SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
Information to be Included in Statements Filed Pursuant to Rule
13d-1(a) and Amendments Thereto Filed Pursuant to Rule 13d-2(a)
Under the Securities Exchange Act of 1934
(Amendment No. )
FRIEDMANS, INC.
(Name of Issuer)
CLASS A COMMON STOCK
(Title of Class of Securities)
358438109
(CUSIP Number)
KENNETH J. BARONSKY
MILBANK, TWEED, HADLEY & McCLOY LLP
601 S. FIGUEROA STREET, 30TH FLOOR
LOS ANGELES, CA 90017
TELEPHONE: 213-892-4333
(Name, address and telephone number of person authorized to receive notices and communications)
January 11, 2005
(Date of event which requires filing of this statement)
If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box ¨.
NOTE: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 13d-7 for other parties to whom copies are to be sent.
CUSIP No. 358438109
(1) | NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Liberation Investments, L.P. |
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(2) | CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) ¨ (b) x |
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(3) | SEC USE ONLY
|
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(4) | SOURCE OF FUNDS
WC |
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(5) | CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e)
|
¨ | ||
(6) | CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware |
NUMBER OF SHARES BENEFICIALLY OWNED BY PERSON WITH |
(7) SOLE VOTING POWER
0 (8) SHARED VOTING POWER
1,523,770 (9) SOLE DISPOSITIVE POWER
0 (10) SHARED DISPOSITIVE POWER
1,523,770 |
(11) | AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,523,770 |
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(12) | CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
|
¨
| ||
(13) | PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
7.3% (See Item 5(a)) |
|||
(14) | TYPE OF REPORTING PERSON
PN |
Page 2
CUSIP No. 358438109
(1) | NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Liberation Investments Ltd. |
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(2) | CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) ¨ (b) x |
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(3) | SEC USE ONLY
|
|||
(4) | SOURCE OF FUNDS
WC |
|||
(5) | CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e)
|
¨ | ||
(6) | CITIZENSHIP OR PLACE OF ORGANIZATION
Cayman Islands |
NUMBER OF SHARES BENEFICIALLY OWNED BY PERSON WITH |
(7) SOLE VOTING POWER
0 (8) SHARED VOTING POWER
815,130 (9) SOLE DISPOSITIVE POWER
0 (10) SHARED DISPOSITIVE POWER
815,130 |
(11) | AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
815,130 |
|||
(12) | CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
|
¨
| ||
(13) | PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
3.9% (See Item 5(a)) |
|||
(14) | TYPE OF REPORTING PERSON
CO |
Page 3
CUSIP No. 358438109
(1) | NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Liberation Investment Group LLC |
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(2) | CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) ¨ (b) x |
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(3) | SEC USE ONLY
|
|||
(4) | SOURCE OF FUNDS
N/A |
|||
(5) | CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e)
|
¨ | ||
(6) | CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware |
NUMBER OF SHARES BENEFICIALLY OWNED BY PERSON WITH |
(7) SOLE VOTING POWER
0 (8) SHARED VOTING POWER
2,338,900 (9) SOLE DISPOSITIVE POWER
0 (10) SHARED DISPOSITIVE POWER
2,338,900 |
(11) | AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,338,900 |
|||
(12) | CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
|
¨
| ||
(13) | PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
11.3% (See Item 5(a)) |
|||
(14) | TYPE OF REPORTING PERSON
OO, IA |
Page 4
CUSIP No. 358438109
(1) | NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Emanuel R. Pearlman |
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(2) | CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) ¨ (b) x |
|||
(3) | SEC USE ONLY
|
|||
(4) | SOURCE OF FUNDS
N/A |
|||
(5) | CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e)
|
¨ | ||
(6) | CITIZENSHIP OR PLACE OF ORGANIZATION
United States |
NUMBER OF SHARES BENEFICIALLY OWNED BY PERSON WITH |
(7) SOLE VOTING POWER
0 (8) SHARED VOTING POWER
2,338,900 (9) SOLE DISPOSITIVE POWER
0 (10) SHARED DISPOSITIVE POWER
2,338,900 |
(11) | AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,338,900 |
|||
(12) | CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
|
¨
| ||
(13) | PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
11.3% (See Item 5(a)) |
|||
(14) | TYPE OF REPORTING PERSON
IN, HC |
Page 5
INTRODUCTORY STATEMENT
This Statement is a joint filing which constitutes the initial Statement on Schedule 13D filing (the Initial Statement) of Liberation Investments L.P., Liberation Investments Ltd., Liberation Investment Group LLC and Emanuel R. Pearlman, in each case with respect to the Class A Common Stock of Friedmans, Inc. (the Company).
