<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
Friedman's Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
4 WEST STATE STREET
SAVANNAH, GEORGIA 31401
January 22, 1997
Dear Stockholder:
You are cordially invited to attend the 1997 Annual Meeting of
Stockholders of Friedman's Inc. which will be held at the Hyatt Regency
Savannah, 2 West Bay Street, Savannah, Georgia 31401 on Thursday, February 27,
1997, at 10:00 a.m. local time.
We look forward to your attendance at the Annual Meeting so that you can
learn more about your Company and become better acquainted with members of the
Board of Directors and management team. The sole item of business which is being
presented for a vote by the holders of Class A Common Stock at the Annual
Meeting is the election of three directors of the Company, as explained in the
accompanying Proxy Statement. Even if you are planning to attend, please
complete the enclosed proxy card and return it in the enclosed envelope to cast
your vote with regard to the election of directors. You will still be able to
revoke your proxy and vote your shares in person at the Annual Meeting if you so
desire.
If you have any questions about the Proxy Statement or the accompanying
1996 Annual Report, please contact Mr. John G. Call at (912) 231-6606.
Sincerely,
Bradley J. Stinn
Chairman of the Board of Directors
and Chief Executive Officer
<PAGE> 3
FRIEDMAN'S INC.
4 WEST STATE STREET
SAVANNAH, GEORGIA 31401
NOTICE TO THE HOLDERS OF CLASS A COMMON STOCK
OF THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 27,1997
Notice is hereby given to the holders of the Class A common stock, $.01
par value per share (the "Class A Common Stock"), of Friedman's Inc. (the
"Company") that the 1997 Annual Meeting of Stockholders of the Company (the
"Annual Meeting") will be held at the Hyatt Regency Savannah, 2 West Bay Street,
Savannah, Georgia 31401 on Thursday, February 27, 1997, at 10:00 a.m., local
time, for the following purposes:
(i) To elect three directors to serve until the 1998 Annual Meeting of
Stockholders; and
(ii) To transact such other business as may properly come before the
Annual Meeting or any adjournments thereof.
Information relating to the Annual Meeting and the election of directors
is set forth in the attached Proxy Statement.
Only those stockholders of record at the close of business on January
17, 1997, are entitled to notice of and to vote at the Annual Meeting or any
adjournments thereof. A complete list of stockholders entitled to vote at the
Annual Meeting will be available for examination by any stockholder at the
Annual Meeting and for a period of ten days prior thereto at the executive
offices of the Company in Savannah, Georgia.
By Order of the Board of Directors,
John G. Call
January 22, 1997 Secretary
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE VOTE, SIGN,
DATE, AND RETURN THE ENCLOSED PROXY PROMPTLY IN THE ENCLOSED BUSINESS REPLY
ENVELOPE. IF YOU ATTEND THE ANNUAL MEETING YOU MAY, IF YOU WISH, WITHDRAW YOUR
PROXY APPOINTMENT AND VOTE IN PERSON.
<PAGE> 4
FRIEDMAN'S INC.
4 WEST STATE STREET
SAVANNAH, GEORGIA 31401
JANUARY 22, 1997
PROXY STATEMENT
FOR HOLDERS OF CLASS A COMMON STOCK
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 27, 1997
INTRODUCTION
This Proxy Statement is furnished to holders of the Class A common stock,
$.01 par value per share ("Class A Common Stock"), of Friedman's Inc., a
Delaware corporation (the "Company"), in connection with the solicitation of
proxies by the Company's Board of Directors from holders of the outstanding
shares of Class A Common Stock for use at the 1997 Annual Meeting of
Stockholders to be held at 10:00 a.m. local time at the Hyatt Regency Savannah,
2 West Bay Street, Savannah, Georgia, on Thursday, February 27, 1997, and at any
adjournments thereof (the "Annual Meeting").
With respect to the holders of Class A Common Stock, the Annual Meeting
will be held for the following purposes: (i) to elect three directors to serve
until the 1998 Annual Meeting of Stockholders; and (ii) to transact such other
business as may properly come before the Annual Meeting or any adjournments
thereof.
This Proxy Statement and the accompanying Proxy are first being mailed to
stockholders of the Company on or about January 22, 1997.
STOCKHOLDERS ENTITLED TO VOTE
Only stockholders of record of the Company at the close of business on
January 17, 1997 (the "Record Date") will be entitled to notice of, and to vote
at, the Annual Meeting. On the Record Date, there were 12,522,194 shares of the
Class A Common Stock issued and outstanding held by approximately 115
stockholders of record. In addition, there were 1,773,582 shares of the
Company's Class B common stock, $.01 par value per share ("Class B Common
Stock"), issued and outstanding held by 1 stockholder of record.
Notwithstanding the Record Date specified above, the Company's stock transfer
books will not be closed and shares may be transferred subsequent to the Record
Date. However, all votes must be cast in the names of stockholders of record on
the Record Date.
On November 14, 1996, the Board of Directors of the Company approved an
amendment (the "Amendment") to the Certificate of Incorporation (the
"Certificate") of the Company and recommended this Amendment for approval by the
Class B Common Stockholders at the Annual Meeting. Pursuant to the Certificate,
the Class A Common Stockholders are not entitled to vote with regard to the
approval of the Amendment. See "Other Matters--Amendment of Certificate of
Incorporation." The Certificate would provide, after giving effect to the
approval of the Amendment, that holders of Class A Common Stock have voting
rights with regard to the election of a minimum of, rather than no more than,
25% of the members of the Company's Board of Directors (rounding the number of
such directors to be elected up if 25% of the members of the Board of Directors
is not equal to a whole number of directors), with the precise number of
directors to be elected by the Class A Common Stockholders in excess of such 25%
(if any) to be determined by the Board of Directors. The Company's current Board
of Directors has been set at seven members and pursuant to the Certificate,
after giving effect to the approval of the Amendment, the holders of Class A
Common Stock are entitled to elect at least two directors; however, the Board of
<PAGE> 5
Directors has nominated three directors to be elected by the holders of Class A
Common Stock. Holders of Class A Common Stock are entitled to one vote for each
share held in the election of directors.
QUORUM AND VOTING REQUIREMENTS
Pursuant to the Company's Bylaws, the holders of record of a majority of
the issued and outstanding shares of Class A Common Stock entitled to vote at
the Annual Meeting, present in person or by proxy, are required to establish a
quorum. For the purpose of determining the presence of a quorum, abstentions and
broker nonvotes will be counted as present. The election of three directors by
the holders of Class A Common Stock will require the affirmative vote of a
majority of the shares of Class A Common Stock represented and entitled to vote
in the election at the Annual Meeting, provided a quorum is present. With
respect to the election of directors, stockholders may (1) vote "for" each of
the nominees, (2) "withhold" authority to vote for each of such nominees, or (3)
withhold authority to vote for one nominee but vote for the other nominees.
Because the directors are elected by the holders of a majority of the shares
represented and entitled to vote, withholding authority to vote with respect to
one or all nominees or an abstention from voting will have the effect of a vote
"against" such nominee or nominees. Broker nonvotes (which occur when shares
held by brokers or nominees for beneficial owners are voted on some matters but
not on others) will have no effect on the outcome of the election of directors.
