Friedman’s Inc. shareholders today removed John E. Cay as company director, an act that was quickly followed by the resignation of Richard Cartoon, Friedman’s recently appointed CFO. The shareholders also named five new board members.

The announcements were made in two company statements issued less than three hours apart. The company, which is under federal investigation for alleged fraud, gave no reason for Cartoon’s resignation.

In the first statement, Friedman’s announced that the holders of issued and outstanding shares of Class B Common Stock executed a “Consent to Corporate Action” that amended some of the company’s bylaws and changed the makeup of the board of the directors:

1. Amends and restates the Bylaws of the Company; and

2. Appoints Alan L. Stanzler, Thaddeus S. Jaroszewicz, Joseph D.McSweeney, Peggy J. Brockschmidt, and Allan M. Edwards as board directors.

The company said the action by Class B stockholders is to rescind the amendments to the company bylaws passed by the board of directors on April 29 and filed with the Securities and Exchange Commission on May 4. The statement did not disclose which bylaws were rescinded, saying only that it will be filed today with the Securities and Exchange Commission.

This was followed by a statement announcing Cartoon’s sudden resignation.

It is the latest in a number of personnel changes since the company revealed on Nov. 11 that it was under investigation by the SEC and the U.S. Dept. of Justice. On March 24, Friedman’s said that it received a “Wells Notice” from the staff of the SEC’s Division of Enforcement stating that the SEC may seek a permanent injunction, disgorgement with prejudgment interest and civil money penalties.

Cartoon was hired Dec. 8, 2003, to replace Victor M. Suglia, who was placed on a leave of absence when the federal investigations were announced. Cartoon had been hired four days earlier as an interim financial consultant.

Other moves include:

* On Dec. 24, 2003, Sterling Brinkley resigned as an executive officer and member of Friedman’s board of directors. On Dec. 4, he was replaced as chairman and CEO of the company.

* On Dec. 4, 2003, Bradley J. Stinn, Friedman’s long-time CEO, resigned from the company and the board. On the same day, Robert Cruickshank was named non-executive chairman of the board; and a new “Office of the Chairman” was created, comprising Cruickshank, Cartoon, and Douglas Anderson, president and COO.

* On Nov. 11, 2003, Friedman’s disclosed that the SEC and the Justice Dept. had expanded a fraud investigation to include a review of its doubtful-accounts allowance. The investigation seeks to determine whether Friedman’s may have issued materially false or misleading disclosures for the period Jan. 1, 2000, through 2003.

The SEC, Justice Department investigations, and an internal audit by the company (also announced in November) are related to an Aug. 13, 2003, lawsuit filed against Friedman’s Inc., Crescent Jewelers (Friedman’s West Coast affiliate), Whitehall Jewellers, and several other companies. The suit was filed by receivables factoring company Capital Factors for alleged misrepresentation of the accounts receivable of Cosmopolitan Gem Corp., a Bangkok jewelry maker and a former vendor of Friedman’s. Because of the misrepresentation, claims Capital Factors, it continued to advance funds to Cosmopolitan. Capital Factors also alleged they improperly made payments on accounts with Cosmopolitan directly to Cosmopolitan.

Capital Factors is suing for at least $30 million and punitive damages.

Friedman’s Inc., a leading specialty retailer of fine jewelry, operates 711 stores in 20 states.

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