ITEM 1. SECURITY AND ISSUER
The title of the class of equity securities to which this Statement relates is the Class A common stock of the Company (the Class A Common Stock). The principal executive offices of the Company are located at 171 Crossroads Parkway, Savannah, GA 31422.
ITEM 2. IDENTITY AND BACKGROUND
(a) | This statement on Schedule 13D is being filed jointly on behalf of the following persons (collectively, the Reporting Persons): (i) Liberation Investments, L.P., a Delaware limited partnership (LILP); (ii) Liberation Investments Ltd. (LILTD), a private offshore investment corporation; (iii) Liberation Investment Group LLC (LIGLLC), a Delaware limited liability company and general partner of LILP and discretionary investment adviser to LILTD; and (iv) Emanuel R. Pearlman, as General Manager, Chief Investment Officer and majority member of LIGLLC. CFS Company Ltd. (CFS) is a corporate director of LILTD, and the information regarding CFS is provided solely by reason of Instruction C to Schedule 13D. CFS is not a Reporting Person for purposes of this Schedule 13D. |
LILP and LILTD are the direct beneficial owners of 2,338,900 shares of Class A Common Stock. LIGLLCs beneficial ownership is indirect as a result of its control of LILP and LILTD, and Mr. Pearlmans ownership of the shares owned by LILP and LILTD is indirect as a result of Mr. Pearlman being the General Manager, Chief Investment Officer and majority member of LIGLLC. LIGLLC and Mr. Pearlmans indirect ownership is reported solely because Rule 13-d(1)(a) promulgated under the Securities Exchange Act of 1934, as amended, (the Act) requires any person who is directly or indirectly the beneficial owner of more than five percent of any equity security of a specific class to file a Schedule 13D within the specific time period. The answers on pages 4 and 5 above and in response to Item 5 by LIGLLC and Mr. Pearlman with respect to the shares owned by LILP and LILTD are given on the basis of the indirect beneficial ownership referred to in such Rule, based on the direct beneficial ownership of the Class A Common Stock by LILP and LILTD and the relationship of LIGLLC and Mr. Pearlman to LILP and LILTD. The Reporting Persons are filing this joint Schedule 13D because they may be regarded as a group. However, each Reporting Person disclaims beneficial ownership of the shares owned by the other Reporting Persons and disclaims membership in a group, and this filing shall not constitute an acknowledgement that the Reporting Persons constitute a group.
Page 6
(b) | The business address for LILP, LIGLLC and Mr. Pearlman is 11766 Wilshire Blvd, Suite #870, Los Angeles, CA 90025. |
The business address for LILTD is P.O. Box 31106 SMB Corporate Centre, West Bay Road, Grand Cayman, Cayman Islands.
The business address for CFS is P.O. Box 31106 SMB Corporate Centre, West Bay Road, Grand Cayman, Cayman Islands.
(c) | The business of (i) LILP is that of a private investment partnership engaging in the purchase and sale of securities for investment for its own account; (ii) LILTD is that of a private offshore investment corporation engaging in the purchase and sale of securities for investment for its own account; (iii) LIGLLC is to serve as the general partner of LILP and discretionary investment adviser to LILTD and (iv) Mr. Pearlman is to provide discretionary investment management services through LIGLLC, of which he is the majority member. |
The business of CFS is to provide director services.
(d) | None of the Reporting Persons has, during the last five years, been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors). |
CFS has not, during the last five years, been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors).
(e) | None of the Reporting Persons has, during the last five years, been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. |
CFS has not, during the last five years, been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws.
