Friedman's Inc.

(Name of Issuer)

Class A Common Stock

(Title of Class of Securities)

358438109

(CUSIP Number)

Ellyn Roberts, Esq.
Shartsis, Friese & Ginsburg LLP
One Maritime Plaza, 18^th Floor
San Francisco, CA 94111

(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)

February 16, 2005

(Date of Event Which Requires Filing of this Statement)

This statement relates to shares of Class A Common Stock (the "Stock") of Friedman's Inc. (the "Issuer"). The principal executive office of the Issuer is located at 171 Crossroads Parkway, Savannah, GA 31422.

The persons filing this statement and the persons enumerated in Instruction C of Schedule 13D and, where applicable, their respective places of organization, general partners, directors, executive officers and controlling persons, and the information regarding them, are as follows:

The source and amount of funds used in purchasing the Stock were as follows:

The Filers acquired the Stock for investment purposes in the ordinary course of business. Each of them may purchase, hold, vote, trade, dispose or otherwise deal in the Stock at such times and in such manner as such Filer deems advisable.

On January 21, 2005, counsel to investment funds managed by Regis Management and Yacktman Asset Management (the "Funds") sent a letter to the Issuer's counsel requesting the Issuer to support the creation of a statutory Series A Common Stock Committee in the Issuer's pending bankruptcy proceedings (the "Chapter 11 Case") and the appointment of the Funds to such committee. That letter was followed by a meeting on January 27, 2005, and another letter dated February 3, 2005, in which counsel made the same request. On February 14, 2005, the Issuer informed the Funds that its board of directors would not support the formation of such a committee. On February 16, 2005, Fund counsel sent a letter to the Office of the United States Trustee (the "UST") requesting that the UST appoint an Official Committee of Holders of Series A Common Stock in the Chapter 11 Case. The Issuer responded to that request in a letter to the UST dated March 1, 2005, and the Funds replied thereto in a letter dated March 7, 2005.

In addition, on February 18, 2005, the United States Bankruptcy Court for the Southern District of Georgia (the "Bankruptcy Court") issued an Amended Bar Date Order in response to a motion made by the Funds on February 7, 2005, granting the Funds 60 days to (i) investigate whether any derivative action against any prepetition revolving lender party in the Chapter 11 Case may exist, (ii) seek a determination from the Bankruptcy Court that the Funds have standing to bring such actions and (iii) if standing is granted by the Bankruptcy Court, commence any such action. The Bankruptcy Court also granted the Funds an additional 30 days to file any direct actions they may have against any prepetition revolving lender party to the bankruptcy proceedings, for a total of 90 days from the date of the Amended Bar Date Order.

Counsel to the Funds represents only the Funds in the Chapter 11 Case, and to date has not represented any other holders of the Stock. The Filers constitute a group, within the meaning of Rule 13d-5(b) under the Securities Exchange Act of 1934, but are not members of a group with any other person. The Filers may form other plans and/or make other proposals, and take such actions regarding their investment in the Issuer, including any or all of the actions set forth in paragraphs (a) through (j) of Item 4 of Schedule 13D to the extent any such action would be permitted as a result of the Chapter 11 Case. The Filers may reconsider and change their plans or proposals relating to the foregoing at any time.

The beneficial ownership of the Stock by each Filer at the date hereof is reflected on that Filer's cover page. Yacktman Asset Management sold the following shares of the Stock since the date that was sixty days before the date on the cover page. Such sale was effected in the open market on behalf of a separate investment advisory account that terminated its investment advisory contract and in connection therewith instructed Yacktman Asset Management to make such sale on a non-discretionary basis. Yacktman Asset Management had no pecuniary interest in such shares or the proceeds from the sale thereof and disclaims any beneficial ownership interest in such shares or proceeds.

Regis Public Investments and Breakwater Capital are the general partners of investment partnerships pursuant to limited partnership agreements that grant them the authority, among other things, to invest those investment partnerships funds' in the Stock, to vote and dispose of the Stock and to file this statement on behalf of those investment partnerships. Pursuant to such agreements, Regis Public Investments and Breakwater Capital are entitled to allocations based on assets under management and realized and unrealized gains.

Agreement Regarding Joint Filing of Statement on Schedule 13D or 13G, previously filed.

SIGNATURES

After reasonable inquiry and to the best of my knowledge, I certify that the information set forth in this statement is true, complete and correct.

Dated: March 4, 2005

(310) 228-5730

January 21, 2005

John William (Jack) Butler, Jr., Esq.

George N. Panagakis, Esq.

Skadden Arps Slate Meagher & Flom

333 West Wacker Drive

Suite 2100

Chicago, IL 60606-1285

Dear Jack and George:

Stutman, Treister & Glatt Professional Corporation represents an Ad Hoc Group Of Holders Of Series A Common Stock of Friedman's, Inc. ("Group"). The composition of the Group, and the approximate holdings of the Members, is set forth in Exhibit "A" hereto. As is evident from Exhibit "A," the Group represents a substantial block of the outstanding Series A Common Stock of the Debtors.

The Members of the Group have been organized for some time and have, and continue to: (i) monitor the Debtors' restructuring efforts; (ii) communicate with the Debtors regarding the restructuring efforts; (iii) inform themselves of relevant facts and circumstances; and (iv) proactively involve themselves in the Debtors' restructuring.

As a result of the commencement of the Debtors' chapter 11 cases ("Cases"), the Members have voiced their intent to be appointed as an "official equity committee" in the cases, and have requested the formal support of the Debtors. The Group will be making a formal request of the United States Trustee on Tuesday, January 25, 2005 and requests that the Debtors confirm, in writing, their support for such an appointment by 4:00 p.m. Eastern Time on Monday, January 24, 2005.

The Group is of the firm view that there is substantial equity value in the Debtors, and that the interests of the Debtors and the Group should be aligned. In this regard, the Group desires to work with the Debtors (and the applicable constituents) to understand the building blocks for a consensual plan of reorganization and to then develop, negotiate, and implement such a plan of reorganization. The Group intends to have "real time" involvement in the Cases.

In order that the Group's efforts can be productive, the Group requests an immediate telephonic meeting to discuss the proposed DIP Financing and a subsequent face to face meeting with the Debtors on a mutually convenient date during the week of January 31, 2005, and at a location that is convenient to the Debtors, to review the Debtors' operations and restructuring efforts. The Group envisions that the agenda for such a meeting would include:

(i) 2004 Financial Performance;

(ii) Budgets/Projections for 2005;

(iii) Restructuring Business Plan;

(v) Real Estate Portfolio Review and Analysis;

(vi) Contract Review and Analysis;

(vii) Litigation Review and Analysis;

(ix) Workforce Review and Analysis;

(x) Capital Expenditure Plan;

(xi) Status of the SEC/DOJ Investigation; and

(xii) Status of audited financials.

In order to facilitate a productive meeting, please provide in advance a copy of all presentation materials. At a minimum, please provide as soon as possible: (i) a copy of all loan documents (e.g., the Loan Documents, Vendor Security Agreement, and the Intercreditor Agreement); (ii)  all information furnished to the Lender Agent, the informal vendor committee, and the collateral trustee under the Vendor Security Agreement; (iii) financial statements for the last three years (including 4-wall cash flow by store); (iv) rolling 13 week cash forecast; (v) current projections for 2005; (vi) current business plan; (vii) capital expenditure plan/budget; (viii) summary of real estate holdings (including lease terms); (ix) Store-level Finance Program documentation; and (x) related party agreements, consulting agreements, and management contracts.

The information may be provided in electronic form, and may be provided as it is available; please do not withhold sending the requested information until it is all assembled. With respect to any information that is not of public record, certain Members of the Group are prepared to become "restricted" and to sign a Confidentiality Agreement consistent with that executed by others. Please forward a draft Confidentiality Agreement, and a copy of the form of Agreement that the Lenders, the informal vendor committee, and others have executed.

MHG:lp

Encls.

(310) 228-5730

February 3, 2005

John William (Jack) Butler, Jr., Esq.

Skadden Arps Slate Meagher & Flom

333 West Wacker Drive

Suite 2100

Chicago, IL 60606-1285

Dear Jack:

I am writing as a follow-up to our meeting last week.

