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
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] 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-12
FRIEDMAN'S INC.
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(Name of Registrant as Specified in Its Charter)
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(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:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] 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.
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(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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FRIEDMAN'S LOGO
4 WEST STATE STREET
SAVANNAH, GEORGIA 31401
January 22, 2003
Dear Stockholder:
On behalf of the Board of Directors and management of Friedman's Inc., I
cordially invite you to attend the 2003 Annual Meeting of Stockholders, which
will be held at Hyatt Regency Savannah, 2 West Bay Street, Savannah, Georgia on
Tuesday, February 25, 2003, at 9:00 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 the management team. The sole item of business that is
being presented at the annual meeting for a vote by the holders of Class A
Common Stock is the election of three directors of the company, as explained in
the accompanying Proxy Statement.
It is important that your stock be represented at the meeting regardless of
the number of shares you hold. You are encouraged to specify your voting
preferences by so marking the enclosed proxy card or by voting electronically
using the Internet or by telephone. If you do attend the meeting and wish to
vote in person, you may revoke your proxy at the meeting.
If you have any questions about the Proxy Statement or the accompanying
2002 Annual Report, please contact Mr. Victor M. Suglia at (510) 874-7603.
Sincerely,
/s/ Bradley J. Stinn
Bradley J. Stinn
Chief Executive Officer
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 25, 2003
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 2003 Annual Meeting of Stockholders of the Company (the "Annual
Meeting") will be held at Hyatt Regency Savannah, 2 West Bay Street, Savannah,
Georgia on Tuesday, February 25, 2003, at 9:00 a.m. local time, for the
following purposes:
(i) To elect three directors to serve until the 2004 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 6,
2003, are entitled to notice of, and to vote at, the Annual Meeting or any
adjournments thereof; however, the Company's stock transfer books will not be
closed. 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 to the Annual Meeting during ordinary business
hours at the offices of the Company in Savannah, Georgia. You may vote your
shares by completing the enclosed proxy card or you may vote electronically via
the Internet or by telephone. Instructions for voting via the Internet or by
telephone are set forth in the attached Proxy Statement.
Submitting you proxy does not affect your right to vote in person if you
attend the Annual Meeting. Whether or not you expect to attend the Annual
Meeting, please vote, sign, date and return the enclosed proxy card promptly in
the enclosed prepaid envelope, vote via the Internet or by phone, each of which
will spare the Company the expense of further proxy solicitations. You may
revoke your proxy at any time before its exercise by (i) delivering written
notice to the Company's Secretary, Victor M. Suglia, at the address above, (ii)
submitting a later dated proxy card, or (iii) appearing at the Annual Meeting to
vote in person; provided, however, that no such revocation under clause (i) or
(ii) shall be effective until written notice of revocation is received by the
Secretary at or before the Annual Meeting.
When you submit your proxy, you authorize Bradley J. Stinn or Victor M.
Suglia, or either one of them, each with full power of substitution, to vote
your shares at the Annual Meeting in accordance with your instructions, and to
vote on any adjournments of the Annual Meeting.
By Order of the Board of Directors.
/s/ Victor M. Suglia
Victor M. Suglia
Secretary
January 22, 2003
FRIEDMAN'S INC.
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PROXY STATEMENT
FOR HOLDERS OF CLASS A COMMON STOCK
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 25, 2003
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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 2003 Annual Meeting of
Stockholders. The Annual Meeting will be held at Hyatt Regency Savannah, 2 West
Bay Street, Savannah, Georgia on Tuesday, February 25, 2003, at 9:00 a.m., local
time (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 2004 Annual Meeting of Stockholders and (ii) to transact such other
business as may properly come before the Annual Meeting or any adjournments
thereof.
The approximate date on which this Proxy Statement and the accompanying
Proxy are first being sent or given to stockholders of the Company is January
22, 2003.
STOCKHOLDERS ENTITLED TO VOTE
Only stockholders of record of the Company at the close of business on
January 6, 2003 (the "Record Date") will be entitled to notice of, and to vote
at, the Annual Meeting. On the Record Date, there were 17,423,706 shares of the
Class A Common Stock issued and outstanding held by 62 stockholders of record.
In addition, there were 1,196,283 shares of the Company's Class B common stock,
$.01 par value per share ("Class B Common Stock"), issued and outstanding held
by one stockholder of record. Notwithstanding the passing of the Record Date
specified above, the Company's stock transfer books will not be closed and
shares may be transferred after 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 the right, as a class, to
elect a minimum of 25% of the members of the Company's Board of Directors
(rounding up the number of directors to be elected by Class A Common
Stockholders if 25% of the Board Directors is not equal to a whole number). The
Board of Directors has the right to determine the precise number of directors,
if any, to be elected by the Class A Common Stockholders in excess of 25%. The
Company's current Board of Directors has been set at six members, and, pursuant
to the Certificate, the holders of Class A Common Stock are entitled to elect at
least two directors. The Board of Directors has determined, however, that
holders of Class A Common Stock will elect three directors at the Annual
Meeting. Holders of Class A Common Stock are entitled to one vote for each share
held. Holders of Class B Common Stock also are entitled to one vote for each
share held.
QUORUM AND VOTING REQUIREMENTS
In accordance with Delaware law (under which the Company is organized) and
the Company's Bylaws, the presence 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, is required to establish a quorum. For the purpose of
determining the presence of a quorum, abstentions and votes withheld from any
nominee will be considered to be "votes entitled to be cast" and therefore will
be counted as present for purposes of determining the presence or absence of a
quorum. Broker non-votes will not be considered to be "votes entitled to be
cast" and will not be counted as present for quorum purposes. Broker non-votes
are votes that brokers holding shares of record for their customers are not
permitted to cast under applicable stock exchange rules because the brokers have
not received specific instructions from their customers as to certain proposals
and as to which the brokers advised the Company that they lack voting authority.
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 or more nominees but
vote for the other nominee(s). 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
non-votes will not be considered "votes entitled to be cast" and will have no
effect on the outcome of the election of directors.
PROXIES
If a stockholder is unable to attend the Annual Meeting in person or is
able to attend but does not wish to vote in person, he or she may submit their
proxy voting instructions via the Internet or by telephone by 5:00 p.m. Eastern
Standard Time on February 24, 2003, or by completing the enclosed proxy in time
for receipt no later than the close of business on February 24, 2003.
Stockholders may submit their proxy voting instructions via the Internet by
accessing the web site identified on the enclosed proxy and following the
instructions on the web site. Stockholders who choose to submit their proxy
voting instructions by telephone should call the telephone number identified on
the enclosed proxy and follow the prompts. The Internet and telephone voting
procedures are designed to authenticate stockholders' identities, allow
stockholders to vote their shares and confirm that their instructions have been
properly recorded. If a stockholder's shares are held in the name of a bank or
broker, the availability of Internet or telephone voting will depend on the
voting processes of the applicable bank or broker. It is therefore recommended
that stockholders follow the voting instructions on the form received from their
banks or brokers. Stockholders who choose not to vote via the Internet or by
telephone should specify their choices with regard to each proposal on the
enclosed proxy card.
