<PAGE>   1
                                                                    EXHIBIT 10.4


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                                 FRIEDMAN'S INC.
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                   SECOND AMENDED AND RESTATED LOAN AGREEMENT

                           Dated: As of July 14, 1997

                                   $25,000,000



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                            FIRST UNION NATIONAL BANK
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<PAGE>   2



                                TABLE OF CONTENTS
<TABLE>
<CAPTION>

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

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

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

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

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

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

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


                                        i


<PAGE>   3

<TABLE>
<CAPTION>

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

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

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

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

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

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




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

      A           Borrowing Base Report [Definitions]

      B           Note [Definitions]

      B-1         Permitted Indebtedness [Definitions]

      C           Places of Business [Definitions]

      D           Security Agreement [Definitions]

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

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

      G           Capital Structure [7.1(H)]

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

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

      J           Pension Plans [7.1(O)]

      K           Compliance Certificate [8.1(Q)]

      K-1         Permitted Loans [8.2(C)]

      K-2         Affiliate Transactions [8.2 (D)]

      L           Permitted Liens [8.2(H)]

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

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<PAGE>   5


                   SECOND AMENDED AND RESTATED LOAN AGREEMENT


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

SECTION 1. GENERAL DEFINITIONS

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

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

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

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

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

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

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

<PAGE>   6



     Agreement - this Second Amended and Restated Loan Agreement.

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

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

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

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

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

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

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

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

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

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

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


                                        2


<PAGE>   7



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

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

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

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

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

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


                                        3


<PAGE>   8



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

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

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

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

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

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


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<PAGE>   9



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

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

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

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

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

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

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

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


                                        5


<PAGE>   10



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

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

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

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

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

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

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

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


                                        6


<PAGE>   11



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

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

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

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

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

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

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

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

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

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


                                        7


<PAGE>   12



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

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

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

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

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

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

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

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

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

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


                                        8


<PAGE>   13



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

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

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

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

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

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

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

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

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

     Place of Business - a location at which Borrower conducts its business and
at which Borrower's Property is located, including, without limitation, those
existing locations identified on Exhibit "C" attached hereto and incorporated
herein by this reference and


                                        9


<PAGE>   14



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

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

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

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

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

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

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

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

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

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

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


                                       10


<PAGE>   15



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

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

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

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

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

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

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

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

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

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


                                       11


<PAGE>   16



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

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

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

SECTION 2.   CREDIT FACILITY

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

     2.1  Borrowing and Disbursement.

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

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


                                       12


<PAGE>   17



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

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

          (E) Offered Rate Advances.

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

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

          (F) LIBO Rate Advances.

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

               (ii) Repayments and Reborrowings. At least three (3) Business
Days prior to the last day of the Interest Period with respect to each LIBO Rate
Advance, the Borrower shall give Lender written notice specifying whether all or
a portion of any LIBO Rate Advance outstanding on such date (a) is to be repaid
and then reborrowed in whole or in part as a LIBO Rate Advance, (b) is to be
repaid and then reborrowed in whole or in part as an Offered Rate Advance, (c)
is to be repaid and not reborrowed. Upon the last day of the Interest Period
with


                                       13


<PAGE>   18



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

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

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

SECTION 3. INTEREST, FEES, TERM AND REPAYMENT

     3.1  Interest, Fees and Charges.

          (A)  Interest.

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

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

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


                                       14


<PAGE>   19



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

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

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

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

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


                                       15


<PAGE>   20



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

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

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

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

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

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


                                       16


<PAGE>   21



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

SECTION 4. COLLATERAL: GENERAL TERMS

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

          (A)  All Accounts;

          (B)  All Inventory;

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

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

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

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

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

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


                                       17


<PAGE>   22



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

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

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

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

     4.5  Insurance of Collateral. Borrower agrees to maintain and pay for
insurance upon all Collateral wherever located, in storage or in transit in
vehicles, including goods evidenced by documents, covering casualty, hazard,
public liability and such other risks and in such amounts and with such
insurance companies as shall be reasonably satisfactory to Lender to insure
Lender's interest in the Collateral. Borrower shall deliver the originals of
such policies to Lender with satisfactory lender's loss payable endorsements
naming loss payee. Each policy of insurance or endorsements shall contain a
clause requiring the insurer to give not less than thirty (30) days' prior
written notice to Lender in the event of cancellation of the policy for any
reason whatsoever and a clause that the interest of Lender shall not be impaired
or invalidated by any act or neglect of Borrower or owner of the Property nor by
the occupation of the premises for purposes more hazardous than are permitted by
said policy. If Borrower fails to provide and pay for such insurance, Lender
may, at Borrower's expense, procure the same, but shall not be required to do
so. Borrower agrees to deliver to Lender, promptly as rendered, true copies of
all reports made in any reporting forms to insurance companies. Borrower will
maintain, with financially sound and reputable insurers, insurance with respect
to its Properties and business against such casualties


                                       18


<PAGE>   23



and contingencies of such type (including public liability, larceny,
embezzlement, or other criminal misappropriation insurance) and in such amounts
as is customary in the business or as otherwise required by Lender.

     4.6  Protection of Collateral. All insurance expenses and all expenses of
protecting, storing, warehousing, insuring, handling, maintaining and shipping
the Collateral (including, without limitation, all rent payable by Borrower to
any landlord of any premises where any of the Collateral may be located), and,
any and all excise, property, sales, and use taxes imposed by any state,
federal, or local authority on any of the Collateral or in respect of the sale
thereof, shall be borne and paid by Borrower. If Borrower fails to promptly pay
any portion thereof when due, Lender may, at its option, but shall not be
required to, pay the same and charge the Loan Account therefor. Borrower agrees
to reimburse Lender promptly therefor with interest accruing thereon daily at
the Default Rate provided in this Agreement. All sums so paid or incurred by
Lender for any of the foregoing and all costs and expenses (including reasonable
attorneys' fees, necessary legal expenses, and court costs) which Lender may
incur in enforcing or protecting its Lien on or rights and interest in the
Collateral or any of its rights or remedies under this or any other agreement
between the parties hereto or in respect of any of the transactions to be had
hereunder until paid by Borrower to Lender with interest at the Default Rate,
shall be considered Obligations owing by Borrower to Lender hereunder. Such
Obligations shall be secured by all Collateral and by any and all other
collateral, security, assets, reserves, or funds of Borrower in or coming into
the hands or inuring to the benefit of Lender. Lender shall not be liable or
responsible in any way for the safekeeping of any of the Collateral or for any
loss or damage thereto (except for reasonable care in the custody thereof while
any Collateral is in Lender's actual possession) or for any diminution in the
value thereof, or for any act or default of any warehouseman, carrier,
forwarding agency, or other person whomsoever, but the same shall be at
Borrower's sole risk.

SECTION 5. PROVISIONS RELATING TO ACCOUNTS

     5.1  Representations, Warranties and Covenants. With respect to all
Accounts, Borrower represents and warrants to Lender that Lender may rely, in
determining which Accounts are Eligible Accounts, on all statements and
representations made by Borrower with respect to any Account or Accounts,
(including, without limitation, the Borrowing Base Report) and, unless otherwise
indicated in writing to Lender, that with respect to each Account:

          (A)  It is genuine and in all respects what it purports to be, and it
is not evidenced by a judgment;

          (B)  It arises out of a completed, bona fide sale and delivery of
goods or rendition of services by Borrower in the ordinary course of its
business and in accordance with the terms and conditions of all purchase orders,
contracts or other documents relating thereto and forming a part of the contract
between Borrower and the Account Debtor;


                                       19


<PAGE>   24



          (C) It is for a liquidated amount maturing as stated in the duplicate
invoice or chattel paper covering such sale or rendition of services, a copy of
which has been furnished or is available to Lender;

          (D) Such Account, and Lender's security interest therein, is not, and
will not be in the future, subject to any offset, Lien (other than (i) the pari
passu Lien granted in favor of NationsBank pursuant to the NationsBank Credit
Agreement and (ii) the pari passu Lien granted in favor of ABN pursuant to the
ABN Loan Agreement), deduction, defense, dispute, counterclaim or any other
adverse condition except for disputes resulting in returned goods where the
amount in controversy is deemed by Lender to be immaterial, and each such
Account is absolutely owing to Borrower and is not contingent in any respect or
for any reason;

          (E) Borrower has made no agreement with any Account Debtor thereunder
for any deduction therefrom, except discounts or allowances which are granted by
Borrower in the ordinary course of its business for prompt payment and which are
reflected in the calculation of the net amount of each respective invoice
related thereto;

          (F) There are no facts, events or occurrences which in any way impair
the validity or enforceability thereof or tend to reduce the amount payable
thereunder from the face amount of the invoice and statements delivered to
Lender with respect thereto;

          (G)  To the best of Borrower's knowledge, the Account Debtor
thereunder (i) had the capacity to contract at the time any contract or other
document giving rise to the Account was executed and (ii) such Account Debtor is
Solvent; and

          (H)  Borrower has no knowledge of any fact or circumstance which would
impair the validity or collectibility of the Account, and to the best of
Borrower's knowledge there are no proceedings or actions which are threatened or
pending against any Account Debtor thereunder which might result in any material
adverse change in such Account Debtor's financial condition or the
collectibility of such Account.

     5.2  Notice of Security Interest and Schedules of Accounts. Within thirty
(30) days from the date hereof, Borrower shall enter a notation on each Account
by the execution on the face of each written contract document, instrument, or
security agreement, the following notice or such other notice as may be approved
in writing by the Lender:

     This chattel paper and the obligations owing to and rights of Friedman's
     Inc. hereunder are subject to pari passu security interests in favor of
     NationsBank, N.A., as Collateral Agent for NationsBank, N.A.,ABN AMRO Bank
     N.V. and First Union National Bank.

