UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
_________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported):
November 30, 2005 (November 23, 2005)
Friedman's Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware 0-22356 58-20583
(State or Other Jurisdiction (Commission File (IRS Employer
of Incorporation) Number) Identification No.)
171 Crossroads Parkway
Savannah, Georgia 31422
(Address of Principal Executive Offices)
(912) 233-9333
(Registrant's telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 1.03. Bankruptcy or Receivership.
As previously reported, on January 14, 2005, Friedman's Inc.
("Friedman's" or the "Company") and certain of its subsidiaries (collectively,
the "Debtors") filed voluntary petitions for relief under chapter 11 of title
11 of the United States Code (the "Bankruptcy Code") in the United States
Bankruptcy Court for the Southern District of Georgia, located in Savannah (the
"Bankruptcy Court") (Case No. 05-40129).
On November 23, 2005, the Bankruptcy Court entered (i) an order (the
"Confirmation Order") confirming the Company's First Amended Joint Plan of
Reorganization (the "Plan"), and (ii) an order (the "Order on Objections to
Confirmation") modifying the Plan and overruling certain objections to
confirmation of the Plan. The text of the Confirmation Order and the Order on
Objections to Confirmation are included as Exhibits 99.1 and 99.2,
respectively, to this Current Report. The Debtors will emerge from chapter 11
upon effectiveness of the Plan. The effectiveness of the Plan, and thus the
consummation of the distributions provided for in the Plan, is subject to a
number of conditions precedent.
Summary of the Material Features of the Plan
--------------------------------------------
Set forth below is a brief summary of the material features of the
Plan. Under the Plan, Harbert Distressed Investment Master Fund, Ltd.
("Harbert") has agreed to serve as plan investor in support of Friedman's
emergence from Chapter 11. Harbert has invested significant amounts in
Friedman's capital structure, and has agreed to invest significant additional
amounts in the Company under the Plan, pursuant to an Investment Agreement,
dated as of September 21, 2005, by and between the Company and Harbert (the
"Investment Agreement") a copy of which was included as Exhibit 2.1 to a
Current Report on Form 8-K, dated September 28, 2005, as filed by the Company
with the Securities and Exchange Commission (the "SEC").
In particular, Harbert will provide $25 million in funding upon the
effective date of the Plan to assist Friedman's in reorganizing its affairs.
Additionally, Harbert has acquired a $25.5 million term loan under Friedman's
debtor-in-possession financing facility. Harbert also has acquired
participation interests in approximately $63.4 million face amount of
prepetition claims previously held by vendors pursuant to Friedman's
prepetition trade vendor program. Finally, Harbert has acquired certain
disputed claims of Friedman's prepetition lenders that will be allowed under
the Plan in the amount of $1.9 million, plus interest.
Under the Plan, in consideration of the foregoing claims and other
investments, Harbert will receive substantially all of the common stock of the
reorganized Company (the "Reorganized Company"). Harbert has represented to
Friedman's that subsequent to the commencement of Friedman's Chapter 11 Cases,
Harbert acquired approximately 3,921,000 shares of Friedman's Class A Common
Stock and 3,000,000 warrants. However, Harbert will not receive any
consideration under the Plan on account of these equity interests. The funds to
be provided by Harbert upon the effective date of the Plan, plus certain other
sources of funding available to Friedman's, will be utilized to pay costs in
connection with Friedman's Chapter 11 Cases and to provide funding, in the
amount of $8,000,000 (subject to certain adjustments set forth in the Plan) to
the Litigation Trust, as such term is used in the Plan. Friedman's believes
that it has claims against certain former directors, officers, and other
parties on account of various prepetition conduct described in the Company's
Disclosure Statement (the "Disclosure Statement") with respect to the Plan, a
copy of which was included as Exhibit 2.3 to a Current Report on Form 8-K,
dated September 28, 2005, as filed by the Company with the SEC. Under the Plan,
a trust will be established for the limited purpose of pursuing such claims.
Any recoveries from claims brought by the trust will be distributed to holders
of unsecured creditors.
Summary of Distributions under the Plan
---------------------------------------
Class Description Treatment Under Plan
Class 1 - Lender Claims A lender claim consists of any claim against Friedman's or its
affiliates arising out of that certain amended and restated credit
agreement entered into by Friedman's and its affiliates on September 7,
2004, as thereafter modified. That credit agreement provided Friedman's
a revolving loan facility of up to $67.5 million, plus a term loan
facility of another $67.5 million. These loans were secured by liens on
substantially all the Debtors' assets. During the Chapter 11 cases, the
Debtors repaid in full all amounts outstanding under the revolving loan
facility, plus all principal and certain fees outstanding with respect
to the term loan, utilizing proceeds of the Debtors' postpetition,
debtor-in-possession financing facility. However, there were certain
additional claims asserted against the Debtors by Jewelry Investors II,
L.L.C., the holder of the term loan. These claims, all of which the
Debtors disputed, were in excess of $13 million and were based on claims
for liquidated damages, a prepayment premium, and additional amounts.
