AVONDALE INC
EX-10.44 CREDIT AGREEMENT, DATED NOVEMBER 7, 2003
<DOCUMENT>
<TYPE>EX-10.44
<SEQUENCE>8
<FILENAME>g85722exv10w44.txt
<DESCRIPTION>EX-10.44 CREDIT AGREEMENT, DATED NOVEMBER 7, 2003
<TEXT>
<PAGE>
                                                                   EXHIBIT 10.44

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

                                CREDIT AGREEMENT

                          Dated as of November 7, 2003

                                      among

                              AVONDALE MILLS, INC.

                       as Borrower and as a Credit Party,

                   AVONDALE MILLS GRANITEVILLE FABRICS, INC.,

                               as a Credit Party,

                          THE LENDERS SIGNATORY HERETO

                               FROM TIME TO TIME,

                                   as Lenders,

                                       and

                      GENERAL ELECTRIC CAPITAL CORPORATION,

                    as Administrative Agent, Agent and Lender

                                       and

                        GECC CAPITAL MARKETS GROUP, INC.

                                as Lead Arranger

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

(c) Copyright 2002. All rights reserved.

<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                                   Page
                                                                                                                   ----
<S>    <C>                                                                                                         <C>
1.     AMOUNT AND TERMS OF CREDIT................................................................................    2

       1.1      Credit Facilities................................................................................    2
       1.2      Letters of Credit................................................................................    2
       1.3      Commitment Reductions and Prepayments............................................................    3
       1.4      Use of Proceeds..................................................................................    4
       1.5      Interest and Applicable Margins..................................................................    4
       1.6      [Reserved].......................................................................................    6
       1.7      Eligible Inventory...............................................................................    6
       1.8      Cash Management Systems..........................................................................    8
       1.9      Fees.............................................................................................    8
       1.10     Receipt of Payments..............................................................................    8
       1.11     Application and Allocation of Payments...........................................................    8
       1.12     Loan Account and Accounting......................................................................    9
       1.13     Indemnity........................................................................................   10
       1.14     Access. .........................................................................................   11
       1.15     Taxes............................................................................................   11
       1.16     Capital Adequacy; Increased Costs; Illegality....................................................   12
       1.17     Single Loan......................................................................................   13

2.     CONDITIONS PRECEDENT......................................................................................   14

       2.1      Conditions to the Initial Loans..................................................................   14
       2.2      Further Conditions to Each Loan..................................................................   15

3.     REPRESENTATIONS AND WARRANTIES............................................................................   16

       3.1      Corporate Existence; Compliance with Law.........................................................   16
       3.2      Organizational Information, FEIN.................................................................   16
       3.3      Corporate Power, Authorization, Enforceable Obligations..........................................   16
       3.4      Financial Statements and Budget..................................................................   17
       3.5      Material Adverse Effect..........................................................................   18
       3.6      Ownership of Property; Liens.....................................................................   18
       3.7      Labor Matters....................................................................................   19
       3.8      Ventures, Subsidiaries and Affiliates; Outstanding Stock and Indebtedness........................   19
       3.9      Government Regulation............................................................................   19
       3.10     Margin Regulations...............................................................................   20
       3.11     Taxes............................................................................................   20
       3.12     ERISA............................................................................................   20
       3.13     No Litigation....................................................................................   21
       3.14     Brokers..........................................................................................   21
       3.15     Intellectual Property............................................................................   21
</TABLE>

                                        i
<PAGE>

<TABLE>
<S>    <C>                                                                                                         <C>
       3.16     Full Disclosure..................................................................................   22
       3.17     Environmental Matters............................................................................   22
       3.18     Insurance........................................................................................   23
       3.19     Deposit, Disbursement and Investment Accounts....................................................   23
       3.20     Government Contracts.............................................................................   23
       3.21     Customer and Trade Relations.....................................................................   23
       3.22     Bonding; Licenses................................................................................   23
       3.23     Solvency.........................................................................................   23
       3.24     Subordinated Debt................................................................................   23

4.     FINANCIAL STATEMENTS AND INFORMATION......................................................................   24

       4.1      Reports and Notices..............................................................................   24
       4.2      Communication with Accountants...................................................................   24

5.     AFFIRMATIVE COVENANTS.....................................................................................   24

       5.1      Maintenance of Existence and Conduct of Business.................................................   24
       5.2      Payment of Charges...............................................................................   25
       5.3      Books and Records................................................................................   25
       5.4      Insurance; Damage to or Destruction of Collateral................................................   25
       5.5      Compliance with Laws.............................................................................   27
       5.6      Supplemental Disclosure..........................................................................   27
       5.7      Intellectual Property............................................................................   27
       5.8      Environmental Matters............................................................................   27
       5.9      Landlords' Agreements, Mortgagee Agreements, Bailee Letters......................................   28
       5.10     Inventory Appraisal. ............................................................................   28
       5.11     Further Assurances...............................................................................   28

6.     NEGATIVE COVENANTS........................................................................................   29

       6.1      Mergers, Subsidiaries, Etc.......................................................................   29
       6.2      Investments; Loans and Advances..................................................................   31
       6.3      Indebtedness.....................................................................................   32
       6.4      Employee Loans and Affiliate Transactions........................................................   34
       6.5      Capital Structure and Business...................................................................   34
       6.6      Guaranteed Indebtedness..........................................................................   34
       6.7      Liens............................................................................................   34
       6.8      Sale of Stock and Assets.........................................................................   35
       6.9      ERISA............................................................................................   35
       6.10     Financial Covenants..............................................................................   35
       6.11     Hazardous Materials..............................................................................   35
       6.12     Sale-Leasebacks..................................................................................   35
       6.13     Restricted Payments..............................................................................   36
       6.14     Change of Corporate Name, State of Incorporation or Location; Change of Fiscal Year..............   36
       6.15     No Impairment of Intercompany Transfers..........................................................   36
</TABLE>

                                       ii
<PAGE>

<TABLE>
<S>    <C>                                                                                                         <C>
       6.16     Changes Relating to Subordinated Debt. ..........................................................   36

7.     TERM......................................................................................................   37

       7.1      Termination......................................................................................   37
       7.2      Survival of Obligations Upon Termination of Financing Arrangements...............................   37

8.     EVENTS OF DEFAULT; RIGHTS AND REMEDIES....................................................................   37

       8.1      Events of Default................................................................................   37
       8.2      Remedies.........................................................................................   39
       8.3      Waivers by Credit Parties........................................................................   40

9.     ASSIGNMENT AND PARTICIPATIONS; APPOINTMENT OF AGENT.......................................................   40

       9.1      Assignment and Participations....................................................................   40
       9.2      Appointment of Agent.............................................................................   43
       9.3      Agent's Reliance, Etc............................................................................   44
       9.4      GE Capital and Affiliates........................................................................   44
       9.5      Lender Credit Decision...........................................................................   44
       9.6      Indemnification..................................................................................   45
       9.7      Successor Agent..................................................................................   45
       9.8      Setoff and Sharing of Payments...................................................................   45
       9.9      Advances; Payments; Non-Funding Lenders; Information; Actions in Concert.........................   46

10.    SUCCESSORS AND ASSIGNS....................................................................................   48

       10.1     Successors and Assigns...........................................................................   48

11.    MISCELLANEOUS.............................................................................................   49

       11.1     Complete Agreement; Modification of Agreement....................................................   49
       11.2     Amendments and Waivers...........................................................................   49
       11.3     Fees and Expenses................................................................................   51
       11.4     No Waiver........................................................................................   52
       11.5     Remedies.........................................................................................   52
       11.6     Severability.....................................................................................   53
       11.7     Conflict of Terms................................................................................   53
       11.8     Confidentiality..................................................................................   53
       11.9     GOVERNING LAW....................................................................................   53
       11.10    Notices..........................................................................................   54
       11.11    Section Titles...................................................................................   55
       11.12    Counterparts.....................................................................................   55
       11.13    WAIVER OF JURY TRIAL.............................................................................   55
       11.14    Press Releases and Related Matters...............................................................   55
       11.15    Reinstatement....................................................................................   55
</TABLE>

                                       iii
<PAGE>

<TABLE>
<S>    <C>                                                                                                         <C>
       11.16    Advice of Counsel................................................................................   56
       11.17    No Strict Construction...........................................................................   56
</TABLE>

                                       iv
<PAGE>

                              INDEX OF APPENDICES
<TABLE>
<S>                                    <C>              <C>
Annex A (Recitals)                     -                Definitions
Annex B (Section 1.2)                  -                Letters of Credit
Annex C (Section 1.8)                  -                Cash Management System
Annex D (Section 2.1(a))               -                Closing Checklist
Annex E (Section 4.1(a))               -                Financial Statements and Projections -- Reporting
Annex F (Section 4.1(b))               -                Collateral Reports
Annex G (Section 6.10)                 -                Financial Covenants
Annex H (Section 9.9(a))               -                Lenders' Wire Transfer Information
Annex I (Section 11.10)                -                Notice Addresses
Annex J (from Annex A -
Revolving Loan Commitment definition)                            Revolving Loan Commitment as of Closing
                                                                 Date

Exhibit 1.1(a)(i)                      -                Form of Notice of Revolving Credit Advance
Exhibit 1.1(a)(ii)                     -                Form of Note
Exhibit 1.5(e)                         -                Form of Notice of Conversion/Continuation
Exhibit 4.1(b)                         -                Form of Borrowing Base Certificate
Exhibit 9.1(a)                         -                Form of Assignment Agreement
Exhibit B-1                            -                Application for Standby Letter of Credit
Exhibit B-2                            -                Application for Documentary Letter of Credit
Exhibit B-3                            -                Application and Agreement for Documentary Letter
                                                        of Credit
Schedule  1.1                          -                Agent's Representatives
Disclosure Schedule  3.1               -                Type of Entity; State of Organization
Disclosure Schedule  3.2               -                Executive Offices, Collateral Locations, FEIN
Disclosure Schedule  3.4(a)            -                Financial Statements
Disclosure Schedule  3.4(b)            -                Budget
Disclosure Schedule  3.6               -                Real Estate and Leases
Disclosure Schedule  3.7               -                Labor Matters
Disclosure Schedule  3.8               -                Ventures, Subsidiaries and Affiliates; Outstanding
                                                        Stock
Disclosure Schedule  3.11              -                Tax Matters
Disclosure Schedule  3.12              -                ERISA Plans
Disclosure Schedule  3.13              -                Litigation
Disclosure Schedule  3.15              -                Intellectual Property
Disclosure Schedule  3.17              -                Hazardous Materials
Disclosure Schedule  3.18              -                Insurance
Disclosure Schedule  3.19              -                Deposit, Disbursement and Investment Accounts
Disclosure Schedule  3.20              -                Government Contracts
Disclosure Schedule  3.22              -                Bonds; Patent, Trademark Licenses
Disclosure Schedule  5.1               -                Trade Names
Disclosure Schedule  6.3               -                Indebtedness
Disclosure Schedule  6.4(a)            -                Transactions with Affiliates
</TABLE>

                                        v
<PAGE>

<TABLE>
<S>                                    <C>              <C>
Disclosure Schedule  6.7               -                Existing Liens
</TABLE>

                                       vi
<PAGE>

                                                                   EXHIBIT 10.44

                                                                  EXECUTION COPY

                  This CREDIT AGREEMENT (this "Agreement"), dated as of November
7, 2003 among Avondale Mills, Inc., an Alabama corporation ("Avondale" or
"Borrower"), Avondale Mills Graniteville Fabrics, Inc., a Delaware corporation
("AMGF") (Avondale and AMGF are sometimes collectively referred to herein as the
"Credit Parties"); GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation
(in its individual capacity, "GE Capital"), for itself, as Lender, and as Agent
for Lenders, and the other Lenders signatory hereto from time to time.

                                    RECITALS

                  WHEREAS, Borrower has requested that Lenders extend a
revolving credit facility to Borrower of up to Forty Million Dollars
($40,000,000) in the aggregate for the purpose of replacing the credit facility
pursuant to which the Prior Lender Obligations were incurred, refinancing any of
the outstanding Prior Lender Obligations and certain other indebtedness of
Borrower, and to provide working capital financing for Borrower and funds for
other general corporate purposes of Borrower, including, without limitation,
intercompany transactions not prohibited by Section 6.4; and for these purposes,
Lenders are willing to make certain loans and other extensions of credit to
Borrower of up to such amount upon the terms and conditions set forth herein;
and

                  WHEREAS, Borrower has agreed to secure all of its obligations
under the Loan Documents by granting to Agent, for the benefit of Agent and
Lenders, a security interest in and lien upon certain of their existing and
after-acquired personal property; and

                  WHEREAS, Avondale Incorporated, a Georgia corporation
("Holdings") is willing to guarantee all of the obligations of Borrower to Agent
and Lenders under the Loan Documents and to pledge to Agent, for the benefit of
Agent and Lenders, all of the Stock of Borrower to secure such guaranty; and

                  WHEREAS, capitalized terms used in this Agreement shall have
the meanings ascribed to them in Annex A and, for purposes of this Agreement and
the other Loan Documents, the rules of construction set forth in Annex A shall
govern. All Annexes, Disclosure Schedules, Exhibits and other attachments
(collectively, "Appendices") hereto, or expressly identified to this Agreement,
are incorporated herein by reference, and taken together with this Agreement,
shall constitute but a single agreement. These Recitals shall be construed as
part of the Agreement.

                  NOW, THEREFORE, in consideration of the premises and the
mutual covenants hereinafter contained, and for other good and valuable
consideration, the parties hereto agree as follows:

<PAGE>

1. AMOUNT AND TERMS OF CREDIT

         1.1               Credit Facilities.

                  (a)      Revolving Credit Facility.

                           (i)      Subject to the terms and conditions hereof,
each Lender agrees to make available to Borrower from time to time until the
Commitment Termination Date its Pro Rata Share of advances (each, a "Revolving
Credit Advance"). The Pro Rata Share of the Revolving Loan of any Lender shall
not at any time exceed its separate Revolving Loan Commitment. The obligations
of each Lender hereunder shall be several and not joint. Until the Commitment
Termination Date, Borrower may borrow, repay and reborrow under this Section
1.1(a); provided that the amount of any Revolving Credit Advance to be made at
any time shall not exceed Borrowing Availability at such time. Borrowing
Availability may be reduced by Reserves imposed by Agent in its reasonable
credit judgment. Each Revolving Credit Advance shall be made on notice by
Borrower to one of the representatives of Agent identified in Schedule 1.1 at
the address specified therein. Any such notice must be given no later than (1)
11:00 a.m. (New York time) on the Business Day of the proposed Revolving Credit
Advance, in the case of an Index Rate Loan, or (2) 11:00 a.m. (New York time) on
the date which is three (3) Business Days prior to the proposed Revolving Credit
Advance, in the case of a LIBOR Loan. Each such notice (a "Notice of Revolving
Credit Advance") must be given in writing (by telecopy or overnight courier)
substantially in the form of Exhibit 1.1(a)(i), and shall include the
information required in such Exhibit and such other information as may be
required by Agent. If Borrower desires to have the Revolving Credit Advances
bear interest by reference to a LIBOR Rate, Borrower must comply with Section
1.5(e).

                           (ii)     Except as provided in Section 1.12, Borrower
shall execute and deliver to each Lender a note to evidence the Revolving Loan
Commitment of that Lender. Each note shall be in the principal amount of the
Revolving Loan Commitment of the applicable Lender, dated the Closing Date and
substantially in the form of Exhibit 1.1(a)(ii) (each a "Note" and,
collectively, the "Notes"). Each Note shall represent the obligation of Borrower
to pay the amount of the applicable Lender's Revolving Loan Commitment or, if
less, such Lender's Pro Rata Share of the aggregate unpaid principal amount of
all Revolving Credit Advances to Borrower together with interest thereon as
prescribed in Section 1.5. The entire unpaid balance of the Revolving Loan and
all other non-contingent Obligations shall be immediately due and payable in
full in immediately available funds on the Commitment Termination Date.

                  (b)      Reliance on Notices. Agent shall be entitled to rely
upon, and shall be fully protected in relying upon, any Notice of Revolving
Credit Advance, Notice of Conversion/Continuation or similar notice believed by
Agent to be genuine. Agent may assume that each Person executing and delivering
any notice in accordance herewith was duly authorized, unless the responsible
individual acting thereon for Agent has actual knowledge to the contrary.

         1.2               Letters of Credit. Subject to and in accordance with
the terms and conditions contained herein and in Annex B, Borrower shall have
the right to request, and

                                       2
<PAGE>

Lenders agree to incur, or purchase participations in, Letter of Credit
Obligations in respect of Borrower.

         1.3               Commitment Reductions and Prepayments.

                  (a)      Voluntary Reductions in Revolving Loan Commitments.
Borrower may at any time on at least five (5) days' prior written notice by
Borrower to Agent (ii) permanently reduce (but not terminate) the Revolving Loan
Commitment; provided that (A) any such reduction shall be in a minimum amount of
$5,000,000 and integral multiples of $250,000 in excess of such amount, and (B)
after giving effect to such reductions, Borrower shall comply with Section
1.3(b)(i). In addition, Borrower may at any time on at least ten (10) days'
prior written notice to Agent terminate the Revolving Loan Commitment; provided
that upon such termination, all Loans and other Obligations shall be immediately
due and payable in full and all Letter of Credit Obligations shall be cash
collateralized or otherwise satisfied in accordance with Annex B hereto. Any
reduction or termination of the Revolving Loan Commitment must be accompanied by
payment of the Fee required by Section 1.9(c), if any, plus the payment of any
LIBOR funding breakage costs in accordance with Section 1.13(b). Upon any such
reduction or termination of the Revolving Loan Commitment, Borrower's right to
request Revolving Credit Advances, or request that Letter of Credit Obligations
be incurred on its behalf, shall simultaneously be permanently reduced or
terminated, as the case may be. If Borrower provides a notice of partial
reduction of the Revolving Loan Commitment, then on the effective date of such
partial reduction, Borrower shall make a prepayment in the amount of the Loans
that would exceed the Revolving Loan Commitment after giving effect to such
reduction, together with accrued and unpaid interest on the amount of the Loans
being prepaid, and such notice of reduction shall designate the Loans or other
Obligations to which such prepayment is to be applied.

                  (b)      Mandatory Prepayments.

                           (i)      If at any time the aggregate outstanding
balance of the Revolving Loan exceeds the lesser of (A) the Maximum Amount and
(B) the Borrowing Base, Borrower shall immediately repay the aggregate
outstanding Revolving Credit Advances to the extent required to eliminate such
excess. If any such excess remains after repayment in full of the aggregate
outstanding Revolving Credit Advances, Borrower shall provide cash collateral
for the Letter of Credit Obligations in the manner set forth in Annex B to the
extent required to eliminate such excess.

                           (ii)     Immediately upon receipt by any Credit Party
of any cash proceeds of any Collateral other than sales or other transfers of
Accounts and related property to Avondale Funding pursuant to the terms of the
Securitization Facility and sales of Inventory in the ordinary course of
business, Borrower shall prepay the Loans in an amount equal to all such
proceeds, net of (A) commissions and other reasonable and customary transaction
costs, fees and expenses properly attributable to such transaction and payable
by any Credit Party in connection therewith (in each case, paid to
non-Affiliates), (B) transfer taxes, (C) amounts payable to holders of senior
Liens on such asset (to the extent such Liens constitute Permitted Encumbrances
hereunder), if any, and (D) an appropriate reserve for income taxes in
accordance with GAAP in connection therewith; provided, however, that with
respect to any sale of obsolete

                                       3
<PAGE>

or surplus Equipment constituting Collateral or the sale of Equipment
constituting Collateral to the extent the net proceeds thereof are reinvested in
Equipment constituting Collateral not later than six months after the receipt
thereof (provided that Borrower notifies Agent of its intent to reinvest at the
time such proceeds are received and when such reinvestment occurs) or the net
proceeds derive from the sale or other disposition of Equipment with a book
value less than the book value of Equipment permitted to be sold or disposed of
pursuant to Section 6.8 below, and no Default or Event of Default has then
occurred and is then continuing, such prepayment shall not be required. Any such
prepayment shall be applied in accordance with Section 1.3(c). For the avoidance
of doubt, no sale or disposition of any asset that is prohibited by Section 6.8
below shall be permitted without the prior written consent of the Requisite
Lenders, or, if required by Section 11.2(c) below, all the Lenders.

                  (c)      Application of Certain Mandatory Prepayments. Any
prepayments made by Borrower pursuant to Sections 1.3(b)(ii) above shall be
applied as follows: first, to Fees and reimbursable expenses of Agent then due
and payable pursuant to any of the Loan Documents; second, to interest then due
and payable on Revolving Credit Advances; third, to the principal balance of
Revolving Credit Advances outstanding until the same has been paid in full; and
fourth, if an Event of Default has occurred and is then continuing, to any
Letter of Credit Obligations to provide cash collateral therefore in the manner
set forth in Annex B, until all such Letter of Credit Obligations have been
fully cash collateralized in the manner set forth in Annex B. The Revolving Loan
Commitment shall not be permanently reduced by the amount of any such
prepayments.

                  (d)      Application of Prepayments from Insurance and
Condemnation Proceeds. Prepayments from insurance or condemnation proceeds in
accordance with Section 5.4(b), shall be applied as follows: insurance proceeds
from casualties or losses to Collateral shall be applied to the Revolving Credit
Advances. The Revolving Loan Commitment shall not be permanently reduced by the
amount of any such prepayments.

                  (e)      No Implied Consent. Nothing in this Section 1.3 shall
be construed to constitute Agent's or any Lender's consent to any transaction
that is not permitted by other provisions of this Agreement or the other Loan
Documents.

         1.4               Use of Proceeds. Borrower shall utilize the proceeds
of the Loans solely for the Refinancing (and to pay any related transaction
expenses), and for the financing of the Credit Parties' ordinary working capital
and general corporate needs, including, without limitation, intercompany
transactions not prohibited by Section 6.4.

         1.5               Interest and Applicable Margins.

                  (a)      Borrower shall pay interest to Agent, for the ratable
benefit of Lenders in accordance with the various Loans being made by each
Lender, in arrears on each applicable Interest Payment Date, at the following
rates: (i) the Index Rate plus the Applicable Revolver Index Margin per annum
or, (ii) at the election of Borrower, the applicable LIBOR Rate plus the
Applicable Revolver LIBOR Margin per annum.

                  The Applicable Margins are as follows:

                                       4
<PAGE>

<TABLE>
<S>                                                                        <C>
Applicable Revolver Index Margin                                           0.75%

Applicable Revolver LIBOR Margin                                           2.25%

Applicable L/C Margin                                                      2.25%

Applicable Unused Line Fee Margin                                          0.50%
</TABLE>

                  (b)      If any payment on any Loan becomes due and payable on
a day other than a Business Day, the maturity thereof will be extended to the
next succeeding Business Day (except as set forth in the definition of LIBOR
Period) and, with respect to payments of principal, interest thereon shall be
payable at the then applicable rate during such extension.

                  (c)      All computations of Fees calculated on a per annum
basis and interest shall be made by Agent on the basis of a 360-day year, in
each case for the actual number of days occurring in the period for which such
interest and Fees are payable. The Index Rate is a floating rate determined for
each day. Each determination by Agent of an interest rate and Fees hereunder
shall be presumptive evidence of the correctness of such rates and Fees.

                  (d)      So long as an Event of Default has occurred and is
continuing under Section 8.1(a), (h) or (i) or so long as any other Event of
Default has occurred and is continuing and at the election of Agent (or upon the
written request of Requisite Lenders) confirmed by written notice from Agent to
Borrower, the interest rates applicable to the Loans and the Letter of Credit
Fees shall be increased by two percentage points (2%) per annum above the rates
of interest or the rate of such Fees otherwise applicable hereunder unless Agent
or Requisite Lenders elect to impose a smaller increase (the "Default Rate"),
and all outstanding Obligations shall bear interest at the Default Rate
applicable to such Obligations. Interest and Letter of Credit Fees at the
Default Rate shall accrue from the initial date of such Event of Default until
that Event of Default is cured or waived and shall be payable upon demand.

                  (e)      Subject to the conditions precedent set forth in
Section 2.2, Borrower shall have the option to (i) request that any Revolving
Credit Advance be made as a LIBOR Loan, (ii) convert at any time all or any part
of outstanding Loans from Index Rate Loans to LIBOR Loans, (iii) convert any
LIBOR Loan to an Index Rate Loan, subject to payment of LIBOR breakage costs in
accordance with Section 1.13(b) if such conversion is made prior to the
expiration of the LIBOR Period applicable thereto, or (iv) continue all or any
portion of any Loan as a LIBOR Loan upon the expiration of the applicable LIBOR
Period and the succeeding LIBOR Period of that continued Loan shall commence on
the first day after the last day of the LIBOR Period of the Loan to be
continued. Any Loan or group of Loans having the same proposed LIBOR Period to
be made or continued as, or converted into, a LIBOR Loan must be in a minimum
amount of $2,500,000 and integral multiples of $500,000 in excess of such
amount. Any such election must be made by 11:00 a.m. (New York time) on the
third Business Day prior to (1) the date of any proposed Revolving Credit
Advance which is to bear interest at the LIBOR Rate, (2) the end of each LIBOR
Period with respect to any LIBOR Loans to be continued as such, or (3) the date
on which Borrower wishes to convert any Index Rate Loan to a LIBOR Loan for a
LIBOR Period designated by Borrower in such election. If no election is received
with respect to a

                                       5
<PAGE>

LIBOR Loan by 11:00 a.m. (New York time) on the third Business Day prior to the
end of the LIBOR Period with respect thereto (or if a Default or an Event of
Default has occurred and is continuing or if the additional conditions precedent
set forth in Section 2.2 shall not have been satisfied), that LIBOR Loan shall
be converted to an Index Rate Loan at the end of its LIBOR Period. Borrower must
make such election by notice to Agent in writing, by telecopy or overnight
courier. In the case of any conversion or continuation, such election must be
made pursuant to a written notice (a "Notice of Conversion/Continuation") in the
form of Exhibit 1.5(e).

                  (f)      Notwithstanding anything to the contrary set forth in
this Section 1.5, if a court of competent jurisdiction determines in a final
order that the rate of interest payable hereunder exceeds the highest rate of
interest permissible under law (the "Maximum Lawful Rate"), then so long as the
Maximum Lawful Rate would be so exceeded, the rate of interest payable hereunder
shall be equal to the Maximum Lawful Rate; provided, however, that if at any
time thereafter the rate of interest payable hereunder is less than the Maximum
Lawful Rate, Borrower shall continue to pay interest hereunder at the Maximum
Lawful Rate until such time as the total interest received by Agent, on behalf
of Lenders, is equal to the total interest that would have been received had the
interest rate payable hereunder been (but for the operation of this paragraph)
the interest rate payable since the Closing Date as otherwise provided in this
Agreement. In no event shall the total interest received by any Lender pursuant
to the terms hereof exceed the amount that such Lender could lawfully have
received had the interest due hereunder been calculated for the full term hereof
at the Maximum Lawful Rate.

         1.6               [Reserved].

         1.7               Eligible Inventory. All of the Inventory owned by
Borrower and reflected in the most recent Borrowing Base Certificate delivered
by Borrower to Agent shall be "Eligible Inventory" for purposes of this
Agreement, except any Inventory to which any of the exclusionary criteria set
forth below applies. Agent shall have the right to establish, modify or
eliminate Reserves against Eligible Inventory from time to time in accordance
with its customary credit and collateral policies. In addition, Agent reserves
the right, at any time and from time to time after the Closing Date, to adjust
the criteria set forth below and to establish new criteria, in its reasonable
credit judgment reflecting changes in the nature of Inventory arising or
discovered by Agent after the Closing Date, subject to the approval of Requisite
Lenders in the case of adjustments or new criteria which have the effect of
making more credit available. Eligible Inventory shall not include any Inventory
of Borrower that:

                  (a)      is not owned by Borrower free and clear of all Liens
and rights of any other Person (including the rights of a purchaser that has
made progress payments and the rights of a surety that has issued a bond to
assure Borrower's performance with respect to that Inventory), except the Liens
in favor of Agent, on behalf of itself and Lenders, and Permitted Encumbrances
in favor of landlords and bailees to the extent permitted in Section 5.9 hereof
(subject to Reserves established by Agent in accordance with Section 5.9
hereof);

                  (b)      (i) is not located on premises owned, leased or
rented by Borrower and set forth in Disclosure Schedule (3.2), or (ii) is stored
at a leased location, unless Agent has given its prior consent thereto and
unless either (x) a reasonably satisfactory landlord waiver has been

                                       6
<PAGE>

delivered to Agent, or (y) Reserves reasonably satisfactory to Agent have been
established with respect thereto or (iii) is stored with a bailee or
warehouseman unless a reasonably satisfactory, acknowledged bailee letter has
been received by Agent and Reserves reasonably satisfactory to Agent have been
established with respect thereto, or (iv) is located at an owned location
subject to a mortgage in favor of a lender other than Agent unless a reasonably
satisfactory mortgagee waiver has been delivered to Agent, or (v) is located at
any site if the aggregate book value of Inventory at any such location is less
than $100,000;

                  (c)      is placed on consignment or is in transit;

                  (d)      is covered by a negotiable document of title, unless
such document has been delivered to Agent with all necessary endorsements, free
and clear of all Liens except those in favor of Agent and Lenders;

                  (e)      is obsolete, slow moving (in excess of one year's
supply), unsalable, shopworn, seconds, damaged or unfit for sale;

                  (f)      consists of display items or packing or shipping
materials, manufacturing supplies (other than raw materials) or replacement
parts;

                  (g)      consists of goods which have been returned by the
buyer if either such goods are not in readily saleable condition as first
quality goods or such goods have not been reinstated by Borrower to its finished
goods classification;

                  (h)      is not of a type held for sale in the ordinary course
of Borrower's business;

                  (i)      is not subject to a first priority lien in favor of
Agent on behalf of itself and Lenders, subject to Permitted Encumbrances as set
forth in clause (e) of the definition thereof (subject to reserves satisfactory
to Agent);

                  (j)      breaches any of the representations or warranties
pertaining to Inventory set forth in the Loan Documents;

                  (k)      consists of any costs associated with "freight-in"
charges;

                  (l)      consists of Hazardous Materials or goods that can be
transported or sold only with licenses that are not readily available;

                  (m)      is not covered by casualty insurance reasonably
acceptable to Agent;

                  (n)      is subject to any patent or trademark license
requiring the payment of royalties or fees or requiring the consent of the
licensor for a sale thereof by Agent; or

                  (o)      is held by Borrower in its capacity as a bailee or
consignee on behalf of any Person, including, but not limited to, The CIT
Group/Commercial Services, Inc., Seydel-Woolley & Co., Inc. and Cameron and
Barkley Company.

                                       7
<PAGE>

         1.8               Cash Management Systems. On or prior to 45 days
following the Closing Date, Borrower will establish and will maintain until the
Termination Date, the cash management systems described in Annex C (the "Cash
Management Systems").

         1.9               Fees.

                  (a)      Borrower shall pay to GE Capital, individually, the
Fees specified in the GE Capital Fee Letter.

                  (b)      As additional compensation for the Lenders, Borrower
shall pay to Agent, for the ratable benefit of such Lenders, in arrears, on the
first Business Day of each month prior to the Commitment Termination Date and on
the Commitment Termination Date, a Fee for Borrower's non-use of available funds
in an amount equal to the Applicable Unused Line Fee Margin per annum
(calculated on the basis of a 360 day year for actual days elapsed) multiplied
by the difference between (x) the Maximum Amount (as it may be reduced from time
to time) and (y) the average for the period of the daily closing balances of the
Revolving Loan outstanding during the period for which such Fee is due.

                  (c)      If the Revolving Loan Commitment is permanently
reduced or terminated, whether voluntarily or involuntarily and whether before
or after acceleration of the Obligations, Borrower shall pay to Agent, for the
benefit of Lenders as liquidated damages and compensation for the costs of being
prepared to make funds available hereunder an amount equal to the Applicable
Percentage (as defined below) multiplied by the amount of the Revolving Loan
Commitment that has been reduced or terminated. As used herein, the term
"Applicable Percentage" shall mean (x) one percent (1.00%), in the case of a
permanent termination or reduction on or prior to the first anniversary of the
Closing Date, and (y) one-half percent (0.50%), in the case of a permanent
termination or reduction after the first anniversary of the Closing Date but on
or prior to the second anniversary thereof. The Credit Parties agree that the
Applicable Percentages are a reasonable calculation of Lenders' lost profits in
view of the difficulties and impracticality of determining actual damages
resulting from an early permanent termination or reduction of the Revolving Loan
Commitment.

                  (d)      Borrower shall pay to Agent, for the ratable benefit
of Lenders, the Letter of Credit Fee as provided in Annex B.

         1.10              Receipt of Payments. Borrower shall make each payment
under this Agreement not later than 2:00 p.m. (New York time) on the day when
due in immediately available funds in Dollars to the Collection Account. For
purposes of computing interest and Fees and determining Borrowing Availability
as of any date, all payments shall be deemed received on the Business Day on
which immediately available funds therefor are received in the Collection
Account prior to 2:00 p.m. New York time. Payments received after 2:00 p.m. New
York time on any Business Day or on a day that is not a Business Day shall be
deemed to have been received on the following Business Day.

         1.11              Application and Allocation of Payments.

                  (a)      So long as no Event of Default has occurred and is
continuing, (i) voluntary prepayments shall be applied in accordance with the
provisions of Section 1.3(a); and

                                       8
<PAGE>

(ii) mandatory prepayments shall be applied as set forth in Sections 1.3(c) and
1.3(d). All payments and prepayments applied to a particular Loan shall be
applied ratably to the portion thereof held by each Lender as determined by its
Pro Rata Share. As to any other payment, and as to all payments made when an
Event of Default has occurred and is continuing or following the Commitment
Termination Date, Borrower hereby irrevocably waives the right to direct the
application of any and all payments received from or on behalf of Borrower, and
Borrower hereby irrevocably agrees that Agent shall have the continuing
exclusive right to apply any and all such payments against the Obligations then
due and payable as Agent may deem advisable notwithstanding any previous entry
by Agent in the Loan Account or any other books and records. In the absence of a
specific determination by Agent with respect thereto when an Event of Default
has not occurred and is not continuing or, upon the occurrence and during the
continuance of an Event of Default, payments shall be applied to amounts then
due and payable in the following order: (1) to Fees and Agent's expenses
reimbursable hereunder; (2) to interest on the Loans, ratably in proportion to
the interest accrued as to each Loan; (3) to principal payments on the Loans,
ratably to the aggregate principal balance of the Loans; (4) to all other
Obligations, including expenses of Lenders to the extent reimbursable under
Section 11.3; and (5) upon the occurrence and during the continuance of an Event
of Default, to provide cash collateral for Letter of Credit Obligations in the
manner described in Annex B.

                  (b)      Agent is authorized to, and at its sole election may,
charge to the Revolving Loan balance on behalf of Borrower and cause to be paid
all Fees, expenses, Charges, costs (including insurance premiums in accordance
with Section 5.4(a)) and interest owing by Borrower under this Agreement or any
of the other Loan Documents if and to the extent Borrower fails to pay promptly
any such amounts as and when due, even if the amount of such charges would
exceed Borrowing Availability at such time. At Agent's option and to the extent
permitted by law, any charges so made shall constitute part of the Revolving
Loan hereunder.

         1.12              Loan Account and Accounting. Agent shall maintain a
loan account (the "Loan Account") on its books to record: all Revolving Credit
Advances, all payments made by Borrower, and all other debits and credits as
provided in this Agreement with respect to the Loans or any other Obligations.
All entries in the Loan Account shall be made in accordance with Agent's
customary accounting practices as in effect from time to time. The balance in
the Loan Account, as recorded on Agent's most recent printout or other written
statement, shall, absent manifest error, be presumptive evidence of the amounts
due and owing to Agent and Lenders by Borrower; provided that any failure to so
record or any error in so recording shall not limit or otherwise affect
Borrower's duty to pay the Obligations. Agent shall promptly render to Borrower
a monthly accounting of transactions with respect to the Loans setting forth the
balance of the Loan Account for the immediately preceding month. Unless Borrower
notifies Agent in writing of any objection to any such accounting (specifically
describing the basis for such objection), within ninety (90) days after the date
of the Borrower's receipt thereof, each and every such accounting shall be
presumptive evidence of all matters reflected therein. Only those items
expressly objected to in such notice shall be deemed to be disputed by Borrower.
Notwithstanding any provision herein contained to the contrary, any Lender may
elect (which election may be revoked) to dispense with the issuance of Notes to
that Lender and may rely on the Loan Account as evidence of the amount of
Obligations from time to time owing to it.

                                       9
<PAGE>

         1.13              Indemnity.

                  (a)      Each Credit Party that is a signatory hereto shall
jointly and severally indemnify and hold harmless each of Agent, Lenders and
their respective Affiliates, and each such Person's respective officers,
directors, employees, attorneys, agents and representatives (each, an
"Indemnified Person"), from and against any and all suits, actions, proceedings,
claims, damages, losses, liabilities and expenses (including reasonable
attorneys' fees and disbursements and other costs of investigation or defense,
including those incurred upon any appeal) that may be instituted or asserted
against or incurred by any such Indemnified Person as the result of credit
having been extended, suspended or terminated under this Agreement and the other
Loan Documents and the administration of such credit, and in connection with or
arising out of the transactions contemplated hereunder and thereunder and any
actions or failures to act in connection therewith, including any and all
Environmental Liabilities and legal costs and expenses arising out of or
incurred in connection with disputes between or among any parties to any of the
Loan Documents (collectively, "Indemnified Liabilities"); provided, that no such
Credit Party shall be liable for any indemnification to an Indemnified Person to
the extent that any such suit, action, proceeding, claim, damage, loss,
liability or expense results from that Indemnified Person's gross negligence or
willful misconduct. NO INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY
OTHER PARTY TO ANY LOAN DOCUMENT, ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY
BENEFICIARY OF SUCH PERSON OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY
THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES
WHICH MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN EXTENDED, SUSPENDED OR
TERMINATED UNDER ANY LOAN DOCUMENT OR AS A RESULT OF ANY OTHER TRANSACTION
CONTEMPLATED HEREUNDER OR THEREUNDER.

