's counsel and the Company's independent accountants, (v) all
costs and expenses incurred in connection with the preparation, printing,
filing, shipping and distribution of the Registration Statement, each
Preliminary Prospectus and the Prospectus (including all exhibits and financial
statements) and all amendments and supplements provided for herein, this
Agreement, the Agreement Among Underwriters, the
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<PAGE> 16
Selected Dealers Agreement, the Underwriters' Questionnaire, the Underwriters'
Power of Attorney and the Blue Sky memorandum, (vi) all filing fees, attorneys'
fees and expenses incurred by the Company or the Underwriters in connection
with qualifying or registering (or obtaining exemptions from the qualification
or registration of) all or any part of the Common Shares for offer and sale
under the Blue Sky laws, (vii) the filing fee of the National Association of
Securities Dealers, Inc. and (viii) all other fees, costs and expenses referred
to in Item 13 of the Registration Statement. The Underwriters may deem the
Company to be the primary obligor with resect to all costs, fees and expenses
to be paid by the Company and by the Selling Stockholder. Except as provided
in this Section 7, Section 9 and Section 11 hereof, the Underwriters shall pay
all of their own expenses, including the fees and disbursements of their
counsel (excluding those relating to qualification, registration or exemption
under the Blue Sky laws and the Blue Sky memorandum referred to above).
SECTION 8. Conditions of the Obligations of the
Underwriters. The obligations of the several Underwriters to purchase and pay
for the Firm Common Shares on the First Closing Date and the Optional Common
Shares on the Second Closing Date shall be subject to the accuracy of the
representations and warranties on the part of the Company and the Selling
Stockholder herein set forth as of the date hereof and as of the First Closing
Date or the Second Closing Date, as the case may be, to the accuracy of the
statements of Company officers and the Selling Stockholder made pursuant to the
provisions hereof, to the performance by the Company and the Selling
Stockholder of their respective obligations hereunder, and to the following
additional conditions:
(a) The Registration Statement shall have become
effective not later than 5:00 P.M. (or, in the case of a registration
statement filed pursuant to Rule 462(b) of the Rules and Regulations
relating to the Common Shares, not later than 10 P.M.), Washington,
D.C. Time, on the date of this Agreement, or at such later time as
shall have been consented to by you; if the filing of the Prospectus,
or any supplement thereto, is required pursuant to Rule 424(b) of the
Rules and Regulations, the Prospectus shall have been filed in the
manner and within the time period required by Rule 424(b) of the Rules
and Regulations; and prior to such Closing Date, no stop order
suspending the effectiveness of the Registration Statement shall have
been issued and no proceedings for that purpose shall have been
instituted or shall be pending or, to the knowledge of the Company,
the Selling Stockholder or you, shall be contemplated by the
Commission; and any request of the Commission for inclusion of
additional information in the Registration Statement, or otherwise,
shall have been complied with to your satisfaction.
(b) You shall be satisfied that since the respective
dates as of which information is given in the Registration Statement
and Prospectus, (i) there shall not have been any change in the
capital stock of the Company or any of its subsidiaries or any
material change in the indebtedness (other than in the ordinary course
of business) of the Company or any of its subsidiaries, (ii) except as
set forth or contemplated by the Registration Statement or the
Prospectus, no material verbal or written agreement or other
transaction shall have been entered into by the Company or any of its
subsidiaries, which is not in the ordinary course of business or which
could result in a material reduction in the future earnings of the
Company
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<PAGE> 17
and its subsidiaries, (iii) no loss or damage (whether or not insured)
to the property of the Company or any of its subsidiaries shall have
been sustained which materially and adversely affects the condition
(financial or otherwise), business, results of operations or prospects
of the Company and its subsidiaries, (iv) no legal or governmental
action, suit or proceeding affecting the Company or any of its
subsidiaries which is material to the Company and its subsidiaries or
which affects or may affect the transactions contemplated by this
Agreement shall have been instituted or threatened, and (v) there
shall not have been any material change in the condition (financial or
otherwise), business, management, results of operations or prospects
of the Company and its subsidiaries which makes it impractical or
inadvisable in the judgment of the Representatives to proceed with the
public offering or purchase of the Common Shares as contemplated
hereby.