; provided, the reference to "NationsBank, N.A." and to "ABN AMRO Bank N.V."
shall be deleted therefrom in the event of the termination of the NationsBank
Credit Agreement and the ABN Loan Agreement, as applicable.

                                       20


<PAGE>   25



     Similar language shall be entered on future Accounts or preprinted language
included in all written contracts, documents, and instruments or security
agreements as and when each Account is created. Each Account shall contain
language acceptable to Lender whereby the Account Debtor agrees not to assert
any claim or defenses against Lender as assignee, which such Account Debtor may
have against Borrower. Borrower shall keep accurate and complete records of its
Accounts and all payments and collections thereon and shall submit to Lender at
Lender's request, on or before the fifteenth day of each month from and after
the date of such request, a schedule of Accounts, and, upon Lender's request
therefor, copies of proof of delivery and the original copy of all documents,
including, without limitation, repayment histories and present status reports
relating to the Accounts so scheduled and such other matters and information
relating to the status of then existing Accounts as Lender shall reasonably
request.

     5.3  Administration of Accounts.

          (A) Upon and after the occurrence of an Event of Default and
acceleration of the Obligations as permitted in Section 10.2 hereof, Lender
shall have the right to collect and settle or adjust all disputes and claims
directly with the Account Debtor and to compromise the amount or extend the time
for payment of the Accounts upon such terms and conditions as Lender may deem
advisable, and to charge the deficiencies, costs and expenses thereof, including
reasonable attorney's fees, to Borrower.

          (B) If an Account includes a charge for any tax payable to any
governmental taxing authority, Lender is authorized, in its sole discretion, to
pay the amount thereof to the proper taxing authority for the account of
Borrower and to charge the Loan Account therefor. Borrower shall notify Lender
if any Account includes any tax due to any governmental taxing authority and, in
the absence of such notice, Lender shall have the right to retain the full
proceeds of the Account and shall not be liable for any taxes to any
governmental taxing authority that may be due by Borrower by reason of the sale
and delivery creating the Account.

          (C) Whether or not a Default or an Event of Default has occurred, any
of Lender's officers, employees or agents shall have the right, at any time or
times hereafter, in the name of Lender, or any designee of Lender or Borrower,
to verify the validity, amount or any other matter relating to any Accounts by
mail, telephone, telegraph or otherwise. Borrower shall cooperate fully with
Lender in an effort to facilitate and promptly conclude any such verification
process.

     5.4  Collection of Accounts. To expedite collection, Borrower shall
endeavor in the first instance to make collection of its Accounts for Lender.
All remittances received by Borrower on account of Accounts shall be held as
Lender's property by Borrower as trustee of an express trust for Lender's
benefit. Lender retains the right after an Event of Default and acceleration of
the Obligations as permitted in Section 10.2 hereof to notify Account Debtors
that Accounts have been assigned to Lender and to collect Accounts directly in
its own name and to charge the collection costs and expenses, including
reasonable attorneys' fees to Borrower. The Borrower shall, following the
occurrence and during the continuance of an Event of Default and, at request


                                       21


<PAGE>   26



of Lender, (a) notify the Account Debtors of the security interest of Lender in
any Account and that payment thereof or thereunder is to be made directly to
Lender, and (b) furnish to Lender upon request additional statements of any
Accounts, together with all notes or other papers evidencing the same and any
guaranty, securities or other documents or information relating thereto. Lender
has no duty to protect, insure, collect or realize upon the Accounts or preserve
rights in them. For the purpose of computing interest hereunder, all items of
payment received by Lender shall be deemed applied by Lender on account of the
Obligations (subject to final payment of such items) on the second Business Day
after receipt by Lender of such items of payment in Atlanta, Georgia. Such
credits shall be conditional upon final payment in cash or cash equivalents of
the items giving rise to them. If any item is not so paid, the Lender, in its
discretion, whether or not the item is returned, may reverse any credit given
for the item.

SECTION 6. PROVISIONS RELATING TO INVENTORY

     6.1  Representations, Warranties and Covenants. With respect to Inventory,
Borrower represents and warrants to Lender that:

          (A) All Inventory is presently and will continue to be located at
Borrower's places of business listed on Exhibit "C" and will not be removed
therefrom except as authorized by Section 4.4 of this Agreement.

          (B) No Inventory is now, nor shall any Inventory at any time or times
hereafter be, stored with a bailee, warehouseman or similar party without
Lender's prior written consent.

          (C) No Inventory is or will be consigned to any Person without
Lender's prior written consent.

          (D) No Inventory is or will be produced in violation of the Fair 
Labor Standards Act.

     6.2  Location of Inventory. Contemporaneously herewith Borrower has given
Lender a list of all locations where Borrower has a Place of Business (in the
form of Exhibit "C" attached hereto), and thereafter shall give 30 days written
notice prior to any change in, each warehouse location at which Inventory is or
will be kept and each office of Borrower at which the records of Borrower
pertaining to Inventory, are kept. All Eligible Inventory is and shall be kept,
and all records pertaining to Eligible Inventory are and shall be kept, only at
locations of which the Lender has been given notice as provided for herein or at
locations notice of which shall be given to Lender within thirty (30) days of
the end of the next quarter.

     6.3  Ownership of Inventories. Borrower is, and as to Eligible Inventory to
be acquired after the date hereof, and to be included in the Borrowing Base
shall be, the owner of all Eligible Inventory to be included in the Borrowing
Base and (except for carrier, warehouse, customs and similar statutory liens
arising in the ordinary course of business) shall neither create or suffer to
exist any Lien (other than (i) the pari passu Lien granted to NationsBank under
the NationsBank


                                       22


<PAGE>   27



Credit Agreement and (ii) the pari passu Lien granted to ABN under the ABN Loan
Agreement) nor sell, assign, transfer or create or suffer to exist any Lien
(other than (i) the pari passu Lien granted to NationsBank under the NationsBank
Credit Agreement and (ii) the pari passu Lien granted to ABN under the ABN Loan
Agreement) in any account or contract right relating to the Eligible Inventory
to or in favor of any Person other than Lender.

     6.4  Status of Inventory. Borrower shall notify Lender on Friday of each
week of any of the following events of which Borrower becomes aware during such
week: any material loss or depreciation in value of Eligible Inventory and the
amount of the loss or depreciation; damage to any such goods; and any other
event which materially affects Eligible Inventory, or the value or amount
thereof.

SECTION 7. REPRESENTATIONS AND WARRANTIES

     7.1  General Representations and Warranties. To induce Lender to enter into
this Agreement and to make advances hereunder, Borrower warrants, represents and
covenants to Lender that:

          (A) Organization and Qualification. Borrower is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Borrower has duly qualified and is authorized to do business and is in
good standing in each state or jurisdiction listed on Exhibit "E" attached
hereto and made a part hereof and in all other states and jurisdictions where
the character of its Properties or the nature of its activities make such
qualification necessary and in which the failure to be so qualified would have a
material adverse effect on Borrower.

          (B) Borrower's Names. During the preceding seven (7) years, Borrower
has not been known as or used any fictitious or trade or other names except as
disclosed on Exhibit "F" attached hereto and made a part hereof. Except as set
forth on Exhibit "F", Borrower has not, during the preceding seven (7) years,
acquired all or substantially all of the assets of any Person.

          (C) Power and Authority. Borrower has the right and power and is duly
authorized and empowered to enter into, execute, deliver and perform this
Agreement and each of the other Loan Documents to which it is a party. The
execution, delivery and performance of this Agreement and each of the other Loan
Documents have been duly authorized by all necessary corporate action and do not
and will not (i) require any consent or approval from any Person; (ii)
contravene Borrower's Articles of Incorporation or Bylaws; (iii) violate, or
cause Borrower to be in default under, any provision of any law, rule,
regulation, order, writ, judgment, injunction, decree, determination or award in
effect having applicability to Borrower; (iv) result in a breach of or
constitute a default under any indenture or loan or credit agreement or any
other agreement, lease or instrument to which Borrower is a party or by which it
or its Properties may be bound or affected; or (v) result in, or require, the
creation or imposition of any Lien (other than


                                       23


<PAGE>   28



Permitted Liens) upon or with respect to any of the Properties now owned or
hereafter acquired by Borrower.

          (D) Legally Enforceable Agreements. This Agreement is, and each of the
other Loan Documents when delivered under this Agreement will be, a legal, valid
and binding obligation of Borrower enforceable against it in accordance with
their respective terms, except to the extent that such enforcement may be
limited by applicable bankruptcy, insolvency and other similar laws affecting
creditors' rights generally or by principles of equity pertaining to the
availability of equitable remedies.

          (E) Use of Proceeds. Borrower's uses of the proceeds of the Loan
pursuant to this Agreement are, and will continue to be, legal and proper uses,
duly authorized by its directors, and such uses will not violate any applicable
laws, including, without limitation, the Foreign Assets Control Regulations, the
Foreign Funds Control Regulations and the Transaction Control Regulations of the
United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended).

          (F) Margin Stock. Borrower is not engaged principally, or as one of
its important activities, in the business of purchasing or carrying "margin
stock" (within the meaning of Regulation G or U of the Board of Governors of the
Federal Reserve System), and no part of the proceeds of the Loan to Borrower
will be used to purchase or carry any margin stock or to extend credit to others
for the purpose of purchasing or carrying any margin stock or be used for any
purpose which violates or is inconsistent with the provisions of Regulation X of
said Board of Governors.