                  (b)      To induce Lenders to provide the LIBOR Rate option on
the terms provided herein, if (i) any LIBOR Loans are repaid in whole or in part
prior to the last day of any applicable LIBOR Period (whether that repayment is
made pursuant to any provision of this Agreement or any other Loan Document or
occurs as a result of acceleration, by operation of law or otherwise); (ii)
Borrower shall default in payment when due of the principal amount of or
interest on any LIBOR Loan; (iii) Borrower shall refuse to accept any borrowing
of, or shall request a termination of, any borrowing of, conversion into or
continuation of, LIBOR Loans after Borrower has given notice requesting the same
in accordance herewith; or (iv) Borrower shall fail to make any prepayment of a
LIBOR Loan after Borrower has given a notice thereof in accordance herewith,
then Borrower shall indemnify and hold harmless each Lender from and against all
losses, costs and expenses resulting from or arising from any of the foregoing.
Such indemnification shall include any loss (excluding loss of anticipated
profits) or expense arising from the reemployment of funds obtained by it or
from fees payable to terminate deposits from which such funds were obtained. For
the purpose of calculating amounts payable to a Lender under this subsection,
each Lender shall be deemed to have actually funded its relevant LIBOR Loan
through the purchase of a deposit bearing interest at the LIBOR Rate in an
amount equal to the amount of that LIBOR Loan and having a maturity comparable
to the relevant LIBOR Period; provided, that each Lender may fund each of its
LIBOR Loans in any manner it sees fit, and the foregoing assumption shall be
utilized only for the calculation of amounts payable under this subsection. This
covenant shall survive the termination of this Agreement and the payment

                                       10
<PAGE>

of the Notes and all other amounts payable hereunder. As promptly as practicable
under the circumstances, each Lender shall provide Borrower with its written
calculation of all amounts payable pursuant to this Section 1.13(b), and such
calculation shall be binding on the parties hereto unless Borrower shall object
in writing within ten (10) Business Days of receipt thereof, specifying the
basis for such objection in detail.

         1.14              Access. At any date on which an Event of Default has
occurred and is continuing and an Activation Event exists, each Credit Party
that is a party hereto shall, during normal business hours, from time to time,
as frequently as Agent reasonably determines to be appropriate, and if an
Activation Event exists but an Event of Default has not occurred and is not
continuing, upon five (5) Business Days' prior written notice: (a) provide Agent
and any of its officers, employees and agents access to (i) its properties,
facilities and officers, (ii) with the participation of representatives of
Borrower, advisors of each Credit Party and (iii) the Collateral, (b) permit
Agent, and any of its officers, employees and agents, to inspect, audit and make
extracts from any Credit Party's books and records, and (c) permit Agent, and
its officers, employees and agents, to inspect, review, evaluate and make test
verifications and counts of the Inventory and other Collateral of any Credit
Party, all without undue disruption or interference with Borrower's business
operations. Prior to the occurrence of an Event of Default, Lenders shall be
permitted to conduct up to two field examinations per year of the Inventory and
other Collateral upon ten (10) Business Days' prior written notice, and during
the continuance of any Event of Default, Lenders shall be permitted to conduct
additional field examinations of the Inventory and other Collateral, all without
undue disruption or interference with Borrower's business operations. Borrower
shall pay not later than thirty days after delivery to it of invoices therefor,
the field audit charges at the per diem rates per auditor set forth below plus
customary out-of-pocket expenses for each auditor participating in any such
field examination: up to $750 until the first anniversary of the Closing Date,
up to $800 thereafter until the second anniversary of the Closing Date, up to
$825 thereafter until the third anniversary of the Closing Date, and up to $850
thereafter until the fourth anniversary of the Closing Date. If an Event of
Default has occurred and is continuing, each such Credit Party shall provide
such access to Agent and to each Lender at all times and without advance notice.
Furthermore, so long as any Event of Default has occurred and is continuing,
Borrower shall provide Agent with access to its suppliers and customers with the
participation of representatives of Borrower. Each Credit Party shall make
available to Agent and its counsel reasonably promptly originals or copies of
all books and records that Agent may reasonably request. Each Credit Party shall
deliver any document or instrument necessary for Agent, as it may from time to
time reasonably request, to obtain records from any service bureau or other
Person that maintains records for such Credit Party, and shall maintain
duplicate records or supporting documentation on media, including computer tapes
and discs owned by such Credit Party. Representatives of one other Lender may
accompany Agent's representatives on field examinations at no charge to
Borrower, and if no Event of Default has occurred and is continuing, subject to
Borrower's prior written approval (not to be unreasonably withheld).

         1.15              Taxes.

                  (a)      Any and all payments by Borrower hereunder or under
the Notes shall be made, in accordance with this Section 1.15, free and clear of
and without deduction for any and all present or future Taxes. If Borrower shall
be required by law to deduct any Taxes from or in

                                       11
<PAGE>

respect of any sum payable hereunder (including any sum payable pursuant to
Section 12) or under the Notes, (i) the sum payable shall be increased as much
as shall be necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section 1.15), Agent
or Lenders, as applicable, receive an amount equal to the sum they would have
received had no such deductions been made, (ii) Borrower shall make such
deductions, and (iii) Borrower shall pay the full amount deducted to the
relevant taxing or other authority in accordance with applicable law. Within
thirty (30) days after the date of any payment of Taxes, Borrower shall furnish
to Agent the original or a certified copy of a receipt evidencing payment
thereof.

                  (b)      Each Credit Party that is a signatory hereto shall
indemnify and, within ten (10) days of demand therefor, pay Agent and each
Lender for the full amount of Taxes (including any Taxes imposed by any
jurisdiction on amounts payable under this Section 1.15) paid by Agent or such
Lender, as appropriate, and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto, whether or not such Taxes
were correctly or legally asserted.

                  (c)      Each Lender organized under the laws of a
jurisdiction outside the United States (a "Foreign Lender") as to which payments
to be made under this Agreement or under the Notes are exempt from United States
withholding tax under an applicable statute or tax treaty shall provide to
Borrower and Agent a properly completed and executed IRS Form W-8ECI or Form
W-8BEN or other applicable form, certificate or document prescribed by the IRS
or the United States certifying as to such Foreign Lender's entitlement to such
exemption (a "Certificate of Exemption"). Any foreign Person that seeks to
become a Lender under this Agreement shall provide a Certificate of Exemption to
Borrower and Agent prior to becoming a Lender hereunder. No foreign Person may
become a Lender hereunder if such Person fails to deliver a Certificate of
Exemption in advance of becoming a Lender.

         1.16              Capital Adequacy; Increased Costs; Illegality.

                  (a)      If any law, treaty, governmental (or
quasi-governmental) rule, regulation, guideline or order regarding capital
adequacy, reserve requirements or similar requirements or compliance by any
Lender with any request or directive regarding capital adequacy, reserve
requirements or similar requirements (whether or not having the force of law),
in each case, adopted after the Closing Date or, in the case of any Person first
becoming a Lender hereunder on a date after the Closing Date, after such later
date, from any central bank or other Governmental Authority increases or would
have the effect of increasing the amount of capital, reserves or other funds
required to be maintained by such Lender and thereby reducing the rate of return
on such Lender's capital as a consequence of its obligations hereunder, then
Borrower shall from time to time upon demand by such Lender (with a copy of such
demand to Agent) pay to Agent, for the account of such Lender, additional
amounts sufficient to compensate such Lender for such reduction. A certificate
as to the amount of that reduction and showing the basis of the computation
thereof submitted by such Lender to Borrower and to Agent shall be presumptive
evidence of the matters set forth therein, absent demonstrable error.

                  (b)      If, due to either (i) the introduction of or any
change in any law or regulation (or any change in the interpretation thereof) or
(ii) the compliance with any guideline

                                       12
<PAGE>

or request from any central bank or other Governmental Authority (whether or not
having the force of law), in each case adopted after the Closing Date, there
shall be any increase in the cost to any Lender of agreeing to make or making,
funding or maintaining any Loan, then Borrower shall from time to time, upon
demand by such Lender (with a copy of such demand to Agent), pay to Agent for
the account of such Lender additional amounts sufficient to compensate such
Lender for such increased cost. A certificate as to the amount of such increased
cost, submitted to Borrower and to Agent by such Lender, shall be presumptive
evidence of the matters set forth therein, absent demonstrable error. Each
Lender agrees that, as promptly as practicable after it becomes aware of any
circumstances referred to above which would result in any such increased cost,
the affected Lender shall, to the extent not inconsistent with such Lender's
internal policies of general application, use reasonable commercial efforts to
minimize costs and expenses incurred by it and payable to it by Borrower
pursuant to this Section 1.16(b).

                  (c)      Notwithstanding anything to the contrary contained
herein, if the introduction of or any change in any law or regulation (or any
change in the interpretation thereof) shall make it unlawful, or any central
bank or other Governmental Authority shall assert that it is unlawful, for any
Lender to agree to make or to make or to continue to fund or maintain any LIBOR
Loan, then, unless that Lender is able to make or to continue to fund or to
maintain such LIBOR Loan at another branch or office of that Lender without, in
that Lender's reasonable opinion, materially adversely affecting it or its Loans
or the income obtained therefrom, on notice thereof and demand therefor by such
Lender to Borrower through Agent, (i) the obligation of such Lender to agree to
make or to make or to continue to fund or maintain LIBOR Loans shall terminate
and (ii) Borrower shall forthwith prepay in full all outstanding LIBOR Loans
owing by Borrower to such Lender, together with interest accrued thereon, unless
Borrower, within five (5) Business Days after the delivery of such notice and
demand, converts all LIBOR Loans into Index Rate Loans.

                  (d)      Within thirty (30) days after receipt by Borrower of
written notice and demand from any Lender (an "Affected Lender") for payment of
additional amounts or increased costs as provided in Sections 1.15(a), 1.16(a)
or 1.16(b), Borrower may, at its option, notify Agent and such Affected Lender
of its intention to replace the Affected Lender. So long as no Default or Event
of Default has occurred and is continuing, Borrower, with the consent of Agent,
may obtain, at Borrower's expense, a replacement Lender ("Replacement Lender")
for the Affected Lender, which Replacement Lender must be reasonably
satisfactory to Agent. If Borrower obtains a Replacement Lender, the Affected
Lender must sell and assign its Loans and Revolving Loan Commitment to such
Replacement Lender for an amount equal to the principal balance of all Loans
held by the Affected Lender and all accrued interest and Fees with respect
thereto through the date of such sale and such assignment shall not require the
payment of an assignment fee to Agent; provided, that Borrower shall have
reimbursed such Affected Lender for the additional amounts or increased costs
that it is entitled to receive under this Agreement through the date of such
sale and assignment. Notwithstanding the foregoing, Borrower shall not have the
right to obtain a Replacement Lender if the Affected Lender rescinds its demand
for increased costs or additional amounts within 15 days following its receipt
of Borrower's notice of intention to replace such Affected Lender.

         1.17              Single Loan. All Loans to Borrower and all of the
other Obligations of Borrower arising under this Agreement and the other Loan
Documents shall

                                       13
<PAGE>

constitute one general obligation of Borrower secured, until the Termination
Date, by all of the Collateral.

2. CONDITIONS PRECEDENT

         2.1               Conditions to the Initial Loans. No Lender shall be
obligated to make any Loan or incur any Letter of Credit Obligations on the
Closing Date, or to take, fulfill, or perform any other action hereunder, until
the following conditions have been satisfied or provided for in a manner
reasonably satisfactory to Agent, or waived in writing by Agent and Requisite
Lenders:

                  (a)      Credit Agreement; Loan Documents. This Agreement or
counterparts hereof shall have been duly executed by, and delivered to,
Borrower, each other Credit Party, Agent and Lenders; and Agent shall have
received such documents, instruments, agreements and legal opinions as Agent
shall reasonably request in connection with the transactions contemplated by
this Agreement and the other Loan Documents, including all those listed in the
Closing Checklist attached hereto as Annex D, each in form and substance
reasonably satisfactory to Agent.

                  (b)      Repayment of Prior Lender Obligations; Satisfaction
of Outstanding L/Cs. (i) Agent shall have received a fully executed original of
a pay-off letter reasonably satisfactory to Agent confirming that all of the
Prior Lender Obligations will be repaid in full from the proceeds of the initial
Revolving Credit Advance and that appropriate instruments and documents for the
cancellation or termination of all Liens upon any of the property of Borrower or
any of its Subsidiaries in favor of Prior Lenders shall be promptly delivered
following receipt of such payment; and (ii) all letters of credit issued or
guaranteed by Prior Lenders shall have been cash collateralized, supported by a
guaranty of Agent or supported by a Letter of Credit issued pursuant to Annex B,
as mutually agreed upon by Agent, Borrower and Prior Lenders.

                  (c)      Approvals. Agent shall have received (i) satisfactory
evidence that the Credit Parties and Holdings have obtained all required
consents and approvals of all Persons including all requisite Governmental
Authorities, to the execution, delivery and performance of this Agreement and
the other Loan Documents and the consummation of the Related Transactions or
(ii) an officer's certificate in form and substance reasonably satisfactory to
Agent affirming that no such consents or approvals are required.

                  (d)      Opening Availability. The Eligible Inventory
supporting the initial Revolving Credit Advance and the initial Letter of Credit
Obligations incurred and the amount of the Reserves to be established on the
Closing Date shall be sufficient in value, as determined by Agent, to provide
Borrower, collectively, with Borrowing Availability, after giving effect to the
initial Revolving Credit Advance made to Borrower, the incurrence of any initial
Letter of Credit Obligations and the consummation of the Related Transactions
(on a pro forma basis, with trade payables being paid currently, and expenses
and liabilities being paid in the ordinary course of business and without
acceleration of sales and without material deterioration of Working Capital) in
an amount, which when added to (i) Securitization Availability and (ii)
Borrower's U.S. dollar

                                       14
<PAGE>

cash balances in an amount not to exceed $10,000,000, and increased by the
Availability Block, shall equal at least $35,000,000.

                  (e)      Payment of Fees. Borrower shall have paid the Fees
required to be paid on the Closing Date in the respective amounts specified in
Section 1.9 (including the Fees specified in the GE Capital Fee Letter), and
shall have reimbursed Agent for all customary out-of-pocket costs and expenses
of closing (including Agent's reasonable legal costs and expenses) presented as
of the Closing Date.

                  (f)      Corporate Structure; Certain Amounts. The corporate
structure of each Credit Party and the terms and conditions of all material
Indebtedness of each Credit Party shall be acceptable to Agent in its sole
discretion, and the total Funded Debt (including any Obligations) and
outstanding balance of the Securitization Facility of the Credit Parties on a
consolidated basis after giving effect to the Obligations incurred on the
Closing Date, less cash and cash equivalents held by them, shall not exceed
$240,000,000.

                  (g)      Equipment Collateral and Fixtures. The net book value
of the sum of (i) that portion of the Collateral consisting of Equipment, plus
(ii) Fixtures not subject to Liens in favor of any Person providing financing to
the Borrower, shall be at least $115,000,000.

         2.2               Further Conditions to Each Loan. Except as otherwise
expressly provided herein, no Lender shall be obligated to fund any Revolving
Credit Advance, convert or continue any Loan as a LIBOR Loan or incur any Letter
of Credit Obligation, if, as of the date thereof:

                  (a)      any representation or warranty by any Credit Party
contained herein or in any other Loan Document is untrue or incorrect in any
material respect as of such date as determined by Agent or Requisite Lenders,
except to the extent that such representation or warranty expressly relates to
an earlier date and except for changes therein expressly permitted or expressly
contemplated by this Agreement and Agent or Requisite Lenders have determined
not to make such Revolving Credit Advance, convert or continue any Loan as LIBOR
Loan or incur such Letter of Credit Obligation as a result of the fact that such
warranty or representation is untrue or incorrect in any material respect;

                  (b)      any Default or Event of Default has occurred and is
continuing or would result after giving effect to any Revolving Credit Advance
(or the incurrence of any Letter of Credit Obligation), and Agent or Requisite
Lenders shall have determined not to make any Revolving Credit Advance, convert
or continue any Loan as a LIBOR Loan or incur any Letter of Credit Obligation as
a result of that Default or Event of Default; or

                  (c)      after giving effect to any Revolving Credit Advance
(or the incurrence of any Letter of Credit Obligations), the outstanding
principal amount of the Revolving Loan would exceed the lesser of the Borrowing
Base and the Maximum Amount.

The request and acceptance by Borrower of the proceeds of any Revolving Credit
Advance, the incurrence of any Letter of Credit Obligations or the conversion or
continuation of any Loan into, or as, a LIBOR Loan shall be deemed to
constitute, as of the date thereof, (i) a

                                       15
<PAGE>

representation and warranty by Borrower that the conditions in this Section 2.2
have been satisfied and (ii) a reaffirmation by Borrower and of the granting and
continuance of Agent's Liens, on behalf of itself and Lenders, pursuant to the
Collateral Documents.

3. REPRESENTATIONS AND WARRANTIES

                  To induce Lenders to make the Loans and to incur Letter of
Credit Obligations, the Credit Parties executing this Agreement, jointly and
severally, make the following representations and warranties to Agent and each
Lender with respect to all Credit Parties, each and all of which shall survive
the execution and delivery of this Agreement.

         3.1               Corporate Existence; Compliance with Law. Each Credit
Party (a) is a corporation, limited liability company or limited partnership
duly organized, validly existing and in good standing under the laws of its
respective jurisdiction of incorporation or organization set forth in Disclosure
Schedule (3.1); (b) is duly qualified to conduct business and is in good
standing in each other jurisdiction where its ownership or lease of property or
the conduct of its business requires such qualification, except where the
failure to be so qualified would not result in exposure to losses or liabilities
which could reasonably be expected to have a Material Adverse Effect; (c) has
the requisite power and authority and the legal right to own, pledge, mortgage
or otherwise encumber and operate its properties, to lease the property it
operates under lease and to conduct its business as now conducted or proposed to
be conducted; (d) subject to specific representations regarding Environmental
Laws, has all material licenses, permits, consents or approvals from or by, and
has made all material filings with, and has given all material notices to, all
Governmental Authorities having jurisdiction, to the extent required for such
ownership, operation and conduct; (e) is in compliance with its charter and
bylaws or partnership or operating agreement, as applicable; and (f) subject to
specific representations set forth herein regarding ERISA, Environmental Laws,
tax and other laws, is in compliance with all applicable provisions of law,
except where the failure to comply, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.

         3.2               Organizational Information, FEIN. As of the Closing
Date, each Credit Party's name as it appears in official filings in its state of
incorporation or organization, state of incorporation or organization,
organization type, organization number, if any, issued by its state
incorporation or organization, and the current location of each Credit Party's
chief executive office, and the warehouses and premises not owned by the Credit
Parties at which any Collateral, other than Collateral having an aggregate book
value of $100,000 or less, are located are set forth in Disclosure Schedule
(3.2), none of such locations has changed within the four (4) months preceding
the Closing Date and each Credit Party has only one state of incorporation or
organization. In addition, Disclosure Schedule (3.2) lists the federal employer
identification number of each Credit Party.

         3.3               Corporate Power, Authorization, Enforceable
Obligations. The execution, delivery and performance by each Credit Party of the
Loan Documents to which it is a party and the creation of all Liens provided for
therein: (a) are within such Person's power; (b) have been duly authorized by
all necessary corporate, limited liability company or limited

                                       16
<PAGE>

partnership action; (c) do not contravene any provision of such Person's
charter, bylaws or partnership or operating agreement as applicable; (d) do not
violate any law or regulation, or any order or decree of any court or
Governmental Authority; (e) do not conflict with or result in the breach or
termination of, constitute a default under or accelerate or permit the
acceleration of any performance required by, any material indenture, mortgage,
deed of trust, lease, agreement or other material instrument to which such
Person is a party or by which such Person or any of its property is bound; (f)
do not result in the creation or imposition of any Lien upon any of the property
of such Person other than those in favor of Agent, on behalf of itself and
Lenders, pursuant to the Loan Documents; and (g) do not require the consent or
approval of any Governmental Authority or any other Person, except those
referred to in Section 2.1(c), all of which will have been duly obtained, made
or complied with prior to the Closing Date. Each of the Loan Documents shall be
duly executed and delivered by each Credit Party that is a party thereto and
each such Loan Document shall constitute a legal, valid and binding obligation
of such Credit Party enforceable against it in accordance with its terms,
subject to limitations resulting from bankruptcy, reorganization and other
insolvency laws and general equitable principles.

         3.4               Financial Statements and Budget. Except for the
Budget, all Financial Statements concerning Borrower and its Subsidiaries that
are referred to below have been prepared in accordance with GAAP consistently
applied throughout the periods covered (except as disclosed therein and except,
with respect to unaudited Financial Statements, for the absence of footnotes and
normal year-end audit adjustments) and present fairly in all material respects
the financial position of the Persons covered thereby as at the dates thereof
and the results of their operations and cash flows for the periods then ended.

                  (a)      Financial Statements. The following Financial
Statements attached hereto as Disclosure Schedule (3.4(a)) have been delivered
on the date hereof:

                           (i)      The audited consolidated and consolidating
balance sheets at August 30, 2002 and the related statements of income and cash
flows of Holdings and its Subsidiaries for the Fiscal Year then ended, certified
by the chief financial officer of Borrower.

                           (ii)     The unaudited balance sheet(s) at August 29,
2003 and the related statement(s) of income and cash flows of Holdings and its
Subsidiaries for the twelve-month period then ended.

                           (iii)    The unaudited consolidated balance sheet of
Holdings and its Subsidiaries dated October 3, 2003, was prepared in accordance
with GAAP (except for the absence of notes thereto and subject only to such
year-end and other adjustments thereto as would be required in accordance with
GAAP and indicate that stockholders' common equity for Holdings is at least
$100,000,000.

                  (b)      Budget. The Budget delivered on the date hereof and
attached hereto as Disclosure Schedule (3.4(b)) has been prepared by Holdings in
light of the past operations of its businesses, and reflects the operating plan
for Fiscal Year 2004 on a Fiscal Month-by-Fiscal Month basis. The Budget is
based upon the same accounting principles as those used in the preparation of
the financial statements described above and the estimates and assumptions
stated

                                       17
<PAGE>

therein, all of which Borrower believes to be reasonable and fair in light of
current conditions and current facts known to Borrower and, as of the Closing
Date, reflect Borrower's good faith and reasonable estimates of the future
financial performance of Borrower for the period set forth therein. The Budget
is not a guaranty of future performance, and actual results may differ from the
Budget.

         3.5               Material Adverse Effect. Between August 31, 2003 and
the Closing Date: (a) no Credit Party has incurred any obligations, contingent
or noncontingent liabilities, liabilities for Charges, long-term leases or
unusual forward or long-term commitments that are not reflected in the financial
statements delivered to the Agent prior to the Closing Date and that, alone or
in the aggregate, could reasonably be expected to have a Material Adverse
Effect, (b) no contract, lease or other agreement or instrument has been entered
into by any Credit Party or has become binding upon any Credit Party's assets
and no law or regulation applicable to any Credit Party has been adopted that
has had or could reasonably be expected to have a Material Adverse Effect, (c)
no Credit Party is in default and to the best of Borrower's knowledge no third
party is in default under any material contract, lease or other agreement or
instrument, that alone or in the aggregate could reasonably be expected to have
a Material Adverse Effect, and (d) no Credit Party has suffered a material
decrease in the value of its assets. Since August 31, 2003 no event has
occurred, that alone or together with other events, could reasonably be expected
to have a Material Adverse Effect.

         3.6               Ownership of Property; Liens. As of the Closing Date,
the real estate ("Real Estate") listed in Disclosure Schedule (3.6) constitutes
all of the operating plants owned, leased, subleased, or used by any Credit
Party. Each Credit Party owns good and marketable fee simple title to all of
such owned Real Estate, and valid and marketable leasehold interests in all of
such leased Real Estate, all as described on Disclosure Schedule (3.6), and
copies of all such leases or a summary of terms thereof reasonably satisfactory
to Agent have been delivered to Agent. Disclosure Schedule (3.6) further
describes any such Real Estate with respect to which any Credit Party is a
lessor, sublessor or assignor as of the Closing Date. Each Credit Party also has
good and marketable title to, or valid leasehold interests in, all of its
personal property and assets material to its business operations. As of the
Closing Date, none of the Collateral of any Credit Party is subject to any Liens
other than Permitted Encumbrances, and there are no facts, circumstances or
conditions known to any Credit Party that may result in any Liens (including
Liens arising under Environmental Laws) other than Permitted Encumbrances. Each
Credit Party has received all deeds, assignments, waivers, consents,
nondisturbance and attornment or similar agreements, bills of sale and other
documents, and has duly effected all recordings, filings and other actions
necessary to establish, protect and perfect such Credit Party's right, title and
interest in and to all such Real Estate and other properties and assets, except
where the failure in respect of any of the foregoing could not reasonably be
expected to have a Material Adverse Effect. As of the Closing Date, no portion
of any such Real Estate has suffered any material damage by fire or other
casualty loss that has not heretofore been repaired and restored in all material
respects to its original condition or otherwise remedied. As of the Closing
Date, all material permits required to have been issued or appropriate to enable
such Real Estate to be lawfully occupied and used for all of the purposes for
which it is currently occupied and used have been lawfully issued and are in
full force and effect.

                                       18
<PAGE>

         3.7               Labor Matters. Except as set forth on Disclosure
Schedule 3.7, as of the Closing Date (a) no strikes or other material labor
disputes against any Credit Party are pending or, to any Credit Party's
knowledge, threatened; (b) hours worked by and payment made to employees of each
Credit Party comply in all material respects with the Fair Labor Standards Act
and each other federal, state, local or foreign law applicable to such matters;
(c) all material payments due from any Credit Party for employee health and
welfare insurance have been paid or accrued as a liability on the books of such
Credit Party; (d) no Credit Party is a party to or bound by any material
collective bargaining agreement, management agreement, consulting agreement,
employment agreement, bonus, restricted stock, stock option, or stock
appreciation plan or agreement or any similar plan, agreement or arrangement
(and true and complete copies of any agreements described on Disclosure Schedule
(3.7) have been delivered to Agent); (e) there is no organizing activity
involving any Credit Party pending or, to any Credit Party's knowledge,
threatened by any labor union or group of employees; (f) there are no
representation proceedings pending or, to any Credit Party's knowledge,
threatened with the National Labor Relations Board, and no labor organization or
group of employees of any Credit Party has made a pending demand for
recognition; and (g) there are no complaints or charges against any Credit Party
pending or, to the knowledge of any Credit Party, threatened to be filed with
any Governmental Authority or arbitrator based on, arising out of, in connection
with, or otherwise relating to the employment or termination of employment by
any Credit Party of any individual, that individually or in the aggregate could
reasonably be expected to have a Material Adverse Effect.

         3.8               Ventures, Subsidiaries and Affiliates; Outstanding
Stock and Indebtedness. Except as set forth in Disclosure Schedule (3.8), as of
the Closing Date, no Credit Party has any Subsidiaries, is engaged in any joint
venture or partnership with any other Person, or is an Affiliate of any other
Person. All of the issued and outstanding Stock of each Credit Party is owned by
each of the Stockholders and in the amounts set forth in Disclosure Schedule
(3.8). Except as set forth in Disclosure Schedule (3.8), as of the Closing Date,
there are no outstanding rights to purchase, options, warrants or similar rights
or agreements pursuant to which any Credit Party may be required to issue, sell,
repurchase or redeem any of its Stock or other equity securities or any Stock or
other equity securities of its Subsidiaries for any amounts in excess of
$1,000,000 in the aggregate. All outstanding Indebtedness and Guaranteed
Indebtedness of each Credit Party, other than individual items of Indebtedness
and Guaranteed Indebtedness that do not exceed $1,000,000 in the aggregate as of
the Closing Date (except for the Obligations), are described in Section 6.3
(including Disclosure Schedule (6.3)).

         3.9               Government Regulation. No Credit Party is an
"investment company" or an "affiliated person" of, or "promoter" or "principal
underwriter" for, an "investment company," as such terms are defined in the
Investment Company Act of 1940. No Credit Party is subject to regulation under
the Public Utility Holding Company Act of 1935, the Federal Power Act, or any
other federal or state statute that restricts or limits its ability to incur
Indebtedness or to perform its obligations hereunder. The making of the Loans by
Lenders to Borrower, the incurrence of the Letter of Credit Obligations on
behalf of Borrower, the application of the proceeds thereof and repayment
thereof and the consummation of the Related Transactions will not violate any
provision of any such statute or any rule, regulation or order issued by the
Securities and Exchange Commission.

                                       19
<PAGE>

         3.10              Margin Regulations. No Credit Party is engaged, nor
will it engage, principally or as one of its important activities, in the
business of extending credit for the purpose of "purchasing" or "carrying" any
"margin stock" as such terms are defined in Regulation U of the Federal Reserve
Board as now and from time to time hereafter in effect (such securities being
referred to herein as "Margin Stock"). No Credit Party owns any Margin Stock,
and none of the proceeds of the Loans or other extensions of credit under this
Agreement will be used, directly or indirectly, for the purpose of purchasing or
carrying any Margin Stock, for the purpose of reducing or retiring any
Indebtedness that was originally incurred to purchase or carry any Margin Stock
or for any other purpose that might cause any of the Loans or other extensions
of credit under this Agreement to be considered a "purpose credit" within the
meaning of Regulations T, U or X of the Federal Reserve Board. No Credit Party
will take or permit to be taken any action that might cause any Loan Document to
violate any regulation of the Federal Reserve Board.

         3.11              Taxes. All Federal and other material tax returns,
reports and statements, including information returns, required by any
Governmental Authority to be filed by any Credit Party have been filed with the
appropriate Governmental Authority, and all Charges have been paid prior to the
date on which any fine, penalty, interest or late charge may be added thereto
for nonpayment thereof excluding Charges or other amounts being contested in
accordance with Section 5.2(b) and unless the failure to so file or pay would
not reasonably be expected to result in fines, penalties or interest in excess
of $1,000,000 in the aggregate. Proper and accurate amounts have been withheld
by each Credit Party from its respective employees for all periods in full and
complete compliance with all applicable federal, state, local and foreign laws
and such withholdings have been timely paid to the respective Governmental
Authorities, excluding any amounts being contested in accordance with Section
5.2(b) and unless failure to so withhold would not reasonably be expected to
result in fines, penalty or interest in excess of $1,000,000. Disclosure
Schedule (3.11) sets forth as of the Closing Date those taxable years for which
any Credit Party's tax returns are currently being audited by the IRS or any
other applicable Governmental Authority, and any assessments or threatened
assessments in connection with such audit, or otherwise currently outstanding.
Except as described in Disclosure Schedule (3.11), as of the Closing Date, no
Credit Party has executed or filed with the IRS or any other Governmental
Authority any agreement or other document extending, or having the effect of
extending, the period for assessment or collection of any Charges. None of the
Credit Parties and their respective predecessors are liable for any material
Charges: (a) under any agreement (including any tax sharing agreements) or (b)
to each Credit Party's knowledge, as a transferee. As of the Closing Date, no
Credit Party has agreed or been requested to make any adjustment under IRC
Section 481(a), by reason of a change in accounting method or otherwise, which
would reasonably be expected to have a Material Adverse Effect.

         3.12              ERISA.

                  (a)      Disclosure Schedule (3.12) lists, as of the Closing
Date, (i) all ERISA Affiliates and (ii) all Plans and separately identifies all
Pension Plans, including Title IV Plans, Multiemployer Plans, and all Retiree
Welfare Plans. Copies of all such listed Plans, together with a copy of the
latest form IRS/DOL 5500-series, as applicable, for each such Plan, have been
delivered to Agent. Except with respect to Multiemployer Plans, each Qualified
Plan has been determined by the IRS to qualify under Section 401 of the IRC, the
trusts created thereunder

                                       20
<PAGE>

have been determined to be exempt from tax under the provisions of Section 501
of the IRC, and insofar as actually known to Borrower, nothing has occurred that
would cause the loss of such qualification or tax-exempt status. Each Plan is in
compliance in all material respects with the applicable provisions of ERISA, the
IRC and its terms, including the timely filing of all reports required under the
IRC or ERISA. Neither any Credit Party nor ERISA Affiliate has failed to make
any material contribution or pay any material amount due as required by either
Section 412 of the IRC or Section 302 of ERISA or the terms of any Pension Plan.
No "prohibited transaction," as defined in Section 406 of ERISA and Section 4975
of the IRC, has occurred with respect to any Plan, that would subject any Credit
Party to a material tax on prohibited transactions imposed by Section 502(i) of
ERISA or Section 4975 of the IRC.

                  (b)      Except as set forth in Disclosure Schedule (3.12):
(i) no Title IV Plan has any material Unfunded Pension Liability; (ii) no ERISA
Event has occurred or is reasonably expected to occur that is reasonably likely
to result in any liability to the Credit Parties in excess of $1,000,000 in the
aggregate; (iii) there are no pending, or to the knowledge of any Credit Party,
threatened material claims (other than claims for benefits in the normal
course), sanctions, actions or lawsuits, asserted or instituted against any Plan
or any Person as fiduciary or sponsor of any Plan; (iv) no Credit Party or ERISA
Affiliate has incurred or reasonably expects to incur any material liability as
a result of a complete or partial withdrawal from a Multiemployer Plan; and (v)
within the last five years no Title IV Plan of any Credit Party or ERISA
Affiliate has been terminated, whether or not in a "standard termination" as
that term is used in Section 4041 of ERISA, nor has any Title IV Plan of any
Credit Party or any ERISA Affiliate (determined at any time within the last five
years) with material Unfunded Pension Liabilities been transferred outside of
the "controlled group" (within the meaning of Section 4001(a)(14) of ERISA) of
any Credit Party or ERISA Affiliate (determined at such time).

         3.13              No Litigation. No action, claim, lawsuit, demand,
investigation or proceeding is now pending or, to the knowledge of any Credit
Party, threatened against any Credit Party, before any Governmental Authority or
before any arbitrator or panel of arbitrators (collectively, "Litigation"), (a)
that challenges any Credit Party's right or power to enter into or perform any
of its obligations under the Loan Documents to which it is a party, or the
validity or enforceability of any Loan Document or any action taken thereunder,
or (b) that could reasonably be expected to have a Material Adverse Effect.
Except as set forth on Disclosure Schedule (3.13), as of the Closing Date there
is no Litigation pending or, to any Credit Party's knowledge, threatened, that
seeks damages (not subject to insurance coverage) in excess of $1,000,000 or
injunctive relief against, or alleges criminal misconduct of, any Credit Party.

         3.14              Brokers. Except as set forth on Disclosure Schedule
3.14, no broker or finder brought about the obtaining, making or closing of the
Loans or the Related Transactions, and no Credit Party or Affiliate thereof has
any obligation to any Person in respect of any finder's or brokerage fees in
connection therewith.

         3.15              Intellectual Property. As of the Closing Date, each
Credit Party owns or has rights to use all material Intellectual Property
necessary to continue to conduct its business as now conducted by it or
presently proposed to be conducted by it. Each Credit Party conducts its
business and affairs without infringement of or interference with any
Intellectual Property of any other Person where any such infringement or
interference could reasonably be

                                       21
<PAGE>

expected to have a Material Adverse Effect. Except as set forth in Disclosure
Schedule (3.15), no Credit Party is aware of any material infringement claim by
any other Person with respect to any Intellectual Property that could be
reasonably be expected to have a Material Adverse Effect.

         3.16              Full Disclosure. No information contained in this
Agreement, any of the other Loan Documents, Financial Statements or Collateral
Reports or other written reports from time to time prepared by any Credit Party
and delivered hereunder or any written statement prepared by any Credit Party
and furnished by or on behalf of any Credit Party to Agent or any Lender
pursuant to the terms of this Agreement contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary to make the statements contained herein or therein not misleading in
light of the circumstances under which they were made. Budgets from time to time
delivered hereunder are or will be based upon the estimates and assumptions
stated therein, all of which Borrower believed at the time of delivery to be
reasonable and fair in light of current conditions and current facts known to
Borrower as of such delivery date, and reflect Borrower's good faith and
reasonable estimates of the future financial performance of Borrower and of the
other information projected therein for the period set forth therein. Such
Budgets are not a guaranty of future performance and actual results may differ
from those set forth in such Budgets. The Liens granted to Agent, on behalf of
itself and Lenders, pursuant to the Collateral Documents will at all times be
fully perfected first priority Liens in and to the Collateral described therein,
subject, as to priority, only to Permitted Encumbrances.

