FRIEDMANS INC, 10-Q, 1997-08-14

FRIEDMANS INC
10-Q, 1997-08-14
JEWELRY STORES

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<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(MARK ONE)

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Quarterly Period Ended June 30, 1997

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Transition Period From to
----------- ------------
Commission file number 0-22356

FRIEDMAN'S INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

Delaware 58-2058362
- ---------------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identificaiton No.)

4 West State Street
Savannah, Georgia 31401 31401
- ---------------------------------------- -------------------------------
(Address of principal executive offices) (Zip Code)

(912) 233-9333
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports,) and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.

The number of shares of Registrant's Class A Common Stock $.01 par value per
share, outstanding at August 11, 1997 was 13,101,896.

The number of shares of Registrant's Class B Common Stock $.01 par value per
share, outstanding at August 11, 1997 was 1,492,401.

<PAGE> 2

Index

FRIEDMAN'S INC.

Part I. Financial Information

Item 1. Condensed Consolidated Financial Statements (Unaudited)

Income Statements - Three and nine months ended June 30, 1997 and 1996

Balance Sheets - June 30, 1997 and 1996 and September 30, 1996

Statements of Cash Flows - Nine months ended June 30, 1997 and 1996

Notes to Condensed Consolidated Financial Statements

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations

Part II. Other Information

Item 1. Legal Proceedings

Item 6. Exhibits and Reports on Form 8-K

Signatures

<PAGE> 3

FRIEDMAN'S INC.
Condensed Consolidated Income Statements
(Unaudited)

(Dollars in thousands, except per share and share amounts)

<TABLE>
<CAPTION>
Three months ended Nine months ended
June 30 June 30
----------------------------- -----------------------------
1997 1996 1997 1996
------------- ------------- ------------ -----------

<S> <C> <C> <C> <C>
Revenues:
Net merchandise sales ........................... $ 45,828 $ 38,788 $ 171,784 $ 137,331
Finance charges and other ....................... 7,714 5,858 22,037 17,220
--------- --------- --------- ---------
Total revenues ........................... 53,542 44,646 193,821 154,551

Operating Costs and Expenses:
Cost of goods sold including occupancy,
distribution and buying ...................... 24,191 19,657 87,125 68,881
Selling, general and administrative ............. 18,558 14,591 57,086 44,308
Long term incentive program ..................... -- 2,100 -- 2,100
Provision for doubtful accounts ................. 6,808 4,050 18,786 12,555
--------- --------- --------- ---------
49,557 40,398 162,997 127,844
--------- --------- --------- ---------
Operating income before depreciation
and amortization ................................ 3,985 4,248 30,824 26,707

Depreciation and amortization ........................ 1,091 846 3,014 2,358
--------- --------- --------- ---------
Income from operations ............................... 2,894 3,402 27,810 24,349

Interest expense (income) ............................ (174) 656 (516) 2,352
--------- --------- --------- ---------
Income before income taxes and
extraordinary item .............................. 3,068 2,746 28,326 21,997
Income tax expense ................................... 1,181 1,070 10,906 8,578
--------- --------- --------- ---------
Income before extraordinary item ..................... 1,887 1,676 17,420 13,419

Extraordinary item (net of applicable
income taxes of $1,085) ......................... -- 1,696 -- 1,696
--------- --------- --------- ---------
Net income (loss) .................................... $ 1,887 $ (20) $ 17,420 $ 11,723
========= ========= ========= =========

Per share of common stock:
Income before extraordinary
item net of taxes ............................... $ 0.13 $ 0.13 $ 1.20 $ 1.07
Extraordinary item net of tax ........................ -- $ (0.13) -- $ (0.13)
--------- --------- --------- ---------
Earnings per share ................................... $ 0.13 $ 0.00 $ 1.20 $ 0.94
========= ========= ========= =========

Weighted average shares .............................. 14,627 13,027 14,477 12,524

Number of stores open ................................ 359 277 359 277
</TABLE>

See notes to condensed consolidated financial statements

<PAGE> 4

FRIEDMAN'S INC.
Condensed Consolidated Balance Sheets
(Dollars in thousands, except per share and share amounts)

<TABLE>
<CAPTION>
June 30 September 30
------------------------- ------------

1997 1996 1996
---------- --------- -----------
(Unaudited) (Note)
<S> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents ................................... $ 1,044 $ 16,478 $ 19,962
Accounts receivable, net .................................... 79,977 64,964 63,221
Inventories, at cost ........................................ 77,957 63,554 64,307
Other current assets ........................................ 2,890 3,585 3,011
-------- -------- --------
Total current assets ..................................... 161,868 148,581 150,501

Equipment and improvements, net .................................. 27,595 21,025 23,481
Note receivable from related party ............................... 25,000 -- --
Tradename rights, net ............................................ 7,023 -- --
Other assets ..................................................... 1,580 1,528 1,632
-------- -------- --------
Total assets ............................................. $223,066 $171,134 $175,614
======== ======== ========

Liabilities and Equity
Current Liabilities:
Accounts payable ............................................ $ 21,021 $ 14,687 $ 21,052
Accrued liabilities ......................................... 8,825 9,723 7,208
Income taxes payable ........................................ 439 1,734 --
-------- -------- --------
Total current liabilities ................................ 30,285 26,144 28,260
-------- -------- --------

Bank debt ........................................................ 20,384 -- --
Other long-term obligation ....................................... 2,813 -- --

Stockholders' Equity:
Preferred stock, par value $.01, 10,000,000 shares authorized
and none issued .......................................... -- -- --
Class A common stock, par value $.01, 25,000,000 shares
authorized, 13,101,896 issued and outstanding ............ 131 125 125
Class B common stock, par value $.01, 7,000,000 shares
authorized, 1,492,401 issued and outstanding ............. 15 18 18
Additional paid-in-capital .................................. 121,902 116,840 117,096
Retained earnings ........................................... 47,536 28,007 30,115
-------- -------- --------
Total stockholders' equity .......................... 169,584 144,990 147,354
-------- -------- --------
Total liabilities and equity ......................... $223,066 $171,134 $175,614
======== ======== ========
</TABLE>

Note: The balance sheet at September 30, 1996 has been derived from the
audited financial statements at that date but does not include all the
information and footnotes required by generally accepted accounting
principles for complete financial statements.

See notes to condensed consolidated financial statements

<PAGE> 5

FRIEDMAN'S INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)

<TABLE>
<CAPTION>
Nine months ended
June 30
---------------------------
1997 1996
---------- -----------
<S> <C> <C>
Operating Activities:
Net income ................................................................. $ 17,420 $ 11,723
Adjustments to reconcile net income to cash
used in operating activities:
Depreciation and amortization ......................................... 3,014 2,358
Provision for doubtful accounts ....................................... 18,786 12,555
Changes in assets and liabilities:
Increase in accounts receivable .................................... (35,541) (32,499)
Increase in inventories ............................................ (13,650) (18,379)
Decrease in other assets ........................................... 153 1,203
Increase in accounts payable and
accrued liabilities ............................................ 1,587 6
Increase in income taxes payable ................................... 439 1,734
-------- --------
Net cash used in operating
activities ................................................. (7,792) (21,299)
Investing Activities:
Additions to equipment and improvements ............................... (7,069) (6,434)
Investment in related party ........................................... (25,000) --
-------- --------
Net cash used in investing
activities ................................................. (32,069) (6,434)
Financing Activities:
Proceeds from (repayment of) bank borrowings and subordinated debt .... 20,384 (22,369)
Proceeds from employee stock purchases and options exercised .......... 559 348
Net proceeds from public offering ..................................... -- 57,954
-------- --------
Net cash provided by financing
activities ................................................. 20,943 35,933
-------- --------
Increase (decrease) in cash and cash equivalents ........................... (18,918) 8,200
Cash and cash equivalents, beginning of period ............................. 19,962 8,278
-------- --------
Cash and cash equivalents, end of period ................................... $ 1,044 $ 16,478
======== ========
</TABLE>

See notes to condensed consolidated financial statements

<PAGE> 6

FRIEDMAN'S INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

June 30, 1997

NOTE A - BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three month and nine
month periods ended June 30, 1997 are not necessarily indicative of the results
that may be expected for the year ending September 30, 1997. For further
information, refer to the financial statements and footnotes thereto included in
the Friedman's Inc. annual report on Form 10-K for the year ended September 30,
1996.

NOTE B - FINANCING ARRANGEMENTS

On March 31, 1997, 8,475 shares of the Company's Class B Common Stock
were converted into Class A Common Shares.

On July 14, 1997, the Company completed a new $80 million, two year
revolving credit facility maturing on April 30, 1999. The borrowing rate for the
new credit facility is either the bank's offered rate plus 0.875% or at the
Company's option, LIBOR plus 0.875%. The new facility contains certain financial
covenants and is secured by inventory and accounts receivable. See "Liquidity
and Capital Resources".

NOTE C - LONG TERM INCENTIVE PROGRAM

The Company's long term incentive program consists of loans to certain
executives, the repayment of which will be forgiven upon the attainment of
specific stock price targets. To date, 50% of the principal amount of the loans
has been forgiven. The remaining principal amount will be forgiven through 1999
if the stock price reaches targets ranging from $30.00 to $32.00, and thereafter
through 2004 if the stock price reaches targets ranging from $32.50 to $60.00.

NOTE D - SENIOR SUBORDINATED TERM LOAN

In October 1996, the Company entered into a Standby Purchase Agreement
(the "Standby Purchase Agreement") with Crescent Jewelers, a related party, and
agreed that for an initial period of up to 18 months, following the date of the
Standby Purchase Agreement, the Company would, upon Crescent's request, purchase
up to $5 million of Crescent's 10% Convertible Senior Subordinated Notes due
2006 (the "10% Notes"). During the quarter, the Company purchased $5 million
principal amount of the 10% Notes issued by Crescent pursuant to the Standby
Purchase Agreement. This increased the Company's total notes receivable from
Crescent to $25 million, including a $20 million senior secured convertible
note.

<PAGE> 7

NOTE E - SETTLEMENT OF LITIGATION

During the quarter, a lawsuit filed by A.A. Friedman's Co. ("AAFCO")
against the Company in October 1994 alleging service mark infringement, unfair
competition and false advertising was settled. As a result, the Company acquired
all the rights of AAFCO to the "Friedman's Jewelers" tradename and AAFCO will
change its name on all of its stores to "Marks & Morgan" by no later than
September 30, 1997. In connection with the tradename rights acquisition, the
Company issued to AAFCO 250,000 shares of its Class A Common Stock on May 16,
1997. The shares were placed in escrow and will become vested incrementally as
AAFCO changes the names of its store locations between May 16, 1997 and
September 30, 1997. The Company also agreed that for each share placed in escrow
the Company would pay AAFCO an amount by which the actual stock price at June
30, 1999 (the date of settlement for the escrow) is lower than the guaranteed
stock price of $28.25 per share (guaranteed price). The Company has agreed to
make certain advance payments to AAFCO to fund the guaranteed stock price of
$28.25 per share until final settlement is made on June 30, 1999. The Company
recorded an asset related to the tradename rights acquisition of approximately
$7.1 million (guaranteed amount) with additions to paid in capital of $4.2
million (which represents the closing market price of the stock on the date of
issue) and to other long term obligation of $2.9 million. The $2.9 million other
long term obligation will be adjusted based on changes in the Company's stock
price between the date of issuance, May 16, 1997, and the final settlement date,
June 30, 1999. At June 30, 1999, any remaining amount of this obligation, if
any, will be paid in cash by the Company.

<PAGE> 8

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Total revenues, comprised of net merchandise sales and finance charges
and other revenues, increased 19.9% to $53.5 million for the three months ended
June 30, 1997, from $44.6 million for the three months ended June 30, 1996. Net
merchandise sales increased $7.0 million, or 18.1% for the three months ended
June 30, 1997 compared to the same period in the prior year. Of the $7.0 million
increase in net merchandise sales, $8.8 million of the increase was attributable
to new stores offset by a $1.8 million, or 4.7% decrease in comparable store
sales. The increases in total revenues and net merchandise sales during the
three months ended June 30, 1997 were attributable to a 29.6% increase in the
number of stores in operation to 359 stores at June 30, 1997 from 277 stores at
June 30, 1996, offset by the decrease in comparable store sales. For the nine
months ended June 30, 1997, total revenues increased 25.4% to $193.8 million
from $154.6 million for the nine months ended June 30, 1996. Net merchandise
sales increased approximately $34.5 million, or 25.1%, for the nine months ended
June 30, 1997, compared to the same period in the prior year. Of the $34.5
million increase in net merchandise sales, $34.9 million of the increase was
attributable to sales in new stores offset by a $0.4 million, or 0.3% decrease
in comparable store sales. Increases in total revenues and net merchandise sales
for the nine month period ended June 30, 1997 compared with the same period in
the prior year were attributable to an increase of 82 net new stores during the
period offset by the decrease in comparable store sales. Finance charges and
other revenues increased 31.7% and 28.0% for the three month and nine month
periods ended June 30, 1997, respectively, compared to the same periods in the
prior year principally due to higher sales levels.

Cost of goods sold, including occupancy, distribution and buying, for
the three months ended June 30, 1997 was $24.2 million, or 52.8% of net
merchandise sales, compared with $19.7 million or 50.7% of net merchandise sales
for the same period in the prior year. This increase as a percent of net
merchandise sales was the result of increases in both the merchandise cost of
sales and occupancy costs compared to the same period in 1996. For the nine
months ended June 30, 1997, cost of goods sold, including occupancy,
distribution and buying, was $87.1 million, or 50.7% of net merchandise sales
compared with $68.9 million, or 50.2% of net merchandise sales for the same
period in the prior year. This increase as a percent of net merchandise sales
was primarily the result of increased merchandise cost of sales compared to the
same period in 1996.

Selling, general and administrative expenses increased to $18.6 million
for the three months ended June 30, 1997, from $14.6 million for the three
months ended June 30, 1996. Selling, general and administrative expenses
increased to 34.7% of total revenues for the three months ended June 30, 1997
from 32.7% of total revenues in the comparable period in the prior year. This
increase was attributable primarily to increases in general expenses and
advertising costs as a percentage of total revenues slightly offset by a
decrease in payroll expenses as a percentage of total revenues. For the nine
months ended June 30, 1997, selling, general and administrative expenses
increased 28.8% to $57.1 million, from $44.3 million for the nine months ended
June 30, 1996. Selling, general and administrative expenses increased to 29.5%
of total revenues from 28.7% of total revenues in the comparable period in the
prior year. This increase was attributable primarily to increases in advertising
costs as a percentage of total revenues.

The Company's long term incentive program consists of loans to certain
executives, the repayment of which will be forgiven upon the attainment of
specific stock price targets. For the quarter and nine months ended June 30,
1996, the second and third price targets were met ($25.00 and $27.50 per share,
respectively), triggering compensation expense of $2.1 million. No such expense
occurred in the comparable 1997 period.

The provision for doubtful accounts increased 68.1% to $6.8 million for
the three months ended June 30, 1997, from $4.1 million for the same period in
the prior year. For the nine months ended June 30, 1997, the provision for
doubtful accounts increased 49.6% to $18.8 million from $12.6 million during the
same period in the prior year. The increase in the provision for doubtful
accounts for the three and nine months ended June 30, 1997 was attributable to
higher charge-offs as a percent of credit revenues, as well as increased credit
revenues and accounts receivable during these periods due to the increase in the
number of stores in operation.

<PAGE> 9

Depreciation and amortization expenses increased 29.0% to $1.1 million
for the three months ended June 30, 1997 compared to $0.8 million for the three
months ended June 30, 1996. For the nine months ended June 30, 1997,
depreciation and amortization expenses increased 27.8% to $3.0 million compared
with $2.4 million during the same period in the prior year. These increases were
the result of increased capital expenditures associated with new and existing
stores and additional amortization expense associated with the acquisition of
all the rights of AAFCO to the "Friedman's Jewelers" tradename.

Interest income for the three months ended June 30, 1997 totaled
$174,000 compared to interest expense of $656,000 for the same period in the
prior year. For the nine months ended June 30, 1997, interest income totaled
$516,000 compared to interest expense of $2.4 million for the same period in the
prior year. This change was due to the repayment of subordinated debt with the
proceeds from the offering of 2.2 million shares of Class A Common Stock in June
1996, as well as interest earned on the Company's loan to Crescent Jewelers in
October 1996. See "Liquidity and Capital Resources".

As a result of the factors above, net income before extraordinary
item, increased 12.6% to $1.9 million for the three months ended June 30, 1997
from $1.7 million for the same period in the prior year. Earnings per share for
the third fiscal quarter was $0.13 per share on a significantly larger average
share base compared to earnings per share of $0.13 per share excluding the
extraordinary item for the comparable period in 1996. Weighted average shares
outstanding increased 12.3% to 14,627,000 for the three months ended June 30,
1997 from 13,027,000 at the same period in the prior year. For the nine months
ended June 30, 1997, net income excluding the extraordinary charge, increased
29.8% to $17.4 million from $13.4 million for the same period in the prior
year. Earnings per share for the nine months ended June 30, 1997 increased
12.1% to $1.20 per share on a significantly larger average share base compared
to earnings per share of $1.07 per share excluding the extraordinary item for
the comparable period in 1996. Weighted average shares outstanding increased
15.6% to 14,477,000 at June 30, 1997 from 12,524,000 at June 30, 1996.

Early repayment of the Company's 14.25% Senior Subordinated Debt during
the quarter ended June 30, 1996 resulted in the payment of a make whole amount
of $2.8 million which was recorded as an extraordinary item, net of applicable
income taxes of $1.1 million. Given the effect of the extraordinary charge,
earnings per share for the third fiscal quarter were $0.13 per share versus
$0.00 per share in the comparable prior year period. For the nine months ended
June 30, 1997, earnings per share were $1.20 per share versus $0.94 per share
in the comparable prior year period.

LIQUIDITY AND CAPITAL RESOURCES

On October 16, 1996, the Company invested $20 million in Crescent
Jewelers Inc. and its wholly owned subsidiary Crescent Jewelers (together
"Crescent"), a privately-owned West-coast based specialty retailer of fine
jewelry currently operating 126 stores. The investment is in the form of a $20
million convertible senior subordinated secured loan. The three-year loan is
junior to Crescent's $50 million bank-provided credit facility, bears a similar
rate of interest to such facility and is secured, after the credit facility, by
all of Crescent's assets. The loan is convertible into a minority equity
position. On June 12, 1997, the Company purchased $5 million principal amount of
10% senior subordinated convertible notes issued by Crescent pursuant to a
previously entered into standby purchase commitment. This brings the Company's
total aggregate investment in Crescent to $25 million.

Until July 14, 1997, the Company maintained similar but distinct credit
facility agreements with two banks, which in the aggregate totaled $55.0
million. Interest on both lines was payable quarterly at the prime lending rate
less 0.4% or alternatively, at the bank's CD rate plus 1.95%, or LIBOR plus
1.25% per annum. Both agreements provided for certain financial covenants and
were secured by inventory and accounts receivable. The total amounts outstanding
under the lines were $20.4 million at June 30, 1997. On July 14, 1997, the
Company completed a new $80.0 million, two year revolving credit facility
maturing on April 30, 1999, with its existing banks and includes the addition of
a third institution. The borrowing rate for the new credit facility is either
the bank's offered rate plus 0.875% or at the Company's option, LIBOR plus
0.875%.

<PAGE> 10

On March 31, 1997, 8,475 shares of the Company's Class B Common Stock
were converted into Class A Common Shares.

On May 19, 1997, the Company acquired all the rights of A.A. Friedman's
Co., Inc. of Augusta, Georgia ("AAFCO") to the "Friedman's Jewelers" tradename.
The agreement provides that the Company pay AAFCO 250,000 shares of its Class A
Common Stock and that AAFCO will realize a minimum of $7,062,500 upon the sale
of such shares during or prior to June 1999. Prior to the sale of the shares,
the Company has agreed to make cash advance payments to AAFCO over the next ten
months through an escrow arrangement which would pre-fund the minimum sale
proceeds.

<PAGE> 11

Part II. Other Information

Item 1. Legal Proceedings

As previously reported, on October 19, 1994, A.A. Friedman's Co., Inc.
("AAFCO") filed suit against the Company, alleging, inter alai, that
the Company's use in certain geographic areas of the service mark
"Friedman's Jewelers," a mark also used by AAFCO in connection with
retail jewelry stores, constitutes service mark infringement, unfair
competition, and false advertising. A.A. Friedman's Co., Inc. v.
Friedman's Inc., Civil Action File No. CV-194-154, United States
District Court for the Southern District of Georgia, Augusta Division.
On May 16, 1997, the Company and AAFCO entered into an agreement (the
"Agreement") under which the Company acquired all the rights of AAFCO
to the "Friedman's Jewelers" tradename. Pursuant to the Agreement, the
Company and AAFCO filed a Stipulation of Dismissal with Prejudice on
May 23, 1997. Under the Agreement, AAFCO will change its corporate name
and the name of 110 stores from "Friedman's Jewelers" to "Marks &
Morgan" by no later than September 30, 1997 and the Company may enter
AAFCO locations as "Friedman's Jewelers" as early as January 1, 1998
with complete access to all locations by January 1, 1999. The Agreement
provides that the Company will pay AAFCO 250,000 shares of its Class A
Common Stock and that AAFCO will realize a minimum of $7,062,500 upon
the sale of such shares during or prior to June 1999. Prior to the sale
of the shares, the Company has agreed to make advance cash payments to
AAFCO over the next ten months through an escrow arrangement which
would pre-fund the minimum sale proceeds.

Item 6. Exhibits and Reports on Form 8-K

<PAGE> 12

EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit
Number

<S> <C>
3.1 Registrant's Certificate of Incorporation, as amended (incorporated by
reference from Exhibit 4(a) to the Registrant's Registration Statement
on Form S-8 (File No. 333-17755) dated March 21, 1997).

3.2 Bylaws of the Registrant (incorporated by reference from Exhibit 3.2 to
the Registrant's Registration Statement on Form S-1 (File No.
33-67662), and amendments thereto, originally filed on August 19,
1993).

4.1 See Exhibits 3.1 and 3.2 for provisions of the Certificate of
Incorporation and Bylaws of the Registrant defining rights of holders
of Class A and Class B Common Stock of the Registrant.

4.2 Form of Class A Common Stock certificate of the Registrant
(incorporated by reference from Exhibit 4.2 to the Registrant's
Registration Statement on Form S-1 (File No. 33-67662), and amendments
thereto, originally filed on August 19, 1993).

10.1 Agreement by and between A.A. Friedman Co., Inc., and its Affiliates
and the Company.

10.2 Note Purchase Agreement, dated as of June 12, 1997, by and among
Crescent Jewelers, and each of the Purchasers named on Schedule I
thereto (which includes the Company), relating to the issuance $8
million in aggregate principal amount of 10% Convertible Senior
Subordinated Notes due October 15, 2006.

10.3 10% Convertible Senior Subordinated Note due October 15, 2006, dated
June 12, 1997, made by Crescent Jewelers in favor of the Company in the
original principal amount of $5 million.

10.4 Second Amended and Restated Loan Agreement, dated July 14, 1997, by and
between First Union National Bank and the Company.

10.5 Second Amended and Restated Loan Agreement, dated July 14, 1997, by and
between NationsBank, N.A. and the Company.

10.6 Loan Agreement, dated as July 14, 1997, by and between ABN AMRO Bank
N.V. and the Company.

10.7 Second Amended and Restated Intercreditor and Security Agreement, dated
July 14, 1997, among NationsBank, N.A. as collateral agent, First Union
National Bank, NationsBank, N.A. ABN AMRO Bank N.V. and the Company.

10.8 Security Agreement, dated July 14, 1997, between the Company and ABN
AMRO Bank N.V.

11 Statement RE: Computation of Per Share Earnings

27 Financial Data Schedule (for SEC use only)
</TABLE>

<PAGE> 13

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on August 14, 1997.

FRIEDMAN'S INC.

BY: /s/ Victor M. Suglia
-------------------------------------------------
Victor M. Suglia
Senior Vice President and Chief Financial Officer

<PAGE> 1
EXHIBIT 10.1

AGREEMENT

This Agreement is made and entered into this 16th day of May, 1997,
(the "Effective Date") by and between A.A. Friedman Co., Inc., a Georgia
corporation with its headquarters located at 2559 Washington Road, Augusta,
Georgia 30904, and its Affiliates (such company, including its Affiliates,
hereinafter "AAFCO"), and Friedman's Inc., a Delaware corporation with its
headquarters located at 4 West State Street, Savannah, Georgia 31401 ("FI").

WHEREAS, AAFCO and FI (collectively, the "Parties," or singularly a
"Party") have been engaged in litigation, namely Civil Action No. CV-194-154 in
the Southern District of Georgia, Augusta Division (the "Civil Action"); and

WHEREAS, the Parties desire to resolve the Civil Action amicably;

WHEREAS, the Parties to this Agreement recognize that the underlying
purpose of the Agreement is for AAFCO to convey by assignment all of its rights
in the Friedman's Marks (as defined below) to FI, for AAFCO to discontinue its
use of the Friedman's Marks as provided in this Agreement and in consideration
thereof for FI to pay AAFCO 250,000 shares of the Class A common stock of FI,
$.01 par value per share (the "Class A Common Stock") under circumstances
pursuant to which AAFCO will realize a minimum of $7,062,500 on the terms set
forth in this Agreement; and

WHEREAS, it is the intention of the Parties to continue their
long-standing respective businesses after AAFCO converts to "Marks & Morgan;"
and

WHEREAS, it is recognized that the Parties intend both during and
after the period in which the name change and assignment of the Friedman's Marks
takes place to fulfill their undertakings in this Agreement in good faith; and

WHEREAS, the Parties understand that they will be competing vigorously
in the same areas, that each may open new stores in locations not covered by
Section 4 of this Agreement, that each may open new stores which do not utilize
the Friedman's Marks (as defined herein) in any location notwithstanding this
Agreement, and that the parties may

<PAGE> 2

engage in national or regional mass media advertising utilizing their respective
trademarks except as provided by this Agreement.

NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth below and other good and valuable consideration, the receipt and
sufficiency of which are acknowledged, the Parties agree as follows:

1. ASSIGNMENT AND RIGHTS. AAFCO hereby irrevocably assigns and conveys
to FI all of AAFCO's rights, title and interest in and to service marks, trade
names, and trademarks comprised in whole or in part of the words "Friedman's" or
"Fried" or which contain "Fried" or any phonetic or visual equivalent as a
component of a word, name or sign, and any other name or mark confusingly
similar to "Friedman's," including, but not limited to, the mark "Friedman's
Jewelers" (hereinafter referred to collectively as the "Friedman's Marks"), and
including all registrations and applications for the Friedman's Marks filed in
or with the United States Patent and Trademark Office, any foreign trademark
office or any state or other governmental agency, and the goodwill associated
with the Friedman's Marks. Notwithstanding the foregoing, and except for the
transfer of the Friedman's Marks and associated goodwill necessary to assign the
Friedman's Marks to FI, AAFCO shall not assign or convey to FI AAFCO's heritage
or any tangible or intangible assets associated with its business, nor shall FI
have any rights, title or interest in or to AAFCO's continuing business and
goodwill apart from that associated with the Friedman's Marks. AAFCO warrants
and represents that (i) it or its predecessors have used the mark Friedman's
Jewelers continuously for at least fifty (50) years; (ii) there are no liens,
security interests or encumbrances on the Friedman's Marks assigned herein;
(iii) AAFCO has not previously assigned or licensed to any entity any of its
rights or interest to the Friedman's Marks; (iv) AAFCO is currently solvent; and
(v) no shareholder or Affiliate of AAFCO or progeny of Abraham A. Friedman owns
or may properly claim any right, title or interest in the Friedman's Marks
except as previously disclosed to FI. AAFCO does not warrant or represent the
nature or scope of its rights in or to the

<PAGE> 3

Friedman's Marks, but to the extent AAFCO does own any rights in or to the
Friedman's Marks, it is AAFCO's intention by this Agreement to assign to FI any
and all rights AAFCO owns.

2. AAFCO'S USE OF THE FRIEDMAN'S MARK. During the period beginning at
any time after the Effective Date and ending September 30, 1997 (the "Conversion
Period"), AAFCO shall at its own cost and expense change the signage on and in
all of its existing store locations currently operating under the mark
"Friedman's Jewelers" from "Friedman's Jewelers" to "Marks & Morgan." To the
extent that AAFCO cannot, after good faith efforts, change the signage for any
specific store location to "Marks & Morgan," AAFCO shall promptly give notice to
FI of the location of the store and the name and mark other than "Marks &
Morgan" to which AAFCO proposes to change, and once converted (or, in the
alternative, once all signs utilizing the Friedman's Marks are removed and the
store is closed) such store shall be deemed converted for purposes of this
Agreement so long as the name and mark used for such store is not the Friedman's
Mark. As of the Effective Date, AAFCO shall cease all use of the Friedman's
Marks, or any other name or mark confusingly similar to any of the Friedman's
Marks, except: FI grants to AAFCO a non-exclusive, non-transferable license to
use the Friedman's Marks in those geographic areas set forth in sections 4a
through 4d (and the accompanying Exhibits A through D) as follows:

A. During the Conversion Period: (i) in the same manner and fashion in
which AAFCO has used the Friedman's Marks in the past; (ii) to inform
the public or other third parties of AAFCO's conversion to the Marks &
Morgan mark; and (iii) to inform the public or other third parties
about AAFCO's history and previous use of the Friedman's Marks;

B. Until December 25, 1997 (i) to inform the public or other third
parties of AAFCO's conversion to the Marks & Morgan mark; and (ii) to
inform the

<PAGE> 4

public or other third parties of AAFCO's history and previous use of
the Friedman's Marks.

C. Until January 1, 1998, with respect to AAFCO stores located in the
geographic areas described in Exhibit A, and until June 30, 1998 with
respect to AAFCO stores located in the geographic areas described in
Exhibits B, C and D, through direct mailings limited to the customers
included on AAFCO's then-current Active Credit and Cash Customer
Mailing List (the "Mailing List") who have had transactions with the
store locations of AAFCO listed in Exhibits A, B, C and D to make the
connection between Marks & Morgan and AAFCO's previous use of
"Friedman's Jewelers" through a simple message that affirms the
equivalence of the Friedman's Marks and the "Marks & Morgan" mark;
provided however, that AAFCO warrants and represents that the Mailing
List is comprised solely of persons who have had transactions with
AAFCO and that currently the entire Mailing List is comprised of
approximately 500,000 names.

Provided however, that AAFCO's use of the Friedman's Marks pursuant to this
Agreement shall not (i) injure the reputation of the Friedman's Marks; (ii)
refer to FI or (iii) refer to the Civil Action, except that AAFCO may refer to
the Civil Action during the Conversion Period so long as in doing so AAFCO does
not injure the reputation of the Friedman's Marks. Notwithstanding anything in
this Agreement to the contrary, FI agrees that (A) it will not, and will not
authorize any third party to, use "A.A. Friedman," "A. Friedman," "Abe
Friedman," or "Abraham Friedman" as a name or mark in connection with its
business or operations; and (B) it will not authorize any third party to use the
Friedman's Marks in advertising or promotional activities in the geographic
areas specified in Exhibits A through D beyond the right to which FI may use the
Friedman's Marks in advertising or promotional activities in such geographic
areas pursuant to this Agreement.

<PAGE> 5

Notwithstanding the foregoing, AAFCO shall not be restricted from using
"Friedman's" in a non-trademark, non-competitive manner with financial
institutions, landlords, vendors, debtors (for collection purposes only, and
only as to those debtors whose indebtedness was incurred under the Friedman's
Mark and is in arrears) or governmental authorities in referring to the owners
of AAFCO or the fact that AAFCO changed its name, and nothing more, and store
employees may orally respond in response to specific oral in-store inquiries,
including telephone inquiries, from customers that AAFCO has changed its name to
"Marks & Morgan" and that the ownership of AAFCO remains the same.

FI agrees that AAFCO may use the Friedman's Marks as part of the corporate
name of A.A. Friedman Co., Inc. until September 30, 1997.

3. ASSIGNMENT OF LEASES TO FI. Upon execution of this Agreement, FI shall
have the option until September 30, 1997, exercisable on at least thirty (30)
days notice, to assume the leases for AAFCO's store locations in Bainbridge Mall
in Bainbridge, Georgia, and the Southland Mall in Memphis, Tennessee, together
with all fixtures, including jewelry display cases and security systems, and FI
shall have the right to open and operate stores under the Friedman's Marks in
these two locations immediately thereafter. FI shall have no obligation to any
of AAFCO's vendors or employees to continue or maintain any existing
relationships, and FI shall not assume any other obligation of AAFCO's except as
described above. However, FI shall be obligated to pay its pro rata share of
personal property taxes or any other governmental taxes or assessments.

4. LIMITATIONS ON FI'S RIGHT TO USE THE FRIEDMAN'S MARKS. FI shall be free,
and shall have the right in its sole discretion to use the Friedman's Marks, (A)
to open new store locations under the Friedman's Marks, or convert existing
stores not currently operating under the Friedman's Marks to store locations
operating under the Friedman's Marks, in any geographic location and at any time
except as provided in this Section, and (B) to engage in advertising and
promotional activities related to (i) any store locations

<PAGE> 6

operating under the Friedman's Marks in existence at the Effective Date, (ii)
any store locations not covered by subsections a. through d. of this Section,
and (iii) any store locations covered by subsections a. through d. of this
Section. Notwithstanding the foregoing, FI (x) shall not advertise or promote
directly or through third parties FI's plans to open a store or stores utilizing
the Friedman's Marks, and (y) shall not advertise or promote any connection
between the Friedman's Marks and Regency Jewelers (or any other jewelry store
marks), in either case, in locations covered by subsections a. through d. of
this Section prior to the dates upon which FI is entitled to enter into the
geographic areas described in Section 4 and the accompanying Exhibits A through
D. Subject to the foregoing, FI agrees as follows:

a. In the geographic areas set forth in Exhibit A, FI will not locate,
and will not authorize a third party to locate, any business involving jewelry
items operating under or utilizing the Friedman's Marks until on or after
January 1, 1998.

b. In the geographic areas set forth in Exhibit B, FI will not locate,
and will not authorize a third party to locate, any business involving jewelry
items operating under or utilizing the Friedman's Mark until on or after June
30, 1998.

c. In the geographic areas set forth in Exhibit C, and for the time
periods set forth therein, FI will not locate, and will not authorize a third
party to locate, any business involving jewelry items operating under or
utilizing the Friedman's Marks.

d. In the geographic areas set forth in Exhibit D hereto, FI will not
locate, and will not authorize a third party to locate, any business involving
jewelry items operating under or utilizing the Friedman's Marks until on or
after January 1, 1999.

Notwithstanding the above, FI may use the name Friedman's Inc. in credit
documentation at stores in locations operating under the "Regency" or other mark
in the manner presently used or to the minimum extent required by law.

5. PLANNING ACTIVITIES. FI may undertake any activities not directed
to the consuming public in preparation for opening store locations under the
Friedman's Marks in

<PAGE> 7

any geographic area in which it is then prohibited from locating or converting a
store pursuant to subsections a. through d. of Section 4, immediately following
execution of this Agreement, including but not limited to entering into leasing
arrangements.

6. CONSIDERATION.

a. Issuance of Shares. Two Hundred and Fifty Thousand (250,000) shares
(the "Shares") of Class A Common Stock shall be issued by FI as of the date of
this Agreement in the name of Bear, Stearns & Co. Inc. for the benefit of the
beneficiaries of the escrow and placed into escrow within five business days
with Morgan Schiff & Co., Inc. ("MSC") and Kilpatrick Stockton LLP ("KS," and
collectively with MSC, the "Escrow Agents") pursuant to and in accordance with
the terms of that certain Escrow Agreement attached hereto as Exhibit E (the
"Escrow Agreement").

b. Vesting of Shares or Proceeds Therefrom. For all purposes in this
Section 6, the Shares, or the proceeds from the sale of such Shares if they have
been sold prior to vesting pursuant to Section 6.c. below, shall vest in four
equal installments of 62,500 Shares, or the proceeds attributable thereto, on
each of the four dates on which FI receives a Conversion Notification (each of
such four dates hereinafter a "Vesting Date"); provided, however, that no
Shares, or the proceeds from the sale of such Shares, shall vest after September
30, 1997, except that if the good faith failure to achieve the conversion of the
final 25% of its store locations on or prior to September 30, 1997 relates to
not more than three (3) stores, AAFCO shall send a Conversion Notification to FI
which also includes the three or less store locations not yet converted and
AAFCO shall have until October 30, 1997 to convert such stores and provide FI
with a final Conversion Notification upon the receipt of which the final
installment of Shares, or proceeds from the sale of such Shares, shall vest. In
determining whether Shares or the proceeds attributable to the sale of Shares
shall vest on each Vesting Date, the Escrow Agents shall look first to any
unvested Shares remaining in escrow as of the Vesting Date and they shall first
be deemed vested, and, to the extent there are no unvested Shares remaining in
escrow, or an

<PAGE> 8

insufficient number of unvested Shares to satisfy the installment to be vested,
the Escrow Agents shall look second to any unvested proceeds remaining in escrow
as of the Vesting Date and they shall next be deemed vested. For examples of how
this Section works in conjunction with the rest of Section 6, see Exhibit F.

c. Sale of Shares.

(1) Timing. All of the Shares shall be held by the Escrow Agents until
March 31, 1999, at which time any vested Shares remaining in escrow shall
be sold by MSC as an Escrow Agent with such sale or sales to be completed
on or before June 30, 1999; provided, however, that FI may, at any time and
from time to time, instruct MSC, as an Escrow Agent, to sell all or a
portion of the Shares provided that the aggregate amount per share, net of
any underwriting commissions or brokers fees and all other expenses of
sale, provided by the sale of such Shares together with any payment by FI
to KS, as an Escrow Agent, in immediately available funds , and available
for allocation pursuant to Section 6.e., is equal to or greater than
$30.00. At the same time as FI shall instruct MSC to sell all or a portion
of the Shares hereunder, but in no event later than twenty four hours prior
to any such sale of Shares, FI shall provide notice of such proposed sale
in a direct oral communication with a responsible officer of AAFCO, or if
unable to contact such responsible officer, FI shall provide such notice to
KS.

(2) Identification of Shares Sold. Each sale of Shares by the Escrow
Agents shall be deemed to be a sale of any unvested Shares remaining in
escrow as of the date of sale, and, to the extent there are no unvested
Shares remaining in escrow, or the number of Shares sold exceeds such
number of unvested Shares, the sale of Shares shall be a sale of any vested
Shares remaining in escrow as of the date of sale. For examples of how this
Section works in conjunction with the rest of Section 6, see Exhibit F.

<PAGE> 9

(3) Unvested Shares. Any unvested Shares remaining in escrow as of
October 31, 1997 shall be promptly distributed to FI.

d. Escrow Advance Payment. FI has agreed to make certain advance payments
to AAFCO by funding the escrow upon the following terms:

(1) Conversion Advance Payments. Three business days after receiving
notification of the conversion(s) from AAFCO, FI shall pay to KS, as an
Escrow Agent, in immediately available funds for further distribution to
AAFCO an amount equal to $16.00 per share for each Share vesting on such
Vesting Date which has not previously been sold pursuant to Section 6.c.
above (any such per share amount, together with any per share amount paid
pursuant to Section 6.d.(2) below is hereinafter referred to as the "Escrow
Advance Payment" with respect to such Shares).

(2) Final Advance Payment. On March 31, 1998, FI shall pay to KS, as
an Escrow Agent, in immediately available funds for further distribution to
AAFCO an amount equal to $12.25 per share for each vested Share which has
not previously been sold pursuant to Section 6.c. above and remains in
escrow as of that date.

(3) Recision, Suspension and Refund of Advances. Notwithstanding the
provisions of paragraphs (1) and (2) above, if AAFCO has not completed the
conversion of 100% of its store locations as provided in Section 2 hereof
on or prior to September 30, 1997, all amounts advanced to AAFCO under this
Section 6.d. shall be promptly refunded (without interest) to the Escrow
Agents who shall promptly distribute such refund to FI, and no further
amounts shall be advanced by FI pursuant to this Section 6.d., except that
if the good faith failure to achieve the conversion of the final 25% of its
store locations on or prior to September 30, 1997 relates to not more than
three (3) stores, AAFCO shall send a Conversion Notification to FI which
also includes the three or less store locations not yet

<PAGE> 10

converted and AAFCO shall have until October 30, 1997 to convert such
stores and provide FI with a final Conversion Notification upon the receipt
of which FI shall pay such amounts due AAFCO under subsection (1) above,
and failing receipt of such final Conversion Notification by October 30,
1997, all amounts advanced to AAFCO under this Section 6.d. shall be
promptly refunded (without interest) to the Escrow Agents who shall
promptly distribute such refund to FI, and no further amounts shall be
advanced by FI pursuant to this Section 6.d.

e. Proceeds from the Sale of Shares.

(1) Allocation of Net Proceeds. The net proceeds from each
sale of the Shares by the Escrow Agents and any amounts paid to KS, as an
Escrow Agent, into escrow by FI pursuant to Section 6.c.(1) shall be
allocated as follows (For examples of how this Section works in conjunction
with the rest of Section 6, see Exhibit F):

(i) First, AAFCO shall be allocated the amount, if
any, equal to the product of (a) the number of Shares sold,
and (b) the amount by which $28.25 (the "Deficiency
Guarantee") exceeds the per share Escrow Advance Payments, if
any, attributable to such Shares which was paid to AAFCO
pursuant to Section 6.d. above and not thereafter refunded by
AAFCO pursuant to Section 6.d.;

(ii) Second, to the extent any amounts remain, FI
shall be allocated the amount, if any, equal to the aggregate
Escrow Advance Payments, if any, attributable to such Shares
paid to AAFCO pursuant to Section 6.d. above and not
thereafter refunded by AAFCO pursuant to Section 6.d.; and

(iii) Third, AAFCO shall be allocated any remaining
amounts.

<PAGE> 11

(2) Deficiency Guarantee. At the time of settlement for
each sale of Shares, FI shall also pay to KS, as an Escrow Agent, in
immediately available funds for further allocation to AAFCO an amount, if
any, equal to the product of (a) the number of Shares sold, and (b) the
amount by which the Deficiency Guarantee exceeds the sum of (x) the per
share Escrow Advance Payments attributable to such Shares which was paid
to AAFCO pursuant to Section 6.d. above and not thereafter refunded by
AAFCO pursuant to Section 6.d, and (y) any amounts allocated to AAFCO
pursuant to Section 6.e.(1)(i) above with respect to such Shares.

(3) Distribution of Net Proceeds and Deficiency
Guarantee. For examples of how this Section works in conjunction with
the rest of Section 6, see Exhibit F.

(i) All amounts allocated to AAFCO pursuant to the
provisions of Section 6.e.(1) and (2) above shall be
distributed to AAFCO by the Escrow Agents on the later of
(a) one business day following the settlement relating to
such sale of Shares, or (b) such date as the proceeds of the
Shares to which such sale relates are deemed to be vested
pursuant to Section 6.b. above; provided, however, that if
FI shall not have received a Conversion Notification that
AAFCO completed the conversion of 100% of its store
locations pursuant to Section 2 hereof on or prior to
September 30, 1997, no further amounts attributable to
unvested Shares shall be distributed pursuant to this
paragraph (3), except that if the good faith failure to
achieve the conversion of the final 25% of its store
locations on or prior to September 30, 1997 relates to not
more than three (3) stores, AAFCO shall send a Conversion
Notification to FI which also includes the three or less
store locations not yet converted and AAFCO shall have until
October 30, 1997 to convert such stores and provide FI with
a final Conversion Notification upon the receipt of which FI
shall notify the

<PAGE> 12

Escrow Agents to distribute all amounts allocated to AAFCO
pursuant to Section 6.e.(1) and (2), and failing receipt of
such final Conversion Notification by October 30, 1997, no
further amounts attributable to unvested Shares shall be
distributed pursuant to this paragraph (3).

(ii) All amounts, if any, allocated to FI pursuant
to the provisions of Section 6.e.(1) above shall be
distributed to FI by the Escrow Agents one business day
following the settlement relating to such sale of Shares.

(iii) Any and all unvested proceeds remaining in
escrow as of October 31, 1997 shall be distributed to FI by
the Escrow Agents.

7. FI'S REGISTRATION OF THE FRIEDMAN'S MARKS. AAFCO agrees to
cooperate and assist, at FI's expense, with (i) FI's registration of the
Friedman's Marks with the U.S. Patent and Trademark Office or with any state,
foreign or other governmental agency, and (ii) any other filings with state,
foreign or governmental agencies in which AAFCO's consent is required, including
but not limited to execution of the Assignment attached hereto as Exhibit G.
AAFCO further agrees that FI's use of the Friedman's Marks and AAFCO's use of
the Friedman's Marks are in connection with goods and services which are
substantially similar, and that AAFCO will, at FI's expense, if called upon to
do so with respect to administrative proceedings or challenges by or actions
against third parties, provide testimony or evidence to support the validity of
AAFCO's assignment of the Friedman's Marks to FI.

8. ENFORCEMENT AGAINST THIRD PARTIES. AAFCO agrees and
acknowledges that nothing in this Agreement shall prevent FI from enforcing its
rights in and to the Friedman's Marks against third parties in any geographic
location at any time, in FI's sole discretion, and, until June 30, 1999, AAFCO
agrees to cooperate and assist FI in such actions, at FI's expense.

<PAGE> 13

9. DISMISSAL OF CIVIL ACTION. Upon execution of this Agreement, both
Parties agree to dismiss with prejudice all claims and counterclaims asserted
against the other in the Civil Action, with each party to bear its own costs.

10. NO ADMISSION OF LIABILITY. Neither Party admits liability to the
other in connection with any of the claims or counterclaims asserted in the
Civil Action, and nothing in this Agreement shall be construed as an admission
by either Party of unlawful or otherwise actionable conduct on its part.

11. DOCUMENTS. All documents produced to a Party by the other Party
during the course of the Civil Action shall be returned to the producing Party
or shall be destroyed within 30 days after execution of this Agreement. If
destroyed, the Party destroying the documents shall issue to the other Party a
signed statement affirming that all documents have been destroyed and the manner
in which the documents were destroyed.

12. RELEASE. Each Party, for itself, its parents, affiliated and
associated companies, and each of their owners, directors, officers, attorneys,
agents, employees, successors and assigns irrevocably and unconditionally
releases, acquits and forever discharges the other Party and its parents,
affiliated and associated companies, and each of their owners, directors,
officers, attorneys, agents, employees, successors and assigns from any and all
claims, liabilities, obligations, demands, causes of action, damages, costs,
losses, debts and expenses (including without limitation attorneys' fees) of
whatever kind or nature, in law or in equity, asserted and/or raised or which
could have been raised against the other Party in the Civil Action.

13. NO RELIANCE ON REPRESENTATIONS. Each Party represents and
acknowledges that in executing this Agreement, it does not rely and has not
relied on any representation or statement made by the other Party or by the
other Party's agents, representatives or attorneys with regard to the subject
matter, basis or effect of this Agreement, except for representations set forth
in this Agreement.

<PAGE> 14

14. AGREEMENT BINDING. This Agreement shall be binding upon and inure
to the benefits of the Parties and their respective shareholders, successors,
affiliates, subsidiaries, officers, directors, agents, and assigns.

15. RIGHT TO CURE. Except for the payment of funds due AAFCO, the
delivery of FI Stock to AAFCO pursuant to this Agreement, the regulatory filings
associated with the change of AAFCO's corporate name and, subject to the
provisions of Section 6.b., Section 6.d.(3) or Section 6.e.(3)(i), the
conversion of AAFCO's stores, for which time is of the essence, in the event of
any nonwillful breach of this Agreement by either Party, the nonbreaching Party
shall be required to send written notice to the breaching Party advising that
Party of the nature of its breach. Until March 31, 1998, the breaching Party
shall have seven (7) business days from the notice as provided in Section 16 to
cure or remedy its breach (the "Cure Period"). If the breaching Party fails to
cure or remedy its breach within the Cure Period, the non-breaching Party shall
be entitled to seek any and all remedies authorized by this Agreement or by law
or in equity. Prior to instituting any legal action as a result of an alleged
breach, an officer of the party alleging breach shall personally communicate
with a responsible officer representing the alleged breaching party in an
attempt to resolve the matter amicably. It is not the intention of the parties
to view isolated, de minimis violations of the terms of this Agreement as an
actionable breach.

16. NOTICES. All notices, consents, requests, and demands to or upon
the respective Parties hereto to be effective shall be in writing and, unless
otherwise expressly provided herein, shall be deemed to have been duly given or
made (a) on the date delivered in person, (b) on the date transmitted by
facsimile, if sent by 5:00 P.M., Eastern Time, and confirmation of receipt
thereof is reflected or obtained, or (c) on the date received if sent by
first-class U.S. Mail, Federal Express or other nationally recognized overnight
courier service or overnight express U.S. Mail, with service charges or postage
prepaid. In each case (except for personal delivery) such notices, requests,
demands, and

<PAGE> 15

other communications shall be sent to a Party at its address or facsimile number
as follows, or as otherwise designated by the Party by notice in accordance
herewith:

To AAFCO: Joseph B. Scott
A.A. Friedman Co., Inc.
2559 Washington Road
Augusta, Georgia 30904
Facsimile: 706-737-0528

with a copy to: David M. Zacks
Miles J. Alexander
Kilpatrick Stockton LLP
1100 Peachtree Street
Suite 2800
Atlanta, Georgia 30309
Facsimile: 404-815-6555

To FI: Bradley J. Stinn
Friedman's Inc.
Four West State Street
Savannah, GA 31401
Facsimile: 510-835-0906

with a copy to: Martin J. Elgison
Alston & Bird LLP
1201 West Peachtree Street, N.W.,
Suite 4200
Atlanta, GA 30309-3424
Facsimile: 404-881-7777

17. ENTIRE AGREEMENT. This Agreement, along with all Exhibits,
including the attached Escrow Agreement, contains the entire understanding and
complete agreement of the Parties with respect to the subject matter of this
Agreement, and all understandings and agreements, if any, previously reached
between the Parties are merged into this Agreement. No amendment or modification
of this Agreement shall be valid or binding upon the Parties hereto unless made
in writing and executed by the Parties.

18. HEADINGS. The headings contained in this Agreement are for
reference only and shall not affect the meaning of any of the provisions of this
Agreement.

<PAGE> 16

19. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same instrument.

20. GOVERNING LAW; JURISDICTION. This Agreement is made and entered
into in the State of Georgia, and this Agreement shall be governed by, and its
terms and conditions construed in accordance with, applicable common law and
statutes of the State of Georgia, without giving effect to the conflict of law
rules of that State. Any claim arising out of or relating to this Agreement or
any breach of this Agreement may be brought only in the Superior or State Court
of Fulton County, Georgia, or the United States District Court for the Northern
District of Georgia, Atlanta Division, as appropriate, and the parties consent
to the exclusive jurisdiction and venue of, and service of process by, such
courts for the purpose of resolving any such disputes.

21. NO KNOWLEDGE OF PRIOR USES. AAFCO represents that its officers,
directors and attorneys have no knowledge of any third party's use of the
Friedman's Marks prior to 1926.

22. NO ABANDONMENT. AAFCO agrees that FI's adherence to the
provisions of section 4 of this Agreement shall not be construed in any dispute
between the Parties and are not intended to be an abandonment of any rights in
or to the Friedman's Marks either owned by FI or conveyed by AAFCO to FI in this
Agreement.

23. REPRESENTATIONS AND WARRANTIES OF AAFCO AND FI. AAFCO represents
and warrants to FI as follows:

(1) Organization and Qualification. AAFCO has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the State of Georgia.

(2) Authority. The execution, delivery and performance by
AAFCO of this Agreement have been duly and validly authorized and approved by
all necessary action on the part of AAFCO. This Agreement is the legal, valid
and binding obligation of

<PAGE> 17

AAFCO enforceable against AAFCO in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and general principles of equity (whether considered
in an action at law or in equity). Neither the execution and delivery by AAFCO
of this Agreement nor the consummation by AAFCO of the transactions contemplated
hereby will (a) violate AAFCO's organizational documents, (b) to the knowledge
of AAFCO, violate any provisions of law or any order of any court or any
governmental unit to which AAFCO is subject, or by which its assets are bound,
or (c) conflict with, result in a breach of, or constitute a default under any
material indenture, mortgage, lease (except for change of name clearance),
agreement or other instrument to which AAFCO is a party or by which its assets
or properties are bound.

(3) Sophistication. AAFCO is an "accredited investor" as such
term is used under Section 4(6) of the Securities Act of 1933, as amended. AAFCO
has the knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of the Class A Common Stock; AAFCO
has the ability to bear the economic risks associated with ownership of the
Class A Common Stock; AAFCO has the capacity to protect its own interests in
connection with the transactions contemplated by this Agreement; and AAFCO has
had an opportunity to obtain the financial and other information from the
Company as it deems necessary or appropriate in connection with evaluating the
merits of the Class A Common Stock.

(4) Ownership of the Stores. A.A. Friedman Co., Inc. owns,
whether through fee simple title or leasehold interest, all the stores operated
by AAFCOas of the Effective Date.

<PAGE> 18

FI represents and warrants to AAFCO as follows:

(1) Organization and Qualification. FI has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the State of Delaware.

(2) Authority. The execution, delivery and performance by FI
of this Agreement have been duly and validly authorized and approved by all
necessary action on the part of FI. This Agreement is the legal, valid and
binding obligation of FI enforceable against FI in accordance with its terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and general principles of equity (whether
considered in an action at law or in equity). Neither the execution and delivery
by FI of this Agreement nor the consummation by FI of the transactions
contemplated hereby will (a) violate FI's organizational documents, (b) to the
knowledge of FI, violate any provisions of law or any order of any court or any
governmental unit to which FI is subject, or by which its assets are bound, or
(c) conflict with, result in a breach of, or constitute a default under any
material indenture, mortgage, lease, agreement or other instrument to which FI
is a party or by which its assets or properties are bound.

(3) Authorized Stock. The Shares have been duly authorized and
when issued and delivered in accordance with this Agreement, will be duly
authorized, validly issued and nonassessable, and will conform to the
description thereof contained in FI's filings with the Securities and Exchange
Commission.

24. DEFINITIONS.

"Affiliate" of any specified person means (i) any other person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified person or (ii) any other person who is a
director or executive officer of (a) such specified person or (b) any person
described in the preceding clause (i). For purposes of this definition,
"control" (including, with correlative meanings, the terms

<PAGE> 19

"controlling," "controlled by" and "under common control with"), as used with
respect to any person, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of such
person, whether through the ownership of voting securities, by agreement or
otherwise.

"Conversion Notification" means one of four written certificates of an
executive officer of AAFCO certifying that AAFCO has completed the conversion of
25%, 50%, 75% or 100%, respectively, of its store locations which are operating
under the Friedman's Marks as provided in Section 2 hereof and including a list
of such stores and their geographic location.

25. CERTAIN RECAPITALIZATIONS. In the event of any stock split, stock
dividend consolidation, reorganization, recapitalization, combination of shares
or other change with respect to Class A Common Stock that becomes effective
during the term of this Agreement, the Shares subject to this Agreement shall be
automatically and appropriately adjusted, as shall any and all references herein
to a specific number of shares of Class A Common Stock or references herein to
prices, advances or any other per share amount.

26. SECURITY AGREEMENT.

(1) AAFCO hereby pledges, hypothecates, assigns, transfers, sets over
and delivers unto the Escrow Agents for the benefit of FI, and grants to the
Escrow Agents for the benefit of FI a security interest in, all of AAFCO's
right, title and interest in, to and under the following (collectively, the
"Pledged Collateral"): (a) all of the vested Shares (as defined in Section 6
hereof); (b) any cash or additional securities or other property at any time and
from time to time receivable or otherwise distributable in respect of, in
exchange for, or in substitution of, any of the vested Shares; and (c) any and
all products and proceeds of any of the foregoing, together with and all other
rights, titles, interests, powers, privileges and preferences pertaining to said
property.

(2) The security interest created hereby is granted to the Escrow
Agents for the benefit of FI, to secure :(i) the obligations of AAFCO, if any,
to refund Escrow

<PAGE> 20

Advance Payments pursuant to Section 6.d.(3); and (ii) the right, if any, of FI
to an allocation and distribution of net proceeds from the sale of Shares
pursuant to Section 6.e.(1)(ii), Section 6.e.(3)(ii) and Section 6.e.(3)(iii),
respectively (subsections (i) and (ii) of this Section 26(2) are hereinafter the
"Secured Obligations").

(3) AAFCO hereby represents and warrants to the Escrow Agents and FI
as follows:

(i) The correct corporate name of AAFCO is set forth in the first
paragraph of this Agreement. The chief executive office and principal place
of business of AAFCO and the location of the AAFCO's books and records
relating to the Pledged Collateral are located at 2559 Washington Road,
Augusta, , Richmond County, Georgia 30904. The Social Security number, or
the Internal Revenue Service taxpayer identification number, as applicable,
of AAFCO is 58-0524325.

(ii) AAFCO has the power and authority to pledge the Pledged
Collateral in the manner hereby done or contemplated and will defend its
title or interest thereto or therein against any and all liens (other than
the lien created by this Agreement), however arising, of all persons.

(4) AAFCO agrees that, until this Agreement has terminated in
accordance with its terms, any additional shares delivered to the Escrow Agent
in accordance with Section 1.5 of the Escrow Agreement shall be additional
Pledged Collateral and shall be subject to the lien of, and the terms and
conditions of, this Agreement.

(5) For purposes of this Section 26 of the Agreement, "Event of
Default" shall mean:

(i) AAFCO shall (i) commence a voluntary case under the Bankruptcy
Code of 1978, as amended or other federal bankruptcy law (as now or
hereafter in effect); (ii) file a petition in respect of AAFCO seeking to
take advantage of any other laws, domestic or foreign, relating to
bankruptcy,

<PAGE> 21

insolvency, reorganization, winding up or composition for adjustment of
debts; (iii) consent to or fail to contest in a timely manner pursuant to
Rule 1011 of the Bankruptcy Code of 1978, as amended, any petition filed
against it in an involuntary case under such bankruptcy laws or other laws;
(iv) apply for or consent to, or fail to contest in a timely manner, the
appointment of, or the taking of possession by, a receiver, custodian,
trustee, or liquidator of itself or of a substantial part of its property,
domestic or foreign; (v) be unable to, or admit in writing its inability
to, pay its debts as they become due; (vi) make a general assignment for
the benefit of creditors; or (vii) make a conveyance fraudulent as to
creditors under any state or federal law;

(ii) an order for relief that is final and unappealable shall be
entered against AAFCO in any court of competent jurisdiction under the
Bankruptcy Code of 1978, as amended or other federal bankruptcy law (as now
or hereafter in effect) or under any other laws, domestic or foreign,
relating to bankruptcy, insolvency, reorganization, winding up or
adjustment of debts, or a final and unappealable order shall be entered
appointing a trustee, receiver, custodian, liquidator or the like for AAFCO
or all or any substantial part of the assets, domestic or foreign, of
AAFCO; and

(iii) any failure of AAFCO to satisfy its obligations, if any, to
refund Escrow Advance Payments pursuant to Section 6.d.(3).

(6) If an Event of Default shall have occurred, the Escrow Agents may
exercise any and all the rights and remedies of a secured party under the
Uniform Commercial Code as in effect in any applicable jurisdiction (the "Code")
and may otherwise sell, assign, transfer, endorse and deliver the whole or, from
time to time, any part of the Pledged Collateral at a public or private sale or
on any securities exchange, for cash, upon credit or for other property, for
immediate or future delivery, and for such

<PAGE> 22

price or prices and on such terms as the Escrow Agent in its discretion shall
deem appropriate.

(7) The proceeds of any sale of the whole or any part of the Pledged
Collateral, shall be applied by Escrow Agents in accordance with Section 6
hereunder.

(8) AAFCO shall take all action that may be necessary or desirable in
MSC's sole discretion, so as at all times to maintain the validity, perfection,
enforceability and priority of the Escrow Agent's security interest in the
Pledged Collateral, or to enable the Escrow Agents to exercise or enforce its
rights hereunder, including without limitation executing and delivering
financing statements, pledges, designations, notices and assignments, in each
case in form and substance satisfactory to MSC, relating to the creation,
validity, perfection, priority or continuation of the security interest granted
hereunder. AAFCO hereby authorizes the Escrow Agents to execute and file in all
necessary and appropriate jurisdictions (as determined by the Escrow Agents) one
or more financing or continuation statements in the name of AAFCO and to sign
the AAFCO's name thereto (or to file any such financing statement, document or
instrument without the signature of AAFCO to the extent permitted by applicable
law).

(9) This Agreement shall create a continuing security interest in the
Pledged Collateral and shall remain in full force and effect until it terminates
in accordance with its terms.

(10) Neither the failure on the part of the Escrow Agents to exercise,
nor the delay on their part in exercising any right, power or remedy hereunder,
nor any course of dealing between the Escrow Agents and AAFCO shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power, or remedy hereunder preclude any other or the further exercise thereof or
the exercise of any other right, power or remedy.

(11) The security interest provided for in this Section 26 shall
terminate upon the satisfaction in full of the Secured Obligations.

<PAGE> 23

(12) The parties hereto acknowledge that the security interest granted
pursuant to this Section 26 is without prejudice to the other rights of FI
pursuant to this Agreement.

27. SALE OR CHANGE IN CONTROL OF AAFCO. Prior to any sale of all or
substantially all of the assets of AAFCO, or a change in control of the voting
securities of AAFCO, if either would, in FI's reasaonble judgment, have a
material adverse effect on AAFCO's credit, AAFCO hereby agrees to provide, for
the sole benefit of FI, a letter of credit, the terms of which will provide that
FI may draw upon such letter of credit to satisfy any and all obligations of
AAFCO hereunder to refund any and all amounts paid to AAFCO as Escrow Advance
Payments.

[SIGNATURES ON NEXT PAGE]

<PAGE> 24

IN WITNESS WHEREOF, the Parties have caused this Agreement to be signed by
their duly authorized representatives as of the date first written above.

A.A. FRIEDMAN CO., INC.

By: /s/ Susan F. Morgan

Name: Susan F. Morgan

Title: Chief Executive Officer

FRIEDMAN'S INC.

By: /s/ Bradley J. Stinn

Name: Bradley J. Stinn

Title: Chairman and Chief Executive Officer

<PAGE> 1
EXHIBIT 10.2

CRESCENT JEWELERS

$8,000,000 IN AGGREGATE PRINCIPAL AMOUNT
OF
10.0% CONVERTIBLE SENIOR SUBORDINATED
NOTES DUE OCTOBER 15, 2006

---------------------------

NOTE PURCHASE AGREEMENT

---------------------------

Dated as of June 12, 1997

================================================================================

<PAGE> 2

TABLE OF CONTENTS

<TABLE>
<S> <C>
SECTION 1. ISSUANCE OF NOTES.................................................................... 1

ss.1.1 Authorization of Notes......................................................... 1

ss.1.2 Purchase and Sale of Notes..................................................... 2

ss.1.3 Use of Proceeds................................................................ 2

ss.1.4 Definitions.................................................................... 2
SECTION 2. GENERAL REPRESENTATIONS AND WARRANTIES............................................... 3

ss.2.1 Capital Stock; Subsidiaries.................................................... 3

ss.2.2 Organization and Authority..................................................... 3

ss.2.3 Business....................................................................... 3

ss.2.4 Financial Statements and Other Information; Financial Condition................ 4

ss.2.5 No Material Adverse Change..................................................... 5

ss.2.6 Licenses, Registrations, etc................................................... 5

ss.2.7 Title to Properties; Leases.................................................... 5

ss.2.8 Compliance with Other Instruments, etc......................................... 5

ss.2.9 No Materially Adverse Contracts, etc........................................... 6

ss.2.10 Compliance with Law, etc....................................................... 6

ss.2.11 Compliance with ERISA.......................................................... 6

ss.2.12 Pending Litigation, etc........................................................ 7

ss.2.13 Taxes.......................................................................... 7

ss.2.14 Holding Company Act; Investment Company Act.................................... 8

ss.2.15 No Foreign Assets Control Regulation Violation................................. 8

ss.2.16 No Margin Regulation Violation................................................. 8

ss.2.17 Outstanding Securities......................................................... 9

ss.2.18 Corporate Proceedings.......................................................... 9

ss.2.19 Consent, etc................................................................... 9

ss.2.20 No Event of Default............................................................ 9

ss.2.21 Compliance with Environmental Laws............................................. 9

ss.2.22 Full Disclosure................................................................ 10

ss.2.23 Validity of Agreements and Notes............................................... 10

ss.2.24 Labor Relations................................................................ 11

ss.2.25 Broker's or Finder's Commissions............................................... 11
</TABLE>

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<PAGE> 3
<TABLE>
<S> <C> <C> <C>
ss.2.26 Insurance...................................................................... 11

ss.2.27 Offerees....................................................................... 11
SECTION 3. REPRESENTATIONS OF THE PURCHASER..................................................... 11

ss.3.1 Investment Intent, etc......................................................... 11

ss.3.2 ERISA Representations.......................................................... 12

ss.3.3 California Corporate Securities Law............................................ 12
SECTION 4. CONDITIONS OF OBLIGATION TO PURCHASE NOTES........................................... 12

ss.4.1 Opinion of Special Counsel for You............................................. 12

ss.4.2 Opinions of Counsel for the Company............................................ 13

ss.4.3 Performance of Obligations..................................................... 13

ss.4.4 Representations True; No Event of Default...................................... 13

ss.4.5 Existing Debt Agreements....................................................... 13

ss.4.6 Conversion Agreement........................................................... 13

ss.4.7 Registration Rights Agreement.................................................. 13

ss.4.8 Legality....................................................................... 13

ss.4.9 Assignment of Private Placement Number......................................... 13

ss.4.10 Proceedings, Instruments, etc.................................................. 14
SECTION 5. EXPENSES............................................................................. 14
SECTION 6. CERTAIN SPECIAL RIGHTS............................................................... 15

ss.6.1 Home Office Payment............................................................ 15

ss.6.2 Delivery Expenses.............................................................. 15

ss.6.3 Issuance Taxes................................................................. 15

ss.6.4 Intentionally Omitted.......................................................... 15

ss.6.5 Transfer of Notes.............................................................. 15
SECTION 7. PREPAYMENTS.......................................................................... 16

ss.7.1 Optional Prepayment............................................................ 16

ss.7.2 Mandatory Offer to Prepay Notes................................................ 16
SECTION 8. REGISTRATION, EXCHANGE AND REPLACEMENT OF NOTES...................................... 18

ss.8.1 Registration................................................................... 18

ss.8.2 Exchange....................................................................... 18

ss.8.3 Replacement.................................................................... 19
SECTION 9. CERTAIN COVENANTS OF THE COMPANY..................................................... 19

ss.9.1 Maintenance of Office.......................................................... 19
</TABLE>

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<PAGE> 4

<TABLE>
<S> <C> <C> <C>
ss.9.2 Corporate Existence............................................................ 19

ss.9.3 General Maintenance of Properties and Business, etc............................ 19

ss.9.4 Inspection..................................................................... 20

ss.9.5 Compliance with Law, etc....................................................... 21

ss.9.6 Payment of Taxes and Claims.................................................... 21

ss.9.7 ERISA.......................................................................... 21

ss.9.8 Transactions with Affiliates................................................... 22

ss.9.9 Merger; Consolidation.......................................................... 22

ss.9.10 Repurchase of Notes............................................................ 23

ss.9.11 Limitations on Restricted Investments and Restricted Payments.................. 23

ss.9.12 SEC Reports.................................................................... 24

ss.9.13 Intentionally Omitted.......................................................... 24

ss.9.14 Maintenance of Independent Directors........................................... 24

ss.9.15 Limitation on Business Activities.............................................. 25

ss.9.16 Limitations on Indebtedness.................................................... 25

ss.9.17 Limitations on Capital Expenditures............................................ 26

ss.9.18 Consolidated Tangible Net Worth................................................ 26

ss.9.19 Wholly Owned Subsidiary........................................................ 26
SECTION 10. SUBORDINATION....................................................................... 27

ss.10.1 Notes Subordinated to Senior Indebtedness...................................... 27

ss.10.2 No Payment on Notes in Certain Circumstances................................... 27

ss.10.3 Notes Subordinated to Prior Payment of All Senior Indebtedness on Dissolution,
Liquidation or Reorganization of Company....................................... 28

ss.10.4 Noteholders to Be Subrogated to Rights of Holders of Senior Indebtedness ...... 29

ss.10.5 Obligations of the Company Unconditional....................................... 30

ss.10.6 Subordination Rights Not Impaired by Acts or Omissions of Company or Holders
of Senior Indebtedness......................................................... 30

ss.10.7 Section 10 Not to Prevent Events of Default.................................... 30

ss.10.8 No Fiduciary Duties Created to Holders of Senior Indebtedness.................. 31

ss.10.9 Amendment of Subordination Provisions.......................................... 31
SECTION 11. CONVERSION OF NOTES................................................................. 31

ss.11.1 Conversion Privilege........................................................... 31
</TABLE>

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<PAGE> 5

<TABLE>
<S> <C>
SECTION 12. INFORMATION TO BE FURNISHED TO NOTEHOLDERS.......................................... 31

ss.12.1 Financial Statements of the Company............................................ 31

ss.12.2 Other Information.............................................................. 32

ss.12.3 Officer's Certificates......................................................... 33

ss.12.4 Accountants' Certificates...................................................... 33
SECTION 13. DEFAULTS AND REMEDIES............................................................... 34

ss.13.1 Events of Default; Acceleration of Notes....................................... 34

ss.13.2 Default Remedies............................................................... 36

ss.13.3 Notice of Default.............................................................. 37

ss.13.4 Annulment of Acceleration of Notes............................................. 37
SECTION 14. INTERPRETATION OF AGREEMENT AND NOTES............................................... 37

ss.14.1 Definitions.................................................................... 37

ss.14.2 Directly or Indirectly......................................................... 48

ss.14.3 Accounting Terms............................................................... 48

ss.14.4 Governing Law.................................................................. 48

ss.14.5 Headings....................................................................... 48

ss.14.6 Independence of Covenants...................................................... 48
SECTION 15. MISCELLANEOUS....................................................................... 49

ss.15.1 Notices........................................................................ 49

ss.15.2 Survival....................................................................... 49

ss.15.3 Successors and Assigns......................................................... 49

ss.15.4 Amendment and Waiver........................................................... 49

ss.15.5 Counterparts................................................................... 50

ss.15.6 Reproduction of Documents...................................................... 50
</TABLE>

SCHEDULE I Purchasers of the Notes
SCHEDULE 2.7 List of Defaults on Property
SCHEDULE 2.8 List of Consents
SCHEDULE 2.12 List of Litigation
SCHEDULE 14.1-A List of Existing Loans and Investments
SCHEDULE Y Refinancing Transactions
SCHEDULE Z Disclosure Schedule
EXHIBIT A Form of Note

-4-
<PAGE> 6

CRESCENT JEWELERS
315 Eleventh Street
Oakland, California 94607

------------------------

NOTE PURCHASE AGREEMENT

------------------------

Dated as of June __, 1997

To the Purchasers of the 10.0% Convertible Senior
Subordinated Notes due October 15, 2006 of Crescent
Jewelers Named in Schedule I Hereto ("Purchasers")

Ladies and Gentlemen:

The undersigned, Crescent Jewelers, a California corporation (the
"Company"), hereby agrees with you as follows:

SECTION 1. ISSUANCE OF NOTES.

SS.1.1 AUTHORIZATION OF NOTES. (a) The Company has authorized the
issuance and sale of up to $8,000,000 in aggregate principal amount of its
Convertible Senior Subordinated Notes due October 15, 2006, substantially in the
form annexed hereto as Exhibit A (the "Notes"). Each Note shall bear interest
from the date thereof until such Note shall become due and payable in accordance
with the terms thereof and hereof (whether at maturity, by acceleration or
otherwise) at the rate of 10.0% per annum, and be payable semi-annually on each
April 1 and October 1 (each an "Interest Payment Date"), commencing October 1,
1997, and shall have a stated maturity of October 15, 2006. Interest on the
Notes shall be computed on the basis of a 360-day year of twelve 30-day months.
Each Note shall bear interest on any overdue principal, including any overdue
payment or prepayment of principal and premium, if any, and (to the extent
permitted by applicable law) on any overdue installment of interest, at the rate
of 2% per annum above the rate of interest payable at the time any such amount
shall be overdue. If the Company shall have paid any interest or premium on any
Note in excess of that permitted by law, then it is the express intent of the
Company and the holder thereof that all excess amounts previously

<PAGE> 7

collected by the Company be credited on the principal balance of the Note, and
the provisions thereof immediately be deemed reformed and the amounts thereafter
collectable thereunder reduced, without the necessity of the execution of any
new document, so as to comply with the then applicable law, but so as to permit
the recovery of the fullest amount otherwise called for thereunder.

SS.1.2 PURCHASE AND SALE OF NOTES. Subject to a Purchaser's execution
of a counterpart signature page to this Agreement and the amendment of Schedule
I hereto to set forth the aggregate principal amount of Notes to be purchased by
such Purchaser and such other information with respect to such Purchaser as is
required to be set forth on Schedule I, the Company agrees to sell to such
Purchaser, and upon and subject to the terms and conditions hereof and in
reliance upon the representations and warranties of the Company contained
herein, such Purchaser agrees to purchase from the Company, Notes in the
aggregate principal amount specified opposite such Purchaser's name in Schedule
I hereto at a purchase price equal to the principal amount thereof (the
"Purchase Price"). The Company will deliver to each Purchaser, at the offices of
Alston & Bird, 1201 West Peachtree Street, Atlanta, Georgia 30309-3424 or such
other location as the Company and such Purchaser shall agree in writing, one or
more duly executed Notes, registered in such Purchaser's name or the name of
such Purchaser's nominee, and in the aggregate principal amount specified
opposite such Purchaser's name in Schedule I hereto. The delivery of such Notes
shall be made to such Purchaser against payment by wire transfer of immediately
available funds to the account of the Company, Acct. No. ____________ at LaSalle
National Bank, 135 South LaSalle Street, Chicago, Illinois 60603, ABA
#_________, with notice of payment to _________________, in the amount of the
Purchase Price of such Notes, on the time and date of closing upon which the
Company and such Purchaser shall agree in writing (such time and date being
hereinafter called the "Closing Date"). Each Purchaser agrees that Schedule I
may be amended without such Purchaser's consent to add to such Schedule the
aggregate principal amount of Notes to be purchased by a Person becoming a
Purchaser and such other information with respect to such Person as is required
to be set forth on Schedule I. The Company agrees to deliver to each existing
Purchaser, at least 15 days prior to the issuance of any additional Notes
hereunder, written notice of such issuance, which notice shall set forth the
identity of the prospective Purchaser, the aggregate principal amount of Notes
to be issued and the proposed amendments to be made to Schedule I in connection
with such issuance.