(c) There shall have been furnished to you, as
Representatives of the Underwriters, on each Closing Date, in form and
substance satisfactory to you, expect as otherwise expressly provided
below:
(i) An opinion of Alston & Bird, counsel
for the Company, addressed to the Underwriters and dated
the First Closing Date, or the Second Closing Date, as
the case may be, to the effect that:
(1) The Company has been duly
incorporated and is validly existing as a
corporation and each of the Company and its
subsidiaries in good standing under the laws of its
jurisdiction of incorporation, is duly qualified to
do business as a foreign corporation and is in good
standing in all other jurisdictions where the
ownership or leasing of properties or the conduct of
its business requires such qualification, except for
jurisdictions in which the failure to so qualify
would not have a material adverse effect on the
Company and its subsidiaries, and has full corporate
power and authority to own its properties and conduct
its business as described in the Registration
Statement;
(2) The authorized, issued and
outstanding capital stock of the Company is as set
forth under the caption "Capitalization" in the
Prospectus; all necessary and proper corporate
proceedings have been taken in order to authorize
validly such authorized Common Stock; all
outstanding shares of Common Stock (including the
Firm Common Shares and any Optional Common Shares)
have been duly and validly issued, are fully paid
and nonassessable, have been issued in compliance
with federal and state securities laws, were not
issued in violation of or subject to any preemptive
rights or other rights to subscribe for or purchase
any securities and conform to the description
thereof contained in the Prospectus; without
limiting the foregoing, there are no preemptive or
other rights to subscribe for or purchase any of the
Common Shares to be sold by the Company hereunder;
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<PAGE> 18
(3) All of the issued and outstanding
shares of the Company's subsidiaries are, to the
knowledge of such counsel, owned beneficially by the
Company free and clear of all liens, encumbrances,
equities, claims, security interests, voting trusts
or other defects of title whatsoever;
(4) The certificates evidencing the
Common Shares to be delivered hereunder are in due
and proper form under Delaware law, and when duly
countersigned by the Company's transfer agent and
registrar, and delivered to you or upon your order
against payment of the agreed consideration therefor
in accordance with the provisions of this Agreement,
the Common Shares represented thereby will be duly
authorized and validly issued, fully paid and
nonassessable, will have been issued in violation of
or subject to preemptive rights or other rights to
subscribe for or purchase securities and will
conform in all respects to the description thereof
contained in the Prospectus;
(5) Except as disclosed in or
specifically contemplated by the Prospectus, to the
best of such counsel's knowledge, there are no
outstanding options, warrants or other rights calling
for the issuance of, and no commitments, plans or
arrangements to issue, any shares of capital stock of
the Company or any security convertible into or
exchangeable for capital stock of the Company;
(6)
(a) The Registration Statement has
become effective under the Act, and, to the
best of such counsel's knowledge, no stop
order suspending the effectiveness of the
Registration Statement or preventing the use
of the Prospectus has been issued and no
proceedings for that purpose have been
instituted or are pending or contemplated by
the Commission; any required filing of the
Prospectus and any supplement thereto
pursuant to Rule 424(b) of the Rules and
Regulations has been made in the manner and
within the time period required by such Rule
424(b);
(b) The Registration Statement, the
Prospectus and each amendment or supplement
thereto (except for the financial statements
and schedules included therein [and
other statistical information] as to
which such counsel need express no opinion)
comply as to form in all material respects
with the requirements of the Act and the
Rules and Regulations;
(c) To the best of such counsel's
knowledge, there are no franchises, leases,
contracts, agreements or documents of a
character
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<PAGE> 19
required to be disclosed in the Registration
Statement or Prospectus or to be filed as
exhibits to the Registration Statement which
are not disclosed or filed, as required; and
(d) To the best of such counsel's
knowledge, there are no legal or governmental
actions, suits or proceedings pending or
threatened against the Company which are
required to be described in the Prospectus
which are not described as required.
(7) The Company has full right, power
and authority to enter into this Agreement and to
sell and deliver the Common Shares to be sold by it
to the several Underwriters; this Agreement has been
duly and validly authorized by all necessary
corporate action by the Company, has been duly and
validly executed and delivered by and on behalf of
the Company, and is a valid and binding agreement of
the Company in accordance with its terms, except as
enforceability may be limited by general equitable
principles, bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights
generally and except as to those provisions relating
to indemnity or contribution for liabilities arising
under the Act as to which no opinion need be
expressed; and no approval, authorization, order,
consent, registration, filing, qualification, license
or permit of or with any court, regulatory,
administrative or other governmental body is required
for the execution and delivery of this Agreement by
the Company or the consummation of the transactions
contemplated by this Agreement, except such as have
been obtained and are in full force and effect under
the Act and such may be required under applicable
Blue Sky laws in connection with the purchase and
distribution of the Common Shares by the Underwriters
and the clearance of such offering with the NASD;
(8) The execution and performance of
this Agreement and the consummation of the
transactions herein contemplated will not conflict
with, result in the breach of, or constitute, either
by itself or upon notice or the passage of time or
both, a default under, any agreement, mortgage, deed
of trust, lease, franchise, license, indenture,
permit or other instrument known to such counsel to
which the Company or any of its subsidiaries is a
party or by which the Company or any of its
subsidiaries or any of its or their property may be
bound or affected which is material to the Company
and its subsidiaries, or violate any of the
provisions of the certificate of incorporation or
bylaws, or other organizational documents, of the
Company or any of its subsidiaries or, so far as is
known to such counsel, violate any statute, judgment,
decree, order, rule or regulation of any court or
governmental body having jurisdiction over the
Company or any of its subsidiaries or any of its or
their property;
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<PAGE> 20
(9) Neither the Company nor any
subsidiary is in violation of its certificate of
incorporation or bylaws, or other organizational
documents, or to the best of such counsel's
knowledge, in breach of or default with respect to
any provision of any agreement, mortgage, deed of
trust, lease, franchise, license, indenture, permit
or other instrument known to such counsel to which
the Company or any such subsidiary is a party or by
which it or any of its properties may be bound or
affected, except where such default would not
materially adversely affect the Company and its
subsidiaries; and, to the best of such counsel's
knowledge, the Company and its subsidiaries are in
compliance with all laws, rules, regulations,
judgments, decrees, orders and statutes of any court
or jurisdiction to which they are subject, except
where noncompliance would not materially adversely
affect the Company and its subsidiaries;
(10) To the best of such counsel's
knowledge, no holders of securities of the Company
have rights which have not been waived to the
registration of shares of Class A Common Stock or
other securities, because of the filing of the
Registration Statement by the Company or the offering
contemplated hereby;
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<PAGE> 21
(d) You shall have received an opinion, dated as
of the Closing Time, of Robert G. Gilmore, Esquire, counsel for the
Selling Stockholder in form and substance satisfactory to you and
your counsel, to the effect that:
(i) This Agreement has been duly
executed and delivered by such Selling Stockholder;
(ii) The sale of the Shares to be sold by
such Selling Stockholder at such Date of Delivery and the
performance of this Agreement and the consummation of the
transactions contemplated herein contemplated will not result
in a breach or violation of any of the terms or provisions of,
or constitute a default under, any material agreement or
instrument to which such Selling Stockholder is a party or by
which such Selling Stockholder is bound or to which any of
its properties is subject, or the Articles of Incorporation or
Bylaws of such Selling Stockholder or any order, rule or
regulation of any court, governmental agency or body having
jurisdiction over such Selling Stockholder or any of such
Selling Stockholder's properties.