         3.17              Environmental Matters.

                  (a)      Except as set forth in Disclosure Schedule (3.17), as
of the Closing Date: (i) the Real Estate is free of contamination from any
Hazardous Material except for such contamination that would not adversely impact
the value or marketability of such Real Estate and that would not result in
Environmental Liabilities that could reasonably be expected to have a Material
Adverse Effect; (ii) no Credit Party has caused or suffered to occur any
material Release of Hazardous Materials on, at, in, under, above, to, from or
about any of its Real Estate; (iii) the Credit Parties are and have been in
compliance with all Environmental Laws, except for such noncompliance that would
not result in Environmental Liabilities which could reasonably be expected to
have a Material Adverse Effect; (iv) the Credit Parties have obtained, and are
in compliance with, all Environmental Permits required by Environmental Laws for
the operations of their respective businesses as presently conducted or as
proposed to be conducted, except where the failure to so obtain or comply with
such Environmental Permits would not result in Environmental Liabilities that
could reasonably be expected to have a Material Adverse Effect; (v) no Credit
Party is involved in operations or knows of any facts, circumstances or
conditions, including any Releases of Hazardous Materials, that are likely to
result in any Environmental Liabilities of such Credit Party which could
reasonably be expected to have a Material Adverse Effect; (vi) there is no
Litigation arising under or related to any Environmental Laws, Environmental
Permits or Hazardous Material that seeks damages, penalties, fines, costs or
expenses that could reasonably be expected to have a Material Adverse Effect or
injunctive relief against, or that alleges criminal misconduct by, any Credit
Party; and (vii) no notice has been received by any Credit Party identifying it
as a "potentially responsible party" or requesting information under CERCLA or
analogous state statutes, and to the knowledge of the Credit Parties, there are
no facts, circumstances or conditions that may result in any Credit Party being

                                       22
<PAGE>

identified as a "potentially responsible party" under CERCLA or analogous state
statutes, where, as a result thereof, the Credit Parties could reasonably be
expected to be subject to liabilities that would have a Material Adverse Effect.

                  (b)      Each Credit Party hereby acknowledges and agrees that
Agent (i) is not now, and has not ever been, in control of any of the Real
Estate or any Credit Party's affairs, and (ii) does not have the capacity
through the provisions of the Loan Documents or otherwise to influence any
Credit Party's conduct with respect to the ownership, operation or management of
any of its Real Estate or compliance with Environmental Laws or Environmental
Permits.

         3.18              Insurance. Disclosure Schedule (3.18) lists all
material insurance policies of any nature maintained, as of the Closing Date,
for current occurrences by each Credit Party, as well as a summary of the terms
of each such policy.

         3.19              Deposit, Disbursement and Investment Accounts.
Disclosure Schedule (3.19) lists all banks, other financial institutions,
securities intermediaries and brokers at which any Credit Party maintains
deposit or other accounts as of the Closing Date, including any Disbursement
Accounts, and such Schedule correctly identifies the name, address and telephone
number of each depository, the name in which the account is held, a description
of the purpose of the account, and the complete account number therefor.

         3.20              Government Contracts. Except as set forth in
Disclosure Schedule (3.20), as of the Closing Date, no Credit Party is a party
to any contract or agreement with any Governmental Authority and no Credit
Party's Accounts are subject to the Federal Assignment of Claims Act (31 U.S.C.
Section 3727) or any similar state or local law.

         3.21              Customer and Trade Relations. As of the Closing Date,
there exists no actual or, to the knowledge of any Credit Party, threatened
termination or cancellation of, or any material adverse reduction in the
business of any Credit Party with any customer or group of affiliated customers
whose purchases during the preceding 12 months caused it or such group to be
ranked among the ten largest customers of such Credit Party; or the business
relationship of any Credit Party with any supplier essential to its operations.

         3.22              Bonding; Licenses. Except as set forth on Disclosure
Schedule 3.22, as of the Closing Date, no Credit Party is a party to or bound by
any surety bond agreement or bonding requirement with respect to products or
services sold by it or any trademark or patent license agreement with respect to
products sold by it.

         3.23              Solvency. Both before and after giving effect to (a)
the Loans and Letter of Credit Obligations to be made or incurred on the Closing
Date or such other date as Loans and Letter of Credit Obligations requested
hereunder are made or incurred, (b) the disbursement of the proceeds of such
Loans pursuant to the instructions of Borrower; (c) the Refinancing and the
consummation of the other Related Transactions; (d) the payment and accrual of
all transaction costs in connection with the foregoing; and (e) the contribution
and subrogation rights of the Credit Parties, each Credit Party is and will be
Solvent.

         3.24              Subordinated Debt. As of the Closing Date, Borrower
has delivered to Agent a complete and correct copy of the Indenture governing
the Subordinated

                                       23
<PAGE>

Notes (including all schedules, exhibits, amendments, supplements,
modifications, assignments and all other documents delivered pursuant thereto or
in connection therewith). All monetary Obligations, including the Letter of
Credit Obligations, constitute "Designated Senior Indebtedness" entitled to the
benefits of the subordination provisions contained in the Subordinated Notes.

4. FINANCIAL STATEMENTS AND INFORMATION

         4.1               Reports and Notices.


                  (a)      Each Credit Party executing this Agreement hereby
agrees that from and after the Closing Date and until the Termination Date, it
shall deliver to Agent or to Agent and Lenders, as required, the Financial
Statements, notices, Budgets and other information at the times, to the Persons
and in the manner set forth in Annex E.

                  (b)      Each Credit Party executing this Agreement hereby
agrees that, from and after the Closing Date and until the Termination Date, it
shall deliver to Agent or to Agent and Lenders, as required, the various
Collateral Reports (including Borrowing Base Certificates in the form of Exhibit
4.1(b)) at the times, to the Persons and in the manner set forth in Annex F.

         4.2               Communication with Accountants. Each Credit Party
executing this Agreement, so long as an Event of Default has occurred and is
continuing, authorizes Agent and a representative of one other Lender, to
communicate directly with its independent certified public accountants,
including Crisp Hughes Evans LLP, and authorizes and shall instruct those
accountants during such communications to provide to Agent and any participating
Lender information relating to any Credit Party with respect to the business,
results of operations and financial condition of any Credit Party. Agent shall
provide Borrower with advance notice of the time of any such communication and
permit representatives of Borrower to participate in any such communication.

5. AFFIRMATIVE COVENANTS

                  Each Credit Party executing this Credit Agreement jointly and
severally agrees as to all Credit Parties that from and after the date hereof
and until the Termination Date:

         5.1               Maintenance of Existence and Conduct of Business.
Each Credit Party shall: do or cause to be done all things necessary to preserve
and keep in full force and effect its corporate existence and its material
rights and franchises; continue to conduct its business substantially as now
conducted or as otherwise permitted hereunder; at all times maintain, preserve
and protect all of its material assets and properties used or useful in the
conduct of its business, and keep the same in good repair, working order and
condition in all material respects (taking into consideration ordinary wear and
tear) and from time to time make, or cause to be made, all necessary or
appropriate repairs, replacements and improvements thereto

                                       24
<PAGE>

consistent with industry practices; and transact business only in such corporate
name as is set forth in Disclosure Schedule (5.1).

         5.2               Payment of Charges.

                  (a)      Subject to Section 5.2(b), each Credit Party shall
pay and discharge or cause to be paid and discharged promptly all Charges
payable by it, including (i) Charges imposed upon it, its income and profits, or
any of its property (real, personal or mixed) and all Charges with respect to
tax, social security and unemployment withholding with respect to its employees,
(ii) lawful claims for labor, materials, supplies and services or otherwise, and
(iii) all storage or rental charges payable to warehousemen or bailees, in each
case, before any thereof shall become past due, except in the case of clauses
(ii) and (iii) where the failure to pay or discharge such Charges would not
result in aggregate liabilities in excess of $1,000,000.

                  (b)      Each Credit Party may in good faith contest, by
appropriate proceedings, the validity or amount of any Charges, Taxes or claims
described in Section 5.2(a); provided, that (i) adequate reserves with respect
to such contest are maintained on the books of such Credit Party, in accordance
with GAAP; (ii) no Lien shall be imposed to secure payment of such Charges
(other than payments to landlords, mechanics, materialmen, warehousemen and/or
bailees and ad/valorem/property taxes) that is superior to any of the Liens
securing the Obligations and such contest is maintained and prosecuted
continuously and with diligence and operates to suspend collection or
enforcement of such Charges; (iii) none of the Collateral, other than Collateral
with a book value less than $1,000,000 in the aggregate, becomes subject to
forfeiture or loss as a result of such contest; and (iv) such Credit Party shall
promptly pay or discharge such contested Charges, Taxes or claims and all
additional charges, interest, penalties and expenses, if any, and shall deliver
to Agent evidence reasonably acceptable to Agent of such compliance, payment or
discharge, if such contest is terminated or discontinued adversely to such
Credit Party or the conditions set forth in this Section 5.2(b) are no longer
met.

         5.3               Books and Records. Each Credit Party shall keep
adequate books and records with respect to its business activities in which
proper entries, reflecting all financial transactions, are made in accordance
with GAAP and on a basis consistent with the Financial Statements attached as
Disclosure Schedule (3.4(a)).

         5.4               Insurance; Damage to or Destruction of Collateral.

                  (a)      The Credit Parties shall, at their sole cost and
expense, maintain the policies of insurance described on Disclosure Schedule
(3.18) as in effect on the date hereof or otherwise in form and amounts and with
insurers reasonably acceptable to Agent. Such policies of insurance (or the loss
payable and additional insured endorsements delivered to Agent) shall contain
provisions pursuant to which the insurer agrees to provide thirty (30) days
prior written notice to Agent in the event of any non-renewal, cancellation or
amendment of any such insurance policy. If any Credit Party at any time or times
hereafter shall fail to obtain or maintain any of the policies of insurance
required above, or to pay all premiums relating thereto, Agent may at any time
or times thereafter obtain and maintain such policies of insurance and pay such
premiums and take any other action with respect thereto that Agent deems
advisable. Agent shall provide Borrower with written notice within ten days
after obtaining, maintaining or paying

                                       25
<PAGE>

premiums for any such policies of insurance if Agent takes any such action after
the occurrence of an Event of Default; otherwise, Agent shall provide Borrower
with at least one day's advance written notice of any such proposed action.
Agent shall have no obligation to obtain insurance for any Credit Party or pay
any premiums therefor. By doing so, Agent shall not be deemed to have waived any
Default or Event of Default arising from any Credit Party's failure to maintain
such insurance or pay any premiums therefor. All sums so disbursed, including
reasonable attorneys' fees, court costs and other charges related thereto, shall
be payable on demand by Borrower to Agent and shall be additional Obligations
hereunder secured by the Collateral.

                  (b)      Each Credit Party shall deliver to Agent, in form and
substance reasonably satisfactory to Agent, endorsements to (i) all "All Risk"
insurance naming Agent, on behalf of itself and Lenders, as loss payee with
respect to the Collateral, and (ii) all general liability and other liability
policies naming Agent, on behalf of itself and Lenders, as an additional
insured. Each Credit Party irrevocably makes, constitutes and appoints Agent
(and all officers, employees or agents designated by Agent), so long as any
Default or Event of Default has occurred and is continuing or an Activation
Event has occurred and is continuing and the anticipated insurance proceeds
exceed $3,000,000 with respect to any Collateral, as such Credit Party's true
and lawful agent and attorney-in-fact for the purpose of making, settling and
adjusting claims under such "All Risk" policies of insurance, endorsing the name
of such Credit Party on any check or other item of payment for the proceeds of
such "All Risk" policies of insurance and for making all determinations and
decisions with respect to such "All Risk" policies of insurance. Agent shall
have no duty to exercise any rights or powers granted to it pursuant to the
foregoing power-of-attorney. Borrower shall promptly notify Agent of any loss,
damage, or destruction to the Collateral in the amount of $1,000,000 or more in
the aggregate, whether or not covered by insurance. After deducting from such
proceeds (i) the expenses incurred by Agent in the collection or handling
thereof, and (ii) amounts required to be paid to creditors (other than Lenders)
having Permitted Encumbrances, Agent may, at its option, apply such proceeds to
the reduction of the Obligations in accordance with Section 1.3(d); or permit
the applicable Credit Party to use such money, or any part thereof, to replace,
repair, restore or rebuild the Collateral in a diligent and expeditious manner
with materials and workmanship of substantially the same quality as existed
before the loss, damage or destruction. Notwithstanding the foregoing, if the
casualty giving rise to such insurance proceeds could not reasonably be expected
to have a Material Adverse Effect and no Activation Event then exists, Agent
shall permit the applicable Credit Party to replace, restore, repair or rebuild
the Collateral; provided that if such Credit Party shall not have completed or
entered into binding agreements to complete such replacement, restoration,
repair or rebuilding within 180 days of such casualty, Agent may apply such
insurance proceeds to the Obligations in accordance with Section 1.3(d). If the
applicable Credit Party has elected to replace, restore, repair or rebuild the
Collateral, all insurance proceeds that are to be made available to Borrower to
replace, repair, restore or rebuild the Collateral shall be applied by Agent to
reduce the outstanding principal balance of the Revolving Loan (which
application shall not result in a permanent reduction of the Revolving Loan
Commitment) and upon such application, Agent shall establish a Reserve against
the Borrowing Base in an amount equal to the amount of such proceeds so applied.
All insurance proceeds made available to any Credit Party that is not a Borrower
to replace, repair, restore or rebuild Collateral shall be deposited in a cash
collateral account. Thereafter, such funds shall be made available to such
Credit Party to provide funds to replace, repair, restore or rebuild the
Collateral as follows: (i) Borrower shall request a Revolving Credit Advance or
a release from the cash collateral account

                                       26
<PAGE>

be made to such Credit Party in the amount requested to be released; (ii) so
long as the conditions set forth in Section 2.2 have been met, Lenders shall
make such Revolving Credit Advance or Agent shall release funds from the cash
collateral account; and (iii) in the case of insurance proceeds applied against
the Revolving Loan, the Reserve established with respect to such insurance
proceeds shall be reduced by the amount of such Revolving Credit Advance, and if
after completion of the replacement, repair, restoration or rebuilding of the
Collateral, the full amount of the insurance proceeds is not utilized, such
Reserve shall be eliminated in any event. To the extent not used to replace,
repair, restore or rebuild the Collateral, such insurance proceeds shall be
applied in accordance with Section 1.3(d); provided, that in the case of
insurance proceeds pertaining to any Credit Party other than Borrower, such
insurance proceeds shall be applied to the Loans owing by Borrower.

         5.5               Compliance with Laws. Each Credit Party shall comply
with all federal, state, local and foreign laws and regulations applicable to
it, including those relating to ERISA, labor laws, and Environmental Laws and
Environmental Permits, except to the extent that the failure to comply,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.

         5.6               Supplemental Disclosure. From time to time as may be
reasonably requested by Agent (which request will not be made more frequently
than once each year absent the occurrence and continuance of an Event of
Default) or at Credit Parties' election, the Credit Parties shall supplement
each Disclosure Schedule hereto, or any representation herein or in any other
Loan Document, with respect to any matter hereafter arising that, if existing or
occurring at the date of this Agreement, would have been required to be set
forth or described in such Disclosure Schedule or as an exception to such
representation or that is necessary to correct any information in such
Disclosure Schedule or representation which has been rendered inaccurate thereby
(and, in the case of any supplements to any Disclosure Schedule, such Disclosure
Schedule shall be appropriately marked to show the changes made therein);
provided that (a) no such supplement to any such Disclosure Schedule or
representation shall amend, supplement or otherwise modify any Disclosure
Schedule or representation, or be or be deemed a waiver of any Default or Event
of Default resulting from the matters disclosed therein, except as consented to
by Agent and Requisite Lenders in writing, and (b) no supplement shall be
required or permitted as to representations and warranties and Disclosure
Schedules that relate solely to the Closing Date.

         5.7               Intellectual Property. Each Credit Party will conduct
its business and affairs without infringement of or interference with any
Intellectual Property of any other Person and shall comply with the terms of its
Licenses, except where the failure to do so could not reasonably be expected to
have a Material Adverse Effect.

         5.8               Environmental Matters. Each Credit Party shall and
shall cause each Person within its control to: (a) conduct its operations and
keep and maintain its Real Estate in compliance with all Environmental Laws and
Environmental Permits other than noncompliance that could not reasonably be
expected to have a Material Adverse Effect; (b) implement any and all
investigation, remediation, removal and response actions that are appropriate or
necessary to maintain the value and marketability of the Real Estate or to
otherwise comply with Environmental Laws and Environmental Permits pertaining to
the

                                       27
<PAGE>

presence, generation, treatment, storage, use, disposal, transportation or
Release of any Hazardous Material on, at, in, under, above, to, from or about
any of its Real Estate, except where the failure to do so could not reasonably
be expected to result in a Material Adverse Effect; (c) notify Agent promptly
after such Credit Party becomes aware of any violation of Environmental Laws or
Environmental Permits or any Release on, at, in, under, above, to, from or about
any Real Estate that is reasonably likely to result in Environmental Liabilities
in excess of $1,000,000 in the aggregate; and (d) promptly forward to Agent a
copy of any order, notice, request for information or any communication or
report received by such Credit Party in connection with any such violation or
Release or any other matter relating to any Environmental Laws or Environmental
Permits that could reasonably be expected to result in Environmental Liabilities
in excess of $1,000,000 in the aggregate, in each case whether or not the
Environmental Protection Agency or any Governmental Authority has taken or
threatened any action in connection with any such violation, Release or other
matter.

         5.9               Landlords' Agreements, Mortgagee Agreements, Bailee
Letters. Each Credit Party shall use commercially reasonable efforts to obtain a
landlord's agreement, mortgagee agreement or bailee letter, as applicable, from
the lessor of each leased property, mortgagee of owned property or bailee with
respect to any warehouse, processor or converter facility or other location
where Inventory having a book value in excess of $100,000 is stored or located,
which agreement or letter shall contain a waiver or subordination of all Liens
or claims that the landlord, mortgagee or bailee may assert against the
Inventory at that location, and shall otherwise be reasonably satisfactory in
form and substance to Agent. With respect to any location or warehouse space
leased or owned as of the Closing Date or thereafter or as to where Inventory is
stored, converted or processed, if Agent has not received a landlord or
mortgagee agreement or bailee letter, if applicable, as of the Closing Date (or,
if later, as of the date such location is acquired or leased), Borrower's
Eligible Inventory at that location shall, in Agent's discretion, be excluded
from the Borrowing Base or be subject to such Reserves as may be established by
Agent in its reasonable credit judgment. Each Credit Party shall timely and
fully pay and perform in all material respects its obligations under all leases
and other agreements with respect to each leased location or public warehouse
where any Inventory having a book value in excess of $100,000 is or may be
located.

         5.10              Inventory Appraisal. Upon the occurrence and during
the continuance of any Event of Default or if at any time Excess Availability
falls below $10,000,000, the Requisite Lenders have the right to require an
appraisal of the Inventory at the expense of Borrower.

         5.11              Further Assurances. Each Credit Party executing this
Agreement agrees that it shall and shall cause each other Credit Party to, at
such Credit Party's expense and upon the reasonable request of Agent, duly
execute and deliver, or cause to be duly executed and delivered, to Agent such
further instruments and do and cause to be done such further acts as may be
necessary or proper in the reasonable opinion of Agent to carry out more
effectively the provisions and purposes of this Agreement and each Loan
Document.

                                       28
<PAGE>

6. NEGATIVE COVENANTS

                  Each Credit Party executing this Agreement jointly and
severally agrees as to all Credit Parties that from and after the date hereof
until the Termination Date:

         6.1               Mergers, Subsidiaries, Etc. No Credit Party shall
directly or indirectly, by operation of law or otherwise, (a) form or acquire
any Subsidiary, or (b) merge with, consolidate with, acquire all or
substantially all of the assets or Stock of, or otherwise combine with or
acquire, any Person. Notwithstanding the foregoing, any Credit Party may (i)
merge or consolidate with another Credit Party so long as, if Borrower is one of
such Credit Parties, then Borrower is the surviving corporation in such merger
or consolidation, (ii) acquire all or substantially all of the assets or Stock
of, or otherwise combine with, another Credit Party so long as, if Borrower is
one of such Credit Parties, then Borrower is the acquirer in such transaction,
(iii) form a Subsidiary ("Segregated Subsidiary") for the purpose of effecting a
"Permitted Transaction" (as hereinafter defined), and (iv) may acquire (subject
to the restrictions set forth below) all or substantially all of the assets or
Stock of any Person (the "Target") or merge with a Target if such Credit Party
is the surviving corporation (in each case, a "Permitted Transaction") subject
to the satisfaction of each of the following conditions:

                           (i)      Agent shall receive at least fifteen (15)
Business Days' prior written notice of such proposed Permitted Transaction,
which notice shall include a reasonably detailed description of such proposed
Permitted Transaction;

                           (ii)     such Permitted Transaction shall only
involve assets located in the United States or Canada and comprising a business,
or those assets of a business, substantially of the type engaged in by Borrower
as of the Closing Date, and which business would not subject Agent or any Lender
to regulatory or third party approvals in connection with the exercise of its
rights and remedies under this Agreement or any other Loan Documents other than
approvals applicable to the exercise of such rights and remedies with respect to
Borrower prior to such Permitted Transaction;

                           (iii)    such Permitted Transaction shall be
consensual and shall have been approved by the Target's board of directors;

                           (iv)     no additional Indebtedness, Guaranteed
Indebtedness, contingent obligations or other liabilities shall be incurred,
assumed or otherwise be reflected on a consolidated balance sheet of Borrower
and Target after giving effect to such Permitted Transaction, except ordinary
course trade payables, accrued expenses and unsecured Indebtedness of the Target
to the extent no Default or Event of Default has occurred and is continuing or
would result after giving effect to such Permitted Transaction, provided, that
such restrictions shall not be applicable if the assets or Stock of the Target
are acquired by a Segregated Subsidiary, the Target merges with and into a
Segregated Subsidiary with the Segregated Subsidiary as the surviving Person or
the Target becomes a Subsidiary of a Credit Party and the Target's assets remain
in the Target;

                           (v)      the sum of all amounts payable in connection
with all Permitted Transactions (including all transaction costs and all
Indebtedness, liabilities and contingent

                                       29
<PAGE>

obligations incurred or assumed in connection therewith) shall not exceed, after
giving effect to any amounts advanced or paid as dividends to Holdings for the
purpose of permitting Holdings to engage in a Permitted Transaction in
accordance with the provisions of Section 6.13, $10,000,000 for any single
transaction or $40,000,000 in the aggregate on a combined basis while the
Obligations remain outstanding or the Lenders have any Revolving Loan
Commitment;

                           (vi)     the EBITDA of the Target must be accretive
to the EBITDA of the Credit Parties based upon the Target's EBITDA during the
twelve month period immediately prior to the consummation of the Permitted
Transaction;

                           (vii)    the business and assets acquired in such
Permitted Transaction shall be free and clear of all Liens (other than Permitted
Encumbrances), provided that such restrictions shall not be applicable if the
assets or Stock of the Target are acquired by a Segregated Subsidiary, the
Target merges with and into a Segregated Subsidiary with the Segregated
Subsidiary as the surviving Person or the Target becomes a Subsidiary of a
Credit Party and the assets of the Target remain in the Target;

                           (viii)   [intentionally omitted];

                           (ix)     Concurrently with delivery of the notice
referred to in clause (i) above, Borrower shall have delivered to Agent, in form
and substance reasonably satisfactory to Agent:

                                    (A)      a pro forma consolidated balance
                  sheet, income statement and cash flow statement of Borrower
                  and its Subsidiaries (the "Acquisition Pro Forma"), based on
                  recent financial statements, which shall be complete and shall
                  fairly present in all material respects the assets,
                  liabilities, financial condition and results of operations of
                  Borrower and its Subsidiaries in accordance with GAAP
                  consistently applied, but taking into account such Permitted
                  Transaction and the funding of all Loans in connection
                  therewith, and such Acquisition Pro Forma shall reflect that
                  (x) immediately after giving effect to the Permitted
                  Transaction, Excess Availability would be at least $20,000,000
                  on a pro forma basis, with trade payables being paid
                  currently, expenses and liabilities being paid in the ordinary
                  course of business and without acceleration of sales and
                  without material deterioration of Working Capital, and the
                  Acquisition Budget (as hereinafter defined) shall reflect that
                  such Excess Availability of at least $20,000,000 shall
                  continue for at least ninety (90) days after the consummation
                  of such Permitted Transaction, and (y) on a pro forma basis,
                  no Event of Default has occurred and is continuing or would
                  result after giving effect to such Permitted Transaction and
                  Borrower would have been in compliance with the financial
                  covenants set forth in Annex G for the four quarter period
                  reflected in the Compliance Certificate most recently
                  delivered to Agent pursuant to Annex Eprior to the
                  consummation of such Permitted Transaction (after giving
                  effect to such Permitted Transaction and all Loans funded in
                  connection therewith as if made on the first day of such
                  period);

                                       30
<PAGE>

                                    (B)      updated versions of the most
                  recently delivered Budget covering the one (1) year period
                  commencing on the date of such Permitted Transaction and
                  otherwise prepared in accordance with the Budget (the
                  "Acquisition Budget") and based upon historical financial data
                  of a recent date reasonably satisfactory to Agent, taking into
                  account such Permitted Transaction; and

                                    (C)      a certificate of the chief
                  financial officer of Borrower to the effect that: (w) Borrower
                  will be Solvent upon the consummation of the Permitted
                  Transaction; (x) the Acquisition Pro Forma fairly presents the
                  financial condition of Holdings and Borrower (on a
                  consolidated basis) as of the date thereof after giving effect
                  to the Permitted Transaction; (y) the Acquisition Budget
                  includes reasonable estimates of the future financial
                  performance of Borrower subsequent to the date thereof based
                  upon the historical performance of Borrower and the Target and
                  show that Borrower shall continue to be in compliance with the
                  financial covenants set forth in Annex G for the twelve month
                  period thereafter; and (z) Borrower has completed its due
                  diligence investigation with respect to the Target and such
                  Permitted Transaction, which investigation was conducted in a
                  manner similar to that which would have been conducted by a
                  prudent purchaser of a comparable business and the results of
                  which investigation were delivered to Agent and Lenders;

                           (x)      on or prior to the date of such Permitted
Transaction, Agent shall have received, in form and substance reasonably
satisfactory to Agent, copies of the acquisition or merger agreement and related
agreements and instruments, and all opinions, certificates, lien search results
and other documents reasonably requested by Agent, including those specified in
the last sentence of Section 5.9; and

                           (xi)     at the time of such Permitted Transaction
and after giving effect thereto, no Default or Event of Default has occurred and
is continuing.

                  Notwithstanding the foregoing, the Accounts and Inventory of
the Target shall not be included in Eligible Accounts and Eligible Inventory
without the prior written consent of Agent and Requisite Lenders, and in no
event shall a Segregated Subsidiary or a Target be permitted to merge with the
Borrower if such Segregated Subsidiary or Target has Indebtedness or Liens that
are permitted solely by the provisos to clauses (iv) or (vii) above.

         6.2               Investments; Loans and Advances. Except as otherwise
expressly permitted by this Section 6, no Credit Party shall make or permit to
exist any investment in, or make, accrue or permit to exist loans or advances of
money to, any Person, through the direct or indirect lending of money, holding
of securities or otherwise (all of the foregoing being referred to herein as
"Investments"), except that: (a) Borrower may hold Investments issued by Account
Debtors to Borrower pursuant to negotiated agreements with respect to settlement
of such Account Debtor's Accounts in the ordinary course of business consistent
with past practices; (b) Investments in Credit Parties in the ordinary course of
business and Investments made by Borrower in accordance with the Securitization
Documents in Avondale Funding; (c) Investments by Borrower in Holdings permitted
by Section 6.13, (d) existing Investments as

                                       31
<PAGE>

described on Disclosure Schedule (6.2), (e) Investments made as part of
Permitted Transactions pursuant to Section 6.1, (f) loans and advances to
employees permitted pursuant to Section 6.4, (g) Investments representing any
noncash consideration in respect of any asset sale, not to exceed $1,000,000 in
the aggregate with respect to any Collateral, and if such noncash consideration
received in exchange for any Collateral is in the form of an Instrument or
Stock, such Instrument or Stock is pledged to the Agent to secure the payment
and performance of the Obligations, (h) so long as no Default or Event of
Default has occurred and is continuing, Borrower may make Investments in an
aggregate amount not to exceed (i)$10,000,000 if an Activation Event has not
occurred and is not continuing, and (ii) $5,000,000 otherwise, subject to
Control Letters in favor of Agent for the benefit of Lenders or otherwise
subject to a perfected security interest in favor of Agent for the benefit of
Lenders, in (A) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency thereof maturing within
one year from the date of acquisition thereof, (B) commercial paper maturing no
more than one year from the date of creation thereof and currently having the
highest rating obtainable from either Standard & Poor's Ratings Group or Moody's
Investors Service, Inc., (C) certificates of deposit maturing no more than one
year from the date of creation thereof issued by commercial banks incorporated
under the laws of the United States of America, each having combined capital,
surplus and undivided profits of not less than $300,000,000 and having a senior
unsecured rating of "A" or better by a nationally recognized rating agency (an
"A Rated Bank"), (D) time deposits maturing no more than ninety (90) days from
the date of creation thereof with A Rated Banks, (E) fully collateralized
repurchase agreements with a term of not more than 90 days for securities
described in clause (A) above entered into with financial institutions
satisfying the criteria in Clause (C) above, (F) securities issued by any state
of the United States or any political subdivision thereof and having the highest
credit rating available from Standard & Poor's Ratings Group or Moody's
Investors Service, Inc. at the time of acquisition thereof, and (G) mutual funds
that invest solely in one or more of the investments described in clauses (A)
through (F) above, (i) so long as no Activation Event, Default or Event of
Default has occurred and is continuing or would result therefrom, Investments
constituting purchases of Subordinated Debt to the extent not prohibited by
Section 6.3(b), and (j) so long as no Activation Event, Default or Event of
Default has occurred and is continuing or would result therefrom, other
Investments made after the Closing Date not exceeding (on a cost basis)
$5,000,000 in the aggregate at any time outstanding.

         6.3               Indebtedness.

                  (a)      No Credit Party shall create, incur, assume or permit
to exist any Indebtedness, except (without duplication) (i) Indebtedness secured
by purchase money security interests and Capital Leases permitted in Section
6.7(c), together with renewals, extensions, refinancings and replacements
thereof in amounts not exceeding the amounts being so renewed, extended,
refinanced or replaced, (ii) the Loans and the other Obligations, (iii) unfunded
pension fund and other employee benefit plan obligations and liabilities to the
extent they are permitted to remain unfunded under applicable law, (iv) existing
Indebtedness described in Disclosure Schedule (6.3) and refinancings thereof or
amendments or modifications thereto that do not have the effect of increasing
the principal amount thereof or changing the amortization thereof (other than to
extend the same), (v) Indebtedness specifically permitted under Section 6.1,
together with renewals, extensions, refinancings and replacements thereof in
amounts not exceeding the amounts being so renewed, extended, refinanced or
replaced and unless such Indebtedness is

                                       32
<PAGE>

solely the obligation of a Segregated Subsidiary, not having the effect of
changing the amortization thereof (other than to extend the same), (vi)
Indebtedness consisting of intercompany loans and advances made by Borrower to
any other Credit Party that is a Guarantor or to Holdings or by any such
Guarantor or Holdings to Borrower; provided, that: (A) Borrower shall have
executed and delivered to each such Guarantor or Holdings, and each such
Guarantor or Holdings shall have executed and delivered to Borrower, on the
Closing Date, a demand note (collectively, the "Intercompany Notes") to evidence
any such intercompany Indebtedness owing at any time by Borrower to such
Guarantor or Holdings or by such Guarantor or Holdings to Borrower, which
Intercompany Notes shall be in form and substance reasonably satisfactory to
Agent and shall, during the existence of any Activation Event, be pledged and
delivered to Agent pursuant to the applicable Pledge Agreement or Security
Agreement as additional collateral security for the Obligations; (B) Borrower
shall record all intercompany transactions on its books and records in a manner
reasonably satisfactory to Agent; (C) the obligations of Borrower under any such
Intercompany Notes shall be subordinated to the Obligations of Borrower
hereunder in a manner reasonably satisfactory to Agent; (D) at the time any such
intercompany loan or advance is made by Borrower and after giving effect
thereto, Borrower shall be Solvent; (E) no Default or Event of Default would
occur and be continuing after giving effect to any such proposed intercompany
loan; (F) in the case of any such intercompany loans made by Borrower, no
Activation Event shall exist after giving effect to such intercompany loan; and
(G) the aggregate balance of all such intercompany loans owing to Borrower shall
not exceed the amount of Investments that Borrower is permitted to make in any
such Credit Party or Holdings pursuant to Section 6.2, (vii) Guaranteed
Indebtedness permitted pursuant to Section 6.6, (viii) to the extent permitted
by Section 6.1 (iv), existing Indebtedness of any Target acquired in a Permitted
Transaction pursuant to Section 6.1 and not incurred in contemplation thereof,
(ix) Indebtedness secured by Liens permitted pursuant to Section 6.7(e), (x)
other unsecured Indebtedness in an aggregate amount outstanding not to exceed
$10,000,000, (xi) Subordinated Debt, (xii) Indebtedness under commodity purchase
or option agreements or other commodity price hedging arrangements, in each case
whether contingent or matured and in the ordinary course of business, and (xiii)
Indebtedness under any foreign exchange contract, currency swap agreement,
interest rate swap, cap or collar agreement or other similar agreement or
arrangement designed to alter the risks of the Person incurring such
Indebtedness that arises from fluctuations in currency values or interest rates,
in each case whether contingent or matured and in the ordinary course of
business.

                  (b)      No Credit Party shall, directly or indirectly,
voluntarily purchase, redeem, defease or prepay any principal of, premium, if
any, interest or other amount payable in respect of any Indebtedness prior to
its scheduled maturity, other than (i) the Obligations; (ii) Indebtedness
secured by a Permitted Encumbrance if the asset securing such Indebtedness has
been sold or otherwise disposed of in accordance with Sections 6.8(b) or (c);
and (iii) Indebtedness permitted by Section 6.3(a)(iv) upon any refinancing
thereof in accordance with Section 6.3(a)(iv); provided, however, that so long
as no Activation Event, Default or Event of Default has occurred and is
continuing or would result therefrom, purchases, redemptions, defeasances or
prepayments may be made with respect to Funded Debt not to exceed $20,000,000 in
the aggregate after giving effect to any prepayment penalties or premiums.

                                       33
<PAGE>

         6.4               Employee Loans and Affiliate Transactions.

                  (a)      No Credit Party shall enter into or be a party to any
transaction with any other Credit Party or any Affiliate thereof except with
respect to Investments, Indebtedness and Restricted Payments permitted under
Sections 6.2, 6.3 and 6.13 respectively, and except as permitted in the ordinary
course of and pursuant to the reasonable requirements of such Credit Party's
business and upon fair and reasonable terms that are no less favorable to such
Credit Party than would be obtained in a comparable arm's length transaction
with a Person not an Affiliate of such Credit Party. All such transactions
existing as of the date hereof are described in Disclosure Schedule (6.4(a)).

                  (b)      No Credit Party shall enter into any lending or
borrowing transaction with any employees of any Credit Party, except loans to
its respective employees in the ordinary course of business consistent with past
practices for travel and entertainment expenses, relocation costs and similar
purposes up to a maximum of $250,000 to any employee and up to a maximum of
$500,000 in the aggregate at any one time outstanding.

         6.5               Capital Structure and Business. If all or part of a
Credit Party's Stock is pledged to Agent or Agent is granted a security interest
therein, that Credit Party shall not issue additional Stock. No Credit Party
shall amend its charter or bylaws in a manner that would adversely affect Agent
or Lenders or such Credit Party's duty or ability to repay the Obligations. No
Credit Party shall engage in any business other than the businesses currently
engaged in by it or businesses reasonably related thereto.

         6.6               Guaranteed Indebtedness. No Credit Party shall
create, incur, assume or permit to exist any Guaranteed Indebtedness except (a)
by endorsement of instruments or items of payment for deposit to the general
account of any Credit Party, and (b) for Guaranteed Indebtedness incurred for
the benefit of any other Credit Party if the primary obligation is expressly
permitted by this Agreement.

         6.7               Liens. No Credit Party shall create, incur, assume or
permit to exist any Lien on or with respect to any of the Collateral (whether
now owned or hereafter acquired) except for (a) Permitted Encumbrances; (b)
Liens in existence on the date hereof and summarized on Disclosure Schedule
(6.7) securing the Indebtedness described on Disclosure Schedule (6.3) and
permitted refinancings, extensions and renewals thereof, including extensions or
renewals of any such Liens; provided that the principal amount of the
Indebtedness so secured is not increased and the Lien does not attach to any
other property; (c) Liens created after the date hereof by conditional sale or
other title retention agreements (including Capital Leases) or in connection
with purchase money Indebtedness with respect to Equipment and Fixtures acquired
by any Credit Party in the ordinary course of business, involving the incurrence
of an aggregate amount of purchase money Indebtedness and Capital Lease
Obligations of not more than $20,000,000 more than the amount outstanding on the
Closing Date at any time after the Closing Date for all such Liens (provided
that such Liens attach only to the assets subject to such purchase money
Indebtedness or Capital Lease Obligations and such Indebtedness or Capital Lease
Obligations are incurred within ninety (90) days following such acquisition and
does not exceed 100% of the purchase price of the subject assets); (d) to the
extent permitted by Section 6.1(vii), Liens existing on assets of any Target at
the time of acquisition thereof pursuant to a

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<PAGE>

Permitted Transaction pursuant to Section 6.1 and not created in contemplation
thereof, and (e) other Liens not attaching to Collateral and securing
obligations in an aggregate amount not to exceed $1,000,000. In addition, no
Credit Party shall become a party to any agreement, note, indenture or
instrument, or take any other action, that would prohibit the creation of a Lien
on any of its properties or other assets in favor of Agent, on behalf of itself
and Lenders, as additional collateral for the Obligations, except (i) operating
leases, Capital Leases, security and pledge agreements, or Licenses which
prohibit Liens upon the assets that are subject thereto, (ii) agreements in
effect pending the sale of any property permitted pursuant to Section 6.8 to the
extent such restrictions relate solely to the property to be sold, (iii) the
Securitization Documents, and (iv) agreements described on Disclosure Schedule
6.7.