The Debtors and the Creditors' Committee filed a joint objection to
these claims. Ultimately, the parties resolved this dispute by agreeing
to allow the claim in a significantly reduced amount equal to $1.9
million, plus interest. Harbert purchased this claim for a confidential
cash payment. Under the Plan, the claim will be converted into shares
of the new common stock of the Reorganized Company.
Estimated Amount of Claim: $1.9 million
Estimated Percentage Recovery: 100%
Class 2 - Other Secured Other secured claims are other claims secured by liens on property in
Claims which Friedman's or its affiliates have an interest. Friedman's
believes that these claims consist primarily of (i) a real estate
mortgage on its headquarters building and (ii) the liens and rights of
Bank of America in certain cash collateral securing the obligations of
Friedman's to Bank of America in connection with an outstanding letter
of credit issued by Bank of America under the Credit Agreement and
certain cash management services Bank of America provides to
Friedman's. Additionally, there also may be certain real estate tax
liens, mechanics' liens, and personal property
tax liens that will be
honored in the ordinary course of business. Under the Plan, the legal,
equitable, and contractual rights of each other secured claim holder
shall be reinstated, which means that the claim holder's rights will be
unaltered and that Friedman's will cure outstanding payment defaults.
Estimated Amount of Claims: $3.37 million
Estimated Percentage Recovery: 100%
Class 3 - Other Priority Other priority claims are primarily claims held by current and former
Claims employees for unpaid wages, salaries, bonuses, severance pay, vacation
pay, and other unpaid employee benefits. Upon commencement of the
Chapter 11 cases, Friedman's obtained authority from the Bankruptcy
Court to pay certain of such amounts in the ordinary course of
business. Friedman's believes that it has in fact paid all or
substantially all such amounts, and that there should not be a
significant amount of such claims, if any, remaining unpaid. However,
in the event there are any valid claims for unpaid amounts, Friedman's
will either pay such claims in full in cash or, if necessary, agree with
the claim holder to some other mutually agreeable, and no more
favorable, compensation arrangement.
Estimated Amount of Claims: $0
Estimated Percentage Recovery: 100%
Class 4(a) - Non- Program vendor claims are comprised of those claims that arose out of
Participating Program Friedman's prepetition secured trade vendor program. Harbert acquired
Vendor Claims interests in the great majority of these claims during the Chapter 11
cases. Under the Plan, Non-Participating Program Vendor Claims are
those program vendor claims not purchased by Harbert. Holders of
program vendor claims who did not sell their claims to Harbert shall
receive a lump-sum cash payment on the effective date of the Plan (or
when their claims are allowed, if later) in an amount equal to 75% of
the face amount of their claims.
Estimated Amount of Claims: Approximately $4 million
Estimated Percentage Recovery: 75%
Class 4(b) - Participating Program vendor claims are comprised of those claims that arose out of
Program Vendor Claims Friedman's prepetition secured trade vendor program. Harbert acquired
interests in the great majority of these claims during the Chapter 11
cases. Under the Plan, Participating Program Vendor Claims are those
program vendor claims purchased by Harbert. Harbert, as holder of the
Participating Program Vendor Claims, will receive shares of new common
stock in reorganized Friedman's in exchange for its claims.
Estimated Amount of Claims: $58.9 million
Estimated Percentage Recovery: 75 %
Class 5 - General General unsecured claims include claims arising as a result of retail
Unsecured Claims merchandise or services provided by trade vendors or service providers
(other than program vendor claims described above); rejection of
executory contracts and unexpired leases; the deficiency claims of
non-participating program vendors; and litigation claims. While
Friedman's cannot predict with certainty the total amount of general
unsecured claims that ultimately may be allowed, the company believes
that non-program trade vendor and service provider claims likely could
be approximately $34 million. Additionally, the company anticipates
that lease rejection claims in the aggregate amount of approximately $7
million may be filed, although this amount may be reduced on account of
landlords' duties to mitigate their damages. Beyond these two
categories of claims, a number of contingent, unliquidated claims, many
of them based on litigation claims, were filed in these cases. The
company cannot predict with certainty the total amount of such claims
that ultimately may be allowed. For illustrative purposes only,
however, the range of recoveries indicated below assume that litigation
claims could be allowed in the aggregate amount of between $20 million
and $40 million. Under the plan, general unsecured creditors will
receive their pro rata share of recoveries, if any, on account of
certain claims of the estate described herein. The anticipated recovery
on account of these matters is unknown. An additional $8 million will
be allotted to the estate's pursuit of these claims (subject to the
adjustments set forth in Article 1.137 of the Plan).