(iii) Immediately prior to and on the
First Closing Date, such Selling Stockholder will have valid
and unencumbered title to the Common Shares to be sold by such
Selling Stockholder hereunder, and, upon delivery of such
Common Shares against payment therefor as provided herein,
valid and unecumbered title to such shares will pass to the
several Underwriters (assuming that such Common Shares have
been validly authorized and issued by the Company and the
Underwriters are "bona fide purchasers" within the meaning of
Section 8-302 of the Uniform Commercial Code).
(iv) No consent, approval, authorization
or order of, or filing with, any court, or governmental agency
or body is required for the issue and sale of the Shares being
sold by such Selling Stockholder or the consummation of the
transactions contemplated by this Agreement, except the
registration of such Shares under the 1933 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.
In rendering such opinion, such counsel may rely as to the matters set forth in
paragraphs (12), (13) and (14), on opinions of other counsel retained by the
Selling Stockholder, as to matters of local law, on opinions of local counsel,
and as to matters of fact, on certificates of the Selling Stockholder and of
officers of the Company and of governmental officials, in which case their
opinion is to state that they are so doing and that the Underwriters are
justified in relying on such opinions or certificates and copies of said
opinions or certificates are to be attached to the opinion. Such counsel shall
also include a statement to the effect that nothing has come to such counsel's
attention that would lead such counsel to believe that either at the effective
date of the Registration Statement or at the applicable Closing Date the
Registration Statement or the Prospectus, or any such amendment or supplement,
contains any untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading.
(ii) Such opinion or opinions of King &
Spalding, counsel for the Underwriters dated the First Closing
Date or the Second Closing Date, as the case may be , with
respect to the incorporation of the Company, the sufficiency
of all corporate proceedings and other legal matters relating
to this Agreement, the validity of the Common Shares to be
offered and sold by the Company, the Registration Statement
and the Prospectus and other related matters as you may
reasonably require, and the Company and the Selling
Stockholder shall have furnished to such counsel such
documents and shall have exhibited to them such papers and
records as they may reasonably request for the purpose of
enabling them to pass upon such matters. In connection with
such
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<PAGE> 22
opinions, such counsel may rely on representations or
certificates of officers of the Company and governmental
officials.
(iii) A certificate of the Company
executed by the Chairman of the Board or President and the
chief financial or accounting officer of the Company, dated
the First Closing Date or the Second Closing Date, as the case
may be, to the effect that:
(1) The representations and
warranties of the Company set forth in Section 2 of
this Agreement are true and correct as of the date of
this Agreement and as of the First Closing Date or
the Second Closing Date, as the case may be, and the
Company has complied with all the agreements and
satisfied all the conditions on its part to be
performed or satisfied on or prior to such Closing
Date;
(2) The Commission has not issued
any order preventing or suspending the use of the
Prospectus or any Preliminary Prospectus filed as a
part of the Registration Statement or any amendment
thereto; no stop order suspending the effectiveness
of the Registration Statement has been issued; and to
the best of the knowledge of the respective signers,
no proceedings for that purpose have been instituted
or are pending or contemplated under the Act;
(3) Each of the respective signers
of the certificate has carefully examined the
Registration Statement and the Prospectus; in his
opinion and to the best of his knowledge, the
Registration Statement and the Prospectus and any
amendments or supplements thereto contain all
statements required to be stated therein regarding
the Company and its subsidiaries; and neither the
Registration Statement nor the Prospectus nor any
amendment or supplement thereto includes any untrue
statement of a material fact or omits to state any
material fact required to be stated therein or
necessary to make the statements therein not
misleading;
(4) Since the initial date on which
the Registration Statement was filed, no agreement,
written or oral, transaction or event has occurred
which should have been set forth in an amendment to
the Registration Statement or in a supplement to or
amendment of any prospectus which has not been
disclosed in such a supplement or amendment;
(5) Since the respective dates as
of which information is given in the Registration
Statement and the Prospectus, and except as disclosed
in or contemplated by the Prospectus, there has not
been any material adverse change or a development
involving a material adverse change in the condition
(financial or otherwise), business, properties,
results of operations,
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<PAGE> 23
management or prospects of the Company and its
subsidiaries; and no legal or governmental action,
suit or proceeding is pending or threatened against
the Company or any of its subsidiaries which is
material to the Company and its subsidiaries, whether
or not arising from transactions in the ordinary
course of business, or which may adversely affect the
transactions contemplated by this Agreement; since
such dates and except as so disclosed, neither the
Company nor any of its subsidiaries has entered into
any verbal or written agreement or other transaction
which is not in the ordinary course of business or
which could result in a material reduction in the
future earnings of the Company or incurred any
material liability or obligation, direct, contingent
or indirect, made any change in its capital stock,
made any material change in its short-term debt or
funded debt or repurchased or otherwise acquired any
of the Company's capital stock; and the Company has
not declared or paid any dividend, or made any other
distribution, upon its outstanding capital stock
payable to stockholders of record on a date prior to
the First Closing Date or Second Closing Date; and
(6) Since the respective dates as of
which information is given in the Registration
Statement and the Prospectus and except as disclosed
in or contemplated by the Prospectus, the Company and
its subsidiaries have not sustained a material loss
or damage by strike, fire, flood, windstorm, accident
or other calamity (whether or not insured).
(iv) On the First Closing Date or the Second
Closing Date, as the case may be, a certificate, dated such
Closing Date and addressed to you, signed by or on behalf
of each of the Selling Stockholder to the effect that the
representations and warranties of such Selling Stockholder in
this Agreement are true and correct, as if made at and as of
the First Closing Date or the Second Closing Date, as the case
may be , and such Selling Stockholder has complied with all
the agreements and satisfied all the conditions on his part to
be performed or satisfied prior to the First Closing Date or
the Second Closing Date, as the case may be.