When a proxy is timely delivered via the Internet, by telephone or by the
enclosed proxy, and not subsequently revoked as described below, it will be
voted at the Annual Meeting in accordance with the instructions given. If no
specific instructions are given, however, the shares represented will be voted
"FOR" the election of the three director nominees named in this Proxy Statement.
If any other matters properly come before the Annual Meeting, the persons named
as proxies will vote upon such matters according to their judgment as further
described in the next paragraph.
The Board of Directors is not aware of any business to be presented and
voted upon by the stockholders at the Annual Meeting other than that which is
set forth in this Proxy Statement. As permitted by Rule 14a-4(c) of the of the
Securities and Exchange Commission (the "SEC"), the persons named as proxies on
the proxy cards will have discretionary authority to vote in their judgment on
any proposals presented by stockholders for consideration at the Annual Meeting
that were submitted to the Company after December 19, 2002. Such persons named
as proxies also will have discretionary authority to vote in their judgment upon
the election of any person as a director if a director nominee is unable to
serve for good cause or will not serve, and on matters incident to the conduct
of the Annual Meeting.
The giving of a proxy does not affect a stockholder's right to vote in
person should he or she attend the Annual Meeting. Any stockholder who has given
a proxy has the power to revoke it at any time before it is voted by (1) giving
written notice of revocation to Victor M. Suglia, the Secretary of the Company,
at 4 West State Street, Savannah, Georgia 31401, (2) executing and delivering to
the Secretary a proxy card bearing a later date, or (3) voting in person at the
Annual Meeting; provided, however, that no such revocation under clause (1) or
(2) shall be effective until written notice of revocation is received by the
Secretary at or before the Annual Meeting. If a stockholder is not attending the
Annual Meeting, any proxy or notice should be returned to the Company in time
for receipt no later than the close of business on the day preceding the Annual
Meeting.
2
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. Pursuant to Article III of
the Company's Bylaws, the Board of Directors has set the number of directors of
the Company at six and has nominated the following individuals for election to
the Board of Directors by the holders of Class A Common Stock and Class B Common
Stock, respectively
CLASS A COMMON STOCK NOMINEES DIRECTOR SINCE
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Robert W. Cruickshank....................................... 1993
David B. Parshall........................................... 1993
Mark C. Pickup.............................................. 1993
CLASS B COMMON STOCK NOMINEES
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Bradley J. Stinn............................................ 1993
Sterling B. Brinkley........................................ 1993
John E. Cay III............................................. 1997
Each of the directors will be elected to hold office until the 2004 Annual
Meeting of Stockholders or until his 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 card intend to vote the shares represented thereby in favor
of the election 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. The Company believes 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 of
Directors locates a suitable candidate or candidates, or reduce the authorized
number of directors. The Company anticipates that management stockholders of the
Company 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 2004 ANNUAL MEETING OF STOCKHOLDERS.
CERTAIN INFORMATION CONCERNING NOMINEES
The following table sets forth certain information regarding the nominees
for directors to be elected by the holders of the Class A Common Stock and Class
B Common Stock. 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 AGE BUSINESS EXPERIENCE
---- --- -------------------
Robert W. 57 Mr. Cruickshank was elected a director of the Company in
Cruickshank......... August 1993. Since 1981, Mr. Cruickshank has been a
consultant providing private clients with financial advice.
Mr. Cruickshank is currently a director and chairman of the
audit committee of Calgon Carbon Corp. and a director and
chairman of the audit committee of Hurco Inc.
3
NAME AGE BUSINESS EXPERIENCE
---- --- -------------------
David B. Parshall..... 55 Mr. Parshall was elected a director of the Company in
December 1993. Since April 1992, Mr. Parshall has been a
Managing Director of Private Equity Investors, Inc., a
company that purchases portfolios of private equities. Mr.
Parshall also serves as a director of Dolphin Management
Inc., an investment management firm with which he has been
affiliated since October 1992. From 1976 to 1990, Mr.
Parshall was successively an Associate, Vice President,
Senior Vice President and Managing Director of Lehman
Brothers, and from August 1990 to March 1992, Mr. Parshall
served as a Managing Director of the Blackstone Group, L.P.,
both investment banks. Mr. Parshall also serves as a
director of Telenetics Corporation.
Mark C. Pickup........ 52 Mr. Pickup was elected a director of the Company in August
1993. Mr. Pickup served as Vice Chairman of Crescent
Jewelers ("Crescent Jewelers"), a retail jewelry chain that
is an affiliate of the Company, 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
Inc., a chain of pawn shop stores and an affiliate of the
Company. Previously, for more than five years, Mr. Pickup
held various positions with Ernst & Young LLP, leaving in
October 1992, at which time he was a Partner in its San
Francisco, California office.
CLASS B COMMON STOCK NOMINEES
NAME AGE BUSINESS EXPERIENCE
---- --- -------------------
Bradley J. Stinn............ 43 Mr. Stinn has served as the Chief Executive Officer of the
Company since September 1992, with the exception of the
period between December 1997 to September 1998. He has
served as Chairman of the Executive Committee of the Board
of Directors since July 1998. He also served as Chairman of
the Board of Directors from February 1996 until June 1998.
Since June 1995, he has served as the Chairman of the Board
of Directors and Chief Executive Officer of Crescent
Jewelers.
Sterling B. Brinkley........ 50 Mr. Brinkley has served as Chairman of the Board of
Directors of the Company since July 1998. From February 1996
until June 1998, he served as Chairman of the Executive
Committee of the Board of Directors of the Company. Prior to
that time, Mr. Brinkley served as the Chairman of the Board
of Directors from August 1993 until January 1996. He also
serves as a consultant to Morgan Schiff & Co., Inc. ("Morgan
Schiff"), an affiliate of the Company. Mr. Brinkley serves
as a director of Crescent Jewelers and as Chairman of the
Board of Directors of EZCORP Inc. Mr. Brinkley also serves
as the chairman of the boards of directors of other private
companies that are affiliates of Morgan Schiff.
John E. Cay III............. 57 Mr. Cay was elected a director of the Company in February
1997. Mr. Cay has been Chairman and Chief Executive Officer
of Palmer & Cay, Inc., an insurance brokerage and employee
benefit consulting company, since 1998. He served as
President of Palmer & Cay from 1971 to 1997. Palmer & Cay
provides insurance brokerage and employee benefit consulting
services to the Company and to Crescent Jewelers. Mr. Cay
also serves as a director of National Service Industries.
4
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
Board of Directors. Under the Delaware General Corporation Law and the
Bylaws of the Company, the property, affairs and business of the Company are
under the general management of its Board of Directors. The Board of Directors
conducts its business through meetings of both the full Board of Directors and
committees of the Board of Directors. 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 to the Board of Directors who the Board should appoint as the
independent auditors of the Company's financial statements. This independent
audit includes an inspection of the Company's books and accounts. The Audit
Committee reviews with the independent auditors the scope of their audit and
their audit report, including any questions and/or recommendations that may
arise in the audit and report or concerning the Company's internal accounting
procedures. The Audit Committee also reviews with management and the independent
auditors the Company's financial statements as prepared and filed with the
appropriate regulatory agencies. The Audit Committee held four meetings during
the 2002 fiscal year.