PROXIES
If the enclosed Proxy is executed, returned in time and not revoked, the
shares represented thereby will be voted in accordance with the instructions
indicated in such Proxy. IF NO INSTRUCTIONS ARE INDICATED, PROXIES WILL BE VOTED
FOR (I) THE ELECTION OF ALL CLASS A COMMON STOCK DIRECTOR NOMINEES, AND (II) IN
THE BEST JUDGMENT OF THE PERSONS DESIGNATED AS PROXIES AS TO ANY OTHER MATTERS
WHICH MAY PROPERLY COME BEFORE THE ANNUAL MEETING OR ANY ADJOURNMENTS THEREOF.
A stockholder who has given a Proxy may revoke it at any time prior to
its exercise at the Annual Meeting by either (i) giving written notice of
revocation to the Secretary of the Company, (ii) properly submitting to the
Company a duly executed Proxy bearing a later date, or (iii) appearing at the
Annual Meeting and voting in person. All written notices of revocation of
Proxies should be addressed as follows: Friedman's Inc., 4 West State Street,
Savannah, Georgia 31401, Attention: John G. Call, Secretary.
- 2 -
<PAGE> 6
ELECTION OF DIRECTORS
The Bylaws of the Company provide that the Board of Directors shall
consist of not less than three individuals with the exact number of directors
determined by resolution of the Board of Directors; provided, that as long as
any Class B Common Stock of the Company remains outstanding, the minimum number
of directors must be sufficient to enable the holders of the Class B Common
Stock to elect a majority of the directors.
Pursuant to Article III of the Company's Bylaws, the Board of Directors
has set the number of directors of the Company at seven and has nominated the
following individuals for election by the holders of Class A Common Stock and
Class B Common Stock as directors of the Company, respectively:
Class A Common Stock Nominees
-----------------------------
John E. Cay III
Robert W. Cruickshank
David B. Parshall
Class B Common Stock Nominees
-----------------------------
Bradley J. Stinn
Sterling B. Brinkley
Robert S. Morris
Mark C. Pickup
Each director will be elected to hold office until the 1998 Annual Meeting
of Stockholders and until his earlier death, resignation or removal. Each of the
seven nominees has served as a director of the Company since 1993 except for Mr.
Morris, who was elected by the Board of Directors in February 1995 when the
Board was expanded from five to six members, and Mr. Cay, who has not previously
served on the Board.
Holders of Class A Common Stock are entitled to vote only on the Class A
Common Stock nominees, and holders of Class B Common Stock are entitled to vote
only on the Class B Common Stock nominees. The persons designated as proxies on
the enclosed Proxy intend to vote the shares represented thereby in favor of the
election to the Board of Directors of the Class A Common Stock nominees whose
names appear above, unless either authority to vote for one or all of the
nominees is withheld or such Proxy has previously been revoked. It is believed
that the nominees will be available and able to serve as directors. In the event
that a nominee is unable to serve, the Board of Directors, in its discretion,
may designate a substitute nominee or nominees (in which case it is anticipated
that the persons designated as proxies will vote for the election of such
substitute nominee or nominees), allow the vacancy or vacancies to remain open
until the Board locates a suitable candidate or candidates, or reduce the
authorized number of directors. It is anticipated that management stockholders
of the Company, who beneficially owned approximately 4.3% of the outstanding
Class A Common Stock as of the Record Date, will vote for the election of the
nominees.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ELECTION
OF THE CLASS A COMMON STOCK NOMINEES AS DIRECTORS FOR A ONE-YEAR TERM EXPIRING
AT THE 1998 ANNUAL MEETING OF STOCKHOLDERS.
- 3 -
<PAGE> 7
CERTAIN INFORMATION CONCERNING NOMINEES
The following table sets forth the names of the nominees for both the
Class A Common Stock and Class B Common Stock, their ages, the year in which
they were first elected as a director, their positions with the Company, their
principal occupations and employers for at least the last five years, and any
other directorships held by them in publicly-held companies. For additional
information concerning the nominees, see "-- Meetings of the Board of Directors
and Committees," "Stock Ownership" and "Certain Transactions" below.
CLASS A COMMON STOCK NOMINEES
-----------------------------
<TABLE>
<CAPTION>
NAME AND AGE BUSINESS EXPERIENCE
------------ -------------------
<S> <C>
John E. Cay III Mr. Cay is a candidate for director of the
(51) Company. Since 1972, Mr. Cay has
been the President of Palmer & Cay, Inc., a
regional insurance brokerage and employee
benefit consulting company. Since June 1993, Mr.
Cay has been a director of Omni Insurance Group,
Inc. Mr. Cay also serves as a director for First
Union National Bank of Georgia and First Union
National Bank of Savannah.
Robert W. Cruickshank Mr. Cruickshank was elected a director of the
(51) 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, and Data
Documents Inc. of Omaha, Nebraska, a business
forms manufacturer.
David B. Parshall Mr. Parshall was elected a director of
(49) 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.
</TABLE>
- 4 -
<PAGE> 8
Class B Common Stock Nominees
<TABLE>
<CAPTION>
NAME AND AGE BUSINESS EXPERIENCE
- ------------ -------------------
<S> <C>
Bradley J. Stinn Mr. Stinn was elected Chairman of the
(37) 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
("Crescent Jewelers"), a retail jewelry chain
that is an affiliate of the Company, a position
he has held since June 1995. Mr. Stinn served as
President and Chief Executive Officer of MS
Jewelers Corporation ("MS Jewelers"), the
general partner of MS Jewelers Limited
Partnership (the "Partnership") which owns 100%
of the outstanding shares of Class B Common
Stock, from September 1992 until August 1993,
and he has served since 1990 as a director of MS
Jewelers. 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 & Co., Inc. ("Morgan
Schiff"), an affiliate of the Company, from
January 1986 to September 1990.
Sterling B. Brinkley Mr. Brinkley was elected Chairman of the
(44) 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 Corporation. 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 and as Chairman of the
Board of EZCORP, Inc. ("EZCORP"), a pawnshop
chain, an affiliate of the Company. Mr. Brinkley
also serves as the chairman of other private
companies which are affiliates of Morgan Schiff.
Robert S. Morris Mr. Morris was elected President and
(41) Chief Operating Officer of the Company 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 the Company's
predecessors, Friedman's Jewelers, Inc. (FJI")
and MS Jewelers, since 1986. Mr. Morris joined
FJI in July 1980.
</TABLE>
- 5 -
<PAGE> 9
<TABLE>
<S> <C>
Mark C. Pickup Mr. Pickup was elected a director of the
(46) 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. For
more than five years prior to October 1992, Mr.
Pickup held various positions with Ernst & Young
LLP, leaving as a Partner in its San Francisco,
California office in October 1992.
</TABLE>
- 6 -
<PAGE> 10
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
Board of Directors. The property, affairs and business of the Company are
under the general management of its Board of Directors as provided by the laws
of Delaware and the Bylaws of the Company. The Board of Directors conducts its
business through meetings of the full Board and through committees of the Board,
and the Board of Directors has appointed standing Audit, Compensation and
Executive Committees of the Board of Directors.
Audit Committee. The members of the Audit Committee are Mark C. Pickup
(Chairman), Robert W. Cruickshank and David B. Parshall. The Audit Committee
recommends the independent auditors appointed by the Board of Directors to audit
the financial statements of the Company, which includes an inspection of the
books and accounts of the Company, and reviews with such accountants the scope
of their audit and their report thereon, including any questions and
recommendations that may arise relating to such audit and report or the
Company's internal accounting procedures. The Audit Committee held two meetings
during the 1996 fiscal year.