(v) On the date before this Agreement is
executed and also on the First Closing Date and the Second
Closing Date a letter addressed to you, as Representatives of
the Underwriters, from Ernst & Young LLP, independent
accountants, the first one to be dated the day before the date
of this Agreement, the second one to be dated the First
Closing Date and the third one (in the event of a Second
Closing) to be dated the Second Closing Date, in form and
substance satisfactory to you.
(vi) On or before the First Closing Date, letters
from each of the Selling Stockholder, certain holders of the
Company's Class A and/or Class B Common Stock and each
director and officer of the Company, in form and substance
satisfactory to
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you, confirming that for a period of 90 days after the first
date that any of the Common Shares are released by you for
sale to the public, such person will not directly or
indirectly sell or offer to sell or otherwise dispose of any
shares of Class A and/or Class B Common Stock or any right to
acquire such shares without the prior written consent of
either Montgomery Securities or each of the Representatives,
which consent may be withheld at the sole discretion of
Montgomery Securities or each of the Representatives, as the
case may be.
All such opinions, certificates, letters and documents shall be in compliance
with the provisions hereof only if they are satisfactory to you and to King &
Spalding, counsel for the Underwriters. The Company shall furnish you with
such manually signed or conformed copies of such opinions, certificates,
letters and documents as you request. Any certificate signed by any officer of
the Company and delivered to the Representatives or to counsel for the
Underwriters shall be deemed to be a representation and warranty by the Company
to the Underwriters as to the statements made therein.
If any condition to the Underwriters' obligations hereunder to be satisfied
prior to or at the First Closing Date is not so satisfied, this Agreement at
your election will terminate upon notification by you as Representatives to the
Company and the Selling Stockholder without liability on the part of any
Underwriter or the Company, the Company or the Selling Stockholder except for
the expenses to be paid or reimbursed by the Company and by the Selling
Stockholder pursuant to Sections 7 and 9 hereof and except to the extent
provided in Section 11 hereof.
SECTION 9. Reimbursement of Underwriters' Expenses.
Notwithstanding any other provisions hereof, if this Agreement shall be
terminated by you pursuant to Section 8, or if the sale to the Underwriters of
the Common Shares at the First Closing is not consummated because of any
refusal, inability or failure on the part of the Company or the Selling
Stockholder to perform any agreement herein or to comply with any provision
hereof, the Company agrees to reimburse you and the other Underwriters upon
demand for all out-of-pocket expenses that shall have been reasonably incurred
by you and them in connection with the proposed purchase and the sale of the
Common Shares, including but not limited to fees and disbursements of counsel,
printing expenses, travel expenses, postage, telegraph charges and telephone
charges relating directly to the offering contemplated by the Prospectus. Any
such termination shall be without liability of any party to any other party
except that the provisions of this Section, Section 7 and Section 11 shall at
all times be effective and shall apply.
SECTION 10. Effectiveness of Registration Statement.
You, the Company and the Selling Stockholder will use your, its and their best
efforts to cause the Registration Statement to become effective, to prevent the
issuance of any stop order suspending the effectiveness of the Registration
Statement and, if such stop order be issued, to obtain as soon as possible the
lifting thereof.
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SECTION 11. Indemnification.
(a) The Company will indemnify and hold harmless each
Underwriter (and each person, if any, who controls any Underwriter
within the meaning of the Act) and the Selling Stockholder against any
losses, claims, damages, liabilities or expenses, joint or several, to
which such Underwriter and the Sellig Stockholder or such controlling
person may become subject, under the Act, the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or other federal or state
statutory law or regulation, or at common law or otherwise (including
in settlement of any litigation, if such settlement is effected with
the written consent of the Company), insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof as
contemplated below) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained
in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, or arise out of
or are based upon the omission or alleged omission to state in any of
them a material fact required to be stated therein or necessary to
make the statements in any of them not misleading, or arise out of or
are based in whole or in part on any inaccuracy in the
representations and warranties of the Company contained herein or
any failure of the Company to perform its obligations hereunder or
under law; and will reimburse each Underwriter and the Selling
Stockholder and each such controlling person for any legal and other
expenses as such expenses are reasonably incurred by such Underwriter,
Selling Stockholder or such controlling person in connection with
investigating, defending, settling, compromising or paying any such
loss, claim, damage, liability, expense or action; provided, however,
that the Company will not be liable in any such case to the extent
that any such loss, claim, damage, liability or expense arises out of
or is based upon any untrue statement or alleged untrue statement or
omission or alleged omission made in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement
thereto in reliance upon and in conformity with the information
furnished to the Company by the Underwriters pursuant to Section 4
hereof or furnished by the Selling Stockholder. In addition to its
other obligations under this Section 11(a), the Company agrees that,
as an interim measure during the pendency of any claim, action,
investigation, inquiry or other proceeding arising out of or based
upon any statement or omission, or any alleged statement or omission,
or any inaccuracy in the representations and warranties of the
Company herein or failure to perform its obligations hereunder, all
as described in this Section 11(a), it will reimburse each
Underwriter and the Selling Stockholder on a quarterly basis for all
reasonable legal or other expenses incurred in connection with
investigating or defending any such claim, action, investigation,
inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the
Company's obligation to reimburse each Underwriter for such expenses
and the possibility that such payments might later be held to have
been improper by a court of competent jurisdiction. To the extent
that any such interim reimbursement payment is so held to have
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been improper, each Underwriter and the Selling Stockholder shall
promptly return it to the Company together with interest, compounded
daily, determined on the basis of the prime rate (or other commercial
lending rate for borrowers of the highest credit standing) announced
from time to time by Bank of America NT&SA, San Francisco, California
(the "Prime Rate"). Any such interim reimbursement payments which
are not made to an Underwriter and the Selling Stockholder within 30
days of a request for reimbursement, shall bear interest at the Prime
Rate from the date of such request. This indemnity agreement will be
in addition to any liability which the Company may otherwise have.