Compensation Committee. The members of the Compensation Committee are
Robert W. Cruickshank (Chairman), Mark C. Pickup and David B. Parshall. The
Compensation Committee reviews and determines whether to approve the
compensation of executive officers. Also, the Compensation Committee establishes
targets and incentive awards under the Company's incentive compensation plans.
The Compensation Committee held one meeting during the 2002 fiscal year.
Compliance Committee. The members of the Compliance Committee are David B.
Parshall (Chairman), John E. Cay III and Sterling B. Brinkley. The Compliance
Committee oversees the Company's policies and procedures to ensure that the
Company is in compliance with all applicable governmental regulations and
regulatory procedures. The Compliance Committee's work includes overseeing the
training and review of employees. The Compliance Committee held one meeting
during the 2002 fiscal year.
Executive Committee. The members of the Executive Committee are Bradley J.
Stinn (Chairman), Sterling B. Brinkley and Mark C. Pickup. To the extent
permitted by law, the Executive Committee exercises the authority of the Board
of Directors to manage the Company between meetings of the Board of Directors.
The Executive Committee held six meetings during the 2002 fiscal year.
The Board of Directors, acting as a whole, nominates those persons whom it
recommends that the stockholders elect as directors of the Company. The Board of
Directors also considers Class A Common Stock nominees submitted by holders of
Class A Common Stock and will do so for the 2004 Annual Meeting if nominees are
submitted to the Company on or before September 24, 2003. See "Stockholder
Proposals for 2004 Annual Meeting of Stockholders."
The Board of Directors held six meetings during the 2002 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
Fiscal 2002. Directors who were not current employees of the Company
received an annual director's fee of $20,000, and Committee Chairmen who were
not current employees of the Company received an additional annual fee of
$5,000. Pursuant to the Company's 1999 Long-Term Incentive Plan, as amended,
directors are able to receive up to 100% of their annual director's fees in
shares of Class A Common Stock. In fiscal 2002, one director, Mr. David
Parshall, received medical insurance benefits under the Company's insurance
plans at no cost to Mr. Parshall. In addition, in fiscal 2002 the Company agreed
to make a payment of $30,000 to the Chairman of the Audit Committee, Mr. Mark
Pickup, in recognition of the time spent by the Chairman of the Audit Committee
in connection with the Company's August 2002 credit facility refinancing and
investment in Crescent Jewelers. The Company also reimburses directors for
travel and other out-of-
5
pocket expenses incurred in connection with their service as directors.
Directors who are employees of the Company are not paid extra compensation for
their service on the Board of Directors or any committee.
Fiscal 2003. The Company will pay directors who are not current employees
of the Company an annual fee of $29,000 in fiscal 2003. Committee Chairmen,
other than the Chairman of the Audit Committee, will receive an additional
annual fee of $5,000. The Chairman of the Audit Committee will receive an
additional annual amount of $15,000. The Company will continue to reimburse
directors for travel and other out-of-pocket expenses incurred in connection
with their service as directors, but will no longer provide to any director
medical insurance benefits under the Company's insurance plans at no cost.
Directors will be eligible to purchase medical benefits from the Company for an
amount equal to the Company's cost of providing those benefits to the director.
Pursuant to the Company's 1999 Long-Term Incentive Plan, as amended, directors
may continue to receive up to 100% of their annual director's fees in shares of
Class A Common Stock. Directors who are employees of the Company will not be
paid extra compensation for their service on the Board of Directors or any
committee. The Board of Directors intends to review and possibly adjust the
compensation of directors on an annual basis.
Additional Compensation. In addition to annual director's fees, under the
Friedman's Inc. Amended and Restated Stock Option Plan for Outside Directors
(the "Director Plan"), each director who is not an employee of the Company
receives a grant of options to purchase 5,000 shares of Class A Common Stock
upon his initial election to the Board of Directors, and each such director
receives subsequent annual grants of options to purchase 5,000 shares of Class A
Common Stock. The annual grants are made on the day following each annual
meeting of stockholders. The option price for each option granted under the
Director Plan is the "Fair Market Value," as 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
100,000 shares of Class A Common Stock for issuance under the Director Plan,
and, as of September 28, 2002, there were 42,600 outstanding options to purchase
shares under the Director Plan.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information regarding the executive
officers of the Company, other than Messrs. Stinn and Brinkley, who are
discussed above. For information concerning the executive officers' ownership of
capital stock, see "Stock Ownership."
NAME AGE BUSINESS EXPERIENCE
---- --- -------------------
Douglas Anderson...... 52 Douglas Anderson has served as President and Chief Operating
Officer of the Company since September 2001. Prior to
joining the Company, Mr. Anderson was President and Chief
Executive Officer of Thorn America, Inc. ("Thorn") for two
years. Mr. Anderson also held various other executive
positions for Thorn from 1990 to 1996, including Chief
Executive Officer of Thorn Europe. Prior to joining Thorn,
Mr. Anderson was an executive with Brookstone Company for
nine years, serving as Chief Executive Officer for four of
those years. Mr. Anderson currently serves as a director of
RTO Enterprises Inc.
Victor M. Suglia...... 47 Victor M. Suglia, has served as Senior Vice President and
Chief Financial Officer of the Company since June 1997, and
Treasurer and Secretary of the Company since November 1997.
Since September 1999, Mr. Suglia has also served as the
Chief Financial Officer of Crescent Jewelers. Prior to
joining the Company, Mr. Suglia was Vice President and
Corporate Controller for Saks Holdings, Inc., the holding
company of Saks Fifth Avenue, from 1991 to 1997.