Compensation Committee. The members of the Compensation Committee are
Robert W. Cruickshank (Chairman), Mark C. Pickup and David B. Parshall. The
function of the Compensation Committee is to review and approve the compensation
of executive officers and establish targets and incentive awards under incentive
compensation plans of the Company. The Compensation Committee reports to the
Board of Directors. The Compensation Committee held two meetings during the 1996
fiscal year.
Executive Committee. The members of the Executive Committee are Sterling
B. Brinkley (Chairman), Bradley J. Stinn and Mark C. Pickup. The Executive
Committee exercises the authority of the Board of Directors, to the extent
permitted by law, in the management of the business of the Company between
meetings of the Board of Directors. The Executive Committee held two meetings
during the 1996 fiscal year.
The Board of Directors as a whole functions as the nominating committee to
select management's nominees for election as directors of the Company. The Board
of Directors will consider Class A Common Stock nominees submitted by holders of
Class A Common Stock if submitted to the Company on or before September 30,
1997. See "Stockholder Proposals for 1998 Annual Meeting of Stockholders."
The Board of Directors held three meetings during the 1996 fiscal year.
Each director, during the period he was a director, attended at least 75% of the
meetings of the Board of Directors, and each member of a committee, during the
period he was a committee member, attended at least 75% of the meetings of each
committee on which he served.
COMPENSATION OF DIRECTORS
In fiscal 1996, directors who were not current employees of the Company
received an annual director's fee of $15,000 per year, and Committee Chairmen
who were not current employees of the Company received an additional $5,000 per
year. The Company reimburses directors for travel and other out-of-pocket
expenses incurred in connection with their services as directors. Directors who
are employees are not paid extra compensation for their service on the Board of
Directors or any committee.
- 7 -
<PAGE> 11
The Friedman's Inc. Stock Option Plan for Outside Directors (the "Director
Plan") provides for an initial grant, to each director who is not an employee of
the Company, of options to purchase 5,000 shares of Class A Common Stock
effective as of the adoption of the Director Plan by the Board of Directors in
December 1993 and subsequent annual grants of options to purchase 1,000 shares
of Class A Common Stock. The annual grants are made on the day following each
annual meeting of stockholders and began with the annual meeting of stockholders
in 1995. The option price for each option granted under the Director Plan is the
"Fair Market Value," as that term is defined in the Director Plan, of the shares
of Class A Common Stock subject to the option on the date the option is granted.
An option is exercisable six months after it is granted and remains exercisable
for five years from the date of grant. The Company has reserved 25,000 shares of
Class A Common Stock for issuance under the Director Plan.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the names of the executive officers of the
Company, other than Messrs. Brinkley, Stinn and Morris, who are discussed above,
their ages, their positions with the Company and their principal occupations and
employers for at least the last five years. For information concerning executive
officers' ownership of Common Stock, see "Stock Ownership."
<TABLE>
<CAPTION>
NAME AND AGE BUSINESS EXPERIENCE
- ------------ -------------------
<S> <C>
John G. Call Mr. Call has served as Senior Vice
(38) President-Chief Financial Officer of the Company
since October 1995, and as Treasurer and
Secretary of the Company since August 1993. Mr.
Call served as Vice President-Chief Financial
Officer of the Company from August 1993 to
October 1995. For more than five years prior to
joining the Company, Mr. Call held various
positions with Ernst & Young LLP, leaving as a
Senior Manager in the San Francisco, California
office in June 1993.
Donald J. Wright, Jr. Mr. Wright joined the Company in January
(49) 1996 as Vice President - Merchandising. For more
than 5 years prior to joining the Company, Mr.
Wright was Vice President of Merchandising at
Reed's Jewelers, Inc. for ten years.
</TABLE>
- 8 -
<PAGE> 12
EXECUTIVE COMPENSATION
Summary Compensation Information
The following table presents certain summary information concerning
compensation paid or accrued by the Company for services rendered in all
capacities during the fiscal years ended September 30, 1994, 1995 and 1996 for
(i) the Chief Executive Officer of the Company; and (ii) each of the four other
most highly compensated executive officers of the Company whose total salary and
bonus for the fiscal year ended September 30, 1996, exceeded $100,000
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
-------------------------------------------- ----------------------
AWARDS PAYOUTS
------ -------
NAME AND OTHER ANNUAL SECURITIES
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION UNDERLYING OPTIONS LTIP PAYOUTS
---- -------- ------------ ------------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
Bradley J. Stinn 1996 $300,000 $200,000 $184,757(1) -- $ 981,308(2)
Chairman of the Board of 1995 300,000 350,000 242,089(1) 100,000 $ 428,490(2)
Directors and Chief 1994 200,000 275,000 61,568(1) 200,000 --
Executive Officer
Sterling B. Brinkley 1996 225,000 140,000 $119,487(3) -- $ 909,879(2)
Chairman of the 1995 225,000 125,000 154,375(3) -- 403,156(2)
Executive Committee of 1994 150,000 150,000 -- 130,000
the Board of Directors
Robert S. Morris 1996 150,000 225,000 -- 25,000 --
President and Chief 1995 150,000 150,000 -- 25,000 --
Operating Officer 1994 100,000 100,000 -- 15,000 --
John G. Call 1996 120,000 50,000 -- 5,000 --
Senior Vice President - 1995 110,000 45,000 -- 2,000 --
Chief Financial Officer 1994 110,000 25,000 -- 10,000 --
</TABLE>
- --------------------------------
(1) Composed of: (1) a housing allowance of $40,250, $62,000 and $49,982, in
fiscal 1996, 1995 and 1994, respectively; (2) an automobile allowance of
$15,628, $16,013 and $11,986, in fiscal 1996, 1995 and 1994, respectively;
(3) annual interest forgiveness on an incentive loan of $68,950 and
$86,156 in fiscal 1996 and 1995, respectively; and (4) an annual
reimbursement for the payment of taxes on the interest forgiveness of
$59,929 and $77,920 in fiscal 1996 and 1995, respectively.
See "--Employment Arrangements."
(2) The first stock price target for the incentive loans to Mr. Stinn and Mr.
Brinkley ($22.50 per share) was attained in July 1995, the second stock
price target ($25.00 per share) was attained in April 1996, and the third
stock price target ($27.50 per share) was attained in May 1996. As a
result, $525,000 and $225,000 of the principal of the incentive loans for
each of Mr. Stinn and Mr. Brinkley was forgiven in fiscal 1996 and 1995,
respectively. The Company also reimbursed Mr. Stinn $456,308 and $203,490
in fiscal 1996 and 1995, respectively, and Mr. Brinkley $384,874 and
$178,156 in fiscal 1996 and 1995, respectively, for the payment of taxes
on the principal forgiveness. See "-- Employment Arrangements."
(3) Composed of: (i) annual interest forgiveness on an incentive loan of
$68,950 and $86,156, in fiscal 1996 and 1995, respectively, and (ii) an
annual reimbursement for the payment of taxes on the interest
forgiveness of $50,547 and $68,219, in fiscal 1996 and 1995, respectively.
See "-- Employment Arrangements."