         6.8               Sale of Stock and Assets. No Credit Party shall sell,
transfer, convey, assign or otherwise dispose of any of its properties or other
assets, including the Stock of any of its Subsidiaries (whether in a public or a
private offering or otherwise) or any of its Accounts, other than (a) the sale
of Inventory in the ordinary course of business, (b) the sale or other
disposition by a Credit Party of Equipment, Fixtures or Real Estate that are
obsolete or no longer used or useful in such Credit Party's business, (c) the
sale or other disposition of other Equipment having a book value not exceeding
$10,000,000 in the aggregate in any single transaction or $20,000,000 in the
aggregate on a combined basis while any Obligations or the Revolving Loan
Commitment remains outstanding, (d) the sale or transfer of Accounts and related
property to Avondale Funding pursuant to the terms of the Securitization
Facility, or (e) the sale or other disposition of any assets not subject to or
required to be subject to a Lien in favor of the Agent.

         6.9               ERISA. No Credit Party shall, or shall cause or
permit any ERISA Affiliate to, cause or permit to occur (i) an event that could
result in the imposition of a Lien under Section 412 of the IRC or Section 302
or 4068 of ERISA or (ii) an ERISA Event, in any case to the extent such ERISA
Event or Lien would reasonably be expected to result in taxes, penalties and
other liabilities in an aggregate amount in excess of $1,000,000 in the
aggregate.

         6.10              Financial Covenants. Borrower shall not breach or
fail to comply with any of the Financial Covenants.

         6.11              Hazardous Materials. No Credit Party shall cause or
permit a Release of any Hazardous Material on, at, in, under, above, to, from or
about any of the Real Estate where such Release would (a) violate in any
respect, or form the basis for any Environmental Liabilities under, any
Environmental Laws or Environmental Permits or (b) otherwise adversely impact
the value or marketability of any of the Real Estate or any of the Collateral,
other than such violations or Environmental Liabilities that could not
reasonably be expected to have a Material Adverse Effect.

         6.12              Sale-Leasebacks. No Credit Party shall engage in any
sale-leaseback, synthetic lease or similar transaction involving any of its
assets constituting Collateral, and any such transactions shall be subject to
the limitations on Indebtedness set forth in Section 6.3.

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<PAGE>

         6.13              Restricted Payments. No Credit Party shall make any
Restricted Payment, except (a) intercompany loans and advances and payments
thereof among Borrower and Guarantors to the extent permitted by Section 6.3,
(b) dividends and distributions by Subsidiaries of Borrower paid to Borrower,
(c) provided that no Default or Event of Default has then occurred and is
continuing or would result therefrom, dividends and cash distributions paid by
Borrower to Holdings for the purposes of paying dividends by Holdings,
repurchasing Stock of Holdings and permitting Holdings to engage in a Permitted
Transaction to the same extent that Borrower would be permitted to do so subject
to the restrictions contained in Section 6.1, (d) dividends and cash
distributions paid by Borrower to Holdings to pay for ordinary course
administrative expenses of Holdings and to pay cash taxes or Charges then
payable by Holdings, (e) employee loans permitted under Section 6.4(b), (f)
payments of principal and interest of Intercompany Notes issued in accordance
with Section 6.3; and (g) scheduled payments of interest with respect to
Subordinated Debt; provided, that (i) no Event of Default has occurred and is
continuing or would result after giving effect to any Restricted Payment
pursuant to clause (f) above, and (ii) Borrower shall have Borrowing
Availability of at least $1 after giving effect to any Restricted Payment
pursuant to clause (f) above.

         6.14              Change of Corporate Name, State of Incorporation or
Location; Change of Fiscal Year. No Credit Party shall (a) change its name as it
appears in official filings in the state of its incorporation or other
organization (b) change its chief executive office or principal place of
business, or add warehouses or locations at which Collateral is held or stored
other than with respect to Collateral not having an aggregate book value in
excess of $100,000, or change the location of its records concerning the
Collateral, (c) change the type of entity that it is, (d) change its
organization identification number, if any, issued by its state of incorporation
or other organization, or (e) change its state of incorporation or organization
or incorporate or organize in any additional jurisdictions, in each case without
at least thirty (30) days prior written notice to Agent and after Agent's
written acknowledgment that any reasonable action requested by Agent in
connection therewith, including to continue the perfection of any Liens in favor
of Agent, on behalf of Lenders, in any Collateral, has been completed or taken,
and provided that any such new location shall be in the continental United
States. No Credit Party shall change its Fiscal Year.

         6.15              No Impairment of Intercompany Transfers. No Credit
Party shall directly or indirectly enter into or become bound by any agreement,
instrument, indenture or other obligation (other than this Agreement and the
other Loan Documents) that could directly or indirectly restrict, prohibit or
require the consent of any Person with respect to the payment of dividends or
distributions or the making or repayment of intercompany loans by a Subsidiary
of Borrower to Borrower, other than (i) the Securitization Documents, and (ii)
the agreements described on Disclosure Schedule 6.15.

         6.16              Changes Relating to Subordinated Debt. No Credit
Party shall change or amend the terms of any Subordinated Debt (or any indenture
or agreement in connection therewith) if the effect of such amendment is to: (a)
increase the interest rate on such Subordinated Debt; (b) change the dates upon
which payments of principal or interest are due on such Subordinated Debt other
than to extend such dates; (c) change any default or event of default other than
to delete or make less restrictive any default provision therein, or add any
covenant with respect to such Subordinated Debt; (d)

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<PAGE>

change the redemption or prepayment provisions of such Subordinated Debt other
than to extend the dates therefor or to reduce the premiums payable in
connection therewith; (e) grant any security or collateral to secure payment of
such Subordinated Debt; or (f) change or amend any other term if such change or
amendment would materially increase the obligations of the Credit Party
thereunder or confer additional material rights on the holder of such
Subordinated Debt in a manner materially adverse to any Credit Party, Agent or
any Lender, as determined by the Requisite Lenders in their reasonable credit
judgment.

7. TERM

         7.1               Termination. The financing arrangements contemplated
hereby shall be in effect until the Commitment Termination Date, and the Loans
and all other Obligations shall be automatically due and payable in full on such
date.

         7.2               Survival of Obligations Upon Termination of Financing
Arrangements. Except as otherwise expressly provided for in the Loan Documents,
no termination or cancellation (regardless of cause or procedure) of any
financing arrangement under this Agreement shall in any way affect or impair the
obligations, duties and liabilities of the Credit Parties or the rights of Agent
and Lenders relating to any unpaid portion of the Loans or any other
Obligations, due or not due, liquidated, contingent or unliquidated, or any
transaction or event occurring prior to such termination, or any transaction or
event, the performance of which is required after the Commitment Termination
Date. Except as otherwise expressly provided herein or in any other Loan
Document, all undertakings, agreements, covenants, warranties and
representations of or binding upon the Credit Parties, and all rights of Agent
and each Lender, all as contained in the Loan Documents, shall not terminate or
expire, but rather shall survive any such termination or cancellation and shall
continue in full force and effect until the Termination Date; provided, that the
provisions of Section 11, the payment obligations under Sections 1.15 and 1.16,
and the indemnities contained in the Loan Documents shall survive the
Termination Date.

8. EVENTS OF DEFAULT; RIGHTS AND REMEDIES

         8.1               Events of Default. The occurrence of any one or more
of the following events (regardless of the reason therefor) shall constitute an
"Event of Default" hereunder:

                  (a)      Borrower (i) fails to make any payment of principal
of, or interest on, or Fees owing in respect of, the Loans or any of the other
Obligations when due and payable, provided, however that with respect to any
payment of interest, Fees or Obligations consisting of Letter of Credit
Obligations, such failure continues for three (3) Business Days after such
payment became due and payable or (ii) fails to pay or reimburse Agent or
Lenders for any other Obligations within ten (10) days following Agent's demand
for payment of such Obligations.

                                       37
<PAGE>

                  (b)      Any Credit Party fails or neglects to perform, keep
or observe any of the provisions of Sections 1.4, 1.8, 5.4(a) or 6, or any of
the provisions set forth in Annexes C or G, respectively.

                  (c)      Borrower fails or neglects to perform, keep or
observe any of the provisions of Section 4.1 or any provisions set forth in
Annexes E or F, respectively, and the same shall remain unremedied for three (3)
Business Days or more with respect to any provisions set forth in Annex F or for
five (5) Business Days or more with respect to any of the provisions of Section
4.1 or any provisions set forth in Annex E.

                  (d)      Any Credit Party fails or neglects to perform, keep
or observe any other provision of this Agreement or of any of the other Loan
Documents (other than any provision embodied in or covered by any other clause
of this Section 8.1) and the same shall remain unremedied for thirty (30) days
or more.

                  (e)      A default or breach occurs under any other agreement,
document or instrument to which any Credit Party is a party that is not cured
within any applicable grace period therefor, and such default or breach (i)
involves the failure to make any payment when due in respect of any Indebtedness
or Guaranteed Indebtedness (other than the Obligations) of any Credit Party in
excess of $1,000,000 in the aggregate (including (x) undrawn committed or
available amounts and (y) amounts owing to all creditors under any combined or
syndicated credit arrangements), or (ii) causes, or permits any holder of such
Indebtedness or Guaranteed Indebtedness or a trustee to cause, Indebtedness or
Guaranteed Indebtedness or a portion thereof in excess of $1,000,000 in the
aggregate to become due prior to its stated maturity or prior to its regularly
scheduled dates of payment, or cash collateral in respect thereof to be
demanded, in each case, regardless of whether such default is waived, or such
right is exercised, by such holder or trustee.

                  (f)      Any information contained in any Borrowing Base
Certificate is untrue or incorrect in any respect (other than (i) inadvertent
errors not exceeding $250,000 in the aggregate in any Borrowing Base
Certificate), (ii) errors understating the Borrowing Base and (iii) errors
occurring when Borrowing Availability continues to exceed $5,000,000 after
giving effect to the correction of such errors), or any representation or
warranty herein or in any Loan Document or in any written statement, report,
financial statement or certificate (other than a Borrowing Base Certificate)
made or delivered to Agent or any Lender by any Credit Party is untrue or
incorrect in any material respect as of the date when made or deemed made.

                  (g)      Assets of any Credit Party with a fair market value
of $1,000,000 or more are attached, seized, levied upon or subjected to a writ
or distress warrant, or come within the possession of any receiver, trustee,
custodian or assignee for the benefit of creditors of any Credit Party and such
condition continues for thirty (30) days or more.

                  (h)      A case or proceeding is commenced against any Credit
Party seeking a decree or order in respect of such Credit Party (i) under the
Bankruptcy Code, or any other applicable federal, state or foreign bankruptcy or
other similar law, (ii) appointing a custodian, receiver, liquidator, assignee,
trustee or sequestrator (or similar official) for such Credit Party or for any
substantial part of any such Credit Party's assets, or (iii) ordering the
winding-up or

                                       38
<PAGE>

liquidation of the affairs of such Credit Party, and such case or proceeding
shall remain undismissed or unstayed for sixty (60) days or more or a decree or
order granting the relief sought in such case or proceeding is granted by a
court of competent jurisdiction.

                  (i)      Any Credit Party (i) files a petition seeking relief
under the Bankruptcy Code, or any other applicable federal, state or foreign
bankruptcy or other similar law, (ii) consents to or fails to contest in a
timely and appropriate manner the institution of proceedings thereunder or the
filing of any such petition or the appointment of or taking possession by a
custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar
official) for such Credit Party or for any substantial part of any such Credit
Party's assets, (iii) makes an assignment for the benefit of creditors, (iv)
takes any action in furtherance of any of the foregoing; or (v) admits in
writing its inability to, or is generally unable to, pay its debts as such debts
become due.

                  (j)      A final judgment or judgments for the payment of
money in excess of $1,000,000 in the aggregate at any time are outstanding
against one or more of the Credit Parties (which judgments are not covered by
insurance policies as to which liability has been accepted by the insurance
carrier), and the same are not, within thirty (30) days after the entry thereof,
discharged or execution thereof stayed or bonded pending appeal, or such
judgments are not discharged prior to the expiration of any such stay.

                  (k)      Any material provision of any Loan Document for any
reason ceases to be valid, binding and enforceable in accordance with its terms
(or any Credit Party shall challenge the enforceability of any Loan Document or
shall assert in writing, or engage in any action or inaction based on any such
assertion, that any provision of any of the Loan Documents has ceased to be or
otherwise is not valid, binding and enforceable in accordance with its terms),
or any Lien created under any Loan Document ceases to be a valid and perfected
first priority Lien (except as otherwise permitted herein or therein) in any of
the Collateral purported to be covered thereby.

                  (l)      Any Change of Control occurs.

                  (m)      Any event occurs, whether or not insured or
insurable, as a result of which revenue-producing activities cease or are
substantially curtailed at facilities of Borrower generating more than twenty
percent (20%) of Holdings' EBITDA during the twelve-month period preceding such
event after giving effect to anticipated proceeds of business interruption
insurance, and such cessation or curtailment continues for more than forty-five
(45) days.

                  (n)      Any default or breach by Borrower occurs and is
continuing under any agreements between Borrower and any of its customers, and
as a result thereof it is reasonably likely that after giving effect to all such
defaults or breaches on an aggregate basis, Holdings' EBITDA during the
following twelve-month period would be reduced by more than twenty percent (20%)
from the preceding twelve-month period.

         8.2               Remedies.

                  (a)      If any Event of Default has occurred and is
continuing, Agent may (and at the written request of the Requisite Lenders
shall), without notice, suspend the Revolving Loan

                                       39
<PAGE>

facility with respect to additional Revolving Credit Advances and/or the
incurrence of additional Letter of Credit Obligations, whereupon any additional
Revolving Credit Advances and additional Letter of Credit Obligations shall be
made or incurred in Agent's sole discretion (or in the sole discretion of the
Requisite Lenders, if such suspension occurred at their direction) so long as
such Default or Event of Default is continuing. If any Event of Default has
occurred and is continuing, Agent may (and at the written request of Requisite
Lenders shall), without notice except as otherwise expressly provided herein,
increase the rate of interest applicable to the Loans and the Letter of Credit
Fees to the Default Rate.

                  (b)      If any Event of Default has occurred and is
continuing, Agent may (and at the written request of the Requisite Lenders
shall), without notice: (i) terminate the Revolving Loan facility with respect
to further Revolving Credit Advances or the incurrence of further Letter of
Credit Obligations; (ii) reduce the Revolving Loan Commitment from time to time;
(iii) declare all or any portion of the Obligations, including all or any
portion of any Loan to be forthwith due and payable, and require that the Letter
of Credit Obligations be cash collateralized in the manner set forth in Annex B,
all without presentment, demand, protest or further notice of any kind, all of
which are expressly waived by Borrower and each other Credit Party; or (iv)
exercise any rights and remedies provided to Agent under the Loan Documents or
at law or equity, including all remedies provided under the Code; provided, that
upon the occurrence of an Event of Default specified in Sections 8.1(h) or (i),
the Revolving Loan Commitment shall be immediately terminated and all of the
Obligations, including the Revolving Loan, shall become immediately due and
payable without declaration, notice or demand by any Person.

         8.3               Waivers by Credit Parties. Except as otherwise
provided for in this Agreement or by applicable law, each Credit Party waives:
(a) presentment, demand and protest and notice of presentment, dishonor, notice
of intent to accelerate, notice of acceleration, protest, default, nonpayment,
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 Agent on which any Credit Party may in
any way be liable, and hereby ratifies and confirms whatever Agent may do in
this regard, (b) all rights to notice and a hearing prior to Agent's taking
possession or control of, or to Agent's replevy, attachment or levy upon, the
Collateral or any bond or security that might be required by any court prior to
allowing Agent to exercise any of its remedies, and (c) the benefit of all
valuation, appraisal, marshaling and exemption laws.

9. ASSIGNMENT AND PARTICIPATIONS; APPOINTMENT OF AGENT

         9.1               Assignment and Participations.

                  (a)      Subject to the terms of this Section 9.1, any Lender
may make an assignment to a Qualified Assignee of, or sell participations in, at
any time or times, the Loan Documents, Loans, Letter of Credit Obligations and
any Revolving Loan Commitment or any portion thereof or interest therein,
including any Lender's rights, title, interests, remedies, powers or duties
thereunder. Any assignment by a Lender shall: (i) require the consent of Agent
(which consent shall not be unreasonably withheld or delayed with respect to a
Qualified Assignee) and

                                       40
<PAGE>

the execution of an assignment agreement (an "Assignment Agreement")
substantially in the form attached hereto as Exhibit 9.1(a) and otherwise in
form and substance reasonably satisfactory to, and acknowledged by, Agent; (ii)
be conditioned on such assignee Lender representing to the assigning Lender and
Agent that it is purchasing the applicable Loans to be assigned to it for its
own account, for investment purposes and not with a view to the distribution
thereof; (iii) after giving effect to any such partial assignment, the assignee
Lender shall have a Revolving Loan Commitment in an amount at least equal to
$10,000,000 and the assigning Lender shall have retained a Revolving Loan
Commitment in an amount at least equal to $10,000,000; (iv) include a payment to
Agent of an assignment fee of $3,500; and (v) so long as no Event of Default has
occurred and is continuing, require the consent of Borrower, which shall not be
unreasonably withheld or delayed. In the case of an assignment by a Lender under
this Section 9.1, the assignee shall have, to the extent of such assignment, the
same rights, benefits and obligations as all other Lenders hereunder. The
assigning Lender shall be relieved of its obligations hereunder with respect to
its Revolving Loan Commitment or assigned portion thereof from and after the
date of such assignment. Borrower hereby acknowledges and agrees that any
assignment shall give rise to a direct obligation of Borrower to the assignee
and that the assignee shall be considered to be a "Lender". In all instances,
each Lender's liability to make Loans hereunder shall be several and not joint
and shall be limited to such Lender's Pro Rata Share of the applicable Revolving
Loan Commitment. In the event Agent or any Lender assigns or otherwise transfers
all or any part of the Obligations, Agent or any such Lender shall so notify
Borrower and Borrower shall, upon the request of Agent or such Lender, execute
new Notes in exchange for the Notes, if any, being assigned. Notwithstanding the
foregoing provisions of this Section 9.1(a), any Lender may at any time pledge
the Obligations held by it and such Lender's rights under this Agreement and the
other Loan Documents to a Federal Reserve Bank, and any Lender that is an
investment fund may assign the Obligations held by it and such Lender's rights
under this Agreement and the other Loan Documents to another investment fund
managed by the same investment advisor; provided, that no such pledge to a
Federal Reserve Bank shall release such Lender from such Lender's obligations
hereunder or under any other Loan Document.

                  (b)      Any participation by a Lender of all or any part of
its Revolving Loan Commitment shall be made with the understanding that all
amounts payable by Borrower hereunder shall be determined as if that Lender had
not sold such participation, and that the holder of any such participation shall
not be entitled to require such Lender to take or omit to take any action
hereunder except actions directly affecting (i) any reduction in the principal
amount of, or interest rate or Fees payable with respect to, any Loan in which
such holder participates, (ii) any extension of the scheduled amortization of
the principal amount of any Loan in which such holder participates or the final
maturity date thereof, and (iii) any release of all or substantially all of the
Collateral (other than in accordance with the terms of this Agreement, the
Collateral Documents or the other Loan Documents). Solely for purposes of
Sections 1.13, 1.15, 1.16 and 9.8, Borrower acknowledges and agrees that a
participation shall give rise to a direct obligation of Borrower to the
participant and the participant shall be considered to be a "Lender". Except as
set forth in the preceding sentence no Credit Party shall have any obligation or
duty to any participant. Neither Agent nor any Lender (other than the Lender
selling a participation) shall have any duty to any participant and may continue
to deal solely with the Lender selling a participation as if no such sale had
occurred.

                                       41
<PAGE>

                  (c)      Except as expressly provided in this Section 9.1, no
Lender shall, as between Borrower and that Lender, or Agent and that Lender, be
relieved of any of its obligations hereunder as a result of any sale,
assignment, transfer or negotiation of, or granting of participation in, all or
any part of the Loans, the Notes or other Obligations owed to such Lender.

                  (d)      Each Credit Party executing this Agreement shall
assist any Lender permitted to sell assignments or participations under this
Section 9.1 as reasonably required to enable the assigning or selling Lender to
effect any such assignment or participation, including the execution and
delivery of any and all agreements, notes and other documents and instruments as
shall be requested and, if requested by Agent, the preparation of informational
materials for, and the participation of management in meetings with, potential
assignees or participants. Each Credit Party executing this Agreement shall
certify the correctness, completeness and accuracy of all descriptions of the
Credit Parties and their respective affairs contained in any selling materials
provided by it and all other information provided by it and included in such
materials, except that any Budgets delivered by Borrower shall only be certified
by Borrower as having been prepared by Borrower in compliance with the
representations contained in Section 3.4(c).

                  (e)      Any Lender may furnish any information concerning
Credit Parties in the possession of such Lender from time to time to assignees
and participants (including prospective assignees and participants); provided
that such Lender shall obtain from assignees or participants confidentiality
covenants substantially equivalent to those contained in Section 11.8.

                  (f)      So long as no Event of Default has occurred and is
continuing, no Lender shall assign or sell participations in any portion of its
Loans or Revolving Loan Commitment to a potential Lender or participant, if, as
of the date of the proposed assignment or sale, the assignee Lender or
participant would be subject to capital adequacy or similar requirements under
Section 1.16(a), increased costs under Section 1.16(b), an inability to fund
LIBOR Loans under Section 1.16(c), or withholding taxes in accordance with
Section 1.15(a).

                  (g)      Notwithstanding anything to the contrary contained
herein, any Lender (a "Granting Lender"), may grant to a special purpose funding
vehicle (an "SPC"), identified as such in writing by the Granting Lender to
Agent and Borrower, the option to provide to Borrower all or any part of any
Loans that such Granting Lender would otherwise be obligated to make to Borrower
pursuant to this Agreement; provided that (i) nothing herein shall constitute a
commitment by any SPC to make any Loan; and (ii) if an SPC elects not to
exercise such option or otherwise fails to provide all or any part of such Loan,
the Granting Lender shall be obligated to make such Loan pursuant to the terms
hereof. The making of a Loan by an SPC hereunder shall utilize the Revolving
Loan Commitment of the Granting Lender to the same extent, and as if such Loan
were made by such Granting Lender. No SPC shall be liable for any indemnity or
similar payment obligation under this Agreement (all liability for which shall
remain with the Granting Lender). Any SPC may (i) with notice to, but without
the prior written consent of, Borrower and Agent and without paying any
processing fee therefor assign all or a portion of its interests in any Loans to
the Granting Lender or to any financial institutions (consented to by Borrower
and Agent) providing liquidity and/or credit support to or for the account of
such SPC to support the funding or maintenance of Loans and (ii) disclose

                                       42
<PAGE>

on a confidential basis any non-public information relating to its Loans to any
rating agency, commercial paper dealer or provider of any surety, guarantee or
credit or liquidity enhancement to such SPC. This Section 9.1(g) may not be
amended without the prior written consent of each Granting Lender, all or any of
whose Loans are being funded by an SPC at the time of such amendment. For the
avoidance of doubt, the Granting Lender shall for all purposes, including
without limitation, the approval of any amendment or waiver of any provision of
any Loan Document or the obligation to pay any amount otherwise payable by the
Granting Lender under the Loan Documents, continue to be the Lender of record
hereunder.

         9.2               Appointment of Agent. GE Capital is hereby appointed
to act on behalf of all Lenders as Agent under this Agreement and the other Loan
Documents. The provisions of this Section 9.2 are solely for the benefit of
Agent and Lenders and no Credit Party nor any other Person shall have any rights
as a third party beneficiary of any of the provisions hereof. In performing its
functions and duties under this Agreement and the other Loan Documents, Agent
shall act solely as an agent of Lenders and does not assume and shall not be
deemed to have assumed any obligation toward or relationship of agency or trust
with or for any Credit Party or any other Person. Agent shall have no duties or
responsibilities except for those expressly set forth in this Agreement and the
other Loan Documents. The duties of Agent shall be mechanical and administrative
in nature and Agent shall not have, or be deemed to have, by reason of this
Agreement, any other Loan Document or otherwise a fiduciary relationship in
respect of any Lender. Except as expressly set forth in this Agreement and the
other Loan Documents, Agent shall not have any duty to disclose, and shall not
be liable for failure to disclose, any information relating to any Credit Party
or any of their respective Subsidiaries or any Account Debtor that is
communicated to or obtained by GE Capital or any of its Affiliates in any
capacity. Neither Agent nor any of its Affiliates nor any of their respective
officers, directors, employees, agents or representatives shall be liable to any
Lender for any action taken or omitted to be taken by it hereunder or under any
other Loan Document, or in connection herewith or therewith, except for damages
caused by its or their own gross negligence or willful misconduct.

                  If Agent shall request instructions from Requisite Lenders or
all affected Lenders with respect to any act or action (including failure to
act) in connection with this Agreement or any other Loan Document, then Agent
shall be entitled to refrain from such act or taking such action unless and
until Agent shall have received instructions from Requisite Lenders or all
affected Lenders, as the case may be, and Agent shall not incur liability to any
Person by reason of so refraining. Agent shall be fully justified in failing or
refusing to take any action hereunder or under any other Loan Document (a) if
such action would, in the opinion of Agent, be contrary to law or the terms of
this Agreement or any other Loan Document, (b) if such action would, in the
opinion of Agent, expose Agent to Environmental Liabilities or (c) if Agent
shall not first be indemnified to its satisfaction against any and all liability
and expense which may be incurred by it by reason of taking or continuing to
take any such action. Without limiting the foregoing, no Lender shall have any
right of action whatsoever against Agent as a result of Agent acting or
refraining from acting hereunder or under any other Loan Document in accordance
with the instructions of Requisite Lenders.

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<PAGE>

         9.3               Agent's Reliance, Etc. Neither Agent nor any of its
Affiliates nor any of their respective directors, officers, agents or employees
shall be liable for any action taken or omitted to be taken by it or them under
or in connection with this Agreement or the other Loan Documents, except for
damages caused by its or their own gross negligence or willful misconduct.
Without limiting the generality of the foregoing, Agent: (a) may treat the payee
of any Note as the holder thereof until Agent receives written notice of the
assignment or transfer thereof signed by such payee and in form reasonably
satisfactory to Agent; (b) may consult with legal counsel, independent public
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken by it in good faith in accordance with the
advice of such counsel, accountants or experts; (c) makes no warranty or
representation to any Lender and shall not be responsible to any Lender for any
statements, warranties or representations made in or in connection with this
Agreement or the other Loan Documents; (d) shall not have any duty to ascertain
or to inquire as to the performance or observance of any of the terms, covenants
or conditions of this Agreement or the other Loan Documents on the part of any
Credit Party or to inspect the Collateral (including the books and records) of
any Credit Party; (e) shall not be responsible to any Lender for the due
execution, legality, validity, enforceability, genuineness, sufficiency or value
of this Agreement or the other Loan Documents or any other instrument or
document furnished pursuant hereto or thereto; and (f) shall incur no liability
under or in respect of this Agreement or the other Loan Documents by acting upon
any notice, consent, certificate or other instrument or writing (which may be by
telecopy, telegram, cable or telex) believed by it to be genuine and signed or
sent by the proper party or parties.

         9.4               GE Capital and Affiliates. With respect to its
Revolving Loan Commitment hereunder, GE Capital shall have the same rights and
powers under this Agreement and the other Loan Documents as any other Lender and
may exercise the same as though it were not Agent; and the term "Lender" or
"Lenders" shall, unless otherwise expressly indicated, include GE Capital in its
individual capacity. GE Capital and its Affiliates may lend money to, invest in,
and generally engage in any kind of business with, any Credit Party, any of
their Affiliates and any Person who may do business with or own securities of
any Credit Party or any such Affiliate, all as if GE Capital were not Agent and
without any duty to account therefor to Lenders. GE Capital and its Affiliates
may accept fees and other consideration from any Credit Party for services in
connection with this Agreement or otherwise without having to account for the
same to Lenders. Each Lender acknowledges the potential conflict of interest
between GE Capital as a Lender holding disproportionate interests in the Loans
and GE Capital as Agent.

         9.5               Lender Credit Decision. Each Lender acknowledges that
it has, independently and without reliance upon Agent or any other Lender and
based on the Financial Statements referred to in Section 3.4(a) and such other
documents and information as it has deemed appropriate, made its own credit and
financial analysis of the Credit Parties and its own decision to enter into this
Agreement. Each Lender also acknowledges that it will, independently and without
reliance upon Agent or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement. Each
Lender acknowledges the potential conflict of interest of each other Lender as a
result of Lenders holding disproportionate interests in the Loans, and expressly
consents to, and waives any claim based upon, such conflict of interest.

                                       44
<PAGE>

         9.6               Indemnification. Lenders agree to indemnify Agent (to
the extent not reimbursed by Credit Parties and without limiting the obligations
of Credit Parties hereunder), ratably according to their respective Pro Rata
Shares, from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever that may be imposed on, incurred by, or asserted
against Agent in any way relating to or arising out of this Agreement or any
other Loan Document or any action taken or omitted to be taken by Agent in
connection therewith; provided, that no Lender shall be liable for any portion
of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from Agent's gross
negligence or willful misconduct. Without limiting the foregoing, each Lender
agrees to reimburse Agent promptly upon demand for its ratable share of any
out-of-pocket expenses (including reasonable counsel fees) incurred by Agent in
connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement and each other Loan Document, to the
extent that Agent is not reimbursed for such expenses by Credit Parties.

         9.7               Successor Agent. Agent may resign at any time by
giving not less than thirty (30) days' prior written notice thereof to Lenders
and Borrower. Upon any such resignation, the Requisite Lenders shall have the
right to appoint a successor Agent. If no successor Agent shall have been so
appointed by the Requisite Lenders and shall have accepted such appointment
within thirty (30) days after the resigning Agent's giving notice of
resignation, then the resigning Agent may, on behalf of Lenders, appoint a
successor Agent, which shall be a Lender, if a Lender is willing to accept such
appointment, or otherwise shall be a commercial bank or financial institution or
a subsidiary of a commercial bank or financial institution if such commercial
bank or financial institution is organized under the laws of the United States
of America or of any State thereof and has a combined capital and surplus of at
least $300,000,000. If no successor Agent has been appointed pursuant to the
foregoing, within thirty (30) days after the date such notice of resignation was
given by the resigning Agent, such resignation shall become effective and the
Requisite Lenders shall thereafter perform all the duties of Agent hereunder
until such time, if any, as the Requisite Lenders appoint a successor Agent as
provided above. Any successor Agent appointed by Requisite Lenders hereunder
shall be subject to the approval of Borrower, such approval not to be
unreasonably withheld or delayed; provided that such approval shall not be
required if a Default or an Event of Default has occurred and is continuing.
Upon the acceptance of any appointment as Agent hereunder by a successor Agent,
such successor Agent shall succeed to and become vested with all the rights,
powers, privileges and duties of the resigning Agent. Upon the earlier of the
acceptance of any appointment as Agent hereunder by a successor Agent or the
effective date of the resigning Agent's resignation, the resigning Agent shall
be discharged from its duties and obligations under this Agreement and the other
Loan Documents, except that any indemnity rights or other rights in favor of
such resigning Agent shall continue. After any resigning Agent's resignation
hereunder, the provisions of this Section 9 shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was acting as Agent under
this Agreement and the other Loan Documents.

         9.8               Setoff and Sharing of Payments. In addition to any
rights now or hereafter granted under applicable law and not by way of
limitation of any such rights, upon the occurrence and during the continuance of
any Event of Default and subject to Section 9.9(f),

                                       45
<PAGE>

each Lender is hereby authorized at any time or from time to time, without prior
notice to any Credit Party or to any Person other than Agent, any such notice
being hereby expressly waived, to offset and to appropriate and to apply any and
all balances held by it at any of its offices for the account of Borrower or any
Guarantor (regardless of whether such balances are then due to Borrower or such
Guarantor) and any other properties or assets at any time held or owing by that
Lender or that holder to or for the credit or for the account of Borrower or
such Guarantor against and on account of any of the Obligations that are not
paid when due; provided that the Lender exercising such offset rights shall give
notice thereof to the affected Credit Party promptly after exercising such
rights. Any Lender exercising a right of setoff or otherwise receiving any
payment on account of the Obligations in excess of its Pro Rata Share thereof
shall purchase for cash (and the other Lenders or holders shall sell) such
participations in each such other Lender's or holder's Pro Rata Share of the
Obligations as would be necessary to cause such Lender to share the amount so
offset or otherwise received with each other Lender or holder in accordance with
their respective Pro Rata Shares (other than offset rights exercised by any
Lender with respect to Sections 1.13, 1.15 or 1.16). Each Credit Party that is a
Borrower or Guarantor agrees, to the fullest extent permitted by law, that (a)
any Lender may exercise its right to offset with respect to amounts in excess of
its Pro Rata Share of the Obligations and may sell participations in such
amounts so offset to other Lenders and holders and (b) any Lender so purchasing
a participation in the Loans made or other Obligations held by other Lenders or
holders may exercise all rights of offset, bankers' lien, counterclaim or
similar rights with respect to such participation as fully as if such Lender or
holder were a direct holder of the Loans and the other Obligations in the amount
of such participation. Notwithstanding the foregoing, if all or any portion of
the offset amount or payment otherwise received is thereafter recovered from the
Lender that has exercised the right of offset, the purchase of participations by
that Lender shall be rescinded and the purchase price restored without interest.

         9.9               Advances; Payments; Non-Funding Lenders; Information;
Actions in Concert.

                  (a)      Advances; Payments.

                           (i)      Each Lender shall make the amount of such
Lender's Pro Rata Share of each Revolving Credit Advance available to Agent in
same day funds by wire transfer to Agent's account as set forth in Annex H not
later than 3:00 p.m. (New York time) on the requested funding date, in the case
of an Index Rate Loan, and not later than 11:00 a.m. (New York time) on the
requested funding date, in the case of a LIBOR Loan. After receipt of such wire
transfers (or, in the Agent's sole discretion, before receipt of such wire
transfers), subject to the terms hereof, Agent shall make the requested
Revolving Credit Advance to Borrower in the Notice of Revolving Credit Advance.
All payments by each Lender shall be made without setoff, counterclaim or
deduction of any kind.

                           (ii)     Not less than once during each calendar week
or more frequently at Agent's election (each, a "Settlement Date"), Agent shall
advise each Lender by telephone, or telecopy of the amount of such Lender's Pro
Rata Share of principal, interest and Fees paid for the benefit of Lenders with
respect to each applicable Loan. Provided that each Lender has funded all
payments or Revolving Credit Advances required to be made by it and has
purchased all participations required to be purchased by it under this Agreement
and the other Loan

                                       46
<PAGE>

Documents as of such Settlement Date, Agent shall pay to each Lender such
Lender's Pro Rata Share of principal, interest and Fees paid by Borrower since
the previous Settlement Date for the benefit of such Lender on the Loans held by
it. To the extent that any Lender (a "Non-Funding Lender") has failed to fund
all such payments and Revolving Credit Advances or failed to fund the purchase
of all such participations, Agent shall be entitled to set off the funding
short-fall against that Non-Funding Lender's Pro Rata Share of all payments
received from Borrower. Such payments shall be made by wire transfer to such
Lender's account (as specified by such Lender in Annex H or the applicable
Assignment Agreement) not later than 2:00 p.m. (New York time) on the next
Business Day following each Settlement Date.

                  (b)      Availability of Lender's Pro Rata Share. Agent may
assume that each Lender will make its Pro Rata Share of each Revolving Credit
Advance available to Agent on each funding date. If such Pro Rata Share is not,
in fact, paid to Agent by such Lender when due, Agent will be entitled to
recover such amount on demand from such Lender without setoff, counterclaim or
deduction of any kind. If any Lender fails to pay the amount of its Pro Rata
Share forthwith upon Agent's demand, Agent shall promptly notify Borrower and
Borrower shall immediately repay such amount to Agent. Nothing in this Section
9.9(b) or elsewhere in this Agreement or the other Loan Documents shall be
deemed to require Agent to advance funds on behalf of any Lender or to relieve
any Lender from its obligation to fulfill its Revolving Loan Commitment
hereunder or to prejudice any rights that Borrower may have against any Lender
as a result of any default by such Lender hereunder. To the extent that Agent
advances funds to Borrower on behalf of any Lender and is not reimbursed
therefor on the same Business Day as such Revolving Credit Advance is made,
Agent shall be entitled to retain for its account all interest accrued on such
Revolving Credit Advance until reimbursed by the applicable Lender.

                  (c)      Return of Payments.

                           (i)      If Agent pays an amount to a Lender under
this Agreement in the belief or expectation that a related payment has been or
will be received by Agent from Borrower and such related payment is not received
by Agent, then Agent will be entitled to recover such amount from such Lender on
demand without setoff, counterclaim or deduction of any kind.

                           (ii)     If Agent determines at any time that any
amount received by Agent under this Agreement must be returned to Borrower or
paid to any other Person pursuant to any insolvency law or otherwise, then,
notwithstanding any other term or condition of this Agreement or any other Loan
Document, Agent will not be required to distribute any portion thereof to any
Lender. In addition, each Lender will repay to Agent on demand any portion of
such amount that Agent has distributed to such Lender, together with interest at
such rate, if any, as Agent is required to pay to Borrower or such other Person,
without setoff, counterclaim or deduction of any kind.