6
EXECUTIVE COMPENSATION
Summary Compensation Information. The following table presents certain
summary information concerning compensation for the fiscal years 2002, 2001 and
2000 earned by (i) the Chief Executive Officer of the Company; and (ii) each of
the other four most highly compensated executive officers of the Company whose
total salary and bonus for the fiscal year ended September 28, 2002, exceeded
$100,000 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
---------------------------------- -------------------
OTHER ANNUAL SECURITIES
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION UNDERLYING OPTIONS
--------------------------- ---- -------- -------- ------------ ------------------
Bradley J. Stinn................... 2002 $550,000 $352,000 $124,396(1) 100,000
Chief Executive Officer and 2001 440,356 -- 129,806(1) 109,000
Chairman of the Executive 2000 400,000 200,000 149,304(1) --
Committee of the Board of
Directors
Sterling B. Brinkley............... 2002 $425,000 $272,000 $ 64,751(2) 50,000
Chairman of the Board of
Directors 2001 319,231 -- $ 68,464(2) 59,000
2000 300,000 100,000 87,553(2) --
Douglas Anderson(3)................ 2002 $375,000 $166,667(4) $ 17,156(5) 0
President and Chief Operating 2001 14,423 -- -- 150,000
Officer
Victor M. Suglia................... 2002 $215,000 $137,000 $ 42,117(6) 20,000
Senior Vice President, Chief 2001 210,994 -- -- 55,000
Financial Officer, Secretary and 2000 190,000 50,000 -- --
Treasurer
---------------
(1) Composed of: (i) a housing allowance of $42,000 in each of fiscal 2002,
2001, and 2000; (ii) an automobile allowance of $17,919, $17,400, and
$17,550 in fiscal 2002, 2001, and 2000, respectively; (iii) annual interest
forgiveness on an incentive loan of $20,850, $37,350, and $46,800 in fiscal
2002, 2001, and 2000, respectively; (iv) an annual reimbursement for the
payment of taxes on the interest forgiveness of $18,453, $33,056, and
$42,954 in fiscal 2002, 2001, and 2000, respectively; (v) principal
forgiveness on an incentive stock purchase loan of $12,500 in fiscal 2002;
and (vi) interest forgiveness on a stock purchase loan of $12,674 in fiscal
2002. See "-- Employment Arrangements" and "Certain Transactions."
(2) Composed of: (i) annual interest forgiveness on an incentive loan of
$20,850, $37,350, and $46,800 in fiscal 2002, 2001, and 2000, respectively;
(ii) an annual reimbursement for the payment of taxes on the interest
forgiveness of $17,369, $31,114, and $40,753 in fiscal 2002, 2001, and 2000,
respectively; (iii) an automobile allowance of $1,358 in fiscal 2002; (iv)
principal forgiveness on an incentive stock purchase loan of $12,500 in
fiscal 2002; and (v) interest forgiveness on a stock purchase loan of
$12,674 in fiscal 2002. See "-- Employment Arrangements" and "Certain
Transactions."
(3) Mr. Anderson's employment began on September 4, 2001.
(4) Consists in part of principal forgiveness on an incentive loan of $66,667.
See "Certain Transactions."
(5) Composed of (i) reimbursement for moving expenses of $9,082; and (ii)
reimbursement of income taxes related to moving expense of $8,074. See
"Certain Transactions."
(6) Composed of (i) reimbursement for moving expenses of $16,086; (ii)
reimbursement of income taxes related to moving expenses of $10,927; (iii)
principal forgiveness on an incentive stock purchase loan of $7,500 and (iv)
annual interest forgiveness on a stock purchase loan of $7,604.
7
FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR-END(1) FISCAL YEAR-END(2)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
Bradley J. Stinn(3)........................... 393,600 165,400 $30,520 $45,780
Sterling B. Brinkley.......................... 153,600 85,400 $16,520 $24,780
Douglas Anderson.............................. 60,000 90,000 -- --
Victor M. Suglia.............................. 47,000 53,000 $15,400 $23,100
---------------
(1) No stock options were exercised by any of the Named Executive Officers
during fiscal 2002.
(2) Represents the fair market value of a share of Class A Common Stock as of
September 28, 2002, of $7.45, less the option exercise price, multiplied by
the total number of exercisable or unexercisable options.
(3) All of the unexercisable options to purchase shares of Class A Common Stock
held by Mr. Stinn become immediately exercisable in the event that the
Company terminates his employment for any reason.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
-------------------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF AT ASSUMED ANNUAL RATES
SECURITIES PERCENT OF OF STOCK PRICE APPRECIATION
UNDERLYING TOTAL OPTIONS EXERCISE OR FOR OPTION TERM
OPTIONS/SARS GRANTED TO EMPLOYEES BASE PRICE EXPIRATION ---------------------------
NAME GRANTED(#) IN FISCAL YEAR ($/SH) DATE 5%($) 10%($)
---- ------------ -------------------- ----------- ---------- ----------- -------------
Bradley J. Stinn...... 100,000 23.28% $7.62 11/6/11 $479,218 $1,214,432
Sterling B.
Brinkley............ 50,000 11.64% $7.62 11/6/11 239,609 607,216
Victor M. Suglia...... 20,000 4.66% $7.62 11/6/11 95,884 242,886
EQUITY COMPENSATION PLAN INFORMATION
The following table gives information about the Company's Class A Common
Stock that may be issued upon the exercise of options, warrants and rights under
all of the Company's existing equity compensation plans as of September 28,
2002, including the Friedman's Inc. Amended and Restated Stock Option Plan for
Outside Directors, the Friedman's Inc. 1994 Stock Option Plan, the Friedman's
Inc. 1995 Stock Option Plan, the Friedman's Inc. 1996 Stock Option Plan, the
Friedman's Inc. 1997 Stock Option Plan and the Friedman's Inc. 1999 Long-Term
Incentive Plan. The table does not reflect the effect of the proposed amendment
to the Friedman's Inc. 1999 Long-Term Incentive Plan, which is subject to the
approval of the holder of the Class B Common Stock, and as such is not yet in
effect.
NUMBER OF SECURITIES
NUMBER OF SECURITIES REMAINING AVAILABLE FOR
TO BE ISSUED UPON WEIGHTED AVERAGE FUTURE ISSUANCE UNDER EQUITY
EXERCISE OF EXERCISE PRICE OF COMPENSATION PLANS
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, (EXCLUDING SECURITIES
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS REFLECTED IN COLUMN(A))
------------- -------------------- -------------------- -----------------------------
Equity Compensation Plans Approved
by Stockholders.................. 1,629,378 $9.99 42,600
Equity Compensation Plans Not
Approved by Stockholders......... -- -- --
TOTAL......................... 1,629,378 $9.99 42,600
8
EMPLOYMENT ARRANGEMENTS
As further incentive to enhance the value of the Company for the benefit of
its stockholders, in October 1994, when the Class A Common Stock price was
$16.38, the Company adopted 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 is
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 is able to achieve nearly 100% appreciation
in its stock price within a designated period, the entire amount of all advances
to Messrs. Brinkley and Stinn will be forgiven and related tax consequences will
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 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, the 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 market price of the Company's Class A
Common Stock; and (iii) the Company will pay any taxes due as the result of the
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 2003 if the Company's stock price reaches
targets ranging from $32.50 to $60.00. The Company incurred 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.
In January 1999, the Company entered into an Indemnification Agreement with
Mr. Stinn pursuant to which the Company agreed to assume and pay certain
indemnification obligations of Crescent Jewelers to Mr. Stinn should Crescent
Jewelers fail to promptly pay such obligations. The only indemnification
obligations the Company agreed to assume under the agreement are those which (i)
constitute indemnifiable claims under Crescent Jewelers' Articles of
Incorporation or Bylaws, and (ii) arise out of or relate to a transaction
between the Company and Crescent Jewelers for any liability incurred in a
proceeding.
In August 2002, the Company entered into indemnity agreements with Mr.