- 9 -
<PAGE> 13
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANT
----------------------------------------------------
NUMBER OF PERCENT OF POTENTIAL REALIZABLE VALUE AT
SECURITIES TOTAL OPTIONS ASSUMED ANNUAL RATES OF STOCK
UNDERLYING GRANTED TO PRICE APPRECIATION
OPTIONS EMPLOYEES IN EXERCISE OR EXPIRATION FOR OPTION TERM
NAME GRANTED(1) FISCAL YEAR BASE PRICE DATE 5% 10%
- ---- -------- ----------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Bradley J. Stinn -- -- -- -- -- --
Sterling B. Brinkley -- -- -- -- -- --
Robert S. Morris 25,000 23.8% $19.50 11/03/05 $306,586 $776,949
John G. Call 5,000 4.8% 19.50 11/03/05 61,317 155,390
</TABLE>
- ------------------
(1) All of the options are exercisable for Class A Common Stock and were
granted under the Company's 1995 Stock Option Plan at an exercise price
equal to the fair market value of the underlying shares of Class A Common
Stock on the date of grant and with a vesting schedule pursuant to which
40% of the options become exercisable one year following the date of grant
and 30% of the options become exercisable on each of the second and third
anniversaries of the date of grant. In addition, all options vest
immediately upon the death of the optionee. See "-- Stock Option Plan."
<TABLE>
<CAPTION>
FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
NAME AT FISCAL YEAR-END (1) AT FISCAL YEAR-END (2)
- ---- ---------------------- ----------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Bradley J. Stinn 180,000(3) 120,000 $ 1,322,600 $671,400
Sterling B. Brinkley 91,000(3) 39,000 446,250 191,250
Robert S. Morris 20,500 44,500 116,275 75,975
John G. Call 7,800 9,200 63,202 34,618
</TABLE>
(1) No stock options were exercised by any of the Named Executive Officers
during fiscal 1996.
(2) Represents the fair market value of a share of Class A Common Stock as of
September 30, 1996 of $18.75, less the option exercise price, multiplied
by the total number of exercisable or unexercisable options.
(3) All of the 300,000 options to purchase shares of Class A Common Stock held
by Mr. Stinn and 100,000 of the options to purchase shares of Class A
Common Stock held by Mr. Brinkley at September 30, 1996, are immediately
exercisable in the event that the employment of Mr. Stinn or Mr. Brinkley
is terminated by the Company for any reason.
- 10 -
<PAGE> 14
Employment Arrangements.
Mr. Call, who is Senior Vice President-Chief Financial Officer, Treasurer
and Secretary of the Company, was compensated under a written employment
arrangement with the Company, or its predecessor, from the time he joined the
Company in June 1993 to June 1996. Mr. Call's employment arrangement included an
annual base salary of not less than $110,000 for the three-year period and an
incentive bonus in each of those three years determined by the Board of
Directors based upon the performance of the Company and Mr. Call's performance.
Mr. Call's employment arrangement also included provisions for his participation
in the Company's 1993 Stock Option Plan and the Partnership's incentive plan and
provisions for payment of various expenses incurred by him in relocating his
residence from California to Georgia.
As further incentive to enhance the value of the Company for its
stockholders, in October 1994, when the Class A Common Stock Price was $16.38,
the Company instituted an incentive plan that provided each of Mr. Brinkley and
Mr. Stinn a loan in the amount of $1.5 million, the repayment of which will be
forgiven upon the attainment of specific targets for the market price of the
Company's Class A Common Stock ranging from $22.50 to $32.50. 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 loans are due and payable in ten years and carry an interest rate
equal to the minimum rate allowable under the Internal Revenue Code of 1986, as
amended (the "Code"). The incentive features of the loans provide that: (i) as
long as Mr. Brinkley or Mr. Stinn are employed by the Company on the date on
which interest is due on the loans, such interest will be forgiven; (ii) a
percentage of the outstanding principal of the loans will be forgiven upon the
attainment of certain targets for the price of the Company's Class A Common
Stock; and (iii) the Company will pay any taxes due as the result of such
forgiveness of interest and principal. In addition, in the event of the death or
disability of Mr. Brinkley or Mr. Stinn, or a Change in Control of the Company
(as defined in the loan agreements), the remaining principal amount and any
unpaid and unforgiven interest accrued on the loans will be forgiven. The first
stock price target ($22.50 per share) was attained in July 1995, the second
stock price target ($25.00 per share) was attained in April 1996 and the third
stock price target ($27.50 per share) was attained in May 1996. To date, 50% of
the principal amount of the loans has been forgiven. The remaining principal
amount will be forgiven through 1998 if the stock price reaches targets ranging
from $30.00 to $32.00, and thereafter through 2003 if the stock price reaches
targets ranging from $32.50 to $60.00. The Company incurred a $900,000 charge in
the quarter ended September 30, 1995 related to the attainment of the $22.50 and
a charge of $2.1 million in the quarter ended June 30, 1996 related to the
attainment of the $25.00 and $27.50 price targets.
Additionally, in 1993 certain executive officers received options to
purchase limited partnership interests in the Partnership. See "Certain
Transactions -- MS Jewelers."
Stock Option Plan.
It has been the practice of the Company's Board of Directors to adopt a
new stock option plan each year, subject to the approval of such plan by the
holders of the Class B Common Stock. On November 14, 1996, the Board of
Directors approved the Friedman's Inc. 1996 Stock Option Plan (the "1996 Plan").
The Board's approval of the 1996 Plan is subject to stockholder approval, and
the 1996 Plan is being presented to the holders of the Class B Common Stock at
the Annual Meeting for consideration and approval. The following is a summary of
the provisions of the proposed 1996 Plan, which summary is qualified in its
entirety by reference to the 1996 Plan, a copy of which may be obtained from the
Secretary of the Company.
Under the proposed 1996 Plan, approximately 330 selected key employees
will be eligible for the grant of options to purchase shares of Class A Common
Stock. Options granted under the 1996 Plan may qualify as incentive stock
options under Section 422 of the Code or nonqualified stock options. Any key
- 11 -
<PAGE> 15
employee of the Company who, in the judgment of the Compensation Committee of
the Board of Directors, occupies a position in which personal efforts contribute
to the profit and growth of the Company is eligible for grants under the 1996
Plan. The Compensation Committee determines the number of shares of Class A
Common Stock subject to each grant and prescribes the other terms and conditions
of each grant.
A total of 150,000 shares of Class A Common Stock will be available for
grant under the 1996 Plan. As of December 31, 1996, options to purchase 124,750
shares of Class A Common Stock had been granted under the 1996 Plan, subject to
the approval of the 1996 Plan by the holders of the Class B Common Stock. The
1996 Plan will expire in 2006 unless earlier terminated by the Compensation
Committee.
The exercise price for options granted under the 1996 Plan will be equal
to the fair market value of a share of Class A Common Stock on the date the
option is granted as determined by the Board of Directors. Options will expire
and become exercisable at such time and in such installments as the Compensation
Committee shall determine. The exercise price of an option is payable in cash or
other form of legal consideration accepted by the Compensation Committee. The
market value of the Company's Class A Common Stock underlying options
outstanding under the 1996 Plan was $12.6875 as of January 17, 1997.
The Board of Directors, in its discretion, may amend the 1996 Plan from
time to time, but no amendment, without approval by the stockholders, may (i)
increase the number of shares which may be issued under the 1996 Plan or to any
individual under the 1996 Plan, (ii) reduce the option price for shares which
may be purchased pursuant to options, (iii) extend the period during which
options may be granted, or (iv) materially modify the requirements as to
eligibility for participation in the 1996 Plan.
The following table presents information regarding options granted under
the 1996 Plan to certain individuals and groups as of December 31, 1996, subject
to the approval of the 1996 Plan by the holders of the Class B Common Stock at
the Annual Meeting.