          (G) Governmental Consents. Borrower has, and is in good standing with
respect to, all governmental consents, approvals, authorizations, permits,
certificates, inspections, and franchises necessary to continue to conduct its
business as heretofore or proposed to be conducted by it and to own or lease and
operate its Properties as now owned or leased by it.

          (H) Capital Structure. Exhibit "G" attached hereto and made a part
hereof states (a) the correct name of Borrower, the jurisdiction of
organization, (b) the name of each of Borrower's directors, (c) the name of each
of Borrower's partnership or joint venture Affiliates, if any, and the nature of
the affiliation, and (d) a description of Borrower's Subordinated Debt.

          (I) Solvent Financial Condition. Borrower is now and, after giving
effect to the Loan to be made hereunder, at all times will be, Solvent.

          (J) Restrictions. Borrower is not a party or subject to any contract,
agreement, or charter or other corporate restriction, which materially and
adversely affects its business or the use or ownership of any of its Properties.
Borrower is not a party or subject to any contract or agreement which restricts
its right or ability to incur Indebtedness, other than as set forth on Exhibit
"H" attached hereto, none of which prohibit the execution of or compliance with
this Agreement by Borrower. Borrower has not agreed or consented to cause or
permit in the future


                                       24


<PAGE>   29



(upon the happening of a contingency or otherwise) any of its Property, whether
now owned or hereafter acquired, to be subject to a Lien that is not a Permitted
Lien.

          (K) Litigation. Except as set forth on Exhibit "I" attached hereto and
made a part hereof, as of the date hereof, there are no actions, suits,
proceedings or investigations pending, or to the knowledge of Borrower,
threatened, against or affecting Borrower, or the business, operations,
Properties, prospects, profits or condition of Borrower, in any court or before
any governmental authority or arbitration board or tribunal, and no action,
suit, proceeding or investigation shown on Exhibit "I" involves the possibility
of materially and adversely affecting the Properties, business, prospects,
profits or condition (financial or otherwise) of Borrower or the ability of
Borrower to perform this Agreement. Borrower is not in default with respect to
any order, writ, injunction, judgement, decree or rule of any court,
governmental authority or arbitration board or tribunal.

          (L) Title to Properties. Borrower has good, indefeasible and
marketable title to and fee simple ownership of, or valid and subsisting
leasehold interests in, all of its real Property, and good title to all of its
other Property, in each case, free and clear of all Liens except Permitted
Liens.

          (M) Financial Statements: Fiscal Year. The balance sheets of Borrower
dated as of September 30, 1996 and March 31, 1997, and the related statements of
income, changes in shareholder's equity and cash flow for the periods ended on
such dates, have been prepared on a basis consistent with Borrower's historical
accounting practices (except for changes in application in which Borrower's
independent certified public accountants concur), and present fairly the
financial position of Borrower at such dates and the results of Borrower's
operations for such periods. As of the date hereof, since May 31, 1997, there
has been no material change in the condition, financial or otherwise, of
Borrower except changes in the ordinary course of business, none of which
individually or in the aggregate has been materially adverse. The fiscal year of
Borrower ends on September 30 of each year.

          (N) Full Disclosure. The financial statements referred to in Section
7.1(M) above, do not, nor does this Agreement or any other written statement of
Borrower to Lender (including, without limitation, Borrower's filings, if any,
with the Securities and Exchange Commission), contain any untrue statement of a
material fact or omit a material fact necessary to make the statements contained
therein or herein not misleading. There is no fact which Borrower has failed to
disclose to Lender in writing which materially affects adversely or, so far as
Borrower can now foresee, will materially affect adversely the Properties,
business, prospects, profits, or condition (financial or otherwise) of Borrower
or the ability of Borrower to perform this Agreement.

          (O) Pension Plans. Except as disclosed on Exhibit "J" attached hereto
and made a part hereof, Borrower has no Plan. Borrower has not received any
notice to the effect that it is not in full compliance with any of the
requirements of ERISA and the regulations promulgated thereunder. No fact or
situation that could result in a material adverse change in the financial
condition of Borrower, including, but not limited to, any Reportable Event, or
Prohibited


                                       25


<PAGE>   30



Transaction, exists in connection with any Plan. Borrower has no withdrawal
liability in connection with a Multiemployer Plan.

          (P) Taxes. Borrower's federal tax identification number is 58-2058362.
Borrower has filed all federal, state and local tax returns and other reports it
is required by law to file and has paid, or made provision for the payment of,
all taxes, assessments, fees and other governmental charges that are due and
payable. The provision for taxes on the books of Borrower are adequate for all
years not closed by applicable statutes, and for its current fiscal year.

          (Q) Compliance With Laws. Borrower has duly complied with, and its
Properties, business operations and leaseholds are in compliance in all material
respects with, the provisions of all federal, state and local laws, rules and
regulations applicable to Borrower, its Properties or the conduct of its
business, including, without limitation, the federal Truth-In-Lending Act and
applicable state consumer lending laws, OSHA and all Environmental Laws, and
there have been no citations, notices or orders of noncompliance issued to
Borrower under any such law, rule or regulation.

          (R) No Defaults. No event has occurred and no condition exists which
would, upon the execution and delivery of this Agreement or Borrower's
performance hereunder, constitute a Default or an Event of Default. Borrower is
not in default, and no event has occurred and no condition exists which
constitutes, or which with the passage of time or the giving of notice or both
would constitute, a default in the payment of any Indebtedness to any Person for
Money Borrowed.

     7.2  Reaffirmation. Each request for an Advance made by Borrower pursuant
to this Agreement or any of the other Loan Documents shall constitute (i) an
automatic representation and warranty by Borrower to Lender that there does not
then exist any Default or Event of Default and (ii) a reaffirmation as of the
date of said request that all of the representations and warranties of Borrower
contained in this Agreement (other than the first sentence of Section 7.1(K) and
the second sentence of Section 7.1(M) hereof) and the other Loan Documents are
true in all material respects except for (x) any changes in the nature of
Borrower's business or operations that would render the information contained in
any exhibit, attached hereto either inaccurate or incomplete, so long as Lender
has consented to such changes or such changes are expressly permitted by this
Agreement and (y) such changes to the facts and/or circumstances that are the
subject of such representations and warranties, so long as such changes are not
materially adverse to the condition of the Borrower (financially or otherwise)
either individually or in the aggregate.

     7.3  Survival of Representations and Warranties. Borrower covenants,
warrants and represents to Lender that all representations and warranties of
Borrower contained in this Agreement or any of the other Loan Documents shall be
true at the time of Borrower's execution of this Agreement and the other Loan
Documents, and shall survive the execution, delivery and acceptance hereof by
Lender and the closing of the transactions described herein or related hereto.


                                       26


<PAGE>   31



SECTION 8. COVENANTS AND CONTINUING AGREEMENTS

     8.1 Affirmative Covenants. During the term of this Agreement, and
thereafter for so long as there are any obligations to Lender, Borrower
covenants that, unless otherwise consented to by Lender in writing, it shall:

          (A) Taxes and Liens. Pay and discharge all taxes, assessments and
governmental charges upon it, its income and Properties as and when such taxes,
assessments and charges are due and payable, (i) except and to the extent only
that such taxes, assessments and charges are being actively contested in good
faith and by appropriate proceedings, Borrower promptly notifies Lender in
writing of such contest, Borrower maintains adequate reserves on its books
therefor and the nonpayment of such taxes, assessments and charges does not
result in a Lien upon any Properties of Borrower other than a Permitted Lien and
(ii) except such taxes, assessments and governmental changes that do not exceed,
in the aggregate, $250,000 at any time. Borrower shall also pay and discharge
any lawful claims which, if unpaid, might become a Lien against any of
Borrower's Properties except for Permitted Liens.

          (B) Tax Returns. Timely, file all federal, state and local tax returns
and other reports Borrower is required by law to file and maintain adequate
reserves for the payment of all taxes, assessments, governmental charges, and
levies imposed upon it, its income, or its profits, or upon any Property
belonging to it.

          (C) Payment of Bank Charges. Pay to Lender, when due, any and all
fees, costs or expenses which Lender pays to a bank or other similar institution
arising out of or in connection with (i) the forwarding to Borrower or any other
Person on behalf of Borrower, by Lender, proceeds of loans made by Lender to
Borrower pursuant to this Agreement and (ii) the depositing for collection, by
Lender, of any check or item of payment received or delivered to Lender on
account of the obligations.

          (D) Business and Existence. Preserve and maintain its existence and
all rights, privileges, and franchises in its qualification and good standing in
all states in which such qualification is necessary.

          (E) Maintain Properties. Maintain its Properties in good condition and
make, all necessary renewals, repairs, replacements, additions and improvements
thereto.

          (F) Compliance with Laws. Comply with all laws, ordinances,
governmental rules and regulations to which it is subject, including, without
limitation, all laws, statutes, regulations and ordinances regarding the
collection, payment and deposit of employees, income, unemployment and Social
Security taxes and sales and excise taxes, ERISA and Environmental Laws, and
obtain and keep in force any and all licenses, permits, franchises, or other
governmental authorizations necessary to the ownership of its Properties or to
the conduct of its business, which violation or failure to obtain would be
reasonably likely to materially and


                                       27


<PAGE>   32



adversely affect the business, prospects, profits, Properties, or condition
(financial or otherwise) of Borrower.

     (G) Business Records. Keep adequate records and books of account with
respect to its business activities in which proper entries are made in
accordance with GAAP reflecting all its financial transactions.