If on a Closing Date the Company shall fail to tender the appropriate
Notes to a Purchaser as provided above in this ss.1.2, or any of the conditions
specified in Section 4 hereof shall not have been fulfilled to such Purchaser's
satisfaction, at such Purchaser's election such Purchaser shall be relieved of
all obligations under this Agreement, without thereby waiving any other rights
such Purchaser may have by reason of such failure or such nonfulfillment.

SS.1.3 USE OF PROCEEDS. The proceeds of the sale of the Notes shall be
used by the Company for general working capital purposes.

SS.1.4 DEFINITIONS. Certain capitalized terms used in this Agreement
are defined in ss.14.1 hereof; references to a "Schedule" or "Exhibit" are,
unless otherwise specified, to the Schedules and Exhibits attached to this
Agreement.

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<PAGE> 8

SECTION 2. GENERAL REPRESENTATIONS AND WARRANTIES.

The Company hereby represents and warrants to you as follows that
except as set forth in the Disclosure Schedule attached hereto as Schedule Z and
all other Schedules attached hereto:

SS.2.1 CAPITAL STOCK; SUBSIDIARIES. (a) The authorized Capital Stock
of the Company consists of 100,000 shares of common stock, $.01 par value, 1,000
of which are issued and outstanding and held by CJI, the parent company of
Company. All such outstanding shares have been validly issued and are fully
paid, nonassessable shares, and free of preemptive rights. No shares of such
common stock are held on the date hereof in the treasury of the Company. The
issuance and sale of all such shares have been in full compliance with all
applicable federal and state securities laws. There are no subscriptions,
options, warrants or calls relating to the issuance by the Company of any shares
of its Capital Stock, including any right of conversion or exchange under any
outstanding security or other instrument. To the Company's knowledge, there are
no voting trusts or other agreements or understandings with respect to the
voting of the Capital Stock of the Company. The common stock is vested with all
the voting rights in the Company. The Company is not subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire any
shares of its Capital Stock or any security convertible into or exchangeable for
any of its Capital Stock.

(b) The Company's sole Subsidiary is Diamond Insurance Company, a
Cayman Islands corporation. All of the outstanding shares of Capital Stock of
the Subsidiary have been validly issued and are fully paid and nonassessable and
are owned beneficially and of record by the Company, free and clear of any Liens
other than Liens in favor of, or for the benefit of, the holders of the
indebtedness under the Loan Agreements.

SS.2.2 ORGANIZATION AND AUTHORITY. The Company:

(a) is a corporation duly organized, validly existing and in good
standing under the laws of the State of California;

(b) has all requisite power and authority (corporate and other) to
own and operate its properties, to conduct its business as currently conducted
and as currently proposed to be conducted, and to offer, issue, sell and
deliver the Notes, to enter into this Agreement and to perform its obligations
under this Agreement and the Notes; and

(c) has duly qualified to do business as a foreign corporation and
is in good standing in every jurisdiction in which the failure to so qualify
would materially and adversely affect the business, earnings, prospects,
properties or condition (financial or other) of the Company and its Subsidiary,
taken as a whole.

SS.2.3 BUSINESS. The Company is a leading West Coast-based specialty
retailer of fine jewelry operating 104 stores in five states. Each store offers
jewelry in a wide

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<PAGE> 9

variety of styles and prices, with particular emphasis on moderately priced,
high quality diamond, gemstone and gold products. The Company's objective is to
increase revenues and profits by increasing sales and operating income at its
existing stores and by expanding the number of stores that it operates in
existing and new geographic markets. The Company's strategy is to offer
competitive prices, a broad merchandise selection, a high level of customer
service and a disciplined credit program to appeal to its target customers, who
are generally low to middle income consumers between the ages of 18 and 45. The
Company's real estate expansion strategy is focused principally on opening new
stores in power strip centers in small cities and towns, which management
believes present the Company with substantial growth opportunities. Over the
next two years, the Company intends to open a significant number of stores in
existing and new markets. The Company's credit programs are an integral part of
its business strategy. The Company's credit strategy is to establish the maximum
number of credit relationships and simultaneously to optimize the over-all
return on assets. To accomplish this it seeks to reduce average balances and
payment maturities on its receivable portfolio while increasing the volume of
over-all transactions. The Company believes proper execution of this strategy
will improve store productivity, optimize the net yield from the receivable
portfolio and minimize collection risk. Consistent with industry practice, the
Company encourages the purchase of credit insurance products in connection with
sales of merchandise on credit. The Company's agent, American Bankers Insurance
Group, resells such products to the Company's subsidiary, Diamond Insurance
Company.

SS.2.4 FINANCIAL STATEMENTS AND OTHER INFORMATION; FINANCIAL
CONDITION. The Company has furnished to you copies of the consolidated financial
statements of the Company and its Subsidiary for the Fiscal Years ended July 31,
1995 and 1996, including consolidated audited balance sheets, consolidated
statements of income, consolidated statements of shareholders equity, and
consolidated statements of cash flows, together with the opinions thereon of
Ernst & Young, independent certified public accountants (such financial
statements are hereinafter referred to as the "Financial Statements"). The
Financial Statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the respective
periods. The Financial Statements are correct and complete copies thereof, and
fairly present in all material respects in accordance with generally accepted
accounting principles the financial position of the Company and its Subsidiary
as of the respective dates of the balance sheets included therein and the
results of operations of the Company and its Subsidiary for the respective
periods covered by the statements of income and cash flows. Neither the Company
nor its Subsidiary has any material obligation or liability of any nature
whatsoever (whether absolute, accrued, contingent or otherwise and whether due
or not due) which, either individually or in the aggregate, would be material to
the Company or its Subsidiary that is not disclosed by the Financial Statements
other than liabilities incurred since July 31, 1996 in the ordinary course of
business which in the aggregate have no material adverse effect on the financial
condition of the Company or on the conduct of its business. The Company does not
know of any basis for the assertion against the Company or its Subsidiary of any
liability or obligation of any nature whatsoever that is not disclosed in the
Financial Statements which, either individually or in the aggregate, would be
material to the Company and its Subsidiary, taken as a whole.

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<PAGE> 10

SS.2.5 NO MATERIAL ADVERSE CHANGE. Since July 31, 1996, there has been
no material adverse change in the business, earnings, prospects, properties or
condition (financial or other) of the Company or its Subsidiary.

SS.2.6 LICENSES, REGISTRATIONS, ETC. The Company and its Subsidiary
own or possess, and hold free from burdensome restrictions or known conflicts
with the rights of others, all licenses, registrations, franchises, permits,
copyrights, trademarks, service marks, trade names and patents and all rights
with respect to the foregoing, necessary for the conduct of their respective
businesses as now conducted and as proposed to be conducted, and are in
compliance with the terms and conditions, if any, of all such franchises,
licenses, registrations, permits, rights of way, easements, consents,
copyrights, trademarks, service marks, trade names and patents and the terms and
conditions of any agreements relating thereto, except for such conflicts or
noncompliance which, either individually or in the aggregate, is not reasonably
expected to materially and adversely affect, and in the future is not reasonably
expected to (so far as the Company can now reasonably foresee) materially and
adversely affect, the business, earnings, properties or condition (financial or
other) of the Company and its Subsidiary, taken as a whole.

SS.2.7 TITLE TO PROPERTIES; LEASES. The Company and its Subsidiary
each has good and valid title to the properties reflected as being owned by it
on the Financial Statements, as well as to the properties acquired since said
date (except property disposed of since said date in the ordinary course of
business). The Company and its Subsidiary each has the right to, and does, enjoy
peaceful and undisturbed possession under all leases under which it is leasing
property. All such leases are valid, subsisting and in full force and effect,
and none of such leases is in default other than as set forth on Schedule 2.7.

SS.2.8 COMPLIANCE WITH OTHER INSTRUMENTS, ETC. Neither the Company nor
its Subsidiary is (a) in violation of any term of its charter or by-laws, or (b)
in default in the performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in, and is not otherwise in
default under, (i) any evidence of Indebtedness or any instrument or agreement
under or pursuant to which any evidence of Indebtedness has been issued the
consequences of which default would be to permit the holder or holders of such
Indebtedness, or any trustee or agent acting on behalf of such holder or
holders, to accelerate the maturity of any such Indebtedness or to require that
any such Indebtedness be prepaid prior to its stated maturity or (ii) any other
instrument or agreement to which it is a party or by which it is bound or any of
its properties is affected, the consequences of which default would reasonably
be expected to have a material and adverse effect on the business, earnings,
prospects, properties or condition (financial or other) of the Company or its
Subsidiary, taken as a whole. As of the date hereof, neither the Company nor its
Subsidiary has defaulted in, or failed to make at the time contemplated, payment
of any dividends or any mandatory redemption payments of any preferred stock or
any principal of, or premium or interest on, any Indebtedness for Money
Borrowed. Neither the execution, delivery or performance of this Agreement nor
the offer, issuance, sale, delivery or performance of the Notes does or will (A)
conflict with or violate the charter or by-laws of the Company or its
Subsidiary, (B) conflict with or result in a breach of any of the terms,
conditions or provisions of, or constitute a default under, or result in the
creation of any Lien on any of the properties or assets of the Company or its
Subsidiary pursuant to the terms of, any

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<PAGE> 11

evidence of Indebtedness, or any instrument or agreement under or pursuant to
which any evidence of Indebtedness has been issued, or any other instrument or
agreement referred to in this ss.2.8 to which the Company or its Subsidiary are
a party or by which they are bound or by which any of their properties are
affected (the consequences of which could reasonably be expected to have a
material and adverse effect on the business, earnings, prospects, properties or
condition (financial or other) of the Company or its Subsidiary), or (C) require
the consent of, or other action by, any trustee, shareholder or creditor of, any
lessor to or any investor in, the Company or its Subsidiary, other than for the
consents and actions described on Schedule 2.8, all of which have been obtained
or taken.

SS.2.9 NO MATERIALLY ADVERSE CONTRACTS, ETC. (a) Neither the Company
nor its Subsidiary is a party to or bound by (nor are any of their respective
properties affected by) any contract or agreement, or subject to any order,
writ, injunction or decree or other action of any court or any governmental
department, commission, bureau, board or other administrative agency or
official, or any charter or other corporate or contractual restriction, which
materially and adversely affects, or in the future may (so far as the Company
can now reasonably foresee) materially and adversely affect, the business,
earnings, prospects, properties or condition (financial or other) of the Company
or its Subsidiary.

(b) Neither the Company nor its Subsidiary is a party to any material
contract or agreement with any Affiliate which contract or agreement is on terms
that are less favorable to it than would obtain in a comparable arm's-length
transaction with a Person other than an Affiliate.

SS.2.10 COMPLIANCE WITH LAW, ETC. The Company and its Subsidiary are
in compliance with all statutes, laws and ordinances and all governmental rules
and regulations to which it is subject, the violation of which, either
individually or in the aggregate, would reasonably be expected to materially and
adversely affect the business, earnings, prospects, properties or condition
(financial or other) of the Company or its Subsidiary. Neither the execution,
delivery or performance of this Agreement nor the offer, issuance, sale,
delivery or performance of the Notes does or will cause the Company or its
Subsidiary to be in violation of any law or ordinance, writ, injunction or
decree or other action of any court or governmental authority or arbitrator or
any order, rule or regulation, of any federal or state agency, or to the
Company's knowledge, of any county, municipal or other governmental or public
authority or agency.

SS.2.11 COMPLIANCE WITH ERISA. (a) As used in this ss.2.11 and in
ss.9.7 hereof, the terms "employee benefit plan," "employee pension benefit
plan" and "party in interest" shall have the respective meanings assigned
thereto in Section 3 of ERISA; the term "prohibited transaction" shall have the
meaning assigned thereto in Section 4975 of the Code and Section 406 of ERISA;
the term "accumulated funding deficiency" shall have the meaning assigned
thereto in Section 412 of the Code and Section 302 of ERISA; and the term
"employer securities" shall have the meaning assigned thereto in Section 407(d)
of ERISA.

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<PAGE> 12

(b) The Company and its Subsidiary have not, with respect to any
employee benefit plan established or maintained, or to which any contributions
have been made, by the Company or any of its ERISA Affiliates (including any
such plan also maintained by one or more other employers) for the benefit of its
employees or any trust created thereunder (collectively, the "Plans" and,
individually, a "Plan"), engaged in a prohibited transaction that would subject
the Company or its Subsidiary to a material tax or penalty.

(c) Neither the execution and delivery of this Agreement nor the
offer, issuance, sale and delivery of the Notes by the Company or the
consummation of the transactions contemplated hereby and thereby will involve or
constitute a prohibited transaction.

(d) Each Plan of the Company or its Subsidiary is in substantial
compliance with ERISA. No employee pension benefit plan established or
maintained, or to which any contributions have been made, by the Company, its
Subsidiary or any of its ERISA Affiliates (a "Pension Plan") has an accumulated
funding deficiency, whether or not waived. No proceedings have been instituted
by the PBGC nor has any other Person taken action to terminate any Pension Plan.
Neither the Company, its Subsidiary nor any of its ERISA Affiliates has incurred
any material liability to or on account of a Plan or Pension Plan under ERISA.
No condition exists which presents a material risk to the Company or any of its
ERISA Affiliates of incurring such a liability. The current fair market value of
all assets of each Pension Plan is not less than the aggregate present value of
all accrued benefits under such Pension Plan. None of the Plans is, nor has the
Company, its Subsidiary or any of its ERISA Affiliates within the last six years
been obligated to make any contributions to, a "multiemployer plan" within the
meaning of Section 4001 of ERISA.

SS.2.12 PENDING LITIGATION, ETC. There is no action at law, suit in
equity or other proceeding or investigation (whether or not purportedly on
behalf of the Company or its Subsidiary) in any court or by or before any other
governmental or public authority or agency, or any arbitrator or arbitration
panel pending or, to the best knowledge of the Company, threatened in writing
against the Company, its Subsidiary or any of their respective properties that,
either individually or in the aggregate, (a) would materially and adversely
affect the business, earnings, prospects, properties or condition (financial or
other) of the Company or its Subsidiary, or (b) question the validity or
enforceability of this Agreement or the Notes, other than, in each case, as set
forth on Schedule 2.12. Neither the Company nor its Subsidiary is in default
with respect to any order, writ, injunction, judgment or decree of any court or
other governmental or public authority or agency or arbitrator or arbitration
panel.

SS.2.13 TAXES. All federal, state and other tax returns of the Company
and its Subsidiary required by law to be filed have been duly filed or a valid
extension for such filing has been obtained, and all federal, state and other
taxes, assessments, fees and other governmental charges upon the Company and its
Subsidiary or upon any of their respective properties, incomes or assets that
are due and payable have been paid, except where such failure to file or pay
would not materially and adversely affect the respective properties, incomes, or
assets of the Company or its Subsidiary. No extensions of the time for the
assessment of deficiencies have been granted by the Company or its Subsidiary.
The Company does not know of any proposed, asserted, or

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<PAGE> 13

assessed tax deficiency against it or its Subsidiary that would be material to
the condition (financial or other) of the Company or its Subsidiary. Neither the
Company nor its Subsidiary is a party to, bound by or obligated under any tax
sharing or similar agreement, except for that certain tax sharing agreement by
and between CJI and its Subsidiary dated July 8, 1994. There are no Liens on any
properties or assets of the Company or its Subsidiary imposed or arising as a
result of the delinquent payment or the non-payment of any tax, assessment, fee
or other governmental charge which is due and owing, except Liens for taxes,
assessments or other governmental charges either not delinquent, or the validity
of which is being contested in good faith by appropriate proceedings and which
are adequately reserved for in accordance with GAAP. The charges, accruals and
reserves, if any, on the books of the Company and its Subsidiary in respect of
federal, state and local corporate franchise and income taxes for all fiscal
periods to date are adequate in accordance with generally accepted accounting
principles, and the Company knows of no additional unpaid assessments for such
periods or of any basis therefor. There are no applicable taxes or other
governmental charges or governmental fees payable by the Company or its
Subsidiary in connection with the execution and delivery of this Agreement or
the offer, issuance, sale and delivery of the Notes.

SS.2.14 HOLDING COMPANY ACT; INVESTMENT COMPANY ACT. (a) The Company
is not a "public utility company" or a "holding company," or a "subsidiary
company" of a "holding company," or an "affiliate" of a "holding company" or of
a "subsidiary company" of a "holding company," as such terms are defined in the
Public Utility Holding Company Act of 1935, as amended, or a "public utility"
within the meaning of the Federal Power Act, as amended.

(b) The Company is not an "investment company" or an "affiliated
person" of an "investment company" or a company "controlled" by an "investment
company" as such terms are defined in the Investment Company Act of 1940, as
amended. Neither the Company nor its Subsidiary is an "investment adviser" or an
"affiliated person" of an "investment adviser" as such terms are defined in the
Investment Advisers Act of 1940, as amended.

SS.2.15 NO FOREIGN ASSETS CONTROL REGULATION VIOLATION. None of the
transactions contemplated by this Agreement will result in a violation of any of
the foreign assets control regulations of the United States Treasury Department,
31 C.F.R., Subtitle B, Chapter V, as amended, or any ruling issued thereunder or
any enabling legislation or Presidential Executive Order granting authority
therefor, nor will the proceeds of the sale of the Notes be used by the Company
in a manner that would violate any thereof.

SS.2.16 NO MARGIN REGULATION VIOLATION. None of the transactions
contemplated by this Agreement (including, without limitation, the direct or
indirect use of the proceeds from the sale of the Notes) will violate or result
in a violation of Section 7 of the Exchange Act or any regulations issued
pursuant thereto, including, without limitation, Regulation G (12 C.F.R., Part
207), as amended, Regulation T (12 C.F.R., Part 220), as amended, and Regulation
X (12 C.F.R., Part 224), as amended, of the Board of Governors of the Federal
Reserve System.

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<PAGE> 14

SS.2.17 OUTSTANDING SECURITIES. All securities (as defined in the
Securities Act) of the Company and its Subsidiary have been offered, issued,
sold and delivered in compliance with, or pursuant to exemptions from, all
federal and state laws, and the rules and regulations of federal and state
regulatory bodies governing the offering, issuance, sale and delivery of
securities.

SS.2.18 CORPORATE PROCEEDINGS. The Company has taken all corporate
action necessary to be taken by it to authorize the execution and delivery of
this Agreement and the offer, issuance, sale and delivery of the Notes and the
performance of all obligations to be performed by it hereunder and thereunder.

SS.2.19 CONSENT, ETC. No prior consent, approval or authorization of,
registration, qualification, designation, declaration or filing with, or notice
to (in each case that has not been obtained or made, as appropriate) (a) any
federal, state or local governmental or public authority or agency, or (b) any
stockholder, creditor, lessor or other non-governmental Person, is or was
required for the valid execution, delivery and performance of this Agreement or
the valid offer, issuance, sale, delivery and performance of the Notes. The
Company has obtained all consents, approvals or authorizations of, made all
declarations or filings with, or given all notices to, all federal, state or
local governmental or public authorities or agencies which are necessary for the
continued conduct by the Company of its business as now conducted or as proposed
to be conducted and which the failure to so obtain, make or give would have a
material and adverse effect on the Company or its Subsidiary.

SS.2.20 NO EVENT OF DEFAULT. No event has occurred and is continuing,
and no condition exists, that, if the Notes had been issued and were outstanding
on the date hereof, would constitute a Default or an Event of Default.

SS.2.21 COMPLIANCE WITH ENVIRONMENTAL LAWS. (a) The Company and its
Subsidiary each is, and will continue to be, in compliance with all applicable
federal, state and local environmental laws, regulations and ordinances
governing its business, products, properties or assets with respect to all
discharges into the ground and surface water, emissions into the ambient air and
generation, accumulation, storage, treatment, transportation, labeling or
disposal of waste materials or processed by-products for which failure to comply
could have a material and adverse effect on the business, earnings, prospects,
properties or condition (financial or other) of the Company or its Subsidiary,
and neither the Company nor its Subsidiary is liable for any penalties, fines or
forfeitures for failure to comply with any of the foregoing, the failure to
comply with which could have a material and adverse effect on the business,
earnings, prospects, properties or condition (financial or other) of the Company
or its Subsidiary. All licenses, permits or registrations required for the
business of the Company and its Subsidiary, as presently conducted and proposed
to be conducted, under any federal, state or local environmental laws,
regulations or ordinances have been secured (or application for, or application
for transfer thereof, have been made) and each of the Company and its Subsidiary
is in substantial compliance therewith.

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<PAGE> 15

(b) No release, emission, or discharge into the environment of
hazardous substances, as defined under the Comprehensive Environmental Response,
Compensation, and Liability Act, as amended, or hazardous waste as defined under
the Resource Conservation and Recovery Act, or air pollutants as defined under
the Clean Air Act, or pollutants as defined under the Clean Water Act, is
presently occurring or has in the past occurred on or from any property owned or
leased by the Company or its Subsidiary in excess of federal, state or local
permitted releases or reportable quantities, or other concentrations, standards
or limitations under the foregoing laws or any state law governing the
protection of health and the environment or under any other federal, state, or
local laws or regulations.

(c) Neither the Company nor its Subsidiary has ever, except in
accordance with applicable laws or regulations, (i) owned, occupied or operated
a site or structure on or in which (to the Company's knowledge) any hazardous
substance was or is stored, transported or disposed of, (ii) transported or
arranged for the transportation of any hazardous substance or (iii) caused or
been held legally responsible for any release or threatened release of any
hazardous substance, or received notification from any federal, state or other
governmental authority of any release or threatened release, or that it may be
required to pay the costs or expenses incurred in connection with any efforts to
mitigate the environmental impact of any release or threatened release of any
hazardous substance from any site or structure owned, occupied or operated by
the Company or its Subsidiary.

SS.2.22 FULL DISCLOSURE. Neither this Agreement, or any report or
financial statement referred to in ss.2.4 hereof, nor any certificate, report,
statement or other writing (other than projections, forecasts or other
statements of future events) furnished to you by or on behalf of the Company in
connection with the negotiation of this Agreement or the sale of the Notes,
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements contained herein or therein not
misleading. There is no fact known to the Company with respect to the Company or
its Subsidiary that has not been disclosed to you in writing that (a) materially
and adversely affects or in the future would reasonably be expected to (so far
as the Company can now foresee) materially and adversely affect the business,
earnings, prospects, properties or condition (financial or other) of the Company
or its Subsidiary or (b) adversely affects or in the future would reasonably be
expected to (so far as the Company can now reasonably foresee) materially and
adversely affect the ability of the Company to perform its obligations under
this Agreement and the Notes.

SS.2.23 VALIDITY OF AGREEMENTS AND NOTES. This Agreement has been duly
executed and delivered by the Company and constitutes the legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, subject in each case to applicable principles of equity and
bankruptcy and insolvency law. Upon receipt by the Company of payment for the
Notes as provided in this Agreement, the Notes will have been duly issued by the
Company and will constitute legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms, subject in each
case to applicable principles of equity and bankruptcy and insolvency law.

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<PAGE> 16

SS.2.24 LABOR RELATIONS. Neither the Company nor its Subsidiary is
engaged in any unfair labor practice which would have a material and adverse
effect on the Company or its Subsidiary. There is (a) no unfair labor practice
complaint pending or, to the Company's knowledge, threatened against the Company
or its Subsidiary before the National Labor Relations Board and no grievance or
arbitration proceedings arising out of or under collective bargaining agreements
is so pending or threatened, (b) no strike, labor dispute, slowdown or stoppage
pending or, to the Company's knowledge, threatened against the Company or its
Subsidiary, and (c) no union representation question existing with respect to
the employees of the Company or its Subsidiary and no union organizing
activities are taking place with respect to any thereof.

SS.2.25 BROKER'S OR FINDER'S COMMISSIONS. Except as previously
disclosed to you in writing, no broker's or finder's placement fee or commission
will be payable by the Company with respect to the issuance and delivery of the
Notes or any of the transactions contemplated hereby. The Company will hold you
harmless from any claim, demand or liability for broker's or finder's placement
fees or commissions (other than any such fees or commissions payable by or to
you) whether or not payable by the Company alleged to have been incurred in
connection with this transaction.

SS.2.26 INSURANCE. The Company and its Subsidiary have, with respect
to the properties and business of the Company and its Subsidiary, with
financially sound and reputable insurers, insurance against such casualties and
contingencies of such types and in such amounts as is customary in the case of
corporations engaged in the same or a similar business or having similar
properties similarly situated.

SS.2.27 OFFEREES. The Company represents that neither the Company nor
Morgan Schiff & Co., Inc. (which are the only Persons authorized by the Company
to act as an agent, broker, dealer or otherwise in connection with the offering
or sale of the Notes) has, either directly or through any agent, offered any of
the Notes or any similar securities for sale to, or solicited any offers to buy
any thereof from, or otherwise approached or negotiated in respect thereof with,
any Person or Persons other than you. The Company agrees that neither it nor any
agent will on behalf of it, sell or offer any of the Notes or any similar
securities to, or solicit offers to buy any thereof from, or otherwise approach
or negotiate in respect thereof with, any other Person or Persons whomsoever, or
take any other action, so as to bring the issuance and sale of the Notes within
the provisions of Section 5 of the Securities Act or the provisions of any state
securities law requiring registration of securities, notification of the
issuance and sale thereof or confirmation of the availability of any exemption
from registration thereof.

SECTION 3. REPRESENTATIONS OF THE PURCHASER.

SS.3.1 INVESTMENT INTENT, ETC. This Agreement is made with you in
reliance upon your representation to the Company, which by your acceptance
hereof you confirm, that you are purchasing the Notes, and the Class A Common
Stock obtainable upon conversion thereof, for your own account for investment
and not with a view to the distribution thereof, and that you have no present
intention of distributing any of the same; provided, however, that the
disposition

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<PAGE> 17

of your property shall be at all times within your own control, and that your
right to sell or otherwise dispose of all or any part of the Notes purchased or
acquired by you pursuant to an effective registration statement under the
Securities Act (the Company being under no obligation to assist in the
preparation or filing of such registration statement except as expressly
provided herein) or under an exemption from such registration available under
the Securities Act and in accordance with any applicable state securities law
shall not be prejudiced. The Company and you each acknowledge that the Notes are
securities (as defined in the Securities Act and the Exchange Act). You
understand that the Notes and the Class A Common Stock obtainable upon
conversion thereof have not been registered under the Securities Act by reason
of a specific exemption from the registration provisions of the Securities Act.
You are experienced in evaluating companies such as the Company, its Subsidiary
and its parent, CJI, and are able to fend for yourself in transactions such as
the one contemplated by this Agreement, have such knowledge and experience in
financial and business matters that you are capable of evaluating the merits and
risks of your prospective investment, and have the ability to bear the economic
risks of the investment. You have been furnished with such materials and have
been given access to such information relating to the Company and CJI as you
have requested and you have been afforded the opportunity to ask questions
regarding the Company, its Subsidiary and its parent, CJI, and the Notes and the
Class A Common Stock obtainable upon conversion thereof as you have found
necessary to make an informed investment decision. You represent that you are an
"accredited investor" pursuant to Rule 501 of the Securities Act.

SS.3.2 ERISA REPRESENTATIONS. You represent that no part of the
purchase price for the Notes to be purchased by you will be drawn from the
assets of a "separate account" (within the meaning of Section 3(17) of ERISA)
maintained by you.

SS.3.3 CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE NOTES
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH
NOTES OR THE PAYMENT OR RECEIPT OR ANY PART OF THE CONSIDERATION THEREFOR PRIOR
TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SUCH NOTES IS EXEMPT FROM
THE QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.

SECTION 4. CONDITIONS OF OBLIGATION TO PURCHASE NOTES.

A Purchaser's obligation to purchase and pay for the Notes to be
purchased by such Purchaser hereunder on the applicable Closing Date shall be
subject to the satisfaction, prior to or concurrently with such purchase and
payment, of the following conditions unless otherwise waived by such Purchaser
in writing:

SS.4.1 OPINION OF SPECIAL COUNSEL FOR YOU. Such Purchaser shall have
received from its special counsel in connection with the transactions
contemplated by this

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<PAGE> 18

Agreement, an opinion, dated the applicable Closing Date, in form and substance
satisfactory to such Purchaser.

SS.4.2 OPINIONS OF COUNSEL FOR THE COMPANY. Such Purchaser shall have
received from Brobeck, Phleger & Harrison LLP, special counsel for the Company,
or other legal counsel acceptable to such Purchaser and its counsel, an opinion,
dated the applicable Closing Date, in form and substance satisfactory to such
Purchaser covering those matters addressed in the opinion of the Company's
counsels delivered in connection with the issuance of the Company's 9%
Convertible Subordinated Notes due April 15, 2000 and such other matters as such
Purchaser's counsel may request.

SS.4.3 PERFORMANCE OF OBLIGATIONS. The Company shall have performed
all its obligations to be performed hereunder prior to or on the applicable
Closing Date, and such Purchaser shall have received an Officer's Certificate
from the Company, dated the Closing Date, to such effect.

SS.4.4 REPRESENTATIONS TRUE; NO EVENT OF DEFAULT. The representations
and warranties of the Company contained in Section 2 hereof shall be true on and
as of the applicable Closing Date with the same effect as though such
representations and warranties had been made on and as of such Closing Date.
There shall exist on such Closing Date no Event of Default and no condition or
event which, with notice or lapse of time, would constitute an Event of Default
if the Notes had been outstanding at all times from and after the date hereof.
Such Purchaser shall have received an Officer's Certificate from the Company,
dated such Closing Date, to each such effect.

SS.4.5 EXISTING DEBT AGREEMENTS. Such Purchaser shall have received an
Officer's Certificate of the Company attaching a fully executed copy each
Existing Debt Agreement and certifying that such document is a true and complete
copy thereof, and that neither the offer, issuance, sale or delivery of the
Notes by the Company nor the execution, delivery or performance of this
Agreement does or will conflict with or result in a breach of, or constitute a
default under, such Existing Debt Agreements.

SS.4.6 CONVERSION AGREEMENT. The Company, CJI and such Purchaser shall
have entered into a Conversion Agreement.

SS.4.7 REGISTRATION RIGHTS AGREEMENT. The Company, CJI, Friedman's and
certain other holders shall have entered into the Registration Rights Agreement.

SS.4.8 LEGALITY. The Notes shall qualify as a legal investment for you
under all applicable laws, and such Purchaser's purchase thereof shall not cause
such Purchaser to be subject to any onerous or materially burdensome legal
requirement or penalty.

SS.4.9 ASSIGNMENT OF PRIVATE PLACEMENT NUMBER. The Company shall have
caused the CUSIP Service Bureau of Standard & Poor's Corporation to assign to
the Notes a

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<PAGE> 19

private placement number at its expense and shall have delivered evidence
thereof to such Purchaser and its special counsel.

SS.4.10 PROCEEDINGS, INSTRUMENTS, ETC. All proceedings and actions
taken on or prior to the applicable Closing Date in connection with the
transactions contemplated by this Agreement, and all instruments incident
thereto, shall be in form and substance reasonably satisfactory to such
Purchaser and its special counsel, and such Purchaser and its special counsel
shall have received copies of all documents that they may reasonably request in
connection with such proceedings, actions and transactions (including, without
limitation, copies of court documents, certifications and evidence of the
correctness of the representations and warranties contained herein and
certifications and evidence of the compliance with the terms and the fulfillment
of the conditions of this Agreement, in form and substance reasonably
satisfactory to such Purchaser and its special counsel).

SECTION 5. EXPENSES.

Whether or not the Notes shall be sold or this Agreement shall be
terminated, the Company will pay, and will save you harmless against liability
for, all reasonable costs and expenses relating to this Agreement and the Notes,
and to any modification, amendment, alteration or enforcement of this Agreement
or the Notes (whether or not the same shall have come into effect), including,
without limitation:

(a) the cost of preparing and reproducing this Agreement and the
Notes, and every instrument of modification, amendment or alteration hereof or
thereof;

(b) the reasonable fees and disbursements of special counsel for you
and of counsel for the Company;

(c) the cost of delivering to your home office, insured to your
reasonable satisfaction, the Notes purchased by you on the Closing Date;

(d) all costs and expenses (including, without limitation, legal fees
and disbursements and other out-of-pocket expenses) relating to any
modifications, amendments, waivers or consents involving the provisions of this
Agreement or the Notes, or relating to the enforcement of this Agreement or the
Notes;

(e) the broker's or finder's fees of any Person in connection with the
sale of the Notes, it being represented and warranted by the Company that any
such Person acted solely as agent for the Company and not as agent for you; and

(f) the fee of Standard & Poor's Corporation required in connection
with the assignment of a private placement number by it to the Notes.

The obligations of the Company under this Section 5 shall survive the payment or
prepayment of the Notes and the termination of this Agreement.

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<PAGE> 20

SECTION 6. CERTAIN SPECIAL RIGHTS.

SS.6.1 HOME OFFICE PAYMENT. Notwithstanding any provision to the
contrary in this Agreement or the Notes, the Company will punctually pay in
immediately available funds by 12:00 noon, Atlanta, Georgia time on the date
payment is due all amounts payable to you with respect to any Notes held by you
or your nominee (without the necessity for any presentation or surrender thereof
or any notation of such payment thereon) in the manner and at the address for
such purpose specified below your name in Schedule I hereto, or at any other
address as you may direct in writing; provided, however, that the information
set forth with respect to you in Schedule I hereto shall be deemed notice
sufficient to permit payment in accordance with this ss.6.1. You agree that, as
promptly as practicable after the payment or prepayment in whole of any Note
held by you or your nominee and receipt by you of a written request from the
Company to surrender such Note to the Company for cancellation, you will
surrender such Note at the office of the Company maintained pursuant to ss.9.1
hereof. You agree that if you sell, assign or transfer any Note, you will, prior
to any such sale, assignment or transfer, make a proper notation thereon of the
amount of principal paid thereon as of the date of such sale, assignment or
transfer.

SS.6.2 DELIVERY EXPENSES. If you shall surrender any Note to the
Company pursuant to this Agreement, or if the Company shall issue any new Note
pursuant to this Agreement, the Company will pay all reasonable costs and
expenses of delivery of the surrendered Note and any Note or Notes issued in
exchange or replacement for, or on registration of transfer of, the surrendered
Note or any such new Note, as the case may be, in each case insured to your
reasonable satisfaction.

SS.6.3 ISSUANCE TAXES. The Company will pay all taxes in connection
with the execution and delivery of this Agreement and the issuance and sale of
the Notes, and any modification of this Agreement or the Notes, and will save
you and any subsequent holder of Notes harmless, without limitation as to time,
against any and all liabilities (including, without limitation, any interest or
penalty for nonpayment or delay in payment, or any income taxes paid by you in
connection with any reimbursement by the Company) with respect to all such taxes
(other than income taxes due resulting from a transfer of the Notes). The
obligations of the Company under this ss.6.3 shall survive the payment of the
Notes and the termination of this Agreement.

SS.6.4 INTENTIONALLY OMITTED.

SS.6.5 TRANSFER OF NOTES. The Company agrees that you and all other
holders from time to time of the Notes may sell, assign or transfer all or any
portion of any Note without obtaining the consent of the Company; provided,
however, that so long as no Event of Default shall have occurred and be
continuing:

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<PAGE> 21

(a) No holder of a Note shall transfer such Note to any Person
(excluding Friedman's and any of its Affiliates) if such Person or any of its
Affiliates is actively engaged in the operation of one or more retail jewelry
stores; and

(b) No holder of a Note shall sell, assign or transfer all or any
portion of such Note (the "Selling Noteholder") to any person that is not then
an Affiliate of such holder without first providing the Company with notice of
its intention to do so and the Company and CJI shall have a right of first offer
to purchase such Note or such portion thereof by delivering an irrevocable
binding offer stating the terms thereof not later than two days following
delivery of such notice and by consummating such purchase within 30 days after
the delivery of such binding offer. If the Selling Noteholder does not accept
such offer from the Company, it shall have the right (but not the obligation) to
consummate such sale, assignment or transfer at any time within the sixty-day
period immediately following delivery of its original notice to the Company so
long as the terms thereof, in the reasonable opinion of the Selling Noteholder,
are at least as favorable as those offered by the Company. Nothing contained in
this ss.6.5 shall limit or affect the rights of the Noteholders under Section 11
hereof.

SECTION 7. PREPAYMENTS.

SS.7.1 OPTIONAL PREPAYMENT. (a) The Company, at its option, may prepay
the Notes in whole or in part, without premium or penalty, at any time subject
to the provisions of ss.7.1(b). Any partial prepayment of the Notes shall be in
a minimum amount of $1,000,000 and integral multiples of $100,000 in excess
thereof. Upon any partial prepayment of the Notes, the principal amount so
prepaid shall be allocated to all Notes at the time outstanding in proportion to
the respective outstanding principal amounts thereof.

(b) Notice of any prepayment of Notes pursuant to this ss.7.1 shall be
given to each holder of Notes in a manner such that each holder receives such
notice not less than 30 or more than 60 days before the date fixed for
prepayment. Any notice of prepayment given pursuant to this ss.7.1 hereof shall
certify (a) the date on which prepayment is to be made (the "Optional Prepayment
Date"), (b) the principal amount of such holder's Notes to be prepaid on such
Optional Prepayment Date, and (c) the accrued interest applicable to such
prepayment. Notice of prepayment having been so given, then, subject to the
right of each Noteholder to convert its Notes as permitted by the Conversion
Agreement to which such Noteholder is a party, the aggregate principal amount of
Notes specified in such notice, together with interest thereon, shall become due
and payable on such Optional Prepayment Date.

SS.7.2 MANDATORY OFFER TO PREPAY NOTES. (a) If an Operative Event (as
hereinafter defined) shall occur, each holder of an outstanding Note shall have
the right to demand that the Company prepay all of the Notes then held by such
holder by giving written notice to such effect to the Company not later than 90
days after the first to occur of the following: (1) receipt by such holder from
the Company of written notice of the occurrence of such Operative Event or (ii)
the date on which such holder, having otherwise obtained actual knowledge of
such Operative Event, notifies the Company thereof. The Company shall prepay
such Notes on a date specified to such holder by written notice from the Company
given not less

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<PAGE> 22

than 20 days prior to the prepayment date so specified (which date shall not be
earlier than 40 nor later than 90 days after the date demand for prepayment was
made by such holder) and such prepayment shall be at a price equal to the
greater of (x) the aggregate principal amount of the Notes to be prepaid,
together with interest thereon to the date of such prepayment or (y) the
Prepayment Purchase Price.

(b) As used in this ss.7.2, an "Operative Event" shall be deemed to
have taken place upon the first to occur of the following events:

(i) the Control Persons shall fail to own, of record and
beneficially, with full power to vote, shares of Capital Stock, of
whatever class or classes, entitling the holders thereof to cast at
least (x) until the consummation of an Initial Public Offering,
twenty-five percent (25%) of the votes for election of directors of the
Company or (y) after the consummation of an Initial Public Offering,
fifteen percent (15%) of the votes for election of directors of the
Company, or

(ii) any Person or Persons, together with its Affiliates and
any other Person party to a voting trust or similar agreement with such
Person (excluding for this purpose CJ Morgan Corporation, CJ Morgan
Limited Partnership, CJ Universal and the Control Persons) shall own of
record and beneficially, with full power to vote, shares of Capital
Stock, of whatever class or classes, entitling the holders thereof to
cast at least thirty-five (35%) of the votes for election of directors
of the Company; or

(iii) the Control Persons shall fail to own, of record and
beneficially, ten percent (10%) of all classes, in the aggregate, of
non-voting Capital Stock of the Company, unless, at such time, (A) at
least 90% of the aggregate principal amount of the Notes shall have
been converted into Voting Common Stock, and (B) the current or former
holders of the Notes shall own, in the aggregate, not more than 10% of
the amount of Voting Common Stock which would be held by such holders
if 100% of the initial aggregate amount of the Notes had been converted
into Voting Common Stock at such time.

(c) Notwithstanding the occurrence of an event described in clause (i)
or (ii) of ss.7.2(b) hereof, an Operative Event shall not be deemed to have
occurred if:

(i)(w) the Incapacity of Graber shall have occurred, (x) the
Noteholders shall have been advised in writing of the Incapacity of
Graber immediately upon the occurrence thereof, (y) within 180 days of
such Incapacity, the Noteholders shall have been notified of the
determination of the Board of Directors of the Company to find a
purchaser or purchasers for all of the Capital Stock or assets of the
Company, and (z) within 300 days of such Incapacity, such sale shall
have been consummated (it being agreed that the Company shall give each
Noteholder at least 40 days advance notice of the closing date
thereof); or

(ii) the Board of Directors of the Company shall have made a
determination to sell all of the Capital Stock or the assets of the
Company, other than in an Initial Public

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<PAGE> 23

Offering, the Noteholders shall have been given notice thereof and
such sale shall have been consummated within 150 days after such
determination (it being agreed that the Company shall give each
Noteholder at least 40 days advance notice of the closing date of such
sale), so long as the purchaser or purchasers of such Capital Stock or
assets shall not include any of the Control Persons; or

(iii) at any time the Control Persons, CJ Morgan Corporation,
CJ Morgan Limited Partnership or CJ Universal have the power (directly
or indirectly) to elect a majority of the Board of Directors of CJI;

provided, however, that each holder of a Note shall have the right to demand
that the Company prepay all of the Notes then held by such holder concurrently
with the consummation of any sale of the type referred to in clause (i) or (ii)
of this ss.7.2(c) by sending a notice to the Company to such effect not later
than 20 days prior to the closing date of such sale as set forth in the notice
of closing hereinabove referred to, such prepayment to be made at a price equal
to the greater of (A) the aggregate principal amount of the Notes to be prepaid,
together with interest thereon to the date of such prepayment, or (B) the
product of (i) the percentage of Class A Common Stock which would be held by
such holder on the date of such notice if such Notes had been converted into
Class A Common Stock on the date of such notice, and (ii) the net proceeds of
such sale to be distributed to all holders of Class A Common Stock.

(d) Promptly after obtaining knowledge of the occurrence of any Operative
Events (or of any event which would be an Operative Event but for the provision
of ss.7.2(c) hereof), the Company shall notify the Noteholders thereof,
specifying in reasonable detail the facts and circumstances surrounding such
event, and whether the Noteholders have a right to demand prepayment in
accordance with ss.7.2(a) hereof. The Company shall also notify the Noteholders
of the receipt of any demand for the prepayment of Notes pursuant to 7.2(a)
hereof.

SECTION 8. REGISTRATION, EXCHANGE AND REPLACEMENT OF NOTES.

SS.8.1 REGISTRATION. The Notes issuable pursuant to this Agreement
shall be registered Notes. The Company will keep, at the office required to be
maintained pursuant to ss.9.1 hereof, books for the registration and
registration of transfer of Notes. Prior to presentation of any Note for
registration of transfer, the Company shall treat the Person in whose name such
Note is registered as the owner and holder of such Note for all purposes
whatsoever, whether or not such Note shall be overdue, and the Company shall not
be affected by notice to the contrary.

SS.8.2 EXCHANGE. The holder of any Note, at its option, may in person
or by duly authorized attorney, surrender the same for exchange at the office
maintained pursuant to ss.9.1 hereof and promptly thereafter and at the
Company's expense, except as provided below, receive in exchange therefor a new
Note or Notes, as the case may be, each in the denomination requested by such
holder, dated the date to which interest shall have been paid on the Note so
surrendered or, if no interest shall have yet been so paid, dated the date of
the Note so surrendered and registered in the name of such Person or Persons as
shall have been designated in

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<PAGE> 24

writing by such holder or its attorney for the same principal amount as the then
unpaid principal amount of the Note so surrendered. Subject to ss.9.1 hereof,
the Company may require payment of a sum sufficient to cover any stamp or other
tax or governmental charge imposed in respect of any transfer involved in such
exchange.

SS.8.3 REPLACEMENT. Upon receipt by the Company of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of any Note and (a) in the case of loss, theft or destruction, of
indemnity reasonably satisfactory to it; provided, however, that if the holder
of such Note is the original purchaser of the Note listed on Schedule I hereto
or any Affiliate thereof or any Institutional Investor, its own agreement of
indemnity shall be deemed to be satisfactory; or (b) in the case of mutilation,
upon surrender thereof, the Company, at its expense, will execute and deliver in
lieu thereof a new Note executed in the same manner as the Note being replaced,
in the same principal amount as the unpaid principal amount of such Note and
dated the date to which interest shall have been paid on such Note or, if no
interest shall have yet been so paid, dated the date of such Note.

SECTION 9. CERTAIN COVENANTS OF THE COMPANY.

The Company covenants and agrees that so long as any Notes shall
remain outstanding:

SS.9.1 MAINTENANCE OF OFFICE. The Company will maintain at the office
located at the address for notices set forth in ss.15.1 hereof an office where
notices, presentations and demands in respect of this Agreement and the Notes
may be given to and made upon it; provided, however, that the Company may, upon
10 business days' prior written notice to each Noteholder, move such office to
any other location within the continental boundaries of the United States. The
Company hereby agrees that it will pay, and will save any holder of a Note
harmless against liability for, any stamp or other tax or governmental charge
imposed in respect of any transfer of a Note resulting from such change in
office; and said obligation of the Company shall survive the payment or
prepayment of the Notes and the termination of this Agreement.

SS.9.2 CORPORATE EXISTENCE. The Company will (a) take and fulfill, or
cause to be taken and fulfilled, all actions and conditions necessary to
preserve and keep in full force and effect its existence, rights and privileges
as a corporation, and will not liquidate or dissolve, and (b) take and fulfill,
or cause to be taken and fulfilled, all actions and conditions necessary to
qualify, and to preserve and keep in full force and effect its qualification, to
do business as a foreign corporation in the jurisdictions in which the conduct
of its business or the ownership or leasing of its properties requires such
qualification unless the Board of Directors of the Company determines in good
faith that failure to so qualify would not have a material and adverse affect on
the business, earnings, prospects, properties or condition (financial or other)
of the Company and its Subsidiary taken as a whole; provided, however, that this
ss.9.2 shall not be deemed to prohibit any transaction permitted by ss.9.9
hereof.

SS.9.3 GENERAL MAINTENANCE OF PROPERTIES AND BUSINESS, ETC. (a) The
Company will, and will cause its Subsidiary to, maintain its properties and
assets in normal

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<PAGE> 25

working order and condition and make all necessary repairs, renewals,
replacements, additions, betterments and improvements thereto, ordinary wear and
tear excepted, all as in the judgment of the Company may be necessary so that
the business carried on in connection therewith may be properly and
advantageously conducted at all times; provided, however, that nothing in this
ss.9.3 shall prevent the Company or its Subsidiary from discontinuing the
operation and maintenance of any of its properties if such discontinuance is, in
the judgment of the Company or such Subsidiary, desirable in the conduct of its
business, and if in the good faith determination of the Board of Directors of
the Company the anticipated effect of such discontinuance is not adverse in any
material respect to the Noteholders.

(b) The Company will, and will cause its Subsidiary to, maintain
with financially sound and reputable insurers, such insurance as may be required
by law and such other insurance, to such extent and against such hazards and
liabilities, as it in good faith determines is customarily maintained by
companies similarly situated with like properties.

(c) The Company will, and will cause its Subsidiary to, keep true
and accurate books of records and accounts in which full and correct entries
will be made with respect to all of its business transactions in accordance with
sound business practices, and reflect in its financial statements adequate
accruals and appropriations to reserves, all in accordance with generally
accepted accounting principles.

(d) The Company will, and will cause its Subsidiary to, do or cause
to be done all things necessary to preserve and keep in full force and effect
its existence, rights and franchises, except to the extent permitted by this
Agreement and except in such cases where the Board of Directors of the Company
determines in good faith that failure to do so would not have a material and
adverse affect on the business, earnings, prospects, properties or condition
(financial or other) of the Company and its Subsidiary taken as a whole.

(e) The Company will, and will cause its Subsidiary to, pay prior
to delinquency all taxes, assessments and governmental levies which if not paid
would have a material and adverse affect on the business, earnings, prospects,
properties, or condition (financial or other) of the Company and its Subsidiary
taken as a whole, and except as contested in good faith and by appropriate
proceedings.

SS.9.4 INSPECTION. As long as a Noteholder holds Notes in the
aggregate principal amount of $2,500,000 or more, the Company will permit any
Person designated by such Noteholder, in writing, at such Noteholder's expense,
to visit and inspect any of the properties, corporate books and financial
records of the Company and its Subsidiary and to discuss their affairs, finances
and accounts with the principal officers of the Company and (with notice) its
independent public accountants, all at such reasonable times and as often as
such Noteholder may reasonably request. Each such Noteholder agrees that it will
use its best efforts to keep any information obtained by it as a result of such
visits, inspection and discussion confidential in accordance with such
procedures as such Noteholder applies generally to information of this kind;
provided, however, that such Noteholder may disclose any such information (a) as
has become generally available to the public, (b) as may be required in any
report, statement or testimony

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<PAGE> 26

required to be submitted to any municipal, state or Federal regulatory body
having or claiming to have jurisdiction over it or to the National Association
of Insurance Commissioners or similar organizations or their successors, (c) as
may be required in response to any summons or subpoena or in connection with any
litigation, (d) to the extent that such Noteholder believes it appropriate in
order to comply with any law, order, regulation or ruling applicable to it and
(e) to the prospective transferee in connection with any contemplated transfer
of any of the Notes. No Noteholder may use any such confidential information to
compete with the businesses conducted by the Company or in violation of
applicable law as the basis for any market transaction in securities of the
Company. The Company may deny the benefits of this ss.9.4 to any Person (other
than Friedmans and any of its Affiliates) it reasonably believes to be a
competitor or is acting on behalf of a competitor.

SS.9.5 COMPLIANCE WITH LAW, ETC. Neither the Company nor its
Subsidiary will (a) violate any law, ordinance, governmental rule or regulations
to which it is or may become subject, the violation of which would, either
individually or in the aggregate, materially and adversely affect the business,
earnings, prospects, properties or condition (financial or other) of the Company
or its Subsidiary, or (b) fail to obtain or maintain any patents, trademarks,
service marks, trade names, copyrights, design patents, licenses, permits,
franchises or other governmental authorizations necessary to the ownership of
its property or to the conduct of its business, except where the failure so to
obtain or maintain the foregoing would not, individually or in the aggregate,
have a material and adverse effect on the business, earnings, prospects,
properties or condition (financial or other) of the Company or its Subsidiary.

SS.9.6 PAYMENT OF TAXES AND CLAIMS. The Company and its Subsidiary
each will pay and discharge promptly when due:

(a) all taxes, assessments and governmental charges and levies
imposed upon it, its income or profits or any of its properties, before the same
shall become delinquent; and

(b) all lawful claims of materialmen, mechanics, carriers,
warehousemen, landlords and other similar Persons for labor, materials, supplies
and rentals that, if unpaid, might by law become a Lien upon any of its
property;

provided, however, that none of the foregoing need be paid while the same is
being contested in good faith by appropriate proceedings diligently conducted so
long as adequate reserves shall have been established in accordance with
generally accepted accounting principles with respect thereto, title of the
Company or such Subsidiary, as the case may be, to the particular property shall
not be divested thereby and its right to use the particular property shall not
be materially and adversely affected thereby.

SS.9.7 ERISA. (a) The Company and its ERISA Affiliates each will
continue any and all Plans in compliance with all applicable requirements of the
Code, ERISA and the rules and regulations adopted thereunder, in each case as in
effect at the time, until such Plans are terminated, and the liabilities thereof
discharged, in accordance with applicable law.

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(b) Neither the Company nor any of its ERISA Affiliates will (i)
have any accumulated funding deficiency with respect to any Pension Plan, (ii)
incur any excise tax or civil penalty under Section 4975 of the Code or Section
502(i) of ERISA (respectively) with respect to any prohibited transaction
involving any employee benefit plan, nor (iii) become obligated to make any
contributions to any multiemployer plan (as defined in ss.2.11(d) hereof).

(c) Neither the Company nor any of its ERISA Affiliates will permit
any event or condition to occur or exist with respect to any Plan or Pension
Plan if, as a result of such event or condition (together with all other such
events or conditions), the Company or any ERISA Affiliate would incur or be
reasonably likely to incur a liability to a Plan, a Pension Plan or the PBGC (or
any combination of the foregoing) which is or could be materially adverse in
relation to the consolidated financial position of the Company and its
Subsidiary.

SS.9.8 TRANSACTIONS WITH AFFILIATES. The Company will not, and will
not permit any Subsidiary to, directly or indirectly, enter into any transaction
(including, without limitation, the purchase, sale, lease or exchange of any
property or the rendering of any service) with any Affiliate of the Company
(other than any wholly-owned Subsidiary thereof), or CJ Morgan Limited
Partnership or CJ Morgan Corporation or any Affiliate thereof unless the Board
of Directors has determined that such transaction is (a) on terms that are no
less favorable to the Company or such Subsidiary, as the case may be, than those
which might be obtained at the time from Persons who are not such an Affiliate
or (b) is in the ordinary course of business of the Company or such Subsidiary;
provided, however, that, in the case of any such transaction involving the
payment, receipt or exchange by the Company or any Subsidiary of cash or
property in excess of $1,500,000 (the amount so paid, received or exchanged, if
other than in cash, to be determined by the Board of Directors), such
transaction shall be approved by a majority, but not less than two, of the
independent directors on the Board of Directors at such time; and provided,
further, that in no event shall the consideration paid by CJ Morgan Limited
Partnership or CJ Morgan Corporation or any Affiliate thereof or any Affiliate
of the Company in any such transaction consist of securities or other debt
instruments of such Person. Except as specifically set forth in the preceding
sentence, any determination made pursuant to this ss.9.8 shall be made by the
Board of Directors acting in good faith, whose determination shall be
conclusive; provided, however, that no member of the Board of Directors
affiliated with CJ Morgan Corporation or CJ Morgan Limited Partnership or an
Affiliate thereof or an Affiliate of the Company (other than by virtue of being
a member of the Company's Board of Directors) shall vote on the transactions in
which such Person is a participant. Notwithstanding the forgoing, this ss.9.8
shall not apply to the agreements and transactions listed in Schedule Y.

SS.9.9 MERGER; CONSOLIDATION. The Company will not merge into or
consolidate with any other Person or permit any other Person to merge into or
consolidate with it, transfer all or substantially all of its assets, or
liquidate, dissolve or otherwise transfer all of its assets unless (i) the
corporation which survives such merger or results from such consolidation (the
"surviving corporation") shall be organized under the laws of the United States
of America or a jurisdiction thereof, (ii) (A) the Company shall be the
surviving corporation or (B) the due and punctual payment of principal, premium,
if any, and interest on all the Notes according to their

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<PAGE> 28

tenor, and the due and punctual performance and observance of all the covenants
in this Agreement to be performed or observed by the Company, shall be expressly
assumed in writing by the surviving corporation by an instrument reasonably
satisfactory in form and substance to the holders of at least a majority in
aggregate unpaid principal amount of the Notes then outstanding, (iii) before
and immediately after the consummation of the transaction, and after giving
effect thereto, (x) no Default or Event of Default shall exist and (y) the
Company shall be permitted under ss.9.16 hereof to incur an additional $1.00 of
indebtedness, (iv) immediately after the consummation of the transaction, and
after giving effect thereto, Consolidated Tangible Net Worth of the surviving
corporation shall not be less than the Consolidated Tangible Net Worth of the
Company immediately before consummation of the transaction, and (v) an opinion
of counsel (reasonably satisfactory in form and substance to the holders of at
least a majority in aggregate unpaid principal amount of the Notes then
outstanding) is delivered to each Noteholder upon consummation of the
transaction to the effect that the conditions in this ss.9.9 have been satisfied
and to the effect that this Agreement, the Notes and the instrument referred to
in clause (ii) (B) of this ss.9.9 are legal, valid and binding obligations of
the surviving corporation, enforceable against the surviving corporation in
accordance with their respective terms.

SS.9.10 REPURCHASE OF NOTES. Neither the Company nor any Affiliate of
the Company will, directly or indirectly, repurchase or make any offer to
repurchase any Notes unless such entity has offered to repurchase Notes, pro
rata, from all holders of Notes upon the same terms. If the Company repurchases,
or any other Affiliate purchases, any Notes, such Notes shall thereafter be
cancelled and no Notes shall be issued in substitution therefor. For purposes of
Section 7 hereof, the Company shall be deemed to be the owner of all purchased
Notes pursuant to this ss.9.10.

SS.9.11 LIMITATIONS ON RESTRICTED INVESTMENTS AND RESTRICTED PAYMENTS.
(a) The Company will not, directly or indirectly at any time, (A) declare, make
or pay, or incur any liability to make or pay, or cause or permit to be
declared, made or paid any Restricted Payment or (B) make any Restricted
Investment.

(b) Notwithstanding the foregoing, the restrictions of ss.9.11(a)
above will not prevent (A) the acquisition or retirement of Capital Stock of the
Company or its Subsidiary thereof solely in exchange for, or through the
application of net proceeds of a substantially concurrent sale for cash (other
than to a Subsidiary of the Company or an Affiliate which has been a Subsidiary
or division of the Company or one of its Subsidiary within five years of the
date of determination) of, other shares of such Capital Stock (other than
Restricted Capital Stock), (B) the redemption of Capital Stock convertible into
other shares of Capital Stock (other than Restricted Capital Stock) where a
responsible investment banking firm of national reputation has entered into a
contractual commitment with the Company pursuant to which such investment
banking firm is obligated to purchase from the Company all of the shares of
Capital Stock which would have been issuable upon the conversion of the shares
of the Capital Stock called for redemption which are redeemed rather than
converted, or (C) the execution, delivery, performance and consummation of the
agreements listed in on Schedule Y; provided, however, that the redemption of
Capital Stock pursuant to clause (B) above shall not constitute a Restricted
Payment for the purposes of ss.9.11(a).

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SS.9.12 SEC REPORTS. (a) The Company will provide each Noteholder,
within 5 days after it files them with the SEC, copies of the annual reports and
of the other information, documents, and reports (or copies of such portions of
any of the foregoing as the SEC may by rules and regulations prescribe) which
the Company is required to file with the SEC pursuant to Sections 13 or 15(d) of
the Exchange Act. If the Company is not subject to the requirements of such
Sections 13 or 15(d) of the Exchange Act, the Company will provide each
Noteholder, within 5 days after it would have been required to file such
information with the SEC if the Company had been so subject, financial
statements, including any notes thereto and with respect to annual reports, an
auditors' report by an accounting firm of established national reputation, and a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", both comparable to that which the Company would have been required
to include in such annual reports, information, documents or other reports if
the Company was subject to the requirements of such Section 13 or 15(d) of the
Exchange Act. The Company shall also comply with the provisions of TIA
ss.314(a).

(b) So long as any of the Notes shall remain outstanding, the
Company will cause each annual report to shareholders and each quarterly or
other financial report furnished by it to shareholders to be provided to and
mailed to the Noteholders at their addresses appearing in the register
maintained by the Company pursuant to ss.8.1 hereof at the time of such mailing
or furnishing to shareholders. If the Company is not required to furnish annual
or quarterly reports to its shareholders pursuant to the Exchange Act, the
Company shall cause its financial statements including any notes thereto and
with respect to the annual reports, an auditors' report by an accounting firm of
established national reputation, and a "Management's Discussion and Analysis of
Financial Condition and Results of Operations", to be so mailed to the
Noteholders within 105 days after the end of each of the Company's Fiscal Years
and within 45 days after the end of each of the first three quarters of each
Fiscal Year.

SS.9.13 INTENTIONALLY OMITTED.

SS.9.14 MAINTENANCE OF INDEPENDENT DIRECTORS. The Company shall ensure
that the members of its Board of Directors and the Board of Directors of CJI
shall at all times include at least two independent directors; provided,
however, that if from time to time the number of directors on its Board of
Directors or the Board of Directors of CJI is increased or decreased, the number
of independent directors shall be increased or decreased to maintain the same
proportion of independent directors to non-independent directors (so long as
there shall always remain at least two independent directors on each such Board
of Directors). For the purposes of this ss.9.14, the term "independent director"
means any director who, together with the members of his family, does not own,
directly or indirectly, five percent (5%) or more of the outstanding Capital
Stock of the Company or CJI (or, if such director is Michael J. Rippey or
Richard Werdiger, ten percent (10%) or more of the outstanding capital stock of
the Company or CJI) and who is not (and none of the members of whose family is)
an officer or employee of the Company or CJI or any of its Affiliates.

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<PAGE> 30

SS.9.15 LIMITATION ON BUSINESS ACTIVITIES. The Company shall not, and
shall not permit its Subsidiary to, engage in any line of business substantially
different from those lines of business currently carried on by it or customary
for the industry it is currently in, which lines of business shall include in
any case, but not be limited to, retail jewelry and luxury gift sales, consumer
finance, credit insurance and reinsurance and other consumer financial services,
and credit collection services.

SS.9.16 LIMITATIONS ON INDEBTEDNESS. (a) The Company will not, and
will not permit any Designated Subsidiary to, directly or indirectly, create,
guaranty, incur, issue, assume or otherwise become directly or indirectly liable
with respect to (collectively, "incur") any Indebtedness (other than
Indebtedness between the Company and a Wholly Owned Designated Subsidiary).

(b) The limitations of ss.9.16(a) hereof notwithstanding, additional
Indebtedness may be incurred by the Company or any Designated Subsidiary, as the
case may be, in connection with or arising under:

(i) the Refinancing Transactions in an aggregate principal amount
not to exceed $93,000,000 as follows: (A) no more than $65,000,000 in
aggregate principal amount under the Senior Loan Documents (as defined in
Schedule Y hereto), (B) no more than $20,000,000 in aggregate principal
amount under the Friedman's Loan Documents (as defined in Schedule Y
hereto) and (C) no more than $8,000,000 in respect of the Notes;

(ii) trade letters of credit issued for the account of the Company or
any Designated Subsidiary in the ordinary course of its business;

(iii) stand-by letters of credit issued for the account of the Company
or any Designated Subsidiary in connection with obligations of the Company
or any Designated Subsidiary, to the extent that the aggregate amount
payable thereunder does not exceed $2,500,000;

(iv) other unsecured Indebtedness for borrowed money not to exceed
$250,000 in the aggregate at any time outstanding;

(v) unsecured Indebtedness to trade creditors incurred in the
ordinary course of the Company's business; and

(vi) secured Indebtedness to Aviv, Inc., a Texas corporation,
existing as of October 13, 1996.

(c) For purposes of this ss.9.16, if the Company or any Designated
Subsidiary has guarantied any Indebtedness of the Company or any Designated
Subsidiary, the amount so guarantied shall not be deemed to constitute
Indebtedness in addition to the underlying Indebtedness so guarantied.

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<PAGE> 31

SS.9.17 LIMITATIONS ON CAPITAL EXPENDITURES. The Company shall not
purchase or otherwise acquire (including, without limitation, acquisition by way
of capitalized lease), or commit to purchase or acquire, any fixed asset if,
after giving effect to such purchase or other acquisition, the aggregate cost of
all such fixed assets purchased or otherwise acquired would, during any fiscal
year, exceed the amount set forth opposite such fiscal year below:

<TABLE>
<CAPTION>
Fiscal Year Amount
----------- ------
<S> <C>
1997 $3,750,000.00

1998 $4,650,000.00

1999 $5,550,000.00
</TABLE>

provided, however, that during any fiscal year, if the aggregate cost of all
such fixed assets purchased or otherwise acquired is less than the amount set
forth opposite such fiscal year above, then the Company shall be permitted, in
the next succeeding fiscal year, to exceed the amount set forth opposite such
succeeding fiscal year by an amount equal to the lesser of (i) the difference
between (A) the aggregate cost of all such fixed assets purchased or otherwise
acquired during such fiscal year and (B) the amount set forth opposite such
fiscal year above, and (ii) $250,000.00.

SS.9.18 CONSOLIDATED TANGIBLE NET WORTH. The Company's Tangible Net
Worth shall at no time be less than the "Minimum Tangible Net Worth - Covenant
Definition"; "Minimum Tangible Net Worth - Covenant Definition" for any period
means the amount set forth opposite said period below:

<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
August 31 through November 30, 1996 $15,800,000.00

December 1, 1996 through November 30, 1997 $18,500,000.00

December 1, 1997 through November 30, 1998 $21,800,000.00

December 1, 1998 through November 30, 1999 $27,300,000.00
</TABLE>

SS.9.19 WHOLLY OWNED SUBSIDIARY. The Company shall at all times remain
a Wholly Owned Subsidiary of CJI; provided, however, that notwithstanding the
foregoing, the Company shall at any time be permitted to merge and/or
consolidate with and into CJI.

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<PAGE> 32

SECTION 10. SUBORDINATION.

SS.10.1 NOTES SUBORDINATED TO SENIOR INDEBTEDNESS. The Company agrees,
and each holder of Notes by his acceptance of such Notes likewise agrees, that
the payment of the principal and interest on the Notes (including, without
limitation, any payment made pursuant to ss.7.2 hereof) is subordinated, to the
extent and in the manner provided in this Section 10, to the prior payment in
full of all Senior Indebtedness.

This Section shall constitute a continuing offer to all Persons who,
in reliance upon such provisions, become holders of or continue to hold, Senior
Indebtedness and such provisions are made for the benefit of the holders of
Senior Indebtedness of the Company, and such holders are made obligees hereunder
and they and/or each of them may enforce such provisions.

SS.10.2 NO PAYMENT ON NOTES IN CERTAIN CIRCUMSTANCES. (a) (i) The
Company may not pay principal of or interest on the Notes and may not acquire
any Notes for cash or property (other than Capital Stock of the Company or CJI
that is not Restricted Capital Stock) including, without limitation, pursuant to
ss.7.2 hereof, if there exists a default in payment of Senior Indebtedness,
unless such payment default shall have been cured or waived. The Company may
resume payments on the Notes and may acquire them when the payment default is
cured or waived or has ceased to exist if this Section 10 otherwise permits the
payment or acquisition at that time.

(ii) In addition, during the continuance of any event of
default (other than in the payment of principal or interest) with respect to any
Senior Indebtedness pursuant to which the maturity thereof may be accelerated,
upon receipt by the Noteholders of a written notice from LaSalle National Bank,
as Agent, or after such time as the Senior Loan Documents (as defined on
Schedule Y) have been terminated, Friedman's Inc., no such payment or
acquisition of Notes may be made by the Company upon or in respect of the Notes
for a payment blockage period ("Payment Blockage Period") commencing on the date
of receipt of such notice and ending 360 days thereafter (unless such event of
default shall have been cured or waived or such Payment Blockage Period shall
have been terminated by written notice to the Noteholders from LaSalle National
Bank, as Agent, or Friedman's Inc., as the case may be). Notwithstanding
anything to the contrary herein, in no event shall a Payment Blockage Period
extend beyond 360 days from the date the payment on the Notes was due.
Notwithstanding anything to the contrary herein, not more than a total of 360
days of Payment Blockage Period may occur with respect to the Notes during any
period of 540 consecutive days (it being understood that the provisions of this
ss.10.2(a)(ii) shall prevent not more than 2 interest payments to be made under
the terms of this Agreement (as in effect on the date hereof) out of any 3
consecutive such interest payments). For all purposes of this ss.10.2(a)(ii), no
event of default which existed or was continuing on the date of the commencement
of any Payment Blockage Period with respect to the Senior Indebtedness
initiating such Payment Blockage Period shall be, or be made, the basis for the
commencement of a second Payment Blockage Period by LaSalle National Bank, as
Agent, or Friedman's Inc., as the case may be, whether or not within a period of
540 consecutive days unless such event of default shall have been cured or
waived for a period of not less than 90 consecutive days. The foregoing sentence
shall not, however, prevent an additional Payment Blockage Period based upon a
new

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<PAGE> 33

event of default under the same provision of the relevant agreement.
Notwithstanding the foregoing, no further notice may be given in respect of any
event of default of the type referred to in this ss.10.2(a)(ii) on any issue of
Senior Indebtedness or in respect of any acceleration unless and until all
scheduled payments of principal and interest not paid on the Notes during any
such Payment Blockage Period as a result of any notice or acceleration pursuant
to this ss.10.2(a)(ii) shall have been paid in full in cash or cash equivalents.
Nothing in this Section 10 shall relieve the holders of such Senior Indebtedness
from any notice requirements set forth in the instrument evidencing such Senior
Indebtedness.

(b) In the event that, notwithstanding the provisions of
ss.10.2(a) the Company shall make any payment to the Noteholders on account of
the principal of or interest on the Notes inconsistent with the provisions of
such ss.10.2(a), such payment shall be held by the Noteholders, for the benefit
of, and shall be paid forthwith over and delivered to, the holders of Senior
Indebtedness (in their respective order of priority) or their representative or
the trustee under the indenture or other agreement (if any) pursuant to which
Senior Indebtedness may have been issued, as their respective interests may
appear, for application to the payment of all Senior Indebtedness remaining
unpaid to the extent necessary to pay all such Senior Indebtedness in full in
the order of its priority and in accordance with its terms, after giving effect
to any concurrent payment or distribution to or for the holders of Senior
Indebtedness. Notwithstanding anything to the contrary in this ss.10.2,
including when any Payment Blockage Period is in effect, the Company shall be
permitted to make payments of interest to the Holders in equity securities of
CJI.

The Company shall give prompt written notice to the Noteholders of any
default in the payment of any of its Senior Indebtedness, and in the event of
any such event of default shall provide to the Noteholders in the form of an
Officer's Certificate the names and addresses of the holders of such Senior
Indebtedness or the name and address of the representative or trustee acting on
their behalf. The Noteholders shall be entitled to rely conclusively on such
Officer's Certificate without independent verification.

SS.10.3 NOTES SUBORDINATED TO PRIOR PAYMENT OF ALL SENIOR INDEBTEDNESS
ON DISSOLUTION, LIQUIDATION OR REORGANIZATION OF COMPANY. Upon any distribution
or payment of assets or Notes of the Company upon any dissolution, winding-up,
liquidation or reorganization of the Company of any kind or character (whether
voluntary or involuntary, in bankruptcy, insolvency or receivership proceedings
or upon an assignment for the benefit of creditors or otherwise):

(a) the holders of all Senior Indebtedness shall first be entitled
to receive payment in full of such Senior Indebtedness (which payment shall
include, without limitation, any interest accruing subsequent to an event
specified in subsections (g) through (l), inclusive, of ss.13.1 hereof only in
the event that at the time of such payment less than $28,500,000 in the
aggregate principal amount of the 14 1/2% Senior Subordinated Notes due 1999 of
the Company are outstanding) before the Noteholders are entitled to receive any
payment or distribution of any assets (other than Capital Stock of the Company
or CJI that is not Restricted Capital Stock) on account of the principal of or
interest on the Notes;

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<PAGE> 34

(b) any payment or distribution of assets of the Company of any
kind or character, whether in cash, property or Notes, to which the Noteholders
would be entitled except for the provisions of this Section 10, including any
such payment or distribution which may be payable or deliverable by reason of
the payment of any other indebtedness of the Company being subordinated to the
payment of the Notes, shall be paid by the liquidating trustee or agent or other
Person making such payment or distribution directly to the holders of Senior
Indebtedness or their representative or to the trustee under any indenture under
which Senior Indebtedness may have been issued (in their respective order of
priority), to the extent necessary to make payment in full of all Senior
Indebtedness remaining unpaid, after giving effect to any concurrent payment or
distribution or provision therefor to the holders of such Senior Indebtedness,
except that holders of the Notes shall be entitled to receive securities that
are subordinated to Senior Indebtedness to at least the same extent as the Notes
and whose other material terms are not less favorable to the holders of Senior
Indebtedness than the terms of the Notes; and

(c) in the event that notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, including any such payment or distribution which may be
payable or deliverable by reason of the payment of any other Indebtedness of the
Company being subordinated to the payment of the Notes, shall be received by the
trustee or the Noteholders on account of principal of or interest on the Notes
before all Senior Indebtedness is paid in full, such payment or distribution
shall be received and held in trust for and shall be paid forthwith over and
delivered to the holders of the Senior Indebtedness remaining unpaid or
unprovided for or their representative, or to the trustee under any indenture
under which such Senior Indebtedness may have been issued (in their respective
order of priority), for application to the payment of such Senior Indebtedness
until all such Senior Indebtedness shall have been paid in full, after giving
effect to any concurrent payment or distribution or provision therefor to or for
the holders of such Senior Indebtedness, except that the Noteholders shall be
entitled to receive securities that are subordinated to Senior Indebtedness to
at least the same extent as the securities and whose other material terms are no
less favorable to the holders of Senior Indebtedness than the terms of the
Notes.

The Company shall give prompt written notice to the Noteholders of any
dissolution, winding-up, liquidation or reorganization of the Company or any
assignment for the benefit of the Company's creditors.

SS.10.4 NOTEHOLDERS TO BE SUBROGATED TO RIGHTS OF HOLDERS OF SENIOR
INDEBTEDNESS. Subject to the payment in full of all Senior Indebtedness pursuant
to this Section 10, the Noteholders shall be subrogated equally and ratably to
the rights of the holders of Senior Indebtedness to receive payments or
distributions of assets of the Company applicable to the Senior Indebtedness
until all amounts owing on the Notes shall be paid in full, and for the purpose
of such subrogation no such payments or distributions to the holders of Senior
Indebtedness by or on behalf of the Company or by or on behalf of the
Noteholders by virtue of this Section 10 which otherwise would have been made to
the Noteholders shall, as among the Company, its creditors other than holders of
the Senior Indebtedness and the Noteholders, be deemed to be payment by the
Company to or on account of the Senior Indebtedness, it being understood that
the provisions

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<PAGE> 35

of this Section 10 are intended solely for the purpose of defining the relative
rights of the Noteholders, on the one hand, and the holders of Senior
Indebtedness, on the other hand.

SS.10.5 OBLIGATIONS OF THE COMPANY UNCONDITIONAL. Nothing contained in
this Section 10 or elsewhere in this Agreement or in any Note is intended to or
shall impair, as among the Company, its creditors other than holders of the
Senior Indebtedness and the Noteholders, the obligation of the Company, which is
absolute and unconditional, to pay to the Noteholders the principal of or
interest (including, to the extent lawful, any interest on overdue installments
of interest) on the Notes as and when the same shall become due and payable in
accordance with their terms, or is intended to or shall affect the relative
rights of the Noteholders and creditors of the Company other than the holders of
Senior Indebtedness, nor shall anything herein or therein prevent any Noteholder
from exercising all remedies otherwise permitted by applicable law upon Default
under this Agreement, subject to the rights under this Section 10 of the holders
of Senior Indebtedness in respect of cash, property or securities of the Company
received upon the exercise of any such remedy. Upon any distribution of assets
of the Company referred to in this Section 10, the Noteholders shall be entitled
to rely upon any order or decree made by any court of competent jurisdiction in
which such dissolution, winding-up, liquidation, reorganization or similar
proceedings are pending, or a certificate of the liquidating trustee or agent or
other Person making any distribution to the Noteholders, for the purpose of
ascertaining the Persons entitled to participate in such distribution, the
holders of Senior Indebtedness and other Indebtedness of the Company, the amount
thereof or payable thereon, the amount or amounts paid or distributed thereon
and all other facts pertinent thereto or to this Section 10.