First, thank you for taking the time to meet and discuss with Matt Venturi and me the issue of the appointment of an Official Series A Common Stock Equity Committee (a "Series A Committee"). As we understand that the matter will be considered by the Board of Directors at the meeting scheduled to take place on February 9, 2005, we will await the outcome of that meeting before making an official request that the United States Trustee ("UST") appoint a Series A Committee. I appreciate your comments that the Debtors will not unilaterally raise the issue of a Series A Committee with the UST, or consider that our ongoing dialogue will result in any ultimate request that the UST appoint a Series A Committee being untimely.

Second, Stutman, Treister & Glatt's direct clients, Regis Special Situations Fund, L.P. and Yacktman Fund, as the Ad Hoc Steering Committee of Series A Common Stock Holders, are of the firm view that a formal Series A Committee is a necessary constituent in the Chapter 11 Cases, can provide productive participation in the Chapter 11 Cases, can be helpful to the management's restructuring efforts, and can assist in realizing an "equity sponsorship" to facilitate emergence. As noted in my prior letter to you, the Ad Hoc Steering Committee has broad based support from holders of the Series A Common Stock. The Debtors working with the holders of the Series A Common Stock, as well as the other constituencies, should serve the Debtors' interest of minimizing the time (and cost) of being in chapter 11, and should enable the Debtors to implement a timely recapitalization that will carry the Debtors through the 2005 Holiday Season.

Third, as evidenced by, among other facts, the "equity cushion" calculation in the Interim DIP Financing Order, the Debtors appear to have a strong core business, a substantial asset base, and strong operational cash flow generation capability. The Ad Hoc Steering Committee is firmly convinced that a detailed examination of the Debtors' current and projected operational results will confirm the view that the reorganization value of the Debtors supports a substantial equity value for the Series A Common Stock. As such, the Ad Hoc Steering Committee believes that the holders of the Series A Common Stock have an existing stake in the Chapter 11 Cases and, as a formal part of the restructuring process, can be a constructive voice. As an "official" participant working with the Debtors, a Series A Committee will be more efficient to the restructuring process than if the holders of Series A Common Stock are required to "go it alone."

Fourth, the Ad Hoc Steering Committee is very supportive of existing management, and is encouraged by the handling, to date, of the transition to operating within chapter 11. No doubt, placing the Interim DIP Financing was not an easy task, and having the ability to continue to shop the DIP is commendable. While the Prepetition Revolving Lenders are paid-off under the Interim DIP Financing, it appears that the Prepetition Revolving Lenders demanded as part of the pay-off certain procedures to effect releases by third parties unless affirmative action is taken. This is one example where instead of having to react to an issue, a Series A Committee, if it was in place, could have worked with the Debtors in efficiently resolving issues with the Prepetition Revolving Lenders and at the same time protecting the rights of the holders of Series A Common Stock.

I would like to follow-up with you directly on certain of these matters, and will call you to do so.

MHG/lp
cc: Matt Venturi
Robert E. Dye
Eric D. Winston, Esq. (i/o)
Christine M. Pajak, Esq. (i/o)

(310) 228-5730

March 7, 2005

B. Amon James, Assistant US Trustee

U.S. Department of Justice

Office of the United States Trustee

222 West Oglethorpe Avenue
Suite 302

Savannah, GA 31401-3608

Dear Mr. James:

Thank you for the opportunity to reply to the responses you received from the Debtors (the "Debtors Response") and the Official Committee of Unsecured Creditors (the "Committee," and the "Committee Response," respectively) to the request set forth in that letter to you dated February 16, 2005 (the "February 16, 2005 Letter") submitted by Stutman, Treister & Glatt on behalf of its clients Regis and Yacktman.

Far from establishing clear grounds for denying the appointment of an Official Series A Common Stock Committee, the Debtors Response and the Committee Response demonstrate the critical importance of timely appointing an Official Series A Common Stock Committee. Below is a brief summary of the detailed sections that follow:

Significantly, the Debtors Response does not unequivocally state that the Debtors are insolvent. Rather, in lawyerly language cautioning the public markets, the Debtors' message on solvency is limited to: the Debtors may not be solvent. The Debtors' position falls far short of the relevant inquiry established under the case law if a Bankruptcy Court were considering the appointment of an equity committee ie whether the Debtors appear to be hopelessly insolvent. Moreover, the Debtors' position implicitly acknowledges that the Debtors may be solvent. For purposes of the United States Trustee's inquiry as to whether it is appropriate to exercise its discretion an appoint an equity committee the February 16, 2005 Letter sets forth the facts and circumstances demonstrating that it is appropriate for the United States Trustee to exercise its discretion.

The Committee Response, on the other hand, does not provide any meaningful or credible contribution to the solvency analysis. While the Committee declares equity is "out of the money" (see Committee Response at 6), it apparently does so based upon undisclosed information that has not been subject to the test of critical review or cross-examination. As such, the Committee's assertion is unreliable. Further, the Committee's blatant hostility to the formation of an equity committee, openly partisan advocacy, and hyperbolic rhetoric renders its positions utterly void of any credibility.

Incredulously, both the Debtors and the Committee suggest that the Board of Directors, none of whom were elected by the Series A Holders, and who directly or indirectly are subject to the voting control of the Series B Holder, can adequately represent the Series A Holders. The Series A Holders are parties in interest in these Chapter 11 Cases with the right to participate and be heard. Currently, without a committee representation, Series A Holders are left to their own devices, are not part of an organized process or information flow, have been left out, and will continue to be left out, of the "behind the scenes" give and take that is the hallmark of the chapter 11 process. As the Debtors and the Board are charged with a fiduciary duty to all stakeholders, they cannot possibly serve the best interests of a single class of stakeholders such as the Series A Holders. In addition, because the Debtors and the Board are, as the Debtors and the Committee assert, subject to the voting control of the Series B Holder, the Board presently must answer to the Series B Holder. As an insider and the person who controlled the Debtors' actions that are now the target of multiple investigations and lawsuits, it is entirely inappropriate to conclude that the Series B Holder can adequately represent the interests of the Series A Holders who represent approximately 94% of the combined economic interests of the Series A Holders and Series B Holder.

Both the Debtors and the Committee rely upon In re Williams Communications Corp., Inc., 281 B.R. 216 (Bankr. S.D.N.Y. 2002) for the proposition that Regis and Yacktman must prove that there is a substantial likelihood of a recovery for equity holders in order for the United States Trustee to appoint an Official Series A Common Stock Committee. The decision in Williams does not impose such a burden upon Regis and Yacktman. Moreover, the Bankruptcy Code sets forth the standard governing the determination of the United States Trustee to appoint an equity committee.

Section 1102(a)(1) of the Bankruptcy Code is clear with respect to the standard governing the conduct of the United States Trustee the United States Trustee "may appoint additional committees of creditors or of equity security holders as the United States trustee deems appropriate." 11 U.S.C. Section 1102(a)(1); see also Williams, 281 B.R. at 221 ("The UST, when it 'deems appropriate,' may appoint an equity committee pursuant to section 1102(a)(1) of the Code. The permissive language ("may") of the statute indicates that the UST's authority to appoint such a committee is discretionary"). The United States Trustee is not bound by the Williams case or any other case law. If the United States Trustee deems it appropriate to appoint an Official Series A Common Stock Committee, it has the discretion to do so. It is respectfully submitted that the February 16, 2005 Letter (as supplemented hereby) sets forth sufficient facts and circumstances for the United States Trustee to exercise its discretion and conclude that it is appropriate to appoint an Official Series A Common Stock Committee.

Case law addressing the issue of the appointment of an equity committee pertains to section 1102(a)(2) of the Bankruptcy Code which governs the decision of the Bankruptcy Court to appoint an equity committee, and not the United States Trustee; it states:

To the extent that the United States Trustee draws upon existing case law under section 1102(a)(2) to inform its analysis, the Williams decision does not support the arguments advanced by the Debtors and the Committee.