(b) The Selling Stockholder will indemnify and hold
harmless the Company and each Underwriter, against any losses, claims,
damages, liabilities or expenses, joint or several, to which the
Company and each Underwriter may become subject, under the Act, the
Exchange Act, or other federal or state statutory law or regulation,
or at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent
of such Underwriter), insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof as
contemplated below) arise out of or are based upon any untrue or
alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus,
or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but
only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, in reliance upon and in conformity
with the information furnished to the Company and the Underwriters by
the Selling Stockholder; and will reimburse the Company and each
Underwriter for any legal and other expense reasonably incurred by
the Company and each Underwriter in connection with investigating,
defending, settling, compromising or paying any such loss, claim,
damage, liability, expense or action; provided, however, that the
Selling Stockholder shall be liable hereunder in any case only
to the extent of the total net proceeds received by such Selling
Stockholder from the Underwriters from the sale of the Common Shares
sold by such Selling Stockholder (after deduction of underwriting
discounts and commission but before deducting expenses). In addition
to its other obligations under this Section 11(b), the Selling
Stockholder agrees that, as an interim measure during the pendency of
any claim, action, investigation, inquiry or other proceeding arising
out of or based upon any statement or omission, or any alleged
statement or omission, described in this Section 11(b) which relates
to information furnished to the Company and the Underwriters by the
Selling Stockholder, it will reimburse the Company and each
Underwriter on a quarterly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any
such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the
propriety and enforceability of the Selling Stockholders' obligation
to reimburse the Company and each Underwriter for such expenses and
the possibility that such payments might later be held to have been
improper by a court of competent jurisdiction. To the extent that
any such interim reimbursement payment is so held to have been
improper, the Company shall promptly return it to the Underwriters
together with interest, compounded daily, determined on the basis of
the Prime Rate. Any such interim reimbursement payments which are not
made to the Company and each Underwriter within 30 days of a request
for reimbursement, shall bear interest at the Prime Rate from the
date of such request. This indemnity agreement will be in addition
to any liability which such Selling Stockholder may otherwise have.
(c) Each Underwriter will severally indemnify and hold
harmless the Company, each of its directors, each of its officers who
signed the Registration Statement , the Selling Stockholder and each
person, if any, who controls the Company or any Selling Stockholder
within the meaning of the Act, against any losses, claims, damages,
liabilities or expenses to which the Company, or any such director,
officer , Selling Stockholder or controlling person may become
subject, under the Act, the Exchange Act, or other federal or state
statutory law or regulation, or at common law or otherwise (including
in settlement of any litigation, if such settlement is effected with
the written consent of such Underwriter), insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect
thereof as contemplated below) arise out of or are based upon any
untrue or alleged untrue statement of any material fact contained in
the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but
only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, in reliance upon and in conformity
with the information furnished to the Company pursuant to Section 4
hereof; and will reimburse the Company, or any such director, officer,
Selling Stockholder or controlling person for any legal and other
expense reasonably incurred by the Company, or any such director,
officer, Selling Stockholder or controlling person in connection with
investigating, defending, settling, compromising or paying any such
loss, claim, damage, liability, expense or action. In addition to its
other obligations under this Section 11(b), each Underwriter severally
agrees that, as an interim measure during the pendency of any claim,
action, investigation, inquiry or other proceeding arising out of or
based upon any statement or omission, or any alleged statement or
omission, described in this Section 11(b) which relates to information
furnished to the Company pursuant to Section 4 hereof, it will
reimburse the Company (and, to the extent applicable, each officer,
director, controlling person or Selling Stockholder) on a quarterly
basis for all reasonable legal or other expenses incurred in
connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the
absence of a judicial determination as to the propriety and
enforceability of the Underwriters' obligation to reimburse the
Company (and, to the extent applicable, each officer, director,
controlling person or Selling Stockholder) for such expenses and the
possibility that such payments might later be held to have been
improper by a court of competent jurisdiction. To
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the extent that any such interim reimbursement payment is so held to
have been improper, the Company (and, to the extent applicable, each
officer, director, controlling person or Selling Stockholder) shall
promptly return it to the Underwriters together with interest,
compounded daily, determined on the basis of the Prime Rate. Any such
interim reimbursement payments which are not made to the Company
within 30 days of a request for reimbursement, shall bear interest at
the Prime Rate from the date of such request. This indemnity
agreement will be in addition to any liability which such Underwriter
may otherwise have.
(d) Promptly after receipt by an indemnified party under
this Section of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made
against an indemnifying party under this Section, notify the
indemnifying party in writing of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party for
contribution or otherwise than under the indemnity agreement contained
in this Section or to the extent it is not prejudiced as a proximate
result of such failure. In case any such action is brought against
any indemnified party and such indemnified party seeks or intends to
seek indemnity from an indemnifying party, the indemnifying party will
be entitled to participate in, and, to the extent that it may wish,
jointly with all other indemnifying parties similarly notified, to
assume the defense thereof with counsel reasonably satisfactory to
such indemnified party; provided, however, if the defendants in any
such action include both the indemnified party and the indemnifying
party and the indemnified party shall have reasonably concluded that
there may be a conflict between the positions of the indemnifying
party and the indemnified party in conducting the defense of any such
action or that there may be legal defenses available to it and/or
other indemnified parties which are different from or additional to
those available to the indemnifying party, the indemnified party or
parties shall have the right to select separate counsel to assume such
legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt
of notice from the indemnifying party to such indemnified party of its
election so to assume the defense of such action and approval by the
indemnified party of counsel, the indemnifying party will not be
liable to such indemnified party under this Section for any legal or
other expenses subsequently incurred by such indemnified party in
connection with the defense thereof unless (i) the indemnified party
shall have employed such counsel in connection with the assumption of
legal defenses in accordance with the proviso to the next preceding
sentence (it being understood, however, that the indemnifying party
shall not be liable for the expenses of more than one separate
counsel, approved by the Representatives in the case of paragraph (a),
representing the indemnified parties who are parties to such action)
or (ii) the indemnifying party shall not have employed counsel
reasonably satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of
commencement of the action, in each of which cases the fees and
expenses of counsel shall be at the expense of the indemnifying party.