Stinn and Mr. Suglia. Pursuant to these agreements, the Company agreed to
indemnify each of Mr. Stinn and Mr. Suglia for any liability, including
reasonable expenses, incurred in connection with any proceeding to which either
one of them is a party by reason of the fact that he is or was an officer or
director of the Company. Under these agreements, however, the Company will not
indemnify Mr. Stinn or Mr. Suglia for (i) any breach of their duty of loyalty to
the Company or its stockholders; (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (iii) for
liabilities relating to Section 174 of the Delaware General Corporation Law; or
(iv) for a transaction in which they derived an improper personal benefit. Under
these agreements, before final disposition of a proceeding, the Company shall
advance funds for reasonable payment of expenses, subject to Mr. Stinn or Mr.
Suglia's written undertaking to repay any funds advanced, if it is ultimately
determined that they are not entitled to indemnification.
LONG-TERM INCENTIVE PLAN
The Company currently maintains the Friedman's Inc. 1999 Long-Term
Incentive Plan, as amended (the "LTIP"), which the holders of Class B Common
Stock approved at the 1999 Annual Meeting. The Company had no options available
to be granted pursuant to the LTIP as of September 28, 2002. The Company has
reserved 1,000,000 shares of the authorized but unissued shares of its Class A
Common Stock for issuance upon the grant or exercise of awards pursuant to the
LTIP. The Board of Directors has approved an amendment to the LTIP to increase
the number of shares reserved under the plan from 1,000,000 to 3,000,000. The
amendment will be presented to the Class B common stockholders at the Annual
Meeting for their approval.
9
REPORT ON EXECUTIVE COMPENSATION OF THE COMPENSATION COMMITTEE OF THE BOARD OF
DIRECTORS
INTRODUCTION
The Compensation Committee of the Board of Directors is responsible for
developing the Company's executive compensation policies and advising the Board
of Directors with respect to such policies. The members of the Compensation
Committee are Robert W. Cruickshank, who serves as Chairman of the Compensation
Committee, David B. Parshall and Mark C. Pickup.
COMPENSATION POLICIES
The objectives of the Company's executive compensation program are to:
-- Encourage the achievement of the Company's goals by providing
compensation that relates directly 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 a total compensation opportunity that
is competitive within the Company's industry.
-- Promote a direct relationship between compensation and the Company's
performance by facilitating executive officer stock ownership through
long-term incentive compensation, specifically stock based compensation.
COMPENSATION PRACTICES
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 and restricted stock, as well as
various other benefits that 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 those of executive officers of other companies
in the Company's industry. The Company believes, however, that its emphasis on
incentive bonus compensation, as described below, better serves the Company's
interests, and such incentive bonus compensation may enable an executive
officer's total compensation to exceed the total compensation that the Company's
competitors pay to their executives.
ANNUAL CASH INCENTIVE COMPENSATION
In order to best serve the Company's and its stockholders' interests, the
Company makes extensive use of cash bonuses as a component of management
compensation. The Company awards these bonuses based on the Company's operating
performance and the individual executive officer's contribution to that
performance. The Company's financial performance goals are set at the beginning
of each fiscal year. At the end of each fiscal year, cash bonuses are
recommended in the judgment of the Compensation Committee based on the
achievement of financial targets and the individual performance of the executive
officer. The Compensation Committee believes that this program provides a direct
financial incentive that motivates the Company's executive officers to achieve
the Company's performance goals and to work toward the Company's overall
success.
In fiscal 2002, performance measures for incentive compensation payments
were based on specific criteria associated with each executive officer's
performance within his area of responsibility and the achievement of certain
financial performance targets based on the Company's fiscal 2002 financial plan.
At a meeting on November 14, 2002, the Compensation Committee approved the
payment of annual executive officer bonuses for the 2002 fiscal year as follows:
Mr. Stinn -- $352,000, Mr. Brinkley -- $272,000, Mr. Anderson -- $100,000, Mr.
Suglia -- $137,000.
10
For fiscal 2003, the Compensation Committee has determined that the
performance measures for incentive compensation payments will be based on
specific performance criteria associated with each executive officer's area of
responsibility and the achievement of a range of annual financial performance
targets. The financial performance targets are based on the Company's fiscal
2003 financial plan. The Compensation Committee has also reserved the discretion
to award bonuses if it determines that an executive officer's individual
performance justifies such an award.
LONG-TERM INCENTIVE COMPENSATION
Long-term incentives are designed to link management compensation with the
long-term interests of the Company's stockholders. Although the LTIP provides
for several types of long-term incentive based compensation, the Company has
historically granted only stock options as long-term incentives. Stock options
generally have a vesting period of three years. Individual stock option awards
are based on level of responsibility, the Company's stock ownership objectives
for management and the Company's performance relative to certain financial
performance objectives. The Company's long-term performance ultimately
determines the level of compensation resulting from stock options, since stock
option value is entirely dependent on the long-term growth of the price of the
Company's Class A Common Stock.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The base salary of the current Chief Executive Officer of the Company,
Bradley J. Stinn, was $550,000 for fiscal 2002. Mr. Stinn was paid a bonus of
$352,000 for fiscal 2002.
POLICY WITH RESPECT TO DEDUCTIBILITY OF COMPENSATION EXPENSE
It is the responsibility of the Compensation Committee to ensure that the
Company receives the maximum tax benefit from its compensation expenses. In
addition, the LTIP is designed to comply with the Internal Revenue Service
requirements for deductibility of performance-based compensation.
CONCLUSION
The Company's compensation program is designed to link compensation closely
with the Company's performance and the creation of stockholder value. The
Compensation Committee believes that the program has been, and will continue to
be, successful in supporting the Company's financial, growth and other business
objectives.
COMPENSATION COMMITTEE
Robert W. Cruickshank -- Chairman
David B. Parshall
Mark C. Pickup
11
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee of the Board of Directors is composed of three
independent directors and operates under a written charter adopted by the Board
of Directors. The members of the Committee are Mark C. Pickup, who serves as
Chairman of the Audit Committee, Robert W. Cruickshank and David B. Parshall.
The Audit Committee recommends to the Board of Directors, subject to
ratification by the holders of a majority of the outstanding shares of Class B
Common Stock, the selection of the Company's independent accountants.
Management is responsible for the Company's internal controls and the
financial reporting process. The Company's independent accountants are
responsible for performing an independent audit of the Company's consolidated
financial statements in accordance with generally accepted auditing standards
and issuing a report on those financial statements. The Audit Committee's
responsibility is to monitor and oversee these processes. In this context, the
Audit Committee has met and held discussions with management and the independent
accountants. Management represented to the Audit Committee that the Company's
consolidated financial statements were prepared in accordance with generally
accepted accounting principals, and the Audit Committee has reviewed and
discussed the consolidated financial statements with management and the
independent accountants. The Audit Committee discussed with the independent
accountants matters required to be discussed by Statement on Auditing Standards
No. 61 (Communication with Audit Committees).
The Company's independent accountants also provided to the Audit Committee
the written disclosures required by Independent Standards Board Standard No. 1
(Independent Discussions with Audit Committees), and the Audit Committee
discussed with the independent accountants that firm's independence.