(f) | (i) LILLP is a Delaware limited partnership; (ii) LILTD is a Cayman Islands corporation; (iii) LIGLLC is a Delaware limited liability company and (iv) Mr. Pearlman is a United States citizen. |
CFS is a Cayman Islands corporation.
Page 7
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
The net investment cost (including commissions, if any) of the shares of Class A Common Stock beneficially owned by the Reporting Persons is $3,281,644.10. The source of funds for this consideration was working capital of LILP and LILTD.
ITEM 4. PURPOSE OF TRANSACTION.
The Reporting Persons acquired the shares of Class A Common Stock reported herein in the ordinary course of business for investment purposes. Notwithstanding the Companys recent filing of a voluntary petition for relief under chapter 11 of the federal bankruptcy laws, the Reporting Persons believe their investment has significant value and potential for increased value and intend to urge management and the board of directors to take steps to maximize shareholder value, including through plan of reorganization in the bankruptcy proceeding. The Reporting Persons have actively engaged and intend to continue to actively engage in discussions with the Company, its advisors, other stockholders, creditors and third parties regarding efforts to reorganize the Company and maximize shareholder value.
Prior to the bankruptcy, the Reporting Persons encouraged fundamental changes in the Companys corporate governance, such as the holding of an annual meeting and the election of two new Class A directors, in order to maximize shareholder value. The Reporting Persons believe that sound corporate governance practices impose a level of management and board accountability necessary to help insure that a good performance record is established and maintained, thereby increasing shareholder value.
A representative of the Reporting Persons has, on several occasions, discussed with the management of the Company the Reporting Persons willingness to work with management to develop a strategy to maximize shareholder value, as well as the Reporting Persons views regarding corporate governance issues.
Page 8
On November 15, 2004, the Reporting Persons delivered a letter to the Companys Chief Administrative Officer, General Counsel and Secretary (a copy of which is attached to this filing as Exhibit 1), providing notice of their desire, among other things, to nominate two new Class A directors to the Companys Board of Directors.
On December 15, 2004, LILTD and LILP filed a complaint pursuant to Section 211(c) of the Delaware General Corporation Law (a copy of which is attached to this filing as Exhibit 2) requesting the Court of Chancery of Delaware, New Castle County (the Court) to order the Company (i) to hold an annual meeting of stockholders by no later than February 1, 2005, (ii) to elect directors at the annual meeting by written ballot pursuant to Section 211(e) of Delaware General Corporation Law and (iii) to grant LILTD and LILP such other relief as may be deemed appropriate by the Court.
On January 12, 2005, the Reporting Persons delivered a letter to the Companys Chief Executive Officer (a copy of which is attached to this filing as Exhibit 3), proposing to make an equity investment in the Company of at least $20 million or more, if necessary. On that same day, Mr. Pearlman had a phone conference with a representative of the Company and its financial advisor to discuss the proposed investment.
On January 14, 2005, the Company filed voluntary petitions for relief under chapter 11 of title 11 of the United States Code in the United States Bankruptcy Court for the Southern District of Georgia, located in Savannah (Case No. 05-40129).
The Reporting Persons may pursue any of a variety of alternatives available in order to maximize the value of their investment in the Company. Such alternatives could include, without limitation, (i) the proposition or sponsorship of a plan of reorganization in the pending bankruptcy case, (ii) the purchase of additional equity securities in the open market, in privately negotiated transactions or otherwise, (iii) the acquisition of debt obligations or the making of loans to the Company, including participation in debtor-in-possession financing and (iv) the sale of all or a portion of the Class A Common Stock now owned or hereafter acquired by them. The Reporting Persons intend to contact and consult with other shareholders of the Company concerning the Company, its prospects, and any or all of the foregoing matters.
The Reporting Persons may also transfer shares to or from a Reporting Person to another Reporting Person.
The Reporting Persons reserve the right to change their plans or intentions and to take any and all actions that they may deem appropriate to maximize the value of their investment in the Company in light of their general investment policies, market conditions, subsequent developments affecting the Company and the general business and future prospects of the Company.