     (H) Visits, Inspections and Audits. Permit representatives of Lender, from
time to time, as often as may be reasonably requested, but only during normal
business hours, to visit, inspect and audit the Properties of Borrower, inspect
and make extracts from its books and records, and discuss with its officers, its
employees and its independent accountants, Borrower's business, assets,
liabilities, financial condition, business prospects and results of operations
and to pay in full the cost of one audit by Lender of the Collateral each year
(provided, however, that Borrower shall not be required to pay more than $10,000
with respect to any such audit).

     (I) Financial Statements. Cause to be prepared and furnished to Lender the
following (all to be kept and prepared in accordance with GAAP applied on a
consistent basis, unless Borrower's certified public accountants concur in any
change therein and such change is disclosed to Lender and is consistent with
GAAP):

               (i) as soon as possible, but not later than one hundred twenty
(120) days after the close of each fiscal year of Borrower, unqualified audited
financial statements of Borrower as of the end of such year, certified by a firm
of independent certified public accountants of recognized national standing or
otherwise acceptable to Lender (except for a qualification for a change in
accounting principles with which the independent public accountant concurs);

               (ii) as soon as possible, but not later than the earlier of sixty
(60) days after the end of each quarter hereafter or the date on which the same
shall be required to be filed with the Securities Exchange Commission, unaudited
interim consolidated financial statements of Borrower, and of the portion of
Borrower's fiscal year then elapsed, including without limitation, upon
reasonable request of Lender, Accounts receivables aging, and Accounts payable
aging as of the end of such quarter, on a consolidated and consolidating basis,
certified by the principal financial officer of Borrower as fairly presenting
the consolidated financial position and results of operations of Borrower for
such month and period subject only to changes from audit and year-end
adjustments and except that such statements need not contain notes; and

               (iii) such other data and information (financial and otherwise)
as Lender, from time to time, may reasonably request, bearing upon or related to
the Collateral, Borrower's financial condition or results of operations,
including, without limitation, federal income tax returns of Borrower, accounts
payable ledgers, and bank statements.

     (J) Notices to Lender. Notify Lender in writing: (i) promptly after
Borrower's learning thereof, of the commencement of any litigation materially
affecting Borrower or any of


                                       28


<PAGE>   33



its Properties, whether or not the claim is considered by Borrower to be covered
by insurance, and of the institution of any administrative proceeding which may
materially and adversely affect Borrower's operations, financial condition,
Properties at business or Lender's Lien upon any of the Collateral; (ii) within
forty-five (45) days after each quarter for the preceding quarter, of Borrower's
opening of any new office or Place of Business in a state in which Borrower
previously has had no Place of Business or within forty-five (45) days of the
end of each quarter of Borrower's opening of a new office or new Place of
Business in a state where Borrower has a prior office or Place of Business;
(iii) within forty-five (45) days after each quarter for the preceding quarter,
of the closing of any existing office or Place of Business; (iv) promptly after
Borrower's learning thereof, of any default by Borrower under any note,
indenture, loan agreement, mortgage, lease, deed, guaranty or other similar
agreement relating to any Indebtedness of Borrower in excess of $250,000; (v)
promptly after the occurrence thereof, of any Default or Event of Default; (vi)
promptly after the rendition thereof, of any judgment rendered against Borrower;
and (vii) concurrently with the filing thereof with the Securities and Exchange
Commission ("SEC"), any filings with the SEC by providing to Lender a copy of
such filings.

     (K) Landlord and Storage Agreements. Provide Lender at Lender's request
with copies of all agreements between Borrower and any landlord or warehouseman
which owns any premises at which any Inventory or other Collateral may, from
time to time, be kept.

     (L) Further Assurances. At Lender's request, promptly execute or cause to
be executed and deliver to Lender any and all documents, instruments and
agreements deemed necessary by Lender to give effect to or carry out the terms
or intent of this Agreement or any of the other Loan Documents.

     (M) Communications with Lender. Borrower hereby irrevocably authorizes
Lender to communicate directly with any of the following Persons concerning
Borrower, its business, the Collateral and the Loans: (a) any service bureau,
warehousing service, freight forwarder, trade creditor, consignee, bailee,
customer or other similar services; (b) any Person employed by Borrower; and (c)
Borrower's present and future independent public accountants, each of whom is
authorized by Borrower to communicate with Lender and to disclose to Lender any
and all matters relating to Borrower, its financial condition and prospects, and
the Collateral.

     (N) Borrowing Base Report. For the purposes of computing the Borrowing
Base, Borrower shall furnish to Lender on the forty-fifth (45th) day after the
end of each calendar quarter, a Borrowing Base Report as of the last day of the
immediately preceding calendar quarter containing information adequate to
identify Eligible Inventory and Eligible Accounts, signed by an authorized
officer of Borrower showing a calculation of the Borrowing Base as of the end of
the preceding week, listing the amount of Eligible Accounts and updating the
amount of Eligible Inventory. If on the date any such report is delivered, the
sum of the aggregate principal amount of the Loan shall exceed the Borrowing
Base as set forth in the Borrowing Base Report, Borrower will immediately pay to
Lender the amount of such excess. Borrower shall also, if the Lender so
requests, accompany such information with pledges or designations of Eligible
Inventory or assignments of Eligible Accounts in form and substance satisfactory
to Lender which assignments


                                       29


<PAGE>   34



shall give Lender full power to collect, compromise or otherwise deal with the
assigned Accounts as the sole owner thereof.

     (O) Inspection; Further Assurances. Borrower shall at all reasonable times
and from time to time allow Lender by or through any of its authorized officers,
agents, attorneys or accountants, to examine, inspect or make extracts from
Borrower's books and records, and to arrange for verification of Eligible
Accounts and Eligible Inventory under reasonable procedures on a "blind basis,"
directly with account debtors or factors or by other methods; and shall do,
make, execute and deliver all such additional and further acts, things, deeds,
assurances, and instruments as Lender may require more completely to vest in and
assure to Lender its rights hereunder or in any Collateral and to carry into
effect the provisions and intent of this Agreement.

     (P) Borrower's Account. At all times during the term of this Agreement
maintain Borrower's Account so long as the terms thereof are as favorable to
Borrower as those generally available for similar customers with comparable
accounts.

     (Q) Compliance Certificate. Within ninety (90) days after the fiscal year
end and forty-five (45) days after the end of each calendar quarter, or more
frequently if requested by Lender, cause the chief financial officer of Borrower
to prepare and deliver to Lender a compliance certificate in the form of Exhibit
"K" attached hereto, with appropriate insertions.

     8.2 Negative Covenants. During the term of this Agreement, and thereafter
for so long as there are any Obligations to Lender, Borrower covenants that,
unless Lender has first consented thereto in writing, it will not:

     (A) Indebtedness. Incur, assume or suffer to exist any Indebtedness except
for Permitted Indebtedness.

     (B) Mergers; Consolidations: Acquisitions. Acquire all or any substantial
part of the Properties of any Person if the consideration paid as part of any
such transaction in cash or other property (other than stock of Borrower)
exceeds $5,000,000, nor merge or consolidate with any Person.

     (C) Loans. Except as set forth on Exhibit K-1, make any Loans or other
advances of money in the aggregate in excess of the Permitted Loan and Guarantee
Amount (other than for salary, travel advances, advances against commissions and
other similar advances in the ordinary course of business and Loans to officers
to exercise stock options) to any Person, including, without limitation, any of
Borrower's Affiliates, officers or employees.

     (D) Affiliate Transactions. Enter into, or be a party to, any transaction
with any Affiliate or stockholder, except (i) transactions in the ordinary
course of and pursuant to the reasonable requirements of Borrower's business and
upon fair and reasonable terms which are fully disclosed to Lender and are no
less favorable to Borrower than would obtain in a comparable arm's length
transaction with a Person not an Affiliate of Borrower; (ii) an agreement with


                                       30


<PAGE>   35



Morgan Schiff & Co., Inc. for management services, with the total consideration
thereunder not to exceed $500,000 annually; (iii) bonuses to the chairman,
president and chief executive officer of the Borrower, provided, no Default or
Event of Default under Section 10.1(A) hereof then exists or would be caused by
the payment of such bonus; (iv) the Long-Term Incentive Programs; (v) insurance
programs with Cougar Reinsurance Company, Ltd., as described in Exhibit K-2; and
(vi) loans and other indebtedness evidenced by the agreements listed on Exhibit
K-1.

     (E) Partnerships or Joint Ventures. Become or agree to become a general or
limited partner in any general or limited partnership or a joint venturer in any
joint venture.

     (F) Adverse Transactions. Enter into any transaction, which materially and
adversely affects or may materially and adversely affect the Collateral or
Borrower's ability to repay the Obligations or permit or agree to any material
extension, compromise or settlement or make any change or modification of any
kind or nature with respect to any Account, including any of the terms relating
thereto, other than discounts and allowances in the ordinary course of business,
all of which shall be reflected in the Schedules of Accounts submitted to Lender
pursuant to Section 5.2 of this Agreement.

     (G) Guaranties. Guarantee, assume, endorse or otherwise, in any way, become
directly or contingently liable with respect to the Indebtedness of any Person
if the aggregate amount of the same exceeds the Permitted Loan and Guarantee
Amount except by endorsement of instruments or items of payment for deposit or
collection.