Based upon the Audit Committee's discussions with management and the
independent accountants, and the Audit Committee's review of the representation
of management and the report of the independent accountants to the Audit
Committee, the Audit Committee recommended that the Board of Directors include
the audited consolidated financial statements in the Company's Annual Report on
Form 10-K of the year ended September 28, 2002, filed with the Securities and
the Exchange Commission.
AUDIT COMMITTEE
Mark C. Pickup -- Chairman
Robert W. Cruickshank
David B. Parshall
CERTAIN TRANSACTIONS
MS Jewelers Limited Partnership. All of the Company's Class B Common Stock
is owned by MS Jewelers Limited Partnership (the "Partnership"), which was
formed by an investor group led by the investment banking firm Morgan Schiff and
its principals in order to purchase the Company's predecessor. The Company is
controlled by Mr. Phillip Ean Cohen through his sole ownership of MS Jewelers
Corporation ("MS Jewelers"), the general partner of the Partnership. 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, Mr. Stinn serves as
Chairman and Chief Executive Officer, and Mr. Suglia serves as Chief Financial
Officer.
Mr. Brinkley has served in the uncompensated position of Chairman of the
Board of MS Jewelers since May 1990. Mr. Stinn has served as an uncompensated
director of MS Jewelers 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" or "Units") 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 the exercise of all outstanding options. Effective August 9,
1993, Bradley J.
12
Stinn was granted an option to purchase five Units under the Partnership
Incentive Plan. The exercise price of these options was $100,000 per Unit, which
equates to $2.38 per share of Class B Common Stock. See "Stock Ownership."
Stock Purchase Loans to Directors and Executive Officers. On November 5,
1998, the Company's Board of Directors authorized the Company to make incentive
stock purchase loans to the directors and certain executive officers of the
Company. Pursuant to the terms of the loan agreements, the directors and
executive officers were required to use the proceeds from the loans to purchase
shares of the Company's Class A Common Stock, thereby more closely linking the
personal interests of the directors and executive officers to those of the
Company's stockholders. On November 23, 1998, loans in the following amounts
were made to the following directors and executive officers: Sterling B.
Brinkley ($250,000); John E. Cay III ($50,000); Robert W. Cruickshank ($50,000);
David B. Parshall ($50,000); Mark C. Pickup ($50,000); Bradley J. Stinn
($250,000) and Victor M. Suglia ($150,000). The principal balance of all such
loans will be due on November 23, 2003, and interest, which accrues at 5.0%
annual simple interest, is payable annually. Effective November 23, 2001, the
Board of Directors approved the forgiveness of the annual interest payment and
5% of the principal balance of each loan. The current principal balance of each
loan is: Sterling B. Brinkley ($237,500); John E. Cay ($47,500); Robert W.
Cruickshank ($47,500); David B. Parshall ($47,500); Mark C. Pickup ($47,500);
Bradley J. Stinn ($237,500); and Victor M. Suglia ($142,500). Effective January
15, 2003, the board of directors approved the forgiveness of the annual interest
payment on these loans due on November 23, 2002, and interest thereon. This
action by the board of directors did not modify any term of the loans or any
remaining obligations thereunder.
Real Estate Bridge Loan to Chief Financial Officer. On July 22, 2002, the
Company, pursuant to authorization from the Board of Directors, made a real
estate bridge loan in the amount of $300,000 to the Company's Chief Financial
Officer, Victor Suglia. Pursuant to the terms of the promissory note, the Chief
Financial Officer agreed to use the entire principal amount of the real estate
bridge loan to purchase a primary residence for himself in or near the San
Francisco/Oakland Bay Area, California. The principal balance of the loan was
due in full upon the closing of the sale of the Chief Financial Officer's
residence located in Savannah, Georgia, or if sooner, 120 days following the
earlier of his death or termination of his employment with the Company. Interest
accrued in simple terms at the prime rate of interest, or approximately 4.75%,
and was payable annually. The principal amount of the loan, including all
accrued interest, was repaid on January 3, 2003.
Incentive Loan to President and Chief Operating Officer. On September 4,
2001, the Company, pursuant to authorization from the Board of Directors, made
an incentive loan in the amount of $200,000 to the Company's President and Chief
Operating Officer, Douglas Anderson. The loan agreement provides that upon each
of the first, second and third anniversaries of the President and Chief
Operating Officer's employment with the Company, if the President and Chief
Operating Officer is actively employed with the Company, $66,667 of the
principal balance of the loan will be forgiven. On September 4, 2002, $66,667 of
the principal balance of the loan was forgiven. Unless forgiven under the terms
of the loan, the principal balance of the loan will otherwise be due in full on
August 30, 2004. Interest accrues in simple terms at the prime rate of interest
and is payable quarterly.
Morgan Schiff. In December 1994, the Company entered into a Financial
Advisory Services Agreement (the "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 for an annual fee of $400,000. 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 then
current term.
In fiscal 2002, the Company incurred management fees, transaction fees and
related expenses to Morgan Schiff under the Financial Advisory Services
Agreement in the total amount of $2.4 million, consisting of the annual fee,
additional fees associated with financial advisory services provided to the
Company in connection with its February 2002 sale of Class A Common Stock, its
August 2002 credit facility refinancing and an
13
investment in Crescent Jewelers, and reimbursement of expenses associated with
all of the services provided under the Services Agreement.
Crescent. Crescent operates 163 stores in seven western states. The
Company and Crescent are affiliated through common controlling ownership and
executive management. Crescent is controlled by Mr. Cohen through his sole
ownership of CJ Morgan Corp., the special purpose general partner of CJ Limited
Partnership, which owns substantially all of the capital stock of Crescent.
(Through CJ Morgan Corp. and CJ Limited Partnership, Mr. Cohen owns
approximately 13.9% of Crescent). In addition, Bradley J. Stinn serves as Chief
Executive Officer and Victor M. Suglia serves as Chief Financial Officer of both
the Company and Crescent. Mr. Stinn and Mr. Suglia are separately compensated by
Crescent Jewelers for their services to that company.
Effective April 1, 2000, the Company signed a licensing agreement granting
Crescent the right to use certain trademarks owned by the Company. The Company
received $30,000 from Crescent during fiscal 2002 as license fees under this
agreement. Effective May 1, 2000, the Company signed an agreement with Crescent
to provide Crescent with merchandising, inventory management and replenishment
systems, accounting and systems support and certain other back office processing
services. Also effective May 1, 2000, the Company signed an agreement with
Crescent to provide Crescent with integration services resulting from the
installation of new information technology systems at Crescent. During fiscal
2002, the Company received $0.8 million from Crescent pursuant to these
agreements.