Page 9
Except as set forth above, the Reporting Persons do not have any current intention, plan or proposal with respect to: (a) the acquisition by any person of additional securities of the Company, or the disposition of securities of the Company; (b) an extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving the Company or any of its subsidiaries; (c) a sale or transfer of a material amount of assets of the Company or any of its subsidiaries; (d) any change in the present board of directors or management of the Company, including any plans or proposals to change the number or term of directors or to fill any existing vacancies on the board; (e) any material change in the present capitalization or dividend policy of the Company; (f) any other material change in the Companys business or corporate structure; (g) changes in the Companys charter, bylaws or instruments corresponding thereto or other actions which may impede the acquisition of control of the Company by any person; (h) causing a class of securities of the Company to be delisted from a national securities exchange, if any, or cease to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association; (i) a class of equity securities of the Company becoming eligible for termination of a registration pursuant to Section 12(g)(4) of the Act; or (j) any action similar to any of those enumerated above.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
(a) | As of the date hereof, the Reporting Persons have the following interest in the securities of the Company: |
(i) | LILP beneficially owns 1,523,770 shares of Class A Common Stock and is the beneficial owner of 7.3% of the Class A Common Stock. |
(ii) | LILTD beneficially owns 815,130 shares of Class A Common Stock and is the beneficial owner of 3.9% of the Class A Common Stock. |
(iii) | LIGLLC, as the sole general partner of LILP and the sole investment advisor to LILTD, beneficially owns 2,338,900 shares of Class A Common Stock and is the beneficial owner of 11.3% of the Class A Common Stock. |
(iv) | Mr. Pearlman, as the majority member and General Manager of LIGLLC, beneficially owns 2,338,900 shares of Class A Common Stock and is the beneficial owner of 11.3% of the Class A Common Stock. |
The Reporting Persons in the aggregate may be deemed to own an aggregate of 11.3% of the Class A Common Stock. All percentages of Class A Common Stock were calculated based on the number of securities disclosed to be outstanding in the Companys voluntary petition for relief under chapter 11 of title 11 of the United States Code filed on January 14, 2005 in the United States Bankruptcy Court for the Southern District of Georgia.
Page 10
(b) | The table below sets forth for each Reporting Person, the numbers of shares of Class A Common Stock for which there is sole power to vote or to direct the vote, shared power to vote or direct the vote, or sole or shared power to dispose or to direct the disposition. |
LILP |
LILTD |
LIGLLC |
Mr. Pearlman | |||||
Sole Power to Vote/Direct Vote |
0 | 0 | 0 | 0 | ||||
Shared Power to Vote/Direct Vote |
1,523,770 | 815,130 | 2,338,900 | 2,338,900 | ||||
Sole Power to Dispose/Direct Disposition |
0 | 0 | 0 | 0 | ||||
Shared Power to Dispose/Direct Disposition |
1,523,770 | 815,130 | 2,338,900 | 2,338,900 |
(c) | There have been no purchases or sales of the Companys stock by the Reporting Persons within the last sixty days, except that: |
(i) On January 11, 2005, an aggregate of 934,400 shares of Class A Common Stock were purchased in a block sale transaction on the open market at a price of $1 per share, 607,360 of which were for the account of LILP and 327,040 of which were for the account of LILTD; and
(ii) On January 18, 2005, an aggregate of 400,000 shares of Class A Common Stock were purchased in a block sale transaction on the open market at a price of $0.71 per share, 260,000 of which were for the account of LILP and 140,000 of which were for the account of LILTD.
(d) | No person other than each respective owner referred to herein of Class A Common Stock is known to have the right to receive or the power to direct the receipt of dividends from or the proceeds from the sale of such Class A Common Stock. |
(e) | Not applicable. |
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
Exhibit No. |
Title | |
1. | Letter to Steve Moore, Esq., Chief Administrative Officer, General Counsel and Secretary of Friedmans Inc., dated as of November 15, 2004 | |
2. | Complaint pursuant to 8 Del. C. Section 211, filed in the Court of Chancery of the State of Delaware in and for New Castle County, dated as of December 15, 2004 | |
3. | Letter to Sam Cusano, Chief Executive Officer of Friedmans Inc., dated as of January 12, 2005 | |
4. | Statement with Respect to Joint Filing of Schedule 13D. |
Page 11
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this Statement is true, complete and correct.