<TABLE>
<CAPTION>
NAME POSITION NUMBER OF
- ---- -------- OPTIONS (1)
-------
<S> <C> <C>
Bradley J. Stinn Chairman of the Board of Directors and 0
Chief Executive Officer
Sterling B. Brinkley Chairman of the Executive Committee of 0
the Board of Directors
Robert S. Morris President and Chief Operating Officer 25,000
John G. Call Senior Vice President -- Chief Financial 1,000
Officer, Treasurer and Secretary
All current executive officers as a group......................... 26,000
All other employees............................................... 98,750
=======
Total ....................................................... 124,750
</TABLE>
- -------------------
(1) The exercise price of the options ($17.75) was higher than the closing
price of the Class A Common Stock on January 17, 1997, the Record Date
($12.6875), and as a result, the options do not have a dollar value.
- 12 -
<PAGE> 16
Under the Code, the recipient of an incentive stock option will not
realize taxable income on the grant or the exercise of the incentive stock
option and the Company will not receive an income tax deduction at either such
time. If the optionee does not sell the shares of Class A Common Stock acquired
upon exercise of an incentive stock option within either (i) two years after the
grant of the incentive stock option, or (ii) one year after the date of exercise
of the incentive stock option, the gain upon a subsequent sale of the shares
will be taxed as a long-term gain. The difference between the exercise price and
the fair market value of shares received upon exercise, however, can affect an
optionee's alternative minimum tax.
If the optionee, within either of the above periods, disposes of the
shares of Class A Common Stock acquired upon exercise of the incentive stock
option, the optionee will realize as ordinary income an amount equal to the
lesser of (i) the gain realized by the optionee upon such disposition, or (ii)
the difference between the exercise price and the fair market value of the
shares on the date of exercise. In such event, the Company will be entitled to a
corresponding income tax deduction equal to the amount recognized as ordinary
income by the optionee. The gain in excess of such amount realized by the
optionee as ordinary income would be taxed as a long-term or short-term capital
gain depending upon the holding period requirements for long-term or short-term
capital gain treatment. If an optionee exercises an incentive stock option
following his or her termination of employment, the incentive stock option must
be exercised within three months following such termination (twelve months if
termination is due to death or disability) to receive incentive stock option tax
treatment. Exercise of an incentive stock option after these dates will result
in such options being taxed as nonqualified stock options.
The aggregate fair market value of the shares (determined at the time
the incentive stock option is granted) subject to incentive stock options
granted to a key employee under all stock option plans of the Company and the
Company's subsidiaries (if any), and that become exercisable for the first time
by such key employee during any calendar year may not exceed $100,000. Any
incentive stock options granted to any employee who, immediately after the grant
of such option, would own more than 10% of the total combined voting power of
all classes of the Company's stock must have an exercise price not less than
110% of the fair market value of the Class A Common Stock on the date of grant
and a term of no more than five years.
Under present law, the recipient of a nonqualified stock option realizes
no taxable income upon the grant of such option, but upon the exercise of such
option the optionee will realize taxable income equal to the difference between
the market value of the stock received at the time of exercise and the amount
paid for the stock. Under present law, the Company is permitted to consider the
income realized by the optionee at the time of exercise of a nonqualified stock
option as a tax deductible expense.
Compensation Committee Report on Executive Compensation.
Overview and Philosophy. The Compensation Committee of the Board of
Directors is responsible for reviewing and making recommendations to the Board
of Directors with respect to salaries, bonuses, stock options and other benefits
for the executive officers of the Company.
The objectives of the Company's executive compensation program are to:
- Encourage the achievement of Company goals by providing
compensation which directly relates to the performance of the individual and
the achievement of strategic objectives.
- Establish compensation policies and guidelines that will attract
and retain qualified personnel through an overall level of compensation
opportunity that is competitive within the Company's industry.
- Promote a direct relationship between compensation and Company
performance by facilitating executive officer stock ownership through stock
option awards.
- 13 -
<PAGE> 17
Overall, the Company's executive officer compensation program is comprised
of base salary, annual cash incentive bonus compensation, and long-term
incentive compensation in the form of stock options, incentive loans, and
various other benefits, including a medical plan, which are generally available
to all employees of the Company.
Base Salary. The base salaries for the Company's executive officers vary
depending on the responsibilities of the officers. An executive officer's base
salary may not necessarily be competitive with other companies in the Company's
industry; however, the Company believes that incentive bonus compensation
described below better serves the Company, and such incentive bonus
compensation may enable the executive officer's overall annual compensation to
exceed the total compensation paid to comparable persons by other companies in
the Company's industry.
Annual Cash Incentive Compensation. In order to maximize the interests of
the Company's stockholders and its management, the Company makes extensive use
of cash bonuses which are awarded based on the Company's operating performance
and the individual executive officer's contribution thereto. The Company's
budgeted financial performance goals are set at the beginning of each fiscal
year. Cash bonuses are then recommended in the judgment of the Compensation
Committee based on the achievement of budgeted targets and the individual
performance of the executive officer. The Compensation Committee believes that
this program provides a direct financial incentive to the Company's executive
officers which motivates them to achieve the Company's performance goals and to
work for the overall success of the business.
Stock Options. The stock option programs of the Company are long-term
incentive plans for executive officers and key employees that are intended to
relate employee and stockholder long-term interests by creating a strong and
direct link between compensation and stockholder return. In general, stock
option awards are granted on an annual basis if warranted by the Company's
performance. To encourage long-term performance, options generally vest over a
three-year period.
COMPENSATION OF CHIEF EXECUTIVE OFFICER. In fiscal 1996, the base salary
of the Chief Executive Officer of the Company, Bradley J. Stinn, remained at
$300,000 and his bonus compensation was $200,000. The Compensation Committee
approved Mr. Stinn's bonus based on increased profits of the Company in fiscal
1996 and the continued development and implementation of the Company's growth
strategy under Mr. Stinn's leadership. Overall, the Compensation Committee
believes Mr. Stinn managed the Company well and has achieved attractive returns
in fiscal 1996.
Section 162(m) of the Code. It is the responsibility of the Compensation
Committee to address the issues raised by changes in the tax laws which made
certain non-performance-based compensation in excess of $1,000,000 to executives
of public companies non-deductible to these companies beginning in 1994. The
Compensation Committee has reviewed the issues applicable to the Company and has
taken action, including the amendment of the incentive loan agreements with
Messrs. Brinkley and Stinn, to ensure that the Company receives the maximum tax
benefit from its compensation expenses.
COMPENSATION COMMITTEE
Robert W. Cruickshank
David B. Parshall
Mark C. Pickup
- 14 -
<PAGE> 18
Compensation Committee Interlocks and Insider Participation.
During fiscal 1996, Messrs. Cruickshank, Parshall and Pickup served on the
Compensation Committee of the Board of Directors. Mr. Brinkley, who is Chairman
of the Executive Committee of the Board of Directors of the Company, also serves
on the Board of Directors of Crescent Jewelers, and Mr. Stinn, who is Chairman
of the Board of Directors and Chief Executive Officer of the Company, also
serves as the Chairman of the Board of Directors and Chief Executive Officer of
Crescent Jewelers. Crescent Jewelers and the Company are both controlled by
investment partnerships controlled by Mr. Phillip E. Cohen. See "Certain
Transactions" and "Stock Ownership." The following is a discussion of certain
transactions effected during fiscal 1996 between the Company and Crescent
Jewelers and its affiliates.
