<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, 1998
Dear Stockholder:
You are cordially invited to attend the 1998 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 26,
1998, 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 1997 Annual Report, please contact Mr. Victor M. Suglia at (912)
233-9333.
Sincerely,
Bradley J. Stinn
Chairman of the Board of Directors
<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 26, 1998
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 1998 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 26, 1998, at 10:00 a.m.,
local time, for the following purposes:
(i) To elect three directors to serve until the 1999 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
20, 1998, 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,
Victor M. Suglia
January 22, 1998 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, 1998
PROXY STATEMENT
FOR HOLDERS OF CLASS A COMMON STOCK
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 26, 1998
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 1998 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 26, 1998, 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 1999 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, 1998.
STOCKHOLDERS ENTITLED TO VOTE
Only stockholders of record of the Company at the close of business on
January 20, 1998 (the "Record Date") will be entitled to notice of, and to vote
at, the Annual Meeting. On the Record Date, there were 13,116,037 shares of the
Class A Common Stock issued and outstanding held by approximately 101
stockholders of record. In addition, there were 1,492,401 shares of the
Company's Class B common stock, $.01 par value per share ("Class B Common
Stock"), issued and outstanding held by 2 stockholders 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.
The Certificate of Incorporation of the Company (the "Certificate")
provides that holders of Class A Common Stock have voting rights with regard to
the election of a minimum of 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 nine
members, and pursuant to the Certificate the holders of Class A Common Stock
are entitled to elect at least three directors. 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
<PAGE> 5
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: Victor M. Suglia, 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 nine 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:
<TABLE>
<CAPTION>
CLASS A COMMON STOCK NOMINEES DIRECTOR SINCE
----------------------------- --------------
<S> <C>
John E. Cay III 1997
Robert W. Cruickshank 1993
David B. Parshall 1993
CLASS B COMMON STOCK NOMINEES
-----------------------------
Bradley J. Stinn 1993
Sterling B. Brinkley 1993
Linda McFarland Jenkins 1998
Robert S. Morris 1995
Mark C. Pickup 1993
Richard Ungaro 1998
</TABLE>
Mr. Ungaro and Ms. McFarland Jenkins were elected by the Board of
Directors in January 1998 when the Board was expanded from seven to nine
members. Each of the directors will be elected to hold office until the 1999
Annual Meeting of Stockholders or until his or her earlier death, resignation
or removal.
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 1999 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
NAME AND AGE BUSINESS EXPERIENCE
John E. Cay III Mr. Cay was elected a director of the Company in
(52) February 1997. 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
(52) 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.
David B. Parshall Mr. Parshall was elected a director of the Company
(50) 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.
-4-
<PAGE> 8
CLASS B COMMON STOCK NOMINEES
NAME AND AGE BUSINESS EXPERIENCE
Bradley J. Stinn Mr. Stinn currently serves as Chairman of the Board
(38) of Directors of the Company. From February 1996
until January 1998 he served as Chairman of the
Board of Directors and Chief Executive Officer of
the Company. 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 Executive
(45) 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, and an
affiliate of the Company. Mr. Brinkley also serves
as the chairman of other private companies which are
affiliates of Morgan Schiff.
Linda McFarland Ms. McFarland Jenkins was elected to the Board of
Jenkins Directors of the Company and appointed President and
(50) Chief Operating Officer of the Company in January
1998. Prior to joining the Company, Ms. McFarland
Jenkins served as the President and Chief
Merchandising Officer of Cato Corporation ("Cato"),
a specialty retailer of women's apparel, from
January 1996 to January 1998. From January 1993 to
December 1996, Ms. McFarland Jenkins served as
President and Chief Operating Officer of Cato, and
from January 1992 to December 1992, she served as
President and Chief Merchandising Officer of Cato.
-5-
<PAGE> 9
CLASS B COMMON STOCK NOMINEES
NAME AND AGE BUSINESS EXPERIENCE
Robert S. Morris Mr. Morris was elected Vice-Chairman of the Board of
(42) Directors in January 1998. From February 1996 until
January 1998, Mr. Morris served as President and
Chief Operating Officer of the Company. 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.
Marcy C. Pickup Mr. Pickup was elected a director of the Company in
(47) 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.