Nothing contained in this Section 10 or elsewhere in this Agreement or
in any Note is intended to or shall affect the obligation of the Company to make
or, except as specifically provided in this Section 10, prevent the Company from
making, at any time except during the pendency of any dissolution, winding-up,
liquidation or reorganization proceeding, and except during the continuance of
any default specified in ss.10.2 hereof (not cured or waived), payments at any
time of the principal of or interest on the Notes.

SS.10.6 SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR OMISSIONS OF
COMPANY OR HOLDERS OF SENIOR INDEBTEDNESS. No right of any present or future
holders of any Senior Indebtedness to enforce subordination as provided herein
shall at any time in any way be prejudiced or impaired by any act or failure to
act on the part of the Company or by any act or failure to act, in good faith,
by any such holder, or by any noncompliance by the Company with the terms of
this Agreement, regardless of any knowledge thereof which any such holder may
have or be otherwise charged.

SS.10.7 SECTION 10 NOT TO PREVENT EVENTS OF DEFAULT. The failure to
make a payment on account of principal of or interest (including, to the extent
lawful, any interest on overdue installments of principal and defaulted interest
on the Notes) on the Notes by reason of any provision of this Section 10 shall
not be construed as preventing the occurrence of an Event of Default under
Section 13 hereof.

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<PAGE> 36

SS.10.8 NO FIDUCIARY DUTIES CREATED TO HOLDERS OF SENIOR INDEBTEDNESS.
The NoteholderS shall not be deemed to owe any fiduciary duties to the holders
of Senior Indebtedness by virtue of the provisions of this Section 10.

SS.10.9 AMENDMENT OF SUBORDINATION PROVISIONS. No provision of Section
10 hereof may be amended without the prior written consent of LaSalle National
Bank, as Agent, so long as any Indebtedness under the Senior Loan Documents (as
defined in Schedule Y hereto) remains outstanding and, so long as any
Indebtedness remains outstanding under the Friedmans Loan Documents (as defined
in Schedule Y hereto), Friedman's Inc.

SECTION 11. CONVERSION OF NOTES.

SS.11.1 CONVERSION PRIVILEGE. The unpaid principal amount of any Note
or any portion thereof may, at the election of the holder thereof, be converted
into shares of Class A Common Stock pursuant to, and upon the terms and
conditions of, the Conversion Agreement, if any, among such holder, the Company
and CJI.

SECTION 12. INFORMATION TO BE FURNISHED TO NOTEHOLDERS.

SS.12.1 FINANCIAL STATEMENTS OF THE COMPANY. The Company covenants
that it will deliver to each holder of a Note two copies of the following:

(a) as soon as practicable and, in any case, within 90 days after
the close of each Fiscal Year, the consolidated balance sheet of the Company,
setting forth the consolidated statement of financial position of the Company
and its Subsidiary as of the end of such Fiscal Year and the consolidated
statements of earnings, stockholders' equity and cash flow of the Company and
its Subsidiary for such Fiscal Year, setting forth in each case, in comparative
form, the figures for the preceding Fiscal Year, all in reasonable detail, such
consolidated financial statements of the Company to be accompanied by an
unqualified opinion thereon of a firm of independent certified public
accountants of nationally recognized standing, which opinion shall state that
(i) the examination of such accountants in connection with such financial
statements has been made in accordance with generally accepted auditing
standards and, accordingly, included such tests of the accounting records and
such other auditing procedures as were considered necessary in the
circumstances, and (ii) such financial statements present fairly the financial
condition of the Company and its Subsidiary at such date and the results of
operations thereof for such period and have been prepared in accordance with
generally accepted accounting principles consistently applied, except for
changes in application of generally accepted accounting principles in which such
accountants concur; and

(b) as soon as practicable and, in any case, within 45 days after
the end of each of the first three Fiscal Quarters, the consolidated financial
statements of the Company and its Subsidiary, setting forth the unaudited
consolidated balance sheet of the Company and its Subsidiary as of the end of
such accounting period and the unaudited consolidated statements of

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earnings, stockholders' equity and cash flow of the Company and its Subsidiary
for such Fiscal Quarters and for the Fiscal Year to date, setting forth in each
case, in comparative form, the figures for the corresponding periods of the
preceding fiscal year, all in reasonable detail and prepared and certified by
the Chief Financial Officer or Treasurer of the Company as complete and correct,
as having been prepared in accordance with generally accepted accounting
principles consistently applied and as presenting fairly the financial condition
of the Company and its Subsidiary and results of operations thereof subject, in
each case, to changes resulting from year-end audit adjustments, together with
comments and quarterly budget analysis prepared for presentation to the Board of
Directors of the Company.

SS.12.2 OTHER INFORMATION. The Company will deliver to each holder of
a Note the following:

(a) promptly after submission thereof to the Company, copies of
any detailed reports submitted to the Company by its independent certified
public accountants in connection with each annual or interim audit of the
accounts of the Company made by such accountants;

(b) promptly upon distribution thereof, copies of all financial,
other statements (including proxy statements and annual environmental audits)
and reports or notices, excluding borrowing notices, as the Company shall send
to any class of its shareholders (in such capacity), any of its bank lenders
(including but not limited to the Bank Agent) or any holder of any of its
Indebtedness;

(c) promptly after filing thereof, copies of all regular and
periodic reports and registration statements which the Company may file with the
SEC or any governmental agency substituted therefor and, promptly upon written
request therefor, copies of any financial statements which the Company may file
annually with any state regulatory agency or agencies;

(d) promptly and, in any event, within 30 days thereafter, notice
of the institution of any suit, action or proceeding against the Company which
could, in the reasonable judgment of the Company, have a materially adverse
effect on the business, earnings, properties or condition (financial or
otherwise) of the Company and its Subsidiary, taken as a whole;

(e) promptly, and, in any event, within five days thereafter upon
any responsible officer of the Company obtaining knowledge of any condition or
event which constitutes or which, after notice or lapse of time or both, would
constitute an Event of Default, an Officer's Certificate of the Company,
specifying the nature and period of existence thereof, what action the Company
has taken or is taking or proposes to take with respect thereto, and an estimate
of the time necessary to cure such condition or event;

(f) promptly upon becoming aware of the occurrence of any (i)
"reportable event" (within the meaning of Section 4043 of ERISA) or (ii)
prohibited transaction, that could result in a material tax or penalty on the
Company or any of its ERISA Affiliates in connection with any Plan, a written
notice specifying the nature thereof, what action the Company or any of

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<PAGE> 38

its ERISA Affiliates is taking or proposes to take with respect thereto and,
when known, any action taken by the Internal Revenue Service, the United States
Department of Labor or the PBGC with respect thereto;

(g) promptly after receipt of notice of the exercise of any remedy
by a secured party with respect to any of the assets or property of the Company
or its Subsidiary;

(h) promptly upon request therefor, such other data, filings and
information as any Noteholder may from time to time reasonably request; and

(i) promptly upon the formation or the acquisition thereof,
notice of the formation or acquisition, as the case may be, of any new
Subsidiary.

SS.12.3 OFFICER'S CERTIFICATES. (a) Each set of financial statements
delivered pursuant to subsection (a) or (b) of ss.12.1 hereof shall be
accompanied by a certificate, signed by the President, the Chief Executive
Officer or the Chief Financial Officer or the Treasurer of the Company, stating
that, in the opinion of such officer and to his or her knowledge and belief, the
Company was not, upon the date of such certificate or at any time during the
period covered by said financial statements, in default under any of the
provisions of this Agreement; provided, however, that, in the event that any
such default shall have occurred, such certificate shall so specify and shall
state whether such default has been cured or is continuing and, if continuing,
what steps the Company has taken or is taking or proposes to take to cure such
default and an estimate of the time necessary to cure such default.

(b) In addition to the requirements set forth in subsection (a)
above, each set of financial statements delivered pursuant to subsection (a) of
ss.12.1 hereof shall be accompanied by a certificate signed by the President,
the Chief Executive Officer or the Chief Financial Officer or the Treasurer of
the Company, setting forth in reasonable detail the calculations made as of the
end of such period in determining compliance with the provisions of ss.ss.9.9,
9.11 and 9.16 hereof.

SS.12.4 ACCOUNTANTS' CERTIFICATES. Each set of financial statements
delivered pursuant to subsection (a) of ss.12.1 hereof shall be accompanied by a
report of the independent certified public accountants who shall have reported
on such financial statements (i) stating that such accountants have read this
Agreement insofar as is necessary for such report and that, in making the
examination necessary to express an opinion on such financial statements, such
accountants have obtained no knowledge of any condition or event pertaining to
accounting or financial matters, or the consolidated financial condition of the
Company and its Subsidiary, that then constitutes an Event of Default, or, if
any Event of Default then exists, specifying the nature and period of existence
thereof (provided that such accountants may state that the purpose of such
examination was not to determine the existence of any Event of Default) and (ii)
stating that such accountants have reviewed the certificates delivered pursuant
to ss.12.3(b) hereof for each of the three preceding fiscal quarters and that
nothing has come to their attention, that would lead them to believe that the
Company and its Subsidiary are not in compliance with the provisions of

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<PAGE> 39

ss.ss.9.9, 9.11 and 9.16 hereof or if such accountants believe otherwise,
specifying the nature of such noncompliance.

SECTION 13. DEFAULTS AND REMEDIES.

SS.13.1 EVENTS OF DEFAULT; ACCELERATION OF NOTES. If any of the
following conditions or events ("Events of Default") shall occur and be
continuing:

(a) if any payment or prepayment (whether optional or mandatory)
of principal of or premium on any Note shall not be made when the same becomes
due and payable, whether at maturity, upon acceleration or otherwise; or

(b) if any payment of interest on any Note shall not be made when
the same becomes due and payable and such default shall continue for ten days
following the date on which such payment was due and payable; or

(c) any representation or warranty of the Company contained in
this Agreement or in any agreement, instrument, certificate, statement or other
writing furnished in connection herewith or therewith or pursuant hereto or
thereto shall prove to have been false or inaccurate in any material respect on
the date as of which such representation or warranty was made; or

(d) the Company shall default in the due and punctual performance
of or compliance with any covenant, condition or agreement to be performed or
observed by it under any provision hereof or of any Conversion Agreement and the
holders of more than 50% of the aggregate principal amount of Notes then
outstanding notify the Company of such default and any such default shall
continue unremedied for 30 days after receipt of such notice; or

(e) the Company or its Subsidiary shall (i) fail to pay when due
principal of or interest on any Indebtedness for Money Borrowed of the Company
or such Subsidiary with an outstanding aggregate principal amount of at least
$2,000,000, whether at maturity, at a date fixed for prepayment, upon
acceleration or otherwise, and such failure continues after the expiration of
any applicable grace period or (ii) at any time that no Designated Senior
Indebtedness is outstanding, default in the performance or observance of any
other provision contained in any instrument or agreement evidencing such
Indebtedness for Money Borrowed, if the effect of such default is to permit or
cause Indebtedness for Money Borrowed with an outstanding aggregate principal
amount of at least $2,000,000 to become due and payable prior to its scheduled
maturity; or

(f) a final judgment or judgments entered by a court of competent
jurisdiction for the payment of money in excess of $1,000,000 in the aggregate
shall be rendered against the Company and shall remain in force undischarged and
unstayed for a period of more than 60 days; or

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<PAGE> 40

(g) the Company or any Subsidiary shall commence a voluntary case
under any chapter of the Federal Bankruptcy Code as now or hereafter in effect;
or

(h) the Company or any Subsidiary shall institute proceedings for
liquidation, rehabilitation, readjustment or composition (or for any related or
similar purpose) under any law (other than the Federal Bankruptcy Code, as now
or hereafter in effect) relating to financially distressed debtors, their
creditors or property, or shall consent to (or fail to controvert in a timely
manner) the institution of any such proceedings against the Company or any
Subsidiary; or

(i) the Company or any Subsidiary shall be unable, or shall admit
in writing its inability, to pay its debts as they become due, or shall make an
assignment for the benefit of creditors or enter into any arrangement for the
adjustment or composition of debts or claims; or

(j) a court or other governmental authority or agency having
jurisdiction in the premises shall enter a decree or order (i) for the
appointment of a receiver, liquidator, assignee, trustee or sequestrator (or
other similar official) of the Company or its Subsidiary or of any part of its
property, or for the winding-up or liquidation of its affairs or (ii) for the
sequestration or attachment of any material part of the property of the Company
or any Subsidiary without its unconditional return to the possession of the
Company or any Subsidiary, or its unconditional release from such sequestration
or attachment, within 60 days thereafter; or

(k) a court having jurisdiction in the premises shall enter an
order for relief in any involuntary case commenced against the Company or its
Subsidiary under the Federal Bankruptcy Code and the order remains unstayed and
in effect for 60 days; or

(l) a court or other governmental authority or agency having
jurisdiction in the premises shall enter a decree or order approving or
acknowledging as properly filed or commenced against the Company or its
Subsidiary a petition or proceedings for liquidation, rehabilitation,
readjustment or composition (or for any related or similar purpose) under any
law (other than the Federal Bankruptcy Code, as now or hereafter in effect)
relating to financially distressed debtors, their creditors or property, and any
such decree or order shall remain in force undischarged and unstayed for a
period of more than 60 days;

(m) CJI shall default in the due and punctual performance of or
compliance with any covenant, condition or agreement to be performed or observed
by it under any provision of any Conversion Agreement and the holders of more
than 50% of the aggregate principal amount of Notes then outstanding notify CJI
of such default and any such default shall continue unremedied for 30 days after
receipt of such notice; or

(n) the Company or CJI shall fail to comply in any material
respect with any of its agreements or covenants in the Registration Rights
Agreement.

then (i) upon the occurrence and continuance of any of the Events of Default set
forth in subsections (g) through (l), inclusive, of this ss.13.1, the Notes
shall automatically mature and

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become due and payable without presentment, demand, protest or notice of any
kind, all of which are hereby expressly waived, together with interest and
premium, if any, accrued thereon, without presentment, demand, protest or notice
of any kind, all of which are hereby waived; (ii) upon the occurrence and
continuance of any of the Events of Default set forth in subsections (a) or (b)
of this ss.13.1, any holder or holders of Notes may, in respect of the Notes
then held by such holder or holders, at any time (unless all defaults shall
theretofore have been waived or remedied) at its or their option by written
notice or notices to the Company declare the Notes held by such holder or
holders to be due and payable whereupon the same shall mature and become due and
payable, together with interest and premium, if any, accrued thereon, without
presentment, demand, protest or notice of any kind, all of which are hereby
expressly waived; or (iii) upon the occurrence and continuance of any of the
Events of Default set forth in subsections (a) through (f), inclusive, and
subsection (m), of this ss.13.1, the holder or holders of more than 50% of the
aggregate outstanding principal amount of the Notes may, in respect of all the
Notes, at its or their option by written notice or notices to the Company,
declare all of the Notes to be due and payable whereupon the same shall mature
and become due and payable, together with interest and premium, if any, accrued
thereon, without presentment, demand, protest or notice of any kind, all of
which are hereby expressly waived.

SS.13.2 DEFAULT REMEDIES. If an Event of Default shall occur and be
continuing, the holder of any Note then outstanding may exercise any right,
power or remedy permitted to it by law, either by suit in equity or by action at
law, or both, whether for specific performance of any covenant or agreement
contained in this Agreement or in such Note or in aid of the exercise of any
power granted in this Agreement or in such Note, or may proceed to enforce
payment of such Note or to enforce any other legal or equitable right of the
holder of such Note. No remedy herein conferred upon any holder of a Note is
intended to be exclusive of any other remedy and each and every remedy shall be
cumulative and shall be in addition to every other remedy given hereunder or now
or hereafter existing at law, in equity, by statute or otherwise. No course of
dealing on the part of any holder of any Note, or any delay or failure on the
part of any holder of any Note to exercise any right or power, shall operate as
a waiver of such right or Power or otherwise prejudice the rights, powers and
remedies of such holder or of any other holder. No failure to insist upon strict
compliance with any covenant, term, condition or other provision of this
Agreement or the Notes shall constitute a waiver by any holder of any of the
Notes of any such covenant, term, condition or other provision or of any Default
or Event of Default in connection therewith. To the extent effective under
applicable law, the Company hereby agrees to waive, and does hereby absolutely
and irrevocably waive and relinquish, the benefit and advantage of any
valuation, stay, appraisement, extension or redemption laws now existing or that
may hereafter exist that, but for this provision, might be applicable to any
sale made under any judgment, order or decree of any court, or otherwise, based
on the Notes or on any claim for interest on the Notes. If an Event of Default
shall occur, the Company will pay to the holders of the Notes, to the extent not
prohibited by applicable law, such further amount as shall be sufficient to
cover the reasonable costs and expenses of collection and of the taking of
remedial actions, the maintenance of enforcement proceedings and the analysis
and assessment of the rights and remedies available to the holders of the Notes,
including, without limitation, reasonable attorneys' fees and expenses. All sums
payable by the Company under the Notes shall

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be paid without counterclaim, setoff, deduction or defense and without
abatement, suspension, deferment, diminution or reduction.

SS.13.3 NOTICE OF DEFAULT. If the holder of any Note or of any other
evidence of Indebtedness of the Company shall give any notice or take any other
action with respect to a claimed Default, the Company shall forthwith give
written notice thereof to all holders of Notes then outstanding describing the
notice or action and the nature of the claimed Default.

SS.13.4 ANNULMENT OF ACCELERATION OF NOTES. If notice is delivered (a)
pursuant to clause (ii) of ss.13.1 hereof by any holder or holders of a Note or
Notes, then such holder or each of such holders, as the case may be, may, by
written instrument filed with the Company, rescind and annul its respective
declaration and the consequences thereof; or (b) pursuant to clause (iii) of
ss.13.1 hereof, by any holder or holders of a Note or Notes, then the holders of
more than 50% of the Notes then outstanding may, in respect of all the Notes, by
written instrument filed with the Company, rescind and annul such declaration
and the consequences thereof or of such Event of Default pursuant to this
Agreement; provided, however, that at the time of an annulment and rescission
pursuant to the foregoing clause (a) or (b) of this ss.13.4:

(i) no judgment or decree shall have been entered for
payment of any monies due pursuant to the Notes or this Agreement;

(ii) all arrears of principal, premium and interest upon all
the Notes and all other sums payable under the Notes and this
Agreement (including reasonable costs and expenses of the holders
incurred in connection with such notice under ss.15.1 hereof or
annulment under this ss.13.4, but excluding any principal of or
interest on the Notes that shall have become due and payable by reason
of such notice under ss.13.1 hereof or occurrence of such Event of
Default) shall have been duly paid; and

(iii) each and every other Default and Event of Default
hereunder shall have been waived pursuant to ss.13.4 hereof or cured;

and provided, further, that no such rescission and annulment shall extend to or
affect any subsequent Default or Event of Default or impair any right or power
consequent thereon.

SECTION 14. INTERPRETATION OF AGREEMENT AND NOTES.

SS.14.1 DEFINITIONS. Except as the context shall otherwise require,
the following terms shall have the following meanings for all purposes of this
Agreement (the definitions to be applicable to both the singular and the plural
form of the terms defined, where either such form is used in this Agreement):

The term "Affiliate," with respect to any Person (hereinafter "such
Person"), shall mean any other Person (a) which directly or indirectly through
one or more intermediaries

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controls, or is controlled by, or is under common control with, such Person or
another Affiliate of such Person, (b) which beneficially owns or holds 10% or
more of the shares of any class of the Voting Stock of such Person, or (c) 10%
or more of the shares of any class of Voting Stock of which is beneficially
owned or held by such Person or any Affiliate of such Person. The term "control"
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether through the
ownership of Voting Stock, by contract or otherwise. The term "Affiliate," when
used herein without reference to any Person, shall mean an Affiliate of the
Company.

The term "Bank Agent" shall mean LaSalle National Bank, as agent for
the banks party to the Bank Loan Agreement, and any successor thereto,
replacement thereof and assignee thereof under the Bank Loan Agreement.

The term "Bank Loan Agreement" shall mean the Loan and Security
Agreement dated as of October 15, 1996 between the Company and LaSalle National
Bank, as agent, as amended, supplemented or otherwise modified from time to
time.

The term "Board Of Directors" when used herein without reference to
any particular Person shall mean the Board of Directors of the Company.

The term "Business Day" shall mean any day on which commercial banks
are not authorized or required to close in San Francisco, California and
Atlanta, Georgia.

The term "Capital Lease" shall mean any lease which is required to be
capitalized on a balance sheet of the lessee in accordance with generally
accepted accounting principles.

The term "Capitalized Lease Obligations" shall mean the aggregate
amount which, in accordance with generally accepted accounting principles, is
required to be reported as a liability on the balance sheet of any Person at
such time in respect of such Person's interest as lessee under a Capital Lease.

The term "Capital Stock" of any Person (and when used herein and
without reference to any particular Person shall mean the Capital Stock of the
Company) means any and all shares, interests, participations or other
equivalents (however designated) of corporate stock or any other equity interest
of such Person. Indebtedness which is convertible into equity securities shall
not be deemed to constitute Capital Stock.

The term "CJI" shall mean Crescent Jewelers Inc., a Delaware
corporation, the parent company of Crescent Jewelers.

The term "CJ Morgan Corporation" shall mean CJ Morgan Corporation, a
Delaware corporation and general partner of CJ Morgan Limited Partnership.

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<PAGE> 44

The term "CJ Morgan Limited Partnership" shall mean CJ Morgan Limited
Partnership, a Delaware limited partnership the general partner of which is CJ
Morgan Corporation.

The term "Class A Common Stock" shall mean the Class A Common Stock of
CJI.

The term "Closing Date" shall have the meaning set forth in ss.1.2
hereof.

The term "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.

The term "Commission" and/or "SEC" shall mean the Securities and
Exchange Commission.

The term "Company" shall mean Crescent Jewelers, a California
corporation.

The term "Consolidated Funded Indebtedness" shall mean, for any
period, the Funded Indebtedness of the Company and its Subsidiary consolidated
for such period determined in accordance with generally accepted accounting
principles applied on a consistent basis after eliminating all offsetting debits
and credits between the Company and its Subsidiary and other items to be
eliminated in accordance with generally accepted accounting principles.

The term "Consolidated Net Income (or Net Loss)" shall mean, for any
period, the consolidated net income (or net loss) of the Company and its
Subsidiary for such period determined in accordance with generally accepted
accounting principles applied on a consistent basis after eliminating all
offsetting debits and credits between the Company and its Subsidiary and other
items to be eliminated in accordance with generally accepted accounting
principles, but, in any event, excluding:

(a) the proceeds from any life insurance policy;

(b) net gains or losses on the sale or other disposition of
investments or fixed or capital assets and any tax deductions or credits on
account of any such excluded losses;

(d) net earnings of any Person (other than a Subsidiary) in which the
Company or any Subsidiary has an ownership interest except to the extent such
net earnings shall have actually been received by the Company or any Subsidiary
in the form of cash distributions;

(e) any portion of the net earnings of any Subsidiary which for any
reason is unavailable for payment of dividends to the Company;

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(f) any gain arising from the acquisition of any Capital Stock or
other securities of the Company or any Subsidiary;

(g) any gain resulting from any reappraisal, regulation or write-up
of assets;

(h) net earnings and losses of any Person (other than a Subsidiary),
substantially all the assets of which have been acquired by the Company or any
Subsidiary in any manner, realized by such Person prior to the date of
acquisition; and

(i) net earnings and losses of any Person (other than a Subsidiary)
which shall have been merged into or consolidated with the Company or any
Subsidiary prior to the date of such merger or consolidation.

The term "Consolidated Net Worth" of any Person shall mean as of any
date the total amount of common shareholders' equity and the aggregate
liquidation preference of any preferred stock which would appear on a
consolidated balance sheet of such Person as of such date in accordance with
generally accepted accounting principles.

The term "Consolidated Tangible Assets" shall mean, as of the date of
determination thereof, the aggregate of the Tangible Assets of the Company and
its Subsidiary determined on a consolidated basis eliminating all offsetting
debits and credits between the Company and its Subsidiary and all other items to
be eliminated in accordance with generally accepted accounting principles.

The term "Consolidated Tangible Net Worth" shall mean as of the date
of determination thereof, the Company's shareholders' equity (including retained
earnings) less the book value of all intangible assets as determined solely by
the Bank Agent on a consistent basis plus the amount of any LIFO reserve plus
the amount of any debt subordinated to Agent and Lenders all as determined under
generally accepted accounting principles applied on a basis consistent with the
financial statement of the Company dated July 31, 1996.

The term "Control Persons" shall mean, collectively, (i) Morgan Schiff
& Company, Inc. and any directors, officers and employees thereof and (ii)
Affiliates of the foregoing.

The term "Conversion Agreement" shall mean, with respect to a holder,
the Conversion Agreement by and among the Company, CJI and such holder setting
forth the terms and conditions on which such holder may convert all or a portion
of the unpaid principal amount of the Notes held by such holder into Class A
Common Stock.

The term "Default" shall mean an event which, with the passage of time
or the giving of notice, or both, would become an Event of Default.

The term "Designated Senior Indebtedness" shall mean Indebtedness
consisting of (i) revolving credit or other bank loans incurred by the Company
for general working capital

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<PAGE> 46

purposes and (ii) the Indebtedness and other amounts owing under the Senior Loan
Documents and the Friedman's Loan Documents (each as defined on Schedule Y
hereto) incurred in accordance with ss.9.16 hereof.

The term "Designated Subsidiary" during any period means any direct or
indirect Subsidiary of the Company, if the Company has outstanding guarantees
with respect to the payment of, or has otherwise become liable in respect of,
any amount payable in respect of the Indebtedness of such Subsidiary.

The term "ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended from time to time.

The term "ERISA Affiliate" shall mean any Person which is under
"common control" with the Company within the meaning of Section 4001(b) of
ERISA.

The term "Event of Default" shall have the meaning assigned thereto in
ss.13.1 hereof.

The term "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended from time to time.

The term "Existing Debt Agreements" shall mean the following: (i) the
Loan Agreements; the (ii) Note Agreements and (iii) any promissory note,
security agreement, pledge agreement, guaranty or any other document, instrument
or agreement executed by the Company, its Subsidiary or any shareholder of the
Company in connection with any of the foregoing.

The term "Financial Statements" shall have the meaning set forth in
ss.2.4 hereof.

The term "Fiscal Quarter" shall mean each of the four consecutive
quarterly periods collectively forming a Fiscal Year.

The term "Fiscal Year" shall mean any period of four consecutive
Fiscal Quarters ending on the closest Friday to July 31 of each year.

The term "Friedman's" shall mean Friedman's Inc., a Delaware
corporation.

The term "Friedman's Loan Agreement" shall mean the Loan and Security
Agreement dated as of October 15, 1996 between the Company and Friedman's, as
amended, supplemented or otherwise modified from time to time.

The term "Funded Indebtedness," with respect to any Person, shall
mean, as of the date of any determination thereof, all Indebtedness for Money
Borrowed of such Person having a final maturity of at least one year from the
date of creation thereof (including that portion of the principal of such
Indebtedness for Money Borrowed of such Person having a final maturity, duration
or payment date within one year from such date) which, pursuant to the terms of
a

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<PAGE> 47

revolving credit or similar agreement or otherwise, may be renewed or extended
at the option of such Person for more than one year from such date, whether or
not theretofore renewed or extended.

The term "generally accepted accounting principles" or "GAAP" shall
mean, as of the date of any determination with respect thereto, generally
accepted accounting principles as used by the Financial Accounting Standards
Board and/or the American Institute of Certified Public Accountants,
consistently applied and maintained throughout the periods indicated.

The term "guaranty," with respect to any Person, shall mean all
obligations of such Person guaranteeing or in effect guaranteeing any
Indebtedness, dividend or other obligation or investment of any other Person
(the "primary obligor") in any manner, whether directly or indirectly, including
obligations incurred through an agreement, contingent or otherwise, by such
Person (a) to purchase such Indebtedness, obligation or investment or any
property or assets constituting security therefor; (b) to advance or supply
funds (i) for the purchase or payment of such Indebtedness, obligation or
investment or (ii) to maintain working capital or equity capital, or otherwise
to advance or make available funds for the purchase or payment of such
Indebtedness, obligation or investment; (c) to purchase property, securities or
services primarily for the purpose of assuring the owner of such Indebtedness,
obligation or investment of the ability of the primary obligor to make payment
of such Indebtedness, obligation or investment; or (d) otherwise to assure the
owner of such Indebtedness, obligation or investment against loss in respect
thereof.

The terms "hereof," "herein," "hereunder" and other words of similar
import shall be construed to refer to this Agreement as a whole and not to any
particular Section or other subdivision.

The term "holder," with respect to any Note, shall mean the Person in
whose name such Note shall be registered.

The term "Incapacity," with respect to any Person, shall mean the
adjudication of incompetence or insanity or the death of such Person.

The term "Indebtedness," with respect to any Person, shall mean all
items (other than Capital Stock, capital surplus, retained earnings and deferred
credits) which, in accordance with GAAP, would be included in determining total
liabilities as shown on the liability side of a balance sheet as at the date on
which indebtedness is to be determined. The term "Indebtedness" shall also
include, whether or not so reflected, (a) indebtedness, obligations and
liabilities secured by any Lien on property of such Person whether or not the
indebtedness secured thereby shall have been assumed by such Person, (b) all
obligations in respect of Capital Leases and (c) all guaranties.

The term "Indebtedness for Money Borrowed," with respect to
any Person, shall mean and include the aggregate amount of, without duplication:
(a) all obligations of such Person for borrowed money; (b) all obligations of
such Person evidenced by bonds, debentures, notes, or

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other similar instruments; (c) all Capitalized Lease Obligations of such Person;
(d) all obligations or liabilities of others secured by a Lien on any asset
owned by such Person, irrespective of whether such obligation or liability is
assumed, to the extent of the lesser of such obligation or liability or the fair
market value of such asset; (e) all Indebtedness for property or services
acquired by such Person, except accounts payable and accrued liabilities arising
in the ordinary course of business that are not overdue by more than 90 days or
that are being contested in good faith; and (f) any guarantee of Indebtedness
described in any of clauses (a) through (f) above, including obligations in
respect of letters of credit.

The term "Initial Public Offering" shall mean the first public
offering and sale after the date hereof of such number of shares of Class A
Class A Common Stock of CJI equal to at least 10% of the Class A Common Stock of
CJI then outstanding (after giving effect to such public offering and sale)
pursuant to an effective registration statement under the Securities Act (other
than on Forms S-4 and S-8 or a similar form) or pursuant to an effective
registration statement under the Exchange Act.

The term "Institutional Investor" shall mean any one or more of the
following Persons: (a) any bank, savings institution, trust company or national
banking association, acting for its own account or in a fiduciary capacity; (b)
any charitable foundation; (c) any insurance company or Affiliate thereof or
fraternal benefit association; (d) any pension, retirement or profit-sharing
trust or fund; or (e) any public employees' pension or retirement system or any
other governmental agency supervising the investment of public funds.

The term "Interest Expense" shall mean, for any period, without
duplication, the aggregate of all interest paid or accrued by the Company and
its Subsidiary during such period for Indebtedness of the Company or its
Subsidiary owed to any Person other than the Company or any Subsidiary, on a
consolidated basis, including, without limitation, interest payable with respect
to the Notes and the interest portion of Capital Lease payments, all as
determined in accordance with GAAP.

The term "Interest Payment Date" shall have the meaning set forth in
ss.1.1 hereof.

The term "Investment" shall mean, as applied to any Person (and when
used herein without reference to any particular person shall mean the Company),
any direct or indirect purchase or other acquisition by such Person of stock or
other securities of, or partnership or other equity interests in, any other
Person, or any direct or indirect advance or capital contribution by such Person
to any other Person.

The term "Lien" shall mean any interest in property securing an
obligation owed to, or a claim by, any Person other than the owner of the
property, whether such interest shall be based on the common law, statute or
contract, whether or not such interest shall be recorded or perfected and
whether or not such interest shall be contingent upon the occurrence of some
future event or events or the existence of some future circumstance or
circumstances, and including the lien or security interest arising from a
mortgage, encumbrance, pledge, adverse claim or charge, conditional sale or
trust receipt, or from a lease, consignment or bailment for security purposes.

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The term "Lien" shall also include reservations, exceptions, encroachments,
easements, rights-of-way, covenants, conditions, restrictions, leases and other
title exceptions and encumbrances affecting property. For the purposes of this
Agreement, a Person shall be deemed to be the owner of any property that such
Person shall have acquired or shall hold subject to a conditional sale agreement
or other arrangement (including a leasing arrangement) pursuant to which title
to the property shall have been retained by or vested in some other Person for
security purposes.

The term "Loan Agreements" shall mean the Bank Loan Agreement and the
Friedman's Loan Agreement.

The term "Note Agreements" shall mean the following: (i) the Note
Purchase Agreement, dated as of April 13, 1990, with Teachers Insurance and
Annuity Association of America, as amended, restated, supplemented or otherwise
modified from time to time, relating to the issuance of $5,000,000 in aggregate
principal amount of the Company's 9% Convertible Subordinated Notes due April
15, 2000; (ii) the Indenture, dated as of January 15, 1989, as amended,
restated, supplemented or otherwise modified from time to time, relating to the
issuance of $5,000,000 in aggregate principal amount of the Company's 13 1/2%
Subordinated Notes due 1999; (iii) the Indenture, dated as of January 15, 1989,
as amended, restated, supplemented or otherwise modified from time to time,
relating to the issuance of $28,500,000 in aggregate principal amount of the
Company's 14 1/2% Subordinated Notes due 1999; and (iv) this Agreement.

The term "Noteholder" shall mean each holder from time to time of an
outstanding Note.

The term "Notes" shall have the meaning set forth in ss.1.1 hereof.

The term "Officer's Certificate" shall mean a certificate executed on
behalf of a corporation by any of its Chief Executive Officer, President, Vice
President of Finance or Chief Financial Officer.

The term "Operative Event" shall have the meaning set forth in ss.7.2
hereof.

The term "Optional Prepayment Date" shall have the meaning set forth
in ss.7.1(b) hereof.

The term "outstanding," with respect to the Notes, shall mean, as of
the date of determination, all Notes theretofore delivered pursuant to this
Agreement, except Notes theretofore cancelled or delivered for cancellation and
Notes in exchange or replacement for which other Notes have been delivered
pursuant to this Agreement; provided, however, that in determining whether the
holders of the requisite aggregate unpaid principal amount of Notes outstanding
have given any notice or taken any action hereunder, Notes held or owned,
directly or indirectly, by the Company, its Subsidiary or any Affiliate of the
Company (other than Friedman's and any of its Affiliates) shall be disregarded
and deemed not to be outstanding.

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<PAGE> 50

The term "Payment Blockage Period" shall have the meaning set forth in
ss.10.2 hereof.

The term "PBGC" shall mean the Pension Benefit Guaranty Corporation or
any successor thereof.

The term "Person" shall mean any individual, corporation, partnership,
joint venture, association, joint stock company, trust, estate, unincorporated
organization or government (or any agency or political subdivision thereof).

The term "Preferred Stock" shall mean shares of stock of the Company
(whether or not such shares are designated preferred stock, preference stock or
the like) that shall be entitled to preference or priority over any other shares
of stock of the Company in respect of either the payment of dividends or the
distribution of assets upon liquidation.

The term "Prepayment Purchase Price", with respect to the Note to be
prepaid, as of the prepayment date, shall be an amount equal to the product of
(a) 15, multiplied by (b) the greater of (i) Consolidated Net Income for the
twelve-month period ended on such prepayment date or (ii) Consolidated Net
Income for the twenty-four-month period ended on such prepayment date divided by
two, multiplied by (c) the percentage of Voting Common Stock which the holder of
such Note would have been entitled to receive had such Note been converted into
Voting Common Stock on the date that the Company shall have given notice of such
prepayment.

The term "Purchase Price" shall have the meaning set forth in ss.1.2
hereof.

The term "Refinancing Transactions" shall mean the transactions
effected on or prior to the date hereof by the Company and CJI and their
stockholders and creditors, relating to the transactions described on Schedule Y
attached hereto.

The term "Registration Rights Agreement" shall mean that certain
Registration Rights Agreement dated as of October 15, 1996, by and between the
Company, CJI, Friedman's and certain other holders of CJI's capital stock.

The term "Required Noteholders" shall mean the holders of more than
50% of the aggregate outstanding principal amount of the Notes.

The term "Restricted Capital Stock" shall mean (i) any preferred stock
now in existence or hereafter issued by any Subsidiary of the Company or (ii)
any preferred stock now in existence or hereafter issued by the Company which by
its terms is mandatorily redeemable, redeemable at the option of the holder
thereof or exchangeable into Indebtedness or Restricted Capital Stock prior to
the final maturity of the Notes.

The term "Restricted Investment" shall mean any Investment other than:

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(i) loans and investments existing on the date
hereof and set forth in Schedule 14.1-A hereto;

(ii) trade credits extended to suppliers of the
Company and other similar credits and investments made in the ordinary
course of business and under usual and customary terms;

(iii) loans to and investments in Subsidiaries;

(iv) any certificate of deposit with a final maturity
of one year or less issued by any bank or trust company incorporated in
the United States or any subdivision thereof whose obligations are
rated AA or its equivalent or better by at least one recognized rating
service and which has combined capital, surplus and undivided profits,
at the end of its most recent fiscal year, in excess of $100,000,000;

(v) any direct obligations of the United States of
America or obligation of the United States of America or obligation of
any instrumentality or agency thereof the payment of the principal and
interest on which is unconditionally guaranteed by the United States of
America; provided, however, that any such obligation shall have a final
maturity date not more than one year after the acquisition thereof; and

(vi) commercial paper of any corporation incorporated
in the United States of America maturing not more than 270 days from
the date of issuance thereof and rated "A-1" or better by Standard &
Poor's Investor Service, Inc. ("S&P") or "P-1" or better by Moody's
Investor Service, Inc. ("Moody's").

The term "Restricted Payment" shall mean (a) any dividend or other
distribution, direct or indirect, in respect of any shares of the Capital Stock
or any partnership interests of the Company or any Subsidiary (except dividends
payable to the Company or in shares of its Capital Stock) or (b) any purchase,
redemption, retirement or other acquisition of any shares of Capital Stock of
the Company or any Subsidiary, now or hereafter outstanding, or of any warrants,
rights or options evidencing a right to purchase or acquire any such shares or
partnership interests (except in exchange for other shares of Capital Stock or
warrants, rights or options evidencing a right to purchase or acquire any such
shares).

The term "SEC" and/or "Commission" shall mean the Securities and
Exchange Commission and any successor organization.

The term "Securities Act" shall mean the Securities Act of 1933, as
amended from time to time.

The term "Selling Noteholder" shall have the meaning assigned to it in
ss.6.5 hereof.

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<PAGE> 52

The term "Seller Take-Back Paper" shall mean any Indebtedness of the
Company incurred in connection with the acquisition of any property, which
Indebtedness is owed to the Person or any Affiliate thereof from which such
property was acquired.

The term "Senior Indebtedness" shall mean, as of any date, (i) the
principal of, and any accrued and unpaid interest on, Designated Senior
Indebtedness, and (ii) all other amounts owing to the holders of the Designated
Senior Indebtedness in connection with such Indebtedness; provided, however,
that "Senior Indebtedness" shall not include: (a) any Indebtedness if the terms
of the instrument creating or evidencing such Indebtedness provides that such
Indebtedness is not senior in right of payment to the Notes, including without
limitation, all Indebtedness, accrued interest and other amounts owing under or
in respect of each Indenture and Note Agreement (and the related promissory
notes) described in any of clauses (i) through (iii) of the definition of the
term "Note Agreements"); (b) any Indebtedness of the Company to an Affiliate
thereof (unless such Indebtedness is Designated Senior Indebtedness); (c) any
Indebtedness consisting of accounts payable or accrued liabilities arising in
the ordinary course of business; (d) the Notes; and (e) Seller Take-Back Paper.

The term "Subsidiary," with respect to any Person, shall mean any
corporation or partnership (including any joint venture) organized under the
laws of the United States of America or a jurisdiction thereof at least 50% of
the outstanding shares of Voting Stock or similar interest of which are owned,
directly or indirectly, by such Person. The term "Subsidiary," when used herein
without reference to any particular Person, shall mean Diamond Insurance
Company, a Cayman Islands corporation.

The term "Tangible Assets," with respect to any Person, shall mean, as
of the date of any determination thereof, all assets of such Person valued at
the lower of fair market value and depreciated cost (taking into account
depreciation, depletion, obsolescence, amortization and all other reserves with
respect to the value thereof properly established in accordance with generally
accepted accounting principles), except (a) goodwill (whether representing the
excess of cost over book value of assets acquired or otherwise), patents, trade
names, trademarks, copyrights, franchises, research and development expense,
organization expense, unamortized debt discount and expense, deferred assets
other than prepaid insurance, prepaid taxes and deferred taxes, the excess of
cost of shares acquired over book value of related assets and such other assets
as are properly classified as "intangible assets" in accordance with generally
accepted accounting principles, (b) treasury stock of such Person, (c) cash set
apart and held in any sinking fund or similar or analogous fund for the purpose
of redeeming or otherwise retiring stock of such Person, and (d) any write-up of
the book value of any assets of such Person resulting from reevaluation thereof
(other than reevaluation upon acquisition of such assets) subsequent to July 31,
1989.

The term "TIA" shall mean the Trust Indenture Act of 1939, as amended
(15 U.S. Code ss.ss.77aaa-77bbb), as in effect on the date hereof.

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<PAGE> 53

The term "this Agreement" shall mean this Note Purchase Agreement
(including the annexed Exhibits and Schedules), as it may from time to time be
amended, supplemented or modified in accordance with its terms.

The terms "you" and "your" shall mean a Purchaser and when used herein
without reference to any particular Purchaser shall mean each Purchaser.

The term "Voting Common Stock" shall mean Class A Common Stock which
is also Voting Stock.

The term "Voting Stock," with respect to a corporation, shall mean the
stock of such corporation the holders of which are ordinarily, in the absence of
contingencies, entitled to elect members of the Board of Directors (or other
governing body) of such corporation, and, with respect to any partnership, any
partnership interest entitling the holder thereof to share in distributions of
partnership income or capital or to make decisions binding such partnership in
accordance with the partnership agreement or other governing instrument or
applicable law.

The term "Wholly Owned Designated Subsidiary" means, with respect to
any person, any Designated Subsidiary 100% of the outstanding voting Capital
Stock of which shall at the time be owned by such person and/or one or more of
such person's Wholly Owned Subsidiaries.

The term "Wholly Owned Subsidiary" means, with respect to any person,
any Subsidiary 100% of the outstanding voting Capital Stock of which shall at
the time be owned by such person and/or one or more of such person's Wholly
Owned Subsidiaries

SS.14.2 DIRECTLY OR INDIRECTLY. Any provision in this Agreement
referring to action to be taken by any Person, or that such Person is prohibited
from taking, shall be applicable whether such action is taken directly or
indirectly by such Person.

SS.14.3 ACCOUNTING TERMS. All accounting terms used herein that are
not otherwise expressly defined shall have the respective meanings given to them
in accordance with generally accepted accounting principles at the particular
time.

SS.14.4 GOVERNING LAW. This Agreement and the Notes shall be governed
by and construed in accordance with the law of the State of Georgia.

SS.14.5 HEADINGS. The headings of the Sections and other subdivisions
of this Agreement have been inserted for convenience of reference only, and
shall not be deemed to constitute a part hereof.

SS.14.6 INDEPENDENCE OF COVENANTS. Each covenant made by the Company
herein is independent of each other covenant so made. The fact that the
operation of any such covenant permits a particular action to be taken or
condition to exist does not mean that such

-48-
<PAGE> 54

action or condition is not prohibited, restricted or conditioned by the
operation of the provisions of any other covenant herein.

SECTION 15. MISCELLANEOUS.

SS.15.1 NOTICES. (a) All communications under this Agreement or the
Notes shall be in writing and shall be delivered or mailed (i) if to you, to you
at your address set forth in Schedule I hereto, marked for attention as there
indicated, or at such other address as you may have furnished to the Company in
writing, (ii) if to any other holder of a Note, to it at its address listed in
the books for the registration and registration of transfer of Notes required to
be maintained by the Company pursuant to ss.8.1 hereof, or at such other address
as such holder shall have furnished to the Company in writing, and (iii) if the
Company, to it at the address shown at the head of this Agreement, or at such
other address as it shall have furnished in writing to you and all other holders
of the Notes at the time outstanding.

(b) Any written communication so addressed and mailed by certified
mail, return receipt requested, shall be deemed to have been given when so
mailed. All other written communications shall be deemed to have been given upon
receipt thereof.

SS.15.2 SURVIVAL. All representations, warranties and covenants made
by the Company herein or by the Company or any Subsidiary in any certificate or
other instrument delivered under or in connection with this Agreement shall be
considered to have been relied upon by you and shall survive the delivery to you
of the Notes regardless of any investigation made by you or on your behalf. All
statements in any such certificate or other instrument shall constitute
representations and warranties of the Company hereunder.

SS.15.3 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
the parties hereto and their respective successors and assigns, and shall inure
to the benefit of and be enforceable by the parties hereto and their respective
successors and assigns permitted hereunder; provided, however, that you shall
not have any obligation to purchase Notes of any Person other than the Company.
Whether or not expressly so stated and subject to the restrictions set forth
therein, the provisions of Sections 5 through 15 of this Agreement are intended
to be for your benefit and for the benefit of all holders from time to time of
the Notes, and shall be enforceable by you and any other such holder whether or
not an express assignment to such holder of rights under this Agreement shall
have been made by you or your successors or assigns; and provided, further, that
the provisions of Section 5 and ss.ss.6.2, 6.3, 9.1 and 9.4 hereof shall also be
for the benefit of, and shall be enforceable by, any Person who shall no longer
be a holder of any Note but who shall have incurred any expense or been
subjected to any liability referred to therein while, or on the basis of being,
such a holder.

SS.15.4 AMENDMENT AND WAIVER. This Agreement and the Notes may be
amended or supplemented, and the observance of any term hereof or thereof may be
waived, with the written consent of the Company and (i) on or prior to the
Closing Date, you, and (ii) after the Closing Date, the Required Noteholders;
provided, however, that no such amendment,

-49-
<PAGE> 55

supplement or waiver shall, without the written consent of the holders of all
the Notes then outstanding, (a) change, with respect to the Notes, the amount or
time of any required prepayment or payment of principal or premium or the rate
or time of payment of interest, or change the funds in which any prepayment or
payment on the Notes is required to be made; (b) amend or supplement any
provision of ss.ss.13.1-13.4 hereof (except an amendment of ss.13.1 hereof for
the purpose of adding additional Events of Default); or (c) amend or supplement,
or waive any default arising by reason of the failure of the Company to comply
with, this ss.15.4; and provided, further, that the Company will not increase
the rate of interest on any Note held by any holder, or otherwise grant any
other holder of a Note any additional payment or other benefit, for or in
connection with (i) any amendment or waiver proposed to be effected pursuant to
this ss.15.4 or (ii) any other action the Company requests such holder to take,
unless such increase in interest or other payment or benefit is extended upon
the same terms ratably to all holders of the Notes at the time outstanding. Any
amendment or waiver effected in accordance with this ss.15.4 shall be binding
upon each holder of any Note at the time outstanding, each future holder of any
Note and the Company.

SS.15.5 COUNTERPARTS. This Agreement may be executed and delivered to
you simultaneously in one or more counterparts, each of which shall be deemed an
original, but all such counterparts shall together constitute but one and the
same instrument.

SS.15.6 REPRODUCTION OF DOCUMENTS. This Agreement, and all documents
relating hereto (other than the Notes), including, without limitation, (a)
consents, waivers and modifications that may hereafter be executed, (b)
documents received by you at the closing of your purchase of the Notes, and (c)
financial statements, certificates and other information heretofore or hereafter
furnished to you, may be reproduced by you by any photographic or other similar
process and you may destroy any original document so reproduced. The Company
agrees and stipulates that, to the extent permitted by applicable law and court
or agency rules, any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not such reproduction was made by you in
the regular course of business) and that any enlargement, facsimile or further
reproduction of such reproduction shall be admissible in evidence to the same
extent.

[Signatures on Next Page]

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<PAGE> 56

If the foregoing is satisfactory to you, please sign the form of
acceptance on the enclosed counterparts hereof and return the same to the
Company, whereupon this Note Purchase Agreement, as so accepted, shall become a
binding contract between you and each of the undersigned.

Very truly yours,

CRESCENT JEWELERS

By /s/ Joseph M. Donaghy
---------------------------------------------
Title: Chief Financial Officer and Senior
Vice President

[Signatures of Purchaser(s) on Following Page(s)]

-51-
<PAGE> 57

[ATTACHED TO AND FORMING A PART OF THE NOTE PURCHASE AGREEMENT DATED
JUNE 12, 1997]
[CRESCENT JEWELERS RELATING TO ITS 10% CONVERTIBLE SENIOR SUBORDINATED NOTES]

The foregoing Note Purchase
Agreement is hereby accepted.

FRIEDMAN'S INC.

By: /s/ Victor Suglia
----------------------------------
Title: Senior VIce President and
Chief Financial Officer

-52-

<PAGE> 1
EXHIBIT 10.3

CRESCENT JEWELERS

10.0% CONVERTIBLE SENIOR SUBORDINATED NOTE
DUE OCTOBER 15, 2006

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "1933 ACT"), AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED
UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT COVERING
SUCH NOTE OR THE COMPANY RECEIVES AN OPINION OF COUNSEL, FOR THE HOLDER OF THE
NOTE REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER,
ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF THE 1933 ACT.

THESE SECURITIES HAVE BEEN ISSUED OR SOLD IN RELIANCE ON PARAGRAPH (13) OF CODE
SECTION 10-5-9 OF THE GEORGIA SECURITIES ACT OF 1973 AND MAY NOT BE SOLD OR
TRANSFERRED EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER SUCH ACT OR PURSUANT
TO AN EFFECTIVE REGISTRATION UNDER SUCH ACT.

R-1 June ____, 1997
$5,000,000

Crescent Jewelers (the "Company"), a California corporation, for value
received, hereby promises to pay to Friedman's Inc. or registered assigns, the
principal sum of FIVE MILLION DOLLARS ($5,000,000) on October 15, 2006, and to
pay interest (computed on the basis of a 360-day year of twelve 30-day months)
on the unpaid principal balance thereof from the date of this Note at the rate
of 10.0% per annum, adjusted as provided below, semi-annually on each April 1
and October 1 commencing October 1, 1997, until the principal amount hereof
shall become due and payable, and to pay, on demand, interest on any overdue
principal, including any overdue prepayment of principal, and premium, if any,
and (to the extent permitted by applicable law) on any overdue installment of
interest, at the rate of 2% per annum above the rate of interest payable
hereunder at the time any such amount shall be overdue. If the Company shall
have paid any interest or premium on this Note in excess of that permitted by
law, then it is the express intent of the Company and the holder hereof that all
excess amounts previously collected by the Company be credited on the principal
balance of this Note, and the provisions hereof immediately be deemed reformed
and the amounts thereafter collectable hereunder reduced, without the necessity
of the execution of any new document, so as to comply with the then applicable
law, but so as to permit the recovery of the fullest amount otherwise called for
hereunder.

Payment of principal, premium, if any, and interest shall be made to
the registered holder hereof in such coin or currency of the United States of
America as at that time of payment

A-1

<PAGE> 2

shall be legal tender for the payment of public and private debts, at the office
of the Company at 315 Eleventh Street, Oakland, California 94607 or at such
other location designated pursuant to ss.9.1 of the Note Purchase Agreement
referred to below, in each case subject to the right of the registered holder
hereof under the Note Purchase Agreement referred to below to receive direct
payment in immediately available funds.

This Note is one of the 10.0% Convertible Senior Subordinated Notes
issued in the aggregate principal amount of up to $8,000,000 pursuant to the
Note Purchase Agreement, dated as of [First Issue Date], between the Company and
the purchasers of the Notes set forth in Schedule I thereto (the "Note Purchase
Agreement"; all capitalized terms not otherwise defined herein having the
meaning set forth therein) and is entitled to the benefits thereof.

As and to the extent provided in the Note Purchase Agreement, this
Note is subject to prepayment, in whole or in part, in certain cases without
premium and in other cases with premium. The Company agrees to make required
prepayments on account of this Note in accordance with the provisions of the
Note Purchase Agreement.

Under certain circumstances, at specified in the Note Purchase
Agreement, the principal of and accrued interest on this Note may be declared
due and payable in the manner and with the effect provided in the Note Purchase
Agreement.

This Note has not been registered under the Securities Act of 1933, as
amended, or the laws of any state and may be transferred in whole or in part
only pursuant to an effective registration statement under such Act and
applicable state laws or under an exemption from such registration available
under such Act and applicable state law. Subject to the foregoing, transfers of
this Note shall be registered upon registration books maintained for such
purpose by or on behalf of the Company as provided in the Note Purchase
Agreement. Prior to presentation of this Note for registration of transfer, the
Company shall treat the registered holder hereof as the owner and holder of this
Note for the purpose of receiving all payments of principal and interest hereon
and for all other purposes whatsoever, whether or not this Note shall be
overdue, and the Company shall not be affected by notice to the contrary.

The payment of the principal of and interest on this Note is expressly
subordinated, in the manner and to the extent provided in the Note Purchase
Agreement, to the payment of certain other indebtedness of the Company (as more
fully described in the Note Purchase Agreement), and by acceptance of this Note
the holder agrees, expressly for the benefit of the present and future holders
of such indebtedness, to be bound by the provisions of the Note Purchase
Agreement.

The Company agrees to perform and observe duly and punctually each of
the covenants and agreements set forth in the Note Purchase Agreement. Further,
as provided in the Conversion Agreement, if any, to which the holder hereof is a
party, this Note may be converted into certain shares of capital stock of CJI on
the terms and conditions set forth therein. The holder of such shares has the
right to require CJI to register such shares on the terms and conditions set
forth in the Registration Rights Agreement. All such covenants and agreements
are

A-2
<PAGE> 3

incorporated by reference in this Note, and this Note shall be interpreted
and construed as if all such covenants and agreements were set forth in full in
this Note at this place.

This Note shall be governed by and construed in accordance with the
law of the State of Georgia.

IN WITNESS WHEREOF, Crescent Jewelers has caused this Note to be duly
executed under seal.

CRESCENT JEWELERS

By: /s/ Joseph M. Donaghy
--------------------------------------
Name: Joseph M. Donaghy
Title: Senior Vice President and Chief
Financial Officer

A-3

<PAGE> 1
EXHIBIT 10.4

- --------------------------------------------------------------------------------
FRIEDMAN'S INC.
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECOND AMENDED AND RESTATED LOAN AGREEMENT

Dated: As of July 14, 1997

$25,000,000

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
FIRST UNION NATIONAL BANK
- --------------------------------------------------------------------------------

<PAGE> 2

TABLE OF CONTENTS
<TABLE>
<CAPTION>

<S> <C> <C>
SECTION 1. GENERAL DEFINITIONS.............................................................................1
1.1 Defined Terms...................................................................................1
1.2 Accounting Terms...............................................................................12
1.3 Other Terms....................................................................................12
1.4 Certain Matters of Construction................................................................12

SECTION 2. CREDIT FACILITY................................................................................12
2.1 Borrowing and Disbursement.....................................................................12
2.2 Loan Account...................................................................................14

SECTION 3. INTEREST, FEES, TERM AND REPAYMENT.............................................................14
3.1 Interest, Fees and Charges.....................................................................14
3.2 Unused Line Fee................................................................................15
3.3 Loan Fees......................................................................................15
3.4 Payments.......................................................................................16
3.5 Term of Loan...................................................................................16
3.6 Application of Payments and Collections........................................................16
3.7 Statements of Account..........................................................................16
3.8 Funding Indemnity..............................................................................17

SECTION 4. COLLATERAL: GENERAL TERMS.....................................................................17
4.1 Security Interest in Collateral................................................................17
4.2 Representations, Warranties and Covenants -- Collateral........................................18
4.3 Lien Perfection................................................................................18
4.4 Location of Collateral.........................................................................18
4.5 Insurance of Collateral........................................................................19
4.6 Protection of Collateral.......................................................................19

SECTION 5. PROVISIONS RELATING TO ACCOUNTS................................................................20
5.1 Representations, Warranties and Covenants......................................................20
5.2 Notice of Security Interest and Schedules of Accounts..........................................21
5.3 Administration of Accounts.....................................................................21
5.4 Collection of Accounts.........................................................................22

SECTION 6. PROVISIONS RELATING TO INVENTORY...............................................................22
6.1 Representations, Warranties and Covenants......................................................22
6.2 Location of Inventory..........................................................................23
6.3 Ownership of Inventories.......................................................................23
6.4 Status of Inventory............................................................................23

SECTION 7. REPRESENTATIONS AND WARRANTIES.................................................................23
</TABLE>

<PAGE> 3

<S> <C> <C>
7.1 General Representations and Warranties.........................................................23
7.2 Reaffirmation..................................................................................26
7.3 Survival of Representations and Warranties.....................................................27

SECTION 8. COVENANTS AND CONTINUING AGREEMENTS............................................................27
8.1 Affirmative Covenants..........................................................................27
8.2 Negative Covenants.............................................................................30
8.3 Specific Financial Covenants...................................................................33

SECTION 9. CONDITIONS PRECEDENT...........................................................................33
9.1 Documentation..................................................................................34
9.2 Other Conditions...............................................................................35
9.3 Conditions Precedent to Subsequent Advances....................................................35
9.4 Request for Advances...........................................................................36

SECTION 10. EVENTS OF DEFAULT: RIGHTS AND REMEDIES ON DEFAULT

.......................................................................................................36
10.1 Events of Default..............................................................................36
10.2 Acceleration of the Obligations................................................................38
10.3 Remedies.......................................................................................39
10.4 Remedies Cumulative; No Waiver.................................................................40

SECTION 11. MISCELLANEOUS..................................................................................40
11.1 Power of Attorney..............................................................................40
11.2 Indemnity......................................................................................41
11.3 Modification of Agreement; Sale of Interest....................................................41
11.4 Reimbursement of Expenses......................................................................41
11.5 Indulgences Not Waivers........................................................................42
11.6 Severability...................................................................................42
11.7 Successors and Assigns.........................................................................42
11.8 Cumulative Effect; Conflict of Terms...........................................................42
11.9 Execution in Counterparts......................................................................43
11.10 Notice.........................................................................................43
11.11 Lender's Right to Set-Off......................................................................43
11.12 Demand Obligations.............................................................................44
11.13 Time of Essence................................................................................44
11.14 Entire Agreement...............................................................................44
11.15 Interpretation.................................................................................44
11.16 Governing Law; Consent to Forum................................................................44
11.17 General Waivers by Borrower....................................................................45
11.18 Security and Intercreditor Agreement...........................................................45
</TABLE>

<PAGE> 4

EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
Exhibit

A Borrowing Base Report [Definitions]

B Note [Definitions]

B-1 Permitted Indebtedness [Definitions]

C Places of Business [Definitions]

D Security Agreement [Definitions]

E States in Which Qualified to do Business [7.1(A)]

F Fictitious Names during the Past Seven Years [7.1(B)]

G Capital Structure [7.1(H)]

H Contracts or Agreements Restricting Borrower's Right to Incur Debt [7.1(J)]

I Actions, Suits, Proceedings, or Investigations [7.1(K)]

J Pension Plans [7.1(O)]

K Compliance Certificate [8.1(Q)]

K-1 Permitted Loans [8.2(C)]

K-2 Affiliate Transactions [8.2 (D)]

L Permitted Liens [8.2(H)]

M Legal Opinion (Borrower's General Counsel) [9.1(C)]
</TABLE>

<PAGE> 5

SECOND AMENDED AND RESTATED LOAN AGREEMENT

THIS SECOND AMENDED AND RESTATED LOAN AGREEMENT is made as of July 14,
1997, by and between FIRST UNION NATIONAL BANK (formerly known as FIRST UNION
NATIONAL BANK OF GEORGIA) ("Lender"), a national banking association with
an office at 999 Peachtree Street, N.E., Atlanta, Georgia 30309, and FRIEDMAN'S
INC. ("Borrower"), a Delaware business corporation, with its chief executive
office and principal place of business at 4 West State Street, Savannah,
Georgia 31401.

SECTION 1. GENERAL DEFINITIONS

1.1 Defined Terms. When used herein, the following terms shall
have the meanings set forth below (terms defined in the singular to have the
same meaning when used in the plural and vice versa):

ABN - means ABN AMRO Bank N.V., New York Branch.

ABN Loan Agreement - the loan agreement, dated as of even date, between
ABN and the Borrower.

Account Debtor - any Person who is or may become obligated under or on
an Account.

Accounts - all accounts, contract rights, chattel paper, instruments and
documents, whether now owned or hereafter created or acquired by Borrower or in
which Borrower now has or hereafter acquires any interest; and all documents
evidencing choses in action, causes of action, books and records, computer
equipment, and customer lists relating to any of the foregoing.

Advance - an advance to Borrower of the Loan proceeds pursuant to a Request
For Advance.

Affiliate - a Person: (i) which directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under common control with,
Borrower; (ii) which beneficially owns or holds five percent (5.0%) or more of
the equity interest of Borrower. For purposes hereof, "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of an equity interest, voting Stock, by contract or otherwise. In
addition, for purposes hereof, Affiliate shall include specifically MS Jewelers
Limited Partnership, MS Jewelers Corporation, Crescent Jewelers, Friedman's
Jewelers, Inc., Herman K. Friedman, and Stanley K. Friedman, but shall not
include any of the other limited partners of MS Jewelers Limited Partnership.

<PAGE> 6

Agreement - this Second Amended and Restated Loan Agreement.

Borrower - Friedman's Inc. or, for accounting purposes, any predecessor
including MS Jewelers Limited Partnership which transferred to Borrower
substantially all of its assets and liabilities.

Borrower's Account - Borrower's deposit account maintained with Lender.

Borrowing Base - as at any date of determination thereof, an amount equal
to the lesser of (a) the Maximum Loan Commitment and (b) the sum of (i) 75% of
Eligible Accounts, plus (ii) 50% of Eligible Inventory, less (iii) the maximum
lending commitment of NationsBank under the NationsBank Credit Agreement, less
(iv) the maximum lending commitment of ABN under the ABN Loan Agreement, and
subtracting from (a) or (b) the Reserve Amount on such date.

Borrowing Base Report - the certificate in the form of Exhibit "A" attached
hereto and incorporated by reference herein signed by an authorized officer of
Borrower showing a calculation of the Borrowing Base, and the components
comprising said Borrowing Base, as of the end of the preceding fiscal quarter,
listing the amounts of Eligible Accounts and updating the amount of Eligible
Inventory.

Business Day - any day on which banking institutions in Atlanta, Georgia
are open for the transaction of banking business, and in the case of LIBO Rate
Loans, any day on which banking institutions in London are open for the
transaction of banking business.

Capital Lease - shall mean any lease or similar arrangement which is
required to be capitalized for financial reporting purposes in accordance with
GAAP.

Closing Date - the date on which all of the conditions precedent in Section
9 are satisfied and the initial Loan is made hereunder.

Code - the Uniform Commercial Code as adopted and in force in the State of
Georgia, as from time to time in effect.

Collateral - all of the Property and interests in Property described in
Section 4 hereof, and all other Property and interests in Property that now or
hereafter secure the payment and performance of any of the Obligations pursuant
to any of the Security Documents or otherwise.

Consolidated - the consolidation in accordance with GAAP of the accounts or
other items as to which such term applies.

Debt - the aggregate amount of all items categorized as liabilities on the
balance sheet of Borrower prepared in accordance with GAAP.

<PAGE> 7

Default - an event or condition the occurrence of which would, with the
lapse of time or the giving of notice, or both, become an Event of Default.

Default Rate - as defined in Section 3.1(B) of this Agreement.

Dollars - and the sign "$" shall refer to currency of the United States of
America.

Draw Down Date - the date on which any Loan is made or is to be made and
the date on which any Loan is repaid or reborrowed in accordance with Section
2.1 herein.

EBITDAR - shall mean, for any period of calculation, the Borrower's (i) Net
Income for such period, plus (ii) Interest Expense during such period, plus
(iii) income tax expense during such period, plus (iv) amortization and
depreciation expense deducted during such period in calculating Net Income, plus
(v) Rental Expense during such period, plus (vi) the actual principal amount
forgiven under the Long-Term Incentive Programs during such period, plus (vii)
other non-cash-non-recurring charges deducted during the period in determining
Net Income.

Eligible Account - an Account arising in the ordinary course of Borrower's
business from the sale of goods or rendition of services which Lender deems to
be an Eligible Account, and as to which Borrower has furnished reasonably
detailed information to Lender in a Borrowing Base Report. Without limiting the
generality of the foregoing, Eligible Account shall mean the aggregate of the
gross amount of Borrower's Accounts, less the amount of the then existing
unearned finance charges, unearned insurance premiums, returns, discounts,
credits, or offsets of any nature, of the Accounts owing to Borrower by the
Borrower's customers under consumer sales contracts, which contain credit terms
not exceeding twenty-four (24) months, except that up to a maximum amount equal
to one percent (1.0%) of the aggregate amount of all such Accounts (under
consumer credit contracts) may contain credit terms exceeding twenty-four (24)
months but not exceeding forty-eight (48) months; provided, however, that
Eligible Accounts also shall not include any of the following: (i) any Account
of an Account Debtor for whom an Account is outstanding which is past due more
than fifty-nine (59) days; (ii) any Account which represents an obligation owed
to Borrower by an Account Debtor located in a foreign country; (iii) any Account
which represents an obligation of a director or officer of the Borrower or any
of its Affiliates; (iv) any Account deemed ineligible by the Lender when the
Lender, in its reasonable discretion, deems the creditworthiness or financial
condition of the Account Debtor unsatisfactory; (v) any Account against which
the Account Debtor or any other Person obligated to make payment thereon asserts
any defense, offset, counterclaim, or other right to avoid or reduce the
liability represented by such Account; (vi) any Account as to which the Account
Debtor or other Person obligated to make payment thereon is insolvent, subject
to bankruptcy or receivership proceedings, or has made an assignment for the
benefit of creditors or whose credit standing is unacceptable to Lender and
Lender has so notified Borrower; (vii) any Account for any Account Debtor who
comprises five percent (5.0%) or more of Borrower's total Accounts;

<PAGE> 8

(viii) any Account of any governmental agency; (ix) any Account in which Lender
does not have a valid and perfected first priority Lien (subject only to the
Lien in favor of (a) NationsBank granted pursuant to the NationsBank Credit
Agreement and (b) ABN granted pursuant to the ABN Loan Agreement); and (x) any
Account which Lender in its reasonable discretion shall deem not to qualify as
an Eligible Account.

Eligible Inventory - all Inventory as to which Borrower has furnished
reasonably detailed information to Lender in a Borrowing Base Report and such
Inventory of Borrower (other than documents evidencing choses in action, causes
of action, books and records, all rights to indemnification, licenses, and
customer lists) which Lender deems to be Eligible Inventory. Without limiting
the generality of the foregoing, no Inventory shall be Eligible Inventory
unless, in Lender's opinion, it (i) is in good, new and saleable condition, (ii)
is not consigned, obsolete or unmerchantable, (iii) meets all standards imposed
by any governmental agency or authority, (iv) is at all times subject to
Lender's duly perfected, first priority security interest and no other Lien
except a Permitted Lien, (v) is situated at a location in compliance with
Section 6.1 hereof or is in transit between Places of Business and is not
otherwise in transit, (vi) is accounted for on Borrower's books and records in
accordance with GAAP and in detail satisfactory to Lender, in its sole
discretion, and (vii) is in excess of a minimum reserve as determined by
Borrower (or such greater amount as Lender in its reasonable discretion may
determine) for slow moving Inventory.

Environmental Laws - all federal, state and local laws, rules, regulations,
ordinances, programs, permits, guidances, orders and consent decrees relating to
health, safety and environmental matters, including, but not limited to, the
Resource Conservation and Recovery Act; the Comprehensive Environmental
Response, Compensation and Liability Act of 1980; the Toxic Substances Control
Act; the Clean Water Act; the Clean Air Act; the River and Harbor Act; the Water
Pollution Control Act; the Marine Protection Research and Sanctuaries Act; the
Deep-Water Port Act; the Safe Drinking Water Act; the Superfund Amendments and
Reauthorization Act of 1986; the Federal Insecticide, Fungicide and Rodenticide
Act; the Mineral Lands and Leasing Act; the Surface Mining Control and
Reclamation Act; the Oil Pollution Act of 1990; state and federal superlien and
environmental cleanup programs and laws; and U.S. Department of Transportation
regulations.

ERISA - the Employee Retirement Income Security Act of 1974 and all rules
and regulations promulgated thereunder.

Event of Default - as defined in Section 10.1 of this Agreement.

Fixed Charge Coverage Ratio - as of any date of determination, the ratio of
the Borrower's (a) EBITDAR for the immediately preceding four (4) fiscal
quarters, to (b) total Fixed Charges for such period.

<PAGE> 9

Fixed Charges - for any period, sum of the Borrower's (i) total principal
payments with respect to all Indebtedness for Money Borrowed (including the
principal portion of payments under Capital Leases and Subordinated Debt during
such period), plus (ii) Interest Expense during such period plus (iii) Rental
Expense during such period plus (iv) income tax expense during such period.

Funded Debt - as of any date of determination, (i) all Indebtedness for
Money Borrowed, including the principal portion of all Capital Lease obligations
and all Subordinated Debt plus (ii) all Rental Expense paid during the
immediately preceding four (4) fiscal quarters multiplied by 6.

GAAP - generally accepted accounting principles in the United States of
America in effect from time to time.

General Intangibles - all general intangibles of Borrower whether now owned
or hereafter created or acquired by Borrower relating or pertaining to Inventory
or pertaining to Accounts.

Indebtedness - as applied to a Person means, without duplication (i) all
items which in accordance with GAAP would be included in determining total
liabilities as shown on the liability side of a balance sheet of such Person as
at the date as of which Indebtedness is to be determined, including, without
limitation, capitalized lease obligations, (ii) all obligations of other Persons
which such Person has guaranteed and (iii) in the case of Borrower (without
duplication), the Obligations.

Intercreditor Agreement - the Second Amended and Restated Intercreditor and
Security Agreement, dated of even date herewith, among NationsBank (in its
capacity as "collateral agent" thereunder and in its capacity as a lender under
the NationsBank Loan Agreement), ABN, Lender and Borrower, as amended, modified,
supplemented or restated from time to time.

Interest Expense - shall mean, for any period of calculation, the aggregate
of all interest paid or accrued by the Borrower during such period, as
determined in accordance with GAAP.

Interest Period - with respect to each Loan (a) initially, the period
commencing on the Draw Down Date of such Loan and ending on the last day of one
of the periods set forth below, as selected by the Borrower in a loan request,
which shall be (i) for any Offered Rate Loan, the next succeeding Business Day;
and (ii) for any LIBO Rate Loan, 1, 2, 3 or 6 months; and (b) thereafter, each
period commencing on the first day after the last day of the last preceding
Interest Period applicable to such Loan and ending on the last day of one of the
periods set forth above, as selected by the Borrower; provided that all of the
foregoing provisions relating to Interest Periods are subject to the following:
if any Interest Period with respect to a Loan would end on a day that is not a
Business Day, that

<PAGE> 10

Interest Period shall end on the next succeeding Business Day; and any Interest
Period that would otherwise extend through the Maturity Date shall end on the
Maturity Date.

Inventory - all of Borrower's inventory, whether now owned or hereafter
acquired by Borrower and wherever located, including, but not limited to, all
goods intended for sale or lease by Borrower, or for display or demonstration
including, without limitation, all gold and other precious metal and precious
stones and gems (including, without limitation, diamonds) in whatever form and
all products in which any such gold, precious metal and precious stones and gems
are incorporated or into which such gold, precious metal and precious stones and
gems are processed or converted, including without limitation, bullion, alloys
or wire; all work in process; all raw materials and other materials and supplies
of every nature and description used or which might be used in connection with
the manufacture of such goods or otherwise used or consumed in Borrower's
business; and all documents evidencing choses in action, causes of action, books
and records, all rights to indemnification, licenses, and customer lists
relating to any of the foregoing.

IRC - the Internal Revenue Code of 1986, as amended.

LIBO Rate - means a rate per annum for U.S. dollar deposits for a one-month
maturity as reported on Telerate page 3750 as of 11:00 a.m., London time, on the
second London business day before the relevant Interest Period begins (or if not
so reported, then as determined by the Lender from another recognized source or
interbank quotation), adjusted for reserves by dividing that rate by 1.00 minus
the Reserve Requirement. LIBOR shall be rounded to the next higher 1/100 of 1%.

LIBO Rate Advance - an advance on a LIBO Rate Loan.

LIBO Rate Basis - a simple rate per annum equal to the sum of (a) the LIBO
Rate and (b) seven-eighths of one percent (0.875%).

LIBO Rate Loan - any Advance made hereunder bearing interest calculated by
reference to the LIBO Rate.

Lien - any interest in Property securing an obligation owed to, or a claim
by, a Person other than the owner of the Property, whether such interest is
based on the common law, statute or contract, and including, but not limited to,
the security interest, security title or lien arising from a security agreement,
mortgage, deed of trust, deed to secure debt, encumbrance, pledge, conditional
sale or trust receipt or a lease, consignment or bailment for security purposes.
The term "Lien" shall include reservations, exceptions, encroachments,
easements, rights-of-way, covenants, conditions, restrictions, leases and other
title exceptions and encumbrances affecting Property. For the purpose of this
Agreement, Borrower shall be deemed to be the owner of any Property which it has
acquired or holds subject to a conditional sale agreement or other arrangement
pursuant

<PAGE> 11

to which title to the Property has been retained by or vested in some other
Person for security purposes.

Loan Account - the loan account established on the books of Lender pursuant
to Section 2.2 hereof.

Loan Documents - this Agreement, the Other Agreements and the Security
Documents.

Loans - all loans and Advances made by Lender pursuant to this Agreement.