The bankruptcy court in Williams noted that the Bankruptcy Code does not define "adequate representation," that the Bankruptcy Court's analysis under section 1102(a)(2) is "based on the facts of each case," and that "courts have structured the analysis around the following factors: the number of shareholders, the complexity of the case, and whether the cost of the additional committee significantly outweighs the concern for adequate representation." Id. at 220. With respect to the third factor, the bankruptcy court in Williams noted that "the courts employ a balancing test to weigh the cost of an equity committee versus the 'concern for adequate representation,'" and identified as factors in such analysis: delay, whether equity holders were represented by other committees, and whether the debtor "appears to be hopelessly insolvent." Id. With respect to the last factor, the Williams Court stated five different times that it found that the debtor in question appeared to be hopelessly insolvent:

• "Although there is no clear litmus test, it is clear that the Debtors appear to be hopelessly insolvent." Id. at 220 (emphasis in original);
• "For all of these reasons, I find that the Debtors appear to be hopelessly insolvent." Id. at 221;
• "This Court has made a determination that [the debtors] appear to be hopelessly insolvent based on many different factors."  Id. at 221;
• "[I]t has reached a practical conclusion, based on a confluence of factors, that the Debtors appear to be hopelessly insolvent." Id. at 221 (emphasis in original);
• "Accordingly, this Court finds it reasonable to conclude that the Debtors appear to be hopelessly insolvent for the purposes of determining whether an equity committee should be appointed." Id. at 222.

The factors that the Williams court relied upon in making its finding that the debtors "appear to be hopelessly insolvent" included: (i) the debtors' balance sheet showing that liabilities exceeded assets by $2.62 billion; (ii) the debtors' public debt was trading at a discount to face; and (iii)  the pending proposed plan of reorganization contemplated a recovery to unsecured creditors of twenty cents on the dollar. Id. at 220-221.

Following the Court's specific and detailed finding that the debtors "appear to be hopelessly insolvent," the Williams Court noted the movant's argument that there was a "possibility of solvency," and analyzed and rejected the specific arguments made. Id. at 222. It is after completing this analysis of the movant's arguments and rejecting them, that the Williams Court opines, in dicta, that an equity committee should not be appointed unless equity holders establish a "substantial likelihood that they will receive a meaningful distribution in the case." Id. at 223.

The reliance by the Debtors and the Committee on this dictum for the proposition that Regis and Yacktman must prove "a substantial likelihood that they will receive a meaningful distribution" is misplaced. The quoted phrase from the Williams case can only be understood in context to the earlier, detailed, and specific findings (stated five different times as noted above) that the debtors in Williams "appear to be hopelessly insolvent." It was in light of this finding that the Williams Court noted the burden imposed on the equity holders to overcome the finding that the debtors appear to be hopelessly insolvent in that case.

Here, the predicate finding of "appears to be hopelessly insolvent" cannot be made. In contrast to the facts in Williams, the Debtors' Exhibit "A" to its Voluntary Petitions indicates that the Debtors' assets exceed liabilities by $180,156,000 (see Exhibit "3" to the February 16, 2005 Letter); the Series A Common Stock is trading in the market place and the closing price on Friday, March 4, 2005 was $1.66 per share, indicating a market value for the Series A Common Stock of $29,247,238 as of that date (based upon 17,618,818 shares outstanding); and (iii) a Term Sheet (Exhibit "14" to the February 16, 2005 Letter) for a plan of reorganization for the Debtors has been proposed that provides for payment in full to all creditors and a recovery for Series A Holders.

Furthermore, there are numerous other data points that contradict any suggestion that the Debtors "appear to be hopelessly insolvent," including:

• The Debtors have repaid approximately $80 million of prepetition secured debt, replaced it with a $125 million postpetition secured revolving facility, and are apparently making substantial progress towards implementing its stated restructuring, including implementing a going out of business sale at 164 locations, which sale is estimated to generate at least approximately $13.3 million to pay down the postpetition debt, and is estimated by the Debtors to save the Debtors approximately $6.9 million in annual expenses;
• The Debtors' placement of a new $125 million postpetition credit facility, and the borrowing base formulas and covenants contained therein, evidence an asset base and earnings capacity of a healthy and viable operating entity;
• Industry comparisons, historical operations, and a normalized base of 481 operating stores collectively indicate that the Debtors should generate approximately $300 million of aggregate net revenue. [It is noteworthy that the Committee, in the Committee Response, with the benefit of non-public available information, states that: "After the conclusion of the going out of business sales, their projected annual revenues are under $400 million." Committee Response at 4. The natural reading of this sentence is that projected annual revenues are over $300 million but less than $400 million];
• Industry comparisons, historical operations, and a normalized base of 481 operating stores collectively indicate that the Debtors should reasonably expected to generate at least $30 million of aggregate net earnings before interest, taxes, depreciation and amortization (EBITDA). [If the aggregate net revenue is higher than $300 million, then the Debtors should generate more than $30 million of aggregate net EBITDA];
• Based upon normalized earnings and a core portfolio of 481 stores, market multiples indicate an enterprise value in excess of the Debtors' known pre-petition liabilities and long-term debt (as reduced by the proceeds from the sale of closed stores);
• Any valuation of the Debtors' enterprise must take into account the additional value represented by the Debtors' accounts receivable portfolio, litigation claims (including insurance recoveries) and other non-operating assets (e.g., tax refunds); and
• As of September 7, 2004 the Debtors represented to their lenders that they were solvent. See Exhibit "16" to the February 16, 2005 Letter.

In considering the issue of the Debtors' solvency, it is important to note that the Debtors, in the Debtors Response, do not unequivocally state that the Debtors are insolvent. Rather, in carefully crafted language, the Debtors state: "[t]he Debtors believe that if the Bankruptcy Court were required to make a determination today, there is a substantial likelihood that the Bankruptcy Court would determine that the Debtors are not solvent." Debtors' Response at p 5. With full knowledge of the case law, the Debtors do not state that the Debtors "appear to be hopelessly insolvent." The natural reading of the language that is used by the Debtors indicates that there is some likelihood that the Bankruptcy Court would determine that the Debtors are solvent. The measure of this likelihood is irrelevant any likelihood of insolvency irrefutably contradicts the conclusion that the Debtors appear to be hopelessly insolvent.

In the Debtors Response, the Debtors also make two other statements bearing on the issue of solvency: (i) "holders of Friedman's common stock (both Series A and Series B common stock) and other equity interests (such as options and warrants) should assume that they could receive little or no value as part of a plan of reorganization" (emphasis added); and (ii) "the Company considers the value of the common stock to be highly speculative and cautions equity holders that the stock may ultimately be determined to have no value." (Emphasis added.) The Debtors' acknowledgement that the common stock could have value, even if it is "little," refutes any finding that the Debtors appear to be hopelessly insolvent. Similarly, implicit in the caution that the stock may ultimately be determined to have no value, is the concession that the stock may also ultimately be determined to have some value.

In contrast to the Debtors, the Committee argues that the Series A Common Stock is "clearly 'out-of-the money,'" (see Committee Response at 6) thus declaring that the Committee is smarter than the public markets. Significantly, even after disclosure of the views of the Debtors and the Committee, the public markets continue to affirm that the Debtors are solvent. The Committee's "declaration" is allegedly supported by undisclosed financial information. Without such information being disclosed and subject to review and cross-examination, the Committee's purported valuation is unreliable. Furthermore, the Committee's open hostility to an equity committee and the hyperbole which fills the Committee Response compels the conclusion that the Committee's position is not credible.

Even if one were to disregard the facts and dignify the Committee position with a response, the suggestion that one party's view that the Debtors could be insolvent by as little as $17 million (see Committee Response at 6), does not support a conclusion that the Debtors appear to be hopelessly insolvent. Moreover, the Committee's position does not refute that, based upon all of the facts and circumstances presented in these Chapter 11 Cases, it is absolutely appropriate for the United States Trustee to exercise its discretion and to appoint an Official Series A Common Stock Committee to ensure that all of the Series A Holders are represented.

The Debtors argue that the Board of Directors adequately represent "its stakeholders . . . in its fiduciary mission in the chapter 11 cases to maximize business enterprise value for all of the Debtors' stakeholders." Debtors Response at 6. This argument, of course, is not sufficient to deny representation of an equity committee as it is true in all chapter 11 cases that it is the duty of a debtor in possession "to maximize business enterprise value for all of the Debtors' stakeholders." If a debtor's duty to maximize value for all stakeholders were sufficient to preclude the appointment of an equity committee, there would be no basis for section 1102 to be included in the Bankruptcy Code.

