Friedman's Files Reorganization

SAVANNAH, GA-Bankrupt jewelry retailer Friedman’s Inc. has filed a reorganization plan that the company hopes will position it to emerge from Chapter 11 in November, before the holiday shopping season, and return to profitability by fiscal 2007.

Under the plan, filed with the United States Bankruptcy Court for the Southern District of Georgia, Savannah Division, all existing equity interest in the company will be cancelled when the Savannah, GA-based jeweler emerges from Chapter 11.

The reorganization plan, a result of extensive negotiations between Friedman’s and Harbert Distressed Investment Master Fund, Ltd., the proposed plan investor in Friedman’s chapter 11 cases, also grants Harbert nearly all of the new equity interests in the reorganized company, except for management grants.

The company, the third largest specialty retailer of jewelry in the United States, said a Creditors’ Committee, which serves as fiduciary for unsecured creditors, has not yet agreed to the plan’s proposed treatment of unsecured creditors and intends to oppose the plan as currently filed. The Committee may also pursue other forms of relief that may have an adverse affect on the company, Friedman’s said in a statement announcing its reorganization efforts.

A hearing on the disclosure statement filed in connection with the plan is scheduled for Sept. 7 in federal Bankruptcy Court.

This week’s bankruptcy filing wasn’t the first time the financially troubled company has been involved in litigation. Friedman’s, which currently operates more than 650 stores in 20 states in the Southeast, Southwest and Midwest, is the subject of several lawsuits, including a Class Action suit filed in 2003 with the federal Securities and Exchange Commission. That suit alleged that the company misstated its earnings for the fiscal years 2000 through 2002, and the first three quarters of 2003. The suit was filed three days after the company announced it had placed its Chief Financial Officer “on leave” as a result of a government investigation.

The suit was the second filed that year against Friedman’s. In an earlier class action, the company was charged with discrimination and maintaining a hostile work environment. The Florida Attorney General’s Office also is investigating claims against the firm.