Long-Term Incentive Programs - shall mean (i) the Loan Agreement, dated
November 17, 1994, between Borrower and Bradley J. Stinn, and the promissory
note, dated November 17, 1994, from Bradley J. Stinn to Borrower, in the
original principal amount of $1,500,000, each as amended through the date
hereof, a true and correct copy of each of which is attached hereto as Exhibit
O-1, and (ii) the Loan Agreement, dated November 17, 1994, between Borrower and
Sterling B. Brinkley, and the promissory note, dated November 17, 1994, from
Sterling B. Brinkley to Borrower, in the original principal amount of
$1,500,000, each as amended through the date hereof, a true and correct copy of
each of which is attached hereto as Exhibit O-2.

Maturity Date - the earlier of April 30, 1999 or such earlier date as
payment of the Loans shall be due (whether by acceleration or otherwise).

Maximum Loan Commitment - shall mean $25,000,000.

Money Borrowed - as applied to Indebtedness, means (i) Indebtedness for
borrowed money; (ii) Indebtedness, whether or not in any such case the same was
for borrowed money, (A) which is represented by notes payable or drafts accepted
that evidence extensions of credit, (B) which constitutes obligations evidenced
by bonds, debentures, notes or similar instruments, or (C) upon which interest
charges are customarily paid (other than accounts payable) or that was issued or
assumed as full or partial payment for Property; (iii) Indebtedness that
constitutes a capitalized lease obligation; (iv) Indebtedness under any
agreement or obligation to reimburse the issuer of any letter of credit for
amounts paid by the issuer on account of such letter of credit; and (v)
Indebtedness under any guaranty of obligations that would constitute
Indebtedness for Money Borrowed under clauses (i) through (iii) hereof.

Multiemployer Plan - has the meaning set forth in Section 4001(a)(3) of
ERISA.

NationsBank - NationsBank, N.A. (formerly known as NationsBank of Georgia,
N.A.)

<PAGE> 12

NationsBank Credit Agreement - the Second Amended and Restated Loan
Agreement, dated as of even date herewith, between NationsBank and the Borrower.

Net Income - shall mean, for any period of calculation, the Borrower's
consolidated net income (loss) after taxes, calculated in accordance with GAAP.

Net Worth - shall mean, as of any date of calculation, the Borrower's
consolidated shareholders' equity (including capital stock, additional paid in
capital and retained earnings, after deductiong treasury stock), as it would
appear on Borrower's balance sheet prepared in accordance with GAAP.

Non-subordinated Debt - indebtedness of Borrower that is not subordinated
to the Obligations.

Note - the Promissory Note dated December 14, 1995, made by Borrower to the
order of Lender in the stated principal amount of $25,000,000 in substantially
the form of Exhibit "B" attached hereto, as hereafter amended, modified,
restated or extended.

Obligations - all Loans and all other advances, debts, liabilities,
obligations, covenants and duties owing, arising, due or payable from Borrower
to Lender of any kind or nature, present or future, whether or not evidenced by
any note, guaranty or other instrument, whether arising under this Agreement or
any of the other Loan Documents or otherwise, whether direct or indirect
(including those acquired by assignment), absolute or contingent, primary or
secondary, due or to become due, now existing or hereafter arising and however
evidenced or acquired. The term includes, without limitation, all interest,
charges, expenses, fees, reasonable attorneys' fees and any other sums
chargeable to Borrower under any of the Loan Documents and all rights Lender may
at any time or times have to reimbursement in connection with any letter of
credit or guaranty issued for Borrower's benefit.

Offered Rate - shall mean, for any day, the rate (rounded up to the next
higher 1/100 of 1%) for one month US Dollar deposits as reported on Telerate
page 3750 as of 11:00 a.m. London time, for such day, adjusted for Lender's
Eurocurrency reserve requirements; provided, if such day is not a London
Business Day, the immediately predecing London Business Day (or if not so
reported, then as determined by Lender from another recognized source or
interbank quotation) shall be used.

Offered Rate Advance - an Advance on a Offered Rate Loan.

Offered Rate Basis - a simple rate per annum equal to the sum of (a) the
Offered Rate and (b) the seven-eighths of one percent (0.875%).

Offered Rate Loan - any Advance made hereunder bearing interest calculated
by reference to the Offered Rate.

<PAGE> 13

OSHA - the Occupational Safety and Health Act and all rules and regulations
from time to time promulgated thereunder.

Other Agreements - any and all agreements, instruments and documents (other
than this Agreement and the Security Documents), heretofore, now or hereafter
executed, by Borrower and delivered to Lender in respect to the transactions
contemplated by this Agreement, including, without limitation, the Note.

Overadvance - an Advance made by Lender when an Overadvance Condition
exists or would result from the making of such Advance.

Overadvance Condition - at any date, a condition such that the outstanding
principal amount of the Loans on such date exceeds the Borrowing Base an such
date.

Payment Date - with respect to the payment of interest accrued during any
Interest Period (i) for LIBO Rate Loans, the last day of such Interest Period;
provided, for any 6 month LIBO Rate Loan, the "Payment Date" shall be the 90th
day of such Interest Period and the last day of such Interest Period; and (ii)
for Offered Rate Loans, the last day of each calendar month.

Permitted Indebtedness - means (i) the Indebtedness to NationsBank pursuant
to the NationsBank Credit Agreement as in effect on the date hereof, (ii) the
Indebtedness to ABN pursuant to the ABN Loan Agreement as in effect on the date
hereof, (iii) other Indebtedness in an amount outstanding not in excess of
$2,500,000 in principal each fiscal year, (iv) any Indebtedness described in
Exhibit "B-1" hereto, (v) trade payables and accrued expenses incurred in the
ordinary course of business and (vi) the Obligations.

Permitted Liens - any Lien of a kind specified in subparagraphs (i) through
(xi) of section 8.2(H) of this Agreement.

Permitted Loan and Guarantee Amount - the maximum amount of Loans or other
advances of money (other than for salary, travel advances, advances against
commission, other similar advances in the ordinary course of business, and Loans
to officers to exercise stock options) plus guarantees, assumptions, and
endorsements (except endorsements of instruments or items of payment for deposit
or collection) which Borrower may make hereunder; which amount in the aggregate
shall be limited to $2,500,000.00.

Person - an individual, partnership, corporation, joint venture, joint
stock company, land trust, business trust or unincorporated organization, or a
government or agency or political subdivision thereof.

<PAGE> 14

those future locations of which Borrower is obligated to notify Lender pursuant
to the terms of Section 8.2(I) hereof.

Plan - an employee benefit plan now or hereafter maintained for employees
of Borrower that is covered by Title IV of ERISA.

Prohibited Transaction - any transaction set forth in Section 406 of ERISA
or Section 4975 of the Internal Revenue Code of 1986.

Property - any interest in any kind of property or asset, whether real,
personal or mixed, or tangible or intangible.

Purchase Money Lien - a Lien upon fixed assets which secures purchase money
indebtedness, but only if such Lien shall at all times be confined solely to the
fixed assets the purchase price of which was financed through the incurrence of
the purchase money indebtedness secured by such Lien.

Rental Expense - shall mean, for any period of calculation, all rental
payments made by the Borrower during the period, as determined in accordance
with GAAP.

Reportable Event - any of the events set forth in Section 4043(b) of ERISA.

Request For Advance - a request for an Advance pursuant to Section 9.4
hereof.

Reserve Amount - at any date, an amount equal to the face amount of all
letters of credit issued by Lender for the account of the Borrower outstanding
on such date.

Reserve Requirement - shall mean the maximum reserve requirement
percentage (rounded to the next higher 1/100th of 1% and expressed as a
decimal) in effect for any day during the applicable Interest Period, under the
Federal Reserve Board's Regulation D for "Eurocurrency Liabilities" (as defined
in such Regulation D).

Restricted Investment - any investment in cash or by delivery of Property
to any Person, whether by acquisition of stock, Indebtedness, or other
obligation or Security, or by loan, advance, or capital contribution, or
otherwise, or in any Property except the following: (i) investments in one or
more Subsidiaries of Borrower; (ii) Property to be used in the ordinary course
of business; (iii) Current Assets arising from the sale of goods and services
in the ordinary course of business of Borrower and its Subsidiaries; (iv)
investments in direct obligations of the United States of America, or any
agency thereof or obligations guaranteed by the United States of America,
provided that such obligations mature within one year from the date of
acquisition thereof; (v) investments in certificates of deposit maturing within
one year from the date of acquisition issued by a bank or trust company
organized under the laws of the United States or any state thereof having
capital surplus and undivided profits aggregating at least $100,000,000 or
issued by Lender; (vi)

<PAGE> 15

investments in commercial paper given a rating by a national credit rating
agency of A-1 or greater and maturing not more than two hundred seventy
(270) days from the date of creation thereof; (vii) any investment or
investments which in the aggregate do not exceed $2,000,000; and (viii)
"Dutch-Auction" tender securities of any Person, provided such securities
are given an investment grade rating by a national credit rating agency.

Schedule of Accounts - a sales and collections report for the
preceding month and a detailed aged trial balance of all Accounts existing
as of the last day of the preceding month, specifying the names, addresses,
face value, dates of invoices and due dates for each Account Debtor
obligated on an Account so listed.

Security - shall have the same meaning as in Section 2(1) of the
Securities Act of 1933, as amended.

Security Agreement - the Amended and Restated Security Agreement dated
December 14, 1995 substantially in the form of Exhibit "D" attached hereto
and incorporated by reference herein.

Security Documents - the Security Agreement, the Intercreditor
Agreement and all other instruments and agreements now or at any time
hereafter securing the whole or any part of the obligations.

Solvent - as to any Person, such Person (i) owns Property whose fair
value of which is greater than the amount required to pay all of such
Person's Indebtedness (including contingent debts), (ii) owns Property the
present fair salable value of which is greater than the amount that will be
required to pay the probable liability of such Person on its existing
Indebtedness as such become absolute and matured, (iii) is able to pay all
of its Indebtedness as such Indebtedness matures, and (iv) has capital
sufficient to carry on its business and transactions and all business and
transactions in which it is about to engage.

Subordinated Debt - Indebtedness of Borrower that is expressly
subordinated to the Obligations.

Subsidiary - any corporation of which a Person owns, directly or
indirectly through one or more intermediaries, more than fifty percent
(50%) of the Voting Stock at the time of determination.

Voting Stock - Securities of any class or classes of a corporation the
holders of which are ordinarily, in the absence of contingencies, entitled
to elect a majority of the corporate directors (or Persons performing
similar functions).

1.2 Accounting Terms. All accounting terms not specifically defined herein
shall be construed in accordance with GAAP consistent with that applied in
preparation of the financial

<PAGE> 16

statements referred to in Section 8.1(I), and all financial data pursuant to
this Agreement shall be prepared in accordance with such principles.

1.3 Other Terms. All other terms contained in this Agreement shall have,
when the context so indicates, the meanings provided for by the Code to the
extent the same are used or defined therein.

1.4 Certain Matters of Construction. The terms "herein," "hereof" and
"hereunder" and other words of similar import refer to this Agreement as a whole
and not to any particular section, paragraph or subdivision. Any pronoun used
shall be deemed to cover all genders. The section titles, table of contents and
list of exhibits appear as a matter of convenience only and shall not affect the
interpretation of this Agreement. All references to statutes and related
regulations shall include any amendments of same and any successor statutes and
regulations. All references to any instruments or agreements, including, without
limitation, references to any of the Loan Documents, shall include any and all
modifications or amendments thereto and any and all extensions or renewals
thereof. To the extent any of the terms or provisions of the Other Documents or
the Security Documents conflict with the provisions of this Agreement, this
Agreement shall control.

SECTION 2. CREDIT FACILITY

Subject to the terms and conditions of, and in reliance upon the
representations and warranties made in, this Agreement and the other Loan
Documents, Lender agrees to make a total credit facility of up to TWENTY-FIVE
MILLION AND NO/100 DOLLARS ($25,000,000) available upon Borrower's request
therefor, as follows:

2.1 Borrowing and Disbursement.

(A) Loan Advances. Lender shall make Advances to Borrower from time to
time in accordance with and subject to the terms hereof, up to a maximum
principal amount at any time outstanding equal to the Borrowing Base at such
time. It is expressly understood and agreed that Lender may use the Borrowing
Base as a maximum ceiling on any Advance to Borrower at any time. If the unpaid
balance of the Loan should exceed the Borrowing Base or any other limitation set
forth in this Agreement, such Loan shall nevertheless constitute Obligations
that are secured by the Collateral and entitled to all benefits thereof. The
Loan shall be evidenced by the Note.

(B) Overadvances. Insofar as Borrower may request and Lender may be
willing, in its sole and absolute discretion, to make Overadvances, Lender shall
enter such Overadvances as debits in the Loan Account. All Overadvances shall be
payable on demand, shall be secured by the Collateral and shall bear interest as
provided in this Agreement.

<PAGE> 17

(C) Use of Proceeds. The Loan shall be used solely for Borrower's
general operating capital needs and store expansion to the extent not
inconsistent with the provisions of this Agreement.

(D) Choice of Interest Rates. Any Advance shall, at the option of the
Borrower, be made as an Offered Rate Advance or a LIBO Rate Advance. Any notice
given to the Lender in connection with a requested Advance hereunder shall be
given to the Lender prior to 11:00 A.M. Eastern time in order for such Business
Day to count toward the minimum number of Business Days required.

(E) Offered Rate Advances.

(i) Initial Advances. The Borrower shall give Lender in the case
of Offered Rate Advances at least one (1) Business Day's irrevocable written
notice in the form of a Request for Advance, or notice by telecopy followed
immediately by a Request for Advance; provided, however, that the failure by the
Borrower to confirm any notice by telecopy with a Request for Advance shall not
invalidate any notice so given.

(ii) Repayments and Reborrowings. Upon at least one (1) Business
Day's irrevocable prior written notice, the Borrower may repay or prepay an
Offered Rate Advance without regard to its Payment Date and (a) reborrow all or
a portion of the principal amount thereof as one or more Offered Rate Advances,
(b) reborrow all or a portion of the principal thereof as one or more LIBO Rate
Advances, or (c) not reborrow all or any portion of such Offered Rate Advance.
On the date indicated by the Borrower, such Offered Rate Advance shall be so
repaid and, as applicable, reborrowed.

(F) LIBO Rate Advances.

(i) Initial Advances. The Borrower shall give Lender in the case
of LIBO Rate Advances at least three (3) Business Days' irrevocable written
notice in the form of a Request for Advance, or notice by telecopy followed
immediately by a Request for Advance; provided, however, that the failure by the
Borrower to confirm any notice by telecopy with a Request for Advance shall not
invalidate any notice so given. The Lender, whose determination shall be
conclusive, shall determine the available LIBO Rate Basis and shall notify the
Borrower of such LIBO Rate Basis. The Borrower shall promptly notify the Lender
by telecopy or by telephone, and shall immediately confirm any such telephonic
notice in writing, of its selection of a LIBO Rate Basis and Interest Period for
such Advance.

<PAGE> 18

respect to each LIBO Rate Advance, such LIBO Rate Advance will, subject to the
provisions hereof, be so repaid and, as applicable, reborrowed. The Borrower
shall not be permitted to pay all or any portion of a LIBO Rate Advance prior to
the last day of the Interest Period therefor.

(G) Disbursement. Prior to Lender's close of business on the date of
an Advance hereunder, Lender shall, subject to the satisfaction of the
conditions set forth in this Section 2 and in Section 9, disburse the funds by
(i) transferring the amounts by wire transfer pursuant to the instructions of
Borrower, or (ii) in the absence of such instructions, crediting the amounts so
made available to the Loan Account.

2.2 Loan Account. Lender shall enter all Advances as debits to the Loan
Account and shall also record in the Loan Account all payments made by Borrower
on the Loan and all proceeds of Collateral which are finally paid to Lender, and
may record therein, in accordance with customary accounting practice, all
charges and expenses properly chargeable to Borrower hereunder.

SECTION 3. INTEREST, FEES, TERM AND REPAYMENT

3.1 Interest, Fees and Charges.

(A) Interest.

(i) On Offered Rate Advances. Interest on each Offered Rate
Advance shall be computed on the basis of a year of 360 days for the actual
number of days elapsed and shall be payable at the Offered Rate Basis for such
Advance in arrears on each Payment Date. Interest on Offered Rate Advances then
outstanding shall also be due and payable on the Maturity Date.

(ii) On LIBO Rate Advances. Interest on each LIBO Rate Advance
shall be computed on the basis of a 360-day year for the actual number of days
elapsed and shall be payable at the LIBO Rate Basis for such Advance in arrears
on the applicable Payment Date. Interest on LIBO Rate Advances then outstanding
shall also be due and payable on the Maturity Date.

(iii) If No Notice of Selection of Interest Rate Basis. If the
Borrower fails to give Lender timely notice of its selection of a LIBO Rate
Basis, or if for any reason a determination of LIBO Rate Basis for any Advance
is not timely concluded, the Offered Rate Basis shall apply to such Advance, and
if the Borrower shall fail to elect to reborrow any LIBO Rate Advance then
outstanding prior to the last day of the applicable Interest Period by the
notice period required in Section 2.1(F), the Offered Rate Basis shall apply to
such Advance commencing on and after such date, with each such Offered Rate
Advance having an Interest Period of one Business Day.

<PAGE> 19

(B) Default Rate of Interest. Upon and after the occurrence of an
Event of Default and the acceleration of the Obligations as permitted in Section
10.2 hereof, the principal amount of the Obligations shall automatically
(without notice to or demand upon Borrower) bear interest, calculated daily
(computed on the actual days elapsed over a year of 360 days), at a fluctuating
rate per annum equal to two percent (2.0%) above the then applicable rate as
specified in the Note (the "Default Rate"). Borrower acknowledges that the cost
and expenses to Lender attendant upon the occurrence of an Event of Default are
difficult to ascertain or estimate and that the Default Rate is a fair and
reasonable estimate to compensate Lender for such added cost and expense.

(C) Maximum Interest. In no contingency or event whatsoever shall the
aggregate of all amounts deemed interest hereunder or under the Note and charged
or collected pursuant to the terms of this Agreement or pursuant to the Note
exceed the highest rate permissible under any law (including, to the extent
applicable, the provisions of Section 5197 of the Revised Statutes of the United
States of America, as amended, 12 U.S.C. Section 85, as amended) which a court
of competent jurisdiction shall, in a final determination, deem applicable
hereto. In the event that such a court determines that Lender has charged or
received interest hereunder in excess of the highest applicable rate, the rate
in effect hereunder shall automatically be reduced to the maximum rate permitted
by applicable law and Lender shall promptly refund to Borrower any interest
received by Lender in excess of the maximum lawful rate or, if so requested by
Borrower, shall apply such excess to the principal balance of the Obligations.
It is the intent hereof that Borrower not pay or contract to pay, and that
Lender not receive or contract to receive, directly or indirectly in any manner
whatsoever, interest in excess of that which may be paid by Borrower under
applicable law.

3.2 Unused Line Fee. The Borrower shall pay to the Lender an unused line
fee equal to one-eighth of one percent (.125%) per annum of the average daily
unused amount of the maximum Loan commitment, payable on the first day of each
calendar quarter for the previous calendar quarter and on the Maturity Date.

3.3 Payments. All payments shall be made by Borrower in U.S. currency and
without any defenses, offset or counterclaim of any kind. Except where evidenced
by notes or other instruments issued or made by Borrower to Lender specifically
containing payment provisions which are in conflict with paragraphs (A) through
(C) of this Section 3.3 (in which event the conflicting provisions of said notes
or other instruments shall govern and control), the obligations (in addition to
any other Obligation) consisting of:

(A) Principal shall be paid by Borrower to Lender immediately upon the
earliest of (i) April 30, 1999, or (ii) the occurrence of an Event of Default
and election by Lender to accelerate the maturity and payment of such Loans;
provided, however, that if the principal balance of the Loan outstanding at any
time shall exceed the Borrowing Base at such time, Borrower shall, on demand,
repay the Loan in an amount sufficient to reduce the aggregate unpaid principal
amount of such Loan by an amount equal to such excess;

<PAGE> 20

(B) Interest accrued on the Loan shall be paid on the earliest of (i)
each Payment Date, or (ii) the occurrence of an Event of Default and election by
Lender to accelerate the maturity and payment of the Obligations; provided,
however, that Borrower hereby irrevocably authorizes Lender, in Lender's sole
discretion, to advance to Borrower, and to charge to Borrower's Loan Account
hereunder a sum sufficient each quarter to pay all interest accrued on the
Obligations during the immediately preceding quarter and a sum sufficient to pay
costs, fees and expenses payable pursuant to this Agreement;

(C) The balance of the obligations requiring the payment of money, if
any, shall be paid by Borrower to Lender as and when provided in this Agreement,
the Other Agreements or the Security Documents.

3.4 Term of Loan. Subject to Lender's right to cease making Loans or
Advances to Borrower at any time upon the occurrence of a Default or Event of
Default, Borrower may request Lender to make Advances in accordance with the
terms of this Agreement from the date hereof through the Maturity Date.

3.5 Application of Payments and Collections. Borrower irrevocably waives
the right to direct the application of any and all payments and collections at
any time or times hereafter received by Lender from or on behalf of Borrower,
and Borrower does hereby irrevocably agree that Lender shall have the continuing
exclusive right to apply and reapply any and all such payments and collections
received at any time or times hereafter by Lender or its agent against the
Obligations, in such manner as Lender may deem advisable, notwithstanding any
entry by Lender upon any of its books and records. If as the result of
collections of Accounts as authorized by Section 5.4 hereof a credit balance
exists in the Loan Account, such credit balance shall not accrue interest in
favor of Borrower, but shall be available to Borrower at any time or times for
so long as no Default or Event of Default exists.

3.6 Statements of Account. Lender will account to Borrower monthly with a
statement of Loans, charges and payments made pursuant to this Agreement, and
such account rendered by Lender shall be deemed final, binding and conclusive
upon Borrower unless Lender is notified by Borrower in writing to the contrary
within thirty (30) days after the date each account is mailed to Borrower. Such
notice shall only be deemed an objection to those items specifically objected to
therein.

3.7 Funding Indemnity. If the Lender shall incur any actual loss, cost or
expense (including any loss, cost or expense incurred by reason of the
liquidation or re-employment of deposits or other funds acquired by the Lender
to fund or maintain any Advance or the relending or reinvesting of such deposits
or amounts paid or prepaid to the Lender, but excludingany loss of profits) as a
result of: (a) any payment, prepayment or conversion of an Advance on a date
other than the last day of its Interest Period, (b) any failure by the Borrower
to borrow on the date specified in a notice given pursuant to Section 2.1, or
(c) any acceleration of the maturity of an Advance as a result of the occurrence
of any Event of Default hereunder.

<PAGE> 21

Then, upon the demand of the Lender, the Borrower shall pay to the
Lender such amount as will reimburse the Lender for such loss, cost or expense.
If the Lender makes such a claim for compensation, it shall provide the Borrower
a certificate executed by an officer of the Lender setting forth the amount of
such loss, cost or expense in reasonable detail (including an explanation of the
basis for the computation of such loss, cost or expense) and the amounts and
components of such calculation shown on such certificate if reasonably
calculated shall be conclusive.

SECTION 4. COLLATERAL: GENERAL TERMS

4.1 Security Interest in Collateral. To secure the prompt payment and
performance to Lender of the Obligations, Borrower hereby grants to Lender a
continuing security interest in, security title to and Lien upon all the
following Property and interests in Property of Borrower, whether now owned or
existing or hereafter created, acquired or arising and wheresoever located:

(A) All Accounts;

(B) All Inventory;

(C) All monies and other Property of any kind, now or at any time or
times hereafter, in the possession or under the control of Lender or a bailee of
Lender;

(D) All accessions to, substitutions for and all replacements,
products and cash and non-cash proceeds of (A), (B), and (C) above, including,
without limitation, proceeds of and unearned premiums with respect to insurance
policies insuring any of the Collateral; and

(E) All books and records (including, without limitation, customer
lists, credit files, computer programs, printouts, and other computer materials
and records) of Borrower pertaining to any of (A), (B), (C) or (D) above and all
chattel paper pertaining to any of (A), (B), (C) or (D) above.

4.2 Representations, Warranties and Covenants -- Collateral. To induce
Lender to enter into this Agreement, Borrower represents, warrants, and
covenants to Lender that:

(A) The Collateral is now and will continue to be owned solely by
Borrower. No other Person has or will have any right, title, interest, claim, or
Lien therein, thereon or thereto other than a Permitted Lien.

(B) Except as specifically consented to in writing by Lender, the
Liens granted to Lender shall be first and prior on the Collateral and as to the
Accounts and proceeds, including insurance proceeds, resulting from the sale,
disposition, or loss thereof (other than (i) the pari passu Lien granted by
Borrower to NationsBank under the NationsBank Credit Agreement and (ii) the pari
passu Lien granted by Borrower to ABN under the ABN Loan Agreement). No further

<PAGE> 22

action need be taken to perfect the Liens granted to Lender, other than the
filing of continuation statements under the Code or other applicable law.

(C) All goods evidenced by the Collateral constituting chattel paper,
documents or instruments are owned by Borrower and the same are free and clear
of any prior Lien (other than (i) the pari passu Lien granted by Borrower to
NationsBank under the NationsBank Credit Agreement and (ii) the pari passu Lien
granted by Borrower to ABN under the ABN Loan Agreement). Borrower further
warrants and guarantees the value, quantities, sound condition, grades and
qualities of the goods and services described therein. Borrower shall pay and
discharge when due all taxes, levies, and other charges upon said Collateral and
upon the goods evidenced by any documents constituting Collateral and shall
defend Lender against and save it harmless from all claims of any Person with
respect to the Collateral. This indemnity shall include reasonable attorneys'
fees and legal expenses.

4.3 Lien Perfection. Borrower agrees to execute the UCC-1 financing
statements provided for by the Code, or other applicable law, together with any
and all other instruments, assignments or documents and shall take such other
action as may be required to perfect or to continue the perfection of Lender's
security interest in the Collateral. Unless prohibited by applicable law,
Borrower hereby authorizes Lender to execute and file any such financing
statement on Borrower's behalf. The parties agree that a carbon, photographic or
other reproduction of this Agreement shall be sufficient as a financing
statement and may be filed in any appropriate office in lieu thereof.

4.4 Location of Collateral. All Collateral, other than Inventory in
transit, will at all times be kept by Borrower at one or more of the business
locations set forth in Exhibit "C" and shall not, without the prior written
approval of Lender, be moved therefrom except for transfers between Places of
Business and, prior to an Event of Default, for sales of Inventory in the
ordinary course of business.

4.5 Insurance of Collateral. Borrower agrees to maintain and pay for
insurance upon all Collateral wherever located, in storage or in transit in
vehicles, including goods evidenced by documents, covering casualty, hazard,
public liability and such other risks and in such amounts and with such
insurance companies as shall be reasonably satisfactory to Lender to insure
Lender's interest in the Collateral. Borrower shall deliver the originals of
such policies to Lender with satisfactory lender's loss payable endorsements
naming loss payee. Each policy of insurance or endorsements shall contain a
clause requiring the insurer to give not less than thirty (30) days' prior
written notice to Lender in the event of cancellation of the policy for any
reason whatsoever and a clause that the interest of Lender shall not be impaired
or invalidated by any act or neglect of Borrower or owner of the Property nor by
the occupation of the premises for purposes more hazardous than are permitted by
said policy. If Borrower fails to provide and pay for such insurance, Lender
may, at Borrower's expense, procure the same, but shall not be required to do
so. Borrower agrees to deliver to Lender, promptly as rendered, true copies of
all reports made in any reporting forms to insurance companies. Borrower will
maintain, with financially sound and reputable insurers, insurance with respect
to its Properties and business against such casualties

<PAGE> 23

and contingencies of such type (including public liability, larceny,
embezzlement, or other criminal misappropriation insurance) and in such amounts
as is customary in the business or as otherwise required by Lender.

4.6 Protection of Collateral. All insurance expenses and all expenses of
protecting, storing, warehousing, insuring, handling, maintaining and shipping
the Collateral (including, without limitation, all rent payable by Borrower to
any landlord of any premises where any of the Collateral may be located), and,
any and all excise, property, sales, and use taxes imposed by any state,
federal, or local authority on any of the Collateral or in respect of the sale
thereof, shall be borne and paid by Borrower. If Borrower fails to promptly pay
any portion thereof when due, Lender may, at its option, but shall not be
required to, pay the same and charge the Loan Account therefor. Borrower agrees
to reimburse Lender promptly therefor with interest accruing thereon daily at
the Default Rate provided in this Agreement. All sums so paid or incurred by
Lender for any of the foregoing and all costs and expenses (including reasonable
attorneys' fees, necessary legal expenses, and court costs) which Lender may
incur in enforcing or protecting its Lien on or rights and interest in the
Collateral or any of its rights or remedies under this or any other agreement
between the parties hereto or in respect of any of the transactions to be had
hereunder until paid by Borrower to Lender with interest at the Default Rate,
shall be considered Obligations owing by Borrower to Lender hereunder. Such
Obligations shall be secured by all Collateral and by any and all other
collateral, security, assets, reserves, or funds of Borrower in or coming into
the hands or inuring to the benefit of Lender. Lender shall not be liable or
responsible in any way for the safekeeping of any of the Collateral or for any
loss or damage thereto (except for reasonable care in the custody thereof while
any Collateral is in Lender's actual possession) or for any diminution in the
value thereof, or for any act or default of any warehouseman, carrier,
forwarding agency, or other person whomsoever, but the same shall be at
Borrower's sole risk.

SECTION 5. PROVISIONS RELATING TO ACCOUNTS

5.1 Representations, Warranties and Covenants. With respect to all
Accounts, Borrower represents and warrants to Lender that Lender may rely, in
determining which Accounts are Eligible Accounts, on all statements and
representations made by Borrower with respect to any Account or Accounts,
(including, without limitation, the Borrowing Base Report) and, unless otherwise
indicated in writing to Lender, that with respect to each Account:

(A) It is genuine and in all respects what it purports to be, and it
is not evidenced by a judgment;

(B) It arises out of a completed, bona fide sale and delivery of
goods or rendition of services by Borrower in the ordinary course of its
business and in accordance with the terms and conditions of all purchase orders,
contracts or other documents relating thereto and forming a part of the contract
between Borrower and the Account Debtor;

<PAGE> 24

(C) It is for a liquidated amount maturing as stated in the duplicate
invoice or chattel paper covering such sale or rendition of services, a copy of
which has been furnished or is available to Lender;

(D) Such Account, and Lender's security interest therein, is not, and
will not be in the future, subject to any offset, Lien (other than (i) the pari
passu Lien granted in favor of NationsBank pursuant to the NationsBank Credit
Agreement and (ii) the pari passu Lien granted in favor of ABN pursuant to the
ABN Loan Agreement), deduction, defense, dispute, counterclaim or any other
adverse condition except for disputes resulting in returned goods where the
amount in controversy is deemed by Lender to be immaterial, and each such
Account is absolutely owing to Borrower and is not contingent in any respect or
for any reason;

(E) Borrower has made no agreement with any Account Debtor thereunder
for any deduction therefrom, except discounts or allowances which are granted by
Borrower in the ordinary course of its business for prompt payment and which are
reflected in the calculation of the net amount of each respective invoice
related thereto;

(F) There are no facts, events or occurrences which in any way impair
the validity or enforceability thereof or tend to reduce the amount payable
thereunder from the face amount of the invoice and statements delivered to
Lender with respect thereto;

(G) To the best of Borrower's knowledge, the Account Debtor
thereunder (i) had the capacity to contract at the time any contract or other
document giving rise to the Account was executed and (ii) such Account Debtor is
Solvent; and

(H) Borrower has no knowledge of any fact or circumstance which would
impair the validity or collectibility of the Account, and to the best of
Borrower's knowledge there are no proceedings or actions which are threatened or
pending against any Account Debtor thereunder which might result in any material
adverse change in such Account Debtor's financial condition or the
collectibility of such Account.

5.2 Notice of Security Interest and Schedules of Accounts. Within thirty
(30) days from the date hereof, Borrower shall enter a notation on each Account
by the execution on the face of each written contract document, instrument, or
security agreement, the following notice or such other notice as may be approved
in writing by the Lender:

This chattel paper and the obligations owing to and rights of Friedman's
Inc. hereunder are subject to pari passu security interests in favor of
NationsBank, N.A., as Collateral Agent for NationsBank, N.A.,ABN AMRO Bank
N.V. and First Union National Bank.

; provided, the reference to "NationsBank, N.A." and to "ABN AMRO Bank N.V."
shall be deleted therefrom in the event of the termination of the NationsBank
Credit Agreement and the ABN Loan Agreement, as applicable.

<PAGE> 25

Similar language shall be entered on future Accounts or preprinted language
included in all written contracts, documents, and instruments or security
agreements as and when each Account is created. Each Account shall contain
language acceptable to Lender whereby the Account Debtor agrees not to assert
any claim or defenses against Lender as assignee, which such Account Debtor may
have against Borrower. Borrower shall keep accurate and complete records of its
Accounts and all payments and collections thereon and shall submit to Lender at
Lender's request, on or before the fifteenth day of each month from and after
the date of such request, a schedule of Accounts, and, upon Lender's request
therefor, copies of proof of delivery and the original copy of all documents,
including, without limitation, repayment histories and present status reports
relating to the Accounts so scheduled and such other matters and information
relating to the status of then existing Accounts as Lender shall reasonably
request.

5.3 Administration of Accounts.

(A) Upon and after the occurrence of an Event of Default and
acceleration of the Obligations as permitted in Section 10.2 hereof, Lender
shall have the right to collect and settle or adjust all disputes and claims
directly with the Account Debtor and to compromise the amount or extend the time
for payment of the Accounts upon such terms and conditions as Lender may deem
advisable, and to charge the deficiencies, costs and expenses thereof, including
reasonable attorney's fees, to Borrower.

(B) If an Account includes a charge for any tax payable to any
governmental taxing authority, Lender is authorized, in its sole discretion, to
pay the amount thereof to the proper taxing authority for the account of
Borrower and to charge the Loan Account therefor. Borrower shall notify Lender
if any Account includes any tax due to any governmental taxing authority and, in
the absence of such notice, Lender shall have the right to retain the full
proceeds of the Account and shall not be liable for any taxes to any
governmental taxing authority that may be due by Borrower by reason of the sale
and delivery creating the Account.

(C) Whether or not a Default or an Event of Default has occurred, any
of Lender's officers, employees or agents shall have the right, at any time or
times hereafter, in the name of Lender, or any designee of Lender or Borrower,
to verify the validity, amount or any other matter relating to any Accounts by
mail, telephone, telegraph or otherwise. Borrower shall cooperate fully with
Lender in an effort to facilitate and promptly conclude any such verification
process.

<PAGE> 26

of Lender, (a) notify the Account Debtors of the security interest of Lender in
any Account and that payment thereof or thereunder is to be made directly to
Lender, and (b) furnish to Lender upon request additional statements of any
Accounts, together with all notes or other papers evidencing the same and any
guaranty, securities or other documents or information relating thereto. Lender
has no duty to protect, insure, collect or realize upon the Accounts or preserve
rights in them. For the purpose of computing interest hereunder, all items of
payment received by Lender shall be deemed applied by Lender on account of the
Obligations (subject to final payment of such items) on the second Business Day
after receipt by Lender of such items of payment in Atlanta, Georgia. Such
credits shall be conditional upon final payment in cash or cash equivalents of
the items giving rise to them. If any item is not so paid, the Lender, in its
discretion, whether or not the item is returned, may reverse any credit given
for the item.

SECTION 6. PROVISIONS RELATING TO INVENTORY

6.1 Representations, Warranties and Covenants. With respect to Inventory,
Borrower represents and warrants to Lender that:

(A) All Inventory is presently and will continue to be located at
Borrower's places of business listed on Exhibit "C" and will not be removed
therefrom except as authorized by Section 4.4 of this Agreement.

(B) No Inventory is now, nor shall any Inventory at any time or times
hereafter be, stored with a bailee, warehouseman or similar party without
Lender's prior written consent.

(D) No Inventory is or will be produced in violation of the Fair
Labor Standards Act.

6.2 Location of Inventory. Contemporaneously herewith Borrower has given
Lender a list of all locations where Borrower has a Place of Business (in the
form of Exhibit "C" attached hereto), and thereafter shall give 30 days written
notice prior to any change in, each warehouse location at which Inventory is or
will be kept and each office of Borrower at which the records of Borrower
pertaining to Inventory, are kept. All Eligible Inventory is and shall be kept,
and all records pertaining to Eligible Inventory are and shall be kept, only at
locations of which the Lender has been given notice as provided for herein or at
locations notice of which shall be given to Lender within thirty (30) days of
the end of the next quarter.

<PAGE> 27

Credit Agreement and (ii) the pari passu Lien granted to ABN under the ABN Loan
Agreement) nor sell, assign, transfer or create or suffer to exist any Lien
(other than (i) the pari passu Lien granted to NationsBank under the NationsBank
Credit Agreement and (ii) the pari passu Lien granted to ABN under the ABN Loan
Agreement) in any account or contract right relating to the Eligible Inventory
to or in favor of any Person other than Lender.

6.4 Status of Inventory. Borrower shall notify Lender on Friday of each
week of any of the following events of which Borrower becomes aware during such
week: any material loss or depreciation in value of Eligible Inventory and the
amount of the loss or depreciation; damage to any such goods; and any other
event which materially affects Eligible Inventory, or the value or amount
thereof.

SECTION 7. REPRESENTATIONS AND WARRANTIES

7.1 General Representations and Warranties. To induce Lender to enter into
this Agreement and to make advances hereunder, Borrower warrants, represents and
covenants to Lender that:

(A) Organization and Qualification. Borrower is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Borrower has duly qualified and is authorized to do business and is in
good standing in each state or jurisdiction listed on Exhibit "E" attached
hereto and made a part hereof and in all other states and jurisdictions where
the character of its Properties or the nature of its activities make such
qualification necessary and in which the failure to be so qualified would have a
material adverse effect on Borrower.

(B) Borrower's Names. During the preceding seven (7) years, Borrower
has not been known as or used any fictitious or trade or other names except as
disclosed on Exhibit "F" attached hereto and made a part hereof. Except as set
forth on Exhibit "F", Borrower has not, during the preceding seven (7) years,
acquired all or substantially all of the assets of any Person.

(C) Power and Authority. Borrower has the right and power and is duly
authorized and empowered to enter into, execute, deliver and perform this
Agreement and each of the other Loan Documents to which it is a party. The
execution, delivery and performance of this Agreement and each of the other Loan
Documents have been duly authorized by all necessary corporate action and do not
and will not (i) require any consent or approval from any Person; (ii)
contravene Borrower's Articles of Incorporation or Bylaws; (iii) violate, or
cause Borrower to be in default under, any provision of any law, rule,
regulation, order, writ, judgment, injunction, decree, determination or award in
effect having applicability to Borrower; (iv) result in a breach of or
constitute a default under any indenture or loan or credit agreement or any
other agreement, lease or instrument to which Borrower is a party or by which it
or its Properties may be bound or affected; or (v) result in, or require, the
creation or imposition of any Lien (other than

<PAGE> 28

Permitted Liens) upon or with respect to any of the Properties now owned or
hereafter acquired by Borrower.

(D) Legally Enforceable Agreements. This Agreement is, and each of the
other Loan Documents when delivered under this Agreement will be, a legal, valid
and binding obligation of Borrower enforceable against it in accordance with
their respective terms, except to the extent that such enforcement may be
limited by applicable bankruptcy, insolvency and other similar laws affecting
creditors' rights generally or by principles of equity pertaining to the
availability of equitable remedies.

(E) Use of Proceeds. Borrower's uses of the proceeds of the Loan
pursuant to this Agreement are, and will continue to be, legal and proper uses,
duly authorized by its directors, and such uses will not violate any applicable
laws, including, without limitation, the Foreign Assets Control Regulations, the
Foreign Funds Control Regulations and the Transaction Control Regulations of the
United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended).

(F) Margin Stock. Borrower is not engaged principally, or as one of
its important activities, in the business of purchasing or carrying "margin
stock" (within the meaning of Regulation G or U of the Board of Governors of the
Federal Reserve System), and no part of the proceeds of the Loan to Borrower
will be used to purchase or carry any margin stock or to extend credit to others
for the purpose of purchasing or carrying any margin stock or be used for any
purpose which violates or is inconsistent with the provisions of Regulation X of
said Board of Governors.

(G) Governmental Consents. Borrower has, and is in good standing with
respect to, all governmental consents, approvals, authorizations, permits,
certificates, inspections, and franchises necessary to continue to conduct its
business as heretofore or proposed to be conducted by it and to own or lease and
operate its Properties as now owned or leased by it.

(H) Capital Structure. Exhibit "G" attached hereto and made a part
hereof states (a) the correct name of Borrower, the jurisdiction of
organization, (b) the name of each of Borrower's directors, (c) the name of each
of Borrower's partnership or joint venture Affiliates, if any, and the nature of
the affiliation, and (d) a description of Borrower's Subordinated Debt.

(I) Solvent Financial Condition. Borrower is now and, after giving
effect to the Loan to be made hereunder, at all times will be, Solvent.

(J) Restrictions. Borrower is not a party or subject to any contract,
agreement, or charter or other corporate restriction, which materially and
adversely affects its business or the use or ownership of any of its Properties.
Borrower is not a party or subject to any contract or agreement which restricts
its right or ability to incur Indebtedness, other than as set forth on Exhibit
"H" attached hereto, none of which prohibit the execution of or compliance with
this Agreement by Borrower. Borrower has not agreed or consented to cause or
permit in the future

<PAGE> 29

(upon the happening of a contingency or otherwise) any of its Property, whether
now owned or hereafter acquired, to be subject to a Lien that is not a Permitted
Lien.

(K) Litigation. Except as set forth on Exhibit "I" attached hereto and
made a part hereof, as of the date hereof, there are no actions, suits,
proceedings or investigations pending, or to the knowledge of Borrower,
threatened, against or affecting Borrower, or the business, operations,
Properties, prospects, profits or condition of Borrower, in any court or before
any governmental authority or arbitration board or tribunal, and no action,
suit, proceeding or investigation shown on Exhibit "I" involves the possibility
of materially and adversely affecting the Properties, business, prospects,
profits or condition (financial or otherwise) of Borrower or the ability of
Borrower to perform this Agreement. Borrower is not in default with respect to
any order, writ, injunction, judgement, decree or rule of any court,
governmental authority or arbitration board or tribunal.

(L) Title to Properties. Borrower has good, indefeasible and
marketable title to and fee simple ownership of, or valid and subsisting
leasehold interests in, all of its real Property, and good title to all of its
other Property, in each case, free and clear of all Liens except Permitted
Liens.

(M) Financial Statements: Fiscal Year. The balance sheets of Borrower
dated as of September 30, 1996 and March 31, 1997, and the related statements of
income, changes in shareholder's equity and cash flow for the periods ended on
such dates, have been prepared on a basis consistent with Borrower's historical
accounting practices (except for changes in application in which Borrower's
independent certified public accountants concur), and present fairly the
financial position of Borrower at such dates and the results of Borrower's
operations for such periods. As of the date hereof, since May 31, 1997, there
has been no material change in the condition, financial or otherwise, of
Borrower except changes in the ordinary course of business, none of which
individually or in the aggregate has been materially adverse. The fiscal year of
Borrower ends on September 30 of each year.

(N) Full Disclosure. The financial statements referred to in Section
7.1(M) above, do not, nor does this Agreement or any other written statement of
Borrower to Lender (including, without limitation, Borrower's filings, if any,
with the Securities and Exchange Commission), contain any untrue statement of a
material fact or omit a material fact necessary to make the statements contained
therein or herein not misleading. There is no fact which Borrower has failed to
disclose to Lender in writing which materially affects adversely or, so far as
Borrower can now foresee, will materially affect adversely the Properties,
business, prospects, profits, or condition (financial or otherwise) of Borrower
or the ability of Borrower to perform this Agreement.

(O) Pension Plans. Except as disclosed on Exhibit "J" attached hereto
and made a part hereof, Borrower has no Plan. Borrower has not received any
notice to the effect that it is not in full compliance with any of the
requirements of ERISA and the regulations promulgated thereunder. No fact or
situation that could result in a material adverse change in the financial
condition of Borrower, including, but not limited to, any Reportable Event, or
Prohibited

<PAGE> 30

Transaction, exists in connection with any Plan. Borrower has no withdrawal
liability in connection with a Multiemployer Plan.

(P) Taxes. Borrower's federal tax identification number is 58-2058362.
Borrower has filed all federal, state and local tax returns and other reports it
is required by law to file and has paid, or made provision for the payment of,
all taxes, assessments, fees and other governmental charges that are due and
payable. The provision for taxes on the books of Borrower are adequate for all
years not closed by applicable statutes, and for its current fiscal year.

(Q) Compliance With Laws. Borrower has duly complied with, and its
Properties, business operations and leaseholds are in compliance in all material
respects with, the provisions of all federal, state and local laws, rules and
regulations applicable to Borrower, its Properties or the conduct of its
business, including, without limitation, the federal Truth-In-Lending Act and
applicable state consumer lending laws, OSHA and all Environmental Laws, and
there have been no citations, notices or orders of noncompliance issued to
Borrower under any such law, rule or regulation.

(R) No Defaults. No event has occurred and no condition exists which
would, upon the execution and delivery of this Agreement or Borrower's
performance hereunder, constitute a Default or an Event of Default. Borrower is
not in default, and no event has occurred and no condition exists which
constitutes, or which with the passage of time or the giving of notice or both
would constitute, a default in the payment of any Indebtedness to any Person for
Money Borrowed.

7.2 Reaffirmation. Each request for an Advance made by Borrower pursuant
to this Agreement or any of the other Loan Documents shall constitute (i) an
automatic representation and warranty by Borrower to Lender that there does not
then exist any Default or Event of Default and (ii) a reaffirmation as of the
date of said request that all of the representations and warranties of Borrower
contained in this Agreement (other than the first sentence of Section 7.1(K) and
the second sentence of Section 7.1(M) hereof) and the other Loan Documents are
true in all material respects except for (x) any changes in the nature of
Borrower's business or operations that would render the information contained in
any exhibit, attached hereto either inaccurate or incomplete, so long as Lender
has consented to such changes or such changes are expressly permitted by this
Agreement and (y) such changes to the facts and/or circumstances that are the
subject of such representations and warranties, so long as such changes are not
materially adverse to the condition of the Borrower (financially or otherwise)
either individually or in the aggregate.

7.3 Survival of Representations and Warranties. Borrower covenants,
warrants and represents to Lender that all representations and warranties of
Borrower contained in this Agreement or any of the other Loan Documents shall be
true at the time of Borrower's execution of this Agreement and the other Loan
Documents, and shall survive the execution, delivery and acceptance hereof by
Lender and the closing of the transactions described herein or related hereto.

<PAGE> 31

SECTION 8. COVENANTS AND CONTINUING AGREEMENTS

8.1 Affirmative Covenants. During the term of this Agreement, and
thereafter for so long as there are any obligations to Lender, Borrower
covenants that, unless otherwise consented to by Lender in writing, it shall:

(A) Taxes and Liens. Pay and discharge all taxes, assessments and
governmental charges upon it, its income and Properties as and when such taxes,
assessments and charges are due and payable, (i) except and to the extent only
that such taxes, assessments and charges are being actively contested in good
faith and by appropriate proceedings, Borrower promptly notifies Lender in
writing of such contest, Borrower maintains adequate reserves on its books
therefor and the nonpayment of such taxes, assessments and charges does not
result in a Lien upon any Properties of Borrower other than a Permitted Lien and
(ii) except such taxes, assessments and governmental changes that do not exceed,
in the aggregate, $250,000 at any time. Borrower shall also pay and discharge
any lawful claims which, if unpaid, might become a Lien against any of
Borrower's Properties except for Permitted Liens.

(B) Tax Returns. Timely, file all federal, state and local tax returns
and other reports Borrower is required by law to file and maintain adequate
reserves for the payment of all taxes, assessments, governmental charges, and
levies imposed upon it, its income, or its profits, or upon any Property
belonging to it.

(C) Payment of Bank Charges. Pay to Lender, when due, any and all
fees, costs or expenses which Lender pays to a bank or other similar institution
arising out of or in connection with (i) the forwarding to Borrower or any other
Person on behalf of Borrower, by Lender, proceeds of loans made by Lender to
Borrower pursuant to this Agreement and (ii) the depositing for collection, by
Lender, of any check or item of payment received or delivered to Lender on
account of the obligations.

(D) Business and Existence. Preserve and maintain its existence and
all rights, privileges, and franchises in its qualification and good standing in
all states in which such qualification is necessary.

(E) Maintain Properties. Maintain its Properties in good condition and
make, all necessary renewals, repairs, replacements, additions and improvements
thereto.

(F) Compliance with Laws. Comply with all laws, ordinances,
governmental rules and regulations to which it is subject, including, without
limitation, all laws, statutes, regulations and ordinances regarding the
collection, payment and deposit of employees, income, unemployment and Social
Security taxes and sales and excise taxes, ERISA and Environmental Laws, and
obtain and keep in force any and all licenses, permits, franchises, or other
governmental authorizations necessary to the ownership of its Properties or to
the conduct of its business, which violation or failure to obtain would be
reasonably likely to materially and

<PAGE> 32

adversely affect the business, prospects, profits, Properties, or condition
(financial or otherwise) of Borrower.

(G) Business Records. Keep adequate records and books of account with
respect to its business activities in which proper entries are made in
accordance with GAAP reflecting all its financial transactions.

(H) Visits, Inspections and Audits. Permit representatives of Lender, from
time to time, as often as may be reasonably requested, but only during normal
business hours, to visit, inspect and audit the Properties of Borrower, inspect
and make extracts from its books and records, and discuss with its officers, its
employees and its independent accountants, Borrower's business, assets,
liabilities, financial condition, business prospects and results of operations
and to pay in full the cost of one audit by Lender of the Collateral each year
(provided, however, that Borrower shall not be required to pay more than $10,000
with respect to any such audit).

(i) as soon as possible, but not later than one hundred twenty
(120) days after the close of each fiscal year of Borrower, unqualified audited
financial statements of Borrower as of the end of such year, certified by a firm
of independent certified public accountants of recognized national standing or
otherwise acceptable to Lender (except for a qualification for a change in
accounting principles with which the independent public accountant concurs);

(ii) as soon as possible, but not later than the earlier of sixty
(60) days after the end of each quarter hereafter or the date on which the same
shall be required to be filed with the Securities Exchange Commission, unaudited
interim consolidated financial statements of Borrower, and of the portion of
Borrower's fiscal year then elapsed, including without limitation, upon
reasonable request of Lender, Accounts receivables aging, and Accounts payable
aging as of the end of such quarter, on a consolidated and consolidating basis,
certified by the principal financial officer of Borrower as fairly presenting
the consolidated financial position and results of operations of Borrower for
such month and period subject only to changes from audit and year-end
adjustments and except that such statements need not contain notes; and

(iii) such other data and information (financial and otherwise)
as Lender, from time to time, may reasonably request, bearing upon or related to
the Collateral, Borrower's financial condition or results of operations,
including, without limitation, federal income tax returns of Borrower, accounts
payable ledgers, and bank statements.

(J) Notices to Lender. Notify Lender in writing: (i) promptly after
Borrower's learning thereof, of the commencement of any litigation materially
affecting Borrower or any of

<PAGE> 33

its Properties, whether or not the claim is considered by Borrower to be covered
by insurance, and of the institution of any administrative proceeding which may
materially and adversely affect Borrower's operations, financial condition,
Properties at business or Lender's Lien upon any of the Collateral; (ii) within
forty-five (45) days after each quarter for the preceding quarter, of Borrower's
opening of any new office or Place of Business in a state in which Borrower
previously has had no Place of Business or within forty-five (45) days of the
end of each quarter of Borrower's opening of a new office or new Place of
Business in a state where Borrower has a prior office or Place of Business;
(iii) within forty-five (45) days after each quarter for the preceding quarter,
of the closing of any existing office or Place of Business; (iv) promptly after
Borrower's learning thereof, of any default by Borrower under any note,
indenture, loan agreement, mortgage, lease, deed, guaranty or other similar
agreement relating to any Indebtedness of Borrower in excess of $250,000; (v)
promptly after the occurrence thereof, of any Default or Event of Default; (vi)
promptly after the rendition thereof, of any judgment rendered against Borrower;
and (vii) concurrently with the filing thereof with the Securities and Exchange
Commission ("SEC"), any filings with the SEC by providing to Lender a copy of
such filings.

(K) Landlord and Storage Agreements. Provide Lender at Lender's request
with copies of all agreements between Borrower and any landlord or warehouseman
which owns any premises at which any Inventory or other Collateral may, from
time to time, be kept.

(L) Further Assurances. At Lender's request, promptly execute or cause to
be executed and deliver to Lender any and all documents, instruments and
agreements deemed necessary by Lender to give effect to or carry out the terms
or intent of this Agreement or any of the other Loan Documents.

(M) Communications with Lender. Borrower hereby irrevocably authorizes
Lender to communicate directly with any of the following Persons concerning
Borrower, its business, the Collateral and the Loans: (a) any service bureau,
warehousing service, freight forwarder, trade creditor, consignee, bailee,
customer or other similar services; (b) any Person employed by Borrower; and (c)
Borrower's present and future independent public accountants, each of whom is
authorized by Borrower to communicate with Lender and to disclose to Lender any
and all matters relating to Borrower, its financial condition and prospects, and
the Collateral.

(N) Borrowing Base Report. For the purposes of computing the Borrowing
Base, Borrower shall furnish to Lender on the forty-fifth (45th) day after the
end of each calendar quarter, a Borrowing Base Report as of the last day of the
immediately preceding calendar quarter containing information adequate to
identify Eligible Inventory and Eligible Accounts, signed by an authorized
officer of Borrower showing a calculation of the Borrowing Base as of the end of
the preceding week, listing the amount of Eligible Accounts and updating the
amount of Eligible Inventory. If on the date any such report is delivered, the
sum of the aggregate principal amount of the Loan shall exceed the Borrowing
Base as set forth in the Borrowing Base Report, Borrower will immediately pay to
Lender the amount of such excess. Borrower shall also, if the Lender so
requests, accompany such information with pledges or designations of Eligible
Inventory or assignments of Eligible Accounts in form and substance satisfactory
to Lender which assignments

<PAGE> 34

shall give Lender full power to collect, compromise or otherwise deal with the
assigned Accounts as the sole owner thereof.

(O) Inspection; Further Assurances. Borrower shall at all reasonable times
and from time to time allow Lender by or through any of its authorized officers,
agents, attorneys or accountants, to examine, inspect or make extracts from
Borrower's books and records, and to arrange for verification of Eligible
Accounts and Eligible Inventory under reasonable procedures on a "blind basis,"
directly with account debtors or factors or by other methods; and shall do,
make, execute and deliver all such additional and further acts, things, deeds,
assurances, and instruments as Lender may require more completely to vest in and
assure to Lender its rights hereunder or in any Collateral and to carry into
effect the provisions and intent of this Agreement.

(P) Borrower's Account. At all times during the term of this Agreement
maintain Borrower's Account so long as the terms thereof are as favorable to
Borrower as those generally available for similar customers with comparable
accounts.

(Q) Compliance Certificate. Within ninety (90) days after the fiscal year
end and forty-five (45) days after the end of each calendar quarter, or more
frequently if requested by Lender, cause the chief financial officer of Borrower
to prepare and deliver to Lender a compliance certificate in the form of Exhibit
"K" attached hereto, with appropriate insertions.

8.2 Negative Covenants. During the term of this Agreement, and thereafter
for so long as there are any Obligations to Lender, Borrower covenants that,
unless Lender has first consented thereto in writing, it will not:

(A) Indebtedness. Incur, assume or suffer to exist any Indebtedness except
for Permitted Indebtedness.

(B) Mergers; Consolidations: Acquisitions. Acquire all or any substantial
part of the Properties of any Person if the consideration paid as part of any
such transaction in cash or other property (other than stock of Borrower)
exceeds $5,000,000, nor merge or consolidate with any Person.

(C) Loans. Except as set forth on Exhibit K-1, make any Loans or other
advances of money in the aggregate in excess of the Permitted Loan and Guarantee
Amount (other than for salary, travel advances, advances against commissions and
other similar advances in the ordinary course of business and Loans to officers
to exercise stock options) to any Person, including, without limitation, any of
Borrower's Affiliates, officers or employees.

<PAGE> 35

Morgan Schiff & Co., Inc. for management services, with the total consideration
thereunder not to exceed $500,000 annually; (iii) bonuses to the chairman,
president and chief executive officer of the Borrower, provided, no Default or
Event of Default under Section 10.1(A) hereof then exists or would be caused by
the payment of such bonus; (iv) the Long-Term Incentive Programs; (v) insurance
programs with Cougar Reinsurance Company, Ltd., as described in Exhibit K-2; and
(vi) loans and other indebtedness evidenced by the agreements listed on Exhibit
K-1.

(E) Partnerships or Joint Ventures. Become or agree to become a general or
limited partner in any general or limited partnership or a joint venturer in any
joint venture.

(F) Adverse Transactions. Enter into any transaction, which materially and
adversely affects or may materially and adversely affect the Collateral or
Borrower's ability to repay the Obligations or permit or agree to any material
extension, compromise or settlement or make any change or modification of any
kind or nature with respect to any Account, including any of the terms relating
thereto, other than discounts and allowances in the ordinary course of business,
all of which shall be reflected in the Schedules of Accounts submitted to Lender
pursuant to Section 5.2 of this Agreement.

(G) Guaranties. Guarantee, assume, endorse or otherwise, in any way, become
directly or contingently liable with respect to the Indebtedness of any Person
if the aggregate amount of the same exceeds the Permitted Loan and Guarantee
Amount except by endorsement of instruments or items of payment for deposit or
collection.

(H) Limitation on Liens. Create or suffer to exist any Lien upon any of its
Property, income or profits, whether now owned or hereafter acquired, except:
(i) Liens at any time granted in favor of Lender; (ii) Liens for taxes
(excluding any Lien imposed pursuant to any of the provisions of ERISA) not yet
due or being contested as permitted by Section 8.1(A) hereof, but only if in
Lender's judgment such Lien does not affect adversely Lender's rights or the
priority of Lender's Lien in the Collateral; (iii) Liens securing the claims or
demands of materialmen, mechanics, carriers, warehousemen, landlords and other
like Persons for labor, materials, supplies or rentals incurred in the ordinary
course of Borrower's business, but only if the payment thereof is not at the
time required and only if such Liens are junior in priority to the Liens in
favor of Lender; (iv) Liens resulting from deposits made in the ordinary course
of business in connection with workmen's compensation, unemployment insurance,
social security and other like laws; (v) attachment, judgment and other similar
non-tax Liens arising in connection with court proceedings, but only if and for
so long as the execution or other enforcement of such Liens is and continues to
be effectively stayed and bonded on appeal in a manner satisfactory to Lender
for the full amount thereof, the validity and amount of the claims secured
thereby are being actively contested in good faith and by appropriate lawful
proceedings, such Liens do not, in the aggregate, materially detract from the
value of the Property of Borrower or materially impair the use thereof in the
operation of Borrower's business and such Liens are and remain junior in
priority to the Liens in favor of Lender; (vi) Purchase Money Liens securing
purchase money indebtedness which is not incurred in violation of Section 8.3(C)
of this Agreement; (vii) reservations, exceptions, easements, rights-of-way, and
other similar encumbrances affecting real

<PAGE> 36

Property, provided that, in Lender's sole judgment, they do not in the aggregate
materially detract from the value of said Properties or materially interfere
with their use in the ordinary conduct of Borrower's business and, if said real
Property constitutes Collateral, Lender has consented thereto; (viii) such other
Liens as appear an Exhibit "L" attached hereto; (ix) the pari passu Lien granted
in favor of NationsBank pursuant to the NationsBank Credit Agreement; (x) the
pari passu Lien granted in favor of ABN pursuant to the ABN Loan Agreement; and
(xi) such other Liens as Lender may hereafter approve in writing.

(I) Business Locations. Transfer its principal place of business or chief
executive office, or maintain warehouses or records with respect to Accounts or
Inventory, to or at any locations other than those at which the same are
presently kept or maintained, as set forth on Exhibit "C" hereto, except upon at
least thirty (30) days' prior written notice to Lender and after the delivery to
Lender of financing statements, if required by Lender, in form satisfactory to
Lender to perfect or continue the perfection of Lender's Lien and security
interest hereunder.

(J) Change of Business. Enter into any new type of business or make any
material change in any of Borrower's business objectives, purposes and
operations; provided, however, Borrower shall be permitted to engage in any
retail business incidental or related to Borrower's business conducted on the
date hereof.

(K) Disposition of Assets. Sell, lease or otherwise dispose of any of its
Properties, including any disposition of Property as part of a sale and
leaseback transaction, to or in favor of any Person, except (i) sales of
Inventory in the ordinary course of Borrower's business for so long as no Event
of Default exists hereunder, (ii) dispositions expressly authorized by this
Agreement, or (iii) dispositions of Properties other than Inventory for not less
than the reasonable value of the Properties which have been disposed.

(L) Name of Borrower. Use any corporate name (other than its own) or any
fictitious name, tradestyle or "d/b/a" except for the names disclosed on Exhibit
"F" attached hereto, unless Borrower has provided such name to Lender and
executed such Uniform Commercial Code statements as Lender shall require.

(M) Bill-and-Hold Sales, Etc. Except in the ordinary course of business,
make a sale to any customer on a bill-and-hold, guaranteed sale, sale and
return, sale on approval or consignment basis, or any sale on a repurchase or
return basis.

(N) Margin Securities. Own, purchase or acquire (or enter into any contract
to purchase or acquire) any "margin security" as defined by any regulation of
the Federal Reserve Board as now in effect or as the same may hereafter be in
effect unless, prior to any such purchase or acquisition or entering into any
such contract, Lender shall have received an opinion of counsel satisfactory to
Lender to the effect that such purchase or acquisition will not cause this
Agreement to violate Regulations G or U or any other regulation of the Federal
Reserve Board then in effect.

<PAGE> 37

(O) Fiscal Year. Change its fiscal year without the prior written
consent of Lender, which consent shall not be unreasonably withheld.

(P) Distributions to Affiliates. Make any distributions, dividends or
payments to Affiliates (including any permitted payments under section
8.2(D)(ii) and (iii) in excess of $1,500,000 during any calendar year without
the prior written consent of Lender, except Borrower may redeem its Class B
shares from time to time if no Default or Event of Default then exists or would
be caused by such redemption.

8.3 Specific Financial Covenants. During the term of this Agreement and
thereafter for so long as there are any Obligations to Lender, Borrower
covenants that, unless otherwise consented to by Lender in writing, it shall:

(A) Minimum Net Worth. Maintain at all times a Net Worth of at least
$140,000,000, plus 50% of the net proceeds of any equity offering after
September 30, 1996; in addition, effective as of the start of each fiscal year,
commencing with the fiscal year beginning on October 1, 1997, such Net Worth
requirement shall be increased by 50% of the Borrower's Net Income after
distributions to shareholders during the immediately preceding fiscal year.

(B) Fixed Charge Coverage Ratio. Maintain, as of the end of each
fiscal quarter, a Fixed Charge Coverage Ratio of not less than 1.5:1.

(C) Debt Ratio. Not permit, as of the end of any fiscal quarter, the
ratio of the Borrower's Funded Debt as of such date to its EBITDAR for the four
immediately preceding fiscal quarters to exceed 3:1.

SECTION 9. CONDITIONS PRECEDENT

Notwithstanding any other provision of this Agreement or any of the other
Loan Documents, and without affecting in any manner the rights of Lender under
the other Sections of this Agreement, it is understood and agreed that the
obligation of Lender to make the initial Advance is subject to the conditions
precedent that Lender shall have received, in form and substance satisfactory to
it, each of the following documents and that each of the conditions described
herein is fulfilled to the satisfaction of Lender:

9.1 Documentation. Lender shall have received the following documents,
each to be in form and substance satisfactory to Lender and its counsel:

(A) The Security Agreement and any other Security Documents duly
executed by Borrower;

(B) A legal opinion of Alston & Bird, counsel to Borrower,
substantially in the form of Exhibit "M" attached hereto and incorporated by
reference herein;

<PAGE> 38

(C) A Compliance Certificate in the form of Exhibit "K" attached
hereto and incorporated by reference herein duly executed by an officer of
Borrower;

(D) Certificates or policies of insurance evidencing compliance with
the applicable provisions of this Agreement;

(E) A request for Advance pursuant to Section 9.4 hereof and a
Borrowing Base Report;

(F) Certified copies of Borrower's casualty insurance policies,
together with loss payable endorsements on Lender's standard form of Loss Payee
Endorsement naming Lender as loss payee, and certified copies of Borrower's
liability insurance policies, together with endorsements naming Lender as a
co-insured;

(G) Copies of all filing receipts or acknowledgments issued by any
governmental authority to evidence any filing or recordation necessary to
perfect the Liens of Lender in the Collateral and evidence in a form acceptable
to Lender that such Liens constitute valid and perfected security interests and
Liens, having the Lien priority specified in Section 4.2(B) hereof;

(H) A copy of the Articles or Certificate of Incorporation of
Borrower, and all amendments thereto, and a copy of the Bylaws of Borrower, each
certified by the secretary of Borrower;

(I) Good standing certificates for Borrower, issued by the Secretary
of State or other appropriate official of the jurisdiction of incorporation;

(J) Certificate as to qualification to transact business as a foreign
corporation in each state, other than its state of incorporation, in which
Borrower transacts business provided, however, so long as the representation in
Section 7.1(A) is true and correct, Borrower may provide such certificates
within 30 days of the date hereof;

(K) A copy of the Intercreditor Agreement, duly executed and delivered
by NationsBank, ABN and Borrower.

(L) Such other documents, instruments and agreements as Lender shall
reasonably request in connection with the foregoing matters.

9.2 Other Conditions. The following conditions have been and shall
continue to be satisfied, in the reasonable discretion of Lender:

(A) No Default or Event of Default shall exist;

(B) Each of the conditions precedent set forth in the other Loan
Documents shall have been satisfied;

<PAGE> 39

(C) Since September 30, 1996, except for changes which are reflected
on the unaudited May 31, 1997 financial statements (excluding footnotes)
submitted to Lender, there shall not have occurred any material adverse change
in the business, financial condition or results of operations of Borrower, or
the existence or value of any Collateral, or any event, condition or state of
facts which would reasonably be expected materially and adversely to affect the
business, financial condition or results of operations of Borrower; and

(D) No action, proceeding, investigation, regulation or legislation
shall have been instituted, threatened or proposed before any court,
governmental agency or legislative body to enjoin, restrain or prohibit, or to
obtain damages from any Person in respect of, the consummation of the
transactions contemplated hereby or which, in Lender's sole discretion, would
make it inadvisable to consummate the transactions contemplated by this
Agreement or any of the other Loan Documents.

9.3 Conditions Precedent to Subsequent Advances. The obligation of Lender
to make subsequent Advances is subject to the conditions precedent that Lender
shall have received, in form and substance satisfactory to it, each of the
following documents and that each of the conditions described below is fulfilled
to the satisfaction of Lender:

(A) A request for Advance pursuant to Section 9.4 hereof;

(B) The representation and warranties contained herein and in each of
the other Loan Documents shall be correct on and as of the date of the request
for the Advance and the date of the Advance, with the same effect as though made
on and as of those dates, except to the extent that such representations and
warranties relate solely to an earlier date, and on each of such dates, no
event, act, or condition shall have occurred or be continuing, or would result
from the Advance requested, which constitutes a Default or Event of Default. The
submission by Borrower of a written request for an Advance shall constitute a
representation and warranty as to the correctness of the above facts, and if
requested by Lender with respect to the Advance requested, Borrower shall
furnish to Lender a written certificate of an officer of the Borrower,
satisfactory in form and substance to Lender, as to the correctness of the above
facts as a condition precedent to such Advance; and

(C) A Compliance Certificate in the form of Exhibit "L" attached
hereto and incorporated by reference herein duly executed by an officer of
Borrower.

9.4 Request for Advances. Borrower shall request each Advance of Loan
proceeds (including requests by telephonic communication) no later than 11:00
A.M. (Atlanta time) of the day on which the Advance is requested to be made.
Each request for Advance shall specify the proposed date of the Advance and the
amount thereof and shall be effective upon receipt by Lender and shall be
irrevocable. Not later than close of business (Atlanta time) on the day on which
the request for Advance is received by Lender and upon fulfillment of the
applicable conditions set forth herein, as applicable, Lender will make each
requested Advance in the amount requested, or in a lesser amount as determined
by the Borrowing Base, to the Borrower in

<PAGE> 40

immediately available funds by deposit into Borrower's Account as of the
proposed date. The persons authorized to request Advances hereunder shall be
those individuals designated in writing by Borrower to Lender. In the case of a
request for Advance made by telephonic communication, the action taken by Lender
in good faith upon such notice shall be deemed to be the action authorized by
Borrower pursuant to such request for Advance.

SECTION 10. EVENTS OF DEFAULT: RIGHTS AND REMEDIES ON DEFAULT

10.1 Events of Default. The occurrence of any one or more of the following
events or conditions shall constitute an "Event of Default":

(A) Payment of Note. Borrower shall fail to pay any installment of
principal, interest or premium, if any, owing on the Note on the due date of
such installment and shall fail to cure the same within five (5) days of notice
thereof from Lender.

(B) Payment of Other Obligations. Borrower shall fail to pay any of
the Obligations that are not evidenced by the Note on the due date thereof
(whether due at stated maturity, on demand, upon acceleration or otherwise).

(C) Misrepresentations. Any warranty, representation, or other
statement made or furnished to Lender by or on behalf of Borrower or in any
instrument, certificate or financial statement furnished in compliance with or
in reference to this Agreement or any of the other Loan Documents proves to
have been false or misleading in any material respect when made or furnished.

(D) Breach of Covenants. Breach of any covenant contained herein or
any covenant contained in any other Loan Document (other than a covenant or
default in the performance) if the breach of such other covenant is not cured to
Lender's satisfaction within ten (10) days after the sooner to occur of
Borrower's receipt of notice of such breach from Lender or the date on which
such failure or neglect first becomes known to any officer of Borrower.

(E) Default Under Other Agreements. Any event of default shall occur
under, or Borrower shall default in the performance or observance of any term,
covenant, condition or agreement contained in, any of the Other Agreements or
other instrument, contract, or document evidencing any existing or future
indebtedness of Borrower to Lender and such default shall continue beyond any
applicable period of grace.

(F) Default Under Security Documents. Any event of default shall occur
under, or Borrower shall default in the performance or observance of any term,
covenant, condition or agreement contained in, any of the Security Documents and
such default shall continue beyond any applicable period of grace.

(G) Other Defaults. There shall occur any default or event of default
on the part of Borrower (including specifically, but without limitation, due to
non-payment) under any

<PAGE> 41

agreement, document or instrument to which Borrower is a party (including,
without limitation, the NationsBank Credit Agreement and the ABN Loan Agreement)
or by which Borrower or any of its Property is bound, creating or relating to
any indebtedness (other than the Obligations) if the payment or maturity of such
Indebtedness is accelerated in consequence of such event of default or demand
for payment of such Indebtedness is made.

(H) Uninsured Losses; Unauthorized Dispositions. Any material loss,
theft, damage or destruction not fully covered by insurance (as required by this
Agreement and subject to such deductibles as Lender shall have agreed to in
writing), or sale, lease or encumbrance of any of the Collateral or the making
of any levy, seizure, or attachment thereof or thereon except in all cases as
may be specifically permitted by other provisions of this Agreement.

(I) Insolvency, etc. Borrower shall cease to be Solvent or shall
suffer the appointment of a receiver, trustee, custodian or similar fiduciary,
or shall make an assignment for the benefit of creditors, or any petition for
an order for relief shall be filed by or against Borrower under the Bankruptcy
Code (if against Borrower, the continuation of such proceeding for more than
thirty (30) days), or Borrower shall make any offer of settlement, extension or
composition to their respective unsecured creditors generally, or any motion,
complaint or other pleading is filed in any bankruptcy case of any Person other
than Borrower and such motion, complaint or pleading seeks the consolidation of
Borrower's assets and liabilities with the assets and liabilities of such
Persons.

(J) Business Disruptions; Condemnation. There shall occur a cessation
of a substantial part of the business of Borrower for a period which
significantly affects Borrower's capacity to continue its business, on a
profitable basis; or Borrower shall suffer the loss or revocation of any
license or permit now held or hereafter acquired by Borrower which is necessary
to the continued or lawful operation of all or any material part of its
business; or Borrower shall be enjoined, restrained or in any way prevented by
court, governmental or administrative order from conducting all or any material
part of its business affairs; or any material lease or agreement pursuant to
which Borrower leases, uses or occupies any Property shall be cancelled or
terminated prior to the expiration of its stated term; or any part of the
Collateral shall be taken through condemnation or the value of such Property
shall be impaired through condemnation.

(K) ERISA. A Reportable Event shall occur which Lender, in its
reasonable discretion, shall determine in good faith constitutes grounds for
the termination by the Pension Benefit Guaranty Corporation of any Plan or for
the appointment by the appropriate United States district court of a trustee
for any Plan, or if any Plan shall be terminated or any such trustee shall
be requested or appointed, or if Borrower is in "default" (as defined in
Section 4219 (c)(5) of ERISA) with respect to payments to a Multiemployer Plan
resulting from Borrower's complete or partial withdrawal from such Plan.

(L) Litigation. Borrower, or any Affiliate, shall challenge or
contest in any action, suit or proceeding the validity or enforceability of
this Agreement or any of the other Loan

<PAGE> 42

Documents, the legality or enforceability of any of the Obligations or the
perfection or priority of any Lien granted to Lender.

(M) Criminal Forfeiture. Borrower shall be criminally indicted or
convicted under any law that could lead to a forfeiture of any Property of
Borrower.

(N) Judgments. Borrower shall suffer any money judgments, or suffer
any writs, warrants of attachment or similar processes which give rise to a
Lien, other than a Permitted Lien, which individually or in the aggregate
involve an amount in excess of $500,000 over the amount covered in full, subject
to customary and reasonable deductibles, by insurance or a surety bond, and
shall not discharge, vacate, bond or stay the same within a period of sixty (60)
consecutive days.

10.2 Acceleration of the Obligations. Without in any way limiting the right
of Lender to demand payment of any portion of the obligations payable on demand
in accordance with Section 3.2 hereof, upon or at any time after the occurrence
of an Event of Default, all or any portion of the Obligations due or to become
due from Borrower to Lender, whether under this Agreement or any of the other
Loan Documents or otherwise, shall, at the option of Lender and without notice
or demand by Lender, become at once due and payable and Borrower shall forthwith
pay to Lender, in addition to any and all sums and charges due, the entire
principal of and accrued and unpaid interest on the obligations plus reasonable
attorneys' fees not to exceed fifteen percent (15.0%) of the Obligations if the
same are collected by or through an attorney at law.