                  (d)      Non-Funding Lenders. The failure of any Non-Funding
Lender to make any Revolving Credit Advance or any payment required by it
hereunder to be made or purchased by it on the date specified therefor shall not
relieve any other Lender (each such other Lender, an "Other Lender") of its
obligations to make such Revolving Credit Advance or purchase such participation
on such date, but neither any Other Lender nor Agent shall be responsible for
the failure of any Non-Funding Lender to make an Revolving Credit Advance,
purchase a

                                       47
<PAGE>

participation or make any other payment required hereunder. Notwithstanding
anything set forth herein to the contrary, a Non-Funding Lender shall not have
any voting or consent rights under or with respect to any Loan Document or
constitute a "Lender" (or be included in the calculation of "Requisite Lenders"
hereunder) for any voting or consent rights under or with respect to any Loan
Document. At Borrower's request, Agent or a Person reasonably acceptable to
Agent shall have the right with Agent's consent and in Agent's sole discretion
(but shall have no obligation) to purchase from any Non-Funding Lender, and each
Non-Funding Lender agrees that it shall, at Agent's request, sell and assign to
Agent or such Person, all of the Revolving Loan Commitment of that Non-Funding
Lender for an amount equal to the principal balance of all Loans held by such
Non-Funding Lender and all accrued interest and fees with respect thereto
through the date of sale, such purchase and sale to be consummated pursuant to
an executed Assignment Agreement.

                  (e)      Dissemination of Information. Agent shall use
reasonable efforts to provide Lenders with any notice of Default or Event of
Default received by Agent from, or delivered by Agent to, any Credit Party, with
notice of any Event of Default of which Agent has actually become aware and with
notice of any action taken by Agent following any Event of Default; provided,
that Agent shall not be liable to any Lender for any failure to do so, except to
the extent that such failure is attributable to Agent's gross negligence or
willful misconduct. Lenders acknowledge that Borrower is required to provide
Financial Statements and Collateral Reports to Lenders in accordance with
Annexes E and F hereto and agree that Agent shall have no duty to provide the
same to Lenders.

                  (f)      Actions in Concert. Anything in this Agreement to the
contrary notwithstanding, each Lender hereby agrees with each other Lender that
no Lender shall take any action to protect or enforce its rights arising out of
this Agreement or the Notes (including exercising any rights of setoff) without
first obtaining the prior written consent of Agent and Requisite Lenders, it
being the intent of Lenders that any such action to protect or enforce rights
under this Agreement and the Notes shall be taken in concert and at the
direction or with the consent of Agent or Requisite Lenders.

10. SUCCESSORS AND ASSIGNS

         10.1              Successors and Assigns. This Agreement and the other
Loan Documents shall be binding on and shall inure to the benefit of each Credit
Party, Agent, Lenders and their respective successors and assigns (including, in
the case of any Credit Party, a debtor-in-possession on behalf of such Credit
Party), except as otherwise provided herein or therein. No Credit Party may
assign, transfer, hypothecate or otherwise convey its rights, benefits,
obligations or duties hereunder or under any of the other Loan Documents without
the prior express written consent of Agent and Lenders. Any such purported
assignment, transfer, hypothecation or other conveyance by any Credit Party
without the prior express written consent of Agent and Lenders shall be void.
The terms and provisions of this Agreement are for the purpose of defining the
relative rights and obligations of each Credit Party, Agent and Lenders with
respect to the transactions contemplated hereby and no Person shall be a third
party

                                       48
<PAGE>

beneficiary of any of the terms and provisions of this Agreement or any of
the other Loan Documents.

11. MISCELLANEOUS

         11.1              Complete Agreement; Modification of Agreement. The
Loan Documents constitute the complete agreement between the parties with
respect to the subject matter thereof and may not be modified, altered or
amended except as set forth in Section 11.2. Any letter of interest, commitment
letter, fee letter or confidentiality agreement, if any, between any Credit
Party and Agent or any Lender or any of their respective Affiliates, predating
this Agreement and relating to a financing of substantially similar form,
purpose or effect shall be superseded by this Agreement. Notwithstanding the
foregoing, the GE Capital Fee Letter shall survive the execution and delivery of
this Agreement and shall continue to be binding obligations of the parties.

         11.2              Amendments and Waivers.

                  (a)      Except for actions expressly permitted to be taken by
Agent, no amendment, modification, termination or waiver of any provision of
this Agreement or any other Loan Document, or any consent to any departure by
any Credit Party therefrom, shall in any event be effective unless the same
shall be in writing and signed by Agent and the applicable Credit Party, and by
Requisite Lenders or all affected Lenders, as applicable. Except as set forth in
clauses (b) and (c) below, all such amendments, modifications, terminations or
waivers requiring the consent of any Lenders shall require the written consent
of Requisite Lenders.

                  (b)      No amendment, modification, termination or waiver of
or consent with respect to any provision of this Agreement that increases the
percentage advance rates set forth in the definition of the Borrowing Base, or
that makes less restrictive the nondiscretionary criteria for exclusion from
Eligible Inventory set forth in Sections 1.6 and 1.7, shall be effective unless
the same shall be in writing and signed by Agent, Requisite Lenders and
Borrower. No amendment, modification, termination or waiver of or consent with
respect to any provision of this Agreement that waives compliance with the
conditions precedent set forth in Section 2.2 to the making of any Loan or the
incurrence of any Letter of Credit Obligations shall be effective unless the
same shall be in writing and signed by Agent, Requisite Lenders and Borrower.
Notwithstanding anything contained in this Agreement to the contrary, no waiver
or consent with respect to any Default or any Event of Default shall be
effective for purposes of the conditions precedent to the making of Loans or the
incurrence of Letter of Credit Obligations set forth in Section 2.2 unless the
same shall be in writing and signed by Agent, Requisite Lenders and Borrower.

                  (c)      No amendment, modification, termination or waiver
shall, unless in writing and signed by Agent and each Lender directly affected
thereby: (i) increase the principal amount of any Lender's Revolving Loan
Commitment; (ii) reduce the principal of, rate of interest on or Fees payable
with respect to any Loan or Letter of Credit Obligations of any affected Lender;
(iii) extend any scheduled payment date (other than payment dates of mandatory
prepayments under Section 1.3(b)(ii)) or final maturity date of the principal
amount

                                       49
<PAGE>

of any Loan of any affected Lender; (iv) waive, forgive, defer, extend or
postpone any payment of interest or Fees as to any affected Lender; (v) release
any Guaranty or, except as otherwise permitted herein or in the other Loan
Documents, release, or permit any Credit Party to sell or otherwise dispose of,
any Collateral other than as provided in Section 6.8 and any additional
Collateral with a book value exceeding $10,000,000 with respect to any
individual transaction and $20,000,000 in the aggregate on a combined basis
(which action shall be deemed to directly affect all Lenders); (vi) change the
percentage of the Revolving Loan Commitment or of the aggregate unpaid principal
amount of the Loans that shall be required for Lenders or any of them to take
any action hereunder; and (vii) amend or waive this Section 11.2 or the
definitions of the term "Requisite Lenders", insofar as such definition affects
the substance of this Section 11.2. Furthermore, no amendment, modification,
termination or waiver affecting the rights or duties of Agent or L/C Issuer
under this Agreement or any other Loan Document shall be effective unless in
writing and signed by Agent or L/C Issuer, as the case may be, in addition to
Lenders required hereinabove to take such action. Each amendment, modification,
termination or waiver shall be effective only in the specific instance and for
the specific purpose for which it was given. No amendment, modification,
termination or waiver shall be required for Agent to take additional Collateral
pursuant to any Loan Document. No amendment, modification, termination or waiver
of any provision of any Note shall be effective without the written concurrence
of the holder of that Note. No notice to or demand on any Credit Party in any
case shall entitle such Credit Party or any other Credit Party to any other or
further notice or demand in similar or other circumstances. Any amendment,
modification, termination, waiver or consent effected in accordance with this
Section 11.2 shall be binding upon each holder of the Notes at the time
outstanding and each future holder of the Notes. Agent shall be authorized to
execute and deliver all appropriate documents to effect the release of Liens on
Collateral as provided in clause (v) of the first sentence of this Section
11.2(c) without further action on the part of any Lender.

                  (d)      If, in connection with any proposed amendment,
modification, waiver or termination (a "Proposed Change"):

                           (i)      requiring the consent of all affected
Lenders, the consent of Requisite Lenders is obtained, but the consent of other
Lenders whose consent is required is not obtained (any such Lender whose consent
is not obtained as described in this clause (i) and in clause (ii) below being
referred to as a "Non-Consenting Lender"); or

                           (ii)     requiring the consent of Requisite Lenders,
the consent of Lenders holding 51% or more of the aggregate Revolving Loan
Commitment is obtained, but the consent of Requisite Lenders is not obtained,

then, so long as Agent is not a Non-Consenting Lender, at Borrower's request,
Agent or a Person reasonably acceptable to Agent shall have the right with
Agent's consent and in Agent's sole discretion (but shall have no obligation) to
purchase from such Non-Consenting Lenders, and such Non-Consenting Lenders agree
that they shall, upon Agent's request, sell and assign to Agent or such Person,
all of the Revolving Loan Commitment of such Non-Consenting Lenders for an
amount equal to the principal balance of all Loans held by the Non-Consenting
Lenders and all accrued interest and Fees with respect thereto through the date
of sale, such purchase and sale to be consummated pursuant to an executed
Assignment Agreement.

                                       50
<PAGE>

                  (e)      Upon payment in full in cash and performance of all
of the Obligations (other than indemnification Obligations), termination of the
Revolving Loan Commitment and a release of all claims against Agent and Lenders,
and so long as no suits, actions, proceedings or claims are pending or
threatened against any Indemnified Person asserting any damages, losses or
liabilities that are Indemnified Liabilities, Agent shall deliver to Borrower
termination statements, mortgage releases and other documents necessary or
appropriate to evidence the termination of the Liens securing payment of the
Obligations.

         11.3              Fees and Expenses. Borrower shall reimburse (i) Agent
for all fees, costs and expenses (including the reasonable fees and expenses of
all of its counsel, advisors, consultants and auditors subject to the
limitations set forth below); and (ii) Agent (and, with respect to clauses (c)
and (d) below, all Lenders) for all fees, costs and expenses, including the
reasonable fees, costs and expenses of counsel or (subject to the limitations
set forth below) other advisors (including management consultants and
appraisers), incurred in connection with the negotiation, preparation and filing
and/or recordation of the Loan Documents and incurred in connection with:

                  (a)      any amendment, modification or waiver of, consent
with respect to, or termination of, any of the Loan Documents or Related
Transactions Documents or advice in connection with the syndication and
administration of the Loans made pursuant hereto or its rights hereunder or
thereunder;

                  (b)      any litigation, contest, dispute, suit, proceeding or
action (whether instituted by Agent, any Lender, any Credit Party or any other
Person and whether as a party, witness or otherwise) in any way relating to the
Collateral, any of the Loan Documents or any other agreement to be executed or
delivered in connection herewith or therewith, including any litigation,
contest, dispute, suit, case, proceeding or action, and any appeal or review
thereof, in connection with a case commenced by or against any or all of the
Credit Parties or any other Person that may be obligated to Agent by virtue of
the Loan Documents; including any such litigation, contest, dispute, suit,
proceeding or action arising in connection with any work-out or restructuring of
the Loans during the pendency of one or more Events of Default; provided that in
the case of reimbursement of counsel for Lenders other than Agent, such
reimbursement shall be limited to one counsel for Agent and all Lenders;
provided, further, that no Person shall be entitled to reimbursement under this
clause (b) in respect of any litigation, contest, dispute, suit, proceeding or
action to the extent any of the foregoing results from such Person's gross
negligence or willful misconduct;

                  (c)      any attempt to enforce any remedies of Agent against
any or all of the Credit Parties or any other Person that may be obligated to
Agent or any Lender by virtue of any of the Loan Documents, including any such
attempt to enforce any such remedies in the course of any work-out or
restructuring of the Loans during the pendency of one or more Events of Default;
provided, that in the case of reimbursement of counsel for Lenders other than
Agent, such reimbursement shall be limited to one counsel for all such Lenders;

                  (d)      any workout or restructuring of the Loans during the
pendency of one or more Events of Default; and

                                       51
<PAGE>

                  (e)      efforts to (i) monitor the Loans or any of the other
Obligations, (ii) evaluate, observe or assess any of the Credit Parties or their
respective affairs, and (iii) verify, protect, evaluate, assess, appraise,
collect, sell, liquidate or otherwise dispose of any of the Collateral;

including, as to each of clauses (a) through (e) above (subject to the
limitations set forth below), all reasonable attorneys', other professional and
service providers', fees, arising, in each case, from such services and other
advice, assistance or other representation, including those in connection with
any appellate proceedings, and all expenses, costs, charges and other fees
incurred by such counsel and others in connection with or relating to any of the
events or actions described in this Section 11.3, all of which shall be payable,
on demand, by Borrower to Agent. Without limiting the generality of the
foregoing, such expenses, costs, charges and fees may include: fees, costs and
expenses of, paralegals, accountants, appraisers, investment bankers, management
and other consultants; court costs and expenses; photocopying and duplication
expenses; court reporter fees, costs and expenses; long distance telephone
charges; air express charges; telecopy charges; secretarial overtime charges;
and expenses for travel, lodging and food paid or incurred in connection with
the performance of such legal or other advisory services. Notwithstanding
anything to the contrary contained in this Section 11.3, in connection with any
pre-bankruptcy review undertaken at a time when no Event of Default has occurred
or is continuing, Borrower's maximum liability for fees of consultants, auditors
and counsel shall not exceed $50,000, and Borrower shall not otherwise be liable
for fees or expenses of consultants or auditors (other than field auditors in
accordance with Section 1.14) when no Event of Default has occurred or is
continuing; provided, however, that prior to engaging any third parties in
connection which any such pre-bankruptcy review undertaken when no Default or
Event of Default has occurred or is continuing, Agent shall provide Borrower
with reasonable prior notice of such proposed engagement and an opportunity to
consult with Agent about such proposed engagement.

         11.4              No Waiver. Agent's or any Lender's failure, at any
time or times, to require strict performance by the Credit Parties of any
provision of this Agreement or any other Loan Document shall not waive, affect
or diminish any right of Agent or such Lender thereafter to demand strict
compliance and performance herewith or therewith. Any suspension or waiver of an
Event of Default shall not suspend, waive or affect any other Event of Default
whether the same is prior or subsequent thereto and whether the same or of a
different type. Subject to the provisions of Section 11.2, none of the
undertakings, agreements, warranties, covenants and representations of any
Credit Party contained in this Agreement or any of the other Loan Documents and
no Default or Event of Default by any Credit Party shall be deemed to have been
suspended or waived by Agent or any Lender, unless such waiver or suspension is
by an instrument in writing signed by an officer of or other authorized employee
of Agent and the applicable required Lenders, and directed to Borrower
specifying such suspension or waiver.

         11.5              Remedies. Agent's and Lenders' rights and remedies
under this Agreement shall be cumulative and nonexclusive of any other rights
and remedies that Agent or any Lender may have under any other agreement,
including the other Loan Documents, by operation of law or otherwise. Recourse
to the Collateral shall not be required.

                                       52
<PAGE>

         11.6              Severability. Wherever possible, each provision of
this Agreement and the other Loan Documents shall be interpreted in such a
manner as to be effective and valid under applicable law, but if any provision
of this Agreement or any other Loan Document 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 or such other Loan
Document.

         11.7              Conflict of Terms. Except as otherwise provided in
this Agreement or any of the other Loan Documents by specific reference to the
applicable provisions of this Agreement, if any provision contained in this
Agreement conflicts with any provision in any of the other Loan Documents, the
provision contained in this Agreement shall govern and control.

         11.8              Confidentiality. Agent and each Lender agree to use
commercially reasonable efforts (equivalent to the efforts Agent or such Lender
applies to maintaining the confidentiality of its own confidential information)
to maintain as confidential all confidential information provided to them by the
Credit Parties and designated as confidential for a period of two (2) years
following receipt thereof, except that Agent and any Lender may disclose such
information (a) to Persons employed or engaged by Agent or such Lender in
respect of the transactions evidenced by the Loan Documents; (b) to any bona
fide assignee or participant or potential assignee or participant that has
agreed to comply with the covenant contained in this Section 11.8 (and any such
bona fide assignee or participant or potential assignee or participant may
disclose such information to Persons employed or engaged by them as described in
clause (a) above); (c) as required or requested by any Governmental Authority or
reasonably believed by Agent or such Lender to be compelled by any court decree,
subpoena or legal or administrative order or process; (d) as, on the advice of
Agent's or such Lender's counsel, is required by law; (e) in connection with the
exercise of any right or remedy under the Loan Documents or in connection with
any Litigation to which Agent or such Lender is a party; or (f) that ceases to
be confidential through no fault of Agent or any Lender. Notwithstanding
anything to the contrary set forth herein or in any other Loan Document, the
obligations of confidentiality contained herein and therein, shall not apply to
the federal tax structure or federal tax treatment of the transaction evidenced
by the Loan Documents, and each party hereto (and any employee, representative,
or agent of any party hereto) may disclose to any and all persons, without
limitation of any kind, the federal tax structure and federal tax treatment of
such transactions. The preceding sentence is intended to cause such transactions
to be treated as not having been offered under the conditions of confidentiality
for purposes of Section 1.6011-4(b)(3) (or any successor provision) of the
Treasury Regulations promulgated under Section 6011 of the Internal Revenue Code
of 1986, as amended, and shall be construed in a manner consistent with such
purpose. In addition, each party hereto acknowledges that it has no proprietary
or exclusive rights to the federal tax structure of such transactions or any
federal tax matter or federal tax idea related to such transactions.

         11.9              GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED
IN ANY OF THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, THE LOAN DOCUMENTS AND THE OBLIGATIONS
SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH,

                                       53
<PAGE>

THE INTERNAL LAWS OF THE STATE OF GEORGIA APPLICABLE TO CONTRACTS MADE AND
PERFORMED IN THAT STATE AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.
EACH CREDIT PARTY HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS
LOCATED IN CITY OF ATLANTA, COUNTY OF FULTON SHALL HAVE EXCLUSIVE JURISDICTION
TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE CREDIT PARTIES, AGENT
AND LENDERS PERTAINING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR
TO ANY MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER
LOAN DOCUMENTS; PROVIDED, THAT AGENT, LENDERS AND THE CREDIT PARTIES ACKNOWLEDGE
THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED
OUTSIDE OF FULTON COUNTY; PROVIDED FURTHER, THAT NOTHING IN THIS AGREEMENT SHALL
BE DEEMED OR OPERATE TO PRECLUDE AGENT FROM BRINGING SUIT OR TAKING OTHER LEGAL
ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE COLLATERAL OR ANY OTHER
SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN
FAVOR OF AGENT. EACH CREDIT PARTY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO
SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH
CREDIT PARTY HEREBY WAIVES ANY OBJECTION THAT SUCH CREDIT PARTY MAY HAVE BASED
UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND
HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY SUCH COURT. EACH CREDIT PARTY 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, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY
REGISTERED OR CERTIFIED MAIL ADDRESSED TO SUCH CREDIT PARTY AT THE ADDRESS SET
FORTH IN ANNEX I OF THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED
COMPLETED UPON THE EARLIER OF SUCH CREDIT PARTY'S ACTUAL RECEIPT THEREOF OR
THREE (3) DAYS AFTER DEPOSIT IN THE UNITED STATES MAILS, PROPER POSTAGE PREPAID.

         11.10             Notices. Except as otherwise provided herein,
whenever it is provided herein that any notice, demand, request, consent,
approval, declaration or other communication shall or may be given to or served
upon any of the parties by any other parties, or whenever any of the parties
desires to give or serve upon any other parties any communication with respect
to this Agreement, each such notice, demand, request, consent, approval,
declaration or other communication shall be in writing and shall be deemed to
have been validly served, given or delivered: (a) upon the earlier of actual
receipt and three (3) Business Days after deposit in the United States Mail,
registered or certified mail, return receipt requested, with proper postage
prepaid; (b) upon transmission, when sent by telecopy or other similar facsimile
transmission (with such telecopy or facsimile promptly confirmed by delivery of
a copy by personal delivery or United States Mail as otherwise provided in this
Section 11.10); (c) one (1) Business Day after deposit with a reputable
overnight courier with all charges prepaid or (d) when delivered, if
hand-delivered by messenger, all of which shall be addressed to the party to

                                       54
<PAGE>

be notified and sent to the address or facsimile number indicated in Annex I or
to such other address (or facsimile number) as may be substituted by notice
given as herein provided. The giving of any notice required hereunder may be
waived in writing by the party entitled to receive such notice. Failure or delay
in delivering copies of any notice, demand, request, consent, approval,
declaration or other communication to any Person (other than Borrower or Agent)
designated in Annex I to receive copies shall in no way adversely affect the
effectiveness of such notice, demand, request, consent, approval, declaration or
other communication.

         11.11             Section Titles. The Section titles and Table of
Contents contained in this Agreement are and shall be without substantive
meaning or content of any kind whatsoever and are not a part of the agreement
between the parties hereto.

         11.12             Counterparts. This Agreement may be executed in any
number of separate counterparts, each of which shall collectively and separately
constitute one agreement.

         11.13             WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN
CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY
RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE
STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES
DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS.
THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL
SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY
IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER
SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG AGENT, LENDERS AND ANY CREDIT
PARTY ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF
THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS RELATED THERETO.

         11.14             Press Releases and Related Matters. Each Credit Party
executing this Agreement agrees that neither it nor its Affiliates will in the
future issue any press releases or other public disclosure using the name of GE
Capital or its affiliates or referring to this Agreement, the other Loan
Documents or the Related Transactions Documents without at least two (2)
Business Days' prior notice to GE Capital and without the prior written consent
of GE Capital unless (and only to the extent that) such Credit Party or
Affiliate is required to do so under law and then, in any event, such Credit
Party or Affiliate will consult with GE Capital before issuing such press
release or other public disclosure. Each Credit Party consents to the
publication by Agent or any Lender of advertising material relating to the
financing transactions contemplated by this Agreement using Borrower's name,
product photographs, logo or trademark, provided that Borrower shall have given
its prior written approval of such publication. Agent reserves the right to
provide to industry trade organizations information necessary and customary for
inclusion in league table measurements.

         11.15             Reinstatement. This Agreement shall remain in full
force and effect and continue to be effective should any petition be filed by or
against any Credit Party for

                                       55
<PAGE>

liquidation or reorganization, should any Credit Party become insolvent or make
an assignment for the benefit of any creditor or creditors or should a receiver
or trustee be appointed for all or any significant part of any Credit Party's
assets, and shall continue to be effective or to be reinstated, as the case may
be, if at any time payment and performance of the Obligations, or any part
thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must
otherwise be restored or returned by any obligee of the Obligations, whether as
a "voidable preference," "fraudulent conveyance," or otherwise, all as though
such payment or performance had not been made. In the event that any payment, or
any part thereof, is rescinded, reduced, restored or returned, the Obligations
shall be reinstated and deemed reduced only by such amount paid and not so
rescinded, reduced, restored or returned.

         11.16             Advice of Counsel. Each of the parties represents to
each other party hereto that it has discussed this Agreement and, specifically,
the provisions of Sections 11.9 and 11.13, with its counsel.

         11.17             No Strict Construction. The parties hereto have
participated jointly in the negotiation and drafting of this Agreement. In the
event an ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the parties hereto and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any provisions of this Agreement.

                  IN WITNESS WHEREOF, this Agreement has been duly executed as
of the date first written above.

                           AVONDALE MILLS, INC., as Borrower and as a
                           Credit Party

                           By:__________________________________________________
                           Name:________________________________________________
                           Title:_______________________________________________

                           AVONDALE MILLS GRANITEVILLE
                           FABRICS, INC., as a Credit Party

                           By:__________________________________________________
                           Name:________________________________________________
                           Title:_______________________________________________

                                       56
<PAGE>

                           GENERAL ELECTRIC CAPITAL
                           CORPORATION,
                           as Agent and Lender

                           _____________________________________________________

                           By:__________________________________________________
                              Duly Authorized Signatory

                                       57
<PAGE>

                               ANNEX A (RECITALS)
                                       TO
                                CREDIT AGREEMENT

                                   DEFINITIONS

                  Capitalized terms used in the Loan Documents shall have
(unless otherwise provided elsewhere in the Loan Documents) the following
respective meanings, and all references to Sections, Exhibits, Schedules or
Annexes in the following definitions shall refer to Sections, Exhibits,
Schedules or Annexes of or to the Agreement:

                  "AMGF" means Avondale Mills Graniteville Fabrics, Inc., a
Delaware corporation.

                  "Accounting Changes" has the meaning ascribed thereto in Annex
G.

                  "Accounts" means all "accounts," as such term is defined in
the Code, now owned or hereafter acquired by any Credit Party, including (a) all
accounts receivable, other receivables, book debts and other forms of
obligations (other than forms of obligations evidenced by Chattel Paper, or
Instruments), (including any such obligations that may be characterized as an
account or contract right under the Code), in each case arising from the sale or
other disposition of any Inventory, (b) all of each Credit Party's rights in, to
and under all purchase orders or receipts for goods or services, in each case
arising from the sale or other disposition of any Inventory, (c) all of each
Credit Party's rights to any goods represented by any of the foregoing
(including unpaid sellers' rights of rescission, replevin, reclamation and
stoppage in transit and rights to returned, reclaimed or repossessed goods), (d)
all rights to payment due to any Credit Party for any Collateral sold, leased,
licensed, assigned or otherwise disposed of, for a policy of insurance issued or
to be issued with respect to any Collateral, or for services rendered or to be
rendered by such Credit Party in connection with any Collateral (whether or not
yet earned by performance on the part of such Credit Party), and (e) all
collateral security of any kind, given by any account debtor or any other Person
with respect to any of the foregoing.

                  "Activation Event" means, at any date, that Excess
Availability is less than $20,000,000 at such date and the average Excess
Availability during the four week period immediately preceding such date is
$20,000,000 or less, with such Activation Event being deemed to exist thereafter
until such time, if any, as a Deactivation Event shall occur.

                  "Activation Notice" means a written notice given by Agent to
any of the Persons at which the Covered Accounts are maintained, notifying such
Persons to comply thereafter with all instructions from Agent as to the
disposition of all funds in such Covered Accounts, which notice may be given by
Agent at any time during which an Activation Event exists or an Event of Default
has occurred and is continuing.

                  "Affiliate" means, with respect to any Person, (a) each Person
that, directly or indirectly, owns or controls, whether beneficially, or as a
trustee, guardian or other fiduciary,

                                      A-1
<PAGE>

20% or more of the Stock having ordinary voting power in the election of
directors of such Person, (b) each Person that controls, is controlled by or is
under common control with such Person, and (c) each of such Person's officers,
directors, joint venturers and partners. For the purposes of this definition,
"control" of a Person shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of its management or policies, whether
through the ownership of voting securities, by contract or otherwise; provided,
however, that the term "Affiliate" shall specifically exclude Agent and each
Lender.

                  "Agent" means GE Capital in its capacity as Agent for Lenders
or its successor appointed pursuant to Section 9.7.

                  "Agreement" means the Credit Agreement by and among Borrower,
the other Credit Parties party thereto, GE Capital, as Agent and Lender and the
other Lenders from time to time party thereto, as the same may be amended,
supplemented, restated or otherwise modified from time to time.

                  "Appendices" has the meaning ascribed to it in the recitals to
the Agreement.

                  "Applicable L/C Margin" means the per annum fee, from time to
time in effect, payable with respect to outstanding Letter of Credit Obligations
as determined by reference to Section 1.5(a).

                  "Applicable Margins" means collectively the Applicable L/C
Margin, the Applicable Unused Line Fee Margin, the Applicable Revolver Index
Margin and the Applicable Revolver LIBOR Margin.

                  "Applicable Revolver Index Margin" means the per annum
interest rate margin from time to time in effect and payable in addition to the
Index Rate applicable to the Revolving Loan, as determined by reference to
Section 1.5(a).

                  "Applicable Revolver LIBOR Margin" means the per annum
interest rate from time to time in effect and payable in addition to the LIBOR
Rate applicable to the Revolving Loan, as determined by reference to Section
1.5(a).

                  "Applicable Unused Line Fee Margin" means the per annum fee,
from time to time in effect, payable in respect of Borrower's non-use of
committed funds pursuant to Section 1.9(b), which fee is determined by reference
to Section 1.5(a).

                  "Assignment Agreement" has the meaning ascribed to it in
Section 9.1(a).

                  "Availability Block" means for the period from the Closing
Date until the first anniversary thereof, $7,500,000, and at all times
thereafter, $10,000,000.

                  "Avondale" means Avondale Mills, Inc., an Alabama corporation.

                  "Avondale Funding" means Avondale Funding, LLC, a Delaware
limited liability company.

                                      A-2
<PAGE>

                  "Avondale Pledge Agreement" means the Pledge Agreement of even
date herewith executed by Borrower in favor of Agent, on behalf of itself and
Lenders, pledging all Stock of AMGF and Avondale Funding held by Borrower.

                  "Bankruptcy Code" means the provisions of Title 11 of the
United States Code, 11 U.S.C.Sections 101 et seq.

                  "Blocked Accounts" has the meaning ascribed to it in Annex C.

                  "Borrower" has the meaning ascribed thereto in the preamble to
the Agreement.

                  "Borrowing Availability" means as of any date of
determination, the lesser of (i) the Maximum Amount and (ii) the Borrowing Base,
in each case, less the Revolving Loan then outstanding.

                  "Borrowing Base" means, as of any date of determination by
Agent, from time to time, an amount equal to the sum at such time of:

                  (a)      30% of the value of Borrower's Eligible Inventory
consisting of stock-in-process valued at book value consistently applied in
accordance with current practices (including Borrower's current process for
marking to market); and

                  (b)      65% of the value of Borrower's Eligible Inventory
consisting of raw materials, greige fabrics and finished goods valued at book
value consistently applied in accordance with current practices (including
Borrower's current process for marking to market);

in each case, less any Reserves established by Agent at such time and the
Availability Block at such time; provided, however, that in the event that an
appraisal of the Inventory is obtained in accordance with the provisions of
Section 5.10 of the Credit Agreement, then thereafter, Borrowing Base means, as
of any date of determination by Agent, from time to time, an amount equal to the
sum at such time of the lesser of:

                  (a)      85% of the orderly liquidation value of Borrower's
Eligible Inventory consisting of stock-in-process, raw materials, greige fabrics
and finished goods; and

                  (b)      the sum of (i) 30% of the value of Borrower's
Eligible Inventory consisting of eligible stock-in-process, and (ii) 65% of the
value of Borrower's Eligible Inventory consisting of raw materials, greige
fabrics and finished goods, in each case valued at book value consistently
applied in accordance with current practices (including Borrower's current
process for marking to market);

                  in each case less any Reserves established by the Agent at
such time and the Availability Block at such time.

                  "Borrowing Base Certificate" means a certificate to be
executed and delivered from time to time by Borrower in the form attached to the
Agreement as Exhibit 4.1(b).

                                      A-3
<PAGE>

                  "Budget" means Holdings' annual operating plan, as approved by
the Board of Directors of Holdings, which shall include an income statement,
balance sheet and cash flow statement, on a Fiscal Month by Fiscal Month basis,
all prepared on the same basis and in the same detail as the financial
statements referred to in Annex E.

                  "Business Day" means any day that is not a Saturday, a Sunday
or a day on which banks are required or permitted to be closed in the States of
Georgia and/or New York and in reference to LIBOR Loans shall mean any such day
that is also a LIBOR Business Day.

                  "Capital Expenditures" means, with respect to any Person, all
expenditures (by the expenditure of cash or the incurrence of Indebtedness) by
such Person during any measuring period for any fixed assets or improvements or
for replacements, substitutions or additions thereto that have a useful life of
more than one year and that are required to be capitalized under GAAP.

                  "Capital Lease" means, with respect to any Person, any lease
of any property (whether real, personal or mixed) by such Person as lessee that,
in accordance with GAAP, would be required to be classified and accounted for as
a capital lease on a balance sheet of such Person.

                  "Capital Lease Obligation" means, with respect to any Capital
Lease of any Person, the amount of the obligation of the lessee thereunder that,
in accordance with GAAP, would appear on a balance sheet of such lessee in
respect of such Capital Lease.

                  "Cash Collateral Account" has the meaning ascribed to it Annex
B.

                  "Cash Equivalents" has the meaning ascribed to it in Annex B.

                  "Cash Management Systems" has the meaning ascribed to it in
Section 1.8.

                  "Change of Control" means any event, transaction or occurrence
as a result of which (a) Stockholders of Holdings as of the Closing Date cease
to own and control all of the economic and voting rights associated with
ownership of at least fifty-one percent (51%) of all classes of the outstanding
capital Stock of Holdings on a fully diluted basis, (b) Holdings ceases to own
and control all of the economic and voting rights associated with all of the
outstanding capital Stock of Borrower, (c) Borrower ceases to own and control
all of the economic and voting rights associated with all of the outstanding
capital Stock of any of its Subsidiaries other than as a result of a Permitted
Transaction, or (d) all of the following individuals cease to have senior
management responsibilities with respect to the operations of the business of
Borrower, and such individuals are not replaced with other individuals
reasonably satisfactory to the Requisite Lenders within thirty days after the
commencement of such cessation: G. Stephen Felker, Jack R. Altherr, Jr., Keith
M. Hull and T. Wayne Spraggins.

                  "Charges" means all federal, state, county, city, municipal,
local, foreign or other governmental taxes (including taxes owed to the PBGC at
the time due and payable), levies, assessments, charges, liens, claims or
encumbrances upon or relating to (a) the Collateral, (b) the Obligations, (c)
the employees, payroll, income or gross receipts of any Credit Party, (d) any

                                      A-4
<PAGE>

Credit Party's ownership or use of any properties or other assets, or (e) any
other aspect of any Credit Party's business.

                  "Chattel Paper" means any "chattel paper," as such term is
defined in the Code, including electronic chattel paper, now owned or hereafter
acquired by any Credit Party.

                  "Closing Date" means November 7, 2003.

                  "Closing Checklist" means the schedule, including all
appendices, exhibits or schedules thereto, listing certain documents and
information to be delivered in connection with the Agreement, the other Loan
Documents and the transactions contemplated thereunder, substantially in the
form attached hereto as Annex D.

                  "Code" means the Uniform Commercial Code as the same may, from
time to time, be enacted and in effect in the State of Georgia; provided, that
to the extent that the Code is used to define any term herein or in any Loan
Document and such term is defined differently in different Articles or Divisions
of the Code, the definition of such term contained in Article or Division 9
shall govern; provided further, that in the event that, by reason of mandatory
provisions of law, any or all of the attachment, perfection or priority of, or
remedies with respect to, Agent's or any Lender's Lien on any Collateral is
governed by the Uniform Commercial Code as enacted and in effect in a
jurisdiction other than the State of Georgia, the term "Code" shall mean the
Uniform Commercial Code as enacted and in effect in such other jurisdiction
solely for purposes of the provisions thereof relating to such attachment,
perfection, priority or remedies and for purposes of definitions related to such
provisions.

                  "Collateral" means the property covered by the Security
Agreement, and the other Collateral Documents and any other property, real or
personal, tangible or intangible, now existing or hereafter acquired, that may
at any time be or become subject to a security interest or Lien in favor of
Agent, on behalf of itself and Lenders, to secure the Obligations.

                  "Collateral Documents" means the Security Agreement, the
Pledge Agreements, the Guaranties and all similar agreements entered into
guaranteeing payment of, or granting a Lien upon property as security for
payment of, the Obligations.

                  "Collateral Reports" means the reports with respect to the
Collateral referred to in Annex F.

                  "Collection Account" means that certain account of Agent,
account number 502-328-54 in the name of Agent at DeutscheBank Trust Company
Americas in New York, New York ABA No. 021 001 033, or such other account as may
be specified in writing by Agent as the "Collection Account.".

                  "Commitment Termination Date" means the earliest of (a) August
29, 2007, (b) the date of termination of Lenders' obligations to make Revolving
Credit Advances and to incur Letter of Credit Obligations or permit existing
Loans to remain outstanding pursuant to Section 8.2(b), (c) the date of
indefeasible prepayment in full by Borrower of the Loans and the cancellation
and return (or stand-by guarantee) of all Letters of Credit or the cash

                                      A-5
<PAGE>

collateralization of all Letter of Credit Obligations pursuant to Annex B, and
the permanent reduction of the Revolving Loan Commitment to zero dollars ($0)
(d) the "Termination Date" (as defined in Annex X to the Securitization
Documents, occurs and the Securitization Facility is not simultaneously replaced
or refinanced by another securitization facility extended by GE Capital or an
Affiliate thereof, and (e) the date that the Securitization Facility is replaced
or refinanced other than as a result of the occurrence of the Termination Date
by a Person other than GE Capital or an Affiliate thereof.

                  "Compliance Certificate" has the meaning ascribed to it in
Annex E.

                  "Concentration Account" has the meaning ascribed to it in
Annex C.

                  "Consolidated Net Income" means, for any period, the Net
Income of Holdings and its Consolidated Subsidiaries determined on a
consolidated basis, but excluding any equity interests of Holdings or any
Subsidiary in the unremitted earnings of any Person that is not a Subsidiary.