Illustrative Range of Claims: $60 million to $80 million
Estimated Percentage Recovery: TBD
Class 6 - AG Claims An AG claim is a claim held by a state on account of controversies
asserted prior to the petition date, including, with respect to the
Debtors' historic credit insurance sales practices. Under the plan, a
holder of an AG Claim will receive a pro rata share of the recoveries,
if any, on account of certain claims of the estate (as described
herein), as if such holder were a member of Class 5. Holders of AG
Claims have the option to elect, however, to receive a pro rata
distribution of 5% of the recoveries, if any, on account of certain
claims of the estate or to participate in a global settlement among all
holders of AG claims. The AG Claims are unliquidated.
Range of Claims: Unliquidated
Estimated Percentage Recovery: TBD
Class 7 - Intercompany An intercompany claim is a claim by one or more of Friedman's and its
Claims affiliates against other Friedman's affiliates on account of various
matters incurred in the ordinary course of business, not including any
claims between Friedman's and Crescent Jewelers. Under the Plan, at the
option of Friedman's, intercompany claims may either be reinstated or
eliminated. The ultimate decision will be based upon business planning
reasons of the Reorganized company and will not affect distributions to
other creditors under the Plan.
Estimated Amount of Claims: N/A
Estimated Percentage Recovery: N/A
Class 8 - Subordinated Subordinated claims include claims by current or former holders of
Claims Friedman's common stock for damages or rescission in connection with the
purchase or sale of such stock, including claims asserting that
Friedman's historical, public financial statements did not accurately
portray Friedman's financial condition. Subordinated claims also
include claims by governmental units for penalties, fines, restitution
and disgorgement. Under the Bankruptcy Code, such claims have the same
priority as Friedman's common stock. Holders of such claims therefore
will not be entitled to receive any property on account of their claims
under the Plan.
Estimated Amount of Claims: N/A
Estimated Percentage Recovery: 0%
Class 9 - Interests Interests include holdings of Friedman's class A and class B common
stock, as well as any options, warrants, call rights, puts, awards, or
other agreements to acquire such stock. Under the Plan, all interests
will be cancelled, and holders of interests will not receive or retain
any property on account of such interests under the Plan. Subject to
certain restructuring transactions, interests held directly or
indirectly by Friedman's will be reinstated.
Estimated Amount of Interests: N/A
Estimated Percentage Recovery: 0%
Capitalization
--------------
As of the date of this Current Report, the Company has issued and
outstanding (i) 20,713,162 shares of class A common stock, par value $.01 per
share ("Class A Common Stock"), (ii) 1,196,283 shares of class B common stock,
par value $.01 per share, and (iii) a Warrant, dated September 7, 2004 (the
"Warrant"), which entitles the holder of the Warrant to acquire 3,000,000
shares of Class A Common Stock. Under the Plan, all interests in Class A Common
Stock, the Class B Common Stock, the Warrant, and any options, call rights,
puts, awards or other agreements to acquire capital stock of the Company, will
be cancelled, and holders of such interests will not receive or retain any
property under the Plan.
Pursuant to the Plan and the Confirmation Order, immediately following
the effectiveness of the Plan, the Reorganized Company will adopt and file with
the Secretary of State of the State of Delaware an amended and restated
certificate of incorporation (the "Amended and Restated Certificate of
Incorporation"). The number of shares of common stock of the Reorganized
Company to be authorized under the Amended and Restated Certificate of
Incorporation will be determined prior to the Closing Date and set forth in
such certificate.
Upon the effectiveness of the Plan, 100% of the shares of the newly
issued common stock of the Reorganized Company will be issued to Harbert in
exchange for Harbert's conversion of all its claims and interests to equity
plus its investment. The exact number of shares of common stock of the
Reorganized Company to be issued to Harbert under the Investment Agreement will
be determined prior to the Closing Date.
Information Regarding the Assets and Liabilities of the Company
---------------------------------------------------------------
On November 17, 2003 the Company announced that it had determined that
its financial statements for the fiscal years ending September 30, 2000 through
September 30, 2002 and the first three quarters of fiscal 2003 required
restatement and should not be relied upon. The Company's auditors, Ernst &
Young, LLP simultaneously informed the Company that it was withdrawing its
audit opinions on the previously filed annual financial statements.