10.3 Remedies. Upon or at any time after the occurrence of an Event of
Default, Lender shall have and may exercise from time to time the following
rights and remedies:

(A) All of the rights and remedies of a secured party under the Code
or under other applicable law, and all other legal and equitable rights to which
Lender may be entitled, all of which rights and remedies shall be cumulative,
and none of which shall be exclusive, and shall be in addition to any other
rights or remedies contained in this Agreement or any of the other Loan
Documents.

(B) The right to notify Account Debtors to make remittances to Lender
of all sums due on Accounts and to collect the Accounts directly from the
Account Debtors.

(C) The right to take immediate possession of the Collateral, and (i)
to require Borrower to assemble the Collateral, at Borrower's expense, and make
it available to Lender at a place designated by Lender which is reasonably
convenient to both parties, and (ii) to enter any of the premises of Borrower or
wherever any of the Collateral shall be located, and to keep and store the same
on said premises until sold (and if said premises be the Property of Borrower,
Borrower agrees not to charge Lender for storage thereof).

<PAGE> 43

(D) The right to sell or otherwise dispose of all or any of the
Collateral in its then condition, or after any further manufacturing or
processing thereof, at public or private sale or sales, with such notice as may
be required by law, in lots or in bulk, for cash or on credit, all as Lender, in
its sole discretion, may deem advisable. Borrower agrees that ten (10) days'
written notice to Borrower of any public or private sale or other disposition of
any Collateral shall be reasonable notice thereof; provided, however, that no
notice of Lender's intended disposition of Collateral shall be required with
respect to any portion of the Collateral that is perishable, threatens to
decline speedily in value or is of a type customarily sold on a recognized
market, nor shall any such notice be required hereunder if not otherwise
required under applicable law. Lender shall have the right to conduct such sales
an Borrower's premises, without charge therefor, and such sales may be adjourned
from time to time in accordance with applicable law. Lender shall have the right
to sell, lease, or otherwise dispose of any Collateral, or any part thereof, for
cash, credit or any combination thereof, and Lender may purchase all or any part
of any Collateral at public or, if permitted by law, private sale and, in lieu
of actual payment of such purchase price, may set off the amount of such price
against the obligations.

(E) Lender is hereby granted a license or other right to use, without
charge, Borrower's labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks and advertising matter, or any Property of a
similar nature as it pertains to the Collateral, in advertising for sale and
selling any Collateral and Borrower's rights under all licenses and all
franchise agreements shall inure to Lender's benefit.

(F) The proceeds realized from the sale of any Collateral may be
applied, after allowing two (2) Business Days for collection, first to the
costs, expenses and reasonable attorneys' fees incurred by Lender in collecting
the obligations, in enforcing the rights of Lender under the Loan Documents and
in, collecting, retaking, completing, protecting, removing, storing, advertising
for sale, selling and delivering any of the Collateral; secondly, to interest
due upon any of the Obligations; and thirdly, to the principal of the
Obligations. If any deficiency shall arise, Borrower shall remain jointly and
severally liable to Lender therefor.

10.4 Remedies Cumulative; No Waiver. All covenants, conditions, provisions,
warranties, guaranties, indemnities, and other undertakings of Borrower
contained in this Agreement and the other Loan Documents, or in any document
referred to herein or contained in any agreement supplementary hereto or in any
schedule given to Lender or contained in any other agreement between Lender and
Borrower, heretofore, concurrently, or hereafter entered into, shall be deemed
cumulative to and not in derogation or substitution of any of the terms,
covenants, conditions, or agreements of Borrower herein contained. The failure
or delay of Lender to exercise or enforce any rights, Liens, powers, or remedies
hereunder or under any of the other Loan Documents shall not operate as a waiver
of any of such Liens, rights, powers or remedies, but all such Liens, rights,
powers, and remedies shall continue in full force and effect until all Loans and
all other Obligations owing or to become owing from Borrower to Lender shall
have been indefeasibly paid in full, and all Liens, rights, powers, and remedies
provided herein and the other Loan Documents are cumulative and none are
exclusive.

<PAGE> 44

SECTION 11. MISCELLANEOUS

11.1 Power of Attorney. Borrower hereby irrevocably designates, makes,
constitutes and appoints Lender (and all Persons designated by Lender) as
Borrower's true and lawful attorney (and agent-in-fact) and Lender, or Lender's
agent may, without notice to Borrower and in either Borrower's or Lender's name,
but at the cost and expense of Borrower:

(A) At such time or times hereafter as Lender or said agent, in its
sole discretion, may determine, endorse Borrower's name on any checks, notes,
acceptances, drafts, money orders or any other evidence of payment or proceeds
of the Collateral which come into the possession of Lender or under Lender's
control; and

(B) At such time or times upon or after the occurrence of an Event of
Default as Lender or its agent in its sole discretion may determine: (i) demand
payment of the Accounts from the Account Debtors, enforce payment of the
Accounts by legal proceedings or otherwise, and generally exercise all of
Borrower's rights and remedies with respect to the collection of the Accounts;
(ii) settle, adjust, compromise, discharge or release any of the Accounts or
other Collateral or any legal proceedings brought to collect any of the Accounts
or other Collateral; (iii) sell or assign any of the Accounts and other
Collateral upon such terms, for such amounts and at such time or times as Lender
deems advisable; (iv) take control, in any manner, of any item of payment or
proceeds relating to any Collateral; (v) prepare, file and sign Borrower's name
to a proof of claim in bankruptcy, or similar document against any Account
Debtor or to any notice of lien, assignment or satisfaction of lien or similar
document in connection with any of the Collateral; (vi) receive, open and
dispose of all mail addressed to Borrower and to notify postal authorities to
change the address for delivery thereof to such address as Lender may designate;
(vii) endorse the name of Borrower upon any of the items of payment or proceeds
relating to any Collateral and deposit the same to the account of Lender on
account of the obligations; (viii) endorse the name of Borrower upon any chattel
paper, document, instrument, invoice, freight bill, bill of lading or similar
document or agreement relating to the Accounts, Inventory and any other
Collateral; (ix) use Borrower's stationery and sign the name of Borrower to
verifications of the Accounts and notices thereof to Account Debtors; (x) use
the information recorded on or contained in any data processing equipment and
computer hardware and software relating to the Accounts, Inventory, Equipment
and any other Collateral and to which Borrower has access; (xi) make and adjust
claims under policies of insurance; and (xii) do all other acts and things
necessary, in Lender's determination, to fulfill Borrower's obligations under
this Agreement.

11.2 Indemnity. Borrower hereby agrees to and hereby does indemnify Lender
and hold Lender harmless from and against any liability, loss, damage, suit,
action or proceeding ever suffered or incurred by Lender as the result of
Borrower's failure to observe, perform or discharge Borrower's duties hereunder;
provided, however, that Borrower shall have no liability under this Section 11.2
resulting from Lender's gross negligence or wilful misconduct. Without limiting
the generality of the foregoing, this indemnity shall extend to any claims
asserted against Lender by any Person under any Environmental Laws.
Notwithstanding any contrary provision of this

<PAGE> 45

Agreement, the obligation of Borrower under this Section 11.2 shall survive the
payment in full of the Obligations and the termination of this Agreement.

11.3 Modification of Agreement; Sale of Interest. This Agreement may not be
modified, altered or amended, except by an agreement in writing signed by
Borrower and Lender. Borrower may not sell, assign or transfer any interest in
this Agreement or any of the other Loan Documents, or any portion thereof,
including, without limitation, Borrower's rights, title, interests, remedies,
powers, and duties hereunder or thereunder. Borrower hereby consents to Lender's
participation, sale, assignment, transfer or other disposition, at any time or
times hereafter, of this Agreement, any of the other Loan Documents or any of
the Obligations, or of any portion hereof or thereof to any Affiliate of Lender,
and Lender's participation thereof with any Person if the amount so participated
is less than a fifty percent (50%) interest and Lender remains as the servicing
agent for this Agreement, including, without limitation, Lender's rights, title,
interests, remedies, powers, and duties hereunder or thereunder. In the event of
any such participation, sale, assignment, transfer or other disposition, Lender
shall be authorized to provide to each participating lender, assignee or
transferee all information in Lender's possession regarding Borrower and the
Collateral, including, without limitation, information required to be disclosed
pursuant to Banking Circular 181 (Rev. Aug. 2, 1984), issued by the Comptroller
of the Currency. In the case of an assignment, the assignee shall have, to the
extent of such assignment, the same rights, benefits and obligations as it would
if it were "Lender" hereunder and Lender shall be relieved immediately (and
without the necessity of the execution of further documentation by Borrower or
any other Person) of all obligations hereunder upon any such assignment.

11.4 Reimbursement of Expenses. If, at any time or times prior or
subsequent to the date hereof, regardless of whether or not an Event of Default
then exists or any of the transactions contemplated hereunder are concluded,
Lender employs counsel for advice or other representation, or incurs legal
expenses or other costs or out-of-pocket expenses in connection with: (A) the
negotiation and preparation of this Agreement or any of the other Loan
Documents, any amendment of or modification of this Agreement or any of the
other Loan Documents; (B) periodic audits and appraisals (but no more than one
(1) annually) performed by Lender; (C) any litigation, contest, dispute, suit,
proceeding or action (whether instituted by Lender, Borrower or any other
Person) in any way relating to the Collateral, this Agreement or any of the
other Loan Documents or Borrower's affairs; (D) any attempt to enforce any
rights or remedies of Lender against Borrower or any other Person which may be
obligated to Lender by virtue of this Agreement or any of the other Loan
Documents, including, without limitation, the Account Debtors; or (E) any
attempt to inspect, verify, protect, preserve, restore, collect, sell, liquidate
or otherwise dispose of or realize upon the Collateral; then, in any such event,
the reasonable attorneys' fees arising from such services and all reasonable
expenses, costs, charges and other fees of such counsel or of Lender or relating
to any of the events or actions described in this Section shall be payable when
incurred by Borrower to Lender, as the case may be, and shall be additional
Obligations hereunder secured by the Collateral.

11.5 Indulgences Not Waivers. Lender's failure, at any time or times
hereafter, to require strict performance by Borrower of any provision of this
Agreement shall not waive, affect

<PAGE> 46

or diminish any right of Lender thereafter to demand strict compliance and
performance therewith. Any suspension or waiver by Lender of an Event of Default
by Borrower under this Agreement or any of the other Loan Documents shall not
suspend, waive or affect any other Event of Default by Borrower under this
Agreement or any of the other Loan Documents, whether the same is prior or
subsequent thereto and whether of the same or of a different type. None of the
undertakings, agreements, warranties, covenants and representations of Borrower
contained in this Agreement or any of the other Loan Documents and no Event of
Default by Borrower under this Agreement or any of the other Loan Documents
shall be deemed to have been suspended or waived by Lender, unless such
suspension or waiver is by an instrument in writing specifying such suspension
or waiver and is signed by a duly authorized representative of Lender and
directed to Borrower.

11.6 Severability. Wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.

11.7 Successors and Assigns. This Agreement, the Other Agreements and the
Security Documents shall be binding upon and inure to the benefit of the
successors and assigns of Borrower and Lender. This provision, however, shall
not he deemed to modify Section 11.3 hereof.

11.8 Cumulative Effect; Conflict of Terms. The provisions of the Other
Agreements and the Security Documents are hereby made cumulative with the
provisions of this Agreement. Except as otherwise provided in Section 3.2 of
this Agreement and except as otherwise provided in any of the other Loan
Documents by specific reference to the applicable provision of this Agreement,
if any provision contained in this Agreement is in direct conflict with, or
inconsistent with, any provision in any of the other Loan Documents, the
provision contained in this Agreement shall govern and control.

11.9 Execution in Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which counterparts taken together shall constitute but one and the
same instrument. In proving this Agreement in any judicial proceeding, it shall
not be necessary to produce or account for more one such counterpart signed by
the party against whom such enforcement is sought.

11.10 Notice. Except as otherwise provided herein, all notices, requests
and demands to or upon a party hereto shall be in writing and shall be sent by
certified or registered mail, return receipt requested, personal delivery
against receipt or by telecopier or other facsimile transmission and, unless
otherwise expressly provided herein, shall be deemed to have been validly
served, given or delivered when delivered against receipt or one Business Day
after deposit in the mail,

<PAGE> 47

postage prepaid, or, in the case of facsimile transmission, when received at the
office of the noticed party, addressed as follows:

(A) If to Lender: (B) If to Borrower:

First Union National Bank Friedman's Inc.
999 Peachtree Street, N.E., 4 West State Street
9th Floor Savannah, Georgia 31401
Atlanta, Georgia 30309 Attn: Mr. Victor Suglia
Attn: Mr. Dan Evans

or to such other address as each party may designate for itself by like notice
given in accordance with this Section 11.10; provided, however, that any notice,
request or demand to or upon Lender shall not be effective until received by
Lender. Any written notice that is not sent in conformity with the provisions
hereof shall nevertheless be effective on the date that such notice is actually
received by the noticed party.

11.11 Lender's Right to Set-Off. Upon the occurrence of an Event of Default
and acceleration of the Obligations as permitted in Section 10.2 hereof, Lender,
without notice or demand of any kind, may hold and set-off against such of the
Obligations (whether matured or unmatured) as Lender may elect, any balance or
amount to the credit of Borrowers in any deposit, agency, reserve, holdback or
other account of any nature whatsoever (other than any account specifically
identified as a payroll account for employees of Borrower), maintained by or on
behalf of Borrowers with Lender at its offices, regardless of whether such
accounts are general or special and regardless of whether such accounts are
individual or joint.

11.12 Demand Obligations. Nothing in this Agreement shall affect or
abrogate the demand nature of any portion of the Obligations expressly made
payable on demand by this Agreement or by any instrument evidencing or securing
same, and the occurrence of an Event of Default shall not be a prerequisite for
Lender's requiring payment of such Obligations.

11.13 Time of Essence. Time is of the essence in the payment and
performance of this Agreement, the Other Agreements and the Security Documents.

11.14 Entire Agreement. This Agreement and the other Loan Documents,
together with all other instruments, agreements and certificates executed by the
parties in connection therewith or with reference thereto, embody the entire
understanding and agreement between the parties hereto and thereto with respect
to the subject matter hereof and thereof and supersede all prior agreements,
understandings and inducements, whether express or implied, oral or written.

11.15 Interpretation. No provision of this Agreement or any of the other
Loan Documents shall be construed against or interpreted to the disadvantage of
any party hereto by any court or other governmental or judicial authority by
reason of such party's having or being deemed to have structured or dictated
such provision.

<PAGE> 48

11.16 Governing Law; Consent to Forum. THIS AGREEMENT HAS BEEN NEGOTIATED,
EXECUTED AND DELIVERED AT AND SHALL BE DEEMED TO HAVE BEEN MADE IN ATLANTA,
GEORGIA. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS OF THE STATE OF GEORGIA; PROVIDED, HOWEVER, THAT IF ANY OF THE
COLLATERAL SHALL BE LOCATED IN ANY JURISDICTION OTHER THAN GEORGIA, THE LAWS OF
SUCH JURISDICTION SHALL GOVERN THE METHOD, MANNER AND PROCEDURE FOR FORECLOSURE
OF LENDER'S LIEN UPON SUCH COLLATERAL AND THE ENFORCEMENT OF LENDER'S OTHER
REMEDIES IN RESPECT OF SUCH COLLATERAL TO THE EXTENT THAT THE LAWS OF SUCH
JURISDICTION ARE DIFFERENT FROM OR INCONSISTENT WITH THE LAWS OF GEORGIA. AS
PART OF THE CONSIDERATION FOR NEW VALUE RECEIVED, AND REGARDLESS OF ANY PRESENT
OR FUTURE DOMICILE OR PRINCIPAL PLACE OF BUSINESS OF BORROWER OR LENDER,
BORROWER HEREBY CONSENTS AND AGREES THAT THE SUPERIOR COURT OF FULTON COUNTY,
GEORGIA, OR, AT LENDER'S OPTION, THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF GEORGIA, ATLANTA DIVISION, SHALL HAVE EXCLUSIVE
JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN BORROWER AND
LENDER PERTAINING TO THIS AGREEMENT OR TO ANY MATTER ARISING OUT OF OR RELATED
TO THIS AGREEMENT; PROVIDED, HOWEVER, LENDER MAY, AT ITS OPTION, COMMENCE ANY
ACTION, SUIT OR PROCEEDING IN ANY OTHER APPROPRIATE FORUM OR JURISDICTION TO
OBTAIN POSSESSION OF OR FORECLOSURE UPON ANY COLLATERAL, TO OBTAIN EQUITABLE
RELIEF OR TO ENFORCE ANY JUDGMENT OR ORDER OBTAINED BY LENDER AGAINST BORROWER
OR WITH RESPECT TO ANY COLLATERAL OR TO OBTAIN ANY OTHER RELIEF DEEMED
APPROPRIATE BY LENDER. BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO
SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND
BORROWER HEREBY WAIVES ANY OBJECTION WHICH BORROWER MAY HAVE BASED UPON LACK OF
PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY
CONSENTS TO THE GRANTING FOR SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY SUCH COURT. BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE
SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND
AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY
REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER AT THE ADDRESS SET FORTH IN
THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE
EARLIER OF BORROWER'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN
THE U.S. MAILS, PROPER POSTAGE PREPAID. NOTHING IN THIS AGREEMENT SHALL BE
DEEMED OR OPERATE TO AFFECT THE RIGHT OF LENDER TO SERVE LEGAL PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW.

11.17 General Waivers by Borrower. BORROWER WAIVES (i) PRESENTMENT, DEMAND
AND PROTEST AND NOTICE OF PRESENTMENT, PROTEST, DEFAULT, NON

<PAGE> 49

PAYMENT, MATURITY, RELEASE, COMPROMISE, SETTLEMENT, EXTENSION OR RENEWAL OF ANY
OR ALL COMMERCIAL PAPER, ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS, INSTRUMENTS,
CHATTEL PAPER AND GUARANTIES AT ANY TIME HELD BY LENDER ON WHICH BORROWER MAY IN
ANY WAY BE LIABLE AND HEREBY RATIFIES AND CONFIRMS WHATEVER LENDER MAY DO IN
THIS REGARD; (ii) NOTICE PRIOR TO LENDER'S TAKING POSSESSION OR CONTROL OF ANY
OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH MIGHT BE REQUIRED BY ANY COURT
PRIOR TO ALLOWING LENDER TO EXERCISE ANY OF LENDER'S REMEDIES, INCLUDING THE
ISSUANCE OF AN IMMEDIATE WRIT OF POSSESSION; (iii) THE BENEFIT OF ALL VALUATION,
APPRAISEMENT AND EXEMPTION LAWS; (iv) ANY RIGHT BORROWER MAY HAVE UPON PAYMENT
IN FULL OF THE OBLIGATIONS TO REQUIRE LENDER TO TERMINATE ITS SECURITY INTEREST
IN THE COLLATERAL OR IN ANY OTHER PROPERTY OF BORROWER UNTIL TERMINATION OF THIS
AGREEMENT IN ACCORDANCE WITH ITS TERMS AND THE EXECUTION BY BORROWER, AND BY ANY
PERSON WHOSE LOANS TO BORROWER ARE USED IN WHOLE OR IN PART TO SATISFY THE
OBLIGATIONS, OF AN AGREEMENT INDEMNIFYING LENDER FROM ANY LOSS OR DAMAGE LENDER
MAY INCUR AS THE RESULT OF DISHONORED CHECKS OR OTHER ITEMS OF PAYMENT RECEIVED
BY LENDER FROM BORROWER OR ANY ACCOUNT DEBTOR AND APPLIED TO THE OBLIGATIONS;
AND (v) NOTICE OF ACCEPTANCE HEREOF.

11.18 Security and Intercreditor Agreement. The relative rights and
obligations of Borrower and Lender hereunder and under the Other Agreements are
subject to the terms and provisions of the Intercreditor Agreement (so long as
it is in effect). To the extent there is any conflict with respect to the
Lender's rights of the Borrower's obligations hereuner or under the Other
Agreements, on the one hand, and the Intercreditor Agreement on the other hand,
the Intercreditor Agreement shall control.

<PAGE> 50

IN WITNESS WHEREOF, this Agreement has been duly executed in Atlanta,
Georgia on the day and year specified at the beginning hereof.

BORROWER:

FRIEDMAN'S INC.

By:/s/ Bradley J. Stinn
------------------------------------
Bradley J. Stinn, Chairman and Chief
Executive Officer

[CORPORATE SEAL]

LENDER:

FIRST UNION NATIONAL BANK

By:/s/ Daniel J. Evans
-------------------------------------
Title: Senior Vice President
----------------------------------

<PAGE> 1
EXHIBIT 10.5

------------------------------------------

FRIEDMAN'S INC.

------------------------------------------

------------------------------------------
------------------------------------------

SECOND AMENDED AND RESTATED LOAN AGREEMENT

Dated: As of July 14, 1997

$45,000,000

------------------------------------------
------------------------------------------

------------------------------------------

NATIONSBANK, N.A.

------------------------------------------
<PAGE> 2

TABLE OF CONTENTS

<TABLE>
<S> <C> <C>
SECTION 1. GENERAL DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1.3 Other Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1.4 Certain Matters of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

SECTION 2. CREDIT FACILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.1 Borrowing and Disbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.2 Loan Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

SECTION 3. INTEREST, FEES, TERM AND REPAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.1 Interest, Fees and Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.2 Unused Line Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.3 Loan Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.4 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.5 Term of Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.6 Application of Payments and Collections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.7 Statements of Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.8 Funding Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

SECTION 4. COLLATERAL: GENERAL TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.1 Security Interest in Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.2 Representations, Warranties and Covenants -- Collateral . . . . . . . . . . . . . . . . . . . . . . 18
4.3 Lien Perfection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.4 Location of Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.5 Insurance of Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.6 Protection of Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

SECTION 5. PROVISIONS RELATING TO ACCOUNTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.1 Representations, Warranties and Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.2 Notice of Security Interest and Schedules of Accounts . . . . . . . . . . . . . . . . . . . . . . . 21
5.3 Administration of Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.4 Collection of Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

SECTION 6. PROVISIONS RELATING TO INVENTORY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.1 Representations, Warranties and Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.2 Location of Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.3 Ownership of Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.4 Status of Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

SECTION 7. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>

i
<PAGE> 3

<TABLE>
<S> <C> <C>
7.1 General Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.2 Reaffirmation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.3 Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

SECTION 8. COVENANTS AND CONTINUING AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.1 Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.2 Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.3 Specific Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

SECTION 9. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.1 Documentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.2 Other Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.3 Conditions Precedent to Subsequent Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.4 Request for Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

SECTION 10. EVENTS OF DEFAULT: RIGHTS AND REMEDIES ON DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . 36
10.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
10.2 Acceleration of the Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.3 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
10.4 Remedies Cumulative; No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

SECTION 11. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.1 Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.2 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
11.3 Modification of Agreement; Sale of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
11.4 Reimbursement of Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
11.5 Indulgences Not Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
11.6 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
11.7 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
11.8 Cumulative Effect; Conflict of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
11.9 Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
11.10 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
11.11 Lender's Right to Set-Off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
11.12 Demand Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
11.13 Time of Essence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
11.14 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
11.15 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
11.16 Governing Law; Consent to Forum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
11.17 General Waivers by Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
11.18 Security and Intercreditor Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
</TABLE>

ii
<PAGE> 4

EXHIBITS

<TABLE>
<CAPTION>
Exhibit
- -------
<S> <C>
A Borrowing Base Report [Definitions]

B Note [Definitions]

B-1 Permitted Indebtedness [Definitions]

C Places of Business [Definitions]

D Security Agreement [Definitions]

E States in Which Qualified to do Business [7.1(A)]

F Fictitious Names during the Past Seven Years [7.1(B)]

G Capital Structure [7.1(H)]

H Contracts or Agreements Restricting Borrower's Right to Incur Debt [7.1(J)]

I Actions, Suits, Proceedings, or Investigations [7.1(K)]

J Pension Plans [7.1(O)]

K Compliance Certificate [8.1(Q)]

K-1 Permitted Loans [8.2(C)]

K-2 Affiliate Transactions [8.2 (D)]

L Permitted Liens [8.2(H)]

M Legal Opinion (Borrower's General Counsel) [9.1(C)]
</TABLE>

iii
<PAGE> 5

SECOND AMENDED AND RESTATED LOAN AGREEMENT

THIS SECOND AMENDED AND RESTATED LOAN AGREEMENT is made as of July
14, 1997, by and between NATIONSBANK, N.A. (formerly known as NATIONSBANK OF
GEORGIA, N.A.) ("Lender"), a national banking association with an office at 600
Peachtree Street, N.E., Atlanta, Georgia 30308, and FRIEDMAN'S INC.
("Borrower"), a Delaware business corporation, with its chief executive office
and principal place of business at 4 West State Street, Savannah, Georgia
31401.

SECTION 1. GENERAL DEFINITIONS

1.1 Defined Terms. When used herein, the following terms shall
have the meanings set forth below (terms defined in the singular to have the
same meaning when used in the plural and vice versa):

ABN - means ABN AMRO Bank N.V., New York Branch.

ABN Loan Agreement - the loan agreement, dated as of even
date, between ABN and the Borrower.

Account Debtor - any Person who is or may become obligated
under or on an Account.

Accounts - all accounts, contract rights, chattel paper,
instruments and documents, whether now owned or hereafter created or
acquired by Borrower or in which Borrower now has or hereafter
acquires any interest; and all documents evidencing choses in action,
causes of action, books and records, computer equipment, and customer
lists relating to any of the foregoing.

Advance - an advance to Borrower of the Loan proceeds pursuant
to a Request For Advance.

Affiliate - a Person: (i) which directly or indirectly through
one or more intermediaries controls, or is controlled by, or is under
common control with, Borrower; (ii) which beneficially owns or holds
five percent (5.0%) or more of the equity interest of Borrower. For
purposes hereof, "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of
an equity interest, voting Stock, by contract or otherwise. In
addition, for purposes hereof, Affiliate shall include specifically
MS Jewelers Limited Partnership, MS Jewelers Corporation, Crescent
Jewelers, Friedman's Jewelers, Inc., Herman K. Friedman, and Stanley
K. Friedman, but shall not include any of the other limited partners
of MS Jewelers Limited Partnership.

<PAGE> 6

Agreement - this Second Amended and Restated Loan Agreement.

Borrower - Friedman's Inc. or, for accounting purposes, any
predecessor including MS Jewelers Limited Partnership which
transferred to Borrower substantially all of its assets and
liabilities.

Borrower's Account - Borrower's deposit account maintained
with Lender.

Borrowing Base - as at any date of determination thereof, an
amount equal to the lesser of (a) the Maximum Loan Commitment and (b)
the sum of (i) 75% of Eligible Accounts, plus (ii) 50% of Eligible
Inventory, less (iii) the maximum lending commitment of First Union
under the First Union Credit Agreement, less (iv) the maximum lending
commitment of ABN under the ABN Loan Agreement, and subtracting from
(a) or (b) the Reserve Amount on such date.

Borrowing Base Report - the certificate in the form of Exhibit
"A" attached hereto and incorporated by reference herein signed by an
authorized officer of Borrower showing a calculation of the Borrowing
Base, and the components comprising said Borrowing Base, as of the
end of the preceding fiscal quarter, listing the amounts of Eligible
Accounts and updating the amount of Eligible Inventory.

Business Day - any day on which banking institutions in
Atlanta, Georgia are open for the transaction of banking business,
and in the case of LIBO Rate Loans, any day on which banking
institutions in London are open for the transaction of banking
business.

Capital Lease - shall mean any lease or similar arrangement
which is required to be capitalized for financial reporting purposes
in accordance with GAAP.

Closing Date - the date on which all of the conditions
precedent in Section 9 are satisfied and the initial Loan is made
hereunder.

Code - the Uniform Commercial Code as adopted and in force in
the State of Georgia, as from time to time in effect.

Collateral - all of the Property and interests in Property
described in Section 4 hereof, and all other Property and interests
in Property that now or hereafter secure the payment and performance
of any of the Obligations pursuant to any of the Security Documents
or otherwise.

Consolidated - the consolidation in accordance with GAAP of
the accounts or other items as to which such term applies.

Debt - the aggregate amount of all items categorized as
liabilities on the balance sheet of Borrower prepared in accordance
with GAAP.

2
<PAGE> 7

Default - an event or condition the occurrence of which would,
with the lapse of time or the giving of notice, or both, become an
Event of Default.

Default Rate - as defined in Section 3.1(B) of this Agreement.

Dollars - and the sign "$" shall refer to currency of the
United States of America.

Draw Down Date - the date on which any Loan is made or is to
be made and the date on which any Loan is repaid or reborrowed in
accordance with Section 2.1 herein.

EBITDAR - shall mean, for any period of calculation, the
Borrower's (i) Net Income for such period, plus (ii) Interest Expense
during such period, plus (iii) income tax expense during such period,
plus (iv) amortization and depreciation expense deducted during such
period in calculating Net Income, plus (v) Rental Expense during such
period, plus (vi) the actual principal amount forgiven under the
Long-Term Incentive Programs during such period, plus (vii) other
non-cash-non-recurring charges deducted during the period in
determining Net Income.

Eligible Account - an Account arising in the ordinary course
of Borrower's business from the sale of goods or rendition of
services which Lender deems to be an Eligible Account, and as to
which Borrower has furnished reasonably detailed information to
Lender in a Borrowing Base Report. Without limiting the generality
of the foregoing, Eligible Account shall mean the aggregate of the
gross amount of Borrower's Accounts, less the amount of the then
existing unearned finance charges, unearned insurance premiums,
returns, discounts, credits, or offsets of any nature, of the
Accounts owing to Borrower by the Borrower's customers under consumer
sales contracts, which contain credit terms not exceeding twenty-four
(24) months, except that up to a maximum amount equal to one percent
(1.0%) of the aggregate amount of all such Accounts (under consumer
credit contracts) may contain credit terms exceeding twenty-four (24)
months but not exceeding forty-eight (48) months; provided, however,
that Eligible Accounts also shall not include any of the following:
(i) any Account of an Account Debtor for whom an Account is
outstanding which is past due more than fifty-nine (59) days; (ii)
any Account which represents an obligation owed to Borrower by an
Account Debtor located in a foreign country; (iii) any Account which
represents an obligation of a director or officer of the Borrower or
any of its Affiliates; (iv) any Account deemed ineligible by the
Lender when the Lender, in its reasonable discretion, deems the
creditworthiness or financial condition of the Account Debtor
unsatisfactory; (v) any Account against which the Account Debtor or
any other Person obligated to make payment thereon asserts any
defense, offset, counterclaim, or other right to avoid or reduce the
liability represented by such Account; (vi) any Account as to which
the Account Debtor or other Person obligated to make payment thereon
is insolvent, subject to bankruptcy or receivership proceedings, or
has made an assignment for the benefit of creditors or whose credit
standing is unacceptable to Lender and Lender has so notified
Borrower; (vii) any Account for any Account Debtor who comprises five
percent (5.0%) or more of Borrower's total Accounts;

3
<PAGE> 8

(viii) any Account of any governmental agency; (ix) any Account in
which Lender does not have a valid and perfected first priority Lien
(subject only to the Lien in favor of (a) First Union granted
pursuant to the First Union Credit Agreement and (b) ABN granted
pursuant to the ABN Loan Agreement); and (x) any Account which Lender
in its reasonable discretion shall deem not to qualify as an Eligible
Account.

Eligible Inventory - all Inventory as to which Borrower has
furnished reasonably detailed information to Lender in a Borrowing
Base Report and such Inventory of Borrower (other than documents
evidencing choses in action, causes of action, books and records, all
rights to indemnification, licenses, and customer lists) which Lender
deems to be Eligible Inventory. Without limiting the generality of
the foregoing, no Inventory shall be Eligible Inventory unless, in
Lender's opinion, it (i) is in good, new and saleable condition, (ii)
is not consigned, obsolete or unmerchantable, (iii) meets all
standards imposed by any governmental agency or authority, (iv) is at
all times subject to Lender's duly perfected, first priority security
interest and no other Lien except a Permitted Lien, (v) is situated
at a location in compliance with Section 6.1 hereof or is in transit
between Places of Business and is not otherwise in transit, (vi) is
accounted for on Borrower's books and records in accordance with GAAP
and in detail satisfactory to Lender, in its sole discretion, and
(vii) is in excess of a minimum reserve as determined by Borrower (or
such greater amount as Lender in its reasonable discretion may
determine) for slow moving Inventory.

Environmental Laws - all federal, state and local laws, rules,
regulations, ordinances, programs, permits, guidances, orders and
consent decrees relating to health, safety and environmental matters,
including, but not limited to, the Resource Conservation and Recovery
Act; the Comprehensive Environmental Response, Compensation and
Liability Act of 1980; the Toxic Substances Control Act; the Clean
Water Act; the Clean Air Act; the River and Harbor Act; the Water
Pollution Control Act; the Marine Protection Research and Sanctuaries
Act; the Deep-Water Port Act; the Safe Drinking Water Act; the
Superfund Amendments and Reauthorization Act of 1986; the Federal
Insecticide, Fungicide and Rodenticide Act; the Mineral Lands and
Leasing Act; the Surface Mining Control and Reclamation Act; the Oil
Pollution Act of 1990; state and federal superlien and environmental
cleanup programs and laws; and U.S. Department of Transportation
regulations.

ERISA - the Employee Retirement Income Security Act of 1974
and all rules and regulations promulgated thereunder.

Event of Default - as defined in Section 10.1 of this
Agreement.

First Union - First Union, N.A. (formerly known as First Union
of Georgia, N.A.)

First Union Credit Agreement - the Second Amended and Restated
Loan Agreement, dated as of even date herewith, between First Union
and the Borrower.

4
<PAGE> 9

Fixed Charge Coverage Ratio - as of any date of determination,
the ratio of the Borrower's (a) EBITDAR for the immediately preceding
four (4) fiscal quarters, to (b) total Fixed Charges for such period.

Fixed Charges - for any period, sum of the Borrower's (i)
total principal payments with respect to all Indebtedness for Money
Borrowed (including the principal portion of payments under Capital
Leases and Subordinated Debt during such period), plus (ii) Interest
Expense during such period plus (iii) Rental Expense during such
period plus (iv) income tax expense during such period.

Funded Debt - as of any date of determination, (i) all
Indebtedness for Money Borrowed, including the principal portion of
all Capital Lease obligations and all Subordinated Debt plus (ii) all
Rental Expense paid during the immediately preceding four (4) fiscal
quarters multiplied by 6.

GAAP - generally accepted accounting principles in the United
States of America in effect from time to time.

General Intangibles - all general intangibles of Borrower
whether now owned or hereafter created or acquired by Borrower
relating or pertaining to Inventory or pertaining to Accounts.

Indebtedness - as applied to a Person means, without
duplication (i) all items which in accordance with GAAP would be
included in determining total liabilities as shown on the liability
side of a balance sheet of such Person as at the date as of which
Indebtedness is to be determined, including, without limitation,
capitalized lease obligations, (ii) all obligations of other Persons
which such Person has guaranteed and (iii) in the case of Borrower
(without duplication), the Obligations.

Intercreditor Agreement - the Second Amended and Restated
Intercreditor and Security Agreement, dated of even date herewith,
among Lender (in its capacity as "collateral agent" thereunder and in
its capacity as a lender hereunder), ABN, First Union and Borrower, as
amended, modified, supplemented or restated from time to time.

Interest Expense - shall mean, for any period of calculation,
the aggregate of all interest paid or accrued by the Borrower during
such period, as determined in accordance with GAAP.

5
<PAGE> 10

thereafter, each period commencing on the first day after the last
day of the last preceding Interest Period applicable to such Loan and
ending on the last day of one of the periods set forth above, as
selected by the Borrower; provided that all of the foregoing
provisions relating to Interest Periods are subject to the following:
if any Interest Period with respect to a Loan would end on a day that
is not a Business Day, that Interest Period shall end on the next
succeeding Business Day; and any Interest Period that would otherwise
extend through the Maturity Date shall end on the Maturity Date.

Inventory - all of Borrower's inventory, whether now owned or
hereafter acquired by Borrower and wherever located, including, but
not limited to, all goods intended for sale or lease by Borrower, or
for display or demonstration including, without limitation, all gold
and other precious metal and precious stones and gems (including,
without limitation, diamonds) in whatever form and all products in
which any such gold, precious metal and precious stones and gems are
incorporated or into which such gold, precious metal and precious
stones and gems are processed or converted, including without
limitation, bullion, alloys or wire; all work in process; all raw
materials and other materials and supplies of every nature and
description used or which might be used in connection with the
manufacture of such goods or otherwise used or consumed in Borrower's
business; and all documents evidencing choses in action, causes of
action, books and records, all rights to indemnification, licenses,
and customer lists relating to any of the foregoing.

IRC - the Internal Revenue Code of 1986, as amended.

LIBO Rate - means a rate per annum for U.S. dollar deposits
for a one-month maturity as reported on Telerate page 3750 as of
11:00 a.m., London time, on the second London business day before the
relevant Interest Period begins (or if not so reported, then as
determined by the Lender from another recognized source or interbank
quotation), adjusted for reserves by dividing that rate by 1.00 minus
the Reserve Requirement. LIBOR shall be rounded to the next higher
1/100 of 1%.

LIBO Rate Advance - an advance on a LIBO Rate Loan.

LIBO Rate Basis - a simple rate per annum equal to the sum of
(a) the LIBO Rate and (b) seven-eighths of one percent (0.875%).

LIBO Rate Loan - any Advance made hereunder bearing interest
calculated by reference to the LIBO Rate.

6
<PAGE> 11

bailment for security purposes. The term "Lien" shall include
reservations, exceptions, encroachments, easements, rights-of-way,
covenants, conditions, restrictions, leases and other title
exceptions and encumbrances affecting Property. For the purpose of
this Agreement, Borrower shall be deemed to be the owner of any
Property which it has acquired or holds subject to a conditional sale
agreement or other arrangement pursuant to which title to the
Property has been retained by or vested in some other Person for
security purposes.

Loan Account - the loan account established on the books of
Lender pursuant to Section 2.2 hereof.

Loan Documents - this Agreement, the Other Agreements and the
Security Documents.

Loans - all loans and Advances made by Lender pursuant to this
Agreement.

Long-Term Incentive Programs - shall mean (i) the Loan
Agreement, dated November 17, 1994, between Borrower and Bradley J.
Stinn, and the promissory note, dated November 17, 1994, from Bradley
J. Stinn to Borrower, in the original principal amount of $1,500,000,
each as amended through the date hereof, a true and correct copy of
each of which is attached hereto as Exhibit O-1, and (ii) the Loan
Agreement, dated November 17, 1994, between Borrower and Sterling B.
Brinkley, and the promissory note, dated November 17, 1994, from
Sterling B. Brinkley to Borrower, in the original principal amount of
$1,500,000, each as amended through the date hereof, a true and
correct copy of each of which is attached hereto as Exhibit O-2.

Maturity Date - the earlier of April 30, 1999 or such earlier
date as payment of the Loans shall be due (whether by acceleration or
otherwise).

Maximum Loan Commitment - shall mean $45,000,000.

Money Borrowed - as applied to Indebtedness, means (i)
Indebtedness for borrowed money; (ii) Indebtedness, whether or not in
any such case the same was for borrowed money, (A) which is
represented by notes payable or drafts accepted that evidence
extensions of credit, (B) which constitutes obligations evidenced by
bonds, debentures, notes or similar instruments, or (C) upon which
interest charges are customarily paid (other than accounts payable)
or that was issued or assumed as full or partial payment for
Property; (iii) Indebtedness that constitutes a capitalized lease
obligation; (iv) Indebtedness under any agreement or obligation to
reimburse the issuer of any letter of credit for amounts paid by the
issuer on account of such letter of credit; and (v) Indebtedness
under any guaranty of obligations that would constitute Indebtedness
for Money Borrowed under clauses (i) through (iii) hereof.

Multiemployer Plan - has the meaning set forth in Section
4001(a)(3) of ERISA.

7
<PAGE> 12

Net Income - shall mean, for any period of calculation, the
Borrower's consolidated net income (loss) after taxes, calculated in
accordance with GAAP.

Net Worth - shall mean, as of any date of calculation, the
Borrower's consolidated shareholders' equity (including capital
stock, additional paid in capital and retained earnings, after
deductiong treasury stock), as it would appear on Borrower's balance
sheet prepared in accordance with GAAP.

Non-subordinated Debt - indebtedness of Borrower that is not
subordinated to the Obligations.

Note - the Promissory Note, dated of even date herewith, made
by Borrower to the order of Lender in the stated principal amount of
$45,000,000 in substantially the form of Exhibit "B" attached hereto,
as hereafter amended, modified, restated or extended.

Obligations - all Loans and all other advances, debts,
liabilities, obligations, covenants and duties owing, arising, due or
payable from Borrower to Lender of any kind or nature, present or
future, whether or not evidenced by any note, guaranty or other
instrument, whether arising under this Agreement or any of the other
Loan Documents or otherwise, whether direct or indirect (including
those acquired by assignment), absolute or contingent, primary or
secondary, due or to become due, now existing or hereafter arising
and however evidenced or acquired. The term includes, without
limitation, all interest, charges, expenses, fees, reasonable
attorneys' fees and any other sums chargeable to Borrower under any
of the Loan Documents and all rights Lender may at any time or times
have to reimbursement in connection with any letter of credit or
guaranty issued for Borrower's benefit.

Offered Rate - shall mean, for any applicable Interest Period
(but not to exceed 29 calendar days or to extend beyond the end of
any calendar month), the rate of interest offered by Lender to
Borrower on a designated portion of the Loans.

Offered Rate Advance - an Advance on a Offered Rate Loan.

Offered Rate Basis - a simple rate per annum equal to the sum
of (a) the Offered Rate and (b) the seven-eighths of one percent
(0.875%).

Offered Rate Loan - any Advance made hereunder bearing
interest calculated by reference to the Offered Rate.

OSHA - the Occupational Safety and Health Act and all rules
and regulations from time to time promulgated thereunder.

Other Agreements - any and all agreements, instruments and
documents (other than this Agreement and the Security Documents),
heretofore, now or hereafter executed, by

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<PAGE> 13

Borrower and delivered to Lender in respect to the transactions
contemplated by this Agreement, including, without limitation, the
Note.

Overadvance - an Advance made by Lender when an Overadvance
Condition exists or would result from the making of such Advance.

Overadvance Condition - at any date, a condition such that the
outstanding principal amount of the Loans on such date exceeds the
Borrowing Base an such date.

Payment Date - with respect to the payment of interest accrued
during any Interest Period (i) for LIBO Rate Loans, the last day of
such Interest Period; provided, for any 6 month LIBO Rate Loan, the
"Payment Date" shall be the 90th day of such Interest Period and the
last day of such Interest Period; and (ii) for Offered Rate Loans,
the last day of each calendar month.

Permitted Indebtedness - means (i) the Indebtedness to First
Union pursuant to the First Union Credit Agreement as in effect on
the date hereof, (ii) the Indebtedness to ABN pursuant to the ABN
Loan Agreement as in effect on the date hereof, (iii) other
Indebtedness in an amount outstanding not in excess of $2,500,000 in
principal each fiscal year, (iv) any Indebtedness described in
Exhibit "B-1" hereto, (v) trade payables and accrued expenses
incurred in the ordinary course of business and (vi) the Obligations.

Permitted Liens - any Lien of a kind specified in
subparagraphs (i) through (xi) of section 8.2(H) of this Agreement.

Permitted Loan and Guarantee Amount - the maximum amount of
Loans or other advances of money (other than for salary, travel
advances, advances against commission, other similar advances in the
ordinary course of business, and Loans to officers to exercise stock
options) plus guarantees, assumptions, and endorsements (except
endorsements of instruments or items of payment for deposit or
collection) which Borrower may make hereunder; which amount in the
aggregate shall be limited to $2,500,000.00.

Person - an individual, partnership, corporation, joint
venture, joint stock company, land trust, business trust or
unincorporated organization, or a government or agency or political
subdivision thereof.

Place of Business - a location at which Borrower conducts its
business and at which Borrower's Property is located, including,
without limitation, those existing locations identified on Exhibit
"C" attached hereto and incorporated herein by this reference and
those future locations of which Borrower is obligated to notify
Lender pursuant to the terms of Section 8.2(I) hereof.

Plan - an employee benefit plan now or hereafter maintained
for employees of Borrower that is covered by Title IV of ERISA.

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<PAGE> 14

Prohibited Transaction - any transaction set forth in Section
406 of ERISA or Section 4975 of the Internal Revenue Code of 1986.

Property - any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.

Purchase Money Lien - a Lien upon fixed assets which secures
purchase money indebtedness, but only if such Lien shall at all times
be confined solely to the fixed assets the purchase price of which
was financed through the incurrence of the purchase money
indebtedness secured by such Lien.

Rental Expense - shall mean, for any period of calculation,
all rental payments made by the Borrower during the period, as
determined in accordance with GAAP.

Reportable Event - any of the events set forth in Section
4043(b) of ERISA.

Request For Advance - a request for an Advance pursuant to
Section 9.4 hereof.

Reserve Amount - at any date, an amount equal to the face
amount of all letters of credit issued by Lender for the account of
the Borrower outstanding on such date.

Reserve Requirement - shall mean the maximum reserve
requirement percentage (rounded to the next higher 1/100th of 1% and
expressed as a decimal) in effect for any day during the applicable
Interest Period, under the Federal Reserve Board's Regulation D for
"Eurocurrency Liabilities" (as defined in such Regulation D).

Restricted Investment - any investment in cash or by delivery
of Property to any Person, whether by acquisition of stock,
Indebtedness, or other obligation or Security, or by loan, advance,
or capital contribution, or otherwise, or in any Property except the
following: (i) investments in one or more Subsidiaries of Borrower;
(ii) Property to be used in the ordinary course of business; (iii)
Current Assets arising from the sale of goods and services in the
ordinary course of business of Borrower and its Subsidiaries; (iv)
investments in direct obligations of the United States of America, or
any agency thereof or obligations guaranteed by the United States of
America, provided that such obligations mature within one year from
the date of acquisition thereof; (v) investments in certificates of
deposit maturing within one year from the date of acquisition issued
by a bank or trust company organized under the laws of the United
States or any state thereof having capital surplus and undivided
profits aggregating at least $100,000,000 or issued by Lender; (vi)
investments in commercial paper given a rating by a national credit
rating agency of A-1 or greater and maturing not more than two
hundred seventy (270) days from the date of creation thereof; (vii)
any investment or investments which in the aggregate do not exceed
$2,000,000; and (viii) "Dutch-Auction" tender securities of any
Person, provided such securities are given an investment grade rating
by a national credit rating agency.

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<PAGE> 15

Schedule of Accounts - a sales and collections report for the
preceding month and a detailed aged trial balance of all Accounts
existing as of the last day of the preceding month, specifying the
names, addresses, face value, dates of invoices and due dates for
each Account Debtor obligated on an Account so listed.

Security - shall have the same meaning as in Section 2(1) of
the Securities Act of 1933, as amended.

Security Agreement - the Amended and Restated Security
Agreement dated December 14, 1995 substantially in the form of
Exhibit "D" attached hereto and incorporated by reference herein.

Security Documents - the Security Agreement, the Intercreditor
Agreement and all other instruments and agreements now or at any time
hereafter securing the whole or any part of the obligations.

Solvent - as to any Person, such Person (i) owns Property
whose fair value of which is greater than the amount required to pay
all of such Person's Indebtedness (including contingent debts), (ii)
owns Property the present fair salable value of which is greater than
the amount that will be required to pay the probable liability of
such Person on its existing Indebtedness as such become absolute and
matured, (iii) is able to pay all of its Indebtedness as such
Indebtedness matures, and (iv) has capital sufficient to carry on its
business and transactions and all business and transactions in which
it is about to engage.

Subordinated Debt - Indebtedness of Borrower that is expressly
subordinated to the Obligations.

Subsidiary - any corporation of which a Person owns, directly
or indirectly through one or more intermediaries, more than fifty
percent (50%) of the Voting Stock at the time of determination.

Voting Stock - Securities of any class or classes of a
corporation the holders of which are ordinarily, in the absence of
contingencies, entitled to elect a majority of the corporate
directors (or Persons performing similar functions).

1.2 Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP consistent with that
applied in preparation of the financial statements referred to in Section
8.1(I), and all financial data pursuant to this Agreement shall be prepared in
accordance with such principles.

1.3 Other Terms. All other terms contained in this Agreement
shall have, when the context so indicates, the meanings provided for by the
Code to the extent the same are used or defined therein.

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<PAGE> 16

1.4 Certain Matters of Construction. The terms "herein," "hereof"
and "hereunder" and other words of similar import refer to this Agreement as a
whole and not to any particular section, paragraph or subdivision. Any pronoun
used shall be deemed to cover all genders. The section titles, table of
contents and list of exhibits appear as a matter of convenience only and shall
not affect the interpretation of this Agreement. All references to statutes
and related regulations shall include any amendments of same and any successor
statutes and regulations. All references to any instruments or agreements,
including, without limitation, references to any of the Loan Documents, shall
include any and all modifications or amendments thereto and any and all
extensions or renewals thereof. To the extent any of the terms or provisions
of the Other Documents or the Security Documents conflict with the provisions
of this Agreement, this Agreement shall control.

SECTION 2. CREDIT FACILITY

Subject to the terms and conditions of, and in reliance upon the
representations and warranties made in, this Agreement and the other Loan
Documents, Lender agrees to make a total credit facility of up to FORTY-FIVE
MILLION AND NO/100 DOLLARS ($45,000,000) available upon Borrower's request
therefor, as follows:

2.1 Borrowing and Disbursement.

(A) Loan Advances. Lender shall make Advances to Borrower
from time to time in accordance with and subject to the terms hereof, up to a
maximum principal amount at any time outstanding equal to the Borrowing Base at
such time. It is expressly understood and agreed that Lender may use the
Borrowing Base as a maximum ceiling on any Advance to Borrower at any time. If
the unpaid balance of the Loan should exceed the Borrowing Base or any other
limitation set forth in this Agreement, such Loan shall nevertheless constitute
Obligations that are secured by the Collateral and entitled to all benefits
thereof. The Loan shall be evidenced by the Note.

(B) Overadvances. Insofar as Borrower may request and Lender
may be willing, in its sole and absolute discretion, to make Overadvances,
Lender shall enter such Overadvances as debits in the Loan Account. All
Overadvances shall be payable on demand, shall be secured by the Collateral and
shall bear interest as provided in this Agreement.

(C) Use of Proceeds. The Loan shall be used solely for
Borrower's general operating capital needs and store expansion to the extent
not inconsistent with the provisions of this Agreement.

(D) Choice of Interest Rates. Any Advance shall, at the
option of the Borrower, be made as an Offered Rate Advance or a LIBO Rate
Advance. Any notice given to the Lender in connection with a requested Advance
hereunder shall be given to the Lender prior to 11:00 A.M. Eastern time in
order for such Business Day to count toward the minimum number of Business Days
required.

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<PAGE> 17

(E) Offered Rate Advances.

(i) Initial Advances. The Borrower shall give Lender in
the case of Offered Rate Advances at least one (1) Business Day's irrevocable
written notice in the form of a Request for Advance, or notice by telecopy
followed immediately by a Request for Advance; provided, however, that the
failure by the Borrower to confirm any notice by telecopy with a Request for
Advance shall not invalidate any notice so given.

(ii) Repayments and Reborrowings. Upon at least one (1)
Business Day's irrevocable prior written notice, the Borrower may repay or
prepay an Offered Rate Advance without regard to its Payment Date and (a)
reborrow all or a portion of the principal amount thereof as one or more
Offered Rate Advances, (b) reborrow all or a portion of the principal thereof
as one or more LIBO Rate Advances, or (c) not reborrow all or any portion of
such Offered Rate Advance. On the date indicated by the Borrower, such Offered
Rate Advance shall be so repaid and, as applicable, reborrowed.

(F) LIBO Rate Advances.

(i) Initial Advances. The Borrower shall give Lender in
the case of LIBO Rate Advances at least three (3) Business Days' irrevocable
written notice in the form of a Request for Advance, or notice by telecopy
followed immediately by a Request for Advance; provided, however, that the
failure by the Borrower to confirm any notice by telecopy with a Request for
Advance shall not invalidate any notice so given. The Lender, whose
determination shall be conclusive, shall determine the available LIBO Rate
Basis and shall notify the Borrower of such LIBO Rate Basis. The Borrower
shall promptly notify the Lender by telecopy or by telephone, and shall
immediately confirm any such telephonic notice in writing, of its selection of
a LIBO Rate Basis and Interest Period for such Advance.

(ii) Repayments and Reborrowings. At least three (3)
Business Days prior to the last day of the Interest Period with respect to each
LIBO Rate Advance, the Borrower shall give Lender written notice specifying
whether all or a portion of any LIBO Rate Advance outstanding on such date (a)
is to be repaid and then reborrowed in whole or in part as a LIBO Rate Advance,
(b) is to be repaid and then reborrowed in whole or in part as an Offered Rate
Advance, (c) is to be repaid and not reborrowed. Upon the last day of the
Interest Period with respect to each LIBO Rate Advance, such LIBO Rate Advance
will, subject to the provisions hereof, be so repaid and, as applicable,
reborrowed. The Borrower shall not be permitted to pay all or any portion of a
LIBO Rate Advance prior to the last day of the Interest Period therefor.

(G) Disbursement. Prior to Lender's close of business on the
date of an Advance hereunder, Lender shall, subject to the satisfaction of the
conditions set forth in this Section 2 and in Section 9, disburse the funds by
(i) transferring the amounts by wire transfer pursuant to the instructions of
Borrower, or (ii) in the absence of such instructions, crediting the amounts so
made available to the Loan Account.

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<PAGE> 18

2.2 Loan Account. Lender shall enter all Advances as debits to
the Loan Account and shall also record in the Loan Account all payments made by
Borrower on the Loan and all proceeds of Collateral which are finally paid to
Lender, and may record therein, in accordance with customary accounting
practice, all charges and expenses properly chargeable to Borrower hereunder.

SECTION 3. INTEREST, FEES, TERM AND REPAYMENT

3.1 Interest, Fees and Charges.

(A) Interest.

(i) On Offered Rate Advances. Interest on each Offered
Rate Advance shall be computed on the basis of a year of 360 days for the
actual number of days elapsed and shall be payable at the Offered Rate Basis
for such Advance in arrears on each Payment Date. Interest on Offered Rate
Advances then outstanding shall also be due and payable on the Maturity Date.

(ii) On LIBO Rate Advances. Interest on each LIBO Rate
Advance shall be computed on the basis of a 360-day year for the actual number
of days elapsed and shall be payable at the LIBO Rate Basis for such Advance in
arrears on the applicable Payment Date. Interest on LIBO Rate Advances then
outstanding shall also be due and payable on the Maturity Date.

(iii) If No Notice of Selection of Interest Rate Basis.
If the Borrower fails to give Lender timely notice of its selection of a LIBO
Rate Basis, or if for any reason a determination of LIBO Rate Basis for any
Advance is not timely concluded, the Offered Rate Basis shall apply to such
Advance, and if the Borrower shall fail to elect to reborrow any LIBO Rate
Advance then outstanding prior to the last day of the applicable Interest
Period by the notice period required in Section 2.1(F), the Offered Rate Basis
shall apply to such Advance commencing on and after such date, with each such
Offered Rate Advance having an Interest Period of one Business Day.

(B) Default Rate of Interest. Upon and after the occurrence
of an Event of Default and the acceleration of the Obligations as permitted in
Section 10.2 hereof, the principal amount of the Obligations shall
automatically (without notice to or demand upon Borrower) bear interest,
calculated daily (computed on the actual days elapsed over a year of 360 days),
at a fluctuating rate per annum equal to two percent (2.0%) above the then
applicable rate as specified in the Note (the "Default Rate"). Borrower
acknowledges that the cost and expenses to Lender attendant upon the occurrence
of an Event of Default are difficult to ascertain or estimate and that the
Default Rate is a fair and reasonable estimate to compensate Lender for such
added cost and expense.

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<PAGE> 19

(C) Maximum Interest. In no contingency or event whatsoever
shall the aggregate of all amounts deemed interest hereunder or under the Note
and charged or collected pursuant to the terms of this Agreement or pursuant to
the Note exceed the highest rate permissible under any law (including, to the
extent applicable, the provisions of Section 5197 of the Revised Statutes of
the United States of America, as amended, 12 U.S.C. Section 85, as amended)
which a court of competent jurisdiction shall, in a final determination, deem
applicable hereto. In the event that such a court determines that Lender has
charged or received interest hereunder in excess of the highest applicable
rate, the rate in effect hereunder shall automatically be reduced to the
maximum rate permitted by applicable law and Lender shall promptly refund to
Borrower any interest received by Lender in excess of the maximum lawful rate
or, if so requested by Borrower, shall apply such excess to the principal
balance of the Obligations. It is the intent hereof that Borrower not pay or
contract to pay, and that Lender not receive or contract to receive, directly
or indirectly in any manner whatsoever, interest in excess of that which may be
paid by Borrower under applicable law.

3.2 Unused Line Fee. The Borrower shall pay to the Lender an
unused line fee equal to one-eighth of one percent (.125%) per annum of the
average daily unused amount of the maximum Loan commitment, payable on the
first day of each calendar quarter for the previous calendar quarter and on the
Maturity Date.

3.3 Loan Fees. At the closing of the Loan facility provided
herein, the Borrower shall pay to Lender a loan fee equal to $37,500, which fee
has been fully earned by Lender and is non-refundable in its entirety. In
addition, Borrower shall pay to Lender an annual collateral agent's fee in
connection with its duties under the Intercreditor Agreement in an amount equal
to $5,000 per year, which fee shall be payable annually in advance, commencing
on the date hereof, and on each July 1 hereafter.

3.4 Payments. All payments shall be made by Borrower in U.S.
currency and without any defenses, offset or counterclaim of any kind. Except
where evidenced by notes or other instruments issued or made by Borrower to
Lender specifically containing payment provisions which are in conflict with
paragraphs (A) through (C) of this Section 3.4 (in which event the conflicting
provisions of said notes or other instruments shall govern and control), the
obligations (in addition to any other Obligation) consisting of:

(A) Principal shall be paid by Borrower to Lender immediately
upon the earliest of (i) April 30, 1999, or (ii) the occurrence of an Event of
Default and election by Lender to accelerate the maturity and payment of such
Loans; provided, however, that if the principal balance of the Loan outstanding
at any time shall exceed the Borrowing Base at such time, Borrower shall, on
demand, repay the Loan in an amount sufficient to reduce the aggregate unpaid
principal amount of such Loan by an amount equal to such excess;

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<PAGE> 20

authorizes Lender, in Lender's sole discretion, to advance to Borrower, and to
charge to Borrower's Loan Account hereunder a sum sufficient each quarter to
pay all interest accrued on the Obligations during the immediately preceding
quarter and a sum sufficient to pay costs, fees and expenses payable pursuant
to this Agreement;

(C) The balance of the obligations requiring the payment of
money, if any, shall be paid by Borrower to Lender as and when provided in this
Agreement, the Other Agreements or the Security Documents.

3.5 Term of Loan. Subject to Lender's right to cease making Loans
or Advances to Borrower at any time upon the occurrence of a Default or Event
of Default, Borrower may request Lender to make Advances in accordance with the
terms of this Agreement from the date hereof through the Maturity Date.

3.6 Application of Payments and Collections. Borrower irrevocably
waives the right to direct the application of any and all payments and
collections at any time or times hereafter received by Lender from or on behalf
of Borrower, and Borrower does hereby irrevocably agree that Lender shall have
the continuing exclusive right to apply and reapply any and all such payments
and collections received at any time or times hereafter by Lender or its agent
against the Obligations, in such manner as Lender may deem advisable,
notwithstanding any entry by Lender upon any of its books and records. If as
the result of collections of Accounts as authorized by Section 5.4 hereof a
credit balance exists in the Loan Account, such credit balance shall not accrue
interest in favor of Borrower, but shall be available to Borrower at any time
or times for so long as no Default or Event of Default exists.

3.7 Statements of Account. Lender will account to Borrower
monthly with a statement of Loans, charges and payments made pursuant to this
Agreement, and such account rendered by Lender shall be deemed final, binding
and conclusive upon Borrower unless Lender is notified by Borrower in writing
to the contrary within thirty (30) days after the date each account is mailed
to Borrower. Such notice shall only be deemed an objection to those items
specifically objected to therein.

3.8 Funding Indemnity. If the Lender shall incur any actual loss,
cost or expense (including any loss, cost or expense incurred by reason of the
liquidation or re-employment of deposits or other funds acquired by the Lender
to fund or maintain any Advance or the relending or reinvesting of such
deposits or amounts paid or prepaid to the Lender, but excludingany loss of
profits) as a result of: (a) any payment, prepayment or conversion of an
Advance on a date other than the last day of its Interest Period, (b) any
failure by the Borrower to borrow on the date specified in a notice given
pursuant to Section 2.1, or (c) any acceleration of the maturity of an Advance
as a result of the occurrence of any Event of Default hereunder.

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<PAGE> 21

Lender setting forth the amount of such loss, cost or expense in reasonable
detail (including an explanation of the basis for the computation of such loss,
cost or expense) and the amounts and components of such calculation shown on
such certificate if reasonably calculated shall be conclusive.

SECTION 4. COLLATERAL: GENERAL TERMS

4.1 Security Interest in Collateral. To secure the prompt payment
and performance to Lender of the Obligations, Borrower hereby grants to Lender
a continuing security interest in, security title to and Lien upon all the
following Property and interests in Property of Borrower, whether now owned or
existing or hereafter created, acquired or arising and wheresoever located:

(A) All Accounts;

(B) All Inventory;

(C) All monies and other Property of any kind, now or at any
time or times hereafter, in the possession or under the control of Lender or a
bailee of Lender;

(D) All accessions to, substitutions for and all
replacements, products and cash and non-cash proceeds of (A), (B), and (C)
above, including, without limitation, proceeds of and unearned premiums with
respect to insurance policies insuring any of the Collateral; and

(E) All books and records (including, without limitation,
customer lists, credit files, computer programs, printouts, and other computer
materials and records) of Borrower pertaining to any of (A), (B), (C) or (D)
above and all chattel paper pertaining to any of (A), (B), (C) or (D) above.

4.2 Representations, Warranties and Covenants -- Collateral . To
induce Lender to enter into this Agreement, Borrower represents, warrants, and
covenants to Lender that:

(A) The Collateral is now and will continue to be owned
solely by Borrower. No other Person has or will have any right, title,
interest, claim, or Lien therein, thereon or thereto other than a Permitted
Lien.

(B) Except as specifically consented to in writing by Lender,
the Liens granted to Lender shall be first and prior on the Collateral and as
to the Accounts and proceeds, including insurance proceeds, resulting from the
sale, disposition, or loss thereof (other than (i) the pari passu Lien granted
by Borrower to First Union under the First Union Credit Agreement and (ii) the
pari passu Lien granted by Borrower to ABN under the ABN Loan Agreement). No
further action need be taken to perfect the Liens granted to Lender, other than
the filing of continuation statements under the Code or other applicable law.

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<PAGE> 22

(C) All goods evidenced by the Collateral constituting
chattel paper, documents or instruments are owned by Borrower and the same are
free and clear of any prior Lien (other than (i) the pari passu Lien granted by
Borrower to First Union under the First Union Credit Agreement and (ii) the
pari passu Lien granted by Borrower to ABN under the ABN Loan Agreement).
Borrower further warrants and guarantees the value, quantities, sound
condition, grades and qualities of the goods and services described therein.
Borrower shall pay and discharge when due all taxes, levies, and other charges
upon said Collateral and upon the goods evidenced by any documents constituting
Collateral and shall defend Lender against and save it harmless from all claims
of any Person with respect to the Collateral. This indemnity shall include
reasonable attorneys' fees and legal expenses.

4.3 Lien Perfection. Borrower agrees to execute the UCC-1
financing statements provided for by the Code, or other applicable law,
together with any and all other instruments, assignments or documents and shall
take such other action as may be required to perfect or to continue the
perfection of Lender's security interest in the Collateral. Unless prohibited
by applicable law, Borrower hereby authorizes Lender to execute and file any
such financing statement on Borrower's behalf. The parties agree that a
carbon, photographic or other reproduction of this Agreement shall be
sufficient as a financing statement and may be filed in any appropriate office
in lieu thereof.

4.4 Location of Collateral. All Collateral, other than Inventory
in transit, will at all times be kept by Borrower at one or more of the
business locations set forth in Exhibit "C" and shall not, without the prior
written approval of Lender, be moved therefrom except for transfers between
Places of Business and, prior to an Event of Default, for sales of Inventory in
the ordinary course of business.

4.5 Insurance of Collateral. Borrower agrees to maintain and pay
for insurance upon all Collateral wherever located, in storage or in transit in
vehicles, including goods evidenced by documents, covering casualty, hazard,
public liability and such other risks and in such amounts and with such
insurance companies as shall be reasonably satisfactory to Lender to insure
Lender's interest in the Collateral. Borrower shall deliver the originals of
such policies to Lender with satisfactory lender's loss payable endorsements
naming loss payee. Each policy of insurance or endorsements shall contain a
clause requiring the insurer to give not less than thirty (30) days' prior
written notice to Lender in the event of cancellation of the policy for any
reason whatsoever and a clause that the interest of Lender shall not be
impaired or invalidated by any act or neglect of Borrower or owner of the
Property nor by the occupation of the premises for purposes more hazardous than
are permitted by said policy. If Borrower fails to provide and pay for such
insurance, Lender may, at Borrower's expense, procure the same, but shall not
be required to do so. Borrower agrees to deliver to Lender, promptly as
rendered, true copies of all reports made in any reporting forms to insurance
companies. Borrower will maintain, with financially sound and reputable
insurers, insurance with respect to its Properties and business against such
casualties and contingencies of such type (including public liability,
larceny, embezzlement, or other criminal misappropriation insurance) and in
such amounts as is customary in the business or as otherwise required by
Lender.

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<PAGE> 23

4.6 Protection of Collateral. All insurance expenses and all
expenses of protecting, storing, warehousing, insuring, handling, maintaining
and shipping the Collateral (including, without limitation, all rent payable by
Borrower to any landlord of any premises where any of the Collateral may be
located), and, any and all excise, property, sales, and use taxes imposed by
any state, federal, or local authority on any of the Collateral or in respect
of the sale thereof, shall be borne and paid by Borrower. If Borrower fails to
promptly pay any portion thereof when due, Lender may, at its option, but shall
not be required to, pay the same and charge the Loan Account therefor.
Borrower agrees to reimburse Lender promptly therefor with interest accruing
thereon daily at the Default Rate provided in this Agreement. All sums so paid
or incurred by Lender for any of the foregoing and all costs and expenses
(including reasonable attorneys' fees, necessary legal expenses, and court
costs) which Lender may incur in enforcing or protecting its Lien on or rights
and interest in the Collateral or any of its rights or remedies under this or
any other agreement between the parties hereto or in respect of any of the
transactions to be had hereunder until paid by Borrower to Lender with interest
at the Default Rate, shall be considered Obligations owing by Borrower to
Lender hereunder. Such Obligations shall be secured by all Collateral and by
any and all other collateral, security, assets, reserves, or funds of Borrower
in or coming into the hands or inuring to the benefit of Lender. Lender shall
not be liable or responsible in any way for the safekeeping of any of the
Collateral or for any loss or damage thereto (except for reasonable care in the
custody thereof while any Collateral is in Lender's actual possession) or for
any diminution in the value thereof, or for any act or default of any
warehouseman, carrier, forwarding agency, or other person whomsoever, but the
same shall be at Borrower's sole risk.

SECTION 5. PROVISIONS RELATING TO ACCOUNTS

5.1 Representations, Warranties and Covenants. With respect to
all Accounts, Borrower represents and warrants to Lender that Lender may rely,
in determining which Accounts are Eligible Accounts, on all statements and
representations made by Borrower with respect to any Account or Accounts,
(including, without limitation, the Borrowing Base Report) and, unless
otherwise indicated in writing to Lender, that with respect to each Account:

(A) It is genuine and in all respects what it purports to be,
and it is not evidenced by a judgment;

(B) It arises out of a completed, bona fide sale and delivery
of goods or rendition of services by Borrower in the ordinary course of its
business and in accordance with the terms and conditions of all purchase
orders, contracts or other documents relating thereto and forming a part of the
contract between Borrower and the Account Debtor;

(C) It is for a liquidated amount maturing as stated in the
duplicate invoice or chattel paper covering such sale or rendition of services,
a copy of which has been furnished or is available to Lender;

(D) Such Account, and Lender's security interest therein, is
not, and will not be in the future, subject to any offset, Lien (other than (i)
the pari passu Lien granted in favor of

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<PAGE> 24

First Union pursuant to the First Union Credit Agreement and (ii) the pari
passu Lien granted in favor of ABN pursuant to the ABN Loan Agreement),
deduction, defense, dispute, counterclaim or any other adverse condition except
for disputes resulting in returned goods where the amount in controversy is
deemed by Lender to be immaterial, and each such Account is absolutely owing to
Borrower and is not contingent in any respect or for any reason;

(E) Borrower has made no agreement with any Account Debtor
thereunder for any deduction therefrom, except discounts or allowances which
are granted by Borrower in the ordinary course of its business for prompt
payment and which are reflected in the calculation of the net amount of each
respective invoice related thereto;

(F) There are no facts, events or occurrences which in any
way impair the validity or enforceability thereof or tend to reduce the amount
payable thereunder from the face amount of the invoice and statements delivered
to Lender with respect thereto;

(H) Borrower has no knowledge of any fact or circumstance
which would impair the validity or collectibility of the Account, and to the
best of Borrower's knowledge there are no proceedings or actions which are
threatened or pending against any Account Debtor thereunder which might result
in any material adverse change in such Account Debtor's financial condition or
the collectibility of such Account.

5.2 Notice of Security Interest and Schedules of Accounts. Within
thirty (30) days from the date hereof, Borrower shall enter a notation on each
Account by the execution on the face of each written contract document,
instrument, or security agreement, the following notice or such other notice as
may be approved in writing by the Lender:

This chattel paper and the obligations owing to and rights of
Friedman's Inc. hereunder are subject to pari passu security
interests in favor of NationsBank, N.A., as Collateral Agent for
NationsBank, N.A., ABN AMRO Bank N.V. and First Union National Bank.

; provided, the reference to "First Union National Bank" and to "ABN AMRO Bank
N.V." shall be deleted therefrom in the event of the termination of the First
Union Credit Agreement and the ABN Loan Agreement, as applicable.

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<PAGE> 25

of its Accounts and all payments and collections thereon and shall submit to
Lender at Lender's request, on or before the fifteenth day of each month from
and after the date of such request, a schedule of Accounts, and, upon Lender's
request therefor, copies of proof of delivery and the original copy of all
documents, including, without limitation, repayment histories and present
status reports relating to the Accounts so scheduled and such other matters and
information relating to the status of then existing Accounts as Lender shall
reasonably request.

5.3 Administration of Accounts.

(A) Upon and after the occurrence of an Event of Default and
acceleration of the Obligations as permitted in Section 10.2 hereof, Lender
shall have the right to collect and settle or adjust all disputes and claims
directly with the Account Debtor and to compromise the amount or extend the
time for payment of the Accounts upon such terms and conditions as Lender may
deem advisable, and to charge the deficiencies, costs and expenses thereof,
including reasonable attorney's fees, to Borrower.

(B) If an Account includes a charge for any tax payable to
any governmental taxing authority, Lender is authorized, in its sole
discretion, to pay the amount thereof to the proper taxing authority for the
account of Borrower and to charge the Loan Account therefor. Borrower shall
notify Lender if any Account includes any tax due to any governmental taxing
authority and, in the absence of such notice, Lender shall have the right to
retain the full proceeds of the Account and shall not be liable for any taxes
to any governmental taxing authority that may be due by Borrower by reason of
the sale and delivery creating the Account.

(C) Whether or not a Default or an Event of Default has
occurred, any of Lender's officers, employees or agents shall have the right,
at any time or times hereafter, in the name of Lender, or any designee of
Lender or Borrower, to verify the validity, amount or any other matter relating
to any Accounts by mail, telephone, telegraph or otherwise. Borrower shall
cooperate fully with Lender in an effort to facilitate and promptly conclude
any such verification process.

5.4 Collection of Accounts. To expedite collection, Borrower
shall endeavor in the first instance to make collection of its Accounts for
Lender. All remittances received by Borrower on account of Accounts shall be
held as Lender's property by Borrower as trustee of an express trust for
Lender's benefit. Lender retains the right after an Event of Default and
acceleration of the Obligations as permitted in Section 10.2 hereof to notify
Account Debtors that Accounts have been assigned to Lender and to collect
Accounts directly in its own name and to charge the collection costs and
expenses, including reasonable attorneys' fees to Borrower. The Borrower
shall, following the occurrence and during the continuance of an Event of
Default and, at request of Lender, (a) notify the Account Debtors of the
security interest of Lender in any Account and that payment thereof or
thereunder is to be made directly to Lender, and (b) furnish to Lender upon
request additional statements of any Accounts, together with all notes or other
papers evidencing the same and any guaranty, securities or other documents or
information relating thereto. Lender has no duty to protect, insure, collect
or realize upon the Accounts or preserve

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<PAGE> 26

rights in them. For the purpose of computing interest hereunder, all items of
payment received by Lender shall be deemed applied by Lender on account of the
Obligations (subject to final payment of such items) on the second Business Day
after receipt by Lender of such items of payment in Atlanta, Georgia. Such
credits shall be conditional upon final payment in cash or cash equivalents of
the items giving rise to them. If any item is not so paid, the Lender, in its
discretion, whether or not the item is returned, may reverse any credit given
for the item.

SECTION 6. PROVISIONS RELATING TO INVENTORY

6.1 Representations, Warranties and Covenants. With respect to
Inventory, Borrower represents and warrants to Lender that:

(A) All Inventory is presently and will continue to be
located at Borrower's places of business listed on Exhibit "C" and will not be
removed therefrom except as authorized by Section 4.4 of this Agreement.

(B) No Inventory is now, nor shall any Inventory at any time
or times hereafter be, stored with a bailee, warehouseman or similar party
without Lender's prior written consent.

(D) No Inventory is or will be produced in violation of the
Fair Labor Standards Act.

6.2 Location of Inventory. Contemporaneously herewith Borrower
has given Lender a list of all locations where Borrower has a Place of Business
(in the form of Exhibit "C" attached hereto), and thereafter shall give 30 days
written notice prior to any change in, each warehouse location at which
Inventory is or will be kept and each office of Borrower at which the records
of Borrower pertaining to Inventory, are kept. All Eligible Inventory is and
shall be kept, and all records pertaining to Eligible Inventory are and shall
be kept, only at locations of which the Lender has been given notice as
provided for herein or at locations notice of which shall be given to Lender
within thirty (30) days of the end of the next quarter.