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(d) If the indemnification provided for in this Section
11 is required by its terms but is for any reason held to be
unavailable to or otherwise insufficient to hold harmless an
indemnified party under paragraphs (a), (b) or (c) in respect of any
losses, claims, damages, liabilities or expenses referred to herein,
then each applicable indemnifying party shall contribute to the amount
paid or payable by such indemnified party as a result of any losses,
claims, damages, liabilities or expenses referred to herein (i) in
such proportion as is appropriate to reflect the relative benefits
received by the Company, the Selling Stockholder and the Underwriters
from the offering of the Common Shares or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault
of the Company, the Selling Stockholder and the Underwriters in
connection with the statements or omissions or inaccuracies in the
representations and warranties herein which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The respective relative benefits
received by the Company, the Selling Stockholder and the Underwriters
shall be deemed to be in the same proportion, in the case of the
Company and the Selling Stockholder, as the total price paid to the
Company and to the Selling Stockholder, respectively, for the Common
Shares sold by them to the Underwriters (net of underwriting
commissions but before deducting expenses) bears to the total price to
the public set forth on the cover of the Prospectus, and in the case
of the Underwriters as the underwriting commissions received by them
bears to the total price to the public set forth on the cover of the
Prospectus. The respective relative benefits received by the Company,
the Selling Stockholder and the Underwriters shall be deemed to be in
the same proportion, in the case of the Company and the Selling
Stockholder as the total price paid to the Company and to the Selling
Stockholder, respectively, for the Common Shares sold by them to the
Underwriters (net of underwriting commissions but before deducting
expenses), and in the case of the Underwriters as the underwriting
commissions received by them bears to the total of such amounts paid
to the Company and to the Selling Stockholder and received by the
Underwriters as underwriting commissions. The relative fault of the
Company, the Selling Stockholder and the Underwriters shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact or the inaccurate or the alleged
inaccurate representation and/or warranty relates to information
supplied by the Company , the Selling Stockholder or the Underwriters
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The
amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in subparagraph (c) of
this Section 11, any legal or other fees or expenses reasonably
incurred by such party in connection with investigating or defending
any action or claim. The provisions set forth in subparagraph (c) of
this Section 11 with respect to notice of commencement of any action
shall apply if a claim for contribution is to be made under this
subparagraph (d); provided, however, that no additional notice shall
be required with respect to any action for which notice has been given
under subparagraph (c) for purposes of indemnification. The Company ,
the Selling Stockholder and the Underwriters agree that it
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would not be just and equitable if contribution pursuant to this
Section 11 were determined solely by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 11, no
Underwriter shall be required to contribute any amount in excess of
the amount of the total underwriting commissions received by such
Underwriter in connection with the Common Shares underwritten by it
and distributed to the public. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation. The Underwriters' obligations
to contribute pursuant to this Section 11 are several in proportion to
their respective underwriting commitments and not joint.
(e) It is agreed that any controversy arising out of the
operation of the interim reimbursement arrangements set forth in
Sections 11(a) and 11(b) hereof, including the amounts of any
requested reimbursement payments and the method of determining such
amounts, shall be settled by arbitration conducted under the
provisions of the Constitution and Rules of the Board of Governors of
the New York Stock Exchange, Inc. or pursuant to the Code of
Arbitration Procedure of the NASD. Any such arbitration must be
commenced by service of a written demand for arbitration or written
notice of intention to arbitrate, therein electing the arbitration
tribunal. In the event the party demanding arbitration does not make
such designation of an arbitration tribunal in such demand or notice,
then the party responding to said demand or notice is authorized to do
so. Such an arbitration would be limited to the operation of the
interim reimbursement provisions contained in Sections 11(a) and 11(b)
hereof and would not resolve the ultimate propriety or enforceability
of the obligation to reimburse expenses which is created by the
provisions of such Sections 11(a) and 11(b) hereof.
SECTION 12. Default of Underwriters. It shall be a
condition to this Agreement and the obligation of the Company and the Selling
Stockholder to sell and deliver the Common Shares hereunder, and of each
Underwriter to purchase the Common Shares in the manner as described herein,
that, except as hereinafter in this paragraph provided, each of the
Underwriters shall purchase and pay for all the Common Shares agreed to be
purchased by such Underwriter hereunder upon tender to the Representatives of
all such shares in accordance with the terms hereof. If any Underwriter or
Underwriters default in their obligations to purchase Common Shares hereunder
on either the First or Second Closing Date and the aggregate number of Common
Shares which such defaulting Underwriter or Underwriters agreed but failed to
purchase on such Closing Date does not exceed 10% of the total number of Common
Shares which the Underwriters are obligated to purchase on such Closing Date,
the non-defaulting Underwriters shall be obligated severally, in proportion to
their respective commitments hereunder, to purchase the Common Shares which
such defaulting Underwriters agreed but failed to purchase on such Closing
Date. If any Underwriter or Underwriters so default and the aggregate number
of Common Shares with respect to which such default occurs is more than the
above percentage and arrangements satisfactory to the Representatives and the
Company for the purchase of such Common Shares by other persons are not
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<PAGE> 30
made within 48 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter or the Company or the
Selling Stockholder except for the expenses to be paid by the Company and the
Selling Stockholder pursuant to Section 7 hereof and except to the extent
provided in Section 11 hereof.
In the event that Common Shares to which a default relates are to be purchased
by the non-defaulting Underwriters or by another party or parties, the
Representatives or the Company shall have the right to postpone the First or
Second Closing Date, as the case may be, for not more than five business days
in order that the necessary changes in the Registration Statement, Prospectus
and any other documents, as well as any other arrangements, may be effected.