     (H) Limitation on Liens. Create or suffer to exist any Lien upon any of its
Property, income or profits, whether now owned or hereafter acquired, except:
(i) Liens at any time granted in favor of Lender; (ii) Liens for taxes
(excluding any Lien imposed pursuant to any of the provisions of ERISA) not yet
due or being contested as permitted by Section 8.1(A) hereof, but only if in
Lender's judgment such Lien does not affect adversely Lender's rights or the
priority of Lender's Lien in the Collateral; (iii) Liens securing the claims or
demands of materialmen, mechanics, carriers, warehousemen, landlords and other
like Persons for labor, materials, supplies or rentals incurred in the ordinary
course of Borrower's business, but only if the payment thereof is not at the
time required and only if such Liens are junior in priority to the Liens in
favor of Lender; (iv) Liens resulting from deposits made in the ordinary course
of business in connection with workmen's compensation, unemployment insurance,
social security and other like laws; (v) attachment, judgment and other similar
non-tax Liens arising in connection with court proceedings, but only if and for
so long as the execution or other enforcement of such Liens is and continues to
be effectively stayed and bonded on appeal in a manner satisfactory to Lender
for the full amount thereof, the validity and amount of the claims secured
thereby are being actively contested in good faith and by appropriate lawful
proceedings, such Liens do not, in the aggregate, materially detract from the
value of the Property of Borrower or materially impair the use thereof in the
operation of Borrower's business and such Liens are and remain junior in
priority to the Liens in favor of Lender; (vi) Purchase Money Liens securing
purchase money indebtedness which is not incurred in violation of Section 8.3(C)
of this Agreement; (vii) reservations, exceptions, easements, rights-of-way, and
other similar encumbrances affecting real


                                       31


<PAGE>   36



Property, provided that, in Lender's sole judgment, they do not in the aggregate
materially detract from the value of said Properties or materially interfere
with their use in the ordinary conduct of Borrower's business and, if said real
Property constitutes Collateral, Lender has consented thereto; (viii) such other
Liens as appear an Exhibit "L" attached hereto; (ix) the pari passu Lien granted
in favor of NationsBank pursuant to the NationsBank Credit Agreement; (x) the
pari passu Lien granted in favor of ABN pursuant to the ABN Loan Agreement; and
(xi) such other Liens as Lender may hereafter approve in writing.

     (I) Business Locations. Transfer its principal place of business or chief
executive office, or maintain warehouses or records with respect to Accounts or
Inventory, to or at any locations other than those at which the same are
presently kept or maintained, as set forth on Exhibit "C" hereto, except upon at
least thirty (30) days' prior written notice to Lender and after the delivery to
Lender of financing statements, if required by Lender, in form satisfactory to
Lender to perfect or continue the perfection of Lender's Lien and security
interest hereunder.

     (J) Change of Business. Enter into any new type of business or make any
material change in any of Borrower's business objectives, purposes and
operations; provided, however, Borrower shall be permitted to engage in any
retail business incidental or related to Borrower's business conducted on the
date hereof.

     (K) Disposition of Assets. Sell, lease or otherwise dispose of any of its
Properties, including any disposition of Property as part of a sale and
leaseback transaction, to or in favor of any Person, except (i) sales of
Inventory in the ordinary course of Borrower's business for so long as no Event
of Default exists hereunder, (ii) dispositions expressly authorized by this
Agreement, or (iii) dispositions of Properties other than Inventory for not less
than the reasonable value of the Properties which have been disposed.

     (L) Name of Borrower. Use any corporate name (other than its own) or any
fictitious name, tradestyle or "d/b/a" except for the names disclosed on Exhibit
"F" attached hereto, unless Borrower has provided such name to Lender and
executed such Uniform Commercial Code statements as Lender shall require.

     (M) Bill-and-Hold Sales, Etc. Except in the ordinary course of business,
make a sale to any customer on a bill-and-hold, guaranteed sale, sale and
return, sale on approval or consignment basis, or any sale on a repurchase or
return basis.

     (N) Margin Securities. Own, purchase or acquire (or enter into any contract
to purchase or acquire) any "margin security" as defined by any regulation of
the Federal Reserve Board as now in effect or as the same may hereafter be in
effect unless, prior to any such purchase or acquisition or entering into any
such contract, Lender shall have received an opinion of counsel satisfactory to
Lender to the effect that such purchase or acquisition will not cause this
Agreement to violate Regulations G or U or any other regulation of the Federal
Reserve Board then in effect.


                                       32


<PAGE>   37



          (O) Fiscal Year. Change its fiscal year without the prior written 
consent of Lender, which consent shall not be unreasonably withheld.

          (P) Distributions to Affiliates. Make any distributions, dividends or
payments to Affiliates (including any permitted payments under section
8.2(D)(ii) and (iii) in excess of $1,500,000 during any calendar year without
the prior written consent of Lender, except Borrower may redeem its Class B
shares from time to time if no Default or Event of Default then exists or would
be caused by such redemption.

     8.3  Specific Financial Covenants. During the term of this Agreement and
thereafter for so long as there are any Obligations to Lender, Borrower
covenants that, unless otherwise consented to by Lender in writing, it shall:

          (A) Minimum Net Worth. Maintain at all times a Net Worth of at least
$140,000,000, plus 50% of the net proceeds of any equity offering after
September 30, 1996; in addition, effective as of the start of each fiscal year,
commencing with the fiscal year beginning on October 1, 1997, such Net Worth
requirement shall be increased by 50% of the Borrower's Net Income after
distributions to shareholders during the immediately preceding fiscal year.

          (B) Fixed Charge Coverage Ratio. Maintain, as of the end of each
fiscal quarter, a Fixed Charge Coverage Ratio of not less than 1.5:1.

          (C) Debt Ratio. Not permit, as of the end of any fiscal quarter, the
ratio of the Borrower's Funded Debt as of such date to its EBITDAR for the four
immediately preceding fiscal quarters to exceed 3:1.

SECTION 9. CONDITIONS PRECEDENT

     Notwithstanding any other provision of this Agreement or any of the other
Loan Documents, and without affecting in any manner the rights of Lender under
the other Sections of this Agreement, it is understood and agreed that the
obligation of Lender to make the initial Advance is subject to the conditions
precedent that Lender shall have received, in form and substance satisfactory to
it, each of the following documents and that each of the conditions described
herein is fulfilled to the satisfaction of Lender:

     9.1  Documentation. Lender shall have received the following documents,
each to be in form and substance satisfactory to Lender and its counsel:

          (A)  The Security Agreement and any other Security Documents duly
executed by Borrower;

          (B)  A legal opinion of Alston & Bird, counsel to Borrower,
substantially in the form of Exhibit "M" attached hereto and incorporated by
reference herein;


                                       33


<PAGE>   38



          (C) A Compliance Certificate in the form of Exhibit "K" attached
hereto and incorporated by reference herein duly executed by an officer of
Borrower;

          (D) Certificates or policies of insurance evidencing compliance with
the applicable provisions of this Agreement;

          (E) A request for Advance pursuant to Section 9.4 hereof and a
Borrowing Base Report;

          (F) Certified copies of Borrower's casualty insurance policies,
together with loss payable endorsements on Lender's standard form of Loss Payee
Endorsement naming Lender as loss payee, and certified copies of Borrower's
liability insurance policies, together with endorsements naming Lender as a
co-insured;

          (G) Copies of all filing receipts or acknowledgments issued by any
governmental authority to evidence any filing or recordation necessary to
perfect the Liens of Lender in the Collateral and evidence in a form acceptable
to Lender that such Liens constitute valid and perfected security interests and
Liens, having the Lien priority specified in Section 4.2(B) hereof;

          (H) A copy of the Articles or Certificate of Incorporation of
Borrower, and all amendments thereto, and a copy of the Bylaws of Borrower, each
certified by the secretary of Borrower;

          (I) Good standing certificates for Borrower, issued by the Secretary
of State or other appropriate official of the jurisdiction of incorporation;

          (J) Certificate as to qualification to transact business as a foreign
corporation in each state, other than its state of incorporation, in which
Borrower transacts business provided, however, so long as the representation in
Section 7.1(A) is true and correct, Borrower may provide such certificates
within 30 days of the date hereof;

          (K) A copy of the Intercreditor Agreement, duly executed and delivered
by NationsBank, ABN and Borrower.

          (L) Such other documents, instruments and agreements as Lender shall
reasonably request in connection with the foregoing matters.

     9.2  Other Conditions. The following conditions have been and shall
continue to be satisfied, in the reasonable discretion of Lender:

          (A) No Default or Event of Default shall exist;

          (B) Each of the conditions precedent set forth in the other Loan
Documents shall have been satisfied;


                                       34


<PAGE>   39



          (C) Since September 30, 1996, except for changes which are reflected
on the unaudited May 31, 1997 financial statements (excluding footnotes)
submitted to Lender, there shall not have occurred any material adverse change
in the business, financial condition or results of operations of Borrower, or
the existence or value of any Collateral, or any event, condition or state of
facts which would reasonably be expected materially and adversely to affect the
business, financial condition or results of operations of Borrower; and

          (D) No action, proceeding, investigation, regulation or legislation
shall have been instituted, threatened or proposed before any court,
governmental agency or legislative body to enjoin, restrain or prohibit, or to
obtain damages from any Person in respect of, the consummation of the
transactions contemplated hereby or which, in Lender's sole discretion, would
make it inadvisable to consummate the transactions contemplated by this
Agreement or any of the other Loan Documents.

     9.3  Conditions Precedent to Subsequent Advances. The obligation of Lender
to make subsequent Advances is subject to the conditions precedent that Lender
shall have received, in form and substance satisfactory to it, each of the
following documents and that each of the conditions described below is fulfilled
to the satisfaction of Lender:

          (A) A request for Advance pursuant to Section 9.4 hereof;

          (B) The representation and warranties contained herein and in each of
the other Loan Documents shall be correct on and as of the date of the request
for the Advance and the date of the Advance, with the same effect as though made
on and as of those dates, except to the extent that such representations and
warranties relate solely to an earlier date, and on each of such dates, no
event, act, or condition shall have occurred or be continuing, or would result
from the Advance requested, which constitutes a Default or Event of Default. The
submission by Borrower of a written request for an Advance shall constitute a
representation and warranty as to the correctness of the above facts, and if
requested by Lender with respect to the Advance requested, Borrower shall
furnish to Lender a written certificate of an officer of the Borrower,
satisfactory in form and substance to Lender, as to the correctness of the above
facts as a condition precedent to such Advance; and

          (C) A Compliance Certificate in the form of Exhibit "L" attached
hereto and incorporated by reference herein duly executed by an officer of
Borrower.