Dated: January 21, 2005
LIBERATION INVESTMENTS, L.P. | ||
By: |
Liberation Investment Group LLC, general partner | |
By: |
/s/ Emanuel R. Pearlman | |
Emanuel R. Pearlman | ||
General Manager | ||
LIBERATION INVESTMENTS LTD. | ||
By: |
/s/ Emanuel R. Pearlman | |
Emanuel R. Pearlman | ||
Director | ||
LIBERATION INVESTMENT GROUP LLC | ||
By: |
/s/ Emanuel R. Pearlman | |
Emanuel R. Pearlman | ||
General Manager | ||
EMANUEL R. PEARLMAN | ||
/s/ Emanuel R. Pearlman |
Page 12
Liberation Investment Group, LLC | 11766 Wilshire Boulevard, Suite 870 | |||||
Los Angeles, CA 90025 | ||||||
Tel: 310.479.3434 | ||||||
Fax: 310.479.3363 |
November 15, 2004
Steve Moore, Esq.
Chief Administrative Officer,
General Counsel and Secretary
Friedmans Inc.
4 West State Street
Savannah, Georgia 31401
Dear Mr. Moore:
This letter is a follow-up to our recent discussions. We continue to hear positive reports about the Friedmans management team and have had general discussions with other holders of significant amounts of Friedmans Class A stock. We would like to continue to play a supportive role for the Company. To that end, we believe it is important for the Class A stockholders to be informed and to have a clear voice in decision-making. Our specific proposal to achieve these goals, which generally has the support of the other stockholders to whom we have spoken, is as follows:
Rather than circumvent normal corporate processes, we believe the Company should add two new Class A directors to the board of directors selected by current Class A shareholders. These new directors could be either in addition to the existing Board or in place of the two current Class A board members. We expect that in the next two to four weeks we will be in a position to provide you the names of our prospective nominees to fill these two positions. The nominees will be distinguished and responsible people who are well able to participate collegially on a corporate board and will not be beholden to Liberation Investments or any other single stockholder.
In keeping with our prior discussions, we further propose that the Company engage a financial advisor and outside counsel to work with the new directors on behalf of all the Class A stockholders. We have already had preliminary discussions with Venturi & Co. LLC, an investment banking firm with substantial expertise in restructurings and strategic advisory roles. We propose that the Company immediately engage the Venturi firm as financial advisor for the Class A directors so that they can prepare themselves as soon as possible. The Venturi firms engagement fee would be $35,000 per month for an initial period of four months. At the end of that period, the new directors might determine that it makes sense to extend their engagement. The Venturi firm is ready to begin working and we request that you accommodate this process as soon as possible. Information about the Venturi firm can be obtained from their website at www.venturico.com.
We believe that the process we are proposing in this letter will help promote our shared goals of maximizing value for all shareholders as the Companys seeks to resolve its current difficulties. Please let me know as soon as possible whether the board will agree with this proposal or if you have any questions or objections.
Very truly yours, |
/s/ EMANUEL R. PEARLMAN |
Emanuel R. Pearlman |
Chairman and CEO |
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
LIBERATION INVESTMENTS, L.P. and | ) | |||
LIBERATION INVESTMENTS, LTD. | ) | |||
) | ||||
Plaintiffs, |
) | |||
) | Civil Action No. | |||
v. |
) | |||
) | ||||
FRIEDMANS INC. | ) | |||
a Delaware corporation, | ) | |||
) | ||||
Defendant. |
) |
COMPLAINT PURSUANT TO 8 DEL.C. §211
Plaintiffs Liberation Investments, L.P., and Liberation Investments, Ltd. (collectively Liberation Investments), by and through their attorneys, allege as follows:
1. Liberation Investments, collectively, is the record holder of 200 shares of Class A Stock of Friedmans Inc. (Friedmans or the Company), and the beneficial holder of approximately 4.9% of the Class A stock.