In connection with the refinancing of the Company's credit facility in
August 2002, Friedman's restructured its financial support of Crescent Jewelers
by terminating its guarantee of Crescent's previous $112.5 million senior
secured revolving credit facility and making a direct investment in Crescent of
$85.0 million. The investment consists of $50.0 million of Series A Preferred
Stock and $35.0 million of a Senior Subordinated Note. Based in part on the
Company's financial support of $85.0 million, on August 28, 2002, Crescent
Jewelers replaced its previous $112.5 million senior secured revolving credit
facility with a $50.0 million secured credit facility. The Company still holds a
warrant to purchase 7,942,904 shares of Crescent's non-voting Class A Common
Stock, or approximately 50% of the capital stock of Crescent Jewelers on a fully
diluted basis, for an exercise price of $500,000 that was received in
consideration of the guarantee of Crescent's previous credit facility.
The Series A Preferred Stock carries a floating rate dividend equal to the
all-in cost of funds under the Company's credit facility, plus a pre-tax amount
approximating a proportionate share of the 2% guarantee fee payable by Crescent
under the Company's guarantee of Crescent's previous credit facility, less the
tax benefit the Company receives from the dividends received deduction. This
calculation currently yields an approximate initial dividend rate of 6.26%.
Cumulative dividends on the Series A Preferred Stock are payable semi-annually
on January 15th and July 15th. The Company can request that the preferred stock
be redeemed by Crescent Jewelers at any time after August 28, 2007. The
preferred stock carries no voting rights, but does have a preference in
liquidation or upon a change of control.
The Senior Subordinated Note carries a floating interest rate equal to the
all-in cost of funds under the Company's credit facility, plus an amount
approximating a proportionate share of the 2% guarantee fee payable by Crescent
under the Company's guarantee of Crescent's previous credit facility. This
calculation currently yields an initial interest rate of approximately 7.61%.
Interest on the note is payable semi-annually on January 15th and July 15th. The
note is due August 28, 2007. All amounts due under the note are subordinate to
Crescent's senior credit facility.
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, 2002 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
14
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.
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)
------------------- --------- ------------- --------- ------------- -------------------
MS Jewelers Limited
Partnership(2)............ -- -- 1,196,283 100% 6.2%
MS Jewelers Corporation
Phillip Ean Cohen
350 Park Avenue
New York, New York 10022
Wasatch Advisors, Inc.(3)... 1,915,357 11.0% -- -- 10.3%
150 Social Hall Avenue
Salt Lake City, Utah 84111
FMR Corp.(4)................ 1,343,700 7.7% -- -- 7.2%
Edward C. Johnson III
82 Devonshire Street
Boston, Massachusetts
02109
Becker Capital Management,
Inc.(5)................... 1,181,590 6.8% -- -- 6.3%
1211 SW Fifth Avenue,
Suite 2185
Portland, Oregon 97204
Dimensional Fund Advisors
Inc.(6)................... 1,031,800 5.9% -- -- 5.5%
1299 Ocean Avenue, 11th
Floor
Santa Monica, CA 90401
FJI(7)...................... 858,988 4.9% -- -- 4.6%
Friedman's Jewelers, Inc.
Friedman's Jewelers, Inc.,
Anniston
Friedman's Jewelers, Inc.,
Greenville
Friedman's Jewelers, Inc.,
Marietta
Friedman's Jewelers, Inc.,
Oglethorpe
Stanley Jewelers, Inc.
P.O. Box 9925
Savannah, Georgia 31412
Merrill Lynch & Co.,
Inc.(8)................... 672,400 3.9% -- -- 3.6%
on behalf of Merrill Lynch
Asset Management Group
World Financial Center,
North Tower
250 Vesey Street
New York, NY 10381
Bradley J. Stinn(9)(10)..... 658,520 3.7% 209,774 17.5% 4.7%
Sterling B. Brinkley(11).... 495,794 2.8% -- -- 2.7%
Robert W. Cruickshank(12)... 27,354 0.2% -- -- 0.1%
David B. Parshall(13)....... 16,250 0.1% -- -- 0.1%
15
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)
------------------- --------- ------------- --------- ------------- -------------------
Mark C. Pickup(14).......... 22,101 0.1% -- -- 0.1%
John E. Cay III(15)......... 70,107 0.4% -- -- 0.4%
Douglas Anderson(16)........ 68,391 0.4% -- -- 0.4%
Victor M. Suglia(17)........ 93,450 0.5% -- -- 0.5%
All executive officers and
directors as a group (8
persons)(18).............. 1,451,967 8.0% 209,774 17.5% 8.54%
---------------
-- Less than 1%.
(1) Except as indicated in the footnotes set forth below, the persons named in
the table have sole voting and dispositive 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, 2002, 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."
(3) Based on a Schedule 13G/A filed with the SEC on May 10, 2002.
(4) Based on a Schedule 13G filed with the SEC on February 13, 2001. Of the
shares reported, Fidelity Management & Research Company ("Fidelity"), a
wholly-owned subsidiary of FMR Corp., is the beneficial owner of 1,343,700
shares. Edward C. Johnson III and FMR Corp., through its control of
Fidelity, each have sole power to dispose of the 1,343,700 shares. Neither
has the sole power to vote or direct the voting of the shares.
(5) Based on a Schedule 13G/A filed with the SEC on February 7, 2002.
(6) Based on a Schedule 13G/A filed with the SEC on February 12, 2001.
(7) Based on a Schedule 13G/A filed with the SEC on February 14, 2002. FJI and
its related companies are the Company's predecessor and have no current
affiliation with the Company.
(8) Based on a Schedule 13G filed with the SEC on February 4, 2000.
(9) Shares of Class B Common Stock owned by Mr. Stinn are owned indirectly
through his ownership of options to purchase limited partnership interests
in the Partnership. He has no right to vote or to direct the disposition of
these shares. See "Certain Transactions."
(10) Includes 5,100 shares of Class A Common Stock held by or on behalf of Mr.
Stinn's children, 765 shares of Class A Common Stock held by Mr. Stinn's
wife and options to purchase 466,300 shares of Class A Common Stock that
are exercisable on or prior to February 1, 2003.
(11) Includes options to purchase 191,300 shares of Class A Common Stock that
exercisable on or prior to February 1, 2003.
(12) Includes options to purchase 10,155 shares of Class A Common Stock that are
exercisable on or prior to February 1, 2003.
(13) Includes 200 shares of Class A Common Stock held in trust for Mr.
Parshall's children and options to purchase 10,155 shares of Class A Common
Stock that are exercisable on or prior to February 1, 2003.
(14) Includes options to purchase 10,155 shares of Class A Common Stock that are
exercisable on or prior to February 1, 2003.
(15) Includes options to purchase 10,155 shares of Class A Common Stock that are
exercisable on or prior to February 1, 2003 and 17,500 shares of Class A
Common Stock held by Palmer & Cay, Inc.
16
(16) Includes options to purchase 60,000 shares of Class A Common Stock that are
exercisable on or prior to February 1, 2003.
(17) Includes options to purchase 71,500 shares of Class A Common Stock that are
exercisable on or prior to February 1, 2003.