The relevant point of inquiry is not whether the Debtors are doing their job as a fiduciary to the estates, but whether the Debtors can adequately represent the specific interests of the Series A Holders. It is evident that they cannot as outlined below:

• The Debtors released claims against the Prepetition Revolving Lender Parties, thereby leaving it to other parties in interest, including Regis and Yacktman, to protect their rights.
• The Debtors apparently believe that the Board of Directors can represent the interests of the Series A Holders, even though: (i) the members of the Board were apparently appointed directly by the Series B Holder, or indirectly by Board Members appointed by the Series B Holder (i.e., they were not appointed by the Series A Holders); (ii) the Series A Holders do not have any direct representation on the Board, contrary to the governing charter documents; (iii) the Series A Holders are adverse to the Series B Holder; and (iv) prior to the commencement of these Chapter 11 Cases, Regis had conducted an examination of certain of the Debtors books and records and based upon that examination requested the Debtors to, among other things, take various actions against the prior management and members of the Board.
• While the Debtors apparently believe that there may be no value to equity, the market place continues to affirm that the Debtors are solvent.
• The Debtors apparently believe that it would be too costly to appoint an Official Series A Common Stock Committee, ignoring the costs of having to address issues raised by the Series A Holders even if there were no committee.

The Committee Response offers as further evidence of the adequate representation of the Series A Holders, the Committee's own role in these Chapter 11 Cases. This is the same Committee that:

• Vehemently opposes an equity committee;
• Has irrevocably concluded that equity is out of the money (Committee Response at p. 6);
• Supported a release of the Prepetition Revolving Lender Parties;
• Has pre-judged any equity committee as one which would: (i) raise "duplicative and irrelevant matters: (ii) "shift their 'hold up' costs to the estates"; and (iii) "have the ability to represent themselves." (see Committee Response at 4 and 6); and
• In large measure represented vendors prepetition and appears to be singularly focused on protecting vendors (see Committee Response at p. 5) ("Every single available dollar that the Debtors have needs to be devoted to the reinstatement and assumption of the vendor program.").

There is no basis to conclude that such a Committee (that has no fiduciary duty to protect the interests of the Series A Holders) can represent the interests of the Series A Holders.

In what can only be viewed as a desperate effort to thwart any consideration of an equity committee, the Debtors and the Committee employ the scare tactic of suggesting that any appointed equity committee must follow the Debtors' charter documents and be 75% controlled by the Class B Holder. Neither the Debtors nor the Committee offer any controlling support for such a position. In fact, that governing statute is directly to the contrary.

As noted earlier, section 1102(a)(1) leaves it to the sound discretion of the United States Trustee to appoint "additional committees . . . of equity security holders as the United States trustee deems appropriate." The United States Trustee can, in its discretion, conclude that an insider of the Debtors, who is the subject of pending investigations and lawsuits and whose interests are adverse to and in conflict with the Series A Holders, is not eligible to serve on any appointed equity committee. As the Derivative Complaint, Class Action Complaint, and Liberation Complaint make clear, the Series B Holder has numerous conflicts of interests that preclude participation in any Official Series A Common Stock Committee.

Furthermore, to the extent that section 1102(a)(2) is relevant to the inquiry of the United States Trustee, the statutory language contemplates an equity committee comprised of a particular kind or kinds of equity securities. Section 1102(b)(2) indicates that the persons to serve on an equity committee shall ordinarily consist of persons "that hold the seven largest amounts of equity securities of the debtor of the kinds represented on such committee. 11 U.S.C. section 1102(b)(2) (emphasis added). The use of the phrase "of the kinds represented" leaves open the possibility of an equity committee representing all different kinds of equity securities of a debtor, or an equity committee representing only certain kinds of equity securities of a debtor. The statutory directive is clearly not that an equity committee must represent all equity securities that a debtor might have. If such were the legislative intent, the statutory language would have been drafted differently.

Judge Lifland's decision in Williams teaches that the appointment of an equity committee requires balancing costs against adequate representation. Where a debtor is hopelessly insolvent, the incremental costs and the need for adequate representation generally weigh against the appointment of an equity committee. However, where, as is the case here, the Debtors are not hopelessly insolvent, and the facts indicate that the Debtors are (or at least in the Debtors' own formulation, "may be") solvent, incremental costs cannot be a basis to deny representation.

In these Chapter 11 Cases, the embedded professional costs are mounting. As compared to these costs, the additional costs of an equity committee are insubstantial. If selected as counsel for such an equity committee, the hourly rate for ST&G's lead counsel is $580 per hour, substantially less than the lawyers, and some financial advisors, already employed. See "Chart of Professionals Employed by the Debtors' Estates and Their Hourly/Monthly Rates" annexed hereto as Exhibit "F." Similarly, any financial advisor appointed for an equity committee will undoubtedly have a modest monthly fee, consistent with current proposals, and receive most of its compensation from the recovery realized by equity holders, rather than the estates as a whole.

The effort by the Debtors and the Committee to cast the costs of an equity committee as being significant is belied by the facts. To date, Regis and Yacktman have shown considerable deference to the business judgment of the Debtors, by not objecting to the Debtors' various administrative motions (including the employment of a team of professionals,) or the Debtors' substantive motions, including debtor in possession financing, the Debtors' rejection of leases, or the Debtors' proposed going out of business auction (the "GOB Sale").

Without any apologies, Regis and Yacktman do believe that Series A Holders are entitled to basic financial information and have sought to obtain basic financial information. To date, Regis and Yacktman have been unsuccessful in obtaining such information. By their actions, the Debtors have made it clear that without the imprimatur of an official committee, there will not be a free flow of information to Series A Holders.

The Committee's diatribe on the issue of costs is wholly unfounded. The Committee asserts that the direct costs of an equity committee would be $400,000 to $500,000 per month. While such a monthly budget may reflect the Committee's view of an appropriate professional fee run rate, it is inconceivable that an equity committee's professionals, appropriately staffed and focused, would generate, on an ongoing basis, anywhere near such a monthly burn rate. The Committee also references the "indirect costs" of having to address such an equity committee; however, even without an equity committee being appointed, such indirect costs would be incurred by reason of the ongoing participation in the Chapter 11 Cases by the Series A Holders. In fact, without an equity committee to organize and coordinate such actions, such indirect costs are likely to be greater without an equity committee being appointed.

In an effort to support its unfounded assertions, the Committee argues that the request made by Regis and Yacktman for basic financial information is extraordinary and duplicative. See Committee Response at 4. One need only review the actual request (see Exhibit B to the Committee Response) to recognize the limited nature of the request for basic financial information. The suggestion that it is "extraordinary" and "duplicative" to ask for financial information so parties are informed, reflects either a fundamental misunderstanding of the chapter 11 process, or a blatant mischaracterization of the information request.

Perhaps the most egregious of the Committee's efforts to misdirect and misinform is the argument advanced regarding the alleged costs associated with the preparation of restated financial statements. As a preliminary matter, there is no foundation for the suggestion that such preparation will cost between $9 and $12 million. But more importantly, what is not said is that the Debtors might have to incur this cost, without regard to whether the Debtors continue to be a public reporting company, due to the requirements of existing lenders or exit financing lenders, a desire to access the capital markets, or otherwise.

Moreover, the argument that is advanced by the Committee that without incurring such costs, there is no value to the equity is absolutely false. Under the absolute priority rule, equity holders are entitled to a distribution based upon the Debtors' solvency. The form of the distribution (cash, property, or securities), and, in the case of securities, whether the securities are freely tradable and listed, are structural considerations that are separate and apart from the controlling legal issue that where a debtor is solvent, equity holders have an absolute right to a distribution.

Furthermore, the Debtors' exit from chapter 11 does not require waiting a year or two or more for historical financial statements to be prepared. There are numerous scenarios under which the Debtors can emerge from chapter 11 and preserve value for equity holders, with the restatement of historical financial statements either occurring after the exit from chapter 11, or being avoided entirely based upon the particular exit structure. This latter point is critical: scenarios exist where value is preserved for existing equity holders and restated historical financial statements are not required to be prepared.