                  "Consolidated Subsidiary" means, at any date, any Subsidiary
or other entity the accounts of which, in accordance with GAAP, would be
consolidated with those of Holdings in its consolidated financial statements as
of such date.

                  "Control Letter" means a letter agreement between Agent and
the securities intermediaries and futures commission merchants, as the case may
be, in respect of each of the Covered Investment Accounts, whereby, among other
things, the issuer, securities intermediary or futures commission merchant
limits any security interest in the applicable financial assets in a manner
reasonably satisfactory to Agent, acknowledges the Lien of Agent, on behalf of
itself and Lenders, on such financial assets, and agrees to follow the
instructions or entitlement orders of Agent without further consent by the
affected Credit Party.

                  "Copyright License" means any and all rights now owned or
hereafter acquired by any Credit Party under any written agreement granting any
right to use any Copyright or Copyright registration.

                  "Copyrights" means all of the following now owned or hereafter
adopted or acquired by any Credit Party: (a) all copyrights and general
intangibles of like nature (whether registered or unregistered), all
registrations and recordings thereof, and all applications in connection
therewith, including all registrations, recordings and applications in the
United States Copyright Office or in any similar office or agency of the United
States, any state or territory thereof, or any other country or any political
subdivision thereof, and (b) all reissues, extensions or renewals thereof.

                  "Cotton Futures Accounts" means the cotton futures investment
accounts listed on Disclosure Schedule (3.19).

                  "Covered Accounts" means all of the bank accounts maintained
by any Credit Party, as more particularly described on Disclosure Schedule
(3.19), each replacement bank

                                      A-6
<PAGE>

account therefor, and any subsequent bank accounts opened and maintained by any
Credit Party other than Excluded Accounts.

                  "Covered Investment Accounts" means all of the investment
accounts, brokerage accounts and money market accounts maintained by any Credit
Party, as more particularly described on Disclosure Schedule (3.19), each
replacement investment account, brokerage account and money market account
therefor, and any subsequent investment accounts, brokerage accounts and money
market accounts opened and maintained by an Credit Party, other than the Cotton
Futures Accounts, provided that the average monthly balance therein on an
aggregate basis does not exceed $500,000.

                  "Credit Parties" means Borrower and AMGF.

                  "Current Assets" means, with respect to any Person, all
current assets of such Person as of any date of determination calculated in
accordance with GAAP.

                  "Current Liabilities" means, with respect to any Person, all
liabilities that should, in accordance with GAAP, be classified as current
liabilities, and in any event shall include all Indebtedness payable on demand
or within one year from any date of determination without any option on the part
of the obligor to extend or renew beyond such year, all accruals for federal or
other taxes based on or measured by income and payable within such year, but
excluding the aggregate outstanding principal balance of the Revolving Loan.

                  "Deactivation Event" means, subsequent to any Activation
Event, any period of 90 consecutive days during which Excess Availability at all
times exceeds $20,000,000 and at the end of such 90-day period no Default or
Event of Default has occurred and is then continuing.

                  "Deactivation Notice" means a written notice from the Agent
acknowledging the occurrence of a Deactivation Event and instructing the
respective banks, financial institutions, securities intermediaries and futures
commissions merchants at which any of the Covered Accounts or Covered Investment
Accounts are then held, that such Persons may re-commence following instructions
from the respective Credit Parties with respect to disposition of funds and
other amounts held or evidenced by such accounts, which deactivation notice
shall be delivered promptly upon the occurrence of a Deactivation Event.

                  "Default" means any event that, with the passage of time or
notice or both, would, unless cured or waived, become an Event of Default.

                  "Default Rate" has the meaning ascribed to it in Section
1.5(d).

                  "Deposit Accounts" means all "deposit accounts" as such term
is defined in the Code, now or hereafter held in the name of any Credit Party.

                  "Disbursement Accounts" has the meaning ascribed to it in
Annex C.

                                      A-7
<PAGE>

                  "Disclosure Schedules" means the Schedules prepared by
Borrower and denominated as Disclosure Schedules (3.1) through (6.7) in the
Index to the Agreement.

                  "Documents" means all "documents," as such term is defined in
the Code, now owned or hereafter acquired by any Credit Party, wherever located.

                  "Dollars" or "$" means lawful currency of the United States of
America.

                  "EBITDA" means for any period, for Holdings and its
Consolidated Subsidiaries, determined on a consolidated basis in accordance with
GAAP, and calculated for the Fiscal Quarter just ended and the immediately
preceding three Fiscal Quarters, Consolidated Net Income, plus (i) Net Interest
Expense (including interest on the Subordinated Debt) plus (ii) income taxes
plus (iii) depreciation plus (iv) amortization plus or minus, as the case may
be, plus (v) LIFO Adjustments, plus (vi) the amount of any non-cash write-offs
of obsolete or surplus equipment, spare parts or real property, facility
restructuring charges or non-cash losses, minus (vii) non-cash gains, minus
(viii) extraordinary or non-operating cash gains outside the normal course of
business or related to the sale of capital assets, to the extent the aggregate
amount of such cash gains exceed the greater of $5,000,000 or fifteen percent
(15%) of EBITDA before giving effect to this clause (viii).

                  "Eligible Accounts" has the meaning ascribed to it in Section
1.6.

                  "Eligible Inventory" has the meaning ascribed to it in Section
1.7.

                  "Environmental Laws" means all applicable federal, state,
local and foreign laws, statutes, ordinances, codes, rules, standards and
regulations, now or hereafter in effect, and any applicable judicial or
administrative interpretation thereof, including any applicable judicial or
administrative order, consent decree, order or judgment, imposing liability or
standards of conduct for or relating to the regulation and protection of human
health, safety, the environment and natural resources (including ambient air,
surface water, groundwater, wetlands, land surface or subsurface strata,
wildlife, aquatic species and vegetation). Environmental Laws include the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980
(42 U.S.C.Sections 9601 et seq.) ("CERCLA"); the Hazardous Materials
Transportation Authorization Act of 1994 (49 U.S.C. Sections 5101 et seq.); the
Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. Sections 136 et
seq.); the Solid Waste Disposal Act (42 U.S.C. Sections 6901 et seq.); the Toxic
Substance Control Act (15 U.S.C. Sections 2601 et seq.); the Clean Air Act (42
U.S.C. Sections 7401 et seq.); the Federal Water Pollution Control Act (33
U.S.C. Sections 1251 et seq.); the Occupational Safety and Health Act (29 U.S.C.
Sections 651 et seq.); and the Safe Drinking Water Act (42 U.S.C. Sections
300(f) et seq.), and any and all regulations promulgated thereunder, and all
analogous state, local and foreign counterparts or equivalents and any transfer
of ownership notification or approval statutes.

                  "Environmental Liabilities" means, with respect to any Person,
all liabilities, obligations, responsibilities, response, remedial and removal
costs, investigation and feasibility study costs, capital costs, operation and
maintenance costs, losses, damages, punitive damages, property damages, natural
resource damages, consequential damages, treble damages, costs and

                                      A-8
<PAGE>

expenses (including all reasonable fees, disbursements and expenses of counsel,
experts and consultants), fines, penalties, sanctions and interest incurred as a
result of or related to any claim, suit, action, investigation, proceeding or
demand by any Person, whether based in contract, tort, implied or express
warranty, strict liability, criminal or civil statute or common law, including
any arising under or related to any Environmental Laws, Environmental Permits,
or in connection with any Release or threatened Release or presence of a
Hazardous Material whether on, at, in, under, from or about or in the vicinity
of any real or personal property.

                  "Environmental Permits" means all permits, licenses,
authorizations, certificates, approvals or registrations required by any
Governmental Authority under any Environmental Laws.

                  "Equipment" means all "equipment," as such term is defined in
the Code, now owned or hereafter acquired by any Credit Party, wherever located
and, in any event, including all such Credit Party's machinery and equipment,
including processing equipment, conveyors, machine tools, data processing and
computer equipment, including embedded software and peripheral equipment and all
engineering, processing and manufacturing equipment, office machinery,
furniture, materials handling equipment, tools, attachments, accessories,
forklifts, molds, dies, stamps and other equipment of every kind and nature,
together with all additions and accessions thereto, replacements therefor, all
parts therefor, all substitutes for any of the foregoing, fuel therefor, and all
manuals, drawings, instructions, warranties and rights with respect thereto, and
all products and proceeds thereof and condemnation awards and insurance proceeds
with respect thereto, but excluding all aircraft, Fixtures, motor vehicles and
trailers covered by certificates of title.

                  "ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and any regulations promulgated thereunder.

                  "ERISA Affiliate" means, with respect to any Credit Party, any
trade or business (whether or not incorporated) that, together with such Credit
Party, are treated as a single employer within the meaning of Sections 414(b),
(c), (m) or (o) of the IRC.

                  "ERISA Event" means, with respect to any Credit Party or any
ERISA Affiliate, (a) with respect to a Title IV Plan, any event described in
Section 4043(c) of ERISA for which notice to the PBGC has not been waived; (b)
the withdrawal of any Credit Party or ERISA Affiliate from a Title IV Plan
subject to Section 4063 of ERISA during a plan year in which it was a
substantial employer, as defined in Section 4001(a)(2) of ERISA; (c) the
complete or partial withdrawal of any Credit Party or any ERISA Affiliate from
any Multiemployer Plan; (d) the filing of a notice of intent to terminate a
Title IV Plan in a distress termination described in Section 4041(c) of ERISA or
the treatment of a plan amendment as a termination under Section 4041 of ERISA;
(e) the institution of proceedings to terminate a Title IV Plan or Multiemployer
Plan by the PBGC; (f) with respect to a Title IV Plan, the existence of an
"accumulated funding deficiency" (as defined in Section 412 of the IRC or
Section 302 of ERISA) whether or not waived, or the failure to make by its due
date a required installment under Section 412(m) of the Code or the failure to
make any required contribution to a Multiemployer Plan; (g) the filing pursuant
to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a

                                      A-9
<PAGE>

waiver of the minimum funding standard with respect to a Title IV Plan; (h) the
making of any amendment to any Title IV Plan which could result in the
imposition of a lien or the posting of a bond or other security; (i) with
respect to a Title IV Plan an event described in Section 4062(e) of ERISA; (j)
any other event or condition that would reasonably be expected to constitute
grounds under Section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any Title IV Plan or Multiemployer Plan or for the
imposition of liability under Section 4069 or 4212(c) of ERISA; (k) the
termination of a Multiemployer Plan under Section 4041A of ERISA or the
reorganization or insolvency of a Multiemployer Plan under Section 4241 or 4245
of ERISA; (l) the loss of a Qualified Plan's qualification or tax exempt status;
or (m) the termination of a Plan described in Section 4064 of ERISA.

                  "Event of Default" has the meaning ascribed to it in Section
8.1.

                  "Excess Availability" means the sum of Borrowing Availability,
Securitization Availability, the Availability Block and so long as no Activation
Event has then occurred and is then continuing, an amount equal to unrestricted
cash and cash equivalents of Borrower, not to exceed $2,500,000 in the
aggregate.

                  "Excluded Accounts" means bank disbursement accounts of any
Credit Party constituting (i) branch petty cash/imprest accounts, each with a
balance of $25,000 or less at all times, (ii) payroll, workmen's compensation
and employee benefits accounts, each with a balance not to exceed $25,000 in
excess of the amounts to be disbursed thereunder at any time, (iii) a real
estate trust account with a balance not to exceed $50,000 in excess of the
amounts to be disbursed thereunder at any time, and (iv) a dividend account with
a balance not to exceed $25,000 in excess of the amounts to be disbursed
thereunder at any time.

                  "Fair Labor Standards Act" means the Fair Labor Standards Act,
29 U.S.C.Section 201 et seq.

                  "Federal Funds Rate" means, for any day, a floating rate equal
to the weighted average of the rates on overnight Federal funds transactions
among members of the Federal Reserve System, as determined by Agent in its sole
discretion, which determination shall be final, binding and conclusive (absent
manifest error).

                  "Federal Reserve Board" means the Board of Governors of the
Federal Reserve System.

                  "Fees" means any and all fees payable to Agent or any Lender
pursuant to the Agreement or any of the other Loan Documents.

                  "Financial Covenants" means the financial covenants set forth
in Annex G.

                  "Financial Statements" means the consolidated and
consolidating income statements, statements of cash flows and balance sheets of
Holdings delivered in accordance with Section 3.4 and Annex E.

                                      A-10
<PAGE>

                  "Fiscal Month" means any of the three accounting periods of
four weeks or five weeks, as the case may be, of Holdings within each of its
Fiscal Quarters.

                  "Fiscal Quarter" means any of the four accounting periods of
13 weeks or 14 weeks, as the case may be, of Holdings within each of its Fiscal
Years.

                  "Fiscal Year" means any of the annual accounting periods of 52
or 53 weeks, as the case may be, of Holdings ending on the last Friday in August
of each year.

                  "Fixed Charges" means, with respect to Holdings and its
Consolidated Subsidiaries on a consolidated basis for any fiscal period, (a) the
aggregate of all Net Interest Expense paid or accrued during such period,
excluding, to the extent the income (or deficit) of any other Person accrued
prior to the date it became a Subsidiary of, or was merged or consolidated into,
such Person or any of such Person's Subsidiaries, was excluded from the
calculation of EBITDA, Net Interest Expense paid or accrued of such other Person
prior to the date it became a Subsidiary of, or was merged or consolidated into,
such Person or any of such Person's Subsidiaries, plus (b) scheduled payments of
principal with respect to Funded Debt during such period, excluding, to the
extent the income (or deficit) of any other Person accrued prior to the date it
became a Subsidiary of, or was merged or consolidated into, such Person or any
of such Person's Subsidiaries, was excluded from the calculation of EBITDA,
scheduled payments of principal of such other Person with respect to Funded Debt
prior to the date it became a Subsidiary of, or was merged or consolidated into,
such Person or any of such Person's Subsidiaries, plus (c) prepayments of Funded
Debt during such Fiscal Period (which shall not include amounts included in
clause (b) above or payment made pursuant to a refinancing of any Funded Debt).

                  "Fixed Charge Coverage Ratio" means, with respect to Holdings
and its Consolidated Subsidiaries on a consolidated basis, for any fiscal
period, the ratio of, for such fiscal period, (i) EBITDA, minus Unfinanced
Capital Expenditures, minus income taxes paid, minus, cash dividends paid, minus
cash Stock repurchases, to (ii) Fixed Charges; provided, however, that, in
calculating the foregoing ratio during the 2004 Fiscal Year: with respect to the
period constituting the first Fiscal Quarter of 2004, dividends paid and
Unfinanced Capital Expenditures during such Fiscal Quarter shall be multiplied
by 4.00, with respect to the period constituting the first two Fiscal Quarters
of 2004, dividends and Unfinanced Capital Expenditures during such Fiscal
Quarters shall be multiplied by 2.00, and with respect to the period
constituting the first three Fiscal Quarters of 2004, dividends and Unfinanced
Capital Expenditures during such Fiscal Quarters shall be multiplied by 1.33.

                  "Fixtures" means all "fixtures" as such term is defined in the
Code, now owned or hereafter acquired by any Credit Party.

                  "Funded Debt" means, with respect to any Person, without
duplication, all Indebtedness for borrowed money evidenced by notes, bonds,
debentures, or similar evidences of Indebtedness that by its terms matures more
than one year from, or is directly or indirectly renewable or extendible at such
Person's option under a revolving credit or similar agreement obligating the
lender or lenders to extend credit over a period of more than one year from the

                                      A-11
<PAGE>

date of creation thereof, and specifically including Capital Lease Obligations,
current maturities of long-term debt, revolving credit and short-term debt
extendible beyond one year at the option of the debtor, and also including, in
the case of Borrower, the Obligations and, without duplication, Guaranteed
Indebtedness consisting of guaranties of Funded Debt of other Persons.

                  "GAAP" means generally accepted accounting principles in the
United States of America consistently applied, as such term is further defined
in Annex G to the Agreement.

                  "GE Capital" means General Electric Capital Corporation, a
Delaware corporation.

                  "GE Capital Fee Letter" means that certain letter, dated as of
the date hereof between GE Capital and Borrower with respect to certain Fees to
be paid from time to time by Borrower to GE Capital.

                  "Goods" means all "goods" as defined in the Code, now owned or
hereafter acquired by any Credit Party, wherever located, including embedded
software to the extent included in "goods" as defined in the Code and excluding,
Fixtures, standing timber that is cut and removed for sale, unborn young of
animals, crops grown, growing or to be grown and manufactured homes.

                  "Governmental Authority" means any nation or government, any
state or other political subdivision thereof, and any agency, department or
other entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.

                  "Guaranteed Indebtedness" means as to any Person, any
obligation of such Person guaranteeing or otherwise providing assurance of
payment of any Indebtedness ("primary obligation") of any other Person (the
"primary obligor") in any manner, including any obligation or arrangement of
such Person to (a) purchase or repurchase any such primary obligation, (b)
advance or supply funds (i) for the purchase or payment of any such primary
obligation or (ii) to maintain working capital or equity capital of the primary
obligor or otherwise to maintain the net worth or solvency or any balance sheet
condition of the primary obligor, (c) purchase property, securities or services
primarily for the purpose of assuring the owner of any such primary obligation
of the ability of the primary obligor to make payment of such primary
obligation, (d) protect the beneficiary of such arrangement from loss (other
than product warranties given in the ordinary course of business) or (e)
indemnify the owner of such primary obligation against loss in respect thereof.
The amount of any Guaranteed Indebtedness at any time shall be deemed to be an
amount equal to the lesser at such time of (x) the stated or determinable amount
of the primary obligation in respect of which such Guaranteed Indebtedness is
incurred and (y) the maximum amount for which such Person may be liable pursuant
to the terms of the instrument embodying such Guaranteed Indebtedness, or, if
not stated or determinable, the maximum reasonably anticipated liability
(assuming full performance) in respect thereof.

                  "Guaranties" means, collectively, the Holdings Guaranty, each
Subsidiary Guaranty and any other guaranty executed by any Guarantor in favor of
Agent and Lenders in respect of the Obligations.

                                      A-12
<PAGE>

                  "Guarantors" means Holdings, AMGF and each other Person, if
any, that executes a guaranty or other similar agreement in favor of Agent, for
itself and the ratable benefit of Lenders, in connection with the transactions
contemplated by the Agreement and the other Loan Documents.

                  "Hazardous Material" means any substance, material or waste
that is regulated by, or forms the basis of liability now or hereafter under,
any Environmental Laws, including any material or substance that is (a) defined
as a "solid waste," "hazardous waste," "hazardous material," "hazardous
substance," "extremely hazardous waste," "restricted hazardous waste,"
"pollutant," "contaminant," "hazardous constituent," "special waste," "toxic
substance" or other similar term or phrase under any Environmental Laws, or (b)
petroleum or any fraction or by-product thereof, asbestos, polychlorinated
biphenyls (PCB's), or any radioactive substance.

                  "Holdings" means Avondale Incorporated, a Georgia corporation.

                  "Holdings Guaranty" means the guaranty of even date herewith
executed by Holdings in favor of Agent on behalf of itself and Lenders.

                  "Holdings Pledge Agreement" means the Pledge Agreement of even
date herewith executed by Holdings in favor of Agent, on behalf of itself and
Lenders, pledging all Stock of Borrower held by Holdings.

                  "Indebtedness" means, with respect to any Person, without
duplication, (a) all indebtedness of such Person for borrowed money or for the
deferred purchase price of property payment for which is deferred 6 months or
more, but excluding obligations to trade creditors incurred in the ordinary
course of business that are unsecured and not overdue by more than 6 months
unless being contested in good faith, (b) all reimbursement and other
obligations with respect to letters of credit, bankers' acceptances and surety
bonds, whether or not matured, (c) all obligations evidenced by notes, bonds,
debentures or similar instruments, (d) all indebtedness created or arising under
any conditional sale or other title retention agreement with respect to property
acquired by such Person (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to repossession
or sale of such property), (e) all Capital Lease Obligations and the present
value (discounted at the Index Rate as in effect on the Closing Date) of future
rental payments under all synthetic leases, (f) all obligations of such Person
under commodity purchase or option agreements or other commodity price hedging
arrangements, in each case whether contingent or matured, (g) all obligations of
such Person under any foreign exchange contract, currency swap agreement,
interest rate swap, cap or collar agreement or other similar agreement or
arrangement designed to alter the risks of that Person arising from fluctuations
in currency values or interest rates, in each case whether contingent or
matured, (h) all Indebtedness referred to above secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Lien upon or in property or other assets (including accounts
and contract rights) owned by such Person, even though such Person has not
assumed or become liable for the payment of such Indebtedness, and (i) the
Obligations.

                  "Indemnified Liabilities" has the meaning ascribed to it in
Section 1.13.

                                      A-13
<PAGE>

                  "Indemnified Person" has the meaning ascribed to in Section
1.13.

                  "Index Rate" means, for any day, a floating rate equal to the
higher of (i) the rate publicly quoted from time to time by The Wall Street
Journal as the "prime rate" (or, if The Wall Street Journal ceases quoting a
prime rate, the highest per annum rate of interest published by the Federal
Reserve Board in Federal Reserve statistical release H.15 (519) entitled
"Selected Interest Rates" as the Bank prime loan rate or its equivalent), and
(ii) the Federal Funds Rate plus 50 basis points per annum. Each change in any
interest rate provided for in the Agreement based upon the Index Rate shall take
effect at the time of such change in the Index Rate.

                  "Index Rate Loan" means a Loan or portion thereof bearing
interest by reference to the Index Rate.

                  "Instruments" means all "instruments," as such term is defined
in the Code, now owned or hereafter acquired by any Credit Party, wherever
located, and, in any event, including all certificated securities, all
certificates of deposit, and all promissory notes and other evidences of
indebtedness, other than instruments that constitute, or are a part of a group
of writings that constitute, Chattel Paper.

                  "Intellectual Property" means any and all Licenses, Patents,
Copyrights, Trademarks, and the goodwill associated with such Trademarks.

                  "Intercompany Notes" has the meaning ascribed to it in Section
6.3.

                  "Interest Payment Date" means (a) as to any Index Rate Loan,
the first Business Day of each month to occur while such Loan is outstanding,
and (b) as to any LIBOR Loan, the last day of the applicable LIBOR Period;
provided, that in the case of any LIBOR Period greater than three months in
duration, interest shall be payable at three-month intervals and on the last day
of such LIBOR Period; and provided further that, in addition to the foregoing,
each of (x) the date upon which the Revolving Loan Commitment has been
terminated and the Loans have been paid in full and (y) the Commitment
Termination Date shall be deemed to be an "Interest Payment Date" with respect
to any interest that has then accrued under the Agreement.

                  "Inventory" means all "inventory," as such term is defined in
the Code, now owned or hereafter acquired by any Credit Party, wherever located,
and in any event including inventory, merchandise, goods and other personal
property that are held by or on behalf of any Credit Party for sale or lease or
are furnished or are to be furnished under a contract of service, or that
constitute raw materials, work in process, finished goods, returned goods, or
materials or supplies of any kind, nature or description used or consumed or to
be used or consumed in such Credit Party's business or in the processing,
production, packaging, promotion, delivery or shipping of the same, including
all supplies and embedded software.

                  "IRC" means the Internal Revenue Code of 1986 and all
regulations promulgated thereunder.

                  "IRS" means the Internal Revenue Service.

                                      A-14
<PAGE>

                  "L/C Issuer" has the meaning ascribed to it in Annex B.

                  "L/C Sublimit" has the meaning ascribed to it in Annex B.

                  "Lenders" means GE Capital, the other Lenders named on the
signature pages of the Agreement, and, if any such Lender shall decide to assign
all or any portion of the Obligations, such term shall include any assignee of
such Lender.

                  "Letter of Credit Fee" has the meaning ascribed to it in Annex
B.

                  "Letter of Credit Obligations" means all outstanding
obligations incurred by Agent and Lenders at the request of Borrower, whether
direct or indirect, contingent or otherwise, due or not due, in connection with
the issuance of Letters of Credit by Agent or another L/C Issuer or the purchase
of a participation as set forth in Annex B with respect to any Letter of Credit.
The amount of such Letter of Credit Obligations shall equal the maximum amount
that may be payable at such time or at any time thereafter by Agent or Lenders
thereupon or pursuant thereto.

                  "Letters of Credit" means documentary or standby letters of
credit issued for the account of Borrower by any L/C Issuer, and bankers'
acceptances issued by Borrower, for which Agent and Lenders have incurred Letter
of Credit Obligations.

                  "Letter-of-Credit Rights" means "letter-of-credit rights" as
such term is defined in the Code, now owned or hereafter acquired by any Credit
Party, including rights to payment or performance under a letter of credit,
whether or not such Credit Party, as beneficiary, has demanded or is entitled to
demand payment or performance.

                  "LIBOR Business Day" means a Business Day on which banks in
the City of London are generally open for interbank or foreign exchange
transactions.

                  "LIBOR Loan" means a Loan or any portion thereof bearing
interest by reference to the LIBOR Rate.

                  "LIBOR Period" means, with respect to any LIBOR Loan, each
period commencing on a LIBOR Business Day selected by Borrower pursuant to the
Agreement and ending one, two or three months thereafter, as selected by
Borrower's irrevocable notice to Agent as set forth in Section 1.5(e); provided,
that the foregoing provision relating to LIBOR Periods is subject to the
following:

                  (a) if any LIBOR Period would otherwise end on a day that is
         not a LIBOR Business Day, such LIBOR Period shall be extended to the
         next succeeding LIBOR Business Day unless the result of such extension
         would be to carry such LIBOR Period into another calendar month in
         which event such LIBOR Period shall end on the immediately preceding
         LIBOR Business Day;

                  (b) any LIBOR Period that would otherwise extend beyond the
         Commitment Termination Date shall end two (2) LIBOR Business Days prior
         to such date;

                                      A-15
<PAGE>

                  (c) any LIBOR Period that begins on the last LIBOR Business
         Day of a calendar month (or on a day for which there is no numerically
         corresponding day in the calendar month at the end of such LIBOR
         Period) shall end on the last LIBOR Business Day of a calendar month;

                  (d) Borrower shall select LIBOR Periods so as not to require a
         payment or prepayment of any LIBOR Loan during a LIBOR Period for such
         Loan; and

                  (e) Borrower shall select LIBOR Periods so that there shall be
         no more than 6 separate LIBOR Loans in existence at any one time.

                  "LIBOR Rate" means for each LIBOR Period, a rate of interest
determined by Agent equal to:

                  (a) the offered rate for deposits in United States Dollars for
         the applicable LIBOR Period that appears on Telerate Page 3750 as of
         11:00 a.m. (London time), on the second full LIBOR Business Day next
         preceding the first day of such LIBOR Period (unless such date is not a
         Business Day, in which event the next succeeding Business Day will be
         used); divided by

                  (b) a number equal to 1.0 minus the aggregate (but without
duplication) of the rates (expressed as a decimal fraction) of reserve
requirements in effect on the day that is two (2) LIBOR Business Days prior to
the beginning of such LIBOR Period (including basic, supplemental, marginal and
emergency reserves under any regulations of the Federal Reserve Board or other
Governmental Authority having jurisdiction with respect thereto, as now and from
time to time in effect) for Eurocurrency funding (currently referred to as
"Eurocurrency Liabilities" in Regulation D of the Federal Reserve Board that are
required to be maintained by a member bank of the Federal Reserve System.

                  If such interest rates shall cease to be available from
Telerate News Service (or its successor satisfactory to Agent), the LIBOR Rate
shall be determined from such financial reporting service or other information
as shall be mutually acceptable to Agent and Borrower.

                  "License" means any Copyright License, Patent License,
Trademark License or other license of rights or interests now held or hereafter
acquired by any Credit Party.

                  "Lien" means any mortgage or deed of trust, pledge,
hypothecation, assignment, deposit arrangement, lien, charge, claim, security
interest, easement or encumbrance, or preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever
(including any lease or title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of, or agreement to give, any financing statement perfecting a security interest
under the Code or comparable law of any jurisdiction).

                  "LIFO Adjustments" means adjustments to cost of goods sold
attributable to adjusting the carrying value of inventory under the last-in,
first-out method of accounting.

                                      A-16
<PAGE>

                  "Litigation" has the meaning ascribed to it in Section 3.13.

                  "Loan Account" has the meaning ascribed to it in Section 1.12.

                  "Loan Documents" means the Agreement, the Notes, the
Collateral Documents, the Master Documentary Agreement, the Master Standby
Agreement, and all other agreements, instruments, documents and certificates
identified in the Closing Checklist executed and delivered to, or in favor of,
Agent or any Lenders and including all other pledges, powers of attorney,
consents, assignments, contracts, notices, letter of credit agreements and all
other written matter whether heretofore, now or hereafter executed by or on
behalf of any Credit Party, or any employee of any Credit Party, and delivered
to Agent or any Lender in connection with the Agreement or the transactions
contemplated thereby. Any reference in the Agreement or any other Loan Document
to a Loan Document shall include all appendices, exhibits or schedules thereto,
and all amendments, restatements, supplements or other modifications thereto,
and shall refer to the Agreement or such Loan Document as the same may be in
effect at any and all times such reference becomes operative.

                  "Loans" means the Revolving Loan.

                  "Lock Boxes" has the meaning ascribed to it in Annex C.

                  "Margin Stock" has the meaning ascribed to in Section 3.10.

                  "Master Documentary Agreement" means the Master Agreement for
Documentary Letters of Credit dated as of the Closing Date between Borrower, as
Applicant, and GE Capital, as Issuer.

                  "Master Standby Agreement" means the Master Agreement for
Standby Letters of Credit dated as of the Closing Date among Borrower, as
Applicant, and GE Capital, as issuer.

                  "Material Adverse Effect" means a material adverse effect on
(a) the business, assets, operations, prospects or financial or other condition
of the Credit Parties considered as a whole, (b) Borrower's ability to pay any
of the Loans or any of the other Obligations in accordance with the terms of the
Agreement, (c) the Collateral or Agent's Liens, on behalf of itself and Lenders,
on the Collateral or the priority of such Liens, or (d) Agent's or any Lender's
rights and remedies under the Agreement and the other Loan Documents. Without
limiting the generality of the foregoing, during the existence of an Activation
Event, any event or occurrence adverse to one or more Credit Parties which
results or could reasonably be expected to result in losses, costs, damages,
liabilities or expenditures in excess of $5,000,000 (exclusive of amounts
subject to insurance coverage or otherwise subject to recovery from third
parties and with respect to which (i) the applicable insurers or third parties
have not denied or disputed coverage therefor, and (ii) Borrower has made a
reasonable determination that such amounts are recoverable from its insurance
carriers or such third parties) shall be deemed to constitute a Material Adverse
Effect.

                  "Maximum Amount" means, as of any date of determination, an
amount equal to the Revolving Loan Commitment of all Lenders as of that date.

                                      A-17
<PAGE>

                  "Multiemployer Plan" means a "multiemployer plan" as defined
in Sections 3(37) or 4001(a)(3) of ERISA, and to which any Credit Party or ERISA
Affiliate is making, is obligated to make or has made or been obligated to make,
contributions on behalf of participants who are or were employed by any of them.

                  "Net Income" means, as applied to any Person, for any period,
the aggregate amount of net income of such Person, after taxes, for such period,
as determined in accordance with GAAP.

                  "Net Interest Expense" means, for any period, interest expense
(including capitalized interest, to the extent capitalized interest exceeds
$50,000 in any fiscal year, including interest, yield, discount or similar
amounts paid under the Securitization Documents) in respect of Funded Debt, less
interest income.

                  "Non-Funding Lender" has the meaning ascribed to it in Section
9.9(a)(ii).

                  "Note" has the meaning ascribed to it in Section 1.1(a)(ii).

                  "Notice of Conversion/Continuation" has the meaning ascribed
to it in Section 1.5(e).

                  "Notice of Revolving Credit Advance" has the meaning ascribed
to it in Section 1.1(a).

                  "Obligations" means all loans, advances, debts, liabilities
and obligations for the performance of covenants, tasks or duties or for payment
of monetary amounts (whether or not such performance is then required or
contingent, or such amounts are liquidated or determinable) owing by any Credit
Party to Agent or any Lender, and all covenants and duties regarding such
amounts, of any kind or nature, present or future, whether or not evidenced by
any note, agreement, letter of credit agreement or other instrument, arising
under the Agreement or any of the other Loan Documents. This term includes all
principal, interest (including all interest that accrues after the commencement
of any case or proceeding by or against any Credit Party in bankruptcy, whether
or not allowed in such case or proceeding), Fees, hedging obligations under
swaps, caps and collar arrangements provided by any Lender, expenses, attorneys'
fees and any other sum chargeable to any Credit Party under the Agreement or any
of the other Loan Documents.

                  "Patent License" means rights under any written agreement now
owned or hereafter acquired by any Credit Party granting any right with respect
to any invention on which a Patent is in existence.

                  "Patents" means all of the following in which any Credit Party
now holds or hereafter acquires any interest: (a) all letters patent of the
United States or of any other country, all registrations and recordings thereof,
and all applications for letters patent of the United States or of any other
country, including registrations, recordings and applications in the United
States Patent and Trademark Office or in any similar office or agency of the
United States, any State, or any other country, and (b) all reissues,
continuations, continuations-in-part or extensions thereof.

                                      A-18
<PAGE>

                  "PBGC" means the Pension Benefit Guaranty Corporation.

                  "Pension Plan" means a Plan described in Section 3(2) of
ERISA.

                  "Permitted Encumbrances" means the following encumbrances: (a)
Liens for taxes or assessments or other governmental Charges not yet due and
payable or which are being contested in accordance with Section 5.2(b); (b)
pledges or deposits of money securing statutory obligations under workmen's
compensation, unemployment insurance, social security or public liability laws
or other legislation (excluding Liens under ERISA); (c) pledges or deposits of
money securing bids, tenders, contracts (other than contracts for the payment of
money) or leases to which any Credit Party is a party as lessee made in the
ordinary course of business; (d) Charges consisting of landlords', mechanics',
materialmen's, repairmen's and other like Liens imposed by law, solely to the
extent such Charges are permitted to remain outstanding in accordance with the
provisions of Section 5.2, and provided that any Inventory with respect to which
any such Charge attaches has been excluded from the Borrowing Base; (e) deposits
securing, or in lieu of, surety, appeal or customs bonds in proceedings to which
any Credit Party is a party; (f) any attachment or judgment Lien not
constituting an Event of Default under Section 8.1(j); (g) zoning restrictions,
easements, licenses, or other restrictions on the use of any Real Estate or
other minor irregularities in title (including leasehold title) thereto, so long
as the same do not materially impair the use, value, or marketability of such
Real Estate; (h) presently existing or hereafter created Liens in favor of
Agent, on behalf of Lenders; and (i) Liens expressly permitted under Section 6.7
of the Agreement.

                  "Person" means any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, limited liability company, institution, public benefit corporation,
other entity or government (whether federal, state, county, city, municipal,
local, foreign, or otherwise, including any instrumentality, division, agency,
body or department thereof).

                  "Plan" means, at any time, an "employee benefit plan", as
defined in Section 3(3) of ERISA, that any Credit Party or ERISA Affiliate
maintains, contributes to or has an obligation to contribute to or has
maintained, contributed to or had an obligation to contribute to at any time
within the past 7 years on behalf of participants who are or were employed by
any Credit Party or ERISA Affiliate.

                  "Pledge Agreements" means, collectively, the Holdings Pledge
Agreement, the Avondale Pledge Agreement and any pledge agreements entered into
after the Closing Date by any Credit Party (as required by the Agreement or any
other Loan Document).

                  "Prior Lenders" means the lenders parties to that certain
Third Amended and Restated Credit Agreement dated as of March 28, 2003 among
said lenders, Wachovia Bank, National Association, as agent for said lenders,
and Borrower, as borrower.

                  "Prior Lender Obligations" means the obligations of any Credit
Party under that certain Third Amended and Restated Credit Agreement dated as of
March 28, 2003 among said

                                      A-19
<PAGE>

lenders, Wachovia Bank, National Association, as agent for said lenders, and
Borrower, as borrower, or any of the other documents executed pursuant thereto.

                  "Proceeds" means "proceeds," as such term is defined in the
Code, including (a) any and all proceeds of any insurance, indemnity, warranty
or guaranty payable to any Credit Party from time to time with respect to any of
the Collateral, (b) any and all payments (in any form whatsoever) made or due
and payable to any Credit Party from time to time in connection with any
requisition, confiscation, condemnation, seizure or forfeiture of all or any
part of the Collateral by any Governmental Authority (or any Person acting under
color of governmental authority), (c) any recoveries by any Credit Party against
third parties with respect to any litigation or dispute concerning any of the
Collateral including claims arising out of the loss or nonconformity of,
interference with the use of, defects in, or infringement of rights in, or
damage to, Collateral, (d) all amounts collected on, or distributed on account
of, other Collateral, including dividends, interest, distributions and
Instruments with respect to investment property and pledged Stock, and (e) any
and all other amounts, rights to payment or other property acquired upon the
sale, lease, license, exchange or other disposition of Collateral and all rights
arising out of Collateral.

                  "Pro Rata Share" means with respect to all matters relating to
any Lender, (a) with respect to the Revolving Loan, the percentage obtained by
dividing (i) the Revolving Loan Commitment of that Lender by (ii) the aggregate
Revolving Loan Commitment of all Lenders, and (b) with respect to all Loans on
and after the Commitment Termination Date, the percentage obtained by dividing
(i) the aggregate outstanding principal balance of the Loans held by that
Lender, by (ii) the outstanding principal balance of the Loans held by all
Lenders.