     9.4  Request for Advances. Borrower shall request each Advance of Loan
proceeds (including requests by telephonic communication) no later than 11:00
A.M. (Atlanta time) of the day on which the Advance is requested to be made.
Each request for Advance shall specify the proposed date of the Advance and the
amount thereof and shall be effective upon receipt by Lender and shall be
irrevocable. Not later than close of business (Atlanta time) on the day on which
the request for Advance is received by Lender and upon fulfillment of the
applicable conditions set forth herein, as applicable, Lender will make each
requested Advance in the amount requested, or in a lesser amount as determined
by the Borrowing Base, to the Borrower in


                                       35


<PAGE>   40



immediately available funds by deposit into Borrower's Account as of the
proposed date. The persons authorized to request Advances hereunder shall be
those individuals designated in writing by Borrower to Lender. In the case of a
request for Advance made by telephonic communication, the action taken by Lender
in good faith upon such notice shall be deemed to be the action authorized by
Borrower pursuant to such request for Advance.

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

     10.1 Events of Default. The occurrence of any one or more of the following
events or conditions shall constitute an "Event of Default":

          (A) Payment of Note. Borrower shall fail to pay any installment of
principal, interest or premium, if any, owing on the Note on the due date of
such installment and shall fail to cure the same within five (5) days of notice
thereof from Lender.

          (B) Payment of Other Obligations. Borrower shall fail to pay any of 
the Obligations that are not evidenced by the Note on the due date thereof 
(whether due at stated maturity, on demand, upon acceleration or otherwise).

          (C) Misrepresentations. Any warranty, representation, or other 
statement made or furnished to Lender by or on behalf of Borrower or in any
instrument, certificate or financial statement furnished in compliance with or
in reference to this Agreement or any of the other Loan Documents proves to
have been false or misleading in any material respect when made or furnished.

          (D) Breach of Covenants. Breach of any covenant contained herein or 
any covenant contained in any other Loan Document (other than a covenant or 
default in the performance) if the breach of such other covenant is not cured to
Lender's satisfaction within ten (10) days after the sooner to occur of
Borrower's receipt of notice of such breach from Lender or the date on which
such failure or neglect first becomes known to any officer of Borrower.

          (E) Default Under Other Agreements. Any event of default shall occur 
under, or Borrower shall default in the performance or observance of any term,
covenant, condition or agreement contained in, any of the Other Agreements or
other instrument, contract, or document evidencing any existing or future
indebtedness of Borrower to Lender and such default shall continue beyond any
applicable period of grace.

          (F) Default Under Security Documents. Any event of default shall occur
under, or Borrower shall default in the performance or observance of any term,
covenant, condition or agreement contained in, any of the Security Documents and
such default shall continue beyond any applicable period of grace.

          (G) Other Defaults. There shall occur any default or event of default
on the part of Borrower (including specifically, but without limitation, due to
non-payment) under any


                                       36


<PAGE>   41



agreement, document or instrument to which Borrower is a party (including,
without limitation, the NationsBank Credit Agreement and the ABN Loan Agreement)
or by which Borrower or any of its Property is bound, creating or relating to
any indebtedness (other than the Obligations) if the payment or maturity of such
Indebtedness is accelerated in consequence of such event of default or demand
for payment of such Indebtedness is made.

          (H) Uninsured Losses; Unauthorized Dispositions. Any material loss, 
theft, damage or destruction not fully covered by insurance (as required by this
Agreement and subject to such deductibles as Lender shall have agreed to in
writing), or sale, lease or encumbrance of any of the Collateral or the making
of any levy, seizure, or attachment thereof or thereon except in all cases as
may be specifically permitted by other provisions of this Agreement.

          (I) Insolvency, etc. Borrower shall cease to be Solvent or shall  
suffer the appointment of a receiver, trustee, custodian or similar fiduciary,
or shall make an assignment for the benefit of creditors, or any petition for
an order for relief shall be filed by or against Borrower under the Bankruptcy
Code (if against Borrower, the continuation of such proceeding for more than
thirty (30) days), or Borrower shall make any offer of settlement, extension or
composition to their respective unsecured creditors generally, or any motion,
complaint or other pleading is filed in any bankruptcy case of any Person other
than Borrower and such motion, complaint or pleading seeks the consolidation of
Borrower's assets and liabilities with the assets and liabilities of such
Persons.

          (J) Business Disruptions; Condemnation. There shall occur a cessation
of a substantial part of the business of Borrower for a period which
significantly affects Borrower's capacity to continue its business, on a        
profitable basis; or Borrower shall suffer the loss or revocation of any
license or permit now held or hereafter acquired by Borrower which is necessary
to the continued or lawful operation of all or any material part of its
business; or Borrower shall be enjoined, restrained or in any way prevented by
court, governmental or administrative order from conducting all or any material
part of its business affairs; or any material lease or agreement pursuant to
which Borrower leases, uses or occupies any Property shall be cancelled or
terminated prior to the expiration of its stated term; or any part of the
Collateral shall be taken through condemnation or the value of such Property
shall be impaired through condemnation.

          (K) ERISA. A Reportable Event shall occur which Lender, in its 
reasonable discretion, shall determine in good faith constitutes grounds for
the termination by the Pension Benefit Guaranty Corporation of any Plan or for
the appointment by the appropriate United States district court of a trustee
for any Plan, or if any Plan shall be terminated or any such trustee shall
be requested or appointed, or if Borrower is in "default" (as defined in
Section 4219 (c)(5) of ERISA) with respect to payments to a Multiemployer Plan
resulting from Borrower's complete or partial withdrawal from such Plan.

          (L) Litigation. Borrower, or any Affiliate, shall challenge or 
contest in any action, suit or proceeding the validity or enforceability of 
this Agreement or any of the other Loan


                                       37


<PAGE>   42



Documents, the legality or enforceability of any of the Obligations or the
perfection or priority of any Lien granted to Lender.

          (M) Criminal Forfeiture. Borrower shall be criminally indicted or
convicted under any law that could lead to a forfeiture of any Property of
Borrower.

          (N) Judgments. Borrower shall suffer any money judgments, or suffer
any writs, warrants of attachment or similar processes which give rise to a
Lien, other than a Permitted Lien, which individually or in the aggregate
involve an amount in excess of $500,000 over the amount covered in full, subject
to customary and reasonable deductibles, by insurance or a surety bond, and
shall not discharge, vacate, bond or stay the same within a period of sixty (60)
consecutive days.

     10.2 Acceleration of the Obligations. Without in any way limiting the right
of Lender to demand payment of any portion of the obligations payable on demand
in accordance with Section 3.2 hereof, upon or at any time after the occurrence
of an Event of Default, all or any portion of the Obligations due or to become
due from Borrower to Lender, whether under this Agreement or any of the other
Loan Documents or otherwise, shall, at the option of Lender and without notice
or demand by Lender, become at once due and payable and Borrower shall forthwith
pay to Lender, in addition to any and all sums and charges due, the entire
principal of and accrued and unpaid interest on the obligations plus reasonable
attorneys' fees not to exceed fifteen percent (15.0%) of the Obligations if the
same are collected by or through an attorney at law.

     10.3 Remedies. Upon or at any time after the occurrence of an Event of
Default, Lender shall have and may exercise from time to time the following
rights and remedies:

          (A) All of the rights and remedies of a secured party under the Code
or under other applicable law, and all other legal and equitable rights to which
Lender may be entitled, all of which rights and remedies shall be cumulative,
and none of which shall be exclusive, and shall be in addition to any other
rights or remedies contained in this Agreement or any of the other Loan
Documents.

          (B) The right to notify Account Debtors to make remittances to Lender
of all sums due on Accounts and to collect the Accounts directly from the
Account Debtors.

          (C) The right to take immediate possession of the Collateral, and (i)
to require Borrower to assemble the Collateral, at Borrower's expense, and make
it available to Lender at a place designated by Lender which is reasonably
convenient to both parties, and (ii) to enter any of the premises of Borrower or
wherever any of the Collateral shall be located, and to keep and store the same
on said premises until sold (and if said premises be the Property of Borrower,
Borrower agrees not to charge Lender for storage thereof).


                                       38


<PAGE>   43



          (D) The right to sell or otherwise dispose of all or any of the
Collateral in its then condition, or after any further manufacturing or
processing thereof, at public or private sale or sales, with such notice as may
be required by law, in lots or in bulk, for cash or on credit, all as Lender, in
its sole discretion, may deem advisable. Borrower agrees that ten (10) days'
written notice to Borrower of any public or private sale or other disposition of
any Collateral shall be reasonable notice thereof; provided, however, that no
notice of Lender's intended disposition of Collateral shall be required with
respect to any portion of the Collateral that is perishable, threatens to
decline speedily in value or is of a type customarily sold on a recognized
market, nor shall any such notice be required hereunder if not otherwise
required under applicable law. Lender shall have the right to conduct such sales
an Borrower's premises, without charge therefor, and such sales may be adjourned
from time to time in accordance with applicable law. Lender shall have the right
to sell, lease, or otherwise dispose of any Collateral, or any part thereof, for
cash, credit or any combination thereof, and Lender may purchase all or any part
of any Collateral at public or, if permitted by law, private sale and, in lieu
of actual payment of such purchase price, may set off the amount of such price
against the obligations.