Effective October 16, 1996, the Company made a convertible senior
subordinated term loan to Crescent Jewelers in the principal amount of $20
million (the "Term Loan") pursuant to a loan and security agreement by and
between the Company and Crescent Jewelers. The Term Loan is due in October 1999,
is secured by substantially all of the assets of Crescent Jewelers and is
subordinate in right of payment and lien priority to Crescent Jewelers' senior
secured bank credit facility, currently in the amount of $50 million, pursuant
to the terms of a subordination agreement by and among certain financial
institutions, LaSalle National Bank, as agent for such financial institutions,
and the Company.
Also effective October 16, 1996, the Company entered into a Standby
Purchase Agreement by and between the Company and Crescent Jewelers (the
"Standby Purchase Agreement"), pursuant to which the Company agreed that for an
initial period of twelve months following the date of the Standby Purchase
Agreement (which period may be extended at Crescent Jewelers' option by an
additional six months), the Company would, upon the request of Crescent
Jewelers, purchase up to $5 million of Crescent Jewelers' 10% Convertible Senior
Subordinated Notes due 2006 (the "10% Notes") which 10% Notes will be issued
pursuant to a Note Purchase Agreement by and among Crescent Jewelers, the
Company and any other purchasers of the 10% Notes.
Pursuant to a Conversion Agreement (the "Conversion Agreement") by and
among the Company, Crescent and Crescent Jewelers, Inc., a Delaware corporation
("CJI") which owns 100% of the outstanding capital stock of Crescent Jewelers,
up to one-half of the unpaid principal amount of the Term Loan and the entire
unpaid principal amount of the 10% Notes held by the Company, if any, are
convertible into shares of Class A Common Stock ("Stock") of CJI, under certain
conditions.
The shares of Stock received upon the conversion of the Term Loan or the
10% Note are subject to a Registration Rights Agreement by and among CJI and
certain investors, which include the Company (the "Registration Rights
Agreement"). Pursuant to the Registration Rights Agreement, the Company has the
right, under certain circumstances, to demand two registrations of shares of
Stock received in conversion of the Term Loan and 10% Note and to participate in
certain offerings by CJI of Stock.
- 15 -
<PAGE> 19
CERTAIN TRANSACTIONS
BACKGROUND OF THE COMPANY
In May 1990, MS Jewelers Limited Partnership was formed by an investor
group led by the investment banking firm Morgan Schiff and its principals to
purchase from Friedman's Jewelers, Inc. ("FJI") certain jewelry retailing
assets, including 45 stores (the "FJI Acquisition"). As described below, the
purchase price was financed in part by senior subordinated debt, junior
subordinated debt and equity. The Company was incorporated under the laws of the
State of Delaware on July 15, 1993. Prior to the closing of its initial public
offering of Class A Common Stock in October 1993, the Company issued 5,606,700
shares of Class B Common Stock to the Partnership in exchange for substantially
all of the assets held by the Partnership and the Company's assumption of all of
the Partnership's liabilities, including the Senior Subordinated Notes and the
Junior Subordinated Notes, as described below. Subsequently, the Partnership
distributed 629,323 shares of the Class B Common Stock held by the Partnership
to Teachers Insurance and Annuity Association of America ("Teachers") in
exchange for all of its limited partnership interest in the Partnership, and an
additional 629,323 shares of the Class B Common Stock held by the Partnership
were converted into 629,323 shares of the Class A Common Stock which were
distributed to Crescent Jewelers in exchange for all of its limited partnership
interest in the Partnership. Crescent Jewelers simultaneously sold all of such
shares of Class A Common Stock in a public offering.
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.
The Company is controlled by Mr. Phillip Ean Cohen, through his sole
ownership of MS Jewelers, the general partner of the Partnership, which owns
100% of the Company's Class B Common Stock. As a result of his control of those
entities, Mr. Cohen controls all decisions with respect to major corporate
transactions affecting the Company. Mr. Cohen also controls Morgan Schiff, for
which Mr. Brinkley serves as a consultant, and Crescent Jewelers, of which Mr.
Brinkley serves as a director and Mr. Stinn serves as Chairman and Chief
Executive Officer.
DESCRIPTION OF INDEBTEDNESS
Senior Subordinated Notes. As part of the financing of the FE Acquisition,
the Partnership issued $25.0 million in Senior Subordinated Notes to Teachers
pursuant to a Note Purchase Agreement, dated as of May 15, 1990 (the "Note
Purchase Agreement"). The Senior Subordinated Notes bore interest at a rate of
14.25% per annum. and were due May 1, 2000. Interest on the Senior Subordinated
Notes was payable semi-annually on May 1 and November 1, and in fiscal 1996 the
Company paid approximately $2.4 million in interest on the Senior Subordinated
Notes. In October 1993, the Company prepaid $10 million of the principal under
the Senior Subordinated Notes pursuant to a special consent from Teachers and on
June 4, 1996, the Company repaid the remaining principal balance, accrued
interest and a prepayment penalty outstanding under the Senior Subordinated
Notes with proceeds from its public offering of Class A Common Stock in May
1996.
Junior Subordinated Notes. In connection with the financing of the FJI
Acquisition, the Partnership issued $7.4 million in Junior Subordinated Notes
to FJI. The Junior Subordinated Notes bore interest at a rate of 13.0% per
annum and were due November 24, 2000. In fiscal 1996, the Company paid
approximately $990,000 in interest on the Junior Subordinated Notes. On June 4,
1996, the Company repaid the remaining principal amount and accrued interest
outstanding under the Junior Subordinated Note with proceeds from its public
offering of Class A Common Stock in May 1996.
- 16 -
<PAGE> 20
OTHER TRANSACTIONS
FJI. In connection with the FJI Acquisition in May 1990, FJI received a
40.0% limited partnership interest in the Partnership in exchange for certain
assets transferred to the Partnership as part of the FJI Acquisition. On March
31, 1996, FJI, as a Withdrawing Limited Partner, received shares of Class A
Common Stock in exchange for its limited partnership interests in the
Partnership in connection with the distribution described above. See
"--Background of the Company." FJI owns the buildings in which the Company's
headquarters and a downtown store are located in Savannah, Georgia. The Company
paid rent of approximately $90,000 to FJI in fiscal 1996 for use of the space it
occupies in these buildings.
MS Jewelers. Mr. Brinkley has served in the uncompensated position of
Chairman of the Board of MS Jewelers, the general partner of the Partnership,
since May 1990. Mr. Stinn served as President and Chief Executive Officer of MS
Jewelers from September 1992 until August 1993 and is currently a director of MS
Jewelers, a position he has held since May 1990.
Effective August 9, 1993, the Partnership established the MS Jewelers
Limited Partnership 1993 Incentive Plan (the "Partnership Incentive Plan"). The
Partnership Incentive Plan provided for the granting of options to purchase up
to six units of limited partnership interest (a "Unit") at option prices
determined by the Board of Directors of MS Jewelers. Each Unit represents a
partnership capital percentage equal to approximately .84%, which represents an
indirect interest in 41,955 shares of Class B Common Stock on a fully diluted
basis assuming exercise of all outstanding options. Effective August 9, 1993,
the following executive officers of the Company were granted options under the
Partnership Incentive Plan: Bradley J. Stinn, 5 Units; Robert S. Morris, 0.6
Units; and John G. Call, 0.4 Units. The exercise price of these options was
$100,000 per Unit, which equates to $2.38 per share of Class B Common Stock.