                  "Qualified Plan" means a Pension Plan that is intended to be
tax-qualified under Section 401(a) of the IRC.

                  "Qualified Assignee" means (a) any Lender, any Affiliate of
any Lender and, with respect to any Lender that is an investment fund that
invests in commercial loans, any other investment fund that invests in
commercial loans and that is managed or advised by the same investment advisor
as such Lender or by an Affiliate of such investment advisor, and (b) any
commercial bank, savings and loan association or savings bank or any other
entity which is an "accredited investor" (as defined in Regulation D under the
Securities Act of 1933) which extends credit or buys loans as one of its
businesses, including insurance companies, mutual funds, lease financing
companies and commercial finance companies, in each case, which has a rating of
A or higher from S&P and a rating of A2 or higher from Moody's at the date that
it becomes a Lender and which, through its applicable lending office, is capable
of lending to Borrower without the imposition of any withholding or similar
taxes; provided that no Person proposed to become a Lender after the Closing
Date and determined by Agent to be acting in the capacity of a vulture fund or
distressed debt purchaser shall be a Qualified Assignee, and no Person or
Affiliate of such Person proposed to become a Lender after the Closing Date and
that holds Subordinated Debt or Stock issued by any Credit Party shall be a
Qualified Assignee.

                  "Real Estate" has the meaning ascribed to it in Section 3.6.

                                      A-20
<PAGE>

                  "Redeemable Preferred Stock" of any Person means any preferred
stock issued by such Person which is either (i) mandatorily redeemable (by the
sinking fund or similar payments or otherwise) or (ii) redeemable at the option
of the holder thereof.

                  "Refinancing" means the repayment in full by Borrower of the
Prior Lender Obligations on the Closing Date.

                  "Related Transactions" means the initial borrowing under the
Revolving Loan on the Closing Date, the Refinancing, the payment of all fees,
costs and expenses associated with all of the foregoing and the execution and
delivery of all of the Related Transactions Documents.

                  "Related Transactions Documents" means the Loan Documents and
all other agreements or instruments executed in connection with the Related
Transactions.

                  "Release" means any release, threatened release, spill,
emission, leaking, pumping, pouring, emitting, emptying, escape, injection,
deposit, disposal, discharge, dispersal, dumping, leaching or migration of
Hazardous Material in the indoor or outdoor environment, including the movement
of Hazardous Material through or in the air, soil, surface water, ground water
or property.

                  "Requisite Lenders" means Lenders having (a) more than 66 2/3%
of the Revolving Loan Commitment of all Lenders, or (b) if the Revolving Loan
Commitment has been terminated, more than 66 2/3% of the aggregate outstanding
amount of all Loans.

                  "Reserves" means with respect to the Borrowing Base of
Borrower, (a) reserves established by Agent from time to time against Eligible
Inventory pursuant to Section 5.9, (b) reserves established pursuant to Section
5.4(b), and (c) such other reserves against Eligible Inventory or Borrowing
Availability of Borrower that Agent may, in accordance with its customary credit
and collateral policies, establish from time to time.

                  "Restricted Payment" means, with respect to any Credit Party
(a) the declaration or payment of any dividend or the incurrence of any
liability to make any other payment or distribution of cash or other property or
assets in respect of Stock; (b) any payment on account of the purchase,
redemption, defeasance, sinking fund or other retirement of such Credit Party's
Stock or any other payment or distribution made in respect thereof, either
directly or indirectly; (c) any payment or prepayment of principal of, premium,
if any, or interest, fees or other charges on or with respect to, and any
redemption, purchase, retirement, defeasance, sinking fund or similar payment
and any claim for rescission with respect to, any Subordinated Debt; (d) any
payment made to redeem, purchase, repurchase or retire, or to obtain the
surrender of, any outstanding warrants, options or other rights to acquire Stock
of such Credit Party now or hereafter outstanding; (e) any payment of a claim
for the rescission of the purchase or sale of, or for material damages arising
from the purchase or sale of, any shares of such Credit Party's Stock or of a
claim for reimbursement, indemnification or contribution arising out of or
related to any such claim for damages or rescission; (f) any payment, loan,
contribution, or other transfer of funds or other property to any Stockholder of
such Credit Party other than payment of compensation in the ordinary course of
business to Stockholders who are employees of such

                                      A-21
<PAGE>

Credit Party; and (g) any payment of management fees (or other fees of a similar
nature) by such Credit Party to any Stockholder of such Credit Party or its
Affiliates.

                  "Retiree Welfare Plan" means, at any time, a welfare plan
(within the meaning of Section 3(1) of ERISA) that provides for continuing
coverage or benefits for any participant or any beneficiary of a participant
after such participant's termination of employment, other than continuation
coverage provided pursuant to Section 4980B of the IRC or other similar state
law and at the sole expense of the participant or the beneficiary of the
participant.

                  "Revolving Credit Advance" has the meaning ascribed to it in
Section 1.1(a)(i).

                  "Revolving Loan" means, at any time, the sum of (i) the
aggregate amount of Revolving Credit Advances outstanding to Borrower plus (ii)
the aggregate Letter of Credit Obligations incurred on behalf of Borrower.
Unless the context otherwise requires, references to the outstanding principal
balance of the Revolving Loan shall include the outstanding balance of Letter of
Credit Obligations.

                  "Revolving Loan Commitment" means (a) as to any Lender, the
aggregate commitment of such Lender to make Revolving Credit Advances or incur
Letter of Credit Obligations as set forth on Annex J to the Agreement or in the
most recent Assignment Agreement executed by such Lender and (b) as to all
Lenders, the aggregate commitment of all Lenders to make Revolving Credit
Advances or incur Letter of Credit Obligations, which aggregate commitment shall
be Forty Million Dollars ($40,000,000.00) on the Closing Date, as such amount
may be adjusted, if at all, from time to time in accordance with the Agreement.

                  "Securitization Availability" means "Availability" (as defined
in Annex X to the Securitization Documents.

                  "Securitization Documents" means collectively, (i) that
certain Sale and Contribution Agreement dated as of August 30, 2002 among
Borrower, Holdings and Avondale Funding, as amended, and (ii) that certain
Receivables Purchase and Servicing Agreement dated as of August 30, 2002 among
Avondale Funding, Redwood Receivables Corporation, General Electric Capital
Corporation and Borrower, as amended.

                  "Securitization Facility" means the receivables securitization
facility evidenced by the Securitization Documents.

                  "Security Agreement" means the Security Agreement of even date
herewith entered into by and among Agent, on behalf of itself and Lenders, and
each Credit Party that is a signatory thereto.

                  "Software" means all "software" as such term is defined in the
Code, now owned or hereafter acquired by any Credit Party, other than software
embedded in any category of Goods, including all computer programs and all
supporting information provided in connection with a transaction related to any
program.

                                      A-22
<PAGE>

                  "Solvent" means, with respect to any Person on a particular
date, that on such date (a) the fair value of the property of such Person is
greater than the total amount of liabilities, including contingent liabilities,
of such Person; (b) the present fair salable value of the assets of such Person
is not less than the amount that will be required to pay the probable liability
of such Person on its debts as they become absolute and matured; (c) such Person
does not intend to, and does not believe that it will, incur debts or
liabilities beyond such Person's ability to pay as such debts and liabilities
mature; and (d) such Person is not engaged in a business or transaction, and is
not about to engage in a business or transaction, for which such Person's
property would constitute an unreasonably small capital. The amount of
contingent liabilities (such as litigation, guaranties and pension plan
liabilities) at any time shall be computed as the amount that, in light of all
the facts and circumstances existing at the time, represents the amount that can
be reasonably be expected to become an actual or matured liability.

                  "Stock" means all shares, options, warrants, general or
limited partnership interests, membership interests or other equivalents
(regardless of how designated) of or in a corporation, partnership, limited
liability company or equivalent entity whether voting or nonvoting, including
common stock, preferred stock or any other "equity security" (as such term is
defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of 1934).

                  "Stockholder" means, with respect to any Person, each holder
of Stock of such Person, together with any family trusts and partnerships
established by such holder to hold such Stock, and such holder's estate and
family members.

                  "Subordinated Debt" means the Subordinated Notes and any other
Indebtedness of any Credit Party subordinated to the Obligations in a manner and
form satisfactory to Agent and Lenders in their sole discretion, as to right and
time of payment and as to any other rights and remedies thereunder.

                  "Subordinated Notes" means those certain 10.25% Senior
Subordinated Notes due 2013 issued by Borrower in an aggregate original
principal amount of $150,000,000.

                  "Subsidiary" means, with respect to any Person, (a) any
corporation of which an aggregate of more than 50% of the outstanding Stock
having ordinary voting power to elect a majority of the board of directors of
such corporation (irrespective of whether, at the time, Stock of any other class
or classes of such corporation shall have or might have voting power by reason
of the happening of any contingency) is at the time, directly or indirectly,
owned legally or beneficially by such Person or one or more Subsidiaries of such
Person, or with respect to which any such Person has the right to vote or
designate the vote of more than 50% of such Stock whether by proxy, agreement,
operation of law or otherwise, and (b) any partnership or limited liability
company in which such Person and/or one or more Subsidiaries of such Person
shall have an interest (whether in the form of voting or participation in
profits or capital contribution) of more than 50% or of which any such Person is
a general partner or may exercise the powers of a general partner. Unless the
context otherwise requires, each reference to a Subsidiary shall be a reference
to a Subsidiary of Borrower.

                                      A-23
<PAGE>

                  "Subsidiary Guaranty" means the Subsidiary Guaranty of even
date herewith executed by AMGF in favor of Agent, on behalf of itself and
Lenders.

                  "Taxes" means taxes, levies, imposts, deductions, Charges or
withholdings, and all liabilities with respect thereto, imposed with respect to
any payments of the Obligations or any of the Loan Documents, excluding taxes
imposed on or measured by the net income of Agent or a Lender by the
jurisdictions under the laws of which Agent and Lenders are organized or conduct
business or any political subdivision thereof.

                  "Termination Date" means the date on which (a) the Loans have
been indefeasibly repaid in full, (b) all other Obligations under the Agreement
and the other Loan Documents have been completely discharged (c) all Letter of
Credit Obligations have been cash collateralized, cancelled or backed by standby
letters of credit in accordance with Annex B, and (d) Borrower shall not have
any further right to borrow any monies under the Agreement.

                  "Title IV Plan" means a Pension Plan (other than a
Multiemployer Plan), that is subject to Title IV of ERISA or Section 412 of the
IRC, and that any Credit Party or ERISA Affiliate maintains, contributes to or
has an obligation to contribute to on behalf of participants who are or were
employed by any of them.

                  "Trademark License" means rights under any written agreement
now owned or hereafter acquired by any Credit Party granting any right to use
any Trademark.

                  "Trademarks" means all of the following now owned or hereafter
existing or adopted or acquired by any Credit Party: (a) all trademarks, trade
names, corporate names, business names, trade styles, service marks, logos,
other source or business identifiers, prints and labels on which any of the
foregoing have appeared or appear, designs and general intangibles of like
nature (whether registered or unregistered), all registrations and recordings
thereof, and all applications in connection therewith, including registrations,
recordings and applications in the United States Patent and Trademark Office or
in any similar office or agency of the United States, any state or territory
thereof, or any other country or any political subdivision thereof; (b) all
reissues, extensions or renewals thereof; and (c) all goodwill associated with
or symbolized by any of the foregoing.

                  "Unfinanced Capital Expenditures" means the portion of Capital
Expenditures not paid for through third-party financing or third-party Capital
Leases.

                  "Unfunded Pension Liability" means, at any time, the aggregate
amount, if any, of the sum of (a) the amount by which the present value of all
accrued benefits under each Title IV Plan exceeds the fair market value of all
assets of such Title IV Plan allocable to such benefits in accordance with Title
IV of ERISA, all determined as of the most recent valuation date for each such
Title IV Plan using the actuarial assumptions for funding purposes in effect
under such Title IV Plan, and (b) for a period of five (5) years following a
transaction which might reasonably be expected to be covered by Section 4069 of
ERISA, the liabilities (whether or not accrued) that could be avoided by any
Credit Party or any ERISA Affiliate as a result of such transaction.

                                      A-24
<PAGE>

                  "Working Capital" means at any time, Borrower's Current Assets
less Current Liabilities at such time.

                  Rules of construction with respect to accounting terms used in
the Agreement or the other Loan Documents shall be as set forth in Annex G. All
other undefined terms contained in any of the Loan Documents shall, unless the
context indicates otherwise, have the meanings provided for by the Code to the
extent the same are used or defined therein; in the event that any term is
defined differently in different Articles or Divisions of the Code, the
definition contained in Article or Division 9 shall control. Unless otherwise
specified, references in the Agreement or any of the Appendices to a Section,
subsection or clause refer to such Section, subsection or clause as contained in
the Agreement. The words "herein," "hereof" and "hereunder" and other words of
similar import refer to the Agreement as a whole, including all Annexes,
Exhibits and Schedules, as the same may from time to time be amended, restated,
modified or supplemented, and not to any particular section, subsection or
clause contained in the Agreement or any such Annex, Exhibit or Schedule.

                  Wherever from the context it appears appropriate, each term
stated in either the singular or plural shall include the singular and the
plural, and pronouns stated in the masculine, feminine or neuter gender shall
include the masculine, feminine and neuter genders. The words "including",
"includes" and "include" shall be deemed to be followed by the words "without
limitation"; the word "or" is not exclusive; references to Persons include their
respective successors and assigns (to the extent and only to the extent
permitted by the Loan Documents) or, in the case of governmental Persons,
Persons succeeding to the relevant functions of such Persons; and all references
to statutes and related regulations shall include any amendments of the same and
any successor statutes and regulations. Whenever any provision in any Loan
Document refers to the knowledge (or an analogous phrase) of any Credit Party,
such words are intended to signify that such Credit Party has actual knowledge
or awareness of a particular fact or circumstance or that such Credit Party, if
it had exercised reasonable diligence, would have known or been aware of such
fact or circumstance.

                                      A-25
<PAGE>

                              ANNEX B (SECTION 1.2)
                                       TO
                                CREDIT AGREEMENT

                                LETTERS OF CREDIT

                  (a)      Issuance. Subject to the terms and conditions of the
Agreement, Agent and Lenders agree to incur, from time to time prior to the
Commitment Termination Date, upon the request of Borrower and for Borrower's
account, Letter of Credit Obligations by causing Letters of Credit to be issued
by GE Capital or a Subsidiary thereof or a bank or other legally authorized
Person selected by or acceptable to Agent in its sole discretion (each, an "L/C
Issuer") for Borrower's account and guaranteed by Agent; provided, that if the
L/C Issuer is a Lender, then such Letters of Credit shall not be guaranteed by
Agent but rather each Lender shall, subject to the terms and conditions
hereinafter set forth, purchase (or be deemed to have purchased) risk
participations in all such Letters of Credit issued with the written consent of
Agent, as more fully described in paragraph (b)(ii) below. The aggregate amount
of all such Letter of Credit Obligations shall not at any time exceed the least
of (i) Ten Million Dollars ($10,000,000.00) (the "L/C Sublimit") and (ii) the
Maximum Amount less the aggregate outstanding principal balance of the Revolving
Credit Advances, and (iii) the Borrowing Base less the aggregate outstanding
principal balance of the Revolving Credit Advances. No such Letter of Credit
shall have an expiry date that is more than one year following the date of
issuance thereof (other than customary evergreen provisions for additional
periods of up to one year), unless otherwise determined by the Agent, in its
sole discretion, and neither Agent nor Lenders shall be under any obligation to
incur Letter of Credit Obligations in respect of, or purchase risk
participations in, any Letter of Credit having an expiry date that is later than
the Commitment Termination Date.

                  (b)      (i)      Advances Automatic; Participations. In the
event that Agent or any Lender shall make any payment on or pursuant to any
Letter of Credit Obligation, such payment shall then be deemed automatically to
constitute a Revolving Credit Advance under Section 1.1(a) of the Agreement
regardless of whether a Default or Event of Default has occurred and is
continuing and notwithstanding Borrower's failure to satisfy the conditions
precedent set forth in Section 2, and each Lender shall be obligated to pay its
Pro Rata Share thereof in accordance with the Agreement. The failure of any
Lender to make available to Agent for Agent's own account its Pro Rata Share of
any such Revolving Credit Advance or payment by Agent under or in respect of a
Letter of Credit shall not relieve any other Lender of its obligation hereunder
to make available to Agent its Pro Rata Share thereof, but no Lender shall be
responsible for the failure of any other Lender to make available such other
Lender's Pro Rata Share of any such payment.

                           (ii)     If it shall be illegal or unlawful for
Borrower to incur Revolving Credit Advances as contemplated by paragraph (b)(i)
above because of an Event of Default described in Sections 8.1(h) or (i) or
otherwise or if it shall be illegal or unlawful for any Lender to be deemed to
have assumed a ratable share of the reimbursement obligations owed to an L/C
Issuer, or if the L/C Issuer is a Lender, then (A) immediately and without
further action whatsoever, each Lender shall be deemed to have irrevocably and
unconditionally purchased from Agent (or such L/C Issuer, as the case may be) an
undivided interest and participation equal

                                      B-1
<PAGE>

to such Lender's Pro Rata Share (based on the Revolving Loan Commitment) of the
Letter of Credit Obligations in respect of all Letters of Credit then
outstanding and (B) thereafter, immediately upon issuance of any Letter of
Credit, each Lender shall be deemed to have irrevocably and unconditionally
purchased from Agent (or such L/C Issuer, as the case may be) an undivided
interest and participation in such Lender's Pro Rata Share (based on the
Revolving Loan Commitment) of the Letter of Credit Obligations with respect to
such Letter of Credit on the date of such issuance. Each Lender shall fund its
participation in all payments or disbursements made under the Letters of Credit
in the same manner as provided in the Agreement with respect to Revolving Credit
Advances.

                  (c)      Cash Collateral.

                           (i)      If Borrower is required to provide cash
collateral for any Letter of Credit Obligations pursuant to the Agreement,
including Section 8.2 of the Agreement, prior to the Commitment Termination
Date, Borrower will pay to Agent for the ratable benefit of itself and Lenders
cash or cash equivalents acceptable to Agent ("Cash Equivalents") in an amount
equal to 102% of the maximum amount then available to be drawn under each
applicable Letter of Credit outstanding. Such funds or Cash Equivalents shall be
held by Agent in a cash collateral account (the "Cash Collateral Account")
maintained at a bank or financial institution acceptable to Agent. The Cash
Collateral Account shall be in the name of Borrower and shall be pledged to, and
subject to the control of, Agent, for the benefit of Agent and Lenders, in a
manner satisfactory to Agent. Borrower hereby pledges and grants to Agent, on
behalf of itself and Lenders, a security interest in all such funds and Cash
Equivalents held in the Cash Collateral Account from time to time and all
proceeds thereof, as security for the payment of all amounts due in respect of
the Letter of Credit Obligations and other Obligations, whether or not then due.
The Agreement, including this Annex B, shall constitute a security agreement
under applicable law.

                           (ii)     If any Letter of Credit Obligations, whether
or not then due and payable, shall for any reason be outstanding on the
Commitment Termination Date, Borrower shall either (A) provide cash collateral
therefor in the manner described above, or (B) cause all such Letters of Credit
and guaranties thereof, if any, to be canceled and returned, or (C) deliver a
stand-by letter (or letters) of credit in guaranty of such Letter of Credit
Obligations, which stand-by letter (or letters) of credit shall be of like tenor
and duration (plus thirty (30) additional days) as, and in an amount equal to
102% of, the aggregate maximum amount then available to be drawn under, the
Letters of Credit to which such outstanding Letter of Credit Obligations relate
and shall be issued by a Person, and shall be subject to such terms and
conditions, as are reasonably satisfactory to Agent.

                           (iii)    From time to time after funds are deposited
in the Cash Collateral Account by Borrower, whether before or after the
Commitment Termination Date, Agent may apply such funds or Cash Equivalents then
held in the Cash Collateral Account to the payment of any amounts, and in such
order as Agent may elect, as shall be or shall become due and payable by
Borrower to Agent and Lenders with respect to such Letter of Credit Obligations
of Borrower and, upon the satisfaction in full of all Letter of Credit
Obligations of Borrower, to any other Obligations of Borrower then due and
payable.

                                      B-2
<PAGE>

                           (iv)     Neither Borrower nor any Person claiming on
behalf of or through Borrower shall have any right to withdraw any of the funds
or Cash Equivalents held in the Cash Collateral Account, except that upon the
termination of all Letter of Credit Obligations and the payment of all amounts
payable by Borrower to Agent and Lenders in respect thereof, any funds remaining
in the Cash Collateral Account shall be applied to other Obligations then due
and owing and upon payment in full of such Obligations, any remaining amount
shall be paid to Borrower or as otherwise required by law. Interest earned on
deposits in the Cash Collateral Account shall be held as additional collateral.

                  (d)      Fees and Expenses. Borrower agrees to pay to Agent
for the benefit of Lenders, as compensation to such Lenders for Letter of Credit
Obligations incurred hereunder, (i) all customary out-of-pocket costs and
expenses incurred by Agent or any Lender in issuing or arranging for the
issuance of such Letter of Credit Obligations, and (ii) for each month during
which any Letter of Credit Obligation shall remain outstanding, a fee (the
"Letter of Credit Fee") in an amount equal to the Applicable L/C Margin from
time to time in effect multiplied by the maximum amount available from time to
time to be drawn under the applicable Letter of Credit. Such fee shall be paid
to Agent for the benefit of the Lenders in arrears, on the first day of each
month and on the Commitment Termination Date. In addition, Borrower shall pay to
any L/C Issuer, on demand, such customary fees (including per annum fees) and
other customary charges and expenses of such L/C Issuer in respect of the
issuance, negotiation, acceptance, amendment, transfer and payment of such
Letter of Credit or otherwise payable pursuant to the application and related
documentation under which such Letter of Credit is issued, in accordance with
the schedule for such fees, charges and expenses then in effect.

                  (e)      Request for Incurrence of Letter of Credit
Obligations. Borrower shall give Agent at least two (2) Business Days' prior
written notice requesting the incurrence of any Letter of Credit Obligation. The
notice shall be accompanied by the form of the Letter of Credit (which shall be
acceptable to the L/C Issuer) and a completed Application for Standby Letter of
Credit, Application and Agreement for Documentary Letter of Credit or
Application for Documentary Letter of Credit, as applicable, in the form of
Exhibit B-1, B-2 or B-3 attached hereto. Notwithstanding anything contained
herein to the contrary, Letter of Credit applications by Borrower and approvals
by Agent and the L/C Issuer may be made and transmitted pursuant to electronic
codes and security measures mutually agreed upon and established by and among
Borrower, Agent and the L/C Issuer.

                  (f)      Obligation Absolute. The obligation of Borrower to
reimburse Agent and Lenders for payments made with respect to any Letter of
Credit Obligation shall be absolute, unconditional and irrevocable, without
necessity of presentment, demand, protest or other formalities, and the
obligations of each Lender to make payments to Agent with respect to Letters of
Credit shall be unconditional and irrevocable. Such obligations of Borrower and
Lenders shall be paid strictly in accordance with the terms hereof under all
circumstances including the following:

                           (i)      any lack of validity or enforceability of
                  any Letter of Credit or the Agreement or the other Loan
                  Documents or any other agreement;

                                      B-3
<PAGE>

                           (ii)     the existence of any claim, setoff, defense
                  or other right that Borrower or any of its Affiliates or any
                  Lender may at any time have against a beneficiary or any
                  transferee of any Letter of Credit (or any Persons or entities
                  for whom any such transferee may be acting), Agent, any
                  Lender, or any other Person, whether in connection with the
                  Agreement, the Letter of Credit, the transactions contemplated
                  herein or therein or any unrelated transaction (including any
                  underlying transaction between Borrower or any of its
                  Affiliates and the beneficiary for which the Letter of Credit
                  was procured);

                           (iii)    any draft, demand, certificate or any other
                  document presented under any Letter of Credit proving to be
                  forged, fraudulent, invalid or insufficient in any respect or
                  any statement therein being untrue or inaccurate in any
                  respect;

                           (iv)     payment by Agent (except as otherwise
                  expressly provided in paragraph (g)(ii)(C) below) or any L/C
                  Issuer under any Letter of Credit or guaranty thereof against
                  presentation of a demand, draft or certificate or other
                  document that does not comply with the terms of such Letter of
                  Credit or such guaranty;

                           (v)      any other circumstance or event whatsoever,
                  that is similar to any of the foregoing; or

                           (vi)     the fact that a Default or an Event of
                  Default has occurred and is continuing.

                  (g)      Indemnification; Nature of Lenders' Duties.

                           (i)      In addition to amounts payable as elsewhere
provided in the Agreement, Borrower hereby agrees to pay and to protect,
indemnify, and save harmless Agent and each Lender from and against any and all
claims, demands, liabilities, damages, losses, costs, charges and expenses
(including reasonable attorneys' fees and allocated costs of internal counsel)
that Agent or any Lender may incur or be subject to as a consequence, direct or
indirect, of (A) the issuance of any Letter of Credit or guaranty thereof, or
(B) the failure of Agent or any Lender seeking indemnification or of any L/C
Issuer to honor a demand for payment under any Letter of Credit or guaranty
thereof as a result of any act or omission, whether rightful or wrongful, of any
present or future de jure or de facto government or Governmental Authority, in
each case other than to the extent solely as a result of the gross negligence or
willful misconduct of Agent or such Lender (as finally determined by a court of
competent jurisdiction).

                           (ii)     As between Agent and any Lender and
Borrower, Borrower assumes all risks of the acts and omissions of, or misuse of
any Letter of Credit by beneficiaries, of any Letter of Credit. In furtherance
and not in limitation of the foregoing, to the fullest extent permitted by law,
neither Agent nor any Lender shall be responsible for: (A) the form, validity,
sufficiency, accuracy, genuineness or legal effect of any document issued by any
party in connection with the application for and issuance of any Letter of
Credit, even if it should in fact prove to be in any or all respects invalid,
insufficient, inaccurate, fraudulent or forged; (B) the

                                      B-4
<PAGE>

validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign any Letter of Credit or the rights or benefits
thereunder or proceeds thereof, in whole or in part, that may prove to be
invalid or ineffective for any reason; (C) failure of the beneficiary of any
Letter of Credit to comply fully with conditions required in order to demand
payment under such Letter of Credit; provided, that in the case of any payment
by Agent under any Letter of Credit or guaranty thereof, Agent shall be liable
to the extent such payment was made solely as a result of its gross negligence
or willful misconduct (as finally determined by a court of competent
jurisdiction) in determining that the demand for payment under such Letter of
Credit or guaranty thereof complies on its face with any applicable requirements
for a demand for payment under such Letter of Credit or guaranty thereof; (D)
errors, omissions, interruptions or delays in transmission or delivery of any
messages, by mail, cable, telegraph, telex or otherwise, whether or not they may
be in cipher; (E) errors in interpretation of technical terms; (F) any loss or
delay in the transmission or otherwise of any document required in order to make
a payment under any Letter of Credit or guaranty thereof or of the proceeds
thereof; (G) the credit of the proceeds of any drawing under any Letter of
Credit or guaranty thereof; and (H) any consequences arising from causes beyond
the control of Agent or any Lender. None of the above shall affect, impair, or
prevent the vesting of any of Agent's or any Lender's rights or powers hereunder
or under the Agreement.

                           (iii)    Nothing contained herein shall be deemed to
limit or to expand any waivers, covenants or indemnities made by Borrower in
favor of any L/C Issuer in any letter of credit application, reimbursement
agreement or similar document, instrument or agreement between Borrower and such
L/C Issuer, including a Master Standby Agreement, an Application and Agreement
for Documentary Letter of Credit or a Master Documentary Agreement entered into
with Agent.

                                      B-5
<PAGE>

                              ANNEX C (SECTION 1.8)
                                       TO
                                CREDIT AGREEMENT

                             CASH MANAGEMENT SYSTEM

                  Borrower shall, and shall cause its Subsidiaries to, establish
and maintain the Cash Management Systems described below:

                  (a)      Except with respect to any Excluded Account, on or
before 45 days following the Closing Date and until the Termination Date,
Borrower shall (i) establish lock boxes ("Lock Boxes") or at Agent's discretion,
blocked accounts ("Blocked Accounts") at one or more of the banks set forth in
Disclosure Schedule (3.19), and shall request in writing and otherwise take such
reasonable steps to ensure that all account debtors with respect to Accounts in
which the Agent maintains a Lien forward payment directly to such Lock Boxes,
and (ii) deposit and cause its Subsidiaries to deposit or cause to be deposited
promptly, and in any event no later than the first Business Day after the date
of receipt thereof, all cash, checks, drafts or other similar items of payment
relating to or constituting payments made in respect of any and all Collateral
(whether or not otherwise delivered to a Lock Box) into one or more Blocked
Accounts in Borrower's name or any such Subsidiary's name and at a bank
identified in Disclosure Schedule (3.19) (each, a "Relationship Bank"); it being
understood that as long as the Securitization Facility remains in effect, with
respect to payments on Accounts from account debtors, the arrangements in effect
under the Securitization Documents satisfy the requirements set forth in this
sentence, and as it relates to such payments, in clause (c) below. On or before
45 days following the Closing Date, Borrower shall have established a
concentration account in its name ("Concentration Account") at the bank or banks
that shall be designated as the Concentration Account bank for Borrower in
Disclosure Schedule (3.19) ("Concentration Account Bank"), which bank shall be
reasonably satisfactory to Agent; it being understood that as long as the
Securitization Facility remains in effect, the arrangements in effect under the
Securitization Documents satisfy the requirements set forth in this sentence and
as it relates to the Concentration Account Bank, in clause (c) below.

                  (b)      Borrower may maintain, in its name, an account (each
a "Disbursement Account" and collectively, the "Disbursement Accounts") at a
bank reasonably acceptable to Agent into which Agent shall, from time to time,
deposit proceeds of Revolving Credit Advances made to Borrower pursuant to
Section 1.1 for use by Borrower solely in accordance with the provisions of
Section 1.4.

                  (c)      On or before 45 days following the Closing Date (or
such later date as Agent shall consent to in writing), the Concentration Account
Bank, each bank where a Disbursement Account which is not an Excluded Account is
maintained and all other Relationship Banks (other than with respect to Excluded
Accounts) shall have entered into tri-party blocked account agreements with
Agent, for the benefit of itself and Lenders, and Borrower and Subsidiaries
thereof, as applicable, in form and substance reasonably acceptable to

                                      C-1
<PAGE>

Agent, which shall become operative on or prior to 45 days following the Closing
Date. Each such blocked account agreement shall provide, among other things,
that (i) all items of payment deposited in such account and proceeds thereof
deposited in the Concentration Account are held by such bank as agent or
bailee-in-possession for Agent, on behalf of itself and Lenders, (ii) the bank
executing such agreement has no rights of setoff or recoupment or any other
claim against such account, as the case may be, other than for payment of its
service fees and other charges directly related to the administration of such
account and for returned checks or other items of payment, and (iii) from and
after the applicable dates on which such tri-party blocked account agreements
have been executed and delivered (A) with respect to banks at which a Blocked
Account is maintained, such bank agrees, from and after the receipt of an
Activation Notice, to forward immediately all amounts in each Blocked Account to
the Concentration Account Bank and to commence the process of daily sweeps from
such Blocked Account into the Concentration Account and (B) with respect to the
Concentration Account Bank, such bank agrees from and after the receipt of an
Activation Notice from Agent upon the occurrence of an Activation Event, to
immediately forward all amounts received in the Concentration Account to the
Collection Account through daily sweeps from such Concentration Account into the
Collection Account. From and after the date Agent has delivered an Activation
Notice to any bank with respect to any Blocked Account(s), Borrower shall not,
or shall not cause or permit any Subsidiary thereof to, accumulate or maintain
cash in Disbursement Accounts or payroll accounts as of any date of
determination in excess of checks outstanding against such accounts as of that
date and amounts necessary to meet minimum balance requirements. Upon the
occurrence of a Deactivation Event (upon the written request of the Borrower),
the Agent shall negotiate in good faith with the Borrower to send a Deactivation
Notice and establish procedures for instructing each recipient of such
Deactivation Notice to re-commence following instructions of the Borrower with
respect to the particular account.

                  (d)      So long as no Default or Event of Default has
occurred and is continuing, Borrower may amend Disclosure Schedule (3.19) to add
or replace a Relationship Bank, Lock Box or Blocked Account or to replace any
Concentration Account or Disbursement Account; provided, that (i) Agent shall
have consented in writing in advance to the opening of such account or Lock Box
with the relevant bank and (ii) prior to the time of the opening of such account
or Lock Box, Borrower or its Subsidiaries, as applicable, and such bank shall
have executed and delivered to Agent a tri-party blocked account agreement, in
form and substance reasonably satisfactory to Agent. Borrower shall close any of
its Concentration Account, Disbursement Accounts, Lock Boxes or Blocked Accounts
(and establish replacement accounts in accordance with the foregoing sentence)
promptly and in any event within thirty (30) days following notice from Agent
that the creditworthiness of any bank holding any such account or Lock Box is no
longer acceptable in Agent's reasonable judgment, or as promptly as practicable
and in any event within sixty (60) days following notice from Agent that the
operating performance, funds transfer or availability procedures or performance
with respect to accounts or Lock Boxes of the bank holding such accounts or
Agent's liability under any tri-party blocked account agreement with such bank
is no longer acceptable in Agent's reasonable judgment. With respect to any
addition or replacement described above that is subject to the terms of the

                                      C-2
<PAGE>

Securitization Documents, as long as the Securitization Facility remains in
effect, the Agent shall be deemed to have given its consent to any such addition
or replacement effected in accordance with the terms of the Securitization
Documents.

                  (e)      The Lock Boxes, Blocked Accounts, Disbursement
Accounts and the Concentration Account shall be cash collateral accounts, with
all cash, checks and other similar items of payment in such accounts securing
payment of the Loans and all other Obligations, and in which Borrower and each
Subsidiary thereof shall have granted a Lien to Agent, on behalf of itself and
Lenders, pursuant to the Security Agreement.

                  (f)      Subject to the terms of the Intercreditor Agreement,
all amounts deposited in the Collection Account shall be deemed received by
Agent in accordance with Section 1.10 and shall be applied (and allocated) by
Agent in accordance with Section 1.11. In no event shall any amount be so
applied unless and until such amount shall have been credited in immediately
available funds to the Collection Account.

                  (g)      Borrower shall and shall cause its Affiliates,
officers, employees, agents, directors or other Persons acting for or in concert
with Borrower (each a "Related Person") to (i) hold in trust for Agent, for the
benefit of itself and Lenders, all checks, cash and other items of payment
received by Borrower or any such Related Person that represents proceeds of
Collateral, and (ii) within one (1) Business Day after receipt by Borrower or
any such Related Person of any checks, cash or other items of payment, deposit
the same into a Blocked Account. Borrower on behalf of itself and each Related
Person acknowledges and agrees that all cash, checks or other items of payment
constituting proceeds of Collateral are part of the Collateral. All proceeds of
the sale or other disposition of any Collateral, shall be deposited directly
into Blocked Accounts.

                                      C-3
<PAGE>

                            ANNEX D (SECTION 2.1(a))
                                       TO
                                CREDIT AGREEMENT

                                CLOSING CHECKLIST

                                    Attached.

                                      D-1
<PAGE>

                            ANNEX E (SECTION 4.1(a))
                                       TO
                                CREDIT AGREEMENT

                FINANCIAL STATEMENTS AND PROJECTIONS -- REPORTING

                  Borrower shall deliver or cause to be delivered to Agent or to
Agent and Lenders, as indicated, the following:

                  (a)      Monthly Financials. To Agent and Lenders, within
thirty (30) days after the end of each Fiscal Month (other than the third Fiscal
Month in each Fiscal Quarter), financial information regarding Holdings and its
Subsidiaries, certified by the Chief Financial Officer of Borrower, consisting
of consolidated and consolidating (i) unaudited balance sheets as of the close
of such Fiscal Month and the related statements of income and cash flows for
that portion of the Fiscal Year ending as of the close of such Fiscal Month; and
(ii) unaudited statements of income and cash flows for such Fiscal Month,
setting forth in comparative form the figures for the corresponding period in
the prior year and the figures contained in the Projections for such Fiscal
Year, all prepared in accordance with GAAP (subject to normal year-end
adjustments). Such financial information shall be accompanied by the
certification of the Chief Financial Officer of Borrower that (i) such financial
information presents fairly in all material respects in accordance with GAAP
(except for the absence of notes thereto and subject to normal year-end
adjustments) the financial position and results of operations of Borrower and
its Subsidiaries, on a consolidated and consolidating basis, in each case as at
the end of such Fiscal Month and for that portion of the Fiscal Year then ended
and (ii) any other information presented is true, correct and complete in all
material respects and that there was no Default or Event of Default in existence
as of such time or, if a Default or Event of Default has occurred and is
continuing, describing the nature thereof and all efforts undertaken to cure
such Default or Event of Default.