Examples of exist structures include:

1. a sale of all of the Debtors' assets to a privately held company or a public company and a distribution of proceeds (cash and/or new securities) being shared by the creditors and shareholders of the Debtors, with such transactions, depending upon the particular form, requiring the buyer to incorporate in its public reports limited restated historical financial information of the Debtors, or requiring no such restatement of the Debtors historical financial information (e.g., a cash sale, or an exchange of equity interests in the Debtors for notes or other securities of a private company);
2. a "restructuring" that results in the Debtors continuing as stand alone entities, but with a number of shareholders of record such that public reporting requirements are inapplicable (and thus no restatement of the Debtors historical financial information being required); or
3. a "restructuring" of the Debtors that imposes limitations on its equity securities until such time as the Debtors can come into compliance with applicable public reporting requirements (either by completing the required restatement after the exit from chapter 11, or waiting a sufficient number of years after exiting chapter 11 that going forward financial statements become available).

Finally, the Creditors Response ignores the obvious point of involving the Securities and Exchange Commission in the planning of the Debtors' exit to insure that existing value of equity interests are preserved and reporting requirements, if applicable, are met. Until the Debtors' specific exit scenario is determined, the scope and costs of any potential restatement of the Debtors' historical financial information is not known. Thus, the suggestion that the Debtors have to incur $9 to $12 million dollars to prepare restated historical financial statements is incorrect.

The Committee's parochial view of the options available to preserving equity value simply underscores the point made earlier that the Committee cannot possibly be relied upon to represent the interests of equity holders.

Stutman, Treister & Glatt has appeared in these Chapter 11 Cases on behalf of its clients, Regis and Yacktman. As a result, the Amended Bar Date Order (see Exhibit "I" annexed hereto) was entered providing, in part, for specific relief in favor of Regis and Yacktman. Other Series A Holders have not received such specific relief. A particular Series A Holder does not represent the interests of all Series A Holders, and if every Series A Holder were forced to appear and be heard in connection with these Chapter 11 Cases, the costs and burden would increase significantly. The Bankruptcy Code provides for committees because collective representation is effective and efficient for the reorganization process.

There are 17,618,818 shares of Series A Common Stock outstanding. The fact that there are a few large holders of such shares does not negate the fact that it appears that the vast majority of the shares are widely held. The Committee suggests that an average daily trading volume of 1.5% is indicative of the number of beneficial holders. It is not. The average daily trading volume provides no visibility as to whether the same shares are trading hands, or the number of shares exchanged in each trade. Moreover, it provides no indication of the millions of shares not represented by the average daily trading volume.

At the February 18, 2005 Omnibus Hearing, the Debtors represented to the Court, and made an offer of proof, that these Chapter 11 Cases are large and complex. The Committee did not object to the Debtor's offer of proof. See Excerpts from the Transcript of Hearing, February 18, 2005 (a copy of which is annexed hereto as Exhibit "J").

As a large and complex case, it is essential that key parties in interest have a seat at the negotiating table. Presently, the only parties in interest who do not have an official seat are the Series A Holders. Numerous important issues in these Chapter 11 Cases "have been vetted and resolved" (see Creditors Response at 7), with the Series A Holders looking in from the outside, after the fact, without complete information. It now appears that following the GOB Sale, the Debtors will be focused on finalizing their vendor program, gearing up for Mother's Day, and formulating a plan of reorganization for exiting chapter 11 (either before or after the Christmas holiday). Without an equity committee to adequately represent them, the Series A Holders will remain outsiders to the restructuring process. To force themselves into the process through discovery and litigation will be expensive and distracting for the estates, but will be the only recourse available to the Series A Holders who are otherwise shut out of the process. These Debtors are not hopelessly insolvent, but rather are solvent. The market so believes, and one potential plan proponent has made an offer based upon such a view. The necessary predicates to developing a plan of reorganization and confirming a plan of reorganization will require confronting the solvency issue directly. With an Official Series A Common Stock Committee, the Series A Holders will have a voice in the process and can be an informed and constructive participant. To deprive the Series A Holders of such adequate representation in a large and complex case, when no one else is looking out for their interests, where the Debtors are not hopelessly insolvent, and where the costs of such representation is incrementally insubstantial, runs afoul of the open and participatory principles upon which chapter 11 is based.

Regis and Yacktman appreciate the time and consideration the United States Trustee has dedicated to their request for appointment of an Official Series A Common Stock Committee. If you have any questions about the foregoing, or if you require any additional information, please let us know.

MHG:lp

Encls.

cc: John William (Jack) Butler, Jr., Esq. (w/encls.)
Glen B. Rice, Esq. (w/encls.)
Robert E. Dye, Jr. (w/encls.)
Matt Venturi (w/encls.)
Eric D. Winston, Esq. (i/o) (w/encls.)
Christine M. Pajak, Esq. (i/o) (w/encls.)

(310) 228-5730

February 16, 2005

B. Amon James, Assistant US Trustee

U.S. Department of Justice

Office of the United States Trustee

222 West Oglethorpe Avenue Suite 302

Savannah, GA 31401-3608

Dear Mr. James:

Regis Special Situations Fund, L.P. and The Yacktman Funds, Inc. ("Regis" and "Yacktman," respectively) own directly or indirectly approximately 1,180,000 shares of Series A Common Stock of Friedman's Inc. On behalf of Regis and Yacktman, Stutman, Treister & Glatt respectfully submits this request that the Office of the United States Trustee appoint an Official Committee of Holders of Series A Common Stock in the Friedman's Chapter 11 Cases (an "Official Series A Common Stock Committee").

Together, Regis and Yacktman hold 6.7% of the current issued and outstanding shares of Series A Common Stock. Regis and Yacktman believe that numerous other holders of shares of Series A Common Stock representing an additional 30% of the Series A Common Stock support this request and urge the United States Trustee to appoint the requested Official Series A Common Stock Committee.

During the first month of these Chapter 11 Cases, substantial activity has already taken place, as evidenced by, among other items: (i) the approval of the Debtors' "First Day Motions;" (ii) the Debtors' retention of various professionals; (iii) the "rejection" of an initial 78 real property leases followed by a second rejection of 7 real property leases; (iv) the approval of the DIP Agreement on an interim basis (the "Interim DIP Order") providing for repayment of approximately $13 million of prepetition revolving debt and providing for "third party releases" of the prepetition revolver lenders unless affirmative action is taken; and (v) the proposed final approval of the DIP Agreement which would allow for the repayment of approximately $68 million of prepetition term debt. More recently, the Debtors have filed a motion to approve the closing of 165 stores and related sale of inventory and fixtures.

The Series A Holders have not had input on the Debtors' prepetition activities as the Debtors' corporate structure vested control in the holder of the Debtors' Series B Common Stock. The Debtors are solvent and the Series A Holders are entitled to have an official active voice in these Chapter 11 Cases. Following the commencement of these Chapter 11 Cases, Regis and Yacktman requested that the Debtors support the appointment of an Official Series A Common Stock Committee. The Debtors have advised Regis and Yacktman that they believe the appointment of an Official Series A Common Stock Committee is premature. Regis and Yacktman disagree.

On February 15, 2005, Regis and Yacktman were first informed that Allied Financial Corporation ("Allied") advised the Bankruptcy Court of an interest in serving on a shareholder's committee and that the United States Trustee concluded that it did not have enough information to determine whether such a committee should be appointed. It appears that Allied did not have all the pertinent information, or make an effort to contact active Series A Holders.

As set forth below, the controlling law and the known applicable facts as documented herein, overwhelmingly support the appointment of an Official Series A Common Stock Committee to represent the collective interests of the holders of Series A Common Stock (the "Series A Holders"). In order to ensure that the Series A Holders have an effective voice in these Chapter 11 Cases, the prompt review of this request and appointment of an Official Series A Common Stock Committee is appreciated.

We are available to respond to any questions or information requests that you might have.

In addition to the Series A Common Stock, Friedman's has issued and outstanding 1,196,283 shares of Series B Common Stock. These shares are convertible into 1,196,283 shares of Series A Common Stock or 6.36% of the total equity interests of the Debtors on an as converted basis. Accordingly, on an as converted basis, the Series A Common Stock represents 93.64% of the equity interests of the Debtors.