          (E) Lender is hereby granted a license or other right to use, without
charge, Borrower's labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks and advertising matter, or any Property of a
similar nature as it pertains to the Collateral, in advertising for sale and
selling any Collateral and Borrower's rights under all licenses and all
franchise agreements shall inure to Lender's benefit.

          (F) The proceeds realized from the sale of any Collateral may be
applied, after allowing two (2) Business Days for collection, first to the
costs, expenses and reasonable attorneys' fees incurred by Lender in collecting
the obligations, in enforcing the rights of Lender under the Loan Documents and
in, collecting, retaking, completing, protecting, removing, storing, advertising
for sale, selling and delivering any of the Collateral; secondly, to interest
due upon any of the Obligations; and thirdly, to the principal of the
Obligations. If any deficiency shall arise, Borrower shall remain jointly and
severally liable to Lender therefor.

     10.4 Remedies Cumulative; No Waiver. All covenants, conditions, provisions,
warranties, guaranties, indemnities, and other undertakings of Borrower
contained in this Agreement and the other Loan Documents, or in any document
referred to herein or contained in any agreement supplementary hereto or in any
schedule given to Lender or contained in any other agreement between Lender and
Borrower, heretofore, concurrently, or hereafter entered into, shall be deemed
cumulative to and not in derogation or substitution of any of the terms,
covenants, conditions, or agreements of Borrower herein contained. The failure
or delay of Lender to exercise or enforce any rights, Liens, powers, or remedies
hereunder or under any of the other Loan Documents shall not operate as a waiver
of any of such Liens, rights, powers or remedies, but all such Liens, rights,
powers, and remedies shall continue in full force and effect until all Loans and
all other Obligations owing or to become owing from Borrower to Lender shall
have been indefeasibly paid in full, and all Liens, rights, powers, and remedies
provided herein and the other Loan Documents are cumulative and none are
exclusive.


                                       39


<PAGE>   44



SECTION 11. MISCELLANEOUS

     11.1 Power of Attorney. Borrower hereby irrevocably designates, makes,
constitutes and appoints Lender (and all Persons designated by Lender) as
Borrower's true and lawful attorney (and agent-in-fact) and Lender, or Lender's
agent may, without notice to Borrower and in either Borrower's or Lender's name,
but at the cost and expense of Borrower:

          (A) At such time or times hereafter as Lender or said agent, in its
sole discretion, may determine, endorse Borrower's name on any checks, notes,
acceptances, drafts, money orders or any other evidence of payment or proceeds
of the Collateral which come into the possession of Lender or under Lender's
control; and

          (B) At such time or times upon or after the occurrence of an Event of
Default as Lender or its agent in its sole discretion may determine: (i) demand
payment of the Accounts from the Account Debtors, enforce payment of the
Accounts by legal proceedings or otherwise, and generally exercise all of
Borrower's rights and remedies with respect to the collection of the Accounts;
(ii) settle, adjust, compromise, discharge or release any of the Accounts or
other Collateral or any legal proceedings brought to collect any of the Accounts
or other Collateral; (iii) sell or assign any of the Accounts and other
Collateral upon such terms, for such amounts and at such time or times as Lender
deems advisable; (iv) take control, in any manner, of any item of payment or
proceeds relating to any Collateral; (v) prepare, file and sign Borrower's name
to a proof of claim in bankruptcy, or similar document against any Account
Debtor or to any notice of lien, assignment or satisfaction of lien or similar
document in connection with any of the Collateral; (vi) receive, open and
dispose of all mail addressed to Borrower and to notify postal authorities to
change the address for delivery thereof to such address as Lender may designate;
(vii) endorse the name of Borrower upon any of the items of payment or proceeds
relating to any Collateral and deposit the same to the account of Lender on
account of the obligations; (viii) endorse the name of Borrower upon any chattel
paper, document, instrument, invoice, freight bill, bill of lading or similar
document or agreement relating to the Accounts, Inventory and any other
Collateral; (ix) use Borrower's stationery and sign the name of Borrower to
verifications of the Accounts and notices thereof to Account Debtors; (x) use
the information recorded on or contained in any data processing equipment and
computer hardware and software relating to the Accounts, Inventory, Equipment
and any other Collateral and to which Borrower has access; (xi) make and adjust
claims under policies of insurance; and (xii) do all other acts and things
necessary, in Lender's determination, to fulfill Borrower's obligations under
this Agreement.

     11.2 Indemnity. Borrower hereby agrees to and hereby does indemnify Lender
and hold Lender harmless from and against any liability, loss, damage, suit,
action or proceeding ever suffered or incurred by Lender as the result of
Borrower's failure to observe, perform or discharge Borrower's duties hereunder;
provided, however, that Borrower shall have no liability under this Section 11.2
resulting from Lender's gross negligence or wilful misconduct. Without limiting
the generality of the foregoing, this indemnity shall extend to any claims
asserted against Lender by any Person under any Environmental Laws.
Notwithstanding any contrary provision of this


                                       40


<PAGE>   45



Agreement, the obligation of Borrower under this Section 11.2 shall survive the
payment in full of the Obligations and the termination of this Agreement.

     11.3 Modification of Agreement; Sale of Interest. This Agreement may not be
modified, altered or amended, except by an agreement in writing signed by
Borrower and Lender. Borrower may not sell, assign or transfer any interest in
this Agreement or any of the other Loan Documents, or any portion thereof,
including, without limitation, Borrower's rights, title, interests, remedies,
powers, and duties hereunder or thereunder. Borrower hereby consents to Lender's
participation, sale, assignment, transfer or other disposition, at any time or
times hereafter, of this Agreement, any of the other Loan Documents or any of
the Obligations, or of any portion hereof or thereof to any Affiliate of Lender,
and Lender's participation thereof with any Person if the amount so participated
is less than a fifty percent (50%) interest and Lender remains as the servicing
agent for this Agreement, including, without limitation, Lender's rights, title,
interests, remedies, powers, and duties hereunder or thereunder. In the event of
any such participation, sale, assignment, transfer or other disposition, Lender
shall be authorized to provide to each participating lender, assignee or
transferee all information in Lender's possession regarding Borrower and the
Collateral, including, without limitation, information required to be disclosed
pursuant to Banking Circular 181 (Rev. Aug. 2, 1984), issued by the Comptroller
of the Currency. In the case of an assignment, the assignee shall have, to the
extent of such assignment, the same rights, benefits and obligations as it would
if it were "Lender" hereunder and Lender shall be relieved immediately (and
without the necessity of the execution of further documentation by Borrower or
any other Person) of all obligations hereunder upon any such assignment.

     11.4 Reimbursement of Expenses. If, at any time or times prior or
subsequent to the date hereof, regardless of whether or not an Event of Default
then exists or any of the transactions contemplated hereunder are concluded,
Lender employs counsel for advice or other representation, or incurs legal
expenses or other costs or out-of-pocket expenses in connection with: (A) the
negotiation and preparation of this Agreement or any of the other Loan
Documents, any amendment of or modification of this Agreement or any of the
other Loan Documents; (B) periodic audits and appraisals (but no more than one
(1) annually) performed by Lender; (C) any litigation, contest, dispute, suit,
proceeding or action (whether instituted by Lender, Borrower or any other
Person) in any way relating to the Collateral, this Agreement or any of the
other Loan Documents or Borrower's affairs; (D) any attempt to enforce any
rights or remedies of Lender against Borrower or any other Person which may be
obligated to Lender by virtue of this Agreement or any of the other Loan
Documents, including, without limitation, the Account Debtors; or (E) any
attempt to inspect, verify, protect, preserve, restore, collect, sell, liquidate
or otherwise dispose of or realize upon the Collateral; then, in any such event,
the reasonable attorneys' fees arising from such services and all reasonable
expenses, costs, charges and other fees of such counsel or of Lender or relating
to any of the events or actions described in this Section shall be payable when
incurred by Borrower to Lender, as the case may be, and shall be additional
Obligations hereunder secured by the Collateral.

     11.5 Indulgences Not Waivers. Lender's failure, at any time or times
hereafter, to require strict performance by Borrower of any provision of this
Agreement shall not waive, affect


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<PAGE>   46



or diminish any right of Lender thereafter to demand strict compliance and
performance therewith. Any suspension or waiver by Lender of an Event of Default
by Borrower under this Agreement or any of the other Loan Documents shall not
suspend, waive or affect any other Event of Default by Borrower under this
Agreement or any of the other Loan Documents, whether the same is prior or
subsequent thereto and whether of the same or of a different type. None of the
undertakings, agreements, warranties, covenants and representations of Borrower
contained in this Agreement or any of the other Loan Documents and no Event of
Default by Borrower under this Agreement or any of the other Loan Documents
shall be deemed to have been suspended or waived by Lender, unless such
suspension or waiver is by an instrument in writing specifying such suspension
or waiver and is signed by a duly authorized representative of Lender and
directed to Borrower.

     11.6 Severability. Wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.

     11.7 Successors and Assigns. This Agreement, the Other Agreements and the
Security Documents shall be binding upon and inure to the benefit of the
successors and assigns of Borrower and Lender. This provision, however, shall
not he deemed to modify Section 11.3 hereof.

     11.8 Cumulative Effect; Conflict of Terms. The provisions of the Other
Agreements and the Security Documents are hereby made cumulative with the
provisions of this Agreement. Except as otherwise provided in Section 3.2 of
this Agreement and except as otherwise provided in any of the other Loan
Documents by specific reference to the applicable provision of this Agreement,
if any provision contained in this Agreement is in direct conflict with, or
inconsistent with, any provision in any of the other Loan Documents, the
provision contained in this Agreement shall govern and control.