(18) Includes 209,774 shares of Class B Common Stock held by Mr. Stinn
indirectly through ownership of options to purchase limited partnership
interests in the Partnership, and options to purchase 831,700 shares of
Class A Common Stock that are exercisable on or prior to February 1, 2003.
17
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 1, 1997 through September 28, 2002. 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 September 30, 1997, and reinvestment of all dividends).
COMPARISON OF CUMULATIVE TOTAL RETURNS -- FRIEDMAN'S INC.
[LINE GRAPH]
YEAR-END CUMULATIVE RETURNS
1998 1999 2000 2001 2002
------ ------ ------ ----- -----
FRIEDMAN'S INC...................................... 32.00 52.22 30.24 42.09 44.77
THE NASDAQ STOCK MARKET............................. 104.37 166.76 227.04 90.12 72.65
PEER INDEX.......................................... 88.45 99.80 77.75 65.91 74.50
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 those 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.
STOCKHOLDER PROPOSALS
FOR 2004 ANNUAL MEETING OF STOCKHOLDERS
Under Rule 14a-8 of Securities and Exchange Commission's Proxy Rules,
proposals that stockholders intend to present at, and have included in the proxy
materials relating to, the 2004 Annual Meeting must be submitted to the Company
in writing no later than September 24, 2003, which is 120 days prior to the
anniversary date of this Proxy Statement. Such stockholder proposal must comply
with applicable laws and
18
regulations in order to be considered for inclusion in the Company's proxy
materials. If a stockholder wishes to raise a proposal at the 2004 Annual
Meeting, but does not intend to have such proposal included in the proxy
materials relating to the 2004 Annual Meeting, the stockholder must deliver
written notice of such proposal to the Company by December 8, 2003. Any
proposals submitted after this date will be considered untimely, and the proxies
granted in connection with the 2004 Annual Meeting will have discretionary
authority to vote on that proposal.
All director nominations and other proposals relating to the 2004 Annual
Meeting should be submitted by certified mail, return receipt requested, to
Friedman's Inc., 4 West State Street, Savannah, Georgia, 31401, Attention:
Victor M. Suglia, Secretary.
OTHER MATTERS
MATTERS TO BE BROUGHT BEFORE THE CLASS B COMMON STOCKHOLDERS
The following matters will be brought before the holders of the Company's
Class B Common Stock for their approval at the Annual Meeting:
(1) An amendment to the LTIP to increase the shares reserved for
issuance under the plan from 1,000,000 to 3,000,000;
(2) An amendment to the Company's Certificate of Incorporation to
increase the number of authorized shares of Class A Common Stock from
25,000,000 to 40,000,000; and
(3) Ratification of the appointment of Ernst & Young LLP to serve as
the Company's independent accountants for fiscal 2003.
The Company is not soliciting proxies from the holders of the Class B
Common Stock.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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 both 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 2002, all persons subject to the reporting
requirements with regard to the Class A Common Stock complied with all
applicable filing requirements.
AUDIT FEES
The aggregate fees billed by Ernst & Young LLP for professional services
rendered for the audit of the Company's financial statements for the fiscal year
ended September 28, 2002 and for the reviews of the financial statements
included in the Company's Quarterly Reports on Form 10-Q for that fiscal year
were $237,535.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
There were no fees billed by Ernst & Young LLP for professional services
rendered to the Company during the fiscal year ended September 28, 2002 in
connection with operating, or supervising the operation of, the Company's
financial information systems, managing the Company's local area network or
designing and implementing a hardware or software system that aggregates source
data underlying the Company's financial statements or generates information that
is significant to the Company's financial statements.
19
ALL OTHER FEES
The aggregate fees billed by Ernst & Young LLP for professional service
rendered during the fiscal year ended September 28, 2002, other than as stated
above under the captions "Audit Fees" and "Financial Information Systems Design
Implementation Fees" were $298,162.
AUDIT COMMITTEE REVIEW
The Company's Audit Committee has reviewed the services rendered and the
fees billed by Ernst & Young LLP during the fiscal year ended September 28,
2002. The Audit Committee has determined that the services rendered and the fees
billed that were not directly related to the audit of the Company's financial
statements are compatible with maintaining the independence of Ernst & Young LLP
as the Company's independent accountants.
REAPPOINTMENT OF AUDITORS
The Company's Audit Committee has recommended Ernst & Young LLP to conduct
the annual independent audit of the Company's financial statements for the
fiscal year ending September 27, 2003. 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.
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 to respond
to appropriate questions.
ADDITIONAL INFORMATION
Solicitation of Proxies. The cost of soliciting proxies will be borne by
the Company. Stockholders voting electronically via the Internet or by telephone
should understand, however, that there may be costs associated with electronic
access, such as usage charges from Internet service providers or telephone
companies. In addition to solicitation of stockholders of record by mail,
telephone or personal contact, the Company will make arrangements with brokerage
houses, custodians and fiduciaries to furnish proxy materials to the beneficial
owners of Class A Common Stock held in their names, and the Company will
reimburse them for their reasonable expenses for doing so. The Company has also
engaged a proxy solicitation firm and it is estimated that the fees for their
services will not exceed $10,000.
Stockholder Proposals. The Board of Directors of the Company knows of no
matters other than those referred to in the accompanying Notice of Annual
Meeting of Stockholders that may properly come before the 2003 Annual Meeting.
However, if any other matter should be properly presented for consideration and
voting at the 2003 Annual Meeting or any adjournment thereof, it is the
intention of the persons named as proxies on the enclosed form of proxy card to
vote the shares represented by all valid proxy cards in accordance with their
judgment of what is in the best interest of the Company.
Availability of Annual Report to Stockholders and Form 10-K. Accompanying
this Proxy Statement is a copy of the Company's Annual Report to Stockholders
which includes the Company's audited financial statements for the fiscal year
ended September 28, 2002. In addition, stockholders who would like a copy of the
Company's Annual Report to Stockholders or the Annual Report on Form 10-K may
view and print a copy from the Company's website at www.friedmans.com. Requests
for printed copies of either the Annual Report to Stockholders or the Form 10-K
should be directed to: Friedman's Inc., 4 West State Street, Savannah, Georgia
31401, Attention: Victor M. Suglia, Secretary. Such materials will not form any
part of the materials for the solicitation of proxies.
20
PROXY
FRIEDMAN'S INC.
Savannah, Georgia
2003 Annual Meeting of Stockholders
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.
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 2003 Annual Meeting of Stockholders to be held
at the Hyatt Regency Savannah, located at 2 West Bay Street, Savannah, Georgia,
on Tuesday, February 25, 2003, at 9:00 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, 2003, 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 2004 Annual Meeting of Stockholders of the Company and
until their successors are elected and qualified:
Nominees: Mark C. Pickup, Robert W. Cruickshank and 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.
Shares Held:
-----------------------------------------
-----------------------------------------------------
Signature of Stockholder
-----------------------------------------------------
Signature of Stockholder (If held Jointly)
Dated: , 2003
-------------------------
Month Day
Please sign, exactly as your name appears on your stock
certificate, and date this Proxy. 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.