Richard Ungaro Mr. Ungaro was elected Vice Chairman of the Board of
(50) Directors of the Company and appointed Chief
Executive Officer of the Company in January 1998.
Prior to joining the Company, Mr. Ungaro served as
Executive Vice President of Domestic Retail
Operations for Blockbuster Entertainment
Corporation, a video and music retailer, from
December 1995 to January 1998. From December 1993 to
December 1995, Mr. Ungaro served as the Zone Vice
President for the East Coast for Starbucks Coffee
Company, a retail coffee shop chain, and from July
1990 to December 1993, Mr. Ungaro served as the Zone
Vice President for the East Coast for Blockbuster
Entertainment Corporation.
-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,
Compliance 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 one meeting
during the 1997 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 1997 fiscal year.
Compliance Committee. The members of the Compliance Committee are
David B. Parshall (Chairman), John E. Cay III, and Sterling B. Brinkley. The
function of the Compliance Committee is to oversee the policies and procedures
of the Company intended to ensure the Company's compliance with all applicable
governmental regulations and regulatory procedures including the training and
review of employees. The Compliance Committee held one meeting during the 1997
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 four
meetings during the 1997 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 24, 1998. See "Stockholder Proposals for 1999 Annual Meeting of
Stockholders."
The Board of Directors held four meetings during the 1997 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 1997, 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 50,000 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 Ms. McFarland Jenkins and Messrs. Stinn, Brinkley,
Morris, and Ungaro, 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."
NAME AND AGE BUSINESS EXPERIENCE
Victor M. Suglia Victor M. Suglia, has served as Senior Vice
(42) President and Chief Financial Officer of the Company
since June 1997, and Treasurer and Secretary of the
Company since November 1997. Prior to joining the
Company, Mr. Suglia was Vice President and Corporate
Controller for Saks Holdings, Inc., the holding
company of Saks Fifth Avenue for six years.
Donald J. Wright, Jr. Mr. Wright joined the Company in January 1996 as
(50) Vice President - Merchandising. Prior to joining the
Company, Mr. Wright was Vice President of
Merchandising at Reed's Jewelers, Inc. for ten
years.
-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, 1997, 1996 and 1995 for
(i) the Chief Executive Officer of the Company; and (ii) each of the three
other most highly compensated executive officers of the Company whose total
salary and bonus for the fiscal year ended September 30, 1997, 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> <C>
Bradley J. Stinn 1997 $300,000 -- $154,907(1) -- --
Chairman of the Board of 1996 300,000 $200,000 184,757(1) -- $981,308
Directors 1995 300,000 350,000 242,089(1) 100,000 428,490(2)
Sterling B. Brinkley 1997 $225,000 $ 50,000 $ 96,022(3) -- --
Chairman of the 1996 225,000 140,000 119,487(3) -- $909,879(2)
Executive Committee of 1995 225,000 125,000 154,375(3) -- 403,156(2)
the Board of Directors
Robert S. Morris 1997 $200,000 $100,000 -- 25,000 --
Vice-Chairman of the 1996 150,000 225,000 -- 25,000 --
Board of Directors 1995 150,000 150,000 -- 25,000 --
Donald J. Wright, Jr. 1997 $115,000 $ 10,000 -- 4,000 --
Vice Presidnet - 1996 79,320 15,000 -- 1,000 --
Merchandising (4) 1995 -- -- -- -- --
</TABLE>
--------------------------------------
(1) Composed of: (1) a housing allowance of $42,000, $40,250 and $62,000,
in fiscal 1997, 1996 and 1995, respectively; (2) an automobile
allowance of $14,666, $15,628 and $16,013, in fiscal 1997, 1996, and
1995, respectively; (3) annual interest forgiveness on an incentive
loan of $52,650, $68,950 and $86,156 in fiscal 1997, 1996 and 1995,
respectively; and (4) an annual reimbursement for the payment of taxes
on the interest forgiveness of $45,591, $59,929 and $77,920 in fiscal
1997, 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
$52,650, $68,950 and $86,156, in fiscal 1997, 1996 and 1995,
respectively, and (ii) an annual reimbursement for the payment of
taxes on the interest forgiveness of $43,372, $50,547 and $68,219, in
fiscal 1997, 1996 and 1995, respectively. See "-- Employment
Arrangements."