As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section. Nothing herein will relieve
a defaulting Underwriter from liability for its default.
SECTION 13. Effective Date. This Agreement shall become
effective immediately as to Sections 7, 9, 11, 14 and 16 and, as to all other
provisions, (i) if at the time of execution of this Agreement the Registration
Statement has not become effective, at 2:00 P.M., California time, on the first
full business day following the effectiveness of the Registration Statement, or
(ii) if at the time of execution of this Agreement the Registration Statement
has been declared effective, at 2:00 P.M., California time, on the first full
business day following the date of execution of this Agreement; but this
Agreement shall nevertheless become effective at such earlier time after the
Registration Statement becomes effective as you may determine on and by notice
to the Company or by release of any of the Common Shares for sale to the
public. For the purposes of this Section 13, the Common Shares shall be deemed
to have been so released upon the release for publication of any newspaper
advertisement relating to the Common Shares or upon the release by you of
telegrams (i) advising Underwriters that the Common Shares are released for
public offering, or (ii) offering the Common Shares for sale to securities
dealers, whichever may occur first.
SECTION 14. Termination. Without limiting the right to
terminate this Agreement pursuant to any other provision hereof:
(a) This Agreement may be terminated by the Company by
notice to you and the Selling Stockholder or by you by notice to the
Company and the Selling Stockholder at any time prior to the time this
Agreement shall become effective as to all its provisions, and any
such termination shall be without liability on the part of the Company
or the Selling Stockholder to any Underwriter (except for the expenses
to be paid or reimbursed by the Company and the Selling Stockholder
pursuant to Sections 7 and 9 hereof and except to the extent provided
in Section 11 hereof) or of any Underwriter to the Company or the
Selling Stockholder (except to the extent provided in Section 11
hereof).
(b) This Agreement may also be terminated by you prior to
the First Closing Date by notice to the Company (i) if additional
material governmental restrictions, not in force and effect on the
date hereof, shall have been imposed upon trading in securities
generally or minimum or maximum prices shall have been generally
established on the New York Stock
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Exchange or on the American Stock Exchange or in the over the counter
market by the NASD, or trading in securities generally shall have been
suspended on either such Exchange or in the over the counter market by
the NASD, or a general banking moratorium shall have been established
by federal, New York, Florida or California authorities, (ii) if an
outbreak of major hostilities or other national or international
calamity or any substantial change in political, financial or economic
conditions shall have occurred or shall have accelerated or escalated
to such an extent, as, in the judgment of the Representatives, to
affect adversely the marketability of the Common Shares, (iii) if any
adverse event shall have occurred or shall exist which makes untrue or
incorrect in any material respect any statement or information
contained in the Registration Statement or Prospectus or which is not
reflected in the Registration Statement or Prospectus but should be
reflected therein in order to make the statements or information
contained therein not misleading in any material respect, or (iv) if
there shall be any action, suit or proceeding pending or threatened,
or there shall have been any development or prospective development
involving particularly the business or properties or securities of the
Company or any of its subsidiaries or the transactions contemplated by
this Agreement, which, in the reasonable judgment of the
Representatives, may materially and adversely affect the Company's
business or earnings and makes it impracticable or inadvisable to
offer or sell the Common Shares. Any termination pursuant to this
subsection (b) shall be without liability on the part of any
Underwriter to the Company or the Selling Stockholder or on the
part of the Company or the Selling Stockholder to any Underwriter
(except for expenses to be paid or reimbursed by the Company and the
Selling Stockholder pursuant to Sections 7 and 9 hereof and except to
the extent provided in Section 11 hereof).
SECTION 15. Failure of the Selling Stockholder to Sell
and Deliver. If the Selling Stockholder shall fail to sell and deliver to the
Underwriters the Common Shares to be sold and delivered by such Selling
Stockholder at the First Closing Date under the terms of this Agreement, then
the Underwriters may at their option, by written notice from you to the Company
and the Selling Stockholder, either (i) terminate this Agreement without any
liability on the part of any Underwriter or, except as provided in Sections 7,
9 and 11 hereof, the Company or the Selling Stockholder, or (ii) purchase the
shares which the Company and other Selling Stockholder have agreed to sell and
deliver in accordance with the terms hereof. In the event of a failure by one
or more of the Selling Stockholder to sell and deliver as referred to in this
Section, either you or the Company shall have the right to postpone the Closing
Date for a period not exceeding seven business days in order that the necessary
changes in the Registration Statement, Prospectus and any other documents, as
well as any other arrangements, may be effected.
SECTION 16. Representations and Indemnities to Survive
Delivery. The respective indemnities, agreements, representations, warranties
and other statements of the Company, of its officers, of the Selling
Stockholder and of the several Underwriters set forth in or made pursuant to
this Agreement will remain in full force and effect, regardless of any
investigation made by or on behalf of any Underwriter or the Company or any of
its or their partners, officers or directors or any controlling person, or the
Selling Stockholder, as the case may be, and will survive delivery of and
payment for the Common Shares sold hereunder and any termination of this
Agreement.
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SECTION 17. Notices. All communications hereunder shall
be in writing and, if sent to the Representatives shall be mailed, delivered or
telegraphed and confirmed to you at 600 Montgomery Street, San Francisco,
California 9411, Attention:_____________, with a copy to King & Spalding, 191
Peachtree Street, Atlanta, Georgia 30303, Attention: Jeffrey M. Stein; and if
sent to the Company or the Selling Stockholder shall be mailed, delivered or
telegraphed and confirmed to the Company at 4 West State Street, Savannah,
Georgia 31401, Attention: Bradley J. Stinn, Chairman of the Board of Directors
and Chief Executive Officer, with a copy to Alston & Bird, One Atlantic Center,
1201 West Peachtree Street, Atlanta, Georgia 30309, Attention: M. Hill
Jeffries. The Company , the Selling Stockholder or you may change the address
for receipt of communications hereunder by giving notice to the others.