6.3 Ownership of Inventories. Borrower is, and as to Eligible
Inventory to be acquired after the date hereof, and to be included in the
Borrowing Base shall be, the owner of all Eligible Inventory to be included in
the Borrowing Base and (except for carrier, warehouse, customs and similar
statutory liens arising in the ordinary course of business) shall neither
create or suffer to exist any Lien (other than (i) the pari passu Lien granted
to First Union under the First Union Credit Agreement and (ii) the pari passu
Lien granted to ABN under the ABN Loan Agreement) nor sell, assign, transfer or
create or suffer to exist any Lien (other than (i) the pari passu Lien granted
to First Union under the First Union Credit Agreement and (ii) the pari passu
Lien granted to ABN under the ABN Loan Agreement) in any account or contract
right relating to the Eligible Inventory to or in favor of any Person other
than Lender.

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<PAGE> 27

6.4 Status of Inventory. Borrower shall notify Lender on Friday
of each week of any of the following events of which Borrower becomes aware
during such week: any material loss or depreciation in value of Eligible
Inventory and the amount of the loss or depreciation; damage to any such goods;
and any other event which materially affects Eligible Inventory, or the value
or amount thereof.

SECTION 7. REPRESENTATIONS AND WARRANTIES

7.1 General Representations and Warranties. To induce Lender to
enter into this Agreement and to make advances hereunder, Borrower warrants,
represents and covenants to Lender that:

(A) Organization and Qualification. Borrower is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. Borrower has duly qualified and is authorized
to do business and is in good standing in each state or jurisdiction listed on
Exhibit "E" attached hereto and made a part hereof and in all other states and
jurisdictions where the character of its Properties or the nature of its
activities make such qualification necessary and in which the failure to be so
qualified would have a material adverse effect on Borrower.

(B) Borrower's Names. During the preceding seven (7) years,
Borrower has not been known as or used any fictitious or trade or other names
except as disclosed on Exhibit "F" attached hereto and made a part hereof.
Except as set forth on Exhibit "F", Borrower has not, during the preceding
seven (7) years, acquired all or substantially all of the assets of any Person.

(C) Power and Authority. Borrower has the right and power
and is duly authorized and empowered to enter into, execute, deliver and
perform this Agreement and each of the other Loan Documents to which it is a
party. The execution, delivery and performance of this Agreement and each of
the other Loan Documents have been duly authorized by all necessary corporate
action and do not and will not (i) require any consent or approval from any
Person; (ii) contravene Borrower's Articles of Incorporation or Bylaws; (iii)
violate, or cause Borrower to be in default under, any provision of any law,
rule, regulation, order, writ, judgment, injunction, decree, determination or
award in effect having applicability to Borrower; (iv) result in a breach of or
constitute a default under any indenture or loan or credit agreement or any
other agreement, lease or instrument to which Borrower is a party or by which
it or its Properties may be bound or affected; or (v) result in, or require,
the creation or imposition of any Lien (other than Permitted Liens) upon or
with respect to any of the Properties now owned or hereafter acquired by
Borrower.

(D) Legally Enforceable Agreements. This Agreement is, and
each of the other Loan Documents when delivered under this Agreement will be, a
legal, valid and binding obligation of Borrower enforceable against it in
accordance with their respective terms, except to the extent that such
enforcement may be limited by applicable bankruptcy, insolvency and other

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<PAGE> 28

similar laws affecting creditors' rights generally or by principles of equity
pertaining to the availability of equitable remedies.

(E) Use of Proceeds. Borrower's uses of the proceeds of the
Loan pursuant to this Agreement are, and will continue to be, legal and proper
uses, duly authorized by its directors, and such uses will not violate any
applicable laws, including, without limitation, the Foreign Assets Control
Regulations, the Foreign Funds Control Regulations and the Transaction Control
Regulations of the United States Treasury Department (31 CFR, Subtitle B,
Chapter V, as amended).

(F) Margin Stock. Borrower is not engaged principally, or as
one of its important activities, in the business of purchasing or carrying
"margin stock" (within the meaning of Regulation G or U of the Board of
Governors of the Federal Reserve System), and no part of the proceeds of the
Loan to Borrower will be used to purchase or carry any margin stock or to
extend credit to others for the purpose of purchasing or carrying any margin
stock or be used for any purpose which violates or is inconsistent with the
provisions of Regulation X of said Board of Governors.

(G) Governmental Consents. Borrower has, and is in good
standing with respect to, all governmental consents, approvals, authorizations,
permits, certificates, inspections, and franchises necessary to continue to
conduct its business as heretofore or proposed to be conducted by it and to own
or lease and operate its Properties as now owned or leased by it.

(H) Capital Structure. Exhibit "G" attached hereto and made
a part hereof states (a) the correct name of Borrower, the jurisdiction of
organization, (b) the name of each of Borrower's directors, (c) the name of
each of Borrower's partnership or joint venture Affiliates, if any, and the
nature of the affiliation, and (d) a description of Borrower's Subordinated
Debt.

(I) Solvent Financial Condition. Borrower is now and, after
giving effect to the Loan to be made hereunder, at all times will be, Solvent.

(J) Restrictions. Borrower is not a party or subject to any
contract, agreement, or charter or other corporate restriction, which
materially and adversely affects its business or the use or ownership of any of
its Properties. Borrower is not a party or subject to any contract or
agreement which restricts its right or ability to incur Indebtedness, other
than as set forth on Exhibit "H" attached hereto, none of which prohibit the
execution of or compliance with this Agreement by Borrower. Borrower has not
agreed or consented to cause or permit in the future (upon the happening of a
contingency or otherwise) any of its Property, whether now owned or hereafter
acquired, to be subject to a Lien that is not a Permitted Lien.

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<PAGE> 29

before any governmental authority or arbitration board or tribunal, and no
action, suit, proceeding or investigation shown on Exhibit "I" involves the
possibility of materially and adversely affecting the Properties, business,
prospects, profits or condition (financial or otherwise) of Borrower or the
ability of Borrower to perform this Agreement. Borrower is not in default with
respect to any order, writ, injunction, judgement, decree or rule of any court,
governmental authority or arbitration board or tribunal.

(M) Financial Statements: Fiscal Year. The balance sheets of
Borrower dated as of September 30, 1996 and March 31, 1997, and the related
statements of income, changes in shareholder's equity and cash flow for the
periods ended on such dates, have been prepared on a basis consistent with
Borrower's historical accounting practices (except for changes in application
in which Borrower's independent certified public accountants concur), and
present fairly the financial position of Borrower at such dates and the results
of Borrower's operations for such periods. As of the date hereof, since May
31, 1997, there has been no material change in the condition, financial or
otherwise, of Borrower except changes in the ordinary course of business, none
of which individually or in the aggregate has been materially adverse. The
fiscal year of Borrower ends on September 30 of each year.

(N) Full Disclosure. The financial statements referred to in
Section 7.1(M) above, do not, nor does this Agreement or any other written
statement of Borrower to Lender (including, without limitation, Borrower's
filings, if any, with the Securities and Exchange Commission), contain any
untrue statement of a material fact or omit a material fact necessary to make
the statements contained therein or herein not misleading. There is no fact
which Borrower has failed to disclose to Lender in writing which materially
affects adversely or, so far as Borrower can now foresee, will materially
affect adversely the Properties, business, prospects, profits, or condition
(financial or otherwise) of Borrower or the ability of Borrower to perform this
Agreement.

(O) Pension Plans. Except as disclosed on Exhibit "J"
attached hereto and made a part hereof, Borrower has no Plan. Borrower has not
received any notice to the effect that it is not in full compliance with any of
the requirements of ERISA and the regulations promulgated thereunder. No fact
or situation that could result in a material adverse change in the financial
condition of Borrower, including, but not limited to, any Reportable Event, or
Prohibited Transaction, exists in connection with any Plan. Borrower has no
withdrawal liability in connection with a Multiemployer Plan.

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<PAGE> 30

governmental charges that are due and payable. The provision for taxes on the
books of Borrower are adequate for all years not closed by applicable statutes,
and for its current fiscal year.

(Q) Compliance With Laws. Borrower has duly complied with,
and its Properties, business operations and leaseholds are in compliance in all
material respects with, the provisions of all federal, state and local laws,
rules and regulations applicable to Borrower, its Properties or the conduct of
its business, including, without limitation, the federal Truth-In-Lending Act
and applicable state consumer lending laws, OSHA and all Environmental Laws,
and there have been no citations, notices or orders of noncompliance issued to
Borrower under any such law, rule or regulation.

(R) No Defaults. No event has occurred and no condition
exists which would, upon the execution and delivery of this Agreement or
Borrower's performance hereunder, constitute a Default or an Event of Default.
Borrower is not in default, and no event has occurred and no condition exists
which constitutes, or which with the passage of time or the giving of notice or
both would constitute, a default in the payment of any Indebtedness to any
Person for Money Borrowed.

7.2 Reaffirmation. Each request for an Advance made by Borrower
pursuant to this Agreement or any of the other Loan Documents shall constitute
(i) an automatic representation and warranty by Borrower to Lender that there
does not then exist any Default or Event of Default and (ii) a reaffirmation as
of the date of said request that all of the representations and warranties of
Borrower contained in this Agreement (other than the first sentence of Section
7.1(K) and the second sentence of Section 7.1(M) hereof) and the other Loan
Documents are true in all material respects except for (x) any changes in the
nature of Borrower's business or operations that would render the information
contained in any exhibit, attached hereto either inaccurate or incomplete, so
long as Lender has consented to such changes or such changes are expressly
permitted by this Agreement and (y) such changes to the facts and/or
circumstances that are the subject of such representations and warranties, so
long as such changes are not materially adverse to the condition of the
Borrower (financially or otherwise) either individually or in the aggregate.

7.3 Survival of Representations and Warranties. Borrower
covenants, warrants and represents to Lender that all representations and
warranties of Borrower contained in this Agreement or any of the other Loan
Documents shall be true at the time of Borrower's execution of this Agreement
and the other Loan Documents, and shall survive the execution, delivery and
acceptance hereof by Lender and the closing of the transactions described
herein or related hereto.

SECTION 8. COVENANTS AND CONTINUING AGREEMENTS

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<PAGE> 31

(A) Taxes and Liens. Pay and discharge all taxes,
assessments and governmental charges upon it, its income and Properties as and
when such taxes, assessments and charges are due and payable, (i) except and to
the extent only that such taxes, assessments and charges are being actively
contested in good faith and by appropriate proceedings, Borrower promptly
notifies Lender in writing of such contest, Borrower maintains adequate
reserves on its books therefor and the nonpayment of such taxes, assessments
and charges does not result in a Lien upon any Properties of Borrower other
than a Permitted Lien and (ii) except such taxes, assessments and governmental
changes that do not exceed, in the aggregate, $250,000 at any time. Borrower
shall also pay and discharge any lawful claims which, if unpaid, might become a
Lien against any of Borrower's Properties except for Permitted Liens.

(B) Tax Returns. Timely, file all federal, state and local
tax returns and other reports Borrower is required by law to file and maintain
adequate reserves for the payment of all taxes, assessments, governmental
charges, and levies imposed upon it, its income, or its profits, or upon any
Property belonging to it.

(C) Payment of Bank Charges. Pay to Lender, when due, any
and all fees, costs or expenses which Lender pays to a bank or other similar
institution arising out of or in connection with (i) the forwarding to Borrower
or any other Person on behalf of Borrower, by Lender, proceeds of loans made by
Lender to Borrower pursuant to this Agreement and (ii) the depositing for
collection, by Lender, of any check or item of payment received or delivered to
Lender on account of the obligations.

(D) Business and Existence. Preserve and maintain its
existence and all rights, privileges, and franchises in its qualification and
good standing in all states in which such qualification is necessary.

(E) Maintain Properties. Maintain its Properties in good
condition and make, all necessary renewals, repairs, replacements, additions
and improvements thereto.

(G) Business Records. Keep adequate records and books of
account with respect to its business activities in which proper entries are
made in accordance with GAAP reflecting all its financial transactions.

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<PAGE> 32

(H) Visits, Inspections and Audits. Permit representatives
of Lender, from time to time, as often as may be reasonably requested, but only
during normal business hours, to visit, inspect and audit the Properties of
Borrower, inspect and make extracts from its books and records, and discuss
with its officers, its employees and its independent accountants, Borrower's
business, assets, liabilities, financial condition, business prospects and
results of operations and to pay in full the cost of one audit by Lender of the
Collateral each year (provided, however, that Borrower shall not be required to
pay more than $10,000 with respect to any such audit).

(i) as soon as possible, but not later than one hundred
twenty (120) days after the close of each fiscal year of Borrower, unqualified
audited financial statements of Borrower as of the end of such year, certified
by a firm of independent certified public accountants of recognized national
standing or otherwise acceptable to Lender (except for a qualification for a
change in accounting principles with which the independent public accountant
concurs);

(ii) as soon as possible, but not later than the earlier
of sixty (60) days after the end of each quarter hereafter or the date on which
the same shall be required to be filed with the Securities Exchange Commission,
unaudited interim consolidated financial statements of Borrower, and of the
portion of Borrower's fiscal year then elapsed, including without limitation,
upon reasonable request of Lender, Accounts receivables aging, and Accounts
payable aging as of the end of such quarter, on a consolidated and
consolidating basis, certified by the principal financial officer of Borrower
as fairly presenting the consolidated financial position and results of
operations of Borrower for such month and period subject only to changes from
audit and year-end adjustments and except that such statements need not contain
notes; and

(iii) such other data and information (financial and
otherwise) as Lender, from time to time, may reasonably request, bearing upon
or related to the Collateral, Borrower's financial condition or results of
operations, including, without limitation, federal income tax returns of
Borrower, accounts payable ledgers, and bank statements.

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<PAGE> 33

a prior office or Place of Business; (iii) within forty-five (45) days after
each quarter for the preceding quarter, of the closing of any existing office
or Place of Business; (iv) promptly after Borrower's learning thereof, of any
default by Borrower under any note, indenture, loan agreement, mortgage, lease,
deed, guaranty or other similar agreement relating to any Indebtedness of
Borrower in excess of $250,000; (v) promptly after the occurrence thereof, of
any Default or Event of Default; (vi) promptly after the rendition thereof, of
any judgment rendered against Borrower; and (vii) concurrently with the filing
thereof with the Securities and Exchange Commission ("SEC"), any filings with
the SEC by providing to Lender a copy of such filings.

(K) Landlord and Storage Agreements. Provide Lender at
Lender's request with copies of all agreements between Borrower and any
landlord or warehouseman which owns any premises at which any Inventory or
other Collateral may, from time to time, be kept.

(L) Further Assurances. At Lender's request, promptly
execute or cause to be executed and deliver to Lender any and all documents,
instruments and agreements deemed necessary by Lender to give effect to or
carry out the terms or intent of this Agreement or any of the other Loan
Documents.

(M) Communications with Lender. Borrower hereby irrevocably
authorizes Lender to communicate directly with any of the following Persons
concerning Borrower, its business, the Collateral and the Loans: (a) any
service bureau, warehousing service, freight forwarder, trade creditor,
consignee, bailee, customer or other similar services; (b) any Person employed
by Borrower; and (c) Borrower's present and future independent public
accountants, each of whom is authorized by Borrower to communicate with Lender
and to disclose to Lender any and all matters relating to Borrower, its
financial condition and prospects, and the Collateral.

(N) Borrowing Base Report. For the purposes of computing the
Borrowing Base, Borrower shall furnish to Lender on the forty-fifth (45th) day
after the end of each calendar quarter, a Borrowing Base Report as of the last
day of the immediately preceding calendar quarter containing information
adequate to identify Eligible Inventory and Eligible Accounts, signed by an
authorized officer of Borrower showing a calculation of the Borrowing Base as
of the end of the preceding week, listing the amount of Eligible Accounts and
updating the amount of Eligible Inventory. If on the date any such report is
delivered, the sum of the aggregate principal amount of the Loan shall exceed
the Borrowing Base as set forth in the Borrowing Base Report, Borrower will
immediately pay to Lender the amount of such excess. Borrower shall also, if
the Lender so requests, accompany such information with pledges or designations
of Eligible Inventory or assignments of Eligible Accounts in form and substance
satisfactory to Lender which assignments shall give Lender full power to
collect, compromise or otherwise deal with the assigned Accounts as the sole
owner thereof.

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<PAGE> 34

on a "blind basis," directly with account debtors or factors or by other
methods; and shall do, make, execute and deliver all such additional and
further acts, things, deeds, assurances, and instruments as Lender may require
more completely to vest in and assure to Lender its rights hereunder or in any
Collateral and to carry into effect the provisions and intent of this
Agreement.

(P) Borrower's Account. At all times during the term of this
Agreement maintain Borrower's Account so long as the terms thereof are as
favorable to Borrower as those generally available for similar customers with
comparable accounts.

(Q) Compliance Certificate. Within ninety (90) days after
the fiscal year end and forty-five (45) days after the end of each calendar
quarter, or more frequently if requested by Lender, cause the chief financial
officer of Borrower to prepare and deliver to Lender a compliance certificate
in the form of Exhibit "K" attached hereto, with appropriate insertions.

8.2 Negative Covenants. During the term of this Agreement, and
thereafter for so long as there are any Obligations to Lender, Borrower
covenants that, unless Lender has first consented thereto in writing, it will
not:

(A) Indebtedness. Incur, assume or suffer to exist any
Indebtedness except for Permitted Indebtedness.

(B) Mergers; Consolidations: Acquisitions. Acquire all or
any substantial part of the Properties of any Person if the consideration paid
as part of any such transaction in cash or other property (other than stock of
Borrower) exceeds $5,000,000, nor merge or consolidate with any Person.

(C) Loans. Except as set forth on Exhibit K-1, make any
Loans or other advances of money in the aggregate in excess of the Permitted
Loan and Guarantee Amount (other than for salary, travel advances, advances
against commissions and other similar advances in the ordinary course of
business and Loans to officers to exercise stock options) to any Person,
including, without limitation, any of Borrower's Affiliates, officers or
employees.

(D) Affiliate Transactions. Enter into, or be a party to,
any transaction with any Affiliate or stockholder, except (i) transactions in
the ordinary course of and pursuant to the reasonable requirements of
Borrower's business and upon fair and reasonable terms which are fully
disclosed to Lender and are no less favorable to Borrower than would obtain in
a comparable arm's length transaction with a Person not an Affiliate of
Borrower; (ii) an agreement with Morgan Schiff & Co., Inc. for management
services, with the total consideration thereunder not to exceed $500,000
annually; (iii) bonuses to the chairman, president and chief executive officer
of the Borrower, provided, no Default or Event of Default under Section 10.1(A)
hereof then exists or would be caused by the payment of such bonus; (iv) the
Long-Term Incentive Programs; (v) insurance programs with Cougar Reinsurance
Company, Ltd., as described in Exhibit K-2; and (vi) loans and other
indebtedness evidenced by the agreements listed on Exhibit K-1.

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<PAGE> 35

(E) Partnerships or Joint Ventures. Become or agree to
become a general or limited partner in any general or limited partnership or a
joint venturer in any joint venture.

(F) Adverse Transactions. Enter into any transaction, which
materially and adversely affects or may materially and adversely affect the
Collateral or Borrower's ability to repay the Obligations or permit or agree to
any material extension, compromise or settlement or make any change or
modification of any kind or nature with respect to any Account, including any
of the terms relating thereto, other than discounts and allowances in the
ordinary course of business, all of which shall be reflected in the Schedules
of Accounts submitted to Lender pursuant to Section 5.2 of this Agreement.

(G) Guaranties. Guarantee, assume, endorse or otherwise, in
any way, become directly or contingently liable with respect to the
Indebtedness of any Person if the aggregate amount of the same exceeds the
Permitted Loan and Guarantee Amount except by endorsement of instruments or
items of payment for deposit or collection.

(H) Limitation on Liens. Create or suffer to exist any Lien
upon any of its Property, income or profits, whether now owned or hereafter
acquired, except: (i) Liens at any time granted in favor of Lender; (ii) Liens
for taxes (excluding any Lien imposed pursuant to any of the provisions of
ERISA) not yet due or being contested as permitted by Section 8.1(A) hereof,
but only if in Lender's judgment such Lien does not affect adversely Lender's
rights or the priority of Lender's Lien in the Collateral; (iii) Liens securing
the claims or demands of materialmen, mechanics, carriers, warehousemen,
landlords and other like Persons for labor, materials, supplies or rentals
incurred in the ordinary course of Borrower's business, but only if the payment
thereof is not at the time required and only if such Liens are junior in
priority to the Liens in favor of Lender; (iv) Liens resulting from deposits
made in the ordinary course of business in connection with workmen's
compensation, unemployment insurance, social security and other like laws; (v)
attachment, judgment and other similar non-tax Liens arising in connection with
court proceedings, but only if and for so long as the execution or other
enforcement of such Liens is and continues to be effectively stayed and bonded
on appeal in a manner satisfactory to Lender for the full amount thereof, the
validity and amount of the claims secured thereby are being actively contested
in good faith and by appropriate lawful proceedings, such Liens do not, in the
aggregate, materially detract from the value of the Property of Borrower or
materially impair the use thereof in the operation of Borrower's business and
such Liens are and remain junior in priority to the Liens in favor of Lender;
(vi) Purchase Money Liens securing purchase money indebtedness which is not
incurred in violation of Section 8.3(C) of this Agreement; (vii) reservations,
exceptions, easements, rights-of-way, and other similar encumbrances affecting
real Property, provided that, in Lender's sole judgment, they do not in the
aggregate materially detract from the value of said Properties or materially
interfere with their use in the ordinary conduct of Borrower's business and, if
said real Property constitutes Collateral, Lender has consented thereto; (viii)
such other Liens as appear an Exhibit "L" attached hereto; (ix) the pari passu
Lien granted in favor of First Union pursuant to the First Union Credit
Agreement; (x) the pari passu Lien granted in favor of ABN pursuant to the ABN
Loan Agreement; and (xi) such other Liens as Lender may hereafter approve in
writing.

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(I) Business Locations. Transfer its principal place of
business or chief executive office, or maintain warehouses or records with
respect to Accounts or Inventory, to or at any locations other than those at
which the same are presently kept or maintained, as set forth on Exhibit "C"
hereto, except upon at least thirty (30) days' prior written notice to Lender
and after the delivery to Lender of financing statements, if required by
Lender, in form satisfactory to Lender to perfect or continue the perfection of
Lender's Lien and security interest hereunder.

(J) Change of Business. Enter into any new type of business
or make any material change in any of Borrower's business objectives, purposes
and operations; provided, however, Borrower shall be permitted to engage in any
retail business incidental or related to Borrower's business conducted on the
date hereof.

(K) Disposition of Assets. Sell, lease or otherwise dispose
of any of its Properties, including any disposition of Property as part of a
sale and leaseback transaction, to or in favor of any Person, except (i) sales
of Inventory in the ordinary course of Borrower's business for so long as no
Event of Default exists hereunder, (ii) dispositions expressly authorized by
this Agreement, or (iii) dispositions of Properties other than Inventory for
not less than the reasonable value of the Properties which have been disposed.

(L) Name of Borrower. Use any corporate name (other than its
own) or any fictitious name, tradestyle or "d/b/a" except for the names
disclosed on Exhibit "F" attached hereto, unless Borrower has provided such
name to Lender and executed such Uniform Commercial Code statements as Lender
shall require.

(M) Bill-and-Hold Sales, Etc. Except in the ordinary course
of business, make a sale to any customer on a bill-and-hold, guaranteed sale,
sale and return, sale on approval or consignment basis, or any sale on a
repurchase or return basis.

(N) Margin Securities. Own, purchase or acquire (or enter
into any contract to purchase or acquire) any "margin security" as defined by
any regulation of the Federal Reserve Board as now in effect or as the same may
hereafter be in effect unless, prior to any such purchase or acquisition or
entering into any such contract, Lender shall have received an opinion of
counsel satisfactory to Lender to the effect that such purchase or acquisition
will not cause this Agreement to violate Regulations G or U or any other
regulation of the Federal Reserve Board then in effect.

(O) Fiscal Year. Change its fiscal year without the prior
written consent of Lender, which consent shall not be unreasonably withheld.

(P) Distributions to Affiliates. Make any distributions,
dividends or payments to Affiliates (including any permitted payments under
section 8.2(D)(ii) and (iii) in excess of $1,500,000 during any calendar year
without the prior written consent of Lender, except Borrower may redeem its
Class B shares from time to time if no Default or Event of Default then exists
or would be caused by such redemption.

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8.3 Specific Financial Covenants. During the term of this
Agreement and thereafter for so long as there are any Obligations to Lender,
Borrower covenants that, unless otherwise consented to by Lender in writing, it
shall:

(A) Minimum Net Worth. Maintain at all times a Net Worth of
at least $140,000,000, plus 50% of the net proceeds of any equity offering
after September 30, 1996; in addition, effective as of the start of each fiscal
year, commencing with the fiscal year beginning on October 1, 1997, such Net
Worth requirement shall be increased by 50% of the Borrower's Net Income after
distributions to shareholders during the immediately preceding fiscal year.

(B) Fixed Charge Coverage Ratio. Maintain, as of the end of
each fiscal quarter, a Fixed Charge Coverage Ratio of not less than 1.5:1.

(C) Debt Ratio. Not permit, as of the end of any fiscal
quarter, the ratio of the Borrower's Funded Debt as of such date to its EBITDAR
for the four immediately preceding fiscal quarters to exceed 3:1.

SECTION 9. CONDITIONS PRECEDENT

Notwithstanding any other provision of this Agreement or any of the
other Loan Documents, and without affecting in any manner the rights of Lender
under the other Sections of this Agreement, it is understood and agreed that
the obligation of Lender to make the initial Advance is subject to the
conditions precedent that Lender shall have received, in form and substance
satisfactory to it, each of the following documents and that each of the
conditions described herein is fulfilled to the satisfaction of Lender:

9.1 Documentation. Lender shall have received the following
documents, each to be in form and substance satisfactory to Lender and its
counsel:

(A) The Note duly executed by Borrower;

(B) The Security Agreement and any other Security Documents
duly executed by Borrower;

(C) A legal opinion of Alston & Bird, counsel to Borrower,
substantially in the form of Exhibit "M" attached hereto and incorporated by
reference herein;

(D) A Compliance Certificate in the form of Exhibit "K"
attached hereto and incorporated by reference herein duly executed by an
officer of Borrower;

(E) Certificates or policies of insurance evidencing
compliance with the applicable provisions of this Agreement;

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(F) A request for Advance pursuant to Section 9.4 hereof and
a Borrowing Base Report;

(G) Certified copies of Borrower's casualty insurance
policies, together with loss payable endorsements on Lender's standard form of
Loss Payee Endorsement naming Lender as loss payee, and certified copies of
Borrower's liability insurance policies, together with endorsements naming
Lender as a co-insured;

(H) Copies of all filing receipts or acknowledgments issued
by any governmental authority to evidence any filing or recordation necessary
to perfect the Liens of Lender in the Collateral and evidence in a form
acceptable to Lender that such Liens constitute valid and perfected security
interests and Liens, having the Lien priority specified in Section 4.2(B)
hereof;

(I) A copy of the Articles or Certificate of Incorporation of
Borrower, and all amendments thereto, and a copy of the Bylaws of Borrower,
each certified by the secretary of Borrower;

(J) Good standing certificates for Borrower, issued by the
Secretary of State or other appropriate official of the jurisdiction of
incorporation;

(K) Certificate as to qualification to transact business as a
foreign corporation in each state, other than its state of incorporation, in
which Borrower transacts business provided, however, so long as the
representation in Section 7.1(A) is true and correct, Borrower may provide such
certificates within 30 days of the date hereof;

(L) A copy of the Intercreditor Agreement, duly executed and
delivered by First Union, ABN and Borrower.

(M) Such other documents, instruments and agreements as
Lender shall reasonably request in connection with the foregoing matters.

9.2 Other Conditions. The following conditions have been and
shall continue to be satisfied, in the reasonable discretion of Lender:

(A) No Default or Event of Default shall exist;

(B) Each of the conditions precedent set forth in the other
Loan Documents shall have been satisfied;

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state of facts which would reasonably be expected materially and adversely to
affect the business, financial condition or results of operations of Borrower;

(D) No action, proceeding, investigation, regulation or
legislation shall have been instituted, threatened or proposed before any
court, governmental agency or legislative body to enjoin, restrain or prohibit,
or to obtain damages from any Person in respect of, the consummation of the
transactions contemplated hereby or which, in Lender's sole discretion, would
make it inadvisable to consummate the transactions contemplated by this
Agreement or any of the other Loan Documents; and

(E) The Borrower shall have paid in full the Loan commitment
fee and the collateral agent fee described in Section 3.3 hereof.

9.3 Conditions Precedent to Subsequent Advances. The obligation
of Lender to make subsequent Advances is subject to the conditions precedent
that Lender shall have received, in form and substance satisfactory to it, each
of the following documents and that each of the conditions described below is
fulfilled to the satisfaction of Lender:

(A) A request for Advance pursuant to Section 9.4 hereof;

(B) The representation and warranties contained herein and in
each of the other Loan Documents shall be correct on and as of the date of the
request for the Advance and the date of the Advance, with the same effect as
though made on and as of those dates, except to the extent that such
representations and warranties relate solely to an earlier date, and on each of
such dates, no event, act, or condition shall have occurred or be continuing,
or would result from the Advance requested, which constitutes a Default or
Event of Default. The submission by Borrower of a written request for an
Advance shall constitute a representation and warranty as to the correctness of
the above facts, and if requested by Lender with respect to the Advance
requested, Borrower shall furnish to Lender a written certificate of an officer
of the Borrower, satisfactory in form and substance to Lender, as to the
correctness of the above facts as a condition precedent to such Advance; and

(C) A Compliance Certificate in the form of Exhibit "L"
attached hereto and incorporated by reference herein duly executed by an
officer of Borrower.

9.4 Request for Advances. Borrower shall request each Advance of
Loan proceeds (including requests by telephonic communication) no later than
11:00 A.M. (Atlanta time) of the day on which the Advance is requested to be
made. Each request for Advance shall specify the proposed date of the Advance
and the amount thereof and shall be effective upon receipt by Lender and shall
be irrevocable. Not later than close of business (Atlanta time) on the day on
which the request for Advance is received by Lender and upon fulfillment of the
applicable conditions set forth herein, as applicable, Lender will make each
requested Advance in the amount requested, or in a lesser amount as determined
by the Borrowing Base, to the Borrower in immediately available funds by
deposit into Borrower's Account as of the proposed date. The

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persons authorized to request Advances hereunder shall be those individuals
designated in writing by Borrower to Lender. In the case of a request for
Advance made by telephonic communication, the action taken by Lender in good
faith upon such notice shall be deemed to be the action authorized by Borrower
pursuant to such request for Advance.

SECTION 10. EVENTS OF DEFAULT: RIGHTS AND REMEDIES ON DEFAULT

10.1 Events of Default. The occurrence of any one or more of the
following events or conditions shall constitute an "Event of Default":

(A) Payment of Note. Borrower shall fail to pay any
installment of principal, interest or premium, if any, owing on the Note on the
due date of such installment and shall fail to cure the same within five (5)
days of notice thereof from Lender.

(B) Payment of Other Obligations. Borrower shall fail to
pay any of the Obligations that are not evidenced by the Note on the due date
thereof (whether due at stated maturity, on demand, upon acceleration or
otherwise).

(C) Misrepresentations. Any warranty, representation, or
other statement made or furnished to Lender by or on behalf of Borrower or in
any instrument, certificate or financial statement furnished in compliance with
or in reference to this Agreement or any of the other Loan Documents proves to
have been false or misleading in any material respect when made or furnished.

(D) Breach of Covenants. Breach of any covenant
contained herein or any covenant contained in any other Loan Document (other
than a covenant or default in the performance) if the breach of such other
covenant is not cured to Lender's satisfaction within ten (10) days after the
sooner to occur of Borrower's receipt of notice of such breach from Lender or
the date on which such failure or neglect first becomes known to any officer of
Borrower.

(E) Default Under Other Agreements. Any event of default
shall occur under, or Borrower shall default in the performance or observance
of any term, covenant, condition or agreement contained in, any of the Other
Agreements or other instrument, contract, or document evidencing any existing
or future indebtedness of Borrower to Lender and such default shall continue
beyond any applicable period of grace.

(F) Default Under Security Documents. Any event of
default shall occur under, or Borrower shall default in the performance or
observance of any term, covenant, condition or agreement contained in, any of
the Security Documents and such default shall continue beyond any applicable
period of grace.

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the First Union Credit Agreement and the ABN Loan Agreement) or by which
Borrower or any of its Property is bound, creating or relating to any
indebtedness (other than the Obligations) if the payment or maturity of such
Indebtedness is accelerated in consequence of such event of default or demand
for payment of such Indebtedness is made.

(H) Uninsured Losses; Unauthorized Dispositions. Any
material loss, theft, damage or destruction not fully covered by insurance (as
required by this Agreement and subject to such deductibles as Lender shall have
agreed to in writing), or sale, lease or encumbrance of any of the Collateral
or the making of any levy, seizure, or attachment thereof or thereon except in
all cases as may be specifically permitted by other provisions of this
Agreement.

(I) Insolvency, etc. Borrower shall cease to be Solvent
or shall suffer the appointment of a receiver, trustee, custodian or similar
fiduciary, or shall make an assignment for the benefit of creditors, or any
petition for an order for relief shall be filed by or against Borrower under
the Bankruptcy Code (if against Borrower, the continuation of such proceeding
for more than thirty (30) days), or Borrower shall make any offer of
settlement, extension or composition to their respective unsecured creditors
generally, or any motion, complaint or other pleading is filed in any
bankruptcy case of any Person other than Borrower and such motion, complaint or
pleading seeks the consolidation of Borrower's assets and liabilities with the
assets and liabilities of such Persons.

(J) Business Disruptions; Condemnation. There shall
occur a cessation of a substantial part of the business of Borrower for a
period which significantly affects Borrower's capacity to continue its
business, on a profitable basis; or Borrower shall suffer the loss or
revocation of any license or permit now held or hereafter acquired by Borrower
which is necessary to the continued or lawful operation of all or any material
part of its business; or Borrower shall be enjoined, restrained or in any way
prevented by court, governmental or administrative order from conducting all or
any material part of its business affairs; or any material lease or agreement
pursuant to which Borrower leases, uses or occupies any Property shall be
cancelled or terminated prior to the expiration of its stated term; or any part
of the Collateral shall be taken through condemnation or the value of such
Property shall be impaired through condemnation.

(K) ERISA. A Reportable Event shall occur which Lender,
in its reasonable discretion, shall determine in good faith constitutes grounds
for the termination by the Pension Benefit Guaranty Corporation of any Plan or
for the appointment by the appropriate United States district court of a
trustee for any Plan, or if any Plan shall be terminated or any such trustee
shall be requested or appointed, or if Borrower is in "default" (as defined in
Section 4219 (c)(5) of ERISA) with respect to payments to a Multiemployer Plan
resulting from Borrower's complete or partial withdrawal from such Plan.

(L) Litigation. Borrower, or any Affiliate, shall
challenge or contest in any action, suit or proceeding the validity or
enforceability of this Agreement or any of the other Loan Documents, the
legality or enforceability of any of the Obligations or the perfection or
priority of any Lien granted to Lender.

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(M) Criminal Forfeiture. Borrower shall be criminally
indicted or convicted under any law that could lead to a forfeiture of any
Property of Borrower.

(N) Judgments. Borrower shall suffer any money
judgments, or suffer any writs, warrants of attachment or similar processes
which give rise to a Lien, other than a Permitted Lien, which individually or
in the aggregate involve an amount in excess of $500,000 over the amount
covered in full, subject to customary and reasonable deductibles, by insurance
or a surety bond, and shall not discharge, vacate, bond or stay the same within
a period of sixty (60) consecutive days.

10.2 Acceleration of the Obligations. Without in any way limiting
the right of Lender to demand payment of any portion of the obligations payable
on demand in accordance with Section 3.2 hereof, upon or at any time after the
occurrence of an Event of Default, all or any portion of the Obligations due or
to become due from Borrower to Lender, whether under this Agreement or any of
the other Loan Documents or otherwise, shall, at the option of Lender and
without notice or demand by Lender, become at once due and payable and Borrower
shall forthwith pay to Lender, in addition to any and all sums and charges due,
the entire principal of and accrued and unpaid interest on the obligations plus
reasonable attorneys' fees not to exceed fifteen percent (15.0%) of the
Obligations if the same are collected by or through an attorney at law.

10.3 Remedies. Upon or at any time after the occurrence of an
Event of Default, Lender shall have and may exercise from time to time the
following rights and remedies:

(A) All of the rights and remedies of a secured party
under the Code or under other applicable law, and all other legal and equitable
rights to which Lender may be entitled, all of which rights and remedies shall
be cumulative, and none of which shall be exclusive, and shall be in addition
to any other rights or remedies contained in this Agreement or any of the other
Loan Documents.

(B) The right to notify Account Debtors to make
remittances to Lender of all sums due on Accounts and to collect the Accounts
directly from the Account Debtors.

(C) The right to take immediate possession of the
Collateral, and (i) to require Borrower to assemble the Collateral, at
Borrower's expense, and make it available to Lender at a place designated by
Lender which is reasonably convenient to both parties, and (ii) to enter any of
the premises of Borrower or wherever any of the Collateral shall be located,
and to keep and store the same on said premises until sold (and if said
premises be the Property of Borrower, Borrower agrees not to charge Lender for
storage thereof).

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notice to Borrower of any public or private sale or other disposition of any
Collateral shall be reasonable notice thereof; provided, however, that no
notice of Lender's intended disposition of Collateral shall be required with
respect to any portion of the Collateral that is perishable, threatens to
decline speedily in value or is of a type customarily sold on a recognized
market, nor shall any such notice be required hereunder if not otherwise
required under applicable law. Lender shall have the right to conduct such
sales an Borrower's premises, without charge therefor, and such sales may be
adjourned from time to time in accordance with applicable law. Lender shall
have the right to sell, lease, or otherwise dispose of any Collateral, or any
part thereof, for cash, credit or any combination thereof, and Lender may
purchase all or any part of any Collateral at public or, if permitted by law,
private sale and, in lieu of actual payment of such purchase price, may set off
the amount of such price against the obligations.

(E) Lender is hereby granted a license or other right to
use, without charge, Borrower's labels, patents, copyrights, rights of use of
any name, trade secrets, trade names, trademarks and advertising matter, or any
Property of a similar nature as it pertains to the Collateral, in advertising
for sale and selling any Collateral and Borrower's rights under all licenses
and all franchise agreements shall inure to Lender's benefit.

(F) The proceeds realized from the sale of any Collateral
may be applied, after allowing two (2) Business Days for collection, first to
the costs, expenses and reasonable attorneys' fees incurred by Lender in
collecting the obligations, in enforcing the rights of Lender under the Loan
Documents and in, collecting, retaking, completing, protecting, removing,
storing, advertising for sale, selling and delivering any of the Collateral;
secondly, to interest due upon any of the Obligations; and thirdly, to the
principal of the Obligations. If any deficiency shall arise, Borrower shall
remain jointly and severally liable to Lender therefor.

10.4 Remedies Cumulative; No Waiver. All covenants, conditions,
provisions, warranties, guaranties, indemnities, and other undertakings of
Borrower contained in this Agreement and the other Loan Documents, or in any
document referred to herein or contained in any agreement supplementary hereto
or in any schedule given to Lender or contained in any other agreement between
Lender and Borrower, heretofore, concurrently, or hereafter entered into, shall
be deemed cumulative to and not in derogation or substitution of any of the
terms, covenants, conditions, or agreements of Borrower herein contained. The
failure or delay of Lender to exercise or enforce any rights, Liens, powers, or
remedies hereunder or under any of the other Loan Documents shall not operate
as a waiver of any of such Liens, rights, powers or remedies, but all such
Liens, rights, powers, and remedies shall continue in full force and effect
until all Loans and all other Obligations owing or to become owing from
Borrower to Lender shall have been indefeasibly paid in full, and all Liens,
rights, powers, and remedies provided herein and the other Loan Documents are
cumulative and none are exclusive.

SECTION 11. MISCELLANEOUS

11.1 Power of Attorney. Borrower hereby irrevocably designates,
makes, constitutes and appoints Lender (and all Persons designated by Lender)
as Borrower's true and lawful

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attorney (and agent-in-fact) and Lender, or Lender's agent may, without notice
to Borrower and in either Borrower's or Lender's name, but at the cost and
expense of Borrower:

(A) At such time or times hereafter as Lender or said
agent, in its sole discretion, may determine, endorse Borrower's name on any
checks, notes, acceptances, drafts, money orders or any other evidence of
payment or proceeds of the Collateral which come into the possession of Lender
or under Lender's control; and

(B) At such time or times upon or after the occurrence of
an Event of Default as Lender or its agent in its sole discretion may
determine: (i) demand payment of the Accounts from the Account Debtors, enforce
payment of the Accounts by legal proceedings or otherwise, and generally
exercise all of Borrower's rights and remedies with respect to the collection
of the Accounts; (ii) settle, adjust, compromise, discharge or release any of
the Accounts or other Collateral or any legal proceedings brought to collect
any of the Accounts or other Collateral; (iii) sell or assign any of the
Accounts and other Collateral upon such terms, for such amounts and at such
time or times as Lender deems advisable; (iv) take control, in any manner, of
any item of payment or proceeds relating to any Collateral; (v) prepare, file
and sign Borrower's name to a proof of claim in bankruptcy, or similar document
against any Account Debtor or to any notice of lien, assignment or satisfaction
of lien or similar document in connection with any of the Collateral; (vi)
receive, open and dispose of all mail addressed to Borrower and to notify
postal authorities to change the address for delivery thereof to such address
as Lender may designate; (vii) endorse the name of Borrower upon any of the
items of payment or proceeds relating to any Collateral and deposit the same to
the account of Lender on account of the obligations; (viii) endorse the name of
Borrower upon any chattel paper, document, instrument, invoice, freight bill,
bill of lading or similar document or agreement relating to the Accounts,
Inventory and any other Collateral; (ix) use Borrower's stationery and sign the
name of Borrower to verifications of the Accounts and notices thereof to
Account Debtors; (x) use the information recorded on or contained in any data
processing equipment and computer hardware and software relating to the
Accounts, Inventory, Equipment and any other Collateral and to which Borrower
has access; (xi) make and adjust claims under policies of insurance; and (xii)
do all other acts and things necessary, in Lender's determination, to fulfill
Borrower's obligations under this Agreement.

11.2 Indemnity. Borrower hereby agrees to and hereby does
indemnify Lender and hold Lender harmless from and against any liability, loss,
damage, suit, action or proceeding ever suffered or incurred by Lender as the
result of Borrower's failure to observe, perform or discharge Borrower's duties
hereunder; provided, however, that Borrower shall have no liability under this
Section 11.2 resulting from Lender's gross negligence or wilful misconduct.
Without limiting the generality of the foregoing, this indemnity shall extend
to any claims asserted against Lender by any Person under any Environmental
Laws. Notwithstanding any contrary provision of this Agreement, the obligation
of Borrower under this Section 11.2 shall survive the payment in full of the
Obligations and the termination of this Agreement.

11.3 Modification of Agreement; Sale of Interest. This Agreement
may not be modified, altered or amended, except by an agreement in writing
signed by Borrower and Lender. Borrower

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may not sell, assign or transfer any interest in this Agreement or any of the
other Loan Documents, or any portion thereof, including, without limitation,
Borrower's rights, title, interests, remedies, powers, and duties hereunder or
thereunder. Borrower hereby consents to Lender's participation, sale,
assignment, transfer or other disposition, at any time or times hereafter, of
this Agreement, any of the other Loan Documents or any of the Obligations, or
of any portion hereof or thereof to any Affiliate of Lender, and Lender's
participation thereof with any Person if the amount so participated is less
than a fifty percent (50%) interest and Lender remains as the servicing agent
for this Agreement, including, without limitation, Lender's rights, title,
interests, remedies, powers, and duties hereunder or thereunder. In the event
of any such participation, sale, assignment, transfer or other disposition,
Lender shall be authorized to provide to each participating lender, assignee or
transferee all information in Lender's possession regarding Borrower and the
Collateral, including, without limitation, information required to be disclosed
pursuant to Banking Circular 181 (Rev. Aug. 2, 1984), issued by the Comptroller
of the Currency. In the case of an assignment, the assignee shall have, to the
extent of such assignment, the same rights, benefits and obligations as it
would if it were "Lender" hereunder and Lender shall be relieved immediately
(and without the necessity of the execution of further documentation by
Borrower or any other Person) of all obligations hereunder upon any such
assignment.

11.4 Reimbursement of Expenses. If, at any time or times prior or
subsequent to the date hereof, regardless of whether or not an Event of Default
then exists or any of the transactions contemplated hereunder are concluded,
Lender employs counsel for advice or other representation, or incurs legal
expenses or other costs or out-of-pocket expenses in connection with: (A) the
negotiation and preparation of this Agreement or any of the other Loan
Documents, any amendment of or modification of this Agreement or any of the
other Loan Documents; (B) periodic audits and appraisals (but no more than one
(1) annually) performed by Lender; (C) any litigation, contest, dispute, suit,
proceeding or action (whether instituted by Lender, Borrower or any other
Person) in any way relating to the Collateral, this Agreement or any of the
other Loan Documents or Borrower's affairs; (D) any attempt to enforce any
rights or remedies of Lender against Borrower or any other Person which may be
obligated to Lender by virtue of this Agreement or any of the other Loan
Documents, including, without limitation, the Account Debtors; or (E) any
attempt to inspect, verify, protect, preserve, restore, collect, sell,
liquidate or otherwise dispose of or realize upon the Collateral; then, in any
such event, the reasonable attorneys' fees arising from such services and all
reasonable expenses, costs, charges and other fees of such counsel or of Lender
or relating to any of the events or actions described in this Section shall be
payable when incurred by Borrower to Lender, as the case may be, and shall be
additional Obligations hereunder secured by the Collateral.

11.5 Indulgences Not Waivers. Lender's failure, at any time or
times hereafter, to require strict performance by Borrower of any provision of
this Agreement shall not waive, affect or diminish any right of Lender
thereafter to demand strict compliance and performance therewith. Any
suspension or waiver by Lender of an Event of Default by Borrower under this
Agreement or any of the other Loan Documents shall not suspend, waive or affect
any other Event of Default by Borrower under this Agreement or any of the other
Loan Documents, whether the same is prior or subsequent thereto and whether of
the same or of a different type. None of the undertakings,

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agreements, warranties, covenants and representations of Borrower contained in
this Agreement or any of the other Loan Documents and no Event of Default by
Borrower under this Agreement or any of the other Loan Documents shall be
deemed to have been suspended or waived by Lender, unless such suspension or
waiver is by an instrument in writing specifying such suspension or waiver and
is signed by a duly authorized representative of Lender and directed to
Borrower.

11.6 Severability. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Agreement.

11.7 Successors and Assigns. This Agreement, the Other Agreements
and the Security Documents shall be binding upon and inure to the benefit of
the successors and assigns of Borrower and Lender. This provision, however,
shall not he deemed to modify Section 11.3 hereof.

11.8 Cumulative Effect; Conflict of Terms. The provisions of the
Other Agreements and the Security Documents are hereby made cumulative with the
provisions of this Agreement. Except as otherwise provided in Section 3.2 of
this Agreement and except as otherwise provided in any of the other Loan
Documents by specific reference to the applicable provision of this Agreement,
if any provision contained in this Agreement is in direct conflict with, or
inconsistent with, any provision in any of the other Loan Documents, the
provision contained in this Agreement shall govern and control.

11.9 Execution in Counterparts. This Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to
be an original and all of which counterparts taken together shall constitute
but one and the same instrument. In proving this Agreement in any judicial
proceeding, it shall not be necessary to produce or account for more one such
counterpart signed by the party against whom such enforcement is sought.

11.10 Notice. Except as otherwise provided herein, all notices,
requests and demands to or upon a party hereto shall be in writing and shall be
sent by certified or registered mail, return receipt requested, personal
delivery against receipt or by telecopier or other facsimile transmission and,
unless otherwise expressly provided herein, shall be deemed to have been
validly served, given or delivered when delivered against receipt or one
Business Day after deposit in the mail, postage prepaid, or, in the case of
facsimile transmission, when received at the office of the noticed party,
addressed as follows:

42
<PAGE> 47

(A) If to Lender: (B) If to Borrower:

NationsBank, N.A. Friedman's Inc.
600 Peachtree Street, 4 West State Street
19th Floor Savannah, Georgia 31401
Atlanta, Georgia 30308 Attn: Mr. Victor Suglia
Attn: Ms. Melinda Bergbom

or to such other address as each party may designate for itself by like notice
given in accordance with this Section 11.10; provided, however, that any
notice, request or demand to or upon Lender shall not be effective until
received by Lender. Any written notice that is not sent in conformity with the
provisions hereof shall nevertheless be effective on the date that such notice
is actually received by the noticed party.

11.11 Lender's Right to Set-Off. Upon the occurrence of an Event of
Default and acceleration of the Obligations as permitted in Section 10.2
hereof, Lender, without notice or demand of any kind, may hold and set-off
against such of the Obligations (whether matured or unmatured) as Lender may
elect, any balance or amount to the credit of Borrowers in any deposit, agency,
reserve, holdback or other account of any nature whatsoever (other than any
account specifically identified as a payroll account for employees of
Borrower), maintained by or on behalf of Borrowers with Lender at its offices,
regardless of whether such accounts are general or special and regardless of
whether such accounts are individual or joint.

11.13 Time of Essence. Time is of the essence in the payment and
performance of this Agreement, the Other Agreements and the Security Documents.

11.14 Entire Agreement. This Agreement and the other Loan
Documents, together with all other instruments, agreements and certificates
executed by the parties in connection therewith or with reference thereto,
embody the entire understanding and agreement between the parties hereto and
thereto with respect to the subject matter hereof and thereof and supersede all
prior agreements, understandings and inducements, whether express or implied,
oral or written.

11.15 Interpretation. No provision of this Agreement or any of the
other Loan Documents shall be construed against or interpreted to the
disadvantage of any party hereto by any court or other governmental or judicial
authority by reason of such party's having or being deemed to have structured
or dictated such provision.

11.16 Governing Law; Consent to Forum. THIS AGREEMENT HAS BEEN
NEGOTIATED, EXECUTED AND DELIVERED AT AND SHALL BE DEEMED TO HAVE

43
<PAGE> 48

BEEN MADE IN ATLANTA, GEORGIA. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF GEORGIA;
PROVIDED, HOWEVER, THAT IF ANY OF THE COLLATERAL SHALL BE LOCATED IN ANY
JURISDICTION OTHER THAN GEORGIA, THE LAWS OF SUCH JURISDICTION SHALL GOVERN THE
METHOD, MANNER AND PROCEDURE FOR FORECLOSURE OF LENDER'S LIEN UPON SUCH
COLLATERAL AND THE ENFORCEMENT OF LENDER'S OTHER REMEDIES IN RESPECT OF SUCH
COLLATERAL TO THE EXTENT THAT THE LAWS OF SUCH JURISDICTION ARE DIFFERENT FROM
OR INCONSISTENT WITH THE LAWS OF GEORGIA. AS PART OF THE CONSIDERATION FOR NEW
VALUE RECEIVED, AND REGARDLESS OF ANY PRESENT OR FUTURE DOMICILE OR PRINCIPAL
PLACE OF BUSINESS OF BORROWER OR LENDER, BORROWER HEREBY CONSENTS AND AGREES
THAT THE SUPERIOR COURT OF FULTON COUNTY, GEORGIA, OR, AT LENDER'S OPTION, THE
UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF GEORGIA, ATLANTA
DIVISION, SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR
DISPUTES BETWEEN BORROWER AND LENDER PERTAINING TO THIS AGREEMENT OR TO ANY
MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT; PROVIDED, HOWEVER, LENDER
MAY, AT ITS OPTION, COMMENCE ANY ACTION, SUIT OR PROCEEDING IN ANY OTHER
APPROPRIATE FORUM OR JURISDICTION TO OBTAIN POSSESSION OF OR FORECLOSURE UPON
ANY COLLATERAL, TO OBTAIN EQUITABLE RELIEF OR TO ENFORCE ANY JUDGMENT OR ORDER
OBTAINED BY LENDER AGAINST BORROWER OR WITH RESPECT TO ANY COLLATERAL OR TO
OBTAIN ANY OTHER RELIEF DEEMED APPROPRIATE BY LENDER. BORROWER EXPRESSLY
SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT
COMMENCED IN ANY SUCH COURT, AND BORROWER HEREBY WAIVES ANY OBJECTION WHICH
BORROWER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR
FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING FOR SUCH LEGAL OR
EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. BORROWER HEREBY
WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN
ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND
OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER
AT THE ADDRESS SET FORTH IN THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE
DEEMED COMPLETED UPON THE EARLIER OF BORROWER'S ACTUAL RECEIPT THEREOF OR THREE
(3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID. NOTHING IN
THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO AFFECT THE RIGHT OF LENDER TO
SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.

11.17 General Waivers by Borrower. BORROWER WAIVES (i) PRESENTMENT,
DEMAND AND PROTEST AND NOTICE OF PRESENTMENT, PROTEST, DEFAULT, NON PAYMENT,
MATURITY, RELEASE, COMPROMISE, SETTLEMENT, EXTENSION OR RENEWAL OF ANY OR ALL
COMMERCIAL PAPER, ACCOUNTS, CONTRACT RIGHTS,

44
<PAGE> 49

DOCUMENTS, INSTRUMENTS, CHATTEL PAPER AND GUARANTIES AT ANY TIME HELD BY LENDER
ON WHICH BORROWER MAY IN ANY WAY BE LIABLE AND HEREBY RATIFIES AND CONFIRMS
WHATEVER LENDER MAY DO IN THIS REGARD; (ii) NOTICE PRIOR TO LENDER'S TAKING
POSSESSION OR CONTROL OF ANY OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH
MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING LENDER TO EXERCISE ANY OF
LENDER'S REMEDIES, INCLUDING THE ISSUANCE OF AN IMMEDIATE WRIT OF POSSESSION;
(iii) THE BENEFIT OF ALL VALUATION, APPRAISEMENT AND EXEMPTION LAWS; (iv) ANY
RIGHT BORROWER MAY HAVE UPON PAYMENT IN FULL OF THE OBLIGATIONS TO REQUIRE
LENDER TO TERMINATE ITS SECURITY INTEREST IN THE COLLATERAL OR IN ANY OTHER
PROPERTY OF BORROWER UNTIL TERMINATION OF THIS AGREEMENT IN ACCORDANCE WITH ITS
TERMS AND THE EXECUTION BY BORROWER, AND BY ANY PERSON WHOSE LOANS TO BORROWER
ARE USED IN WHOLE OR IN PART TO SATISFY THE OBLIGATIONS, OF AN AGREEMENT
INDEMNIFYING LENDER FROM ANY LOSS OR DAMAGE LENDER MAY INCUR AS THE RESULT OF
DISHONORED CHECKS OR OTHER ITEMS OF PAYMENT RECEIVED BY LENDER FROM BORROWER OR
ANY ACCOUNT DEBTOR AND APPLIED TO THE OBLIGATIONS; AND (v) NOTICE OF ACCEPTANCE
HEREOF.

11.18 Security and Intercreditor Agreement. The relative rights and
obligations of Borrower and Lender hereunder and under the Other Agreements are
subject to the terms and provisions of the Intercreditor Agreement (so long
as it is in effect). To the extent there is any conflict with respect to the
Lender's rights of the Borrower's obligations hereuner or under the Other
Agreements, on the one hand, and the Intercreditor Agreement on the other hand,
the Intercreditor Agreement shall control.

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<PAGE> 50

IN WITNESS WHEREOF, this Agreement has been duly executed in
Atlanta, Georgia on the day and year specified at the beginning hereof.

BORROWER:

FRIEDMAN'S INC.

By: /s/ Bradley J. Stinn
-------------------------------------
Bradley J. Stinn, Chairman and Chief
Executive Officer

[CORPORATE SEAL]

LENDER:

NATIONSBANK

By: /s/
-------------------------------------
Title: Senior Vice President
----------------------------------

<PAGE> 1
EXHIBIT 10.6

================================================================================

FRIEDMAN'S INC.

LOAN AGREEMENT

Dated: As of July 14, 1997

$10,000,000

ABN AMRO BANK N.V.

================================================================================

<PAGE> 2

TABLE OF CONTENTS

<TABLE>
<CAPTION>
SECTION HEADING PAGE

<S> <C> <C> <C>
SECTION 1. GENERAL DEFINITIONS.......................................................1

Section 1.1. Defined Terms.........................................................1
Section 1.2. Accounting Terms.....................................................11
Section 1.3. Other Terms..........................................................12
Section 1.4. Certain Matters of Construction......................................12

SECTION 2. CREDIT FACILITY..........................................................12

Section 2.1. Borrowing and Disbursement...........................................12
Section 2.2. Loan Account.........................................................14

SECTION 3. INTEREST, FEES, TERM AND REPAYMENT.......................................14

Section 3.1. Interest, Fees and Charges...........................................14
Section 3.2. Unused Line Fee......................................................15
Section 3.3. Loan Fee.............................................................15
Section 3.4. Payments.............................................................15
Section 3.5. Term of Loan.........................................................16
Section 3.6. Application of Payments and Collections..............................16
Section 3.7. Statements of Account................................................16
Section 3.8. Funding Indemnity....................................................16

'SECTION 4. COLLATERAL: GENERAL TERMS'..............................................17

Section 4.1. Security Interest in Collateral......................................17
Section 4.2. Representations, Warranties and Covenants -- Collateral..............17
Section 4.3. Lien Perfection......................................................18
Section 4.4. Location of Collateral...............................................18
Section 4.5. Insurance of Collateral..............................................18
Section 4.6. Protection of Collateral.............................................19

SECTION 5. PROVISIONS RELATING TO ACCOUNTS..........................................19

Section 5.1. Representations, Warranties and Covenants............................19
Section 5.2. Notice of Security Interest and Schedules of Accounts................20
Section 5.3. Administration of Accounts...........................................21
Section 5.4. Collection of Accounts...............................................21

SECTION 6. PROVISIONS RELATING TO INVENTORY.........................................22

Section 6.1. Representations, Warranties and Covenants............................22
Section 6.2. Location of Inventory................................................22
Section 6.3. Ownership of Inventories.............................................23
</TABLE>

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<PAGE> 3

<TABLE>
<S> <C> <C> <C>
Section 6.4. Status of Inventory..................................................23

SECTION 7. REPRESENTATIONS AND WARRANTIES...........................................23

Section 7.1. General Representations and Warranties...............................23
Section 7.2. Reaffirmation........................................................26
Section 7.3. Survival of Representations and Warranties...........................27

SECTION 8. COVENANTS AND CONTINUING AGREEMENTS......................................27

Section 8.1. Affirmative Covenants................................................27
Section 8.2. Negative Covenants...................................................30
Section 8.3. Specific Financial Covenants.........................................33

SECTION 9. CONDITIONS PRECEDENT.....................................................34

Section 9.1. Documentation........................................................34
Section 9.2. Other Conditions.....................................................35
Section 9.3. Conditions Precedent to Subsequent Advances..........................36
Section 9.4. Request for Advances.................................................36

'SECTION 10. EVENTS OF DEFAULT: RIGHTS AND REMEDIES ON DEFAULT........................37

Section 10.1. Events of Default....................................................37
Section 10.2. Acceleration of the Obligations......................................39
Section 10.3. Remedies.............................................................39
Section 10.4. Remedies Cumulative; No Waiver.......................................41

SECTION 11. MISCELLANEOUS............................................................41

Section 11.1. Power of Attorney....................................................41
Section 11.2. Indemnity............................................................42
Section 11.3. Modification of Agreement; Sale of Interest .........................42
Section 11.4. Reimbursement of Expenses............................................43
Section 11.5. Indulgences Not Waivers..............................................43
Section 11.6. Severability.........................................................43
Section 11.7. Successors and Assigns...............................................43
Section 11.8. Cumulative Effect; Conflict of Terms.................................44
Section 11.9. Execution in Counterparts............................................44
Section 11.10. Notice...............................................................44
Section 11.11. Lender's Right to Set-Off............................................44
Section 11.12. Demand Obligations...................................................45
Section 11.13. Time of Essence......................................................45
Section 11.14. Entire Agreement.....................................................45
Section 11.15. Interpretation.......................................................45
Section 11.16. Governing Law; Consent to Forum......................................45
Section 11.17. General Waivers by Borrower..........................................46
Section 11.18. Security Agreement...................................................46
</TABLE>

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<PAGE> 4

<TABLE>
<S> <C> <C>
Exhibit A -- Borrowing Base Report
Exhibit B -- Note
Exhibit B-1 -- Permitted Indebtedness
Exhibit C -- Places of Business
Exhibit D -- Security Agreement
Exhibit E -- States in which Qualified to do Business
Exhibit F -- Fictitious Names during the Past Seven Years
Exhibit G -- Capital Structure
Exhibit H -- Contracts or Agreements Restricting Borrower's Right to Incur Debt
Exhibit I -- Actions, Suits, Proceedings or Investigations
Exhibit J -- Pension Plans
Exhibit K -- Compliance Certificate
Exhibit K-1 -- Permitted Loans
Exhibit K-2 -- Insurance Programs
Exhibit L -- Permitted Liens
Exhibit M -- Legal Opinion
</TABLE>

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<PAGE> 5
LOAN AGREEMENT

THIS LOAN AGREEMENT is made as of July 14, 1997, by and between ABN AMRO
BANK N.V. ("Lender"), a bank organized under the laws of the Netherlands acting
through its New York Branch with an office at 500 Park Avenue, New York, New
York 10022, and FRIEDMAN'S INC. ("Borrower"), a Delaware business corporation,
with its chief executive office and principal place of business at 4 West State
Street, Savannah, Georgia 31401.

SECTION 1. GENERAL DEFINITIONS

Section 1.1. Defined Terms. When used herein, the following terms shall
have the meanings set forth below (terms defined in the singular to have the
same meaning when used in the plural and vice versa):

"Account Debtor" any Person who is or may become obligated under or on an
Account.

"Accounts" all accounts, contract rights, chattel paper, instruments and
documents, whether now owned or hereafter created or acquired by Borrower or in
which Borrower now has or hereafter acquires any interest; and all documents
evidencing chooses in action, causes of action, books and records, computer
equipment, and customer lists relating to any of the foregoing.

"Advance" an advance to Borrower of the Loan proceeds pursuant to a
Request For Advance.

"Affiliate" a Person: (i) which directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under common control with,
Borrower; (ii) which beneficially owns or holds five percent (5.0%) or more of
the equity interest of Borrower. For purposes hereof, "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of an equity interest, voting Stock, by contract or otherwise. In
addition, for purposes hereof, Affiliate shall include specifically MS Jewelers
Limited Partnership, MS Jewelers Corporation, Crescent Jewelers, Friedman's
Jewelers, Inc., Herman K. Friedman, and Stanley K. Friedman, but shall not
include any of the other limited partners of MS Jewelers Limited Partnership.

"Agreement" this Loan Agreement.

"Borrower" Friedman's Inc. or, for accounting purposes, any predecessor
including MS Jewelers Limited Partnership which transferred to Borrower

substantially all of its assets and liabilities.

"Borrower's Account" Borrower's deposit account maintained with Lender.

<PAGE> 6

"Borrowing Base" as at any date of determination thereof, an amount equal
to the lesser of (a) the Maximum Loan Commitment and (b) the sum of (i) 75% of
Eligible Accounts, plus (ii) 50% of Eligible Inventory, less (iii) the maximum
lending commitment of NationsBank under the NationsBank Credit Agreement, less
(iv) the maximum lending commitment of First Union under the First Union Loan
Agreement, and subtracting from (a) or (b) the Reserve Amount on such date.

"Borrowing Base Report" the certificate in the form of Exhibit "A" attached
hereto and incorporated by reference herein signed by an authorized officer of
Borrower showing a calculation of the Borrowing Base, and the components
comprising said Borrowing Base, as of the end of the preceding fiscal quarter,
listing the amounts of Eligible Accounts and updating the amount of Eligible
Inventory.

"Business Day" any day on which banking institutions in New York, New York
are open for the transaction of banking business, and in the case of LIBO Rate
Loans, any day on which banking institutions in London are open for the
transaction of banking business.

"Capital Lease" shall mean any lease or similar arrangement which is
required to be capitalized for financial reporting purposes in accordance with
GAAP.

"Closing Date" the date on which all of the conditions precedent in Section
9 are satisfied and the initial Loan is made hereunder.

"Code" the Uniform Commercial Code as adopted and in force in the State of
Georgia, as from time to time in effect.

"Collateral" all of the Property and interests in Property described in
Section 4 hereof, and all other Property and interests in Property that now or
hereafter secure the payment and performance of any of the Obligations pursuant
to any of the Security Documents or otherwise.

"Consignment Agreement" that certain Consignment Agreement between Lender
and Borrower.

"Consolidated" the consolidation in accordance with GAAP of the accounts or
other items as to which such term applies.

"Debt" the aggregate amount of all items categorized as liabilities on the
balance sheet of Borrower prepared in accordance with GAAP.

"Default" an event or condition the occurrence of which would, with the
lapse of time or the giving of notice, or both, become an Event of Default.

"Default Rate" as defined in Section 3.1(B) of this Agreement.

"Dollars" and the sign "$" shall refer to currency of the United States of
America.

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<PAGE> 7

"Draw Down Date" the date on which any Loan is made or is to be made and
the date on which any Loan is repaid or reborrowed in accordance with Section
2.1 herein.

"EBITDAR" shall mean, for any period of calculation, the Borrower's (i) Net
Income for such period, plus (ii) Interest Expense during such period, plus
(iii) income tax expense during such period, plus (iv) amortization and
depreciation expense deducted during such period in calculating Net Income, plus
(v) Rental Expense during such period, plus (vi) the actual principal amount
forgiven under the Long-Term Incentive Programs during such period plus (vii)
other non-cash, non-recurring charges deducted during the period in determining
Net Income.

"Eligible Account" an Account arising in the ordinary course of Borrower's
business from the sale of goods or rendition of services which Lender deems to
be an Eligible Account, and as to which Borrower has furnished reasonably
detailed information to Lender in a Borrowing Base Report. Without limiting the
generality of the foregoing, Eligible Account shall mean the aggregate of the
gross amount of Borrower's Accounts, less the amount of the then existing
unearned finance charges, unearned insurance premiums, returns, discounts,
credits, or offsets of any nature, of the Accounts owing to Borrower by the
Borrower's customers under consumer sales contracts which contain credit terms
not exceeding twenty-four (24) months, except that up to a maximum amount equal
to one percent (1.0%) of the aggregate amount of all such Accounts (under
consumer credit contracts) may contain credit terms exceeding twenty-four (24)
months but not exceeding forty-eight (48) months; provided, however, that
Eligible Accounts also shall not include any of the following: (i) any Account
of an Account Debtor for whom an Account is outstanding which is past due more
than fifty-nine (59) days; (ii) any Account which represents an obligation owed
to Borrower by an Account Debtor located in a foreign country; (iii) any Account
which represents an obligation of a director or officer of the Borrower or any
of its Affiliates; (iv) any Account deemed ineligible by the Lender when the
Lender, in its reasonable discretion, deems the creditworthiness or financial
condition of the Account Debtor unsatisfactory; (v) any Account against which
the Account Debtor or any other Person obligated to make payment thereon asserts
any defense, offset, counterclaim, or other right to avoid or reduce the
liability represented by such Account; (vi) any Account as to which the Account
Debtor or other Person obligated to make payment thereon is insolvent, subject
to bankruptcy or receivership proceedings, or has made an assignment for the
benefit of creditors or whose credit standing is unacceptable to Lender and
Lender has so notified Borrower; (vii) any Account for any Account Debtor who
comprises five percent (5.0%) or more of Borrower's total Accounts; (viii) any
Account of any governmental agency; (ix) any Account in which Lender does not
have a valid and perfected first priority Lien (subject only to the Lien in
favor of (a) NationsBank granted pursuant to the NationsBank Credit Agreement
and (b) First Union granted pursuant to the First Union Loan Agreement); and (x)
any Account which Lender in its reasonable discretion shall deem not to qualify
as an Eligible Account.

"Eligible Inventory" all Inventory as to which Borrower has furnished
reasonably detailed information to Lender in a Borrowing Base Report and such
Inventory of Borrower (other than documents evidencing choses in action, causes
of action, books and records, all

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<PAGE> 8

rights to indemnification, licenses, and customer lists) which Lender deems to
be Eligible Inventory. Without limiting the generality of the foregoing, no
Inventory shall be Eligible Inventory unless, in Lender's opinion, it (i) is in
good, new and saleable condition, (ii) is not obsolete or unmerchantable, (iii)
meets all standards imposed by any governmental agency or authority, (iv) is at
all times subject to Lender's duly perfected, first priority security interest
and no other Lien except a Permitted Lien, (v) is situated at a location in
compliance with Section 6.1 hereof or is in transit between Places of Business
and is not otherwise in transit, (vi) is accounted for on Borrower's books and
records in accordance with GAAP and in detail satisfactory to Lender, in its
sole discretion, and (vii) is in excess of a minimum reserve as determined by
Borrower (or such greater amount as Lender in its reasonable discretion may
determine) for slow moving Inventory; provided, however, that Eligible Inventory
shall not include any precious metal consigned to the Borrower by any Person
(including without limitation Precious Metal (as such term is defined in the
Consignment Agreement) consigned by the Lender to the Borrower under the
Consignment Agreement).

"Environmental Laws" all federal, state and local laws, rules, regulations,
ordinances, programs, permits, guidances, orders and consent decrees relating to
health, safety and environmental matters, including, but not limited to, the
Resource Conservation and Recovery Act; the Comprehensive Environmental
Response, Compensation and Liability Act of 1980; the Toxic Substances Control
Act; the Clean Water Act; the Clean Air Act; the River and Harbor Act; the Water
Pollution Control Act; the Marine Protection Research and Sanctuaries Act; the
Deep-Water Port Act; the Safe Drinking Water Act; the Superfund Amendments and
Reauthorization Act of 1986; the Federal Insecticide, Fungicide and Rodenticide
Act; the Mineral Lands and Leasing Act; the Surface Mining Control and
Reclamation Act; the Oil Pollution Act of 1990; state and federal superlien and
environmental cleanup programs and laws; and U.S. Department of Transportation
regulations.

"ERISA" the Employee Retirement Income Security Act of 1974 and all rules
and regulations promulgated thereunder.

"Event of Default" is defined in Section 10.1 of this Agreement.

"First Union" means First Union National Bank (formerly known as First
Union National Bank of Georgia).

"First Union Loan Agreement" the Loan Agreement, dated as of even date,
between First Union and the Borrower.

"Fixed Charge Coverage Ratio" as of any date of determination, the ratio of
the Borrower's (a) EBITDAR for the immediately preceding four (4) fiscal
quarters, to (b) total Fixed Charges for such period.

"Fixed Charges" for any period, sum of the Borrower's (i) total principal
payments with respect to all Indebtedness for Money Borrowed (including the
principal portion of

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<PAGE> 9

payments under Capital Leases and Subordinated Debt during such period), plus
(ii) Interest Expense during such period plus (iii) Rental Expense during such
period plus (iv) income tax expense during such period.

"Funded Debt" as of any date of determination, (i) all Indebtedness for
Money Borrowed, including the principal portion of all Capital Lease obligations
and all Subordinated Debt plus (ii) all Rental Expense paid during the
immediately preceding four (4) fiscal quarters multiplied by 6.

"GAAP" generally accepted accounting principles in the United States of
America in effect from time to time.

"General Intangibles" all general intangibles of Borrower whether now owned
or hereafter created or acquired by Borrower relating or pertaining to Inventory
or pertaining to Accounts.

"Indebtedness" as applied to a Person means, without duplication (i) all
items which in accordance with GAAP would be included in determining total
liabilities as shown on the liability side of a balance sheet of such Person as
at the date as of which Indebtedness is to be determined, including, without
limitation, capitalized lease obligations, (ii) all obligations of other Persons
which such Person has guaranteed and (iii) in the case of Borrower (without
duplication), the Obligations.

"Intercreditor Agreement" the Second Amended and Restated Intercreditor and
Security Agreement, dated of even date herewith, among NationsBank (in its
capacity as "collateral agent" thereunder and in its capacity as the lender
under the NationsBank Loan Agreement), First Union, Lender and Borrower, as
amended, modified, supplemented or restated from time to time.

"Interest Expense" shall mean, for any period of calculation, the aggregate
of all interest paid or accrued by the Borrower during such period, as
determined in accordance with GAAP.

"Interest Period" with respect to each Advance (a) initially, the period
commencing on the Draw Down Date of such Advance and ending on the last day of
one of the periods set forth below, as selected by the Borrower in a Request for
Advance, which shall be (i) for any Offered Rate Loan, the date specified by the
Borrower in the applicable Request for Advance; and (ii) for any LIBO Rate Loan,
the date specified by the Borrower in the applicable Request for Advance which
date is 1, 2, 3 or 6 months from the applicable Draw Down Date; and (b)
thereafter, each period commencing on the first day after the last day of the
last preceding Interest Period applicable to such Advance and ending on the last
day of one of the periods set forth above, as selected by the Borrower pursuant
to Section 2.1(H); provided that all of the foregoing provisions relating to
Interest Periods are subject to the following: if any Interest Period with
respect to an Advance would end on a day that is not a Business Day, that
Interest Period shall end on the next succeeding Business Day unless, in the
case of LIBO Rate Advances only, such Business Day would be in the next calendar

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<PAGE> 10

month, in which case such Interest Period shall end on the immediately preceding
Business Day; the Borrower may not select any Interest Period that would extend
through the Maturity Date.

"Inventory" all of Borrower's inventory, whether now owned or hereafter
acquired by Borrower and wherever located, including, but not limited to, all
goods intended for sale or lease by Borrower, or for display or demonstration
including without limitation, all gold and other precious metal and precious
stones and gems (including, without limitation, diamonds) in whatever form and
all products in which any such gold, precious metal and precious stones and gems
are incorporated or into which such gold, precious metal and precious stones and
gems are processed or converted, including without limitation, bullion, alloys
or wire; all work in process; all raw materials and other materials and supplies
of every nature and description used or which might be used in connection with
the manufacture of such goods or otherwise used or consumed in Borrower's
business; and all documents evidencing choses in action, causes of action, books
and records, all rights to indemnification, licenses, and customer lists
relating to any of the foregoing.