2. Friedmans is a Delaware corporation. Its registered agent for service of process in Delaware is The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware 19801. Friedmans has two classes of stock, A and B. The Class A stock is held by, among others, a large number of public shareholders. All of the Class B stock is held by an entity controlled by Phillip Ean Cohen (Cohen). The Class B stock elects a majority of the board of directors, and Cohen has used those rights for years to elect directors who will conform to his wishes. Among other things, Cohen has used tens of millions of dollars of the Companys money to prop up other investments he
controls, some of which have gone bankrupt, and has caused the Company to pay huge fees to his investment bank, Morgan Schiff, & Co., Inc. [sic].1
3. The last annual meeting of stockholders of Friedmans was held on February 25, 2003. Since that date, Friedmans has failed to hold an annual meeting of stockholders. It has seen a huge rotation of directors, however. On April 29, 2004 the board of directors enacted new bylaws and established charters and policies for several board committees. The main thrust of the changes was to put restrictions on self-dealing.
4. Cohen reacted immediately. The changes were disclosed on May 4, 2004. On the same day, Cohen acted by written consent, throwing out the new by-laws, ousting one of the disobedient Class B directors from the board, and appointing five new directors. The new Chairman, Allan B. Edwards, is Morgan Schiffs President. Since that time, Friedmans has gone through a dizzying series of changes as directors have been appointed to the board, step down and new ones appointed (for example, Mr. Edwards is apparently stepping down as Chairman in January). In addition, Friedmans has announced that it cannot currently file audited financial statements and is subject to federal fraud investigations by the Department of Justice and the SEC.
5. The Company clearly is in crisis. During the summer, it appointed a new management team, which appears to be honest, competent and not beholden to Cohen. The board, however, presents a different story. Cohen still has the power to control the Class B directors, and at least one of the two Class A directors was on the board at the time that Cohen was draining money out of the Company. Liberation Investments believes that during a period like this, with Cohen still having the power to control the Class B directors by ousting those who will not follow
1 | Not surprisingly, neither the firm, nor Cohen, have any known connection to either J.P. Morgan or Jacob Schiff despite the implication to the contrary. |
2
his directions, it is imperative that the public stockholders be allowed to elect Class A directors who are clearly independent of Cohen and who can support a rational reorganization plan for the Company. Thus, on August 23, 2004, Liberation Investments sent Friedmans a letter demanding that it hold an annual meeting of stockholders.
6. Friedmans responded to Liberation Investments August 23, 2004 demand with a letter dated September 23, 2004. Friedmans answered that it could not hold an annual meeting because it would be violating federal securities laws if it were required to hold an annual meeting at a time when it is unable to provide shareholders with an annual report containing audited financial information. The letter goes on to state that the Board fully intends to set a prompt date for a meeting of stockholders immediately upon completion of Ernst & Youngs audit and the availability of audited financial statements for all relevant reporting periods. Id.
7. Since that time, Liberation Investments has held discussions with Friedmans, but Friedmans refuses to hold a stockholders meeting. The reason given by Friedmans is that it cannot file audited financial statements for the Company until it has resolved its past accounting issues. Then, it says, under the rules of the Securities and Exchange Commission it may not solicit proxies or issue an annual report without audited financial statements, and without an annual report it may not notice a stockholders meeting.
8. Essentially, Friedmans directors claim to have the ultimate anti-takeover defense in place. Since they have failed to comply with their SEC requirements they cannot hold a stockholder meeting and thus cannot be replaced. That is, the public stockholders cannot replace the Class A directors. Nothing, of course, prevents Mr. Cohen from replacing the Class B directors with the stroke of a pen. One may doubt that this represents the official SEC view of the operation of its rules.
3
9. And none of that matters under Delaware law. Section 211 (c) of the Delaware
General Corporation Law provides in pertinent part:
If there be a failure to hold the annual meeting [of stockholders] or to take action by written consent to elect directors in lieu of an annual meeting . . . if no date has been designated, for a period of 13 months after the latest to occur of the organization of the corporation, its last annual meeting or the last action by written consent to elect directors in lieu of an annual meeting, the Court of Chancery may summarily order a meeting to be held upon the application of any stockholder or director.