Subsequently, the Company has commenced a thorough review of its accounting
records on a quarterly basis to identify the sources and quantify the amounts
of required adjustments to its financial records. Because the aforementioned
review is incomplete, the Company is not presently able to provide information
as to the assets and liabilities as to the date of the Confirmation Order in
this Current Report. The Company presently anticipates providing such
statements upon the completion of its accounting review. However, the Company
cannot presently predict when the aforementioned review will be completed.
Cautionary Statement Regarding Forward-Looking Statements
---------------------------------------------------------
Some of the statements included in the Plan and the Disclosure
Statement, particularly those anticipating future financial performance,
business prospects, growth and operating strategies and similar matters, are
forward-looking statements that involve a number of risks and uncertainties.
For those statements, we claim the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995. These forward-looking statements are not guarantees of
future performance and a variety of factors could cause the Company's actual
results to differ materially from the anticipated or expected results expressed
in these forward-looking statements. The Company undertakes no obligation to
update or revise any such forward-looking statements. The forward-looking
statements and the Company's liquidity, capital resources, and results of
operations are subject to a number of risks and uncertainties, including, but
not limited to, the following: the ability of the Company to operate as a going
concern; the ability of the Company to continue to obtain use of cash
collateral and/or debtor-in-possession (DIP) financing pursuant to the terms of
such agreements; the ability of the Company to comply with the terms and
conditions of its DIP financing, including its secured subordinated term loan
with Harbert; court approval of the motions prosecuted by the Company from time
to time; the ability of the Company to develop, prosecute, confirm and
consummate one or more plans of reorganization with respect to the chapter 11
case; risks associated with third parties seeking and obtaining court approval
to terminate or shorten the exclusivity period for the Company to propose and
confirm one or more plans of reorganization, for the appointment of a chapter
11 trustee or to convert the cases to chapter 7 cases; the ability of the
Company to obtain trade credit, and shipments and terms with vendors and
service providers for current orders; the Company's ability to maintain
contracts that are critical to its operations; potential adverse developments
with respect to the Company's liquidity and/or results of operations;
competitive pressures from other retailers; trends in the economy as a whole
which may affect consumer confidence and consumer demand for the types of goods
sold by the Company; the ability of the Company to attract, retain and
compensate key executives and associates; the ability of the Company to attract
and retain customers; potential adverse publicity; the final results of the
audit including the review of the calculation of our allowance for doubtful
accounts; the results of the SEC and United States Attorney's Office for the
Eastern District of New York investigations; the results of various litigation;
the effect of the restatement on our credit facilities, including funding
availability thereunder and our relationship with our lenders; the effect of
the restatement on our future earnings, including any adjustments to previously
announced earnings forecasts; and other risks factors identified from time to
time in our SEC reports, including, but not limited to, the report on Form 10-K
for the year ended September 28, 2002.
Item 9.01. Financial Statements and Exhibits.
(c) Exhibits.
Exhibit
Number Description
------ -----------
Exhibit 2.1 First Amended Joint Plan of Reorganization of Friedman's
Inc. and Certain Affiliates, Debtors and
Debtors-In-Possession
Exhibit 99.1 Order of the Bankruptcy Court entered November 23, 2005,
confirming the First Amended Joint Plan of Reorganization
of Friedman's Inc. and Certain Affiliates, Debtors
and Debtors-In-Possession
Exhibit 99.2 Order of the Bankruptcy Court entered November 23, 2005,
on objections to confirmation of the First Amended Joint
Plan of Reorganization of Friedman's Inc. and
Certain Affiliates, Debtors and Debtors-In-Possession
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FRIEDMAN'S INC.
Date: November 30, 2005 By: /s/ C. Steven Moore
-----------------------------
C. Steven Moore
Chief Administrative Officer
and General Counsel
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
Exhibit 2.1 First Amended Joint Plan of Reorganization of Friedman's
Inc. and Certain Affiliates, Debtors and
Debtors-In-Possession
Exhibit 99.1 Order of the Bankruptcy Court entered November 23, 2005,
confirming the First Amended Joint Plan of Reorganization
of Friedman's Inc. and Certain Affiliates, Debtors
and Debtors-In-Possession
Exhibit 99.2 Order of the Bankruptcy Court entered November 23, 2005,
on objections to confirmation of the First Amended Joint
Plan of Reorganization of Friedman's Inc. and
Certain Affiliates, Debtors and Debtors-In-Possession