<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>



                                      -1-
<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>

                                      -2-
<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>



                                      -3-
<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.



                                      -2-
<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



                                      -3-
<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.



                                      -4-
<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



                                      -5-
<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.



                                      -6-
<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



                                      -7-
<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.



                                      -8-
<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.



                                      -9-
<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.



                                      -10-
<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 



                                      -11-
<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



                                      -12-
<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 



                                      -13-
<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.




                                      -14-
<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:



                                      -15-
<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



                                      -16-
<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



                                      -17-
<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



                                      -18-
<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 



                                      -19-
<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



                                      -20-
<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.



                                      -21-
<PAGE>   27

          (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



                                      -22-
<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).



                                      -23-
<PAGE>   29

          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.



                                      -24-
<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.



                                      -25-
<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.



                                      -26-
<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



                                      -27-
<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;



                                      -28-
<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 



                                      -29-
<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.



                                      -30-
<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



                                      -31-
<PAGE>   37

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



                                      -32-
<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


                                      -33-
<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




                                      -34-
<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



                                      -35-
<PAGE>   41

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



                                      -36-
<PAGE>   42

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



                                      -37-
<PAGE>   43

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.


                                      -38-
<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;

          (c)  all items properly classified as extraordinary in accordance with
generally accepted accounting principles;

          (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;



                                      -39-
<PAGE>   45

          (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 



                                      -40-
<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



                                      -41-
<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



                                      -42-
<PAGE>   48


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.




                                      -43-
<PAGE>   49

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.



                                      -44-
<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:



                                      -45-
<PAGE>   51

                           (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.



                                      -46-
<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.



                                      -47-
<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]












                                      -50-
<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



















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