10. Because Friedmans has not held an annual meeting during the past 13 months, Liberation Investments is entitled to an order compelling Friedmans to hold an annual meeting of stockholders for the election of directors at a date chosen by the Court as well as any other supplemental orders needed to make sure that the meeting happens.
WHEREFORE, Liberation Investments respectfully request that this Court enter an order:
a. Summarily ordering Friedmans to hold an annual meeting of stockholders by no later than February 1, 2005, with a record date of the date of this Complaint;
b. Requiring the election of directors at the annual meeting of stockholders to be accomplished by written ballot pursuant to 8 Del.C. § 211(e); and
c. Granting Liberation Investments such other relief, including reasonable attorneys fees and costs, as this Court shall deem appropriate.
4
ASHBY & GEDDES |
/s/ STEPHEN E. JENKINS (I.D. #2152) |
Stephen E. Jenkins (I.D. #2152) |
Lauren E. Maguire (I.D. #4261) |
222 Delaware Avenue |
P.O. Box 1150 |
Wilmington, DE 19899 |
(302) 654-1888 |
Attorneys for Liberation Investments, L.P. and Liberation Investments, Ltd. |
Dated: December 15, 2004
5
Liberation Investment Group, LLC | 11766 Wilshire Boulevard, Suite 870 Los Angeles, CA 90025 Tel: 310.479.3434 Fax: 310.479.3363 |
January 12, 2005
Via Fax and FedEx
Mr. Sam Cusano
Chief Executive Officer
Friedmans Inc.
171 Crossroads Parkway
Savannah, Georgia 31422
Dear Mr. Cusano:
We have read your press release of today, January 12, 2005, in regard to your senior lending agreement. We continue to have a positive view of Friedmans management team, and we would like to continue play a supportive role for the Company. The Companys precarious financial condition is not conducive to the ongoing health of the business.
We believe that the Company urgently needs to deleverage its balance sheet. An equity infusion is badly needed, and we are prepared to take a leadership role in making such an investment in the Company. Additional equity would ease the Companys current problems with banks and vendors and would allow management to focus more fully on improving operations.
We propose an equity investment led by Liberation Investment Group of up to $20 million of class B stock or, if the current A/B capital structure is eliminated, straight common stock. We also would consider investing beyond the contemplated $20 million of capital if appropriate.
We are prepared to commence negotiations for a fair and equitable purchase price, and we are further prepared to perform due diligence immediately. We expect that a purchase agreement would contain fair and reasonable terms and conditions for a transaction of this nature, including representations and warranties, corporate governance provisions and receipt of all required corporate, regulatory and other third party approvals.
We believe that immediate action is needed, and I can be reached at either my office phone (310 479-3434); my cell phone (310 740-2422) or via e-mail at your earliest convenience.
Very truly yours, |
/s/ EMANUEL R. PEARLMAN |
Emanuel R. Pearlman |
Chairman and CEO |
JOINT FILING AGREEMENT PURSUANT TO RULE 13d-1(k)(1)
This agreement is made pursuant to Rule 13d-1(k)(1) under the Securities Exchange Act of 1934, as amended (the Act) by and among the parties listed below, each referred to herein as a Joint Filer. The Joint Filers agree that a statement of beneficial ownership as required by Section 13(D) of the Act and the Rules thereunder may be filed on each of their behalf on Schedule 13D or Schedule 13G, as appropriate, and that said joint filing may thereafter be amended by further joint filings. The Joint Filers state that they each satisfy the requirements for making a joint filing under Rule 13d-1.
Dated: January 21, 2005
LIBERATION INVESTMENTS, L.P. | ||
By: |
Liberation Investment Group LLC, general partner | |
By: |
/s/ Emanuel R. Pearlman | |
Emanuel R. Pearlman | ||
General Manager | ||
LIBERATION INVESTMENTS LTD. | ||
By: |
/s/ Emanuel R. Pearlman | |
Emanuel R. Pearlman | ||
Director | ||
LIBERATION INVESTMENT GROUP LLC | ||
By: |
/s/ Emanuel R. Pearlman | |
Emanuel R. Pearlman | ||
General Manager | ||
EMANUEL R. PEARLMAN | ||
/s/ Emanuel R. Pearlman |