(4) Mr. Wright's employment with Company began in January 1996.
-9-
<PAGE> 13
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANT
--------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBER OF PERCENT OF ASSUMED ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM
NAME OPTIONS EMPLOYEES IN EXERCISE OR EXPIRATION ------------------------------
- ---- GRANTED (1) FISCAL YEAR BASE PRICE DATE 5% 10%
----------- ------------- ----------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Bradley J. Stinn -- -- -- -- -- --
Sterling B. Brinkley -- -- -- -- -- --
Robert S. Morris 25,000 15.4% $17.75 11/14/06 $279,000 $707,000
Donald J. Wright, Jr. 4,000 2.5% 17.75 11/14/06 45,000 113,000
</TABLE>
--------------------
(1) All of the options are exercisable for Class A Common Stock and were
granted under the Company's 1996 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 270,000 (3) 30,000 $1,415,000 $17,000
Sterling B. Brinkley 100,000 (3) 30,000 338,000 56,000
Robert S. Morris 42,500 47,500 113,000 4,000
Donald J. Wright, Jr. 400 4,600 -- --
</TABLE>
- -------------
(1) No stock options were exercised by any of the Named Executive Officers
during fiscal 1997.
(2) Represents the fair market value of a share of Class A Common Stock as
of September 30, 1997 of $16.875, 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, 1997, 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.
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 was 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 1999 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 19, 1997, the Board of
Directors approved the Friedman's Inc. 1997 Stock Option Plan (the "1997
Plan"). The Board's approval of the 1997 Plan is subject to stockholder
approval, and the 1997 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 1997 Plan, which
summary is qualified in its entirety by reference to the 1997 Plan, a copy of
which may be obtained from the Secretary of the Company.
Under the proposed 1997 Plan, approximately 500 selected key employees
will be eligible for the grant of options to purchase shares of Class A Common
Stock. Options granted under the 1997 Plan may qualify as incentive stock
options under Section 422 of the Code or nonqualified stock options. Any key
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 1997 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 500,000 shares of Class A Common Stock will be available
for grant under the 1997 Plan. As of January 15, 1998, options to purchase
444,100 shares of Class A Common Stock had been granted under the 1997 Plan,
subject to the approval of the 1997 Plan by the holders of the Class B
-11-
<PAGE> 15
Common Stock. The 1997 Plan will expire in 2007 unless earlier terminated by
the Compensation Committee.
The exercise price for options granted under the 1997 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 1997 Plan was $14.00 as of January 15,
1998.
The Board of Directors, in its discretion, may amend the 1997 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 1997 Plan or to any
individual under the 1997 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 1997 Plan.
The following table presents information regarding options granted
under the 1997 Plan to certain individuals and groups as of January 15, 1998,
subject to the approval of the 1997 Plan by the holders of the Class B Common
Stock at the Annual Meeting.
<TABLE>
<CAPTION>
NAME POSITION NUMBER OF
---- -------- OPTIONS VALUE(1)
------- --------
<S> <C> <C> <C>
Bradley J. Stinn Chairman of the Board of Directors 50,000 $6,250
Sterling B. Brinkley Chairman of the Executive Committee of -- --
the Board of Directors
Robert S. Morris Vice-Chairman of the Board of Directors -- --
Donald J. Wright, Jr. Vice President - Merchandising -- --
All current executive officers as a group........................ 375,000 $6,250 (2)
All other employees.............................................. 69,100 $8,638
=========
Total...................................................... 444,100
</TABLE>
- -----------------
(1) Calculated as the difference between the exercise price and the market
price ($14.00) of the Class A Common Stock on January 15, 1998.
(2) Options to purchase an aggregate of 325,000 shares of Class A Common Stock
were granted to Mr. Ungaro and Ms. McFarland Jenkins on January 2, 1998,
with an exercise price ($14.75) that is in excess of the market value of
the Class A Common Stock as of January 15, 1998.
-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 1997, the base
salary of the Chief Executive Officer of the Company, Bradley J. Stinn,
remained at $300,000. Based on the Company's performance, the Compensation
Committee determined not to pay Mr. Stinn a bonus for fiscal 1997.