Options granted to Messrs. Call and Morris were scheduled to expire on November
12, 1993. Prior to their expiration, Mr. Call and Mr. Morris exercised their
options, paying 15% of the option prices in cash and 85% by notes due in seven
years at an annual interest rate of 5 1/4% with interest payable quarterly. The
effect of the exercise of such options will be limited to the Partnership and
will not dilute ownership of the outstanding shares of Class A Common Stock or
Class B Common Stock of the Company. See "Stock Ownership."
Morgan Schiff. 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 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. The Company paid Morgan Schiff $400,000 plus expenses for its
services under the Financial Advisory Services Agreement in fiscal 1996, and
also agreed to indemnify Morgan Schiff against any losses associated with the
Financial Advisory Services Agreement.
- 17 -
<PAGE> 21
STOCK OWNERSHIP
Based solely upon information furnished to the Company, the following
table sets forth certain information with respect to the beneficial ownership of
Class A and Class B Common Stock as of December 31, 1996 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 nominee for director
of the Company, (iii) each of the Named Executive Officers (as defined under
"Election of Director -- Executive Compensation" above), and (iv) all officers
and directors as a group.
<TABLE>
<CAPTION>
SHARES OF CLASS A SHARES OF CLASS B PERCENTAGE OF
COMMON STOCK COMMON STOCK CLASS A AND CLASS B
------------ ------------ -------------------
NAME AND ADDRESS
OF BENEFICIAL OWNER NUMBER PERCENTAGE (1) NUMBER PERCENTAGE (1) COMMON STOCK (1)
- ------------------- ------- -------------- ------ -------------- ----------------
<S> <C> <C> <C> <C> <C>
MS Jewelers Limited Partnership (2) -- -- 1,773,582 100% 12.4%
MS Jewelers Corporation
Phillip Ean Cohen
280 Park Avenue
East Building
New York, New York 10017
FJI (3) 1,647,338 13.2% -- -- 11.5%
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.
P.O. Box 9925
Savannah, Georgia 31412
Gilder, Gagnon, Howe & Co. (4) 1,080,655 8.6% -- -- 7.6%
1775 Broad Way
New York, New York 10019
Wasatch Advisors, Inc. (5) 790,925 6.3% -- -- 5.5%
69 S. Main Street
Suite 400
Salt Lake City, Utah 84101
Chancellor Capital Management, Inc. (6) 538,800 4.3% -- -- 3.8%
Chancellor Trust Company
153 East 53rd Street
New York, New York 10022
FMR Corp. (7) 536,800 4.3% -- -- 3.8%
Edward C. Johnson III
82 Devonshire Street
Boston, Massachusetts 02109
LGT Asset Management, Inc. (8) 474,000 3.8% -- -- 3.3%
50 California
27th Floor
San Francisco, California 94111
</TABLE>
- 18 -
<PAGE> 22
<TABLE>
<S> <C> <C> <C> <C> <C>
Teachers Insurance and Annuity 429,323 3.4% -- -- 3.0%
Association of America(9)
730 Third Avenue
New York, New York 10017
Norwest Bank Minnesota 382,900 3.1% -- -- 2.7%
National Association (10)
Norwest Center
Sixth and Marquette
Minneapolis, Minnesota 55479
Bradley J. Stinn (11)(12) 343,001 2.7% 251,729 14.2% 4.0%
Sterling B. Brinkley (11)(13) 131,000 1.0% 272,707 15.4% 2.8%
Robert W. Cruickshank (14) 8,000 * -- -- *
David B. Parshall (14)(15) 8,300 * -- -- *
Mark C. Pickup (14) 7,700 * -- -- *
Robert S. Morris (11(16) 47,488 * 25,173 1.4% *
John E. Cay III -- -- -- -- --
John G. Call (11)(17) 17,759 * 16,782 * *
All executive officers and directors as a 563,648 4.3% 566,391 31.9% 7.6%
group (10 persons) (18)
</TABLE>
Footnotes on Following Page
- 19 -
<PAGE> 23
- ------------------------------------
* Less than 1%.
(1) 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
December 31, 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. See
"Certain Transactions."
(3) These shares were received by FJI in March 1996 upon its withdrawal from
the Partnership. Based on a Schedule 13G filed with the Securities and
Exchange Commission ("SEC") on June 18, 1996.
(4) Based on a Schedule 13G filed with the 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 12, 1996.
(6) Based on a Schedule 13G filed with the SEC on February 15, 1994.
(7) Based on a Schedule 13G filed with the SEC on September 9, 1996. Of the
shares reported, Fidelity Management & Research Company, a wholly-owned
subsidiary of FMR Corp., is the beneficial owner of 323,300 shares, and
Fidelity Management Trust Company, a wholly-owned subsidiary of FMR Corp.,
is the beneficial owner of 213,500 shares. FMR Corp. and Mr. Johnson, who
controls FMR Corp., have sole dispositive power over 536,800 shares and
sole voting power over 166,300 shares.
(8) Based on a Schedule 13G filed with the SEC on February 14, 1996.
(9) Based on a Schedule 13G filed with the SEC on June 8, 1995. In addition,
in connection with the Company's public offering in May 1996, Teachers
Insurance and Annuity Association of America exercised its right to
convert its then holdings of 629,323 shares of Class B Common Stock into
shares of Class A Common Stock and sold 200,000 shares in the offering.
(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. See "Certain Transactions."
(12) Includes 2,100 shares of Class A Common Stock held by or on behalf of Mr.
Stinn's children, 500 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. See "Election of Directors -- Executive Compensation."
(13) Includes options to purchase 121,000 shares of Class A Common Stock, of
which options to purchase 91,000 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. See "Election of Directors -- Executive Compensation."
(14) Includes options to purchase 7,000 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 42,500 shares of Class A Common Stock which
are immediately exercisable.
(17) Includes options to purchase 13,400 shares of Class A Common Stock which
are immediately exercisable.
(18) 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 512,600 shares of Class A
Common Stock.
- 20 -
<PAGE> 24
STOCKHOLDER RETURN COMPARISON
The Company's Class A Common Stock began trading on the Nasdaq National
Market on October 14, 1993, in connection with the Company's initial public
offering. The price information reflected for the Class A Common Stock in the
following performance graph represents the closing sale price of the Class A
Common Stock for the period from October 14, 1993 through September 30, 1996.
The performance graph compares the cumulative stockholder returns on the Class A
Common Stock with the Nasdaq Stock Market Index (U.S. Companies) and a Peer
Index (as described below) over the same period (assuming the investment of $100
in the Company's Class A Common Stock, the Nasdaq Stock Market (U.S. Companies)
and the Peer Index on October 14, 1993, and reinvestment of all dividends).
COMPARISON OF CUMULATIVE TOTAL RETURNS - FRIEDMAN'S INC.
[GRAPH]
<TABLE>
<CAPTION>
YEAR-END CUMULATIVE RETURNS
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
FRIEDMAN'S INC. 150.6% 214.8% 185.2%
THE NASDAQ STOCK MARKET 97.8% 135.1% 160.3%
PEER INDEX 96.3% 106.2% 127.4%
</TABLE>
Total return calculations for the Nasdaq Stock Market Index (U. S.
Companies) and the Peer Index were prepared by the Center for Research in
Security Prices, The University of Chicago. The Peer Index is composed of the
stocks of certain companies included in the Nasdaq Retail Trade Stock Index.
Specific information regarding the companies comprising the Peer Index will be
provided to any stockholder upon request to John G. Call, the Secretary of the
Company.