Based upon available public information, it is our understanding that: (i) there is one holder of the Series B Common Stock MS Jewelers Limited Partnership; (ii)  the general partner of MS Jewelers Limited Partnership is MS Jewelers Corporation; and (iii) Mr. Phillip E. Cohen is the owner of MS Jewelers Corporation. As stated by the Debtors in their Prospectus Supplement filed with the Securities and Exchange Commission on September 19, 2003:

See Supplemental Prospectus dated September 19, 2003 (excerpt attached hereto as Exhibit "2").

Although the Series B Common Stock represents a minority of the outstanding equity interests, the rights, privileges and preferences of the Series B Common Stock vest in the holder of the Series B Common Stock the right to elect 75% of the Board of Directors of Friedman's, Inc. and control the outcome of all other issues decided by stockholders. See "Certificate of Incorporation of Friedman's Inc." filed as Exhibit 4(a) to Friedman's Inc.'s Form S-8, filed March 21, 1997 (copy attached hereto as Exhibit "4"). As a result of the prepetition rights vested in the holder of the Series B Common Stock to appoint a majority of the Board of Directors of Friedman's, Inc. and approve all major corporate transactions, the prepetition actions of Friedman's, Inc. were controlled by the holder of the Series B Common Stock.

The prepetition activities of the Debtors have given rise to a series of lawsuits and regulatory and enforcement actions commenced against the Debtors, including, without limitation:

• September 2003: The commencement of litigation by Capital Factors against Friedman's (and others, including Crescent Jewelers) alleging that "the defendants intentionally or negligently participated with Cosmopolitan Gem Corporation a vendor in the misrepresentation of the balance of Cosmopolitan's accounts receivable, the effect of which was to induce Capital Factors to continue to advance funds to Cosmopolitan."

See Friedman's Inc., Form 8-K, filed on September 12, 2003 (copy attached hereto as Exhibit "5").

• September 2003: Notice from the Securities and Exchange Commission that it "has opened an informal inquiry into the allegations contained in the [Capital Factors'] lawsuit."

See Friedman's Inc., Form 8-K, filed on September 12, 2003 (copy attached hereto as Exhibit "5").

• October 2003: Notice from the U.S. Department of Justice that the Department was conducting an investigation relating to the allegations asserted in the Capital Factors lawsuit.

See Friedman's Inc., Form 8-K, filed on October 2, 2003 (copy attached hereto as Exhibit "6").

• October 29, 2003: Receipt of "a formal order of private investigation by the SEC relating to (i) the allegations contained in a lawsuit filed against Cosmopolitan Gem Corporation (a former vendor of Friedman's) and a number of other defendants (2) the Company's allowance for doubtful accounts and other financial matters, (3) whether Friedman's issued materially false or misleading disclosures under the Securities Act of 1933 and Securities Exchange Act of 1934, and (4) whether there were possible violations of the internal controls and books and records provisions under the Exchange Act, for the period January 1, 2000 through the present."

See Friedman's Inc., Form 8-K, filed on November 12, 2003 (copy attached hereto as Exhibit "7"); and Friedman's, Inc., Form 8-K, filed on March 25, 2004 (copy attached hereto as Exhibit "8").

• November 14, 2003: The commencement of a class action litigation (the "Class Action") in the Northern District of Georgia (Guerrilla Partners, L.P., v. Friedman's Inc. et. al.; Case No. 1 03 CV 03475 WSD) alleging violations of the federal securities laws.

See Docket for Class Action (copy attached hereto as Exhibit "9").

• December 2003: The commencement of a shareholder derivative suit ("Derivative Suit") in the Northern District of Georgia (Case No. 1:03-CV-03831-WSD) alleging various causes of actions against named individuals.

See Docket for Derivative Suit (copy attached hereto as Exhibit "11")

• March 2004: The issuance by the Division of Enforcement of the Securities and Exchange Commission of a "Wells Notice" indicating "that the Division is considering recommending that the SEC authorize a civil enforcement action in federal court against Friedman's, alleging that Friedman's violated certain provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934."

See Friedman's Inc., Form 8-K, filed on March 25, 2004 (copy attached hereto as Exhibit "8")

• October 2004: The issuance by the Northeast Regional Office of the Securities and Exchange Commission of a supplemental letter to the Wells Notice indicating that "the staff of the SEC is considering recommending that the SEC authorize public administrative proceedings against the Company pursuant to section 12(j) of the Securities Exchange Act of 1934, as amended . . . ."

See Friedman's Inc., Form 8-K, filed on October 7, 2004 (copy attached hereto as Exhibit "12")

• December 2004: The commencement of lawsuits by the attorneys general of the states of Texas, Tennessee and Florida which "allege that some Friedman's customers may not have realized they were purchasing credit insurance when buying merchandise on credit issued by Friedman's or were told that credit insurance was mandatory, and allege that consumer protection and insurance statutes or regulations were violated."

See Friedman's Inc., Form 8-K, filed on December 27, 2004 (copy attached hereto as Exhibit "13")

Without question, the holders of the Series B Common Stock cannot be relied upon to "adequately represent" the interest of the Series A Holders. The Series A Holders require their own, independent, representation.

On Friday, January 21, 2005, a formal request of the Debtors was made to support the appointment of an Official Series A Common Stock Committee. In response to the formal request, a representative of the Debtors and representatives of Regis and Yacktman met in Los Angeles on January 27, 2005. During that meeting, Regis and Yacktman were informed that the Board of Directors of the Debtors would meet on February 9, 2005 to consider the request. The Debtors have advised Regis and Yacktman that they believe the request is premature.

Given the fact that the Series A Holders have been effectively out of the loop with respect to the Debtors' prepetition operations, and given their substantial stake in these Chapter 11 Cases, the current, informed, and active participation in the Chapter 11 Cases by an Official Series A Common Stock Committee is essential.

The Debtors' position that appointment of an Official Series A Common Stock Committee is premature is not supported by the facts. In these Chapter 11 Cases, the most pressing transitional business "First Day Motions," and cash collateral and debtor-in-possession financing are complete, and the Debtors are now poised to implement a 165 store closing and related sale. As a result of these actions, it is now the time in these Chapter 11 Cases to identify and explore the contours of a plan of reorganization, and the issues that will inform such a plan. The issues that are ripe for consideration include:

Chapter 11 is premised upon an open, informed and participatory process. These plan related issues that are now the focus of these Chapter 11 Cases impact directly on the Series A Holders and, as such, the Series A Holders should be an integral part of the ongoing dialogue.

For example:

(i) Repayment Of Prepetition Revolver Debt.

As part of the approved repayment of the debt owed to the prepetition revolver lenders, the Interim DIP Order includes a provision that, unless a timely objection is made, imposes both derivative and third party releases. See Interim DIP Order at paragraph 28(b); "Bar Date Order and Notice With Respect To Claims And Liens Of Certain Pre-Petition Revolving Lender Parties, And With Respect To Claims, If Any, Against Such Pre-Petition Revolving Lender Parties" (the "Bar Date Order"). While the undersigned has filed various pleadings challenging these provisions, it is unfair, unduly burdensome, and inconsistent with the participatory design of the chapter 11 process, to require such vigilance to be shouldered by individual Series A Holders.

(ii) Potential Repayment of Prepetition Term Debt.

The DIP Agreement contemplates the potential repayment of the Debtors' prepetition term loan in the amount of approximately $68 million. The Interim DIP Order establishes that the prepetition term loan lenders currently enjoy at least a $30 million equity cushion. Payment of the prepetition term loan will, of course, transform a prepetition debt that is subject to cramdown pursuant to Section 1129(b) of the Bankruptcy Code, into a first priority administrative claim that must be paid in full, in cash, on the effective date of a plan of reorganization. Such a radical change to the Debtors' balance sheet has material implications to these Chapter 11 Cases and the Series A Holders.

(iii) Real Estate Portfolio.