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 1997, 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 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 1997 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. In June 1997, the
Company purchased $5 million in principal amount of the 10% Convertible Senior
Subordinated Notes issued by Crescent, under the Standby Purchase Agreement.
This increased the Company's total notes receivable from Crescent to $25
million.
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"). 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.
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 4,114,298 shares of Class A Common
Stock have been distributed to 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.
OTHER TRANSACTIONS
FJI. 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 $92,000 to FJI in fiscal 1997 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; and Robert S. Morris,
0.6 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 Mr.
Morris were scheduled to expire on November 12, 1993. Prior to their
expiration, Mr. Morris exercised his 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."
-16-
<PAGE> 20
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 1997, 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, 1997 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 Directors -- Executive Compensation" above), and
(iv) all officers and directors as a group.
<TABLE>
<CAPTION>
SHARES OF CLASS A SHARES OF CLASS B PERCENTAGE OF
NAME AND ADDRESS COMMON STOCK COMMON STOCK CLASS A AND CLASS B
------------ ------------
OF BENEFICIAL OWNER NUMBER PERCENTAGE (1) NUMBER PERCENTAGE (1) COMMON STOCK (1)
- ------------------- ------ -------------- ------ -------------- ----------------
<S> <C> <C> <C> <C> <C>
MS Jewelers Limited Partnership (2) 250,000 1.9% 1,492,401 100% 11.9%
MS Jewelers Corporation
Phillip Ean Cohen
350 Park Avenue
New York, New York 10022
FJI (3) 1,647,338 12.6% -- -- 11.3%
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 8.2% -- -- 7.4%
1775 Broad Way
New York, New York 10019
Wasatch Advisors, Inc. (5) 495,525 3.8% -- -- 3.4%
68 S. Main Street
Suite 400
Salt Lake City, Utah 84101
Chancellor Capital Management, Inc. (6) 538,800 4.1% -- -- 3.7%
Chancellor Trust Company
153 East 53rd Street
New York, New York 10022
FMR Corp. (7) 1,347,300 10.3% -- -- 9.2%
Edward C. Johnson III
82 Devonshire Street
Boston, Massachusetts 02109
LGT Asset Management, Inc. (8) 474,000 3.6% -- -- 3.2%
50 California
27th Floor
San Francisco, California 94111
</TABLE>
-18-
<PAGE> 22
<TABLE>
<CAPTION>
SHARES OF CLASS A SHARES OF CLASS B
COMMON STOCK COMMON STOCK PERCENTAGE OF
NAME AND ADDRESS ------------ ------------ CLASS A AND CLASS B
OF BENEFICIAL OWNER NUMBER PERCENTAGE (1) NUMBER PERCENTAGE (1) COMMON STOCK (1)
- ------------------- ------ ------------- ------ -------------- ----------------
<S> <C> <C> <C> <C> <C>
Teachers Insurance and Annuity 429,323 3.3% -- -- 2.9%
Association of America (9)
730 Third Avenue
New York, New York 10017
Weiss Peck & Greer LLC (10) 931,410 7.1% -- -- 6.4%
One New York Plaza 30th Floor
New York, New York 10004
Firstar Corporation 758,900 5.8% -- -- 5.2%
Firstar Investment Research and
Management Company (11)
777 East Wisconsin Avenue
Wisconsin, Milwaukee 53202
Bradley J. Stinn (12)(13) 343,001 2.5% 251,729 16.9% 3.9%
Sterling B. Brinkley (14) 140,000 1.0% -- -- *
Robert W. Cruickshank (15) 9,000 * -- -- *
David B. Parshall (15)(16) 8,300 * -- -- *
Mark C. Pickup (15) 8,700 * -- -- *
Robert S. Morris (12)(17) 72,488 * 25,173 1.7% *
John E. Cay III (18) 7,000 * -- -- *
Donald J. Wright, Jr. (19) 2,400 * -- -- *
All executive officers and directors as a 590,889 4.3% 276,902 18.6% 5.7%
group (9 persons) (20)
</TABLE>
- ----------------------------------
* 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, 1997, 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 the shares of Class B Common Stock and to direct their
disposition. Mr. Cohen is the sole stockholder of MS Jewelers. See
"Certain Transactions." The shares of Class A Common Stock shown were
issued in the name of Bear, Stearns & Co. Inc. for the benefit of A.A.