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<PAGE> 25
STOCKHOLDER PROPOSALS
FOR 1998 ANNUAL MEETING OF STOCKHOLDERS
Proposals of stockholders, including nominations for the Board of
Directors, intended to be presented at the annual meeting of stockholders to be
held in 1998 should be submitted by certified mail, return receipt requested,
and must be received by the Company at its executive offices in Savannah,
Georgia on or before September 30, 1997 to be eligible for inclusion in the
Company's Proxy Statement and Proxy relating to that meeting. Any stockholder
proposal must be in writing and must set forth (i) a description of the business
desired to be brought before the meeting and the reasons for conducting the
business at the meeting, (ii) the name and address, as they appear on the
Company's books, of the stockholder submitting the proposal, (iii) the class and
number of shares that are beneficially owned by such stockholder, (iv) the dates
on which the stockholder acquired the shares, (v) documentary support for any
claim of beneficial ownership, (vi) any material interest of the stockholder in
the proposal, (vii) a statement in support of the proposal, and (viii) any other
information required by the rules and regulations of the Securities and Exchange
Commission.
OTHER MATTERS
AMENDMENT OF CERTIFICATE OF INCORPORATION
On November 14, 1996, the Board of Directors adopted a resolution
approving an amendment to the Company's Certificate of Incorporation to delete
the provisions in Article Fourth that the holders of Class A Common Stock of the
Company be entitled to elect no more than 25% of the Board of Directors and
replace such with a provision that the holders of Class A Common Stock of the
Company shall be entitled to elect a minimum of 25% of the Board of Directors,
with the precise number of directors to be elected by the Class A Common
Stockholders in excess of such 25% (if any) to be determined by the Board of
Directors. The amendment is being presented to the holders of the Class B Common
Stock at the Annual Meeting for consideration and approval.
FILINGS UNDER SECTION 16(A)
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors and any persons who beneficially own more than
ten percent of the Company's Class A Common Stock to file reports of ownership
and changes in ownership of such securities with the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc. Officers,
directors and beneficial owners of more than ten percent of the Class A Common
Stock are required by applicable regulations to furnish the Company with copies
of all Section 16(a) forms they file. Based solely upon a review of the copies
of the Forms 3, 4 and 5 furnished to the Company, or written representations
from certain reporting persons that no Forms 5 were required, the Company
believes that during fiscal 1996, all persons subject to the reporting
requirements with regard to the Class A Common Stock complied with all
applicable filing requirements, except for the following: Mr. Morris failed to
timely file a Form 5 for one transaction - a grant of options by the Company and
Mr. Wright failed to timely file his Form 3; all such forms were subsequently
filed.
AUDITORS
The Company's Board of Directors has selected Ernst & Young LLP to conduct
the annual audit of the financial statements of the Company for the fiscal year
ending September 30, 1997. Ernst & Young LLP has no financial interest, direct
or indirect, in the Company and does not have any connection with the Company
except in its professional capacity as an independent auditor. The Board of
Directors has submitted the selection of Ernst & Young LLP as independent
auditors to the holders of Class B Common Stock for ratification.
Representatives of Ernst & Young LLP will be present at the Annual Meeting and
will have an opportunity to make a statement if they so desire and respond to
- 22 -
<PAGE> 26
appropriate questions. If this selection is not ratified at the Annual Meeting,
the Board of Directors intends to reconsider its selection of independent
auditors for the fiscal year ending September 30, 1997. Even if the selection
is ratified, the Board of Directors in its sole discretion may direct the
appointment of a different independent accounting firm at any time during the
fiscal year if the Board determines that such a change would be in the best
interest of the Company and its stockholders.
EXPENSES OF SOLICITATION
The cost of soliciting proxies in the accompanying form will be borne by
the Company. In addition to the use of the mails, proxies may be solicited by
directors, officers or other employees of the Company, personally, by telephone
or by telegraph. The Company does not expect to pay any compensation for the
solicitation of proxies, but may reimburse brokers, custodians or other persons
holding stock in their names or in the names of nominees for their expenses in
sending proxy materials to principals and obtaining their instructions.
MISCELLANEOUS
Management does not know of any matters to be brought before the Annual
Meeting other than as described in this Proxy Statement. Should any other
matters properly come before the Annual Meeting, the persons designated as
proxies will vote in accordance with their best judgment on such matters.
AVAILABILITY OF ANNUAL REPORT
ACCOMPANYING THIS PROXY STATEMENT IS A COPY OF THE COMPANY'S ANNUAL REPORT
FOR THE YEAR ENDED SEPTEMBER 30, 1996. STOCKHOLDERS WHO WOULD LIKE ADDITIONAL
COPIES OF THE ANNUAL REPORT SHOULD DIRECT THEIR REQUESTS IN WRITING TO:
FRIEDMAN'S INC., 4 WEST STATE STREET, SAVANNAH, GEORGIA 31401, ATTENTION: JOHN
G. CALL, SECRETARY.
- 23 -
<PAGE> 27
APPENDIX
PROXY FRIEDMAN'S INC.
SAVANNAH, GEORGIA
1997 ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder of Friedman's Inc. (the "Company"), Savannah,
Georgia, hereby constitutes and appoints Bradley J. Stinn and John G. Call, or
either one of them, each with full power of substitution, to vote the number of
shares of Class A Common Stock which the undersigned would be entitled to vote
if personally present at the 1997 Annual Meeting of Stockholders to be held at
the Hyatt Regency Savannah, 2 West Bay Street, Savannah, Georgia 31401 on
Thursday, February 27, 1997, at 10:00 A.M., local time, or at any adjournments
thereof (the "Annual Meeting"), upon the proposal (the "Proposal") described in
the Notice to the Holders of Class A Common Stock of the Annual Meeting of
Stockholders and Proxy Statement, both dated January 22, 1997, the receipt of
which is acknowledged, in the manner specified below. The proxies, in their
discretion, are further authorized to vote for the election of a person to the
Board of Directors if any nominee named herein becomes unable to serve or will
not serve and are further authorized to vote on other matters which may properly
come before the Annual Meeting and any adjournments thereof. The Board of
Directors recommends a vote FOR the Proposal.
ELECTION OF DIRECTORS: On the Proposal to elect the following
directors to serve until the 1997 Annual Meeting of Stockholders of
the Company and until their successors are elected and qualified:
John E. Cay III
Robert W. Cruickshank
David B. Parshall
FOR [ ] WITHHOLD AUTHORITY [ ]
To withhold authority for any individual nominee(s), write the name of
the nominee(s) in the space provided:
----------------------------------------------------------------------
(Continued on other side)
(Continued from previous side)
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR THE PROPOSAL AND WITH DISCRETIONARY AUTHORITY ON ALL OTHER MATTERS THAT MAY
PROPERLY COME BEFORE THE ANNUAL MEETING OR ANY ADJOURNMENTS THEREOF.
Please sign exactly as your name appears on your stock certificate and date.
Where shares are held jointly, each stockholder should sign. When signing as
executor, administrator, trustee, or guardian, please give full title as such.
If a corporation, please sign in full corporate name by president or other
authorized officer. If a partnership, please sign in full partnership name by
authorized person.
Shares Held:
-------------------
-------------------------------
Signature of Stockholder
-------------------------------
Signature of Stockholder (If
held Jointly)
Dated: 1997,
-------------------
Month Day
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF FRIEDMAN'S INC.
AND MAY BE REVOKED
BY THE STOCKHOLDER PRIOR TO ITS EXERCISE.
