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                                                                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


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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


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          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. 


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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


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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 


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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.


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            (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


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     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.


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                      (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