Friedman Co., Inc. ("AAFCO") in connection with the Company's
acquisition of certain trademark rights from AAFCO. Morgan Schiff
serves as an escrow agent with regard to these shares, and as such has
sole voting and dispositive power. Morgan Schiff expressly disclaims
any beneficial ownership of such shares.
(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.
Footnotes Continued on Next Page
-19-
<PAGE> 23
(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 August 25, 1997.
(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 July 9, 1997. Of the
shares reported, Fidelity Management & Research Company, a wholly-owned
subsidiary of FMR Corp., is the beneficial owner of 1,146,300 shares,
and Fidelity Management Trust Company, a wholly-owned subsidiary of FMR
Corp., is the beneficial owner of 201,000 shares. FMR Corp. and Mr.
Johnson, who controls FMR Corp., have sole dispositive power over
1,347,300 shares and sole voting power over 153,800 shares. The
ownership of one investment company, Fidelity Low-Priced Stock Fund,
amounted to 848,500 shares of the Class A Common Stock.
(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.
(10) Based on a Schedule 13G filed with the SEC on February 11, 1997.
(11) Based on a Schedule 13G filed with the SEC on February 13, 1997 by
Firstar Corporation and a Schedule 13G filed with the SEC on February
13, 1997 by Firstar Investment Research and Management Company. The
Schedule 13G of Firstar Corporation states that Firstar Corporation has
sole voting power over 695,200 shares, shared voting power over 15,100
shares, sole dispositive power over 743,800 shares, and shared
dispositive power over 15,100 shares. The Schedule 13G of Firstar
Investment Research and Management Company states that it has sole
voting power over 271,300 shares, shared voting power over 439,000
shares, sole dispositive power over 319,900 shares, and shared
dispositive power over 439,000 shares.
(12) Shares of Class B Common Stock owned by Messrs. Stinn and Morris 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."
(13) 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 which are immediately exercisable.
(14) Includes options to purchase 130,000 shares of Class A Common Stock which
are immediately exercisable.
(15) Includes options to purchase 8,000 shares of Class A Common Stock
granted under the Director Plan which are immediately exercisable.
(16) Includes 300 shares of Class A Common Stock held in trust for Mr.
Parshall's children.
(17) Includes options to purchase 67,500 shares of Class A Common Stock which
are immediately exercisable.
(18) Includes options to purchase 5,000 shares of Class A Common Stock
granted under the Director Plan which are immediately exercisable.
(19) Includes options to purchase 2,300 shares of Class A Common Stock which
are immediately exercisable.
(20) Includes 276,902 shares of Class B Common Stock held by Messrs. Stinn
and Morris indirectly through ownership of limited partnership interests
or options to purchase limited partnership interests in the Partnership,
and options to purchase 528,800 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,
1997. 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.
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
YEAR-END CUMULATIVE RETURNS
1994 1995 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
FRIEDMAN'S INC. 150.6% 214.8% 185.2% 166.7%
THE NASDAQ STOCK MARKET 97.8% 135.1% 160.4% 220.2%
PEER INDEX 96.3% 106.2% 127.3% 145.7%
</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 Tniversity 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 Victor M. Suglia, the secretary of
the company.
-21-
<PAGE> 25
STOCKHOLDER PROPOSALS
FOR 1999 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 1999 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 24, 1998 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
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 1997, all persons subject to the reporting
requirements with regard to the Class A Common Stock complied with all
applicable filing requirements.
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, 1998. 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
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, 1998. 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
-22-
<PAGE> 26
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, 1997. 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:
VICTOR M. SUGLIA, SECRETARY.
-23-
<PAGE> 27
APPENDIX
PROXY FRIEDMAN'S INC.
SAVANNAH, GEORGIA
1998 ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder of Friedman's Inc. (the "Company"), Savannah,
Georgia, hereby constitutes and appoints Bradley J. Stinn and Victor M. Suglia,
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 1998 Annual Meeting of Stockholders to be held
at the Hyatt Regency Savannah, 2 West Bay Street, Savannah, Georgia 31401 on
Thursday, February 26, 1998, 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, 1998, 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 1998 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:
- --------------------------------------------------------------------------------
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: ,1998
----------------------------
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.