     11.9 Execution in Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which counterparts taken together shall constitute but one and the
same instrument. In proving this Agreement in any judicial proceeding, it shall
not be necessary to produce or account for more one such counterpart signed by
the party against whom such enforcement is sought.

     11.10 Notice. Except as otherwise provided herein, all notices, requests
and demands to or upon a party hereto shall be in writing and shall be sent by
certified or registered mail, return receipt requested, personal delivery
against receipt or by telecopier or other facsimile transmission and, unless
otherwise expressly provided herein, shall be deemed to have been validly
served, given or delivered when delivered against receipt or one Business Day
after deposit in the mail,


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<PAGE>   47



postage prepaid, or, in the case of facsimile transmission, when received at the
office of the noticed party, addressed as follows:

(A)      If to Lender:                (B)      If to Borrower:

         First Union National Bank             Friedman's Inc.
         999 Peachtree Street, N.E.,           4 West State Street
         9th Floor                             Savannah, Georgia 31401
         Atlanta, Georgia  30309               Attn: Mr. Victor Suglia
         Attn:  Mr. Dan Evans

or to such other address as each party may designate for itself by like notice
given in accordance with this Section 11.10; provided, however, that any notice,
request or demand to or upon Lender shall not be effective until received by
Lender. Any written notice that is not sent in conformity with the provisions
hereof shall nevertheless be effective on the date that such notice is actually
received by the noticed party.

     11.11 Lender's Right to Set-Off. Upon the occurrence of an Event of Default
and acceleration of the Obligations as permitted in Section 10.2 hereof, Lender,
without notice or demand of any kind, may hold and set-off against such of the
Obligations (whether matured or unmatured) as Lender may elect, any balance or
amount to the credit of Borrowers in any deposit, agency, reserve, holdback or
other account of any nature whatsoever (other than any account specifically
identified as a payroll account for employees of Borrower), maintained by or on
behalf of Borrowers with Lender at its offices, regardless of whether such
accounts are general or special and regardless of whether such accounts are
individual or joint.

     11.12 Demand Obligations. Nothing in this Agreement shall affect or
abrogate the demand nature of any portion of the Obligations expressly made
payable on demand by this Agreement or by any instrument evidencing or securing
same, and the occurrence of an Event of Default shall not be a prerequisite for
Lender's requiring payment of such Obligations.

     11.13 Time of Essence. Time is of the essence in the payment and
performance of this Agreement, the Other Agreements and the Security Documents.

     11.14 Entire Agreement. This Agreement and the other Loan Documents,
together with all other instruments, agreements and certificates executed by the
parties in connection therewith or with reference thereto, embody the entire
understanding and agreement between the parties hereto and thereto with respect
to the subject matter hereof and thereof and supersede all prior agreements,
understandings and inducements, whether express or implied, oral or written.

     11.15 Interpretation. No provision of this Agreement or any of the other
Loan Documents shall be construed against or interpreted to the disadvantage of
any party hereto by any court or other governmental or judicial authority by
reason of such party's having or being deemed to have structured or dictated
such provision.


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<PAGE>   48



     11.16 Governing Law; Consent to Forum. THIS AGREEMENT HAS BEEN NEGOTIATED,
EXECUTED AND DELIVERED AT AND SHALL BE DEEMED TO HAVE BEEN MADE IN ATLANTA,
GEORGIA. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS OF THE STATE OF GEORGIA; PROVIDED, HOWEVER, THAT IF ANY OF THE
COLLATERAL SHALL BE LOCATED IN ANY JURISDICTION OTHER THAN GEORGIA, THE LAWS OF
SUCH JURISDICTION SHALL GOVERN THE METHOD, MANNER AND PROCEDURE FOR FORECLOSURE
OF LENDER'S LIEN UPON SUCH COLLATERAL AND THE ENFORCEMENT OF LENDER'S OTHER
REMEDIES IN RESPECT OF SUCH COLLATERAL TO THE EXTENT THAT THE LAWS OF SUCH
JURISDICTION ARE DIFFERENT FROM OR INCONSISTENT WITH THE LAWS OF GEORGIA. AS
PART OF THE CONSIDERATION FOR NEW VALUE RECEIVED, AND REGARDLESS OF ANY PRESENT
OR FUTURE DOMICILE OR PRINCIPAL PLACE OF BUSINESS OF BORROWER OR LENDER,
BORROWER HEREBY CONSENTS AND AGREES THAT THE SUPERIOR COURT OF FULTON COUNTY,
GEORGIA, OR, AT LENDER'S OPTION, THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF GEORGIA, ATLANTA DIVISION, SHALL HAVE EXCLUSIVE
JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN BORROWER AND
LENDER PERTAINING TO THIS AGREEMENT OR TO ANY MATTER ARISING OUT OF OR RELATED
TO THIS AGREEMENT; PROVIDED, HOWEVER, LENDER MAY, AT ITS OPTION, COMMENCE ANY
ACTION, SUIT OR PROCEEDING IN ANY OTHER APPROPRIATE FORUM OR JURISDICTION TO
OBTAIN POSSESSION OF OR FORECLOSURE UPON ANY COLLATERAL, TO OBTAIN EQUITABLE
RELIEF OR TO ENFORCE ANY JUDGMENT OR ORDER OBTAINED BY LENDER AGAINST BORROWER
OR WITH RESPECT TO ANY COLLATERAL OR TO OBTAIN ANY OTHER RELIEF DEEMED
APPROPRIATE BY LENDER. BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO
SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND
BORROWER HEREBY WAIVES ANY OBJECTION WHICH BORROWER MAY HAVE BASED UPON LACK OF
PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY
CONSENTS TO THE GRANTING FOR SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY SUCH COURT. BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE
SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND
AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY
REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER AT THE ADDRESS SET FORTH IN
THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE
EARLIER OF BORROWER'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN
THE U.S. MAILS, PROPER POSTAGE PREPAID. NOTHING IN THIS AGREEMENT SHALL BE
DEEMED OR OPERATE TO AFFECT THE RIGHT OF LENDER TO SERVE LEGAL PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW.

     11.17 General Waivers by Borrower. BORROWER WAIVES (i) PRESENTMENT, DEMAND
AND PROTEST AND NOTICE OF PRESENTMENT, PROTEST, DEFAULT, NON


                                       44


<PAGE>   49



PAYMENT, MATURITY, RELEASE, COMPROMISE, SETTLEMENT, EXTENSION OR RENEWAL OF ANY
OR ALL COMMERCIAL PAPER, ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS, INSTRUMENTS,
CHATTEL PAPER AND GUARANTIES AT ANY TIME HELD BY LENDER ON WHICH BORROWER MAY IN
ANY WAY BE LIABLE AND HEREBY RATIFIES AND CONFIRMS WHATEVER LENDER MAY DO IN
THIS REGARD; (ii) NOTICE PRIOR TO LENDER'S TAKING POSSESSION OR CONTROL OF ANY
OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH MIGHT BE REQUIRED BY ANY COURT
PRIOR TO ALLOWING LENDER TO EXERCISE ANY OF LENDER'S REMEDIES, INCLUDING THE
ISSUANCE OF AN IMMEDIATE WRIT OF POSSESSION; (iii) THE BENEFIT OF ALL VALUATION,
APPRAISEMENT AND EXEMPTION LAWS; (iv) ANY RIGHT BORROWER MAY HAVE UPON PAYMENT
IN FULL OF THE OBLIGATIONS TO REQUIRE LENDER TO TERMINATE ITS SECURITY INTEREST
IN THE COLLATERAL OR IN ANY OTHER PROPERTY OF BORROWER UNTIL TERMINATION OF THIS
AGREEMENT IN ACCORDANCE WITH ITS TERMS AND THE EXECUTION BY BORROWER, AND BY ANY
PERSON WHOSE LOANS TO BORROWER ARE USED IN WHOLE OR IN PART TO SATISFY THE
OBLIGATIONS, OF AN AGREEMENT INDEMNIFYING LENDER FROM ANY LOSS OR DAMAGE LENDER
MAY INCUR AS THE RESULT OF DISHONORED CHECKS OR OTHER ITEMS OF PAYMENT RECEIVED
BY LENDER FROM BORROWER OR ANY ACCOUNT DEBTOR AND APPLIED TO THE OBLIGATIONS;
AND (v) NOTICE OF ACCEPTANCE HEREOF.

     11.18 Security and Intercreditor Agreement. The relative rights and
obligations of Borrower and Lender hereunder and under the Other Agreements are
subject to the terms and provisions of the Intercreditor Agreement (so long as
it is in effect). To the extent there is any conflict with respect to the
Lender's rights of the Borrower's obligations hereuner or under the Other
Agreements, on the one hand, and the Intercreditor Agreement on the other hand,
the Intercreditor Agreement shall control.


                                       45


<PAGE>   50



     IN WITNESS WHEREOF, this Agreement has been duly executed in Atlanta,
Georgia on the day and year specified at the beginning hereof.
                                  
                                   BORROWER:

                                   FRIEDMAN'S INC.

                                   By:/s/ Bradley J. Stinn
                                      ------------------------------------
                                      Bradley J. Stinn, Chairman and Chief
                                            Executive Officer

                                                     [CORPORATE SEAL]

                                   LENDER:

                                   FIRST UNION NATIONAL BANK

                                   By:/s/ Daniel J. Evans
                                      -------------------------------------
                                   Title: Senior Vice President
                                         ----------------------------------

                                       46