"IRC" the Internal Revenue Code of 1986, as amended.

"LIBO Rate" means, with respect to any Interest Period for LIBO Rate Loans,
the offered rate per annum in the London interbank market for deposits in
Dollars of amounts equal or comparable to the principal amount of such LIBO Rate
Loan offered for a term comparable to such Interest Period, as currently shown
on the Reuters Screen LIBOR page as of 11:00 a.m., London Time, two Business
Days prior to the first day of such Interest Period; provided, however, that (a)
if more than one offered rate as described above appears on the Reuters Screen
LIBOR page, the rate used to determine the LIBO Rate will be the arithmetic
average (rounded upward, if necessary, to the next higher 1/16 of 1%) of such
offered rates, or (b) if no such offered rates appear, the rate used for such
Interest Period will be the arithmetic average (rounded upward, if necessary, to
the next higher 1/16 of 1%) of rates quoted by the Lender at approximately 10:00
a.m., New York time, two Business Days prior to the first day of such Interest
Period for deposits in Dollars offered to leading European banks for a period
comparable to such Interest Period in an amount comparable to the principal
amount of such LIBO Rate Loans. If the Lender ceases to use the Reuters Screen
LIBOR page for determining interest rates based on eurodollar deposit rates, a
comparable internationally recognized interest rate reporting service shall be
used to determine such offered rates.

"LIBO Rate Advance" an advance on a LIBO Rate Loan.

"LIBO Rate Basis" a simple rate per annum equal to the sum of (a) the LIBO
Rate and (b) seven-eighths of one percent (0.875%).

"LIBO Rate Loan" any Advance made hereunder bearing interest calculated by
reference to the LIBO Rate.

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<PAGE> 11

"Lien" any interest in Property securing an obligation owed to, or a claim
by, a Person other than the owner of the Property, whether such interest is
based on the common law, statute or contract, and including, but not limited to,
the security interest, security title or lien arising from a security agreement,
mortgage, deed of trust, deed to secure debt, encumbrance, pledge, conditional
sale or trust receipt or a lease, consignment or bailment for security purposes.
The term "Lien" shall include reservations, exceptions, encroachments,
easements, rights-of-way, covenants, conditions, restrictions, leases and other
title exceptions and encumbrances affecting Property. For the purpose of this
Agreement, Borrower shall be deemed to be the owner of any Property which it has
acquired or holds subject to a conditional sale agreement or other arrangement
pursuant to which title to the Property has been retained by or vested in some
other Person for security purposes.

"Loan Account" the loan account established on the books of Lender pursuant
to Section 2.2 hereof.

"Loan Documents" this Agreement, the Consignment Agreement, the Other
Agreements and the Security Documents.

"Loans" all Advances made by Lender pursuant to this Agreement.

"Long-Term Incentive Programs" shall mean (i) the Loan Agreement, dated
November 17, 1994, between Borrower and Bradley J. Stinn, and the promissory
note, dated November 17, 1994, from Bradley J. Stinn to Borrower, in the
original principal amount of $1,500,000, each as amended through the date
hereof, a true and correct copy of each of which is attached hereto as Exhibit
O-1, and (ii) the Loan Agreement, dated November 17, 1994, between Borrower and
Sterling B. Brinkley, and the promissory note, dated November 17, 1994, from
Sterling B. Brinkley to Borrower, in the original principal amount of
$1,500,000, each as amended through the date hereof, a true and correct copy of
each of which is attached hereto as Exhibit O-2.

"Maturity Date" the earlier of April 30, 1999 or such earlier date as
payment of the Loans shall be due (whether by acceleration or otherwise).

"Maximum Loan Commitment" shall mean $10,000,000 minus the Fair Market
Value (as such term is defined in the Consignment Agreement) of all Consigned
Precious Metal (as such term is defined in the Consignment Agreement) under the
Consignment Agreement.

"Money Borrowed" as applied to Indebtedness, means (i) Indebtedness for
borrowed money; (ii) Indebtedness, whether or not in any such case the same was
for borrowed money, (A) which is represented by notes payable or drafts accepted
that evidence extensions of credit, (B) which constitutes obligations evidenced
by bonds, debentures, notes or similar instruments, or (C) upon which interest
charges are customarily paid (other than accounts payable) or that was issued or
assumed as full or partial payment for Property; (iii) Indebtedness that
constitutes a capitalized lease obligation; (iv) Indebtedness under any
agreement or obligation to reimburse the issuer of any letter of credit for
amounts paid by

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<PAGE> 12

the issuer on account of such letter of credit; and (v) Indebtedness under any
guaranty of obligations that would constitute Indebtedness for Money Borrowed
under clauses (i) through (iii) hereof.

"Multiemployer Plan" has the meaning set forth in Section 4001(a)(3) of
ERISA.

"NationsBank" NationsBank, N.A. (formerly known as NationsBank of Georgia,
N.A.)

"NationsBank Credit Agreement" the Second Amended and Restated Loan
Agreement, dated as of even date herewith, between NationsBank and the Borrower.

"Net Income" shall mean, for any period of calculation, the Borrower's
consolidated net income (loss) after taxes, calculated in accordance with GAAP.

"Net Worth" means, with respect to any Person, such Person's total
shareholder's equity (including capital stock, additional paid-in capital and
retained earnings, after deducting treasury stock) which would appear as such on
a balance sheet of such Person prepared in accordance with GAAP.

"Non-subordinated Debt" indebtedness of Borrower that is not subordinated
to the Obligations.

"Note" the Promissory Note dated July 14, 1997, made by Borrower to the
order of Lender in the stated principal amount of $10,000,000 in substantially
the form of Exhibit "B" attached hereto, as hereafter amended, modified,
restated or extended.

"Obligations" all Loans and all other advances, debts, liabilities,
obligations, covenants and duties owing, arising, due or payable from Borrower
to Lender of any kind or nature, present or future, whether or not evidenced by
any note, guaranty or other instrument, whether arising under this Agreement or
any of the other Loan Documents or otherwise, whether direct or indirect
(including those acquired by assignment), absolute
or contingent, primary or secondary, due or to become due, now existing or
hereafter arising and however evidenced or acquired. The term includes, without
limitation, all interest, charges, expenses, fees, reasonable attorneys' fees
and any other sums chargeable to Borrower under any of the Loan Documents and
all rights Lender may at any time or times have to reimbursement in connection
with any letter of credit or guaranty issued for Borrower's benefit.

"Offered Rate" shall mean, for any applicable Interest Period, the rate of
interest offered by Lender to the Borrower and accepted by the Borrower on a
designated Advance.

"Offered Rate Advance" an Advance on a Offered Rate Loan.

"Offered Rate Basis" a simple rate per annum equal to the sum of (a) the
Offered Rate and (b) seven-eighths of one percent (0.875%).

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<PAGE> 13

"Offered Rate Loan" any Advance made hereunder bearing interest calculated
by reference to the Offered Rate.

"OSHA" the Occupational Safety and Health Act and all rules and regulations
from time to time promulgated thereunder.

"Other Agreements" any and all agreements, instruments and documents (other
than this Agreement and the Security Documents), heretofore, now or hereafter
executed, by Borrower and delivered to Lender in respect to the transactions
contemplated by this Agreement, including, without limitation, the Note.

"Overadvance" an Advance made by Lender when an Overadvance Condition
exists or would result from the making of such Advance.

"Overadvance Condition" at any date, a condition such that the outstanding
principal amount of the Loans on such date exceeds the Borrowing Base an such
date.

"Payment Date" with respect to any Advance which is accruing interest at
the Prime Rate, the last day of each calendar quarter and with respect to any
other Advance, the last day of the Interest Period applicable to such Advance,
and if such date is more than 3 months from the Draw Down Date of each Advance,
"Payment Date" shall also mean each day falling 3 months from such Draw Down
Date.

"Permitted Indebtedness" means (i) the Indebtedness to NationsBank pursuant
to the NationsBank Credit Agreement as in effect on the date hereof, (ii) the
Indebtedness to First Union pursuant to the First Union Loan Agreement as in
effect on the date hereof, (iii) other Indebtedness in an amount outstanding not
in excess of $2,500,000 in principal each fiscal year, (iv) any Indebtedness
described in Exhibit "B-1" hereto, and (v) trade payables and accrued expenses
incurred in the ordinary course of business and (vi) any amounts owing to the
Lender.

"Permitted Liens" any Lien of a kind specified in subparagraphs (i) through
(xi) of section 8.2(H) of this Agreement.

"Permitted Loan and Guarantee Amount" the maximum amount of Loans or other
advances of money (other than for salary, travel advances, advances against
commission, other similar advances in the ordinary course of business, and Loans
to officers to exercise stock options) plus guarantees, assumptions, and
endorsements (except endorsements of instruments or items of payment for deposit
or collection) which Borrower may make hereunder; which amount in the aggregate
shall be limited to $2,500,000.

"Person" an individual, partnership, corporation, joint venture, joint
stock company, land trust, business trust or unincorporated organization, or a
government or agency or political subdivision thereof.

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<PAGE> 14

"Place of Business" a location at which Borrower conducts its business and
at which Borrower's Property is located, including, without limitation, those
existing locations identified on Exhibit "C" attached hereto and incorporated
herein by this reference and those future locations of which Borrower is
obligated to notify Lender pursuant to the terms of Section 8.2(I) hereof.

"Plan" an employee benefit plan now or hereafter maintained for employees
of Borrower that is covered by Title IV of ERISA.

"Prime Rate" means the rate announced from time to time by the Lender as
its "prime rate" for Dollar loans by its United States offices to borrowers
located in the United States, with any change in the "prime rate" being
effective on the date such change is announced.

"Prohibited Transaction" any transaction set forth in Section 406 of ERISA
or Section 4975 of the Internal Revenue Code of 1986.

"Property" any interest in any kind of property or asset, whether real,
personal or mixed, or tangible or intangible.

"Purchase Money Lien" a Lien upon fixed assets which secures purchase money
indebtedness, but only if such Lien shall at all times be confined solely to the
fixed assets the purchase price of which was financed through the incurrence of
the purchase money indebtedness secured by such Lien.

"Rental Expense" shall mean, for any period of calculation, all rental
payments made by the Borrower during the period, as determined in accordance
with GAAP.

"Reportable Event" any of the events set forth in Section 4043(b) of
ERISA.

"Request For Advance" a request for an Advance pursuant to Section 9.4
hereof.

"Reserve Amount" at any date, an amount equal to the face amount of all
letters of credit issued by Lender for the account of the Borrower outstanding
on such date.

"Restricted Investment" any investment in cash or by delivery of Property
to any Person, whether by acquisition of stock, Indebtedness, or other
obligation or Security, or by loan, advance, or capital contribution, or
otherwise, or in any Property except the following: (i) investments in one or
more Subsidiaries of Borrower; (ii) Property to be used in the ordinary course
of business; (iii) Current Assets arising from the sale of goods and services in
the ordinary course of business of Borrower and its Subsidiaries; (iv)
investments in direct obligations of the United States of America, or any agency
thereof or obligations guaranteed by the United States of America, provided that
such obligations mature within one year from the date of acquisition thereof;
(v) investments in certificates of deposit maturing within one year from the
date of acquisition issued by a bank or trust company organized under the laws
of the United States or any state thereof having capital surplus and undivided
profits aggregating at least $100,000,000 or issued by Lender; (vi) investments
in

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<PAGE> 15

commercial paper given a rating by a national credit rating agency of A-1 or
greater and maturing not more than two hundred seventy (270) days from the date
of creation thereof; (vii) any investment or investments which in the aggregate
do not exceed $2,000,000; and (viii) "Dutch-Auction" tender securities of any
Person, provided such securities are given an investment grade rating by a
national credit rating agency.

"Schedule of Accounts" a sales and collections report for the preceding
month and a detailed aged trial balance of all Accounts existing as of the last
day of the preceding month, specifying the names, addresses, face value, dates
of invoices and due dates for each Account Debtor obligated on an Account so
listed.

"Security" shall have the same meaning as in Section 2(1) of the Securities
Act of 1933, as amended.

"Security Agreement" the Security Agreement dated July 14, 1997
substantially in the form of Exhibit "D" attached hereto and incorporated by
reference herein.

"Security Documents" shall mean (i) that certain Security Agreement dated
as of the date hereof among the Borrower, the Lender, First Union and
NationsBank, as Collateral Agent and (ii) any swap agreement or arrangement
between the Lender and the Borrower relating to the Consignment Agreement.

"Solvent" as to any Person, such Person (i) owns Property whose fair value
of which is greater than the amount required to pay all of such Person's
Indebtedness (including contingent debts), (ii) owns Property the present fair
salable value of which is greater than the amount that will be required to pay
the probable liability of such Person on its existing Indebtedness as such
become absolute and matured, (iii) is able to pay all of its Indebtedness as
such Indebtedness matures, and (iv) has capital sufficient to carry on its
business and transactions and all business and transactions in which it is about
to engage.

"Subordinated Debt" Indebtedness of Borrower that is expressly
subordinated to the Obligations.

"Subsidiary" any corporation of which a Person owns, directly or indirectly
through one or more intermediaries, more than fifty percent (50%) of the Voting
Stock at the time of determination.

"Voting Stock" securities of any class or classes of a corporation the
holders of which are ordinarily, in the absence of contingencies, entitled to
elect a majority of the corporate directors (or Persons performing similar
functions).

Section 1.2. Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP consistent with that
applied in preparation of the financial statements referred to in Section
8.1(I), and all financial data pursuant to this Agreement shall be prepared in
accordance with such principles.

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<PAGE> 16

Section 1.3. Other Terms. All other terms contained in this Agreement shall
have, when the context so indicates, the meanings provided for by the Code to
the extent the same are used or defined therein.

Section 1.4. Certain Matters of Construction. The terms "herein", "hereof"
and "hereunder" and other words of similar import refer to this Agreement as a
whole and not to any particular section, paragraph or subdivision. Any pronoun
used shall be deemed to cover all genders. The section titles, table of contents
and list of exhibits appear as a matter of convenience only and shall not affect
the interpretation of this Agreement. All references to statutes and related
regulations shall include any amendments of same and any successor statutes and
regulations. All references to any instruments or agreements, including, without
limitation, references to any of the Loan Documents, shall include any and all
modifications or amendments thereto and any and all extensions or renewals
thereof. To the extent any of the terms or provisions of the Other Documents or
the Security Documents conflict with the provisions of this Agreement, this
Agreement shall control.

SECTION 2. CREDIT FACILITY

Subject to the terms and conditions of, and in reliance upon the
representations and warranties made in, this Agreement and the other Loan
Documents, Lender agrees to make a total credit facility of up to TEN MILLION
AND NO/100 DOLLARS ($10,000,000) available upon Borrower's request therefor, as
follows:

Section 2.1. Borrowing and Disbursement. (A) Loan Advances. Lender shall
make Advances to Borrower from time to time in accordance with and subject to
the terms and conditions hereof, up to a maximum principal amount at any time
outstanding equal to the Borrowing Base at such time. It is expressly understood
and agreed that Lender may use the Borrowing Base as a maximum ceiling on any
Advance to Borrower at any time. If the unpaid balance of the Loan should at any
time exceed the Borrowing Base or any other limitation set forth in this
Agreement, such Loan shall nevertheless constitute Obligations that are secured
by the Collateral and entitled to all benefits thereof. The Loan shall be
evidenced by the Note.

(C) Use of Proceeds. The Loan shall be used solely for Borrower's general
operating capital needs and store expansion to the extent not inconsistent with
the provisions of this Agreement.

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<PAGE> 17

11:00 A.M. Eastern time in order for such Business Day to count toward the
minimum number of Business Days required.

(E) Offered Rate Advances. The Borrower shall give Lender in the case of
Offered Rate Advances at least one (1) Business Day's irrevocable written notice
in the form of a Request for Advance, or notice by telecopy followed immediately
by a Request for Advance; provided, however, that the failure by the Borrower to
confirm any notice by telecopy with a Request for Advance shall not invalidate
any notice so given.

(F) LIBO Rate Advances. The Borrower shall give Lender in the case of LIBO
Rate Advances at least three (3) Business Days' irrevocable written notice in
the form of a Request for Advance, or notice by telecopy followed immediately by
a Request for Advance; provided, however, that the failure by the Borrower to
confirm any notice by telecopy with a Request for Advance shall not invalidate
any notice so given. The Lender, whose determination shall be conclusive, shall
determine the available LIBO Rate Basis and shall notify the Borrower of such
LIBO Rate Basis. The Borrower shall promptly notify the Lender by telecopy or by
telephone, and shall immediately confirm any such telephonic notice in writing,
of its selection of a LIBO Rate Basis and Interest Period for such Advance.

(G) Disbursement. Prior to Lender's close of business on the date of an
Advance hereunder, Lender shall, subject to the satisfaction of the conditions
set forth in this Section 2 and in Section 9, disburse the funds by (i)
transferring the amounts by wire transfer pursuant to the instructions of
Borrower, or (ii) in the absence of such instructions, crediting the amounts so
made available to the Loan Account.

(H) Repayments and Reborrowings. At least three (3) Business Days prior to
the last day of the Interest Period with respect to each LIBO Rate Advance, the
Borrower shall give Lender written notice specifying whether all or a portion of
such LIBO Rate Advance (a) is to be repaid and then reborrowed in whole or in
part as a LIBO Rate Advance and (b) is to be repaid and not reborrowed. At least
one (1) Business Day prior to the last day of the Interest Period with respect
to each LIBO Rate Advance, the Borrower shall give Lender written notice
specifying whether all or a portion of such LIBO Rate Advance is to be repaid
and then reborrowed in whole or in part as an Offered Rate Advance. At least
three (3) Business Days prior to the last day of the Interest Period with
respect to each Offered Rate Advance, the Borrower shall give Lender written
notice specifying whether all or a portion of such Offered Rate Advance is to be
repaid and then reborrowed in whole or in part as a LIBO Rate Advance. At least
one (1) Business Day prior to the last day of the Interest Period with respect
to each Offered Rate Advance, the Borrower shall give Lender written notice
specifying whether all or a portion of such LIBO Rate Advance (a) is to be
repaid and not reborrowed and (b) is to be repaid and then reborrowed in whole
or in part as an Offered Rate Advance. Upon the last day of the Interest Period
with respect to each such Advance, such Advance will, subject to the provisions
hereof, be so repaid and, as applicable, reborrowed. Any payment of all or any
portion of an Advance prior to the last day of the Interest Period therefor
shall be subject to Section 3.8 hereof.

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Section 2.2. Loan Account. Lender shall enter all Advances as debits to the
Loan Account and shall also record in the Loan Account all payments made by
Borrower on the Loan and all proceeds of Collateral which are finally paid to
Lender, and may record therein, in accordance with customary accounting
practice, all charges and expenses properly chargeable to Borrower hereunder.

SECTION 3. INTEREST, FEES, TERM AND REPAYMENT

Section 3.1. Interest, Fees and Charges. (A) Interest.

(i) On Offered Rate Advances. Interest on each Offered Rate Advance
shall be computed on the basis of a year of 360 days for the actual number
of days elapsed and shall be payable at the Offered Rate Basis for such
Advance in arrears on each Payment Date. Interest on Offered Rate Advances
then outstanding shall also be due and payable on the Maturity Date.

(ii) On LIBO Rate Advances. Interest on each LIBO Rate Advance shall
be computed on the basis of a 360-day year for the actual number of days
elapsed and shall be payable at the LIBO Rate Basis for such Advance in
arrears on the applicable Payment Date. Interest on LIBO Rate Advances
then outstanding shall also be due and payable on the Maturity Date.

(iii) If No Notice of Selection of Interest Rate Basis. If the
Borrower fails to give Lender timely notice pursuant to Section 2.1(H)
hereof with regard to any Advance, then on the last day of the applicable
Interest Period such Advance shall begin accruing interest at the Prime
Rate as in effect on such date. Interest on any Advance accruing interest
at the Prime Rate shall be due and payable on each Payment Date.

(B) Default Rate of Interest. Upon and after the occurrence of an Event of
Default and the acceleration of the Obligations as permitted in Section 10.2
hereof, the principal amount of the Obligations shall automatically (without
notice to or demand upon Borrower) bear interest, calculated daily (computed on
the actual days elapsed over a year of 360 days), at a fluctuating rate per
annum equal to two percent (2.0%) above the Prime Rate (the "Default Rate").
Borrower acknowledges that the cost and expenses to Lender attendant upon the
occurrence of an Event of Default are difficult to ascertain or estimate and
that the Default Rate is a fair and reasonable estimate to compensate Lender for
such added cost and expense.

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<PAGE> 19

has charged or received interest hereunder in excess of the highest applicable
rate, the rate in effect hereunder shall automatically be reduced to the maximum
rate permitted by applicable law and Lender shall promptly refund to Borrower
any interest received by Lender in excess of the maximum lawful rate or, if so
requested by Borrower, shall apply such excess to the principal balance of the
Obligations. It is the intent hereof that Borrower not pay or contract to pay,
and that Lender not receive or contract to receive, directly or indirectly in
any manner whatsoever, interest in excess of that which may be paid by Borrower
under applicable law.

Section 3.2. Unused Line Fee. The Borrower shall pay to the Lender an
unused line fee equal to one-eighth of one percent (.125%) per annum of the
average daily unused amount of the maximum Loan commitment, payable on the first
day of each calendar quarter for the previous calendar quarter and on the
Maturity Date.

Section 3.3. Loan Fee. At the closing of the Loan facility provided herein,
the Borrower shall pay to Lender a loan fee equal to $10,000, which fee has been
fully earned by Lender and is non-refundable.

Section 3.4. Payments. All payments shall be made by Borrower in U.S.
currency and without any defenses, offset or counterclaim of any kind. Except
where evidenced by notes or other instruments issued or made by Borrower to
Lender specifically containing payment provisions which are in conflict with
paragraphs (A) through (C) of this Section 3.4 (in which event the conflicting
provisions of said notes or other instruments shall govern and control), the
obligations (in addition to any other Obligation) consisting of:

(A) Principal shall be paid by Borrower to Lender immediately upon
the earliest of (i) April 30, 1999, or (ii) the occurrence of an Event of
Default and election by Lender to accelerate the maturity and payment of
such Loans; provided, however, that if the principal balance of the Loan
outstanding at any time shall exceed the Borrowing Base at such time,
Borrower shall, on demand, repay the Loan in an amount sufficient to
reduce the aggregate unpaid principal amount of such Loan by an amount
equal to such excess;

(B) Interest accrued on the Loan shall be paid on the earliest of (i)
each Payment Date, or (ii) the occurrence of an Event of Default and
election by Lender to accelerate the maturity and payment of the
Obligations; provided, however, that Borrower hereby irrevocably
authorizes Lender, in Lender's sole discretion, to advance to Borrower,
and to charge to Borrower's Loan Account hereunder a sum sufficient each
quarter to pay all interest accrued on the Obligations during the
immediately preceding quarter and a sum sufficient to pay costs, fees and
expenses payable pursuant to this Agreement;

(C) The balance of the obligations requiring the payment of money, if
any, shall be paid by Borrower to Lender as and when provided in this
Agreement, the Other Agreements or the Security Documents.

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Section 3.5. Term of Loan. Subject to Lender's right to cease making Loans
or Advances to Borrower at any time upon the occurrence of a Default or Event of
Default, Borrower may request Lender to make Advances in accordance with the
terms of this Agreement from the date hereof through the Maturity Date.

Section 3.6. Application of Payments and Collections. Borrower irrevocably
waives the right to direct the application of any and all payments and
collections at any time or times hereafter received by Lender from or on behalf
of Borrower, and Borrower does hereby irrevocably agree that Lender shall have
the continuing exclusive right to apply and reapply any and all such payments
and collections received at any time or times hereafter by Lender or its agent
against the Obligations, in such manner as Lender may deem advisable,
notwithstanding any entry by Lender upon any of its books and records. If as the
result of collections of Accounts as authorized by Section 5.4 hereof a
credit balance exists in the Loan Account, such credit balance shall not accrue
interest in favor of Borrower, but shall be available to Borrower at any time or
times for so long as no Default or Event of Default exists.

Section 3.7. Statements of Account. Lender will account to Borrower monthly
with a statement of Loans, charges and payments made pursuant to this Agreement,
and such account rendered by Lender shall be deemed final, binding and
conclusive upon Borrower unless Lender is notified by Borrower in writing to the
contrary within thirty (30) days after the date each account is mailed to
Borrower. Such notice shall only be deemed an objection to those items
specifically objected to therein.

Section 3.8. Funding Indemnity. If the Lender shall incur any actual loss,
cost or expense (including, without limitation, any loss, cost or expense
incurred by reason of the liquidation or re-employment of deposits or other
funds acquired by the Lender to fund or maintain any Advance or the relending or
reinvesting of such deposits or amounts paid or prepaid to the Lender, but
excluding any loss of profit) as a result of:

(a) any payment, prepayment or conversion of an Advance or
Offered Rate Advance on a date other than the last day of its
Interest Period,

(b) any failure by the Borrower to borrow an Advance on the date
specified in a notice given pursuant to Section 1.5(a) or established
pursuant to Section 2.1(H), or

then, upon the demand of the Lender, the Borrower shall pay to the Lender such
amount as will reimburse the Lender for such loss, cost or expense. If the
Lender makes such a claim for compensation, it shall provide to the Borrower a
certificate executed by an officer of the Lender setting forth the amount of
such loss, cost or expense in reasonable detail (including an explanation of the
basis for and the computation of such loss, cost or expense) and the

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amounts and components of such calculation shown on such certificate if
reasonably calculated shall be conclusive.

SECTION 4. COLLATERAL: GENERAL TERMS

Section 4.1. Security Interest in Collateral. To secure the prompt payment
and performance to Lender of the Obligations, Borrower hereby grants to Lender a
continuing security interest in, security title to and Lien upon all the
following Property and interests in Property of Borrower, whether now owned or
existing or hereafter created, acquired or arising and wheresoever located:

(A) All Accounts;

(B) All Inventory;

(C) All monies and other Property of any kind, now or at any time or
times hereafter, in the possession or under the control of Lender or a
bailee of Lender;

(D) All accessions to, substitutions for and all replacements,
products and cash and non-cash proceeds of (A), (B), and (C) above,
including, without limitation, proceeds of and unearned premiums with
respect to insurance policies insuring any of the Collateral; and

(E) All books and records (including, without limitation, customer
lists, credit files, computer programs, printouts, and other computer
materials and records) of Borrower pertaining to any of (A), (B), (C) or
(D) above and all chattel paper pertaining to any of (A), (B), (C) or (D)
above.

Section 4.2. Representations, Warranties and Covenants -- Collateral. To
induce Lender to enter into this Agreement, Borrower represents, warrants, and
covenants to Lender that:

(A) The Collateral is now and will continue to be owned solely by
Borrower. No other Person has or will have any right, title, interest,
claim, or Lien therein, thereon or thereto other than a Permitted Lien.

(B) Except as specifically consented to in writing by Lender, the
Liens granted to Lender shall be first and prior on the Collateral and as
to the Accounts and proceeds, including insurance proceeds, resulting from
the sale, disposition, or loss thereof (other than (i) the pari passu Lien
granted by Borrower to NationsBank under the NationsBank Credit Agreement
and (ii) the pari passu Lien granted by Borrower to First Union under the
First Union Loan Agreement). No further action need be taken to perfect
the Liens granted to Lender, other than the filing of continuation
statements under the Code or other applicable law.

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<PAGE> 22

(C) All goods evidenced by the Collateral constituting chattel paper,
documents or instruments are owned by Borrower and the same are free and
clear of any prior Lien (other than (i) the pari passu Lien granted by
Borrower to NationsBank under the NationsBank Credit Agreement and (ii)
the pari passu Lien granted by Borrower to First Union under the First
Union Loan Agreement). Borrower further warrants and guarantees the value,
quantities, sound condition, grades and qualities of the goods and
services described therein. Borrower shall pay and discharge when due all
taxes, levies, and other charges upon said Collateral and upon the goods
evidenced by any documents constituting Collateral and shall defend Lender
against and save it harmless from all claims of any Person with respect to
the Collateral. This indemnity shall include reasonable attorneys' fees
and legal expenses.

Section 4.3. Lien Perfection. Borrower agrees to execute the UCC-1
financing statements provided for by the Code, or other applicable law, together
with any and all other instruments, assignments or documents and shall take such
other action as may be required to perfect or to continue the perfection of
Lender's security interest in the Collateral. Unless prohibited by applicable
law, Borrower hereby authorizes Lender to execute and file any such financing
statement on Borrower's behalf. The parties agree that a carbon, photographic or
other reproduction of this Agreement shall be sufficient as a financing
statement and may be filed in any appropriate office in lieu thereof.

Section 4.4. Location of Collateral. All Collateral, other than Inventory
in transit, will at all times be kept by Borrower at one or more of the business
locations set forth in Exhibit "C" and shall not, without the prior written
approval of Lender, be moved therefrom except for transfers between Places of
Business and, prior to an Event of Default, for sales of Inventory in the
ordinary course of business and sales or transfers pursuant to the Consignment
Agreement.

Section 4.5. Insurance of Collateral. Borrower agrees to maintain and pay
for insurance upon all Collateral wherever located, in storage or in transit in
vehicles, including goods evidenced by documents, covering casualty, hazard,
public liability and such other risks and in such amounts and with such
insurance companies as shall be reasonably satisfactory to Lender to insure
Lender's interest in the Collateral. Borrower shall deliver the originals of
such policies to Lender with satisfactory lender's loss payable endorsements
naming loss payee. Each policy of insurance or endorsements shall contain a
clause requiring the insurer to give not less than thirty (30) days' prior
written notice to Lender in the event of cancellation of the policy for any
reason whatsoever and a clause that the interest of Lender shall not be impaired
or invalidated by any act or neglect of Borrower or owner of the Property nor by
the occupation of the premises for purposes more hazardous than are permitted by
said policy. If Borrower fails to provide and pay for such insurance, Lender
may, at Borrower's expense, procure the same, but shall not be required to do
so. Borrower agrees to deliver to Lender, promptly as rendered, true copies of
all reports made in any reporting forms to insurance companies. Borrower will
maintain, with financially sound and reputable insurers, insurance with respect
to its Properties and business against such casualties and contingencies of such
type (including public liability, larceny,

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<PAGE> 23

embezzlement, or other criminal misappropriation insurance) and in such amounts
as is customary in the business or as otherwise required by Lender.

Section 4.6. Protection of Collateral. All insurance expenses and all
expenses of protecting, storing, warehousing, insuring, handling, maintaining
and shipping the Collateral (including, without limitation, all rent payable by
Borrower to any landlord of any premises where any of the Collateral may be
located), and, any and all excise, property, sales, and use taxes imposed by any
state, federal, or local authority on any of the Collateral or in respect of the
sale thereof, shall be borne and paid by Borrower. If Borrower fails to promptly
pay any portion thereof when due, Lender may, at its option, but shall not be
required to, pay the same and charge the Loan Account therefor. Borrower agrees
to reimburse Lender promptly therefor with interest accruing thereon daily at
the Default Rate provided in this Agreement. All sums so paid or incurred by
Lender for any of the foregoing and all costs and expenses (including reasonable
attorneys' fees, necessary legal expenses, and court costs) which Lender may
incur in enforcing or protecting its Lien on or rights and interest in the
Collateral or any of its rights or remedies under this or any other agreement
between the parties hereto or in respect of any of the transactions to be had
hereunder until paid by Borrower to Lender with interest at the Default Rate,
shall be considered Obligations owing by Borrower to Lender hereunder. Such
Obligations shall be secured by all Collateral and by any and all other
collateral, security, assets, reserves, or funds of Borrower in or coming into
the hands or inuring to the benefit of Lender. Lender shall not be liable or
responsible in any way for the safekeeping of any of the Collateral or for any
loss or damage thereto (except for reasonable care in the custody thereof while
any Collateral is in Lender's actual possession) or for any diminution in the
value thereof, or for any act or default of any warehouseman, carrier,
forwarding agency, or other person whomsoever, but the same shall be at
Borrower's sole risk.

SECTION 5. PROVISIONS RELATING TO ACCOUNTS

Section 5.1. Representations, Warranties and Covenants. With respect to all
Accounts, Borrower represents and warrants to Lender that Lender may rely, in
determining which Accounts are Eligible Accounts, on all statements and
representations made by Borrower with respect to any Account or Accounts,
(including, without limitation, the Borrowing Base Report) and, unless otherwise
indicated in writing to Lender, that with respect to each Account:

(A) It is genuine and in all respects what it purports to be, and it
is not evidenced by a judgment;

(B) It arises out of a completed, bona fide sale and delivery of
goods or rendition of services by Borrower in the ordinary course of its
business and in accordance with the terms and conditions of all purchase
orders, contracts or other documents relating thereto and forming a part
of the contract between Borrower and the Account Debtor;

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<PAGE> 24

(C) It is for a liquidated amount maturing as stated in the duplicate
invoice or chattel paper covering such sale or rendition of services, a
copy of which has been furnished or is available to Lender;

(D) Such Account, and Lender's security interest therein, is not, and
will not be in the future, subject to any offset, Lien (other than (i) the
pari passu Lien granted in favor of NationsBank pursuant to the
NationsBank Credit Agreement and (ii) the pari passu Lien granted in favor
of First Union pursuant to the First Union Loan Agreement), deduction,
defense, dispute, counterclaim or any other adverse condition except for
disputes resulting in returned goods where the amount in controversy is
deemed by Lender to be immaterial, and each such Account is absolutely
owing to Borrower and is not contingent in any respect or for any reason;

(E) Borrower has made no agreement with any Account Debtor thereunder
for any deduction therefrom, except discounts or allowances which are
granted by Borrower in the ordinary course of its business for prompt
payment and which are reflected in the calculation of the net amount of
each respective invoice related thereto;

(F) There are no facts, events or occurrences which in any way impair
the validity or enforceability thereof or tend to reduce the amount
payable thereunder from the face amount of the invoice and statements
delivered to Lender with respect thereto;

(G) To the best of Borrower's knowledge, the Account Debtor
thereunder (i) had the capacity to contract at the time any contract or
other document giving rise to the Account was executed and (ii) such
Account Debtor is Solvent; and

(H) Borrower has no knowledge of any fact or circumstance which would
impair the validity or collectibility of the Account, and to the best of
Borrower's knowledge there are no proceedings or actions which are
threatened or pending against any Account Debtor thereunder which might
result in any material adverse change in such Account Debtor's financial
condition or the collectibility of such Account.

Section 5.2. Notice of Security Interest and Schedules of Accounts. Within
thirty (30) days from the date hereof, Borrower shall enter a notation on each
Account by the execution on the face of each written contract document,
instrument, or security agreement, the following notice or such other notice as
may be approved in writing by the Lender:

This chattel paper and the obligations owing to and rights of
Friedman's Inc. hereunder are subject to pari passu security interests in
favor of NationsBank, N.A., as Collateral Agent for NationsBank N.A., ABN
AMRO Bank N.V. and First Union National Bank.

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<PAGE> 25

; provided, the reference to "NationsBank, N.A." and to "First Union National
Bank" shall be deleted therefrom in the event of the termination of the
NationsBank Credit Agreement and the First Union Loan Agreement, as applicable.

Section 5.3. Administration of Accounts. (A) Upon and after the occurrence
of an Event of Default and acceleration of the Obligations as permitted in
Section 10.2 hereof, Lender shall have the right to collect and settle or adjust
all disputes and claims directly with the Account Debtor and to compromise the
amount or extend the time for payment of the Accounts upon such terms and
conditions as Lender may deem advisable, and to charge the deficiencies, costs
and expenses thereof, including reasonable attorney's fees, to Borrower.

(B) If an Account includes a charge for any tax payable to any governmental
taxing authority, Lender is authorized, in its sole discretion, to pay the
amount thereof to the proper taxing authority for the account of Borrower and to
charge the Loan Account therefor. Borrower shall notify Lender if any Account
includes any tax due to any governmental taxing authority and, in the absence of
such notice, Lender shall have the right to retain the full proceeds of the
Account and shall not be liable for any taxes to any governmental taxing
authority that may be due by Borrower by reason of the sale and delivery
creating the Account.

(C) Whether or not a Default or an Event of Default has occurred, any of
Lender's officers, employees or agents shall have the right, at any time or
times hereafter, in the name of Lender, or any designee of Lender or Borrower,
to verify the validity, amount or any other matter relating to any Accounts by
mail, telephone, telegraph or otherwise. Borrower shall cooperate fully with
Lender in an effort to facilitate and promptly conclude any such verification
process.

Section 5.4. Collection of Accounts. To expedite collection, Borrower shall
endeavor in the first instance to make collection of its Accounts for Lender.
All remittances received by Borrower on account of Accounts shall be held as
Lender's property by Borrower as trustee of an express trust for Lender's
benefit. Lender retains the right after an Event of Default and acceleration of
the Obligations as permitted in Section 10.2 hereof to notify Account Debtors
that Accounts have been assigned to Lender and to collect

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<PAGE> 26

Accounts directly in its own name and to charge the collection costs and
expenses, including reasonable attorneys' fees to Borrower. The Borrower shall,
following the occurrence and during the continuance of an Event of Default and,
at request of Lender, (a) notify the Account Debtors of the security interest of
Lender in any Account and that payment thereof or thereunder is to be made
directly to Lender, and (b) furnish to Lender upon request additional statements
of any Accounts, together with all notes or other papers evidencing the same and
any guaranty, securities or other documents or information relating thereto.
Lender has no duty to protect, insure, collect or realize upon the Accounts or
preserve rights in them. For the purpose of computing interest hereunder, all
items of payment received by Lender shall be deemed applied by Lender on account
of the Obligations (subject to final payment of such items) on the second
Business Day after receipt by Lender of such items of payment in New York,
New York. Such credits shall be conditional upon final payment in cash or cash
equivalents of the items giving rise to them. If any item is not so paid, the
Lender, in its discretion, whether or not the item is returned, may reverse any
credit given for the item.

SECTION 6. PROVISIONS RELATING TO INVENTORY

Section 6.1. Representations, Warranties and Covenants. With respect to
Inventory, Borrower represents and warrants to Lender that:

(A) All Inventory is presently and will continue to be located at
Borrower's places of business listed on Exhibit "C" and will not be
removed therefrom except as authorized by Section 4.4 of this Agreement.

(B) No Inventory is now, nor shall any Inventory at any time or times
hereafter be, stored with a bailee, warehouseman or similar party without
Lender's prior written consent.

(D) No Inventory is or will be produced in violation of the Fair
Labor Standards Act.

Section 6.2. Location of Inventory. Contemporaneously herewith Borrower has
given Lender a list of all locations where Borrower has a Place of Business (in
the form of Exhibit "C" attached hereto), and thereafter shall give 30 days
written notice prior to any change in, each warehouse location at which
Inventory is or will be kept and each office of Borrower at which the records of
Borrower pertaining to Inventory, are kept. All Eligible Inventory is and shall
be kept, and all records pertaining to Eligible Inventory are and shall be kept,
only at locations of which the Lender has been given notice as provided for
herein or at locations notice of which shall be given to Lender within thirty
(30) days of the end of the next quarter.

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<PAGE> 27

Section 6.3. Ownership of Inventories. Borrower is, and as to Eligible
Inventory to be acquired after the date hereof, and to be included in the
Borrowing Base shall be, the owner of all Eligible Inventory to be included in
the Borrowing Base and (except for carrier, warehouse, customs and similar
statutory liens arising in the ordinary course of business) shall neither create
or suffer to exist any Lien (other than (i) the pari passu Lien granted to
NationsBank under the NationsBank Credit Agreement and (ii) the pari passu Lien
granted to First Union under the First Union Loan Agreement) nor sell,
assign, transfer or create or suffer to exist any Lien (other than (i) the pari
passu Lien granted to NationsBank under the NationsBank Credit Agreement and
(ii) the pari passu Lien granted to First Union under the First Union Loan
Agreement) in any account or contract right relating to the Eligible Inventory
to or in favor of any Person other than Lender.

Section 6.4. Status of Inventory. Borrower shall notify Lender on Friday of
each week of any of the following events of which Borrower becomes aware during
such week: any material loss or depreciation in value of Eligible Inventory and
the amount of the loss or depreciation; damage to any such goods; and any other
event which materially affects Eligible Inventory, or the value or amount
thereof.

SECTION 7. REPRESENTATIONS AND WARRANTIES

Section 7.1. General Representations and Warranties. To induce Lender to
enter into this Agreement and to make advances hereunder, Borrower warrants,
represents and covenants to Lender that:

(A) Organization and Qualification. Borrower is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware. Borrower has duly qualified and is authorized to do
business and is in good standing in each state or jurisdiction listed on
Exhibit "E" attached hereto and made a part hereof and in all other states
and jurisdictions where the character of its Properties or the nature of
its activities make such qualification necessary and in which the failure
to be so qualified would have a material adverse effect on the Borrower.

(B) Borrower's Names. During the preceding seven (7) years, Borrower
has not been known as or used any fictitious or trade or other names
except as disclosed on Exhibit "F" attached hereto and made a part hereof.
Except as set forth on Exhibit "F", Borrower has not, during the preceding
seven (7) years, acquired all or substantially all of the assets of any
Person.

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<PAGE> 28

provision of any law, rule, regulation, order, writ, judgment, injunction,
decree, determination or award in effect having applicability to Borrower;
(iv) result in a breach of or constitute a default under any indenture or
loan or credit agreement or any other agreement, lease or instrument to
which Borrower is a party or by which it or its Properties may be bound or
affected; or (v) result in, or require, the creation or imposition of any
Lien (other than Permitted Liens) upon or with respect to any of the
Properties now owned or hereafter acquired by Borrower.

(D) Legally Enforceable Agreements. This Agreement is, and each of
the other Loan Documents when delivered under this Agreement will be, a
legal, valid and binding obligation of Borrower enforceable against it in
accordance with their respective terms, except to the extent that such
enforcement may be limited by applicable bankruptcy, insolvency and other
similar laws affecting creditors' rights generally or by principles of
equity pertaining to the availability of equitable remedies.

(E) Use of Proceeds. Borrower's uses of the proceeds of the Loan
pursuant to this Agreement are, and will continue to be, legal and proper
uses, duly authorized by its directors, and such uses will not violate any
applicable laws, including, without limitation, the Foreign Assets Control
Regulations, the Foreign Funds Control Regulations and the Transaction
Control Regulations of the United States Treasury Department (31 CFR,
Subtitle B, Chapter V, as amended).

(F) Margin Stock. Borrower is not engaged principally, or as one of
its important activities, in the business of purchasing or carrying
"margin stock" (within the meaning of Regulation G or U of the Board of
Governors of the Federal Reserve System), and no part of the proceeds of
the Loan to Borrower will be used to purchase or carry any margin stock or
to extend credit to others for the purpose of purchasing or carrying any
margin stock or be used for any purpose which violates or is inconsistent
with the provisions of Regulation X of said Board of Governors.

(G) Governmental Consents. Borrower has, and is in good standing with
respect to, all governmental consents, approvals, authorizations, permits,
certificates, inspections, and franchises necessary to continue to conduct
its business as heretofore or proposed to be conducted by it and to own or
lease and operate its Properties as now owned or leased by it.

(H) Capital Structure. Exhibit "G" attached hereto and made a part
hereof states (a) the correct name of Borrower, the jurisdiction of
organization, (b) the name of each of Borrower's directors, (c) the name
of each of Borrower's partnership or joint venture Affiliates, if any, and
the nature of the affiliation, and (d) a description of Borrower's
Subordinated Debt.

(I) Solvent Financial Condition. Borrower is now and, after giving
effect to the Loan to be made hereunder, at all times will be, Solvent.

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<PAGE> 29

(J) Restrictions. Borrower is not a party or subject to any contract,
agreement, or charter or other corporate restriction, which materially and
adversely affects its business or the use or ownership of any of its
Properties. Borrower is not a party or subject to any contract or
agreement which restricts its right or ability to incur Indebtedness,
other than as set forth on Exhibit "H" attached hereto, none of which
prohibit the execution of or compliance with this Agreement by Borrower.
Borrower has not agreed or consented to cause or permit in the future
(upon the happening of a contingency or otherwise) any of its Property,
whether now owned or hereafter acquired, to be subject to a Lien that is
not a Permitted Lien.

(K) Litigation. Except as set forth on Exhibit "I" attached hereto
and made a part hereof, as of the date hereof, there are no actions,
suits, proceedings or investigations pending, or to the knowledge of
Borrower, threatened, against or affecting Borrower, or the business,
operations, Properties, prospects, profits or condition of Borrower, in
any court or before any governmental authority or arbitration board or
tribunal, and no action, suit, proceeding or investigation shown on
Exhibit "I" involves the possibility of materially and adversely affecting
the Properties, business, prospects, profits or condition (financial or
otherwise) of Borrower or the ability of Borrower to perform this
Agreement. Borrower is not in default with respect to any order, writ,
injunction, judgement, decree or rule of any court, governmental authority
or arbitration board or tribunal.

(L) Title to Properties. Borrower has good, indefeasible and
marketable title to and fee simple ownership of, or valid and subsisting
leasehold interests in, all of its real Property, and good title to all of
its other Property, in each case, free and clear of all Liens except
Permitted Liens.

(M) Financial Statements: Fiscal Year. The balance sheets of
Borrower dated as of September 30, 1996 and March 31, 1997, and the
related statements of income, changes in shareholder's equity and cash
flow for the periods ended on such dates, have been prepared on a basis
consistent with Borrower's historical accounting practices (except for
changes in application in which Borrower's independent certified public
accountants concur), and present fairly the financial position of Borrower
at such dates and the results of Borrower's operations for such periods.
As of the date hereof, since May 31, 1997, there has been no material
change in the condition, financial or otherwise, of Borrower except
changes in the ordinary course of business, none of which individually or
in the aggregate has been materially adverse. The fiscal year of Borrower
ends on September 30 of each year.

(N) Full Disclosure. The financial statements referred to in Section
7.1(M) above, do not, nor does this Agreement or any other written
statement of Borrower to Lender (including, without limitation, Borrower's
filings, if any, with the Securities and Exchange Commission), contain any
untrue statement of a material fact or omit a material fact necessary to
make the statements contained therein or herein not misleading. There is
no fact which Borrower has failed to disclose to Lender in writing which
materially affects adversely or, so far as Borrower can now foresee,

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<PAGE> 30

will materially affect adversely the Properties, business, prospects,
profits, or condition (financial or otherwise) of Borrower or the ability
of Borrower to perform this Agreement.

(O) Pension Plans. Except as disclosed on Exhibit "J" attached hereto
and made a part hereof, Borrower has no Plan. Borrower has not received
any notice to the effect that it is not in full compliance with any of the
requirements of ERISA and the regulations promulgated thereunder. No fact
or situation that could result in a material adverse change in the
financial condition of Borrower, including, but not limited to, any
Reportable Event, or Prohibited Transaction, exists in connection with any
Plan. Borrower has no withdrawal liability in connection with a
Multiemployer Plan.

(P) Taxes. Borrower's federal tax identification number is
58-2058362. Borrower has filed all federal, state and local tax returns
and other reports it is required by law to file and has paid, or made
provision for the payment of, all taxes, assessments, fees and other
governmental charges that are due and payable. The provision for taxes on
the books of Borrower are adequate for all years not closed by applicable
statutes, and for its current fiscal year.

(Q) Compliance With Laws. Borrower has duly complied with, and its
Properties, business operations and leaseholds are in compliance in all
material respects with, the provisions of all federal, state and local
laws, rules and regulations applicable to Borrower, its Properties or the
conduct of its business, including, without limitation, the federal
Truth-In-Lending Act and applicable state consumer lending laws, OSHA and
all Environmental Laws, and there have been no citations, notices or
orders of noncompliance issued to Borrower under any such law, rule or
regulation.

(R) No Defaults. No event has occurred and no condition exists which
would, upon the execution and delivery of this Agreement or Borrower's
performance hereunder, constitute a Default or an Event of Default.
Borrower is not in default, and no event has occurred and no condition
exists which constitutes, or which with the passage of time or the giving
of notice or both would constitute, a default in the payment of any
Indebtedness to any Person for Money Borrowed.

Section 7.2. Reaffirmation. Each request for an Advance made by Borrower
pursuant to this Agreement or any of the other Loan Documents shall constitute
(i) an automatic representation and warranty by Borrower to Lender that there
does not then exist any Default or Event of Default and (ii) a reaffirmation as
of the date of said request that all of the representations and warranties of
Borrower contained in this Agreement (other than the first sentence of Section
7.1(K) and the second sentence of Section 7.1(M) hereof) and the other Loan
Documents are true in all material respects except for (x) any changes in the
nature of Borrower's business or operations that would render the information
contained in any exhibit, attached hereto either inaccurate or incomplete, so
long as Lender has consented to such changes or such changes are expressly
permitted by this Agreement and (y) such

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<PAGE> 31

changes to the facts and/or circumstances that are the subject of such
representations and warranties, so long as such changes are not materially
adverse to the condition of the Borrower (financially or otherwise) either
individually or in the aggregate.

Section 7.3. Survival of Representations and Warranties. Borrower
covenants, warrants and represents to Lender that all representations and
warranties of Borrower contained in this Agreement or any of the other Loan
Documents shall be true at the time of Borrower's execution of this Agreement
and the other Loan Documents, and shall survive the execution, delivery and
acceptance hereof by Lender and the closing of the transactions described herein
or related hereto.

SECTION 8. COVENANTS AND CONTINUING AGREEMENTS

Section 8.1. Affirmative Covenants. During the term of this Agreement, and
thereafter for so long as there are any obligations to Lender, Borrower
covenants that, unless otherwise consented to by Lender in writing, it shall:

(A) Taxes and Liens. Pay and discharge all taxes, assessments and
governmental charges upon it, its income and Properties as and when such
taxes, assessments and charges are due and payable, (i) except and to the
extent only that such taxes, assessments and charges are being actively
contested in good faith and by appropriate proceedings, Borrower promptly
notifies Lender in writing of such contest, Borrower maintains adequate
reserves on its books therefor and the nonpayment of such taxes,
assessments and charges does not result in a Lien upon any Properties of
Borrower other than a Permitted Lien and (ii) except such taxes,
assessments and governmental changes that do not exceed, in the aggregate,
$250,000 at any time. Borrower shall also pay and discharge any lawful
claims which, if unpaid, might become a Lien against any of Borrower's
Properties except for Permitted Liens.

(B) Tax Returns. Timely, file all federal, state and local tax
returns and other reports Borrower is required by law to file and maintain
adequate reserves for the payment of all taxes, assessments, governmental
charges, and levies imposed upon it, its income, or its profits, or upon
any Property belonging to it.

(C) Payment of Bank Charges. Pay to Lender, when due, any and all
fees, costs or expenses which Lender pays to a bank or other similar
institution arising out of or in connection with (i) the forwarding to
Borrower or any other Person on behalf of Borrower, by Lender, proceeds of
loans made by Lender to Borrower pursuant to this Agreement and (ii) the
depositing for collection, by Lender, of any check or item of payment
received or delivered to Lender on account of the obligations.

(D) Business and Existence. Preserve and maintain its existence and
all rights, privileges, and franchises in its qualification and good
standing in all states in which such qualification is necessary.

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<PAGE> 32

(E) Maintain Properties. Maintain its Properties in good condition
and make, all necessary renewals, repairs, replacements, additions and
improvements thereto.

(F) Compliance with Laws. Comply with all laws, ordinances,
governmental rules and regulations to which it is subject, including,
without limitation, all laws, statutes, regulations and ordinances
regarding the collection, payment and deposit of employees, income,
unemployment and Social Security taxes and sales and excise taxes, ERISA
and Environmental Laws, and obtain and keep in force any and all licenses,
permits, franchises, or other governmental authorizations necessary to the
ownership of its Properties or to the conduct of its business, which
violation or failure to obtain would be reasonably likely to materially
and adversely affect the business, prospects, profits, Properties, or
condition (financial or otherwise) of Borrower.

(H) Visits, Inspections and Audits. Permit representatives of Lender,
from time to time, as often as may be reasonably requested, but only
during normal business hours, to visit, inspect and audit the Properties
of Borrower, inspect and make extracts from its books and records, and
discuss with its officers, its employees and its independent accountants,
Borrower's business, assets, liabilities, financial condition, business
prospects and results of operations and to pay in full the cost of one
audit by Lender of the Collateral each year (provided, however, that
Borrower shall not be required to pay more than $10,000 with respect to
any such audit).

(I) Financial Statements. Cause to be prepared and furnished to
Lender the following (all to be kept and prepared in accordance with GAAP
applied on a consistent basis, unless Borrower's certified public
accountants concur in any change therein and such change is disclosed to
Lender and is consistent with GAAP): (i) as soon as possible, but not
later than one hundred twenty (120) days after the close of each fiscal
year of Borrower, unqualified audited financial statements of Borrower as
of the end of such year, certified by a firm of independent certified
public accountants of recognized national standing or otherwise acceptable
to Lender (except for a qualification for a change in accounting
principles with which the independent public accountant concurs); (ii) as
soon as possible, but not later than the earlier of sixty (60) days after
the end of each quarter hereafter or the date on which the same shall be
required to be filed with the Securities Exchange Commission, unaudited
interim consolidated financial statements of Borrower, and of the portion
of Borrower's fiscal year then elapsed, including without limitation, upon
reasonable request of Lender, Accounts receivables aging, and Accounts
payable aging as of the end of such quarter, on a consolidated and
consolidating basis, certified by the principal financial officer of
Borrower as fairly presenting the consolidated financial position and
results of operations of Borrower for such month and period subject only
to changes from audit and year-end adjustments and except that such
statements need not contain notes; and (iii) such other data and
information (financial and otherwise) as Lender, from time

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to time, may reasonably request, bearing upon or related to the
Collateral, Borrower's financial condition or results of operations,
including, without limitation, federal income tax returns of Borrower,
accounts payable ledgers, and bank statements.

(J) Notices to Lender. Notify Lender in writing: (i) promptly after
Borrower's learning thereof, of the commencement of any litigation
materially affecting Borrower or any of its Properties, whether or not the
claim is considered by Borrower to be covered by insurance, and of the
institution of any administrative proceeding which may materially and
adversely affect Borrower's operations, financial condition, Properties at
business or Lender's Lien upon any of the Collateral; (ii) within
forty-five (45) days after each quarter for the preceding quarter, of
Borrower's opening of any new office or Place of Business in a state in
which Borrower previously has had no Place of Business or within
forty-five (45) days of the end of each quarter of Borrower's opening of a
new office or new Place of Business in a state where Borrower has a prior
office or Place of Business; (iii) within forty-five (45) days after each
quarter for the preceding quarter, of the closing of any existing office
or Place of Business; (iv) promptly after Borrower's learning thereof, of
any default by Borrower under any note, indenture, loan agreement,
mortgage, lease, deed, guaranty or other similar agreement relating to any
Indebtedness of Borrower in excess of $250,000; (v) promptly after the
occurrence thereof, of any Default or Event of Default; (vi) promptly
after the rendition thereof, of any judgment rendered against Borrower;
and (vii) concurrently with the filing thereof with the Securities and
Exchange Commission ("SEC"), any filings with the SEC by providing to
Lender a copy of such filings.

(K) Landlord and Storage Agreements. Provide Lender at Lender's
request with copies of all agreements between Borrower and any landlord or
warehouseman which owns any premises at which any Inventory or other
Collateral may, from time to time, be kept.

(L) Further Assurances. At Lender's request, promptly execute or
cause to be executed and deliver to Lender any and all documents,
instruments and agreements deemed necessary by Lender to give effect to or
carry out the terms or intent of this Agreement or any of the other Loan
Documents.

(M) Communications with Lender. Borrower hereby irrevocably
authorizes Lender to communicate directly with any of the following
Persons concerning Borrower, its business, the Collateral and the Loans:
(a) any service bureau, warehousing service, freight forwarder, trade
creditor, consignee, bailee, customer or other similar services; (b) any
Person employed by Borrower; and (c) Borrower's present and future
independent public accountants, each of whom is authorized by Borrower to
communicate with Lender and to disclose to Lender any and all matters
relating to Borrower, its financial condition and prospects, and the
Collateral.

(N) Borrowing Base Report. For the purposes of computing the
Borrowing Base, Borrower shall furnish to Lender on the forty-fifth (45th)
day after the end of

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each calendar quarter, a Borrowing Base Report as of the last day of the
immediately preceding calendar quarter containing information adequate to
identify Eligible Inventory and Eligible Accounts, signed by an authorized
officer of Borrower showing a calculation of the Borrowing Base as of the
end of the preceding week, listing the amount of Eligible Accounts and
updating the amount of Eligible Inventory. If on the date any such report
is delivered, the sum of the aggregate principal amount of the Loan shall
exceed the Borrowing Base as set forth in the Borrowing Base Report,
Borrower will immediately pay to Lender the amount of such excess.
Borrower shall also, if the Lender so requests, accompany such information
with pledges or designations of Eligible Inventory or assignments of
Eligible Accounts in form and substance satisfactory to Lender which
assignments shall give Lender full power to collect, compromise or
otherwise deal with the assigned Accounts as the sole owner thereof.

(O) Inspection; Further Assurances. Borrower shall at all reasonable
times and from time to time allow Lender by or through any of its
authorized officers, agents, attorneys or accountants, to examine, inspect
or make extracts from Borrower's books and records, and to arrange for
verification of Eligible Accounts and Eligible Inventory under reasonable
procedures on a "blind basis", directly with account debtors or factors or
by other methods; and shall do, make, execute and deliver all such
additional and further acts, things, deeds, assurances, and instruments as
Lender may require more completely to vest in and assure to Lender its
rights hereunder or in any Collateral and to carry into effect the
provisions and intent of this Agreement.

(P) Borrower's Account. At all times during the term of this
Agreement maintain Borrower's Account so long as the terms thereof are as
favorable to Borrower as those generally available for similar customers
with comparable accounts.

(Q) Compliance Certificate. Within ninety (90) days after the fiscal
year end and forty-five (45) days after the end of each calendar quarter,
or more frequently if requested by Lender, cause the chief financial
officer of Borrower to prepare and deliver to Lender a compliance
certificate in the form of Exhibit "K" attached hereto, with appropriate
insertions.

Section 8.2. Negative Covenants. During the term of this Agreement, and
thereafter for so long as there are any Obligations to Lender, Borrower
covenants that, unless Lender has first consented thereto in writing, it will
not:

(A) Indebtedness. Incur, assume or suffer to exist any Indebtedness
except for Permitted Indebtedness.

(B) Mergers; Consolidations: Acquisitions. Acquire all or any
substantial part of the Properties of any Person if the consideration
paid as part of any such

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<PAGE> 35

transaction in cash or other property (other than stock of Borrower)
exceeds $5,000,000, nor merge or consolidate with any Person.

(C) Loans. Except as set forth on Exhibit K-1, make any Loans or
other advances of money in the aggregate in excess of the Permitted Loan
and Guarantee Amount (other than for salary, travel advances, advances
against commissions and other similar advances in the ordinary course of
business and Loans to officers to exercise stock options) to any Person,
including, without limitation, any of Borrower's Affiliates, officers or
employees.

(D) Affiliate Transactions. Enter into, or be a party to, any
transaction with any Affiliate or stockholder, except (i) transactions in
the ordinary course of and pursuant to the reasonable requirements of
Borrower's business and upon fair and reasonable terms which are fully
disclosed to Lender and are no less favorable to Borrower than would
obtain in a comparable arm's length transaction with a Person not an
Affiliate of Borrower; (ii) an agreement with Morgan Schiff & Co., Inc.
for management services, with the total consideration thereunder not to
exceed $500,000 annually; (iii) bonuses to the chairman, president and
chief executive officer of the Borrower in an amount reasonably consistent
with past practices, (iv) the Long Term Incentive Programs; (v) Insurance
Programs with Cougar Reinsurance Company, Ltd. as described on Exhibit K-2
and (vi) loan and other indebtedness evidenced by the agreements listed on
Exhibit K-1 hereto.

(E) Partnerships or Joint Ventures. Become or agree to become a
general or limited partner in any general or limited partnership or a
joint venturer in any joint venture.

(F) Adverse Transactions. Enter into any transaction, which
materially and adversely affects or may materially and adversely affect
the Collateral or Borrower's ability to repay the Obligations or permit or
agree to any material extension, compromise or settlement or make any
change or modification of any kind or nature with respect to any Account,
including any of the terms relating thereto, other than discounts and
allowances in the ordinary course of business, all of which shall be
reflected in the Schedules of Accounts submitted to Lender pursuant to
Section 5.2 of this Agreement.

(G) Guaranties. Guarantee, assume, endorse or otherwise, in any way,
become directly or contingently liable with respect to the Indebtedness of
any Person if the aggregate amount of the same exceeds the Permitted Loan
and Guarantee Amount except by endorsement of instruments or items of
payment for deposit or collection.

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<PAGE> 36

contested as permitted by Section 8.1(A) hereof, but only if in Lender's
judgment such Lien does not affect adversely Lender's rights or the
priority of Lender's Lien in the Collateral; (iii) Liens securing the
claims or demands of materialmen, mechanics, carriers, warehousemen,
landlords and other like Persons for labor, materials, supplies or rentals
incurred in the ordinary course of Borrower's business, but only if the
payment thereof is not at the time required and only if such Liens are
junior in priority to the Liens in favor of Lender; (iv) Liens resulting
from deposits made in the ordinary course of business in connection with
workmen's compensation, unemployment insurance, social security and other
like laws; (v) attachment, judgment and other similar non-tax Liens
arising in connection with court proceedings, but only if and for so long
as the execution or other enforcement of such Liens is and continues to be
effectively stayed and bonded on appeal in a manner satisfactory to Lender
for the full amount thereof, the validity and amount of the claims secured
thereby are being actively contested in good faith and by appropriate
lawful proceedings, such Liens do not, in the aggregate, materially
detract from the value of the Property of Borrower or materially impair
the use thereof in the operation of Borrower's business and such Liens are
and remain junior in priority to the Liens in favor of Lender; (vi)
Purchase Money Liens securing purchase money indebtedness which is not
incurred in violation of Section 8.3(C) of this Agreement; (vii)
reservations, exceptions, easements, rights-of-way, and other similar
encumbrances affecting real Property, provided that, in Lender's sole
judgment, they do not in the aggregate materially detract from the value
of said Properties or materially interfere with their use in the ordinary
conduct of Borrower's business and, if said real Property constitutes
Collateral, Lender has consented thereto; (viii) such other Liens as
appear an Exhibit "L" attached hereto; (ix) the pari passu Lien granted in
favor of NationsBank pursuant to the NationsBank Credit Agreement; (x) the
pari passu Lien granted in favor of First Union pursuant to the First
Union Loan Agreement; and (xi) such other Liens as Lender may hereafter
approve in writing.

(I) Business Locations. Transfer its principal place of business or
chief executive office, or maintain warehouses or records with respect to
Accounts or Inventory, to or at any locations other than those at which
the same are presently kept or maintained, as set forth on Exhibit "C"
hereto, except upon at least thirty (30) days' prior written notice to
Lender and after the delivery to Lender of financing statements, if
required by Lender, in form satisfactory to Lender to perfect or continue
the perfection of Lender's Lien and security interest hereunder.

(J) Change of Business. Enter into any new type of business or make
any material change in any of Borrower's business objectives, purposes and
operations provided, however, Borrower shall be permitted to engage in any
retail business incidental or related to Borrower's business conducted on
the date hereof.

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<PAGE> 37

dispositions expressly authorized by this Agreement, (iii) dispositions of
Properties other than Inventory for not less than the reasonable value of
the Properties which have been disposed or (iv) transactions contemplated
by the Consignment Agreement.

(L) Name of Borrower. Use any corporate name (other than its own) or
any fictitious name, tradestyle or "d/b/a" except for the names disclosed
on Exhibit "F" attached hereto, unless Borrower has provided such name to
Lender and executed such Uniform Commercial Code statements as Lender
shall require.

(M) Bill-and-Hold Sales, Etc. Except in the ordinary course of
business, make a sale to any customer on a bill-and-hold, guaranteed sale,
sale and return, sale on approval or consignment basis, or any sale on a
repurchase or return basis.

(N) Margin Securities. Own, purchase or acquire (or enter into any
contract to purchase or acquire) any "margin security" as defined by any
regulation of the Federal Reserve Board as now in effect or as the same
may hereafter be in effect unless, prior to any such purchase or
acquisition or entering into any such contract, Lender shall have received
an opinion of counsel satisfactory to Lender to the effect that such
purchase or acquisition will not cause this Agreement to violate
Regulations G or U or any other regulation of the Federal Reserve Board
then in effect.

(O) Fiscal Year. Change its fiscal year without the prior written
consent of Lender, which consent shall not be unreasonably withheld.

(P) Distributions to Affiliates. Make any distributions, dividends or
payments to Affiliates (including any permitted payments under section
8.2(D)(ii) and (iii)) in excess of $1,500,000 during any calendar year
without the prior written consent of Lender, except Borrower may redeem
its Class B shares from time to time if no Default or Event of Default
then exists or would be caused by such redemption.

Section 8.3. Specific Financial Covenants. During the term of this
Agreement and thereafter for so long as there are any Obligations to Lender,
Borrower covenants that, unless otherwise consented to by Lender in writing, it
shall:

(A) Minimum Net Worth. Maintain at all times a Net Worth of at least
$140,000,000, plus 50% of the net proceeds of any equity offering after
September 30, 1996; in addition, effective as of the start of each fiscal
year, commencing with the fiscal year beginning on October 1, 1997, such
Net Worth requirement shall be increased by 50% of the Borrower's Net
Income after distributions to shareholders during the immediately
preceding fiscal year.

(B) Fixed Charge Coverage Ratio. Maintain, as of the end of each
fiscal quarter, a Fixed Charge Coverage Ratio of not less than 1.5:1.

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<PAGE> 38

(C) Debt Ratio. Not permit, as of the end of any fiscal quarter, the
ratio of the Borrower's Funded Debt as of such date to its EBITDAR for the
four immediately preceding fiscal quarters to exceed 3:1.

SECTION 9. CONDITIONS PRECEDENT

Section 9.1. Documentation. Lender shall have received the following
documents, each to be in form and substance satisfactory to Lender and its
counsel:

(A) This Agreement and the Note, each duly executed by Borrower;

(B) The Security Agreement and any other Security Documents duly
executed by Borrower;

(C) A legal opinion of Alston & Bird, counsel to Borrower,
substantially in the form of Exhibit "M" attached hereto and incorporated
by reference herein;

(D) A Compliance Certificate in the form of Exhibit "K" attached
hereto and incorporated by reference herein duly executed by an officer of
Borrower;

(E) Certificates or policies of insurance evidencing compliance with
the applicable provisions of this Agreement;

(F) A request for Advance pursuant to Section 9.4 hereof and a
Borrowing Base Report;

(G) Certified copies of (a) Borrower's casualty insurance policies,
together with loss payable endorsements on Lender's standard form of loss
payee endorsement naming Lender as loss payee, and (b) Borrower's
liability insurance policies, together with endorsements naming Lender as
a co-insured;

(H) Copies of all filing receipts or acknowledgments issued by any
governmental authority to evidence any filing or recordation necessary to
perfect the Liens of Lender in the Collateral and evidence in a form
acceptable to Lender that such Liens constitute valid and perfected
security interests and Liens, having the Lien priority specified in
Section 4.2(B) hereof;

(I) A copy of the Articles or Certificate of Incorporation of
Borrower, and all amendments thereto, certified by the Secretary of State
or other appropriate

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<PAGE> 39

official of its jurisdiction of incorporation and a copy of the Bylaws of
Borrower, each certified by the Secretary of the Borrower;

(J) Good standing certificates for Borrower, issued by the Secretary
of State or other appropriate official of the jurisdiction of
incorporation;

(K) Certificate as to qualification to transact business as a foreign
corporation in each state, other than its state of incorporation, in which
Borrower transacts business; provided, however, that so long as the
representation in Section 7.1(A) is true and correct, Borrower may provide
such certificates within 30 days of the date hereof;

(L) A copy of the Intercreditor Agreement, duly executed and
delivered by NationsBank, First Union and Borrower;

(M) Such other documents, instruments and agreements as Lender shall
reasonably request in connection with the foregoing matters;

(N) Omitted;

(O) A certificate of the Secretary or Assistant Secretary of Borrower
certifying to the votes of Borrower's Board of Directors authorizing the
execution, delivery and performance of this Agreement, the Consignment
Agreement and any Security Documents;

(P) A certificate of the Secretary or Assistant Secretary of Borrower

certifying the names of the officers of Borrower authorized to sign this
Agreement, the Consignment Agreement, any Security Documents and any other
documents or certificates to be delivered pursuant to this Agreement and
the Consignment Agreement by Borrower or any of its officers, together
with the true signatures of such officers, on which certificates Lender
may conclusively rely until it shall receive a further certificate
canceling or amending the prior certificate and submitting the signatures
of the officers named in such further certificate; and

(Q) A copy of the collateral audit performed (in a manner
satisfactory to Lender) by NationsBank.

Section 9.2. Other Conditions. The following conditions have been and
shall continue to be satisfied, in the reasonable discretion of Lender:

(A) No Default or Event of Default shall exist;

(B) Each of the conditions precedent set forth in the other Loan
Documents shall have been satisfied;

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<PAGE> 40

(C) Since September 30, 1996, except for changes which are reflected
on the unaudited May 31, 1997 financial statements (excluding footnotes)
submitted to Lender, there shall not have occurred any material adverse
change in the business, financial condition or results of operations of
Borrower, or the existence or value of any Collateral, or any event,
condition or state of facts which would reasonably be expected materially
and adversely to affect the business, financial condition or results of
operations of Borrower;

(D) No action, proceeding, investigation, regulation or legislation
shall have been instituted, threatened or proposed before any court,
governmental agency or legislative body to enjoin, restrain or prohibit,
or to obtain damages from any Person in respect of, the consummation of
the transactions contemplated hereby or which, in Lender's sole
discretion, would make it inadvisable to consummate the transactions
contemplated by this Agreement or any of the other Loan Documents; and

(E) The Borrower shall have paid in full the loan and upfront fees
described in Section 3.3 hereof.

Section 9.3. Conditions Precedent to Subsequent Advances. The obligation of
Lender to make subsequent Advances is subject to the conditions precedent that
Lender shall have received, in form and substance satisfactory to it, each of
the following documents and that each of the conditions described below is
fulfilled to the satisfaction of Lender:

(A) A request for Advance pursuant to Section 9.4 hereof;

(B) The representation and warranties contained herein and in each of
the other Loan Documents shall be correct on and as of the date of the
request for the Advance and the date of the Advance, with the same effect
as though made on and as of those dates, except to the extent that such
representations and warranties relate solely to an earlier date, and on
each of such dates, no event, act, or condition shall have occurred or be
continuing, or would result from the Advance requested, which constitutes
a Default or Event of Default. The submission by Borrower of a written
request for an Advance shall constitute a representation and warranty as
to the correctness of the above facts, and if requested by Lender with
respect to the Advance requested, Borrower shall furnish to Lender a
written certificate of an officer of the Borrower, satisfactory in form
and substance to Lender, as to the correctness of the above facts as a
condition precedent to such Advance; and

(C) A Compliance Certificate in the form of Exhibit "L" attached
hereto and incorporated by reference herein duly executed by an officer of
Borrower.

Section 9.4. Request for Advances. Borrower shall request each Advance of
Loan proceeds (including requests by telephonic communication which shall be
promptly followed by a conforming written request) (i) no later than 11:00 A.M.
(New York time) at least 3 Business Days prior to the date upon which the
Borrower requests that a LIBO Rate Advance be made and (ii) no later than 11:00
A.M. (New York time) at least 1 Business

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<PAGE> 41

Day prior to the date upon which the Borrower requests that an Offered Rate
Advance be made. Each request for Advance shall specify the proposed date of the
Advance (which shall be a Business Day), the amount thereof, the type of Advance
requested, and the Interest Period applicable thereto but with no Interest
Period to extend beyond the Maturity Date. Each request for an Advance to be
comprised of an Offered Rate Advance shall be effective upon receipt by the
Lender and shall be irrevocable. Upon its receipt of a request for an Advance to
be comprised of an Offered Rate Advance, the Lender shall provide the Borrower,
by no later than 12:30 P.M. (New York time) a proposed Offered Rate applicable
to such Offered Rate Advance. The Borrower may, in its sole discretion, by no
later than 1:00 P.M. (New York time) irrevocably accept or reject the proposed
Offered Rate applicable to such Offered Rate Advance. Not later than close of
business (New York time) on the day on which an Advance is requested, and upon
fulfillment of the applicable conditions set forth herein, as applicable, Lender
will make each requested Advance in the amount requested, or in a lesser amount
as determined by the Borrowing Base, to the Borrower in immediately available
funds by deposit into Borrower's Account as of the proposed date. The persons
authorized to request Advances hereunder shall be those individuals designated
in writing by Borrower to Lender. In the case of a request for Advance made by
telephonic communication, the action taken by Lender in good faith upon such
notice shall be deemed to be the action authorized by Borrower pursuant to such
request for Advance.

SECTION 10. EVENTS OF DEFAULT: RIGHTS AND REMEDIES ON DEFAULT

Section 10.1. Events of Default. The occurrence of any one or more of the
following events or conditions shall constitute an "Event of Default":

(A) Payment of Note. Borrower shall fail to pay any installment of
principal, interest or premium, if any, owing on the Note on the due date
of such installment and shall fail to cure the same within five (5) days
of notice thereof from Lender.

(C) Misrepresentations. Any warranty, representation, or other
statement made or furnished to Lender by or on behalf of Borrower or in
any instrument, certificate or financial statement furnished in compliance
with or in reference to this Agreement or any of the other Loan Documents
proves to have been false or misleading in any material respect when made
or furnished.

(D) Breach of Covenants. Breach of any covenant contained herein or
any covenant contained in the other Loan Documents (other than a covenant
or default in the performance) if the breach of such other covenant is not
cured to Lender's satisfaction within ten (10) days after the sooner to
occur of Borrower's receipt of notice of such breach from Lender or the
date on which such failure or neglect first becomes known to any officer
of Borrower.

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<PAGE> 42

(E) Default Under Other Agreements. Any event of default shall occur
under, or Borrower shall default in the performance or observance of any
term, covenant, condition or agreement contained in, any of the Other
Agreements or other instrument, contract, or document evidencing any
existing or future indebtedness of Borrower to Lender and such default
shall continue beyond any applicable period of grace.

(F) Default Under Security Documents. Any event of default shall
occur under, or Borrower shall default in the performance or observance of
any term, covenant, condition or agreement contained in, any of the
Security Documents and such default shall continue beyond any applicable
period of grace.