On the first day of these cases the Debtors filed the First Lease Rejection Motion seeking to reject 78 real property leases, and on January 20, 2005 an order was entered granting the motion. On February 3, 2005, the Debtors filed their Second Lease Rejection Motion, providing for the "rejection" of seven (7) additional leases. On February 14, 2005, the Debtors filed their motion for authority to close 165 stores and implement a related sale of inventory and fixtures. The motion does not address the proposed disposition of the underlying real property leases. It appears that the Debtors have completed a review of their portfolio and determined the stores to be closed and the stores to be retained. The decision to close 165 stores necessarily impacts on the Debtors' ongoing revenue base, as well as the ultimate dollar amount of allowed claims in these Chapter 11 Cases. The Debtors represent that the store closings and related sale will benefit the estates. As the Debtors' management of their store portfolio bears directly upon the interests of the Series A Holders, they are entitled, through a statutory committee, to have access to the relevant information and decision making process, so they can fully assess the decisions made in this context and ensure that their interests are fully protected.

(iv) Fresh Capital.

To the extent that the Debtors' reorganization requires new capital to deleverage their balance sheet, and enhance the Debtors' liquidity, the nature, scope and terms of such new capital will have a material impact on the Debtors and the Series A Holders. The price of such new money, the implied reorganization value upon which such new money will be based, and who participates in the provision of such new money are all material issues. The only constituent that can advocate and protect the rights of the Series A Holders with respect to such matters is the Series A Holders. Without an official committee participating "real time" in this process, the Series A Holders will not be an informed participant in the process and will be forced, after the fact, to litigate the factual and legal basis for any negotiated deal. Chapter 11 does not envision such a process, and the United States Trustee should not condone such a process.

The Series A Holders are entitled to a statutory committee that can represent all Series A Holders, that is fully informed as to the underlying facts, and the alternatives available, and that is authorized to participate directly in the process of deciding the best strategy that maximizes value.

A "new money" proposal has been presented to the Debtors that envisions creditors being made whole, existing equity interests being exchanged for new equity interests, and new equity interests being issued in exchange for new money. See Friedman's Inc., Schedule 13D, filed February 2, 2005 (copy attached hereto as Exhibit "14"). It is imperative that an Official Series A Common Stock Committee be promptly appointed so that it may participate directly in the negotiation of such a "new money" proposal.

This request is made on behalf of Regis and Yacktman, holders of approximately 1,180,000 shares of Series A Common Stock, representing 6.7% percent of the current issued and outstanding shares of Series A Common Stock. Regis and Yacktman believe that holders of approximately 30% of the shares of Series A Common Stock support this request. Regis and Yacktman are further informed that other Series A Holders are willing to serve on an Official Series A Common Stock Committee, and that other Series A Holders are willing to receive confidential information. Accordingly, there is a sufficient known number of holders to serve on an Official Series A Common Stock Committee.

At the commencement of these Chapter 11 Cases, the Debtors operated approximately 650 retail jewelry stores. The worst performing stores were apparently the subject of the Debtors' first two motions to reject certain real property leases, and the Debtors are now embarking upon closing 165 stores and selling the related inventory and fixtures. If concluded, these store closings and sales should substantially reduce the Debtors' outstanding indebtedness and improve the Debtors' operating performance. As such, it is the view of Regis and Yacktman that the Debtors have a substantial ongoing core portfolio of stores.

The Debtors have indicated that historical financial statements will be restated and the Debtors have not published current complete financial information for some time. However, the Debtors' "Exhibit "A" to Voluntary Petition" indicates that as of November 27, 2004, the Debtors had total assets of $395,897,000 and total liabilities of $215,741,000. See "Exhibit 'A' To Voluntary Petition," (copy attached hereto as Exhibit "3"). The Debtors' solvency is further evidenced by, among other indicators: (i) the Debtors' continuing operations; (ii) the Debtors' positive cash flow budgets; (iii) the Debtors' ability to attract debtor in possession financing; and (iv) the equity cushion at least $30 million enjoyed by the prepetition term lenders.

Venturi and Company LLC has, on a preliminary basis, reviewed customary valuation metrics and published financial information. Industry comparisons, historical operations, and assuming a normalized base of 481 operating stores, collectively indicate that the Debtors should generate approximately $300 million of aggregate net revenue, and $30 million of aggregate net earnings before interest, taxes, depreciation and amortization. Based upon normalized earnings and a core portfolio of 481 stores, market multiples indicate an enterprise value in excess of the Debtors' known pre petition liabilities and long-term debt (as reduced by the proceeds from the sale of the closed stores). Such an enterprise value is before taking into account additional value represented by the Debtors' accounts receivable portfolio, litigation claims, or other non-operating assets all of which further enhance the Debtors' enterprise value. A detailed examination of the Debtors' more recent operational results and projections should substantiate the view that the Debtors' enterprise value exceeds the applicable liabilities of the Debtors.

Notwithstanding the uncertainty of the chapter 11 process and the lack of current publicly available financial information, as of February 11, 2005 the public markets valued the Series A Common Stock at $28.1 million. As of September 7, 2004 the Debtors apparently agreed with the "market" that the Debtors' equity is "in the money" as they represented to their lenders that they were solvent. See, Friedman's Inc., Form 8-K, filed on September 13, 2004 (annexing the Second Amended and Restated Credit Agreement, dated as of September 7, 2004) (excerpt attached hereto as Exhibit "16").

This is not a case where the evidence unquestionably supports the conclusion that the Debtors appear to be hopelessly insolvent. Rather, to the contrary, all data points indicate that the Series A Common Stock has substantial equity value. See, e.g., Exide Tech. v. Wisconsin Inv. Board, 2002 U.S. Dist. LEXIS 27210, *5 - *6 (D. Del. 2002) (evidence of solvency based upon cash flow was consistent with the debtors' expectation to reorganize and not liquidate and supported the finding that the debtors were not hopelessly insolvent).

Section 1102(a)(2) of the Bankruptcy Code states that:

11 U.S.C. Section 1102(a)(2). The Office of the United States Trustee and bankruptcy courts have routinely exercised their discretion and appointed equity committees. Applicable case law teaches that in considering the appointment of an equity committee the following criteria govern:

a. the case is large and complex;

b. the stock is widely held and actively traded;

c. the interests of equity holders are not adequately represented;

d. the debtor is not hopelessly insolvent;

e. the timing of the request is appropriate; and

f. the cost of adequate representation does not outweigh the benefits.

See, e.g., In re Williams Communications Corp., Inc., 281 B.R. 216, 220-21 (Bankr. S.D.N.Y. 2002) (identifying relevant factors and concluding that the debtors at issue appeared to be hopelessly insolvent); Exide Tech. v. Wisconsin Inv. Board, 2002 US Dist. LEXIS 27210,*4-*6 (D. Del. 2002) (appointing equity committee over objections of debtor and official unsecured creditors' committee); In re Kalvar Microfilm, 195 B.R. 599, 600-01 (Bankr. D. Del. 1996) (reviewing various factors and noting that the request for an equity committee was late in the process and adequate representations was provided by a holder of 30% of the debtor's preferred stock); In re Wang Lab., Inc., 149 B.R. 1 (Bankr. D. Mass. 1992) (over objection of United States Trustee and unsecured creditors' committee, equity committee appointed in order to provide adequate representation); In re Evans Products Co., 58 B.R. 572 (S.D. Fla. 1985)(reversing Bankruptcy Court's refusal to allow equity committee to retain financial advisor); and In re Beker Indus. Corp., 55 B.R. 945 (Bankr. S.D.N.Y. 1995 (equity committee appointed; case was large and complex).

The Debtors currently operate approximately 650 retail jewelry stores in 22 states. As of the Petition Date, Regis and Yacktman understand that the Debtors had existing prepetition debt comprised of approximately $13 million owed to certain revolver banks, approximately $68 million owed to certain term lenders, approximately $60-70 million owed to vendors (some of which debt may be secured); other unsecured liabilities; and two series of common stock. The Debtors are subject to ongoing investigations by the SEC, and the Department of Justice, and are defendants in litigation brought by various states' attorneys general and class action plaintiffs. To conduct these Chapter 11 Cases, the Debtors have employed: (i) bankruptcy counsel (who received in excess of $4.0 million as a prepetition retainer); (ii) local counsel; (iii) a financial advisor (seeking to be paid at the hourly rates plus a consummation fee of $1.5 million); (iv) an investment banker (seeking to be paid $125K per month plus a success fee); and (v) a variety of ordinary course professionals.