SECTION 18. Successors. This Agreement will inure to the
benefit of and be binding upon the parties hereto, including any substitute
Underwriters pursuant to Section 12 hereof, and to the benefit of the officers
and directors and controlling persons referred to in Section 11, and in each
case their respective successors, personal representatives and assigns, and no
other person will have any right or obligation hereunder. No such assignment
shall relieve any party of its obligations hereunder. The term "successors"
shall not include any purchaser of the Common Shares as such from any of the
Underwriters merely by reason of such purchase.
SECTION 19. Representations of Underwriters. You will
act as Representatives for the several Underwriters in connection with all
dealings hereunder, and any action under or in respect of this Agreement taken
by you jointly or by Montgomery Securities, as Representatives, will be binding
upon all the Underwriters.
SECTION 20. Partial Unenforceability. The invalidity or
unenforceability of any Section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
SECTION 21. Applicable Law. This Agreement shall be
governed by and construed in accordance with the internal laws (and not the
laws pertaining to conflicts of laws) of the State of California.
SECTION 22. General. This Agreement constitutes the
entire agreement of the parties to this Agreement and supersedes all prior
written or oral and all contemporaneous oral agreements, understandings and
negotiations with respect to the subject matter hereof. This Agreement may be
executed in several counterparts, each one of which shall be an original, and
all of which shall constitute one and the same document.
-32-
<PAGE> 33
In this Agreement, the masculine, feminine and neuter genders and the singular
and the plural include one another. The section headings in this Agreement are
for the convenience of the parties only and will not affect the construction or
interpretation of this Agreement. This Agreement may be amended or modified,
and the observance of any term of this Agreement may be waived, only by a
writing signed by the Company , the Selling Stockholder and you.
Any person executing and delivering this Agreement as Attorney-in-fact for a
Selling Stockholder represents by so doing that he has been duly appointed as
Attorney-in-fact by such Selling Stockholder pursuant to a validly existing and
binding Power of Attorney which authorizes such Attorney-in-fact to take such
action. Any action taken under this Agreement by any of the Attorneys-in-fact
will be binding on the Selling Stockholder.
-33-
<PAGE> 34
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to us the enclosed copies hereof, whereupon it will
become a binding agreement among the Company, the Selling Stockholder and the
several Underwriters including you, all in accordance with its terms.
Very truly yours,
FRIEDMAN'S INC.
By:
-----------------------------------
Bradley J. Stinn
Chairman of the Board of Directors
and Chief Executive Officer
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By:
-----------------------------------
Name:
Title:
The foregoing Underwriting Agreement
is hereby confirmed and accepted by
us in San Francisco, California as of
the date first above written.
MONTGOMERY SECURITIES
GOLDMAN, SACHS & CO.
MORGAN KEEGAN & COMPANY, INC.
MORGAN SCHIFF & CO. INC.
Acting as Representatives of the
several Underwriters named in
the attached Schedule I.
By MONTGOMERY SECURITIES
By:
------------------------------
Partner
-34-
<PAGE> 35
May 8, 1996 SCHEDULE A
<TABLE>
<CAPTION>
Number of Firm
Common Shares
Name of Underwriter to be Purchased
- ------------------- ---------------
<S> <C>
Montgomery Securities ...........................
Goldman, Sachs & Co..............................
Morgan Keegan & Company, Inc.....................
Morgan Schiff & Co. Inc..........................
TOTAL ..........................
------------------
2,200,000
==================
</TABLE>
-35-
<PAGE> 1
EXHIBIT 5
May 14, 1996
Friedman's, Inc.
4 West State Street
Savannah, Georgia 31401
Ladies and Gentlemen:
This opinion is given in connection with the filing by Friedman's, Inc., a
corporation organized and existing under the laws of the State of Delaware (the
"Company"), of a Registration Statement on Form S-3 (the "Registration
Statement") with the Securities and Exchange Commission with respect to the
registration under the Securities Act of 1933, as amended, of 2,000,000 shares
of the Company's common stock $.01 par value ("Common Stock"), being sold by the
Company (the "Company Shares") and 200,000 shares of Common Stock being sold by
a stockholder of the Company (the "Selling Stockholder Shares" and, together
with the Company Shares, the "Offering Shares").
As counsel for the Company in connection with the sale of the Offering
Shares, we have examined such corporate records and documents as we have deemed
relevant and necessary as the basis for the opinion set forth herein. In
conducting our examination, we have assumed the genuineness of all signatures,
the legal capacity of all natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies, and the
authenticity of the originals of such documents.
Based upon the foregoing, it is our opinion that the Offering Shares have
been duly authorized and when issued and sold to the several underwriters as
provided in the Underwriting Agreement, between the Company and Montgomery
Securities, Goldman, Sachs & Co., Morgan Keegan & Company, Inc., and Morgan
Schiff & Co., Inc., as Representatives of the several underwriters named in
Schedule A thereto the Offering Shares will be validly issued, fully paid, and
non-assessable by the Company under the General Corporation Law of the State of
Delaware as in effect on the date hereof.
We consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference made to our firm under the caption "Legal
Matters" in the Prospectus constituting part of the Registration Statement.
ALSTON & BIRD
By: /s/ M. HILL JEFFRIES
------------------------------------
A Partner
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Financial and Operating Data" in the Registration Statement (Form S-3)
and related Prospectus of Friedman's Inc. for the registration of 2,530,000
shares of its Class A Common Stock and to the incorporation by reference therein
of our report dated November 8, 1995, with respect to the consolidated financial
statements and schedule of Friedman's Inc. included in its Annual Report on Form
10-K for the year ended September 30, 1995, filed with the Securities and
Exchange Commission.
ERNST & YOUNG LLP
Jacksonville, Florida
May 13, 1996