(G) Other Defaults. There shall occur any default or event of default
on the part of Borrower (including specifically, but without limitation,
due to non-payment) under any agreement, document or instrument to which
Borrower is a party (including, without limitation, the NationsBank Credit
Agreement, the First Union Loan Agreement and the Consignment Agreement)
or by which Borrower or any of its Property is bound, creating or relating
to any indebtedness (other than the Obligations) if the payment or
maturity of such Indebtedness is accelerated in consequence of such event
of default or demand for payment of such Indebtedness is made.

(H) Uninsured Losses; Unauthorized Dispositions. Any material loss,
theft, damage or destruction not fully covered by insurance (as required
by this Agreement and subject to such deductibles as Lender shall have
agreed to in writing), or sale, lease or encumbrance of any of the
Collateral or the making of any levy, seizure, or attachment thereof or
thereon except in all cases as may be specifically permitted by other
provisions of this Agreement.

(I) Insolvency, etc. Borrower shall cease to be Solvent or shall
suffer the appointment of a receiver, trustee, custodian or similar
fiduciary, or shall make an assignment for the benefit of creditors, or
any petition for an order for relief shall be filed by or against Borrower
under the Bankruptcy Code (if against Borrower, the continuation of such
proceeding for more than thirty (30) days), or Borrower shall make any
offer of settlement, extension or composition to their respective
unsecured creditors generally, or any motion, complaint or other pleading
is filed in any bankruptcy case of any Person other than Borrower and such
motion, complaint or pleading seeks the consolidation of Borrower's assets
and liabilities with the assets and liabilities of such Persons.

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<PAGE> 43

prevented by court, governmental or administrative order from conducting
all or any material part of its business affairs; or any material lease or
agreement pursuant to which Borrower leases, uses or occupies any Property
shall be cancelled or terminated prior to the expiration of its stated
term; or any part of the Collateral shall be taken through condemnation or
the value of such Property shall be impaired through condemnation.

(K) ERISA. A Reportable Event shall occur which Lender, in its
reasonable discretion, shall determine in good faith constitutes grounds
for the termination by the Pension Benefit Guaranty Corporation of any
Plan or for the appointment by the appropriate United States district
court of a trustee for any Plan, or if any Plan shall be terminated or any
such trustee shall be requested or appointed, or if Borrower is in
"default" (as defined in Section 4219 (c)(5) of ERISA) with respect to
payments to a Multiemployer Plan resulting from Borrower's complete or
partial withdrawal from such Plan.

(L) Litigation. Borrower, or any Affiliate, shall challenge or
contest in any action, suit or proceeding the validity or enforceability
of this Agreement or any of the other Loan Documents, the legality or
enforceability of any of the Obligations or the perfection or priority of
any Lien granted to Lender.

(M) Criminal Forfeiture. Borrower shall be criminally indicted or
convicted under any law that could lead to a forfeiture of any Property of
Borrower.

(N) Judgments. Borrower shall suffer any money judgments, or suffer
any writs, warrants of attachment or similar processes which give rise to
a Lien, other than a Permitted Lien, which individually or in the
aggregate involve an amount in excess of $500,000 over the amount covered
in full, subject to customary and reasonable deductibles, by insurance or
a surety bond, and shall not discharge, vacate, bond or stay the same
within a period of sixty (60) consecutive days.

Section 10.2. Acceleration of the Obligations. Without in any way limiting
the right of Lender to demand payment of any portion of the obligations payable
on demand in accordance with Section 3.4 hereof, upon or at any time after the
occurrence of an Event of Default, all or any portion of the Obligations due or
to become due from Borrower to Lender, whether under this Agreement or any of
the other Loan Documents or otherwise, shall, at the option of Lender and
without notice or demand by Lender, become at once due and payable and Borrower
shall forthwith pay to Lender, in addition to any and all sums and charges due,
the entire principal of and accrued and unpaid interest on the obligations plus
reasonable attorneys' fees not to exceed fifteen percent (15.0%) of the
Obligations if the same are collected by or through an attorney at law.

Section 10.3. Remedies. Upon or at any time after the occurrence of an
Event of Default, Lender shall have and may exercise from time to time the
following rights and remedies:

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(A) All of the rights and remedies of a secured party under the Code
or under other applicable law, and all other legal and equitable rights to
which Lender may be entitled, all of which rights and remedies shall be
cumulative, and none of which shall be exclusive, and shall be in addition
to any other rights or remedies contained in this Agreement or any of the
other Loan Documents.

(B) The right to notify Account Debtors to make remittances to Lender
of all sums due on Accounts and to collect the Accounts directly from the
Account Debtors.

(C) The right to take immediate possession of the Collateral, and (i)
to require Borrower to assemble the Collateral, at Borrower's expense, and
make it available to Lender at a place designated by Lender which is
reasonably convenient to both parties, and (ii) to enter any of the
premises of Borrower or wherever any of the Collateral shall be located,
and to keep and store the same on said premises until sold (and if said
premises be the Property of Borrower, Borrower agrees not to charge Lender
for storage thereof).

(D) The right to sell or otherwise dispose of all or any of the
Collateral in its then condition, or after any further manufacturing or
processing thereof, at public or private sale or sales, with such notice
as may be required by law, in lots or in bulk, for cash or on credit, all
as Lender, in its sole discretion, may deem advisable. Borrower agrees
that ten (10) days' written notice to Borrower of any public or private
sale or other disposition of any Collateral shall be reasonable notice
thereof; provided, however, that no notice of Lender's intended
disposition of Collateral shall be required with respect to any portion of
the Collateral that is perishable, threatens to decline speedily in value
or is of a type customarily sold on a recognized market, nor shall any
such notice be required hereunder if not otherwise required under
applicable law. Lender shall have the right to conduct such sales an
Borrower's premises, without charge therefor, and such sales may be
adjourned from time to time in accordance with applicable law. Lender
shall have the right to sell, lease, or otherwise dispose of any
Collateral, or any part thereof, for cash, credit or any combination
thereof, and Lender may purchase all or any part of any Collateral at
public or, if permitted by law, private sale and, in lieu of actual
payment of such purchase price, may set off the amount of such price
against the obligations.

(E) Lender is hereby granted a license or other right to use, without
charge, Borrower's labels, patents, copyrights, rights of use of any name,
trade secrets, trade names, trademarks and advertising matter, or any
Property of a similar nature as it pertains to the Collateral, in
advertising for sale and selling any Collateral and Borrower's rights
under all licenses and all franchise agreements shall inure to Lender's
benefit.

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<PAGE> 45

completing, protecting, removing, storing, advertising for sale, selling
and delivering any of the Collateral; secondly, to interest due upon any
of the Obligations; and thirdly, to the principal of the Obligations. If
any deficiency shall arise, Borrower shall remain jointly and severally
liable to Lender therefor.

Section 10.4. Remedies Cumulative; No Waiver. All covenants, conditions,
provisions, warranties, guaranties, indemnities, and other undertakings of
Borrower contained in this Agreement and the other Loan Documents, or in any
document referred to herein or contained in any agreement supplementary hereto
or in any schedule given to Lender or contained in any other agreement between
Lender and Borrower, heretofore, concurrently, or hereafter entered into, shall
be deemed cumulative to and not in derogation or substitution of any of the
terms, covenants, conditions, or agreements of Borrower herein contained. The
failure or delay of Lender to exercise or enforce any rights, Liens, powers, or
remedies hereunder or under any of the other Loan Documents shall not operate as
a waiver of any of such Liens, rights, powers or remedies, but all such Liens,
rights, powers, and remedies shall continue in full force and effect until all
Loans and all other Obligations owing or to become owing from Borrower to Lender
shall have been indefeasibly paid in full, and all Liens, rights, powers, and
remedies provided herein and the other Loan Documents are cumulative and none
are exclusive.

SECTION 11. MISCELLANEOUS

Section 11.1. Power of Attorney. Borrower hereby irrevocably designates,
makes, constitutes and appoints Lender (and all Persons designated by Lender) as
Borrower's true and lawful attorney (and agent-in-fact) and Lender, or Lender's
agent may, without notice to Borrower and in either Borrower's or Lender's name,
but at the cost and expense of Borrower:

(A) At such time or times hereafter as Lender or said agent, in its
sole discretion, may determine, endorse Borrower's name on any checks,
notes, acceptances, drafts, money orders or any other evidence of payment
or proceeds of the Collateral which come into the possession of Lender or
under Lender's control; and

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<PAGE> 46

document in connection with any of the Collateral; (vi) receive, open and
dispose of all mail addressed to Borrower and to notify postal authorities
to change the address for delivery thereof to such address as Lender may
designate; (vii) endorse the name of Borrower upon any of the items of
payment or proceeds relating to any Collateral and deposit the same to the
account of Lender on account of the obligations; (viii) endorse the name
of Borrower upon any chattel paper, document, instrument, invoice, freight
bill, bill of lading or similar document or agreement relating to the
Accounts, Inventory and any other Collateral; (ix) use Borrower's
stationery and sign the name of Borrower to verifications of the Accounts
and notices thereof to Account Debtors; (x) use the information recorded
on or contained in any data processing equipment and computer hardware and
software relating to the Accounts, Inventory, Equipment and any other
Collateral and to which Borrower has access; (xi) make and adjust claims
under policies of insurance; and (xii) do all other acts and things
necessary, in Lender's determination, to fulfill Borrower's obligations
under this Agreement.

Section 11.2. Indemnity. Borrower hereby agrees to and hereby does
indemnify Lender and hold Lender harmless from and against any liability, loss,
damage, suit, action or proceeding ever suffered or incurred by Lender as the
result of Borrower's failure to observe, perform or discharge Borrower's duties
hereunder; provided, however, that the Borrower shall have no liability under
this Section 11.2 resulting from Lender's gross negligence or wilful misconduct.
Without limiting the generality of the foregoing, this indemnity shall extend to
any claims asserted against Lender by any Person under any Environmental Laws.
Notwithstanding any contrary provision of this Agreement, the obligation of
Borrower under this Section 11.2 shall survive the payment in full of the
Obligations and the termination of this Agreement.

Section 11.3. Modification of Agreement; Sale of Interest. This Agreement
may not be modified, altered or amended, except by an agreement in writing
signed by Borrower and Lender. Borrower may not sell, assign or transfer any
interest in this Agreement or any of the other Loan Documents, or any portion
thereof, including, without limitation, Borrower's rights, title, interests,
remedies, powers, and duties hereunder or thereunder. Borrower hereby consents
to Lender's participation, sale, assignment, transfer or other disposition, at
any time or times hereafter, of this Agreement, any of the other Loan Documents
or any of the Obligations, or of any portion hereof or thereof to any Affiliate
of Lender, and Lender's participation thereof with any Person if the amount so
participated is less than a fifty percent (50%) interest and Lender remains as
the servicing agent for this Agreement, including, without limitation, Lender's
rights, title, interests, remedies, powers, and duties hereunder or thereunder.
In the event of any such participation, sale, assignment, transfer or other
disposition, Lender shall be authorized to provide to each participating lender,
assignee or transferee all information in Lender's possession regarding Borrower
and the Collateral, including, without limitation, information required to be
disclosed pursuant to Banking Circular 181 (Rev. Aug. 2, 1984), issued by the
Comptroller of the Currency. In the case of an assignment, the assignee shall
have, to the extent of such assignment, the same rights, benefits and
obligations as it would if it were "Lender" hereunder and Lender shall be

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<PAGE> 47

relieved immediately (and without the necessity of the execution of further
documentation by Borrower or any other Person) of all obligations hereunder upon
any such assignment.

Section 11.4. Reimbursement of Expenses. If, at any time or times prior or
subsequent to the date hereof, regardless of whether or not an Event of Default
then exists or any of the transactions contemplated hereunder are concluded,
Lender employs counsel for advice or other representation, or incurs legal
expenses or other costs or out- of-pocket expenses in connection with: (A) the
negotiation and preparation of this Agreement or any of the other Loan
Documents, any amendment of or modification of this Agreement or any of the
other Loan Documents; (B) periodic audits and appraisals (but no more than one
(1) annually) performed by Lender; (C) any litigation, contest, dispute, suit,
proceeding or action (whether instituted by Lender, Borrower or any other
Person) in any way relating to the Collateral, this Agreement or any of the
other Loan Documents or Borrower's affairs; (D) any attempt to enforce any
rights or remedies of Lender against Borrower or any other Person which may be
obligated to Lender by virtue of this Agreement or any of the other Loan
Documents, including, without limitation, the Account Debtors; or (E) any
attempt to inspect, verify, protect, preserve, restore, collect, sell, liquidate
or otherwise dispose of or realize upon the Collateral; then, in any such event,
the reasonable attorneys' fees arising from such services and all reasonable
expenses, costs, charges and other fees of such counsel or of Lender or relating
to any of the events or actions described in this Section shall be payable when
incurred by Borrower to Lender, as the case may be, and shall be additional
Obligations hereunder secured by the Collateral.

Section 11.5. Indulgences Not Waivers. Lender's failure, at any time or
times hereafter, to require strict performance by Borrower of any provision of
this Agreement shall not waive, affect or diminish any right of Lender
thereafter to demand strict compliance and performance therewith. Any suspension
or waiver by Lender of an Event of Default by Borrower under this Agreement or
any of the other Loan Documents shall not suspend, waive or affect any other
Event of Default by Borrower under this Agreement or any of the other Loan
Documents, whether the same is prior or subsequent thereto and whether of the
same or of a different type. None of the undertakings, agreements, warranties,
covenants and representations of Borrower contained in this Agreement or any of
the other Loan Documents and no Event of Default by Borrower under this
Agreement or any of the other Loan Documents shall be deemed to have been
suspended or waived by Lender, unless such suspension or waiver is by an
instrument in writing specifying such suspension or waiver and is signed by a
duly authorized representative of Lender and directed to Borrower.

Section 11.6. Severability. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.

Section 11.7. Successors and Assigns. This Agreement, the Other Agreements
and the Security Documents shall be binding upon and inure to the benefit of the
successors and

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<PAGE> 48

assigns of Borrower and Lender. This provision, however, shall not he deemed to
modify Section 11.3 hereof.

Section 11.8. Cumulative Effect; Conflict of Terms. The provisions of the
Other Agreements and the Security Documents are hereby made cumulative with the
provisions of this Agreement. Except as otherwise provided in Section 3.2 of
this Agreement and except as otherwise provided in any of the other Loan
Documents by specific reference to the applicable provision of this Agreement,
if any provision contained in this Agreement is in direct conflict with, or
inconsistent with, any provision in any of the other Loan Documents, the
provision contained in this Agreement shall govern and control.

Section 11.9. Execution in Counterparts. This Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which counterparts taken together shall constitute but
one and the same instrument. In proving this Agreement in any judicial
proceeding, it shall not be necessary to produce or account for more one such
counterpart signed by the party against whom such enforcement is sought.

Section 11.10. Notice. Except as otherwise provided herein, all notices,
requests and demands to or upon a party hereto shall be in writing and shall be
sent by certified or registered mail, return receipt requested, personal
delivery against receipt or by telecopier or other facsimile transmission and,
unless otherwise expressly provided herein, shall be deemed to have been validly
served, given or delivered when delivered against receipt or one Business Day
after deposit in the mail, postage prepaid, or, in the case of facsimile
transmission, when received at the office of the noticed party, addressed as
follows:

(A) Lender: ABN AMRO Bank N.V.,
New York Branch
500 Park Avenue
Third Floor
New York, New York 10022
Attn: Mr. Jeff Sarfaty

(B) If to Borrower: Friedman's Inc.
4 West State Street
Savannah, Georgia 31401
Attn: Mr. Victor Suglia

Section 11.11. Lender's Right to Set-Off. Upon the occurrence of an Event
of Default and acceleration of the Obligations as permitted in Section 10.2
hereof, Lender, without

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<PAGE> 49

notice or demand of any kind, may hold and set-off against such of the
Obligations (whether matured or unmatured) as Lender may elect, any balance or
amount to the credit of Borrowers in any deposit, agency, reserve, holdback or
other account of any nature whatsoever (other than any account specifically
identified as a payroll account for employees of Borrower), maintained by or on
behalf of Borrowers with Lender at its offices, regardless of whether such
accounts are general or special and regardless of whether such accounts are
individual or joint.

Section 11.12. Demand Obligations. Nothing in this Agreement shall affect
or abrogate the demand nature of any portion of the Obligations expressly made
payable on demand by this Agreement or by any instrument evidencing or securing
same, and the occurrence of an Event of Default shall not be a prerequisite for
Lender's requiring payment of such Obligations.

Section 11.13. Time of Essence. Time is of the essence in the payment and
performance of this Agreement, the Other Agreements and the Security Documents.

Section 11.14. Entire Agreement. This Agreement and the other Loan
Documents, together with all other instruments, agreements and certificates
executed by the parties in connection therewith or with reference thereto,
embody the entire understanding and agreement between the parties hereto and
thereto with respect to the subject matter hereof and thereof and supersede all
prior agreements, understandings and inducements, whether express or implied,
oral or written.

Section 11.15. Interpretation. No provision of this Agreement or any of the
other Loan Documents shall be construed against or interpreted to the
disadvantage of any party hereto by any court or other governmental or judicial
authority by reason of such party's having or being deemed to have structured or
dictated such provision.

Section 11.16. Governing Law; Consent to Forum. THIS AGREEMENT HAS BEEN
NEGOTIATED, EXECUTED AND DELIVERED AT AND SHALL BE DEEMED TO HAVE BEEN MADE IN
ATLANTA, GEORGIA. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF GEORGIA; PROVIDED, HOWEVER,
THAT IF ANY OF THE COLLATERAL SHALL BE LOCATED IN ANY JURISDICTION OTHER THAN
GEORGIA, THE LAWS OF SUCH JURISDICTION SHALL GOVERN THE METHOD, MANNER AND
PROCEDURE FOR FORECLOSURE OF LENDER'S LIEN UPON SUCH COLLATERAL AND THE
ENFORCEMENT OF LENDER'S OTHER REMEDIES IN RESPECT OF SUCH COLLATERAL TO THE
EXTENT THAT THE LAWS OF SUCH JURISDICTION ARE DIFFERENT FROM OR INCONSISTENT
WITH THE LAWS OF GEORGIA. AS PART OF THE CONSIDERATION FOR NEW VALUE RECEIVED,
AND REGARDLESS OF ANY PRESENT OR FUTURE DOMICILE OR PRINCIPAL PLACE OF BUSINESS
OF BORROWER OR LENDER, BORROWER HEREBY CONSENTS AND AGREES THAT THE SUPERIOR
COURT OF FULTON COUNTY, GEORGIA, OR, AT LENDER'S OPTION, THE UNITED STATES
DISTRICT COURT FOR THE NORTHERN DISTRICT OF GEORGIA, ATLANTA DIVISION, SHALL
HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN
BORROWER AND LENDER PERTAINING TO THIS AGREEMENT OR TO ANY MATTER ARISING OUT OF
OR RELATED TO THIS AGREEMENT; PROVIDED,

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<PAGE> 50

HOWEVER, LENDER MAY, AT ITS OPTION, COMMENCE ANY ACTION, SUIT OR PROCEEDING IN
ANY OTHER APPROPRIATE FORUM OR JURISDICTION TO OBTAIN POSSESSION OF OR
FORECLOSURE UPON ANY COLLATERAL, TO OBTAIN EQUITABLE RELIEF OR TO ENFORCE ANY
JUDGMENT OR ORDER OBTAINED BY LENDER AGAINST BORROWER OR WITH RESPECT TO ANY
COLLATERAL OR TO OBTAIN ANY OTHER RELIEF DEEMED APPROPRIATE BY LENDER. BORROWER
EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR
SUIT COMMENCED IN ANY SUCH COURT, AND BORROWER HEREBY WAIVES ANY OBJECTION WHICH
BORROWER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR
FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING FOR SUCH LEGAL OR
EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. BORROWER HEREBY WAIVES
PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH
ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER
PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER AT THE
ADDRESS SET FORTH IN THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED
COMPLETED UPON THE EARLIER OF BORROWER'S ACTUAL RECEIPT THEREOF OR THREE (3)
DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID. NOTHING IN THIS
AGREEMENT SHALL BE DEEMED OR OPERATE TO AFFECT THE RIGHT OF LENDER TO SERVE
LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.

Section 11.17. General Waivers by Borrower. BORROWER WAIVES (I)
PRESENTMENT, DEMAND AND PROTEST AND NOTICE OF PRESENTMENT, PROTEST, DEFAULT, NON
PAYMENT, MATURITY, RELEASE, COMPROMISE, SETTLEMENT, EXTENSION OR RENEWAL OF ANY
OR ALL COMMERCIAL PAPER, ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS, INSTRUMENTS,
CHATTEL PAPER AND GUARANTIES AT ANY TIME HELD BY LENDER ON WHICH BORROWER MAY IN
ANY WAY BE LIABLE AND HEREBY RATIFIES AND CONFIRMS WHATEVER LENDER MAY DO IN
THIS REGARD; (II) NOTICE PRIOR TO LENDER'S TAKING POSSESSION OR CONTROL OF ANY
OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH MIGHT BE REQUIRED BY ANY COURT
PRIOR TO ALLOWING LENDER TO EXERCISE ANY OF LENDER'S REMEDIES, INCLUDING THE
ISSUANCE OF AN IMMEDIATE WRIT OF POSSESSION; (III) THE BENEFIT OF ALL VALUATION,
APPRAISEMENT AND EXEMPTION LAWS; (IV) ANY RIGHT BORROWER MAY HAVE UPON PAYMENT
IN FULL OF THE OBLIGATIONS TO REQUIRE LENDER TO TERMINATE ITS SECURITY INTEREST
IN THE COLLATERAL OR IN ANY OTHER PROPERTY OF BORROWER UNTIL TERMINATION OF THIS
AGREEMENT IN ACCORDANCE WITH ITS TERMS AND THE EXECUTION BY BORROWER, AND BY ANY
PERSON WHOSE LOANS TO BORROWER ARE USED IN WHOLE OR IN PART TO SATISFY THE
OBLIGATIONS, OF AN AGREEMENT INDEMNIFYING LENDER FROM ANY LOSS OR DAMAGE LENDER
MAY INCUR AS THE RESULT OF DISHONORED CHECKS OR OTHER ITEMS OF PAYMENT RECEIVED
BY LENDER FROM BORROWER OR ANY ACCOUNT DEBTOR AND APPLIED TO THE OBLIGATIONS;
AND (V) NOTICE OF ACCEPTANCE HEREOF.

Section 11.18. Security Agreement. The relative rights and obligations of
Borrower and Lender hereunder and under the Other Agreements are subject to the
terms and provisions of the Intercreditor Agreement. To the extent there is any
conflict with respect to the Lender's rights or the Borrower's obligations
hereunder or under the Other

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<PAGE> 51

Agreements, on the one hand, and under the Intercreditor Agreement, on the other
hand, the Intercreditor Agreement shall control.

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<PAGE> 52

IN WITNESS WHEREOF, this Agreement has been duly executed in New York, New
York on the day and year specified at the beginning hereof.

BORROWER:

FRIEDMAN'S INC.

By:/s/ Bradley J. Stinn
----------------------------
Bradley J. Stinn,
Chairman and Chief
Executive Officer

[CORPORATE SEAL]

LENDER:

ABN AMRO BANK N.V.

By: /s/
----------------------------
Title: S.V.P.
----------------------

By: /s/
----------------------------
Title: VP
----------------------

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<PAGE> 1
EXHIBIT 10.7

SECOND AMENDED AND RESTATED INTERCREDITOR
AND SECURITY AGREEMENT

THIS AMENDED AND RESTATED INTERCREDITOR AND SECURITY AGREEMENT, dated
as of July 14, 1997, among NationsBank, N.A., as collateral agent (the
"Collateral Agent"), First Union National Bank (formerly known as First Union
National Bank of Georgia), as a lender ("First Union"), NationsBank, N.A.
(formerly known as NationsBank of Georgia, N.A.), as a lender ("NationsBank"),
ABN AMRO Bank N.V., New York Branch, as a lender ("ABN"), and Friedman's Inc.
(the "Borrower");

WHEREAS, the Borrower and First Union have entered into that certain
Second Amended and Restated Loan Agreement, dated of even date herewith (the
"First Union Loan Agreement"); and

WHEREAS, the Borrower and NationsBank have made and entered into
that certain Second Amended and Restated Loan Agreement, dated of even date
herewith (the "NationsBank Loan Agreement"); and

WHEREAS, the Borrower and ABN have made and entered into that
certain Loan Agreement, dated of even date herewith (the "ABN Loan Agreement");
and

WHEREAS, each of the Lenders (as herein defined) has extended or
will extend certain credit to the Borrower, but has conditioned its credit to
the Borrower on the agreement of the other Lenders to enter into this Agreement
to appoint the Collateral Agent as agent hereunder for certain purposes and to
set forth the parties' respective positions, obligations and duties with respect
to the Collateral on the terms provided below;

NOW THEREFORE, for Ten Dollars ($10.00) and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:

1. Definitions. As used herein, the following terms shall have
the following meanings:

"ABN BORROWING BASE" shall mean "Borrowing Base" as defined in the
ABN Loan Agreement.

"ABN EVENT OF DEFAULT" shall mean an "Event of Default" as defined
in the ABN Loan Agreement.

"ABN LOAN AGREEMENT" shall mean as provided in the preamble to this
Intercreditor Agreement and shall refer only to the ABN Loan Agreement as in
effect on the date hereof, without

<PAGE> 2

inclusion of any amendment or supplement, other than Permitted Amendments and
except as otherwise may be specifically approved in writing by NationsBank and
First Union; provided, at such time as First Union and NationsBank shall have
consented in writing to the "Consignment Agreement" (as defined in the ABN Loan
Agreement), the term "ABN Loan Agreement" as used herein shall refer to both
such ABN Loan Agreement and such Consignment Agreement.

"ABN OBLIGATIONS" shall mean "Obligations" as defined in the ABN
Loan Agreement.

"ACCELERATION NOTICE" shall mean, as applicable, (x) a written
notice given by First Union to NationsBank and ABN that First Union has
accelerated the Borrower's Obligations to it, (y) a written notice from
NationsBank to First Union and ABN that NationsBank has accelerated the
Borrower's Obligations to it, and (z) a written notice from ABN to First Union
and NationsBank that ABN has accelerated the Borrower's Obligations to it.

"ACCOUNTS" shall mean all accounts, contract rights, chattel paper,
instruments and documents, whether now owned or hereafter created or acquired by
the Borrower or in which the Borrower now has or hereafter acquires any
interest; and all documents evidencing choses in action, causes of action, books
and records, computer equipment, and customer lists relating to any of the
foregoing.

"APPROVED ADVANCES" shall mean, (x) with respect to advances made by
NationsBank to the Borrower in good faith in reliance on a current borrowing
base certificate demonstrating availability under the NationsBank Borrowing
Base, advances outstanding under the NationsBank Loan Agreement in a maximum
principal amount outstanding less than the NationsBank Borrowing Base and which
have not been made after receipt of a Default Notice, (y) with respect to
advances made by First Union to the Borrower in good faith in reliance on a
current borrowing base certificate demonstrating availability under the First
Union Borrowing Base, advances under the First Union Loan Agreement up to a
maximum principal amount outstanding less than the First Union Borrowing Base
and which have not been made after receipt of a Default Notice and (z) with
respect to advances made by ABN to the Borrower in good faith in reliance on a
current borrowing base certificate demonstrating availability under the ABN
Borrowing Base, advances outstanding under the ABN Loan Agreement in a maximum
principal amount outstanding less than the ABN Borrowing Base and which have not
been made after receipt of a Default Notice; provided, no advances or extensions
of credit to the Borrower pursuant to the "Consignment Agreement" (as defined in
the ABN Loan Agreement) shall be "Approved Advances" hereunder until such time
as First Union and NationsBank shall have approved in writing the form of the
Consignment Agreement.

"BOOKS AND RECORDS" shall mean all books and records (including,
without limitation, customer lists, credit files, computer programs, printouts,
and other computer materials and records) of the Borrower pertaining to any of
the Accounts, the Inventory, the Moneys and the Proceeds.

"COLLATERAL" shall mean all Accounts, Inventory, Moneys, Proceeds
and Books and Records, and any interest in the foregoing, and all of Borrower's
other tangible or intangible property,

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<PAGE> 3

and interests in such other tangible and intangible property that now or
hereafter secures the payment and performance of the First Union Obligations,
the NationsBank Obligations or the ABN Obligations.

"COLLECTING AGENT" shall mean the Lender exercising its rights and
remedies against Borrower.

"DEFAULT NOTICE" shall mean, as applicable, (x) a written notice
given by First Union to NationsBank and ABN that First Union has declared that a
First Union Event of Default has occurred and is continuing, (y) a written
notice from NationsBank to First Union and ABN that NationsBank has declared
that a NationsBank Event of Default has occurred and is continuing, and (z) a
written notice from ABN to First Union and NationsBank that ABN has declared
that a ABN Event of Default has occurred and is continuing.

"FIRST UNION BORROWING BASE" shall mean "Borrowing Base" as defined
in the First Union Loan Agreement.

"FIRST UNION EVENT OF DEFAULT" shall mean an "Event of Default" as
defined in the First Union Loan Agreement.

"FIRST UNION LOAN AGREEMENT" shall mean as provided in the preamble
to this Intercreditor Agreement and shall refer only to the First Union Loan
Agreement as in effect on the date hereof, without inclusion of any amendment or
supplement, other than Permitted Amendments and except as otherwise may be
specifically approved in writing by NationsBank and ABN.

"FIRST UNION OBLIGATIONS" shall mean "Obligations" as defined in the
First Union Loan Agreement.

"INVENTORY" shall mean all of the Borrower' inventory, whether now
owned or hereafter acquired by the Borrower and wherever located, including, but
not limited to, all goods intended for sale or lease by the Borrower, or for
display or demonstration including, without limitation, all gold and other
precious metals and precious stones and gems (including without limitation,
diamonds) in whatever form and all products in which any such gold, precious
metal and precious stones and gems are incorporated or into which such gold,
precious metal and precious stones and gems are processed or converted,
including without limitation, bullion, alloys or wire; all work in process; all
raw materials and other materials and supplies of every nature and description
used or which might be used in connection with the manufacture of such goods or
otherwise used or consumed in the Borrower's business; and all documents
evidencing choses in action, causes of action, books and records, all rights to
indemnification, licenses, and customer lists relating to any of the foregoing.

"LENDERS" shall mean First Union, NationsBank and ABN.

- 3 -

<PAGE> 4

"MONEYS" shall mean all moneys and other tangible or intangible
property of any kind, now or at any time or at times hereafter in the possession
or under the control of any one or more of the Lenders or a bailee of any one or
more of the Lenders, including, without limitation, deposit accounts.

"NATIONSBANK BORROWING BASE" shall mean "Borrowing Base" as defined
in the NationsBank Loan Agreement.

"NATIONSBANK LOAN AGREEMENT" shall mean as provided in the preamble
to this Intercreditor Agreement and shall refer only to the NationsBank Loan
Agreement as in effect on the date hereof, without inclusion of any amendment or
supplement, other than Permitted Amendments and except as otherwise may be
specifically approved in writing by First Union and ABN.

"NATIONSBANK EVENT OF DEFAULT" shall mean an "Event of Default" as
defined in the NationsBank Loan Agreement.

"NATIONSBANK OBLIGATIONS" shall mean "Obligations" as defined in the
NationsBank Loan Agreement.

"NET PROCEEDS" shall mean all cash received by the Collecting Agent
from the exercise of its rights or remedies, less the Collecting Agent's and the
other Lender's expenses of collection.

"OBLIGATIONS" shall mean the First Union Obligations, the
NationsBank Obligations or the ABN Obligations as the context may require.

"PERMITTED AMENDMENTS" shall mean any amendment or modification to
the NationsBank Loan Agreement, the First Union Loan Agreement and the ABN Loan
Agreement, as applicable, other than an amendment or modification that: (i)
increases the principal amount permitted to be borrowed thereunder, (ii)
shortens the termination date of the loan facility, (iii) amends the "borrowing
base" or eligibility criteria for "eligible accounts" or "eligible inventory",
or (iv) increases the interest rate applicable to the loan facility.

"PRO RATA SHARe" shall mean at any time (x) with respect to
NationsBank (i) the amount of Approved Advances then outstanding by NationsBank
divided by (ii) the amount of all Approved Advances then outstanding by each of
NationsBank, ABN and First Union, (y) with respect to First Union (i) the amount
of Approved Advances then outstanding by First Union divided by (ii) all
Approved Advances then outstanding by each of NationsBank, ABN and First Union
and (z) with respect to ABN (i) the amount of Approved Advances then outstanding
by ABN divided by (ii) all Approved Advances then outstanding by each of
NationsBank, ABN and First Union.

"PROCEEDS" shall mean all accessions to, substitutions for, and all
replacement, products and cash and non-cash proceeds of all Accounts, all
Inventory and all Moneys, including,

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<PAGE> 5

without limitation, proceeds of any unearned premiums with respect to insurance
policies insuring any of the Collateral.

"SUBORDINATE ADVANCES" shall mean loans or advances made by a Lender
that are not Approved Advances.

2. Priority of Security Interests.

a. Notwithstanding any agreement or arrangement which NationsBank,
First Union or ABN may now or hereafter have with the Borrower, or any rule of
law, and notwithstanding the time, order or method of attachment, perfection,
filing or recording, except as provided in subsections (b), (c) and (d) below,
(x) so long and to the extent the First Union lien and security interest in the
Collateral are perfected or otherwise valid and enforceable against third
parties, the NationsBank Obligations and the ABN Obligations shall be pari passu
with, in all respects and for all purposes, the First Union Obligations and the
lien on and security interest in the Collateral securing the NationsBank
Obligations and the ABN Obligations shall be pari passu with and equal in
priority to, in all respects and for all purposes, to First Union's lien on and
security interest in the Collateral securing the First Union Obligations, (y) so
long and to the extent the NationsBank lien and security interest in the
Collateral are perfected or otherwise valid and enforceable against third
parties, the First Union Obligations and the ABN Obligations shall be pari passu
with, in all respects and for all purposes, the NationsBank Obligations, and the
lien on and security interest in the Collateral securing the First Union
Obligations and the ABN Obligations shall be pari passu with and equal in
priority to, in all respects and for all purposes, to the NationsBank lien on
and security interest in the Collateral securing the NationsBank Obligations and
(z) so long and to the extent the ABN lien and security interest in the
Collateral are perfected or otherwise valid and enforceable against third
parties, the First Union Obligations and the NationsBank Obligations shall be
pari passu with, in all respects and for all purposes, the ABN Obligations, and
the lien on and security interest in the Collateral securing the First Union
Obligations and the NationsBank Obligations shall be pari passu with and equal
in priority to, in all respects and for all purposes, to the ABN lien on and
security interest in the Collateral securing the ABN Obligations. For the
benefit of the Lenders (and no other third parties), the Lenders agree that, for
the purposes of this Agreement, all of the Lenders have a perfected security
interest in the Collateral in which the Collateral Agent has been granted a
security interest hereunder.

b. Notwithstanding the provisions of subsection 2(a), any advance or
loan by NationsBank to the Borrower under the NationsBank Loan Agreement that is
an Overadvance (as defined in the NationsBank Credit Agreement) or is not
otherwise an Approved Advance shall be secured by a lien on the Collateral that
is subject and inferior to First Union's and ABN's lien on and security interest
in the Collateral.

c. Notwithstanding the provisions of subsection 2(a), any advance by
First Union to the Borrower under the First Union Loan Agreement that is an
Overadvance (as defined in the First

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<PAGE> 6

Union Credit Agreement) or is not otherwise an Approved Advance shall be secured
by a lien on the Collateral that is subject and inferior to NationsBank's and
ABN's lien on and security interest in the Collateral.

d. Notwithstanding the provisions of subsection 2(a), any advance by
ABN to the Borrower under the ABN Loan Agreement that is an Overadvance
(as defined in the ABN Credit Agreement) or is not otherwise an
Approved Advance shall be secured by a lien on the Collateral that is
subject and inferior to NationsBank's and First Union's lien on and
security interest in the Collateral.

3. Default Notices.

a. NationsBank shall provide to First Union and ABN a Default Notice
upon the declaration of a NationsBank Event of Default. NationsBank
will not accelerate the NationsBank Obligations until at least 5 days
after it has provided such Default Notice to the other Lenders.
NationsBank will thereafter provide an Acceleration Notice to the other
Lenders within 5 days of the date of the acceleration of its
Obligations. NationsBank shall thereafter be entitled to exercise its
collection rights and remedies against Borrower and the Collateral,
except as otherwise provided in subsection (d) below. If NationsBank
elects to pursue such collection rights and remedies, it will
immediately notify First Union and ABN thereof.

b. First Union shall provide to NationsBank and ABN a Default Notice
upon the declaration of a First Union Event of Default. First Union
will not accelerate the First Union Obligations until at least 5 days
after it has provided such Default Notice to the other Lenders. First
Union will thereafter provide an Acceleration Notice to the other
Lenders within 5 days of the date of the acceleration of its
Obligations. First Union shall thereafter be entitled to exercise its
collection rights and remedies against the Borrower and the Collateral,
except as otherwise provided in subsection (d) below. If First Union
elects to pursue such collection rights and remedies, it will
immediately notify NationsBank and ABN thereof.

c. ABN shall provide to NationsBank and First Union a Default Notice
upon the declaration of a ABN Event of Default. ABN will not accelerate
the ABN Obligations until at least 5 days after it has provided such
Default Notice to the other Lenders. ABN will thereafter provide an
Acceleration Notice to the other Lenders within 5 days of the date of
the acceleration of its Obligations. ABN shall thereafter be entitled
to exercise its collection rights and remedies against the Borrower and
the Collateral, except as otherwise provided in subsection (d)
below. If ABN elects to pursue such collection rights and remedies,
it will immediately notify NationsBank and First Union thereof.

d. The Lender providing the other Lenders with the Acceleration
Notice and thereafter exercising its collection rights and remedies
shall be the "Collecting Agent" hereunder.

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<PAGE> 7

(i) If NationsBank gives First Union and ABN an Acceleration
Notice, NationsBank shall be the Collecting Agent. NationsBank
may elect to act as Collecting Agent, if, within 48 hours of
receipt of an Acceleration Notice from First Union or ABN,
NationsBank notifies First Union and ABN that it will act as
Collecting Agent.

(ii) If NationsBank does not elect to act as Collecting Agent
as provided above after receipt of an Acceleration Notice from
First Union or ABN, then (x) if First Union gave the
Acceleration Notice, First Union will be the Collecting Agent
or (y) if ABN gave the Acceleration Notice, ABN will be the
Collecting Agent, unless First Union gives ABN notice within
48 hours of receipt of such Acceleration Notice that First
Union will act as Collecting Agent.

e. The Collecting Agent may exercise any or all collection
rights and remedies available to it under its loan documents with the
Borrower and may exercise any or all of the other Lenders'
collection rights and remedies available to the other Lenders under
their loan documents with the Borrower against the Borrower as agent
for and on behalf of the other Lenders. The Collecting Agent shall
diligently pursue such collection rights and remedies against the
Borrower and the Collateral in accordance with its reasonable
business judgment. As long as the Collecting Agent is diligently
pursuing such collection rights and remedies, the other Lender shall
not exercise any of its collection rights or remedies against the
Borrower.

f. Nothing in this Section shall in any way be construed as a
waiver or forbearance in favor of the Borrower by any Lender of any
right or remedy under the First Union Loan Agreement, NationsBank
Loan Agreement or the ABN Loan Agreement. Nothing in this Agreement
shall prevent the Lenders which are not the Collecting Agent from
accelerating their respective Obligations after an "Event of
Default" with respect thereto or bringing any action or proceeding
against the Borrower to preserve or protect its rights with respect
to the Borrower and the Collateral or from defending any action
against it by the Borrower or any account debtor of the Borrower.

4. Collection of Proceeds. (a) None of First Union,
NationsBank or ABN shall exercise any rights against the Collateral or any
account debtor of the Borrower except if it is the Collecting Agent hereunder.
The Collecting Agent shall diligently pursue such collection rights and remedies
against the Borrower and the Collateral in accordance with its reasonable
business judgment, it being understood that the Collecting Agent must take
affirmative actions hereunder. All Net Proceeds of the Collateral received by
the Collecting Agent shall be distributed to itself and to the other Lenders, in
their Pro Rata Shares of the Approved Advances, on the day following receipt
thereof in immediately available funds. After all of each Lender's Approved
Advances have been repaid in full, any other Net Proceeds received by the
Collecting Agent shall be applied to each Lender's Subordinate Advances based on
the ratio of (i) such Lender's Subordinated Advances to (ii) the total amount of
Subordinate Advances made by all Lenders.

- 7 -

<PAGE> 8

(b) The Collecting Agent shall provide the other Lenders with
summaries of its collection efforts not less frequently than weekly. In
addition, the Collecting Agent shall meet with the other Lenders at such times
as the other Lenders may reasonably request to discuss the Collecting Agent's
results and the status of the Borrower and the Collateral available to satisfy
the Obligations.

5. Bankruptcy Proceedings. The Collecting Agent shall act as
agent for the Lenders for all purposes during the course of any bankruptcy or
insolvency proceeding against Borrower; provided, the Collecting Agent will not
file an involuntary bankruptcy proceeding against the Borrower on behalf of any
Lender unless such Lender consents thereto in advance; provided, further, that
once any non-consenting Lender files a proof of claim or appearance in any such
involuntary proceeding, the Collecting Agent shall thereafter act as its (along
with the other Lenders) agent during the course of such bankruptcy proceeding
for all purposes. Any claim filed by the Collecting Agent in any bankruptcy
shall be filed by the Collecting Agent for itself and as agent for the other
Lenders (except as otherwise noted above) and all of the Lenders' pari passu
interests in such claims shall be noted thereon. All Net Proceeds from the
Collateral Agent's exercise of its collecting rights and remedies with respect
to the Obligations in any such proceeding will be applied by Collecting Agent as
provided in Section 4 hereof.

6. Set-Off. In addition to any rights now or hereafter granted
under applicable law and not by way of limitation of any such rights, upon the
occurrence of any NationsBank Event of Default, First Union Event of Default or
ABN Event of Default, each Lender is hereby authorized by the Borrower at any
time or from time to time, without notice to the Borrower or to any other person
or entity, any such notice being hereby expressly waived, to set-off and to
appropriate and to apply any and all balances held by it at any of its offices
for the account of the Borrower and any other property at any time held or owing
by that Lender to or for the credit or for the account of the Borrower against
and on account of any of the NationsBank Obligations, First Union Obligations
and ABN Obligations, as applicable, that are not paid when due. The Borrower
agrees that (A) each Lender holds such balances and other property for itself
and as agent for the other Lenders, (B) each Lender may exercise its right to
set-off with respect to amounts in excess of its Pro Rata Share and shall
thereafter transfer any such excess to the other Lenders and (c) the Lenders so
receiving such excess may exercise all rights of set-off, bankers' lien,
counterclaim or similar rights with respect thereto fully as if such a Lender
were the direct holder of such excess.

7. Consent. Each of NationsBank and First Union hereby consents
to the Borrower's execution, delivery and performance of the ABN Loan Agreement
and the "Security Documents" and "Other Agreements" (each as defined in the ABN
Loan Agreement), including, without limitation, the Borrower's grant to ABN of a
pari passu lien on security interest in the Collateral.

8. Representation and Warranty. NationsBank represents and
warrants to First Union and ABN that attached hereto are true and correct copies
of the NationsBank Loan Agreement and the "Security Agreement" (as defined in
the NationsBank Loan Agreement). NationsBank has not granted, transferred or
assigned any interest in the Collateral to any person or entity. First Union

- 8 -

<PAGE> 9

represents and warrants to NationsBank and ABN that attached hereto are true and
correct copies of the First Union Loan Agreement and the "Security Agreement"
(as defined in the First Union Loan Agreement) and no "Default" or First Union
Event of Default has occurred and is continuing as of the date hereof. First
Union has not granted, transferred or assigned any interest in the Collateral to
any person or entity. ABN represents and warrants to NationsBank and First Union
that attached hereto are true and correct copies of the ABN Loan Agreement and
the "Security Agreement" (as defined in the ABN Loan Agreement).

9. Collateral Agent; Security Interest.

a. The Borrower hereby grants to the Collateral Agent on behalf of the
Lenders a lien on and a security interest in all of its right, title and
interest in and to the Collateral as security for the Obligations. The
Collateral Agent shall act as agent for the Lenders for the purpose of obtaining
and maintaining a perfected security interest in the Collateral. Upon notice
from the Collecting Agent that an Acceleration Notice has been received, the
Collateral Agent shall, upon request of the Collecting Agent, assign all of its
right, title and interest in and to the Collateral to the Collecting Agent.

b. The Collateral Agent shall not be liable to any person or entity for
any action taken by it hereunder in good faith. In addition to the fee payable
to the Collateral Agent under the NationsBank Loan Agreement, the Borrower shall
reimburse the Collateral Agent, on demand, for any out of pocket fees, costs or
expenses, including reasonable attorneys fees and expenses, incurred by the
Collateral Agent in the performance of its duties hereunder. Each of the Lenders
agrees to indemnify the Collateral Agent, pro rata, for any fees, costs,
liabilities or expenses incurred by the Collateral Agent hereunder, other than
for any fees, costs, liabilities or expenses incurred as a result of the
Collateral Agent's gross negligence or wilful misconduct.

10. Miscellaneous.

a. Notices. Any and all notices, elections, demands, requests and
responses thereto permitted or required to be given under this Agreement
shall be in writing, signed by or on behalf of the party giving the same,
and shall be deemed to have been properly given and shall be effective
upon being personally delivered, or upon being received by United States
mail, telex, or telefax, at the address or telefax of such other party set
forth below or at such other address or telefax within the continental
United States as such other party may designate by notice specifically
designated as a notice of change of address and given in accordance
herewith; provided, however, that the time period in which a response to
any such notice, election, demand or request must be given shall commence
on the date of receipt thereof; and provided further that no notice of
change of address shall be effective until the date of receipt thereof.
Rejection or other refusal to accept notice or inability to deliver notice
because of changed address or telefax of which no notice has been received
shall also constitute receipt. Any notice, election, demand, request or
response shall be addressed to the address or telefax number provided on
the signature page of this Agreement.

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<PAGE> 10

b. Time of the Essence. Time is of the essence in the interpretation
and enforcement of this Agreement.

c. Entire Agreement, Etc. This Agreement expresses the entire
understandings of the parties with respect to the transactions
contemplated hereby and supersedes all prior and contemporaneous
agreements of any nature with respect to the transactions contemplated
hereby. Neither this Agreement nor any term hereof may be changed, waived,
discharged or terminated orally or in writing, except as provided below.
This Agreement amends and restates in its entirety that certain Amended
and Restated Intercreditor Agreement, dated as of December 14, 1995, among
First Union, NationsBank and the Borrower.

d. Consents, Amendments, Waivers, Etc. Except as otherwise expressly
set forth in any particular provision of this Agreement, any consent or
approval required or permitted by this Agreement to be given by any Lender
to the other may be given, and the performance or observance by any Lender
of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively) with, but
only with, the written specific consent of the other Lenders. No waiver
shall extend to or affect any obligation not expressly waived or impair
any right consequent thereon. No course of dealing or delay or omission on
the part of either party in exercising any right shall operate as a waiver
thereof or otherwise be prejudicial thereto. This Agreement may be amended
only by an agreement in writing executed by each Lender.

e. Counterparts. This Agreement may be executed in any number of
counterparts, and all such counterparts taken together shall be deemed to
constitute one and the same agreement.

f. Headings. The headings of the various paragraphs of this Agreement
are inserted for convenience only and shall be wholly disregarded when
interpreting the meaning or effect of any of the terms hereof.

g. Choice of Law; Forum. This Agreement shall be construed and enforced
in accordance with and subject to the substantive laws of the State of
Georgia. Venue for any litigation or action with respect to the
enforcement or breach of this Agreement shall lie exclusively in Fulton
County, Georgia or the United States District Court for the Northern
District of Georgia, and each of the parties hereby irrevocably waives the
right to sue or initiate proceedings or be sued or initiate proceedings
other than in Fulton County, Georgia or the United States District Court
for the Northern District of Georgia.

h. Successors and Assigns. All covenants and agreements in this
Agreement shall bind and inure to the benefit of the respective successors
and assigns of each of the parties.

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<PAGE> 11

IN WITNESS WHEREOF, the parties hereto have set their hands and affixed
their seals the day and year first above written.

COLLATERAL AGENT:

NATIONSBANK, N.A., as agent

By: /s/ Melinda Bergbom
-------------------------------------
Title: Senior Vice President
---------------------------------

Address: Melinda Bergbom
Senior Vice President
NationsBank, N.A.
600 Peachtree Street, N.E.
19th Floor
Atlanta, Georgia 30308-2214

Telephone: 404/607-4761
Telefax: 404/607-6343

LENDERS:

FIRST UNION NATIONAL BANK

By: /s/ Daniel L. Evans
-------------------------------------
Title: Senior Vice President
----------------------------------

Address: Mr. Dan Evans
Senior Vice President
First Union National Bank
999 Peachtree Street, N.E.
9th Floor
Atlanta, Georgia 30309

Telephone: 404-827-7220
Telefax: 800-815-0722

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<PAGE> 12

NATIONSBANK, N.A.

By: /s/ Melinda Bergbom
-------------------------------------
Title: Senior Vice President
----------------------------------

Address: Melinda Bergbom
Senior Vice President
NationsBank, N.A.
600 Peachtree Street, N.E.
19th Floor
Atlanta, Georgia 30308-2214

Telephone: 404/607-4761
Telefax: 404/607-6343

ABN AMRO BANK N.V., New York Branch

By: /s/ Jeffrey Sarfaty
-------------------------------------
Title: Vice President
----------------------------------

Address: Mr. Jeff Sarfaty
ABN AMRO BANK N.V.,
New York Branch
500 Park Avenue, 3rd Floor
New York, New York 10022

Telephone: 212/446-4253
Telefax: 212/644-6905

BORROWER:

FRIEDMAN'S INC.

By: /s/ Bradley J. Stinn
------------------------------------
Title: Chairman and Chief Executive Officer
----------------------------------

Address: Bradley J. Stinn
Friedman's Inc.
4 West State Street
Savannah, Georgia 31401

Telephone: 912-231-6606
Telefax: 912-238-4873

-12-

<PAGE> 1
EXHIBIT 10.8

SECURITY AGREEMENT

This AGREEMENT made as of the 14th day of July, 1997 is between Friedman's
Inc., a Delaware business corporation (the "Debtor") with its chief executive
office and principal office at 4 West State Street, Savannah, Georgia 31401 and
ABN AMRO Bank N.V., a bank organized under the laws of the Netherlands acting
through its New York Branch located at 500 Park Avenue, New York, New York 10022
(the "Secured Party").

WHEREAS, the Debtor and the Secured Party have entered into a Consignment
Agreement and Loan Agreement each dated on or about the date hereof, as the same
may be amended from time to time (the "Consignment Agreement" and "Loan
Agreement" respectively) pursuant to which the Secured Party may deliver
precious metal on consignment for sale to the Debtor (hereinafter collectively
referred to as the "Precious Metal") and pursuant to which the Secured Party may
make advances to the Debtor;

WHEREAS, the Secured Party desires to protect its interest in the Precious
Metal and the payment therefor; and

WHEREAS, the Secured Party desires to obtain security for the payment and
performance of all indebtedness, liabilities and obligations of the Debtor to
the Secured Party, now existing or hereafter arising under the Consignment
Agreement and the Loan Agreement and the Debtor is willing to grant such
security interest to the Secured Party on the terms and conditions hereinafter
set forth;

NOW, THEREFORE, for good and valuable consideration, the receipt whereof
is hereby acknowledged, the parties hereto agree as follows:

SECTION 1. THE SECURITY INTEREST.

In order to secure the due and punctual payment and performance of all the
obligations of the Debtor contained in the Consignment Agreement and the Loan
Agreement and any related security instruments, including but not limited to,
the due and punctual payment and performance of all present and future
indebtedness, liabilities and obligations of the Debtor to the Secured Party as
evidenced by the Consignment Agreement and Loan Agreement, and all notes
executed in connection therewith and any related security instruments, of every
kind and description, direct, indirect or contingent, now or hereafter existing,
due or to become due, including the obligations of the Debtor hereunder and the
obligations of the Debtor relating to bankers acceptances, overdrafts, loans and
the unpaid purchase price for gold and other precious metal (all hereinafter
called the "Obligations"), the Debtor hereby grants to the Secured Party a
continuing security interest in the following described property of the Debtor
(hereinafter called the "Collateral"):

<PAGE> 2

(a) all of Debtor's inventory, whether now owned or hereafter
acquired by Debtor and wherever located, including, but not limited to,
all goods intended for sale or lease by Debtor, or for display or
demonstration including without limitation, all gold and other precious
metal and precious stones and gems (including, without limitation,
diamonds) in whatever form and all products in which any such gold,
precious metal and precious stones and gems are incorporated or into
which such gold, precious metal and precious stones and gems are
processed or converted, including without limitation, bullion, alloys
or wire; all work in process; all raw materials and other materials and
supplies of every nature and description used or which might be used in
connection with the manufacture of such goods or otherwise used or
consumed in Debtor's business; and all documents evidencing choses in
action, causes of action, books and records, all rights to
indemnification, licenses, and customer lists relating to any of the
foregoing; (b) all accounts, contract rights, chattel paper,
instruments and documents, whether now owned or hereafter created or
acquired by Debtor or in which Debtor now has or hereafter acquires any
interest; and all documents evidencing choses in action, causes of
action, books and records, computer equipment, and customer lists
relating to any of the foregoing (the "Accounts"); (c) all monies and
other property or assets, whether real, personal or mixed, or tangible
or intangible, of any kind, now or at any time or times hereafter, in
the possession or under the control of Secured Party or a bailee of
Secured Party; (d) all accessions to, substitutions for and all
replacements, products and cash and non-cash proceeds of (a), (b) and
(c) above, including, without limitation, proceeds of and unearned
premiums with respect to insurance policies insuring any of the
Collateral; and (e) all books and records (including, without
limitation, customer lists, credit files, computer programs, printouts,
and other computer materials and records) of Debtor pertaining to any
of (a), (b), (c) or (d) above and all chattel paper pertaining to any
of (a), (b), (c) or (d) above.

The security interests granted pursuant to this Section 1 (the
"Security Interests") are granted as security only and shall not subject the
Secured Party to, or transfer or in any way affect or modify, any obligation or
liability of the Debtor under any of the Collateral or any transaction which
gave rise thereto.

SECTION 2. FILING; FURTHER ASSURANCES.

The Debtor will, at its expense, execute, deliver, file and record (in
such manner and form as the Secured Party may require), or permit the Secured
Party to file and record, any financing statements, specific assignment or other
paper that may be necessary or desirable, or that the Secured Party may request,
in order to create, preserve, perfect or validate any Security Interest or to
enable the Secured Party to exercise and enforce its rights hereunder with
respect to any of the Collateral. The Secured Party may at any time or from time
to time, at its sole discretion, require the Debtor to cause any chattel paper
to be delivered to the Secured Party, or any agent or representative designated
by it, or to cause a legend referring to the Security Interests to be placed on
such chattel paper and upon any ledgers or other records concerning such
Collateral.

-2-

<PAGE> 3

SECTION 3. REPRESENTATIONS AND WARRANTIES OF DEBTOR.

The Debtor hereby represents, warrants and covenants as follows:

A. That, except for the Security Interests, the Debtor is, or
to the extent that certain of the Collateral is to be acquired after
the date hereof will be, the owner of the Collateral free from any
adverse lien, security interest or encumbrance, and that the Debtor
will defend the Collateral against all claims and demands of all
persons at any time claiming any interest therein.

B. That no financing statement covering the Collateral is
on file in any public office, other than the financing statements
filed pursuant to this Security Agreement.

C. That the Debtor will promptly pay any and all taxes,
assessments and governmental charges upon the Collateral prior to the
date penalties are attached thereto, except to the extent that such
taxes, assessments and charges shall be contested in good faith by such
Debtor in appropriate proceedings. Such amount which is being contested
shall be fully reserved on the financial statements of the Debtor.

D. That the Debtor will immediately notify the Secured Party
of any event causing a substantial loss or diminution in the value of
all or any material part of the Collateral and the amount or an
estimate of the amount of such loss or diminution.

E. The Debtor will not sell or offer to sell or otherwise
transfer or dispose of the Collateral or any interest therein without
the written consent of the Secured Party; provided, however, that as
long as no Event of Default has occurred and is continuing and subject
to the terms of the Consignment Agreement or Loan Agreement, the Debtor
may, without the consent of the Secured Party (i) sell its inventory in
the ordinary course of its business and (ii) sell or otherwise dispose
of obsolescent items of equipment in the ordinary course of business
consistent with past practices.

F. That except as otherwise provided herein, the Debtor will
keep the Collateral free from any adverse lien, security interest or
encumbrance and in good order and repair and will not waste or destroy
the Collateral or any part thereof; and the Debtor will not use the
Collateral in violation of any statute or ordinance.

SECTION 4. RECORDS RELATING TO COLLATERAL.

The Debtor will keep its records concerning the Collateral, including
its Accounts and all chattel paper included in the accounts, at its principal
office at 4 West State Street, Savannah, Georgia 31401 or at such other place or
places of business as the Secured Party may approve in writing. The Debtor will
hold and preserve such records and chattel paper and will permit representatives
of the Secured Party at any time during normal business hours to examine and
inspect the Collateral and to take abstracts from such records and

- 3 -

<PAGE> 4

chattel paper, and will furnish to the Secured Party such information and
reports regarding the Collateral as the Secured Party may from time to time
reasonably request.

SECTION 5. COLLECTIONS WITH RESPECT TO CUSTOMER RECEIVABLES.

The Debtor will, at its expense, as agent for the Secured Party and
subject at all times to the Secured Party's right to give directions and
instructions:

(i) endeavor to collect or cause to be collected from
customers indebted on any Accounts, as and when due, any and all
amounts, including interest, owing under or on account of each Account;

(ii) compromise and settle any dispute relating to any
Account; and

(iii) take or cause to be taken such appropriate action to
repossess goods, the sale of which gave rise to any Account, or to
enforce any rights or liens under the Accounts, as the Debtor or the
Secured Party may deem proper, and in the name of the Debtor, or the
Secured Party, as the Secured Party may deem proper; provided that (x)
in the absence of specific instructions from the Secured Party, the
Debtor will use its best judgment to protect the interests of the
Secured Party, and (y) the Debtor shall not be required under this
Section 5 to take any action which would be contrary to any applicable
law or court order. Prior to the occurrence of an Event of Default, the
Debtor is authorized to retain all amounts collected by it and all
goods returned or repossessed pursuant to this Section 5 and to apply
such amounts and dispose of such goods in the ordinary course of its
business. Immediately upon the occurrence of any Event of Default and
thereafter so long as any Event of Default is continuing, all amounts
held or collected by the Debtor pursuant to this Section 5 and all
goods held or returned to or repossessed by the Debtor pursuant to this
Section 5 shall be held by it in trust for the benefit of the Secured
Party and paid over or delivered to such persons as the Secured Party
may direct.

SECTION 6. GENERAL AUTHORITY.

The Debtor hereby irrevocably appoints the Secured Party, and each of
its officers, the Debtor's true and lawful attorney, with full power of
substitution, in the name of the Debtor, the Secured Party or otherwise, but at
the Debtor's expense, to the extent permitted by law to exercise, upon ten (10)
days' prior written notice, at any time and from time to time while any Event of
Default has occurred and is continuing, all or any of the following powers with
respect to all or any of the Collateral:

(i) to demand, sue for, collect, receive and give acquittance
for any and all monies due or to become due upon or by virtue thereof;

- 4 -

<PAGE> 5

(ii) to receive, take, endorse, assign and deliver any and all
checks, notes, drafts, documents and other negotiable and
non-negotiable instruments and chattel paper taken or received by the
Secured Party in connection therewith;

(iii) to settle, compromise, compound, prosecute or defend any
action or proceeding with respect thereto;

(iv) to sell, transfer, assign or otherwise deal in or with
the same or the proceeds or avails thereof or the related goods
securing the Accounts, as fully and effectually as if the Secured Party
were the absolute owner thereof;

(v) to extend the time of payment of any or all thereof and
to make any allowance and other adjustments with reference thereto;

(vi) to discharge any taxes, liens, security interests or
other encumbrances at any time placed thereon; and

(vii) to receive any and all mail addressed to any Debtor;

provided that the Secured Party shall give the Debtor not less than ten (10)
days' prior written notice of the time and place of any sale or other intended
disposition of any of the Collateral, except any Collateral which is perishable
or threatens to decline speedily in value or is of a type customarily sold on a
recognized market. The Secured Party and the Debtor agrees that such notice
constitutes "reasonable notification" within the meaning of Section 9-504(3) of
the Uniform Commercial Code.

SECTION 7. EVENTS OF DEFAULT.

The Debtor shall be in default under this Security Agreement upon the
occurrence of any one of the following events (herein referred to as an "Event
of Default"):

(a) any representation or warranty made herein shall prove to
be false or misleading in any material respect;

(b) default by any Debtor in the due observance or performance
of any covenant or agreement herein contained and such default shall
continue unremedied for ten (10) days after written notice thereof by
the Secured Party to the Debtor;

(c) the occurrence of any Event of Default under the
provisions of the Consignment Agreement or the Loan Agreement, as
the same may be amended from time to time;

(d) any attachment on any of the Collateral shall remain in
existence for a period of thirty (30) days from the date such
attachment was made; or

(e) the occurrence of any other event of default under any of
the Obligations.

- 5 -
<PAGE> 6

SECTION 8. REMEDIES UPON EVENT OF DEFAULT.

If any Event of Default shall have occurred and be continuing, the
Secured Party, may exercise all the rights and remedies of a secured party under
the Uniform Commercial Code (whether or not the Code is in effect in the
jurisdiction where such rights and remedies are exercised) and any and all other
remedies and rights at law or equity and, in addition, the Secured Party may,
without being required to give any notice, except as herein provided or as may
be required by mandatory provisions of law, (i) apply the cash, if any, then
held by it as Collateral in the manner specified in Section 9, and (ii) if there
shall be no such cash or if such cash shall be insufficient to pay all the
Obligations in full, sell the Collateral, or any part thereof, at public or
private sale or at any broker's board, for cash, upon credit or for future
delivery, and at such price or prices as the Secured Party may deem
satisfactory. The Secured Party may require the Debtor to assemble all or part
of the Collateral and make it available to the Secured Party at a place to be
designated by the Secured Party which is reasonably convenient. The Secured
Party may be the purchaser of any or all of the Collateral so sold at any public
sale (or, if the Collateral is of a type customarily sold in a recognized market
or is a type which is the subject of widely distributed standard price
quotations, at any private sale), and may apply all or any portion of the
Obligations towards the payment for any Collateral purchased by the Secured
Party, and may thereafter hold the same, absolutely, free from any right or
claim of whatsoever kind. Upon any such sale the Secured Party shall have the
right to deliver, assign and transfer to the purchaser thereof the Collateral so
sold. Each purchaser at any such sale shall hold the Collateral so sold
absolutely, free from any claim or right of whatsoever kind, including any
equity or right of redemption of the Debtor, which to the extent permitted by
law hereby specifically waives all rights of redemption, stay or appraisal which
it has or may have under any rule of law or statute now existing or hereafter
adopted. The Secured Party shall give ten (10) days' written notice of its
intention to make any such public or private sale or sale at a broker's board.
Such notice, in case of a public sale, shall state the time and place fixed for
such sale, and in case of a sale at a broker's board, shall state the board at
which such sale is to be made and the day on which the Collateral, or a portion
thereof so being sold, will first be offered for sale at such board. Any such
public sale shall be held at such time or times within ordinary business hours
and at such place or places as the Secured Party may fix in the notice of such
sale. At any such sale the Collateral may be sold in one lot as an entirety or
in separate parcels, as the Secured Party may determine. The Secured Party shall
not be obligated to make any such sale pursuant to any such notice. The Secured
Party may, without notice or publication, adjourn any public or private sale or
cause the same to be adjourned from time to time by announcement at the time and
place fixed for the sale, and such sale may be made at any time or place to
which the same may be so adjourned. In case of any sale of all or any part of
the Collateral on credit or for future delivery, the Collateral so sold may be
retained by the Secured Party until the selling price is paid by the purchaser
thereof, but the Secured Party shall not incur any liability in case of the
failure of such purchaser to take up and pay for the Collateral so sold and, in
case of any such failure, such Collateral may again be sold upon like notice.
The Secured Party, instead of exercising the power of sale herein conferred upon
it, may proceed by a suit or suits at law or in equity to foreclose the Security
Interests and sell the Collateral, or any portion thereof, under a judgment or
decree of a court or courts of competent jurisdiction. For purposes of

- 6 -

<PAGE> 7

exercising the rights and powers granted to the Secured Party in this Section 8
or by applicable law, and until all Obligations are satisfied in full, the
Debtor hereby grants to the Secured Party an irrevocable license to use all
trademarks and tradenames (and to sell goods bearing any such trademark or
tradename), registered or unregistered, which are now or hereafter owned by or
licensed to the Debtor or in which the Debtor now has or hereafter acquires any
interest.

SECTION 9. APPLICATION OF PROCEEDS.

The proceeds of any sale of, or other realization upon, all or any part
of the Collateral shall be applied in the following order of priorities:

first, to pay the expenses of such sale or other
realization, including out-of-pocket expenses of the Secured Party and
reasonable fees and expenses of its agents and counsel, and all
expenses, liabilities and advances incurred or made by the Secured
Party in connection therewith, and any other unreimbursed expenses for
which the Secured Party is to be reimbursed pursuant to Section 10;

second, apply all proceeds hereunder, (except
proceeds applied pursuant to clause first above) to the payment of the
Obligations in such order as the Secured Party shall determine; and

finally, to pay to the Debtor, or its successors or
assigns, or as a court of competent jurisdiction may direct, any
surplus then remaining from such proceeds.

SECTION 10. EXPENSES.

The Debtor will forthwith upon a default under the Consignment
Agreement or Loan Agreement and upon demand pay to the Secured Party:

(i) the amount of any taxes which the Secured Party may have
been required to pay by reason of the Security Interests (including any
applicable transfer taxes) or to free any of the Collateral from any
lien thereon; and

(ii) the amount of any and all reasonable out-of-pocket
expenses, including the reasonable fees and disbursements of its
counsel and of any agents not regularly in its employ, which the
Secured Party may incur in connection with (w) the preparation and
administration of this Security Agreement and related documents, (x)
the collection, sale or other disposition of any of the Collateral, (y)
the exercise by the Secured Party of any of the powers conferred upon
it hereunder, or (z) any default on the Debtor's part hereunder.

- 7 -

<PAGE> 8

SECTION 11. NONABATEMENT OF SECURITY INTERESTS.

The Security Interests granted hereby shall not abate or lapse, but
shall continue in full force and effect so as to secure all liabilities,
obligations or indebtedness of the Debtor to the Secured Party, whether now
existing or hereafter arising, without regard to whether any or no such
liability, obligation or indebtedness shall be outstanding at any particular
time.

Upon termination of the Consignment Agreement and Loan Agreement and
satisfaction in full of all Obligations the Secured Party will send to the
Debtor termination statements for all Uniform Commercial Code financing
statements of record filed by it hereunder.

SECTION 12. RIGHT OF SET-OFF.

In furtherance and not in limitation of any provisions herein
contained, the Debtor hereby agrees that any and all deposits or other sums at
any time held by the Secured Party or claimed by or due from the Secured Party
to the Debtor shall at all times constitute security for the Obligations, and
the Secured Party may apply or set-off such deposits or other sums against the
Obligations upon a default under the Consignment Agreement or Loan Agreement.

SECTION 13. NOTICES.

All notices, communications and distributions hereunder shall be given
or made to the following parties at the following addresses:

(i) if to the Debtor, to it at

Friedman's Inc.
4 West State Street
Savannah, Georgia 31401
Attention: Mr. Stuart Clifford
Telecopy: (901) 383-2728

(ii) if to the Secured Party, to it at

ABN AMRO Bank N.V.
New York Branch
500 Park Avenue
New York, New York 10022
Attention: Mr. Jeffrey Sarfaty
Telecopy: (212) 644-6905

- 8 -

<PAGE> 9

or in any of the foregoing cases at such other address as the addressee may
hereafter specify for the purposes by written notice to the other party hereto.
Such notices and other communications will be effectively given only if and when
given in writing and delivered at the address set forth in this Section 13 or
duly deposited in the mails with first class postage prepaid, or transmitted by
facsimile transmission ("FAX") or delivered by a telegraph company with all
charges prepaid, addressed as aforesaid.

SECTION 14. WAIVERS, NON-EXCLUSIVE REMEDIES.

No failure on the part of the Secured Party to exercise, and no delay
in exercising, and no course of dealing with respect to, any right, power or
remedy under this Security Agreement shall operate as a waiver thereof; nor
shall any single or partial exercise by the Secured Party of any right, power or
remedy under this Security Agreement preclude any other or further exercise
thereof or the exercise of any other right, power or remedy. The remedies in
this Security Agreement are cumulative and are not exclusive of any other
remedies provided by law.

SECTION 15. CHANGES IN WRITING.

Neither this Security Agreement nor any provision hereof may be
changed, waived, discharged or terminated orally but only by a statement in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.

SECTION 16. GEORGIA LAW; MEANING OF TERMS.

This Security Agreement shall be construed in accordance with and
governed by the laws of the State of Georgia, except to the extent that remedies
provided by the laws of any State other than Georgia are governed by the laws of
said State. Unless otherwise defined herein, or unless the context otherwise
requires, all terms used herein which are defined in the Georgia Uniform
Commercial Code shall have the meanings therein stated.

SECTION 17. SEVERABILITY.

If any provision hereof is invalid or unenforceable in any
jurisdiction, the other provisions hereof shall remain in full force and effect
in such jurisdiction and shall be construed in order to carry out the intentions
of the parties hereto as nearly as may be possible; and the invalidity or
unenforceability of any provision hereof in any jurisdiction shall not affect
the validity or enforceability of such provision in any other jurisdiction.

SECTION 18. HEADINGS.

The headings in this Security Agreement are for the purposes of
reference only and shall not limit or otherwise affect the meaning hereof.

- 9 -

<PAGE> 10

SECTION 19. PARTIES IN INTEREST.

All the terms and provisions of this Security Agreement shall be
binding upon and inure to the benefit of and be enforceable by the respective
successors and assigns of the parties hereto, whether so expressed or not.

SECTION 20. COUNTERPARTS.

This Security Agreement may be executed simultaneously with one or more
counterparts thereof, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.

SECTION 21. CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL.

The Debtor and the Secured Party hereby submit to the jurisdiction of
the courts of the State of Georgia for Fulton County and the United States
District Court for the Northern District of Georgia, as well as to the
jurisdiction of all courts to which an appeal may be taken or other review
sought from the aforesaid courts, for the purpose of any suit, action or other
proceeding arising out of any of the Debtor's obligations under or with respect
to this Agreement, and expressly waives any and all objections it may have as to
venue in any of such courts. THE DEBTOR AND THE SECURED PARTY EACH WAIVE TRIAL
BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY OF THEM AGAINST
THE OTHER ON ANY MATTER WHATSOEVER (INCLUDING, WITHOUT LIMITATION, ANY ACTION,
PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS
AGREEMENT, ANY OTHER DOCUMENTS EXECUTED IN CONNECTION HEREWITH OR ANY OF THE
TRANSACTIONS CONTEMPLATED HEREIN OR THEREIN). No party to this instrument,
including but not limited to any assignee or successor of a party, shall seek a
jury trial in any lawsuit, proceeding, counterclaim, or any other litigation
procedure based upon, or arising out of, this instrument, any related
instruments, any collateral or the dealings or the relationship between or among
the parties, or any of them. No party will seek to consolidate any such action,
in which a jury trial has been waived, with any other action in which a jury
trial cannot be or has not been waived. THE PROVISIONS OF THIS PARAGRAPH HAVE
BEEN FULLY DISCUSSED BY THE PARTIES HERETO, AND THESE PROVISIONS SHALL BE
SUBJECT TO NO EXCEPTIONS. NO PARTY HAS IN ANY WAY AGREED WITH OR REPRESENTED TO
ANY OTHER PARTY THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED
IN ALL INSTANCES.

- 10 -

<PAGE> 11

In witness whereof, this Security Agreement has been executed by the
parties hereto all as of the day and year first above written.

Friedman's Inc.

By /S/
-------------------------------
Title

Accepted:

ABN AMRO Bank N.V.
New York Branch

By /S/
------------------------------
Title
-------------------------

By /S/
-------------------------------
Title
--------------------------

-11-

<PAGE> 1

Exhibit 11 Statement RE: Computation of Per Share Earnings

<TABLE>
<CAPTION>
Three months ended Nine months ended
June 30 June 30
------------------------ ------------------------
1997 1996 1997 1996
--------- -------- --------- ---------
(000's omitted, except per share data)

<S> <C> <C> <C> <C>
Average shares outstanding 14,440 12,705 14,344 12,273

Net effect of dilutive stock options 187 322 133 251
-------- -------- -------- --------

Totals 14,627 13,027 14,477 12,524
======== ======== ======== ========

Net income before extraordinary item 1,887 1,676 17,420 13,419

Extraordinary item, net of taxes -- 1,696 -- 1,696
-------- -------- -------- --------

Net income (loss) $ 1,887 $ (20) $ 17,420 $ 11,723
======== ======== ======== ========

Per share amount before extraordinary item $ 0.13 $ 0.13 $ 1.20 $ 1.07

Extraordinary item, net of taxes -- $ (0.13) -- $ (0.13)
-------- -------- -------- --------

Per share amount $ 0.13 $ 0.00 $ 1.20 $ 0.94
======== ======== ======== ========
</TABLE>

<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS

<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 1,044
<SECURITIES> 0
<RECEIVABLES> 79,977
<ALLOWANCES> 0
<INVENTORY> 77,957
<CURRENT-ASSETS> 161,868
<PP&E> 27,595
<DEPRECIATION> 0
<TOTAL-ASSETS> 223,066
<CURRENT-LIABILITIES> 30,285
<BONDS> 0
0
0
<COMMON> 146
<OTHER-SE> 169,438
<TOTAL-LIABILITY-AND-EQUITY> 223,066
<SALES> 45,828
<TOTAL-REVENUES> 53,542
<CGS> 24,191
<TOTAL-COSTS> 49,557
<OTHER-EXPENSES> 917
<LOSS-PROVISION> 6,808
<INTEREST-EXPENSE> (174)
<INCOME-PRETAX> 3,068
<INCOME-TAX> 1,181
<INCOME-CONTINUING> 1,887
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,887
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.13

</TABLE>