By all indicia, these Chapter 11 Cases are large and complex.

There are issued and outstanding 17,616,818 shares of Series A Common Stock. As of September 16, 2003, the Debtors reported that there were 66 record holders of the Series A Common Stock. See "Supplemental Prospectus" dated September 19, 2003 (excerpt attached hereto as Exhibit "2"). The number of beneficial holders is, no doubt, substantially greater. Further, the actual number of holders of the Series A Common Stock varies as the Series A Common Stock trades on the "pink sheets."

As discussed above, the holder of the Series B Common Stock holds the corporate right to elect 75% of the Board of Directors of Friedman's Inc. The Series A Holders have not had a direct, let alone controlling, voice in the Debtors' prepetition activities.

With the commencement of these Chapter 11 Cases, the Debtors are effectively operated by management, subject to Bankruptcy Court review. The Debtors, having not yet acknowledged that they are solvent, are focused on operations, and are managing the day-to-day administration of the chapter 11 process. In this context, the Debtors have not demonstrated that they are a single minded advocate for equity holders. Indeed, a prime example of the fact that the Debtors cannot be relied upon to represent exclusively the interest of equity holders is the release provided in the Bar Date Order in connection with the payment of the Prepetition Revolving Lenders.

Similarly, it cannot be said that the Official Committee of Unsecured Creditors is an advocate for the Series A Holders. As constituted, the Official Committee of Unsecured Creditors includes numerous trade creditors, many of whom may hold secured claims under the Debtors' prepetition vendor program. The perspective of equity holders is very different than a trade vendor's focus on payment of prepetition secured and unsecured claims and having an ongoing customer with whom to sell goods. In short, the Creditors' Committee's fiduciary duties run to creditors not equity holders.

Only the appointment of an Official Series A Common Stock Committee will provide adequate representation of all of the Series A Holders. Regis and Yacktman, combined with other holders of Series A Common Stock who support this request, are among the largest holders of Series A Common Stock.

The Series A Holders have a meaningful stake in these Chapter 11 Cases and are unquestionably a party in interest with standing to obtain information and be heard. Unless there is an Official Series A Common Stock Committee representing all Series A Holders, the Series A Holders will be required to seek information on an individual and formal basis, and participate on an individual and formal basis, as to each and every issue that arises in the Chapter 11 Cases. To be sure, the Debtors' estates will bear the unavoidable and significant costs of having the Debtors' professionals, the prepetition and postpetition lenders' professionals and the Creditors' Committee's professionals, review and address such matters.

In contrast, with an Official Series A Common Stock Committee, information can be shared on a confidential basis with a representative committee and on a basis that avoids the cost, delay and distraction of formal discovery, and issues can be identified, negotiated, and resolved through discussion and negotiation, as opposed to motions and objections.

It is reasonably anticipated that an Official Series A Common Stock Committee will require lead bankruptcy counsel and a qualified financial advisor. However, the costs of such professionals will by statute have to be reasonable, and in comparison to the other professionals already employed in the cases, are likely to be comparatively modest. If Stutman, Treister & Glatt is lead bankruptcy counsel for such a committee, the hourly rate for the lead counsel is less than that of Debtors' lead bankruptcy counsel and the Creditors' Committee's lead bankruptcy counsel. If Venturi & Company LLC is appointed as a financial advisor, it will be seeking a modest monthly fee, and any success fee will be entirely dependent upon the recovery to the Series A Holders and will be payable in part in kind. In contrast, Kroll Zolfo Copper seeks a $1.5 consummation fee, and Jefferies & Co., Inc. has indicated it will be seeking a success fee in the range of $3.0 million.

It is important to note that having made the showing for why adequate representation of the Series A Holders is required, "the burden shifts to the opponent of the motion to show that the cost of the additional committee sought significantly outweighs the concern for adequate representation" Beker 55 B.R. at 949. The consideration of cost, however, is not controlling: "Cost alone cannot, and should not, deprive public debt and security holders of representation." In re McLean Indus., Inc., 70 B.R. 852, 860 (Bankr. S.D.N.Y. 1987). In the context of the size and complexity of these Chapter 11 Cases, and given the interests of the Series A Holders in these Chapter 11 Cases and the bankruptcy court process for reviewing fees, the additional cost of an equity committee does not outweigh the chapter 11 demand for informed representation and participation.

As discussed above, based upon all available data points, the Debtors are solvent. Examination of the Debtors' most recent operating performance and projections is likely to confirm this position. Without sufficient proof that the Debtors are hopelessly insolvent, based upon the known facts, the presumption of solvency favors the Series A Holders. See Wang Lab., 149 B.R. at 3 ("In any event, the debtor remains in operation at present, albeit at a loss, and is not hopelessly insolvent, which is the Emons test."); In re Emons Indus., Inc., 50 B.R. 692, 694 (Bankr. S.D.N.Y. 1985) ("generally no equity committee should be appointed when it appears that a debtor is hopelessly insolvent").

The cost and uncertainty of the chapter 11 process is one that can negatively impact value. These Chapter 11 Cases should not linger as operations are sound, and following completion of the anticipated store closings and the Mothers' Day holiday, exiting chapter 11 need not be delayed. In fact, there appears to be little reason why these Chapter 11 Cases cannot be completed during the Summer of 2005. The issues that do impact on a plan of reorganization: (i) exit financing; (ii) treatment of vendor and other creditor claims; and (iii) resolution of (or mechanisms for resolving) existing litigation are now ripe for investigation, analysis and discussion. Indeed, the Debtors have been presented with at least one draft term sheet outlining a rights offering that preserves value for the Series A Holders and provides the foundation for a plan of reorganization. See Exhibit "14" annexed hereto. The Debtors' Schedules (providing information as of the petition date) will have little direct relevance to the Debtors' ongoing stores, inventory, accounts receivable, and fixtures, as these assets are directly affected by ongoing operations and store closings. Similarly, the Debtors' Schedules will have little direct relevance to the Debtors' postpetition liabilities, or the prepetition liabilities as affected by the First Day Motions, the debtor in possession financing implemented in these Chapter 11 Cases, and store sales. Rather, it is current information regarding operations and projections, exit financing required, and resolution of pending litigation and investigations, that bear most significantly upon the Debtors' reorganization. An Official Series A Common Stock Committee should be appointed now to be part of the current dialogue and information flow regarding these critical issues in order that it can timely and effectively participate in plan negotiations.

Without "official status," the Series A Holders will be relegated, on an individual basis, to initiating formal discovery to obtain information and responding to filed motions. More importantly, however, is that without an "official" role in the Chapter 11 Cases, the Series A Holders will no doubt be excluded from "the behind-the-scenes work which is so essential to a successful chapter 11 case." In re Dow Corning Corp., 194 B.R. 121, 146 (Bankr. E.D. Mich. 1996) ("[T]en months into the case and after repeated assurances by the Debtor that it would consult with the official committees and the unofficial groups such as the physicians, all parties agree that the physicians have never yet been a party to discussions. Although their legal positions are defended in court, the behind-the-scenes work which is so essential to a successful chapter 11 case is stymied by the physicians' lack of official committee status.").

* * *

Congress provided for the appointment of an equity committee "to counter the natural tendency of a debtor in distress to pacify large creditors, with whom the debtor would expect to do business, at the expense of small and scattered investors, " S. Rep. No. 989, 95^th Cong. 2d Sess. 10 (1978), and to be a participant in negotiating a plan of reorganization. H.R. Rep. No. 595, 95^th Cong., 1^st Sess. 401 (1977).

Based upon the foregoing, on behalf of Regis and Yacktman, the undersigned respectfully requests that the Office of the United States Trustee appoint an Official Series A Common Stock Committee.

MHG:lp

Encls.

cc: John William (Jack) Butler, Jr., Esq. (w/encls.)
Glen B. Rice, Esq. (w/encls.)
Robert E. Dye, Jr. (w/encls.)
Matt Venturi (w/encls.)
Eric D. Winston, Esq. (i/o) (w/encls.)
Christine M. Pajak, Esq. (i/o) (w/encls.)