                  (b)      Quarterly Financials. To Agent and Lenders, within
forty-five (45) days after the end of each Fiscal Quarter (other than the fourth
Fiscal Quarter), consolidated and consolidating financial information regarding
Holdings and its Subsidiaries, certified by the Chief Financial Officer of
Borrower, including (i) unaudited balance sheets as of the close of such Fiscal
Quarter and the related statements of income and cash flow for that portion of
the Fiscal Year ending as of the close of such Fiscal Quarter and (ii) unaudited
statements of income and cash flows for such Fiscal Quarter, in each case
setting forth in comparative form the figures for the corresponding period in
the prior year and the figures contained in the Projections for such Fiscal
Year, all prepared in accordance with GAAP (except for the absence of notes
thereto and subject to normal year-end adjustments). Such financial information
shall be accompanied by (A) a statement in reasonable detail (each, a
"Compliance Certificate" showing the calculations used in determining compliance
with each of the Financial Covenants during any Fiscal Quarter in which such
Financial Covenants are being measured and (B) the certification of the Chief
Financial Officer of Borrower that (i) such financial information presents
fairly in all material respects in accordance with GAAP (except for the absence
of notes thereto and subject to normal year-end adjustments) the financial
position, results of operations and statements of cash flows of Borrower and its
Subsidiaries, on both a consolidated and consolidating basis, as at the end of
such Fiscal Quarter and for that portion of the Fiscal Year then ended, (ii) any
other

                                      E-1
<PAGE>

information presented is true, correct and complete in all material respects and
that there was no Default or Event of Default in existence as of such time or,
if a Default or Event of Default has occurred and is continuing, describing the
nature thereof and all efforts undertaken to cure such Default or Event of
Default. In addition, Borrower shall deliver to Agent and Lenders, within
forty-five (45) days after the end of each Fiscal Quarter, a management
discussion and analysis that includes a comparison to budget for that Fiscal
Quarter and a comparison of performance for that Fiscal Quarter to the
corresponding period in the prior year.

                  (c)      Budget. To Agent and Lenders, as soon as available,
but not later than (i) thirty (30) days after the end of each Fiscal Year, a
preliminary Budget for the next Fiscal Year, and (ii) not later than ninety (90)
days after the end of each Fiscal Year, the final Budget for the next Fiscal
Year, as approved by the Board of Directors of Holdings.

                  (d)      Annual Audited Financials. To Agent and Lenders,
within ninety (90) days after the end of each Fiscal Year, audited Financial
Statements for Holdings and its Subsidiaries on a consolidated and (unaudited)
consolidating basis, consisting of balance sheets and statements of income and
retained earnings and cash flows, setting forth in comparative form in each case
the figures for the previous Fiscal Year, which Financial Statements shall be
prepared in accordance with GAAP and certified without qualification, by Crisp
Hughes Evans LLP (or its successor) or another independent certified public
accounting firm acceptable to Agent. Such Financial Statements shall be
accompanied by (i) a statement prepared in reasonable detail showing the
calculations used in determining compliance with each of the Financial
Covenants, (ii) a report from such accounting firm to the effect that, in
connection with their audit examination, nothing has come to their attention to
cause them to believe that a Default or Event of Default has occurred with
respect to the Financial Covenants (or specifying those Defaults and Events of
Default that they became aware of), it being understood that such audit
examination extended only to accounting matters and that no special
investigation was made with respect to the existence of Defaults or Events of
Default, (iii) the annual letters to such accountants in connection with their
audit examination detailing contingent liabilities and material litigation
matters, and (iv) the certification of the Chief Executive Officer or Chief
Financial Officer of Borrower that all such Financial Statements present fairly
in all material respects in accordance with GAAP the financial position, results
of operations and statements of cash flows of Holdings and its Subsidiaries on a
consolidated and consolidating basis, as at the end of such Fiscal Year and for
the period then ended, and that there was no Default or Event of Default in
existence as of such time or, if a Default or Event of Default has occurred and
is continuing, describing the nature thereof and all efforts undertaken to cure
such Default or Event of Default.

                  (e)      Management Letters. To Agent and Lenders, within five
(5) Business Days after receipt thereof by any Credit Party, copies of all
management letters, exception reports or similar letters or reports received by
the audit committee of such Credit Party or Holdings from its independent
certified public accountants.

                  (f)      Default Notices. To Agent and Lenders, as soon as
practicable, and in any event within five (5) Business Days after an executive
officer of Borrower has actual knowledge of the existence of any Default, Event
of Default or other event that has had a Material Adverse

                                      E-2
<PAGE>

Effect, telephonic or telecopied notice specifying the nature of such Default or
Event of Default or other event, including the anticipated effect thereof, which
notice, if given telephonically, shall be promptly confirmed in writing on the
next Business Day.

                  (g)      SEC Filings and Press Releases. To Agent and Lenders,
promptly upon their becoming available, copies of: (i) all Financial Statements,
reports, notices and proxy statements made publicly available by any Credit
Party to its security holders; (ii) all regular and periodic reports and all
registration statements and prospectuses, if any, filed by any Credit Party with
any securities exchange or with the Securities and Exchange Commission or any
governmental or private regulatory authority; and (iii) all press releases and
other statements made available by any Credit Party to the public concerning
material changes or developments in the business of any such Person.

                  (h)      Subordinated Debt and Equity Notices. To Agent, as
soon as practicable, copies of all material written notices given or received by
any Credit Party with respect to any Subordinated Debt or Stock of such Person,
and, within two (2) Business Days after any Credit Party obtains knowledge of
any matured or unmatured event of default with respect to any Subordinated Debt,
notice of such event of default.

                  (i)      Supplemental Schedules. To Agent, supplemental
disclosures, if any, required by Section 5.6.

                  (j)      Litigation. To Agent in writing, promptly upon
learning thereof, notice of any Litigation commenced or threatened against any
Credit Party that (i) seeks damages in an amount that would be reasonably likely
to cause a Material Adverse Effect, (ii) seeks injunctive relief, (iii) is
asserted or instituted against any Plan, its fiduciaries or its assets or
against any Credit Party or ERISA Affiliate in connection with any Plan, (iv)
alleges criminal misconduct by any Credit Party, (v) alleges the violation of
any law regarding, or seeks remedies in connection with, any Environmental
Liabilities or (vi) involves any product recall.

                  (k)      Insurance Notices. To Agent, disclosure of losses or
casualties required by Section 5.4.

                  (l)      Lease Default Notices. To Agent, (i) within five (5)
Business Days after receipt thereof, copies of any and all default notices
received under or with respect to any leased location or public warehouse where
Collateral is located, other than Collateral not having a book value in excess
of $500,000 in the aggregate, (ii) during the continuation of an Activation
Event, monthly within three (3) Business Days after payment thereof, evidence of
payment of lease or rental payments as to each leased or rented location at
which Inventory is located and for which a landlord or bailee waiver has not
been obtained, other than any such Inventory having a book value of $500,000 or
less in the aggregate, and (iii) such other notices or documents as Agent may
reasonably request.

                  (m)      Hedging Agreements. During the continuation of any
Activation Event, to Agent on a monthly basis not later than the fifteenth day
of each calendar month, a report

                                      E-3
<PAGE>

describing all material interest rate, commodity or currency hedging agreements
or amendments thereto entered into during the preceding calendar month.

                  (n)      Other Documents. To Agent and Lenders, such other
financial and other information respecting any Credit Party's business or
financial condition as Agent or any Lender shall from time to time reasonably
request.

                                      E-4
<PAGE>

                            ANNEX F (SECTION 4.1(b))
                                       TO
                                CREDIT AGREEMENT

                               COLLATERAL REPORTS

                  Borrower shall deliver or cause to be delivered the following:

                  (a)      To Agent, not later than the fifteenth Business Day
after the end of each Fiscal Month (together, upon Agent's request, with a copy
of all or any part of the following reports requested by any Lender in writing
after the Closing Date), the following: a Borrowing Base Certificate with
respect to Borrower (including Eligible Inventory by type: raw materials, work
in process and finished goods), in each case in such detail and accompanied by
such supporting detail and documentation as shall be requested by Agent in its
reasonable discretion;

                  (b)      To Agent, at the time of delivery of each of the
monthly Financial Statements delivered pursuant to Annex E:

                           (i)      a reconciliation of the month-end Inventory
         reports of Borrower to such Borrower's general ledger and monthly
         Financial Statements delivered pursuant to such Annex E; and

                           (ii)     month-end reports of the locations of all
         Inventory of Borrower by location and type (raw materials, work in
         process and finished goods) with a supporting perpetual Inventory
         report,

in each case in such detail and accompanied by such supporting detail and
documentation as shall be requested by Agent in its reasonable discretion; and

                  (c)      Such other reports, statements and reconciliations
with respect to the Borrowing Base or the Collateral or Obligations of any or
all Credit Parties as Agent shall from time to time request in its reasonable
discretion.

                                      F-1
<PAGE>

                             ANNEX G (SECTION 6.10)
                                       TO
                                CREDIT AGREEMENT

                               FINANCIAL COVENANTS

                  Borrower shall not breach or fail to comply with any of the
following financial covenants, each of which shall be calculated in accordance
with GAAP consistently applied:

                 (a)      Minimum Fixed Charge Coverage Ratio. With respect to
any Fiscal Quarter in which Excess Availability falls below $20,000,000 and
average Excess Availability during the four calendar week period immediately
preceding such date is $20,000,000 or less, Holdings and its Subsidiaries shall
have on a consolidated basis, as of the end of the most recent calendar month, a
Fixed Charge Coverage Ratio for the 12-month period then ended of not less than
1.0 to 1.0, with dividends paid and Capital Expenditures being multiplied by
4.00 for the first Fiscal Quarter of Fiscal Year 2004, 2.00 for the first two
Fiscal Quarters of Fiscal Year 2004 and 1.33 for the first three Fiscal Quarters
of Fiscal Year 2004.

                 (b)      Minimum EBITDA. With respect to any Fiscal Quarter in
which Excess Availability falls below $20,000,000 and average Excess
Availability during the four calendar week period immediately preceding such
date is $20,000,000 or less, Holdings and its Subsidiaries on a consolidated
basis shall have, as of the end of the most recent calendar month, as set forth
below, EBITDA for the 12-month period then ended of not less than the following:

                 $35,000,000 for the 1st Fiscal Quarter of Fiscal Year 2004;
                 $35,000,000 for the 2nd Fiscal Quarter of Fiscal Year 2004;
                 $35,000,000 for the 3rd Fiscal Quarter of Fiscal Year 2004;
                 $35,000,000 for the 4th Fiscal Quarter of Fiscal Year 2004;
                 $37,000,000 for the 1st Fiscal Quarter of Fiscal Year 2005;
                 $39,000,000 for the 2nd Fiscal Quarter of Fiscal Year 2005;
                 $42,000,000 for the 3rd Fiscal Quarter of Fiscal Year 2005;
                 $45,000,000 for the 4th Fiscal Quarter of Fiscal Year 2005;
                 $47,000,000 for the 1st Fiscal Quarter of Fiscal Year 2006; and
                 $50,000,000 for each Fiscal Quarter ending thereafter.

                 (c)      Unless otherwise specifically provided herein, any
accounting term used in the Agreement shall have the meaning customarily given
such term in accordance with GAAP, and all financial computations hereunder
shall be computed in accordance with GAAP consistently applied. That certain
items or computations are explicitly modified by the phrase "in accordance with
GAAP" shall in no way be construed to limit the foregoing. If any "Accounting
Changes" (as defined below) occur and such changes result in a change in the
calculation of the financial covenants, standards or terms used in the Agreement
or any other Loan Document, then Borrower, Agent and Lenders agree to enter into
negotiations in order to amend such provisions of the Agreement so as to
equitably reflect such Accounting Changes with the desired result that the
criteria for evaluating Borrower's and its Subsidiaries' financial condition
shall be the same after such Accounting Changes as if such Accounting Changes
had

                                      G-1
<PAGE>

not been made; provided, however, that the agreement of Requisite Lenders to any
required amendments of such provisions shall be sufficient to bind all Lenders.
"Accounting Changes" means (i) changes in accounting principles required by the
promulgation of any rule, regulation, pronouncement or opinion by the Financial
Accounting Standards Board of the American Institute of Certified Public
Accountants (or successor thereto or any agency with similar functions), (ii)
changes in accounting principles concurred in by Borrower's certified public
accountants; (iii) purchase accounting adjustments under A.P.B. 16 or 17 and
EITF 88-16, and the application of the accounting principles set forth in FASB
109, including the establishment of reserves pursuant thereto and any subsequent
reversal (in whole or in part) of such reserves; and (iv) the reversal of any
reserves established as a result of purchase accounting adjustments. All such
adjustments resulting from expenditures made subsequent to the Closing Date
(including capitalization of costs and expenses or payment of pre-Closing Date
liabilities) shall be treated as expenses in the period the expenditures are
made and deducted as part of the calculation of EBITDA in such period. If Agent,
Borrower and Requisite Lenders agree upon the required amendments, then after
appropriate amendments have been executed and the underlying Accounting Change
with respect thereto has been implemented, any reference to GAAP contained in
the Agreement or in any other Loan Document shall, only to the extent of such
Accounting Change, refer to GAAP, consistently applied after giving effect to
the implementation of such Accounting Change. If Agent, Borrower and Requisite
Lenders cannot agree upon the required amendments within thirty (30) days
following the date of implementation of any Accounting Change, then all
Financial Statements delivered and all calculations of financial covenants and
other standards and terms in accordance with the Agreement and the other Loan
Documents shall be prepared, delivered and made without regard to the underlying
Accounting Change. For purposes of Section 8.1, a breach of a Financial Covenant
contained in this Annex G shall be deemed to have occurred as of any date of
determination by Agent that such breach has in fact occurred or in the absence
of such determination, as of the last day of any specified measurement period in
which such breach has in fact occurred, regardless of when the Financial
Statements reflecting such breach are delivered to Agent.

                  (d)      Historical Financial Information. The parties
acknowledge and agree that, for purposes of determining compliance with the
foregoing financial covenants through Fiscal Year 2004, Net Interest Expense and
EBITDA for the 2nd, 3rd and 4th Fiscal Quarters of Fiscal Year 2003, to the
extent included in such determination, shall equal the following amounts:

<TABLE>
<CAPTION>
                                      Net
                                 Interest Expense               EBITDA
<S>                              <C>                          <C>
2nd Quarter of Fiscal Year 2003    $5,268,000                 $15,910,000
3rd Quarter of Fiscal Year 2003    $5,006,000                 $17,992,000
4th Quarter of Fiscal Year 2003    $5,275,000                 $ 7,829,000
</TABLE>

                                      G-2
<PAGE>

                            ANNEX H (SECTION 9.9(A))
                                       to
                                CREDIT AGREEMENT

                            WIRE TRANSFER INFORMATION

         Name:                      General Electric Capital Corporation
         Bank:                      DeutscheBank Trust Company Americas
                                    New York, New York
         ABA #:                     021001033
         Account #:                 50232854
         Account Name:              GECC/CAF Depository
         Reference:                 CFN 5336

                                      H-1
<PAGE>

                             ANNEX I (SECTION 11.10)
                                       TO
                                CREDIT AGREEMENT

                                NOTICE ADDRESSES

(A)      If to Agent or GE Capital, at

         General Electric Capital Corporation
         1100 Abernathy Road, Suite 900
         Atlanta, Georgia 30328
         Attention: Avondale Mills, Inc. Account Manager
         Telecopier No.: (678) 320-8902
         Telephone No.: (678) 320-8900

         with copies to:

         General Electric Capital Corporation
         201 High Ridge Road
         Stamford, Connecticut 06927-5100
         Attention: Corporate Counsel - Commercial Finance
         Telecopier No.: (203) 316-7889
         Telephone No.: (203) 316-7552

(B)      If to Borrower, at

         Avondale Mills, Inc.
         506 South Broad Street
         P.O. Box 1109
         Monroe, Ga 30655
         Attn: Jack R. Altherr, Jr.
         Telecopier No.: (770) 267-2543
         Telephone No.: (770) 267-2226

         With copies to:

         Avondale Mills, Inc.
         Attention: Susan Johnson
         133 Marshall Street
         Graniteville, SC 29829

         and

         King & Spalding LLP
         191 Peachtree Street
         Atlanta, Georgia 30303
         Attention: Albert H. Conrad

                                      I-1
<PAGE>

         Telecopier No.:  (404) 472-5149

                                      I-2
<PAGE>

         ANNEX J (FROM ANNEX A - REVOLVING LOAN COMMITMENT DEFINITION)
                                       to
                                CREDIT AGREEMENT

<TABLE>
<CAPTION>
                                                          Lender(s)
<S>                                        <C>
Revolving Loan Commitment $40,000,000      General Electric Capital Corporation
</TABLE>

                                      J-1
<PAGE>

                                EXHIBIT 1.1(a)(i)

                       NOTICE OF REVOLVING CREDIT ADVANCE

General Electric Capital Corporation
1100 Abernathy Road, Suite 900
Atlanta, Georgia 30328
Attention: Avondale Mills, Inc. Account Manager
Telecopier No.: 678-320-8902
Telephone No.: 678-320-8900

                  Re:      Credit Agreement dated as of November 7, 2003
                           ("Credit Agreement") between Avondale Mills, Inc.
                           (the "Borrower"), as borrower, the Credit Parties
                           party thereto, the financial institutions from time
                           to time parties thereto as Lenders and General
                           Electric Capital Corporation, as agent for the
                           Lenders (the "Agent").

Ladies and Gentlemen:

                  Pursuant to Section 1.1(a)(i) of the Credit Agreement, the
undersigned hereby requests that the following Revolving Credit Advance be made
under the Credit Agreement:

Principal Amount of Revolving Credit
Advance pursuant to Section 1.1(a)(i):            $_____________________________

Excess Availability after giving effect to
the requested Credit Advance:                     $_____________________________

Business Date on which
the Revolving Credit Advance is to be made:       ______________________________

Method of Funding:            Wire Transfer  _________

Interest Rate:                LIBOR Rate     _________   Index Rate  _________

The Borrower hereby represents and warrants to the Agent as of the date hereof
and as of the date of the requested Revolving Credit Advance that, except to the
extent that a representation or warranty expressly relates to an earlier date
and except for changes therein expressly permitted or expressly contemplated by
the Credit Agreement, the representations and warranties contained in Section 3
of the Credit Agreement and in each other Loan Document are correct and will
remain true and correct after giving effect to the requested Revolving Credit
Advance and the application of the proceeds therefrom and that no Default or
Event of Default has occurred and is continuing, or would result from the making
of the requested Revolving Loan or the application of proceeds therefrom.

                  Capitalized terms used herein without definition have the
meaning given to them in the Credit Agreement.

<PAGE>

                  IN WITNESS WHEREOF, the undersigned has caused this Notice of
Revolving Credit Advance to be executed by its duly authorized officer this
_____ day of ____________ 200_.

                                        AVONDALE MILLS, INC., as Borrower

                                        By:____________________________________
                                        Title:_________________________________

                                        2
<PAGE>

                               EXHIBIT 1.1(a)(ii)
                                       to
                                CREDIT AGREEMENT

                                  FORM OF NOTE

                                                                Atlanta, Georgia

$40,000,000                                                     November 7, 2003

                  FOR VALUE RECEIVED, the undersigned, AVONDALE MILLS, INC., an
Alabama corporation ("Borrower"), HEREBY PROMISES TO PAY to the order of GENERAL
ELECTRIC CAPITAL CORPORATION ("Lender"), at the offices of GENERAL ELECTRIC
CAPITAL CORPORATION, a Delaware corporation, as Agent for Lenders ("Agent"), at
its address at 1100 Abernathy Road, Suite 900, Atlanta, GA 30328, or at such
other place as Agent may designate from time to time in writing, in lawful money
of the United States of America and in immediately available funds, the amount
of FORTY MILLION DOLLARS AND NO/100 CENTS ($40,000,000) or, if less, the
aggregate unpaid amount of all Revolving Credit Advances made to the undersigned
under the "Credit Agreement" (as hereinafter defined). All capitalized terms
used but not otherwise defined herein have the meanings given to them in the
Credit Agreement or in Annex A thereto.

                  This Note is one of the Notes issued pursuant to that certain
Credit Agreement dated as of November 7, 2003 by and among Borrower, the other
Persons named therein as Credit Parties, Agent, Lender and the other Persons
signatory thereto from time to time as Lenders (including all annexes, exhibits
and schedules thereto, and as from time to time amended, restated, supplemented
or otherwise modified, the "Credit Agreement"), and is entitled to the benefit
and security of the Credit Agreement, the Security Agreement and all of the
other Loan Documents referred to therein. Reference is hereby made to the Credit
Agreement for a statement of all of the terms and conditions under which the
Loans evidenced hereby are made and are to be repaid. The date and amount of
each Revolving Credit Advance made by Lenders to Borrower, the rates of interest
applicable thereto and each payment made on account of the principal thereof,
shall be recorded by Agent on its books; provided that the failure of Agent to
make any such recordation shall not affect the obligations of Borrower to make a
payment when due of any amount owing under the Credit Agreement or this Note in
respect of the Revolving Credit Advances made by Lender to Borrower.

                  The principal amount of the indebtedness evidenced hereby
shall be payable in the amounts and on the dates specified in the Credit
Agreement, the terms of which are hereby incorporated herein by reference.
Interest thereon shall be paid until such principal amount is paid in full at
such interest rates and at such times, and pursuant to such calculations, as are
specified in the Credit Agreement.

<PAGE>

                  If any payment on this Note becomes due and payable on a day
other than a Business Day, the maturity thereof shall be extended to the next
succeeding Business Day and, with respect to payments of principal, interest
thereon shall be payable at the then applicable rate during such extension.

                  Upon and after the occurrence of any Event of Default, this
Note may, as provided in the Credit Agreement, and without demand, notice or
legal process of any kind, be declared, and immediately shall become, due and
payable.

                  Time is of the essence of this Note. Demand, presentment,
protest and notice of nonpayment and protest are hereby waived by Borrower.

                  Except as provided in the Credit Agreement, this Note may not
be assigned by Lender to any Person.

                  THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF GEORGIA APPLICABLE TO CONTRACTS MADE AND PERFORMED
IN THAT STATE.

                                           AVONDALE MILLS, INC., as Borrower

                                           -------------------------------------
                                           By:
                                           Title:

                                       2
<PAGE>

                                 EXHIBIT 1.5(e)
                                       TO
                                CREDIT AGREEMENT

                    FORM OF NOTICE OF CONVERSION/CONTINUATION

                  Reference is made to that certain Credit Agreement dated as of
November 7, 2003 by and among the undersigned ("Borrower"), the other Persons
named therein as Credit Parties, General Electric Capital Corporation ("Agent")
and the Lenders from time to time signatory thereto (including all annexes,
exhibits or schedules thereto, and as from time to time amended, restated,
supplemented or otherwise modified, the "Credit Agreement"). Capitalized terms
used herein without definition are so used as defined in the Credit Agreement.

                  Borrower hereby gives irrevocable notice, pursuant to Section
1.5(e) of the Credit Agreement, of its request to:

                  (a)      on [ date ] convert $[________]of the aggregate
outstanding principal amount of the [_______] Loan, bearing interest at the
[________] Rate, into a(n) [________] Loan [and, in the case of a LIBOR Loan,
having a LIBOR Period of [_____] month(s)];

                  [(b)     on [ date ] continue $[________]of the aggregate
outstanding principal amount of the [_______] Loan, bearing interest at the
LIBOR Rate, as a LIBOR Loan having a LIBOR Period of [_____] month(s)].

                  Borrower hereby represents and warrants that all of the
conditions contained in Section 2.2 of the Credit Agreement have been satisfied
on and as of the date hereof, and will continue to be satisfied on and as of the
date of the conversion/continuation requested hereby, before and after giving
effect thereto; and reaffirms continuance of Agent's Liens, on behalf of the
Agent and Lenders, pursuant to the Collateral Documents.

                  IN WITNESS WHEREOF, Borrower has caused this Notice of
Conversion/Continuation be executed and delivered by its duly authorized officer
as of the date first set forth above.

                                           AVONDALE MILLS, INC., as Borrower

                                           By:__________________________________
                                           Title________________________________

<PAGE>

                                 EXHIBIT 9.1(a)

                              ASSIGNMENT AGREEMENT

                  This Assignment Agreement (this "Agreement") is made as of
___________ __, ____ by and between __________________________________
("Assignor Lender") and ________________________ ("Assignee Lender") and
acknowledged and consented to by GENERAL ELECTRIC CAPITAL CORPORATION, as agent
("Agent"). All capitalized terms used in this Agreement and not otherwise
defined herein will have the respective meanings set forth in the Credit
Agreement as hereinafter defined.

                                    RECITALS:

                  WHEREAS, Avondale Mills, Inc., an Alabama corporation (the
"Borrower"), Agent, the Persons signatory thereto as Credit Parties, Assignor
Lender and other Persons signatory thereto as Lenders have entered into that
certain Credit Agreement dated as of November 7, 2003 (as amended, restated,
supplemented or otherwise modified from time to time, the "Credit Agreement")
pursuant to which Assignor Lender has agreed to make certain Revolving Loans to,
and incur certain Letter of Credit Obligations for, Borrower;

                  WHEREAS, Assignor Lender desires to assign to Assignee Lender
[all/a portion] of its interest in the Revolving Loans (as described below), the
Letter of Credit Obligations and the Collateral and to delegate to Assignee
Lender [all/a portion] of its Commitments and other duties with respect to such
Revolving Loans, Letter of Credit Obligations and Collateral;

                  WHEREAS, Assignee Lender desires to become a Lender under the
Credit Agreement and to accept such assignment and delegation from Assignor
Lender; and

                  WHEREAS, Assignee Lender desires to appoint Agent to serve as
agent for Assignee Lender under the Credit Agreement.

                  NOW, THEREFORE, in consideration of the premises and the
agreements, provisions, and covenants herein contained, Assignor Lender and
Assignee Lender agree as follows:

<PAGE>

1.       ASSIGNMENT, DELEGATION, AND ACCEPTANCE

         1.1.     Assignment. Assignor Lender hereby transfers and assigns to
Assignee Lender, without recourse and without representations or warranties of
any kind (except as set forth in Section 3.2), [all/such percentage] of Assignor
Lender's right, title, and interest in [the Revolving Loan], [Letter of Credit
Obligations], Loan Documents and Collateral as will result in Assignee Lender
having as of the Effective Date (as hereinafter defined) a Pro Rata Share
thereof, as follows:

<TABLE>
<CAPTION>
        Assignee Lender's Loans      Principal Amount        Pro Rata Share
        -----------------------      ----------------        --------------
<S>                                  <C>                     <C>
Revolving Loan                         $____________              ____%
</TABLE>

         1.2      Delegation. Assignor Lender hereby irrevocably assigns and
delegates to Assignee Lender [all/a portion] of its Commitments and its other
duties and obligations as a Lender under the Loan Documents equivalent to
[100%/___%] of Assignor Lender's Revolving Loan Commitment (such percentage
representing a commitment of $_________).

         1.3      Acceptance by Assignee Lender. By its execution of this
Agreement, Assignee Lender irrevocably purchases, assumes and accepts such
assignment and delegation and agrees to be a Lender with respect to the
delegated interest under the Loan Documents and to be bound by the terms and
conditions thereof. By its execution of this Agreement, Assignor Lender agrees,
to the extent provided herein, to relinquish its rights and be released from its
obligations and duties under the Credit Agreement.

         1.4      Effective Date. Such assignment and delegation by Assignor
Lender and acceptance by Assignee Lender will be effective and Assignee Lender
will become a Lender under the Loan Documents as of [the date of this Agreement]
("Effective Date") and upon payment of the Assigned Amount and the Assignment
Fee (as each term is defined below). [Interest and Fees accrued prior to the
Effective Date are for the account of Assignor Lender, and Interest and Fees
accrued from and after the Effective Date are for the account of Assignee
Lender.]

2.       INITIAL PAYMENT AND DELIVERY OF NOTES

         2.1      Payment of the Assigned Amount. Assignee Lender will pay to
Assignor Lender, in immediately available funds, not later than 12:00 noon (New
York time) on the Effective Date, an amount equal to its Pro Rata Share of the
then outstanding principal amount of the Revolving Loans as set forth above in
Section 1.1 [together with accrued interest, fees and other amounts as set forth
on Schedule 2.1] (the "Assigned Amount").

         2.2      Payment of Assignment Fee. [Assignor Lender and/or Assignee
Lender] will pay to Agent, for its own account in immediately available funds,
not later than 12:00 noon (New York time) on the Effective Date, the assignment
fee in the amount of $3,500 (the "Assignment Fee") as required pursuant to
Section 9.1(a) of the Credit Agreement.

                                       2
<PAGE>

         2.3      Execution and Delivery of Notes. Following payment of the
Assigned Amount and the Assignment Fee, Assignor Lender will deliver to Agent
the Notes previously delivered to Assignor Lender for redelivery to Borrower and
Agent will obtain from Borrower for delivery to [Assignor Lender and] Assignee
Lender, new executed Notes evidencing Assignee Lender's [and Assignor Lender's
respective] Pro Rata Share[s] in the Revolving Loans after giving effect to the
assignment described in Section 1. Each new Note will be issued in the aggregate
maximum principal amount of the [applicable] Commitment [of the Lender to whom
such Note is issued] [or the Assignee Lender].

3.       REPRESENTATIONS, WARRANTIES AND COVENANTS

         3.1      Assignee Lender's Representations, Warranties and Covenants.
Assignee Lender hereby represents, warrants, and covenants the following to
Assignor Lender and Agent:

                  (a)      This Agreement is a legal, valid, and binding
agreement of Assignee Lender, enforceable according to its terms;

                  (b)      The execution and performance by Assignee Lender of
its duties and obligations under this Agreement and the Loan Documents will not
require any registration with, notice to, or consent or approval by any
Governmental Authority;

                  (c)      Assignee Lender is familiar with transactions of the
kind and scope reflected in the Loan Documents and in this Agreement;

                  (d)      Assignee Lender has made its own independent
investigation and appraisal of the financial condition and affairs of each
Credit Party, has conducted its own evaluation of the Revolving Loans and Letter
of Credit Obligations, the Loan Documents and each Credit Party's
creditworthiness, has made its decision to become a Lender to Borrower under the
Credit Agreement independently and without reliance upon Assignor Lender or
Agent, and will continue to do so;

                  (e)      Assignee Lender is entering into this Agreement in
the ordinary course of its business, and is acquiring its interest in the
Revolving Loans and Letter of Credit Obligations for its own account and not
with a view to or for sale in connection with any subsequent distribution;
provided, however, that at all times the distribution of Assignee Lender's
property shall, subject to the terms of the Credit Agreement, be and remain
within its control;

                  (f)      No future assignment or participation granted by
Assignee Lender pursuant to Section 9.1 of the Credit Agreement will require
Assignor Lender, Agent, or Borrower to file any registration statement with the
Securities and Exchange Commission or to apply to qualify under the blue sky
laws of any state;

                  (g)      Assignee Lender has no loans to, written or oral
agreements with, or equity or other ownership interest in any Credit Party;

                                       3
<PAGE>

                  (h)      Assignee Lender will not enter into any written or
oral agreement with, or acquire any equity or other ownership interest in, any
Credit Party without the prior written consent of Agent;

                  (i)      Assignee Lender is a Qualified Lender; and

                  (j)      As of the Effective Date, Assignee Lender (i) is
entitled to receive payments of principal and interest in respect of the
Obligations without deduction for or on account of any taxes imposed by the
United States of America or any political subdivision thereof, (ii) is not
subject to capital adequacy or similar requirements under Section 1.16(a) of the
Credit Agreement, (iii) does not require the payment of any increased costs
under Section 1.16(b) of the Credit Agreement, and (iv) is not unable to fund
LIBOR Loans under Section 1.16(c) of the Credit Agreement, and Assignee Lender
will indemnify Agent from and against all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, or expenses that result
from Assignee Lender's failure to fulfill its obligations under the terms of
Section 1.15(c) of the Credit Agreement or from any other inaccuracy in the
foregoing.

         3.2      Assignor Lender's Representations, Warranties and Covenants.
Assignor Lender hereby represents, warrants and covenants the following to
Assignee Lender:

                  (a)      Assignor Lender is the legal and beneficial owner of
the Assigned Amount;

                  (b)      This Agreement is a legal, valid and binding
agreement of Assignor Lender, enforceable according to its terms;

                  (c)      The execution and performance by Assignor Lender of
its duties and obligations under this Agreement and the Loan Documents will not
require any registration with, notice to or consent or approval by any
Governmental Authority;

                  (d)      Assignor Lender has full power and authority, and has
taken all action necessary to execute and deliver this Agreement and to fulfill
the obligations hereunder and to consummate the transactions contemplated
hereby;

                  (e)      Assignor Lender is the legal and beneficial owner of
the interests being assigned hereby, free and clear of any adverse claim, lien,
encumbrance, security interest, restriction on transfer, purchase option, call
or similar right of a third party; and

                  (f)      This Assignment by Assignor Lender to Assignee Lender
complies, in all material respects, with the terms of the Loan Documents.

4.       LIMITATIONS OF LIABILITY

                  Neither Assignor Lender (except as provided in Section 3.2)
nor Agent makes any representations or warranties of any kind, nor assumes any
responsibility or liability whatsoever, with regard to (a) the Loan Documents or
any other document or instrument furnished pursuant thereto or the Revolving
Loans, Letter of Credit Obligations or other Obligations, (b) the

                                       4
<PAGE>

creation, validity, genuineness, enforceability, sufficiency, value or
collectibility of any of them, (c) the amount, value or existence of the
Collateral, (d) the perfection or priority of any Lien upon the Collateral, or
(e) the financial condition of any Credit Party or other obligor or the
performance or observance by any Credit Party of its obligations under any of
the Loan Documents. Neither Assignor Lender nor Agent has or will have any duty,
either initially or on a continuing basis, to make any investigation,
evaluation, appraisal of, or any responsibility or liability with respect to the
accuracy or completeness of, any information provided to Assignee Lender which
has been provided to Assignor Lender or Agent by any Credit Party. Nothing in
this Agreement or in the Loan Documents shall impose upon the Assignor Lender or
Agent any fiduciary relationship in respect of the Assignee Lender.

5.       FAILURE TO ENFORCE

                  No failure or delay on the part of Agent or Assignor Lender in
the exercise of any power, right, or privilege hereunder or under any Loan
Document will impair such power, right, or privilege or be construed to be a
waiver of any default or acquiescence therein. No single or partial exercise of
any such power, right, or privilege will preclude further exercise thereof or of
any other right, power, or privilege. All rights and remedies existing under
this Agreement are cumulative with, and not exclusive of, any rights or remedies
otherwise available.

6.       NOTICES

                  Unless otherwise specifically provided herein, any notice or
other communication required or permitted to be given will be in writing and
addressed to the respective party as set forth below its signature hereunder, or
to such other address as the party may designate in writing to the other.

7.       AMENDMENTS AND WAIVERS

                  No amendment, modification, termination, or waiver of any
provision of this Agreement will be effective without the written concurrence of
Assignor Lender, Agent and Assignee Lender.

8.       SEVERABILITY

                  Whenever possible, each provision of this Agreement will be
interpreted in such manner as to be effective and valid under applicable law. In
the event any provision of this Agreement is or is held to be invalid, illegal,
or unenforceable under applicable law, such provision will be ineffective only
to the extent of such invalidity, illegality, or unenforceability, without
invalidating the remainder of such provision or the remaining provisions of the
Agreement. In addition, in the event any provision of or obligation under this
Agreement is or is held to be invalid, illegal, or unenforceable in any
jurisdiction, the validity, legality, and enforceability of the remaining
provisions or obligations in any other jurisdictions will not in any way be
affected or impaired thereby.

9.       SECTION TITLES

                                       5
<PAGE>

                  Section and Subsection titles in this Agreement are included
for convenience of reference only, do not constitute a part of this Agreement
for any other purpose, and have no substantive effect.

10.      SUCCESSORS AND ASSIGNS

                  This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns.

11.      APPLICABLE LAW

                  THIS AGREEMENT WILL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF GEORGIA APPLICABLE TO CONTRACTS MADE AND
PERFORMED IN THAT STATE.

12.      COUNTERPARTS

                  This Agreement and any amendments, waivers, consents, or
supplements may be executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which, when so executed and
delivered, will be deemed an original and all of which shall together constitute
one and the same instrument.

                            [signature page follows]

                                       6
<PAGE>

                  IN WITNESS WHEREOF, this Agreement has been duly executed as
of the date first written above.

ASSIGNEE LENDER:                            ASSIGNOR LENDER:

By:    ____________________________         By:    _____________________________
Title: ____________________________         Title: _____________________________

Notice Address:                             Notice Address:

___________________________________         ___________________________________
___________________________________         ___________________________________
___________________________________         ___________________________________

ACKNOWLEDGED AND CONSENTED TO:

GENERAL ELECTRIC CAPITAL
CORPORATION, as Agent

By:    _____________________________
Title: _____________________________

                                       7
<PAGE>

                                  SCHEDULE 2.1

Assignor Lender's Revolving Loans

Principal Amount

Revolving Loan                      $
                                     ----------------

Subtotal                            $
                                     ----------------

Accrued Interest                    $
                                     ----------------

Unused Line Fee                     $
                                     ----------------

Other + or -$                       $
                                     ----------------

Total                               $
                                     ================

All determined as of the Effective Date.

                                       8
<PAGE>

              APPLICATION FOR IRREVOCABLE STANDBY LETTER OF CREDIT
                    TO: GENERAL ELECTRIC CAPITAL CORPORATION

----------------------------
Date

----------------------------
L/C No.

      (Bank Use Only)
----------------------------

The undersigned Applicant hereby requests General Electric Capital Corporation
("GE Capital") to issue and transmit by:

 Teletransmission   Mail   Overnight Courier   Other, Explain __________________
_____
the Standby Letter of Credit (the "Credit") substantially as set forth below. In
issuing the Credit, GE Capital is expressly authorized to make such changes from
the terms herein below set forth as GE Capital, in its sole discretion, may deem
advisable.

<TABLE>
<S>                                           <C>
-----------------------------------------------------------------------------------------------------------
Applicant (Full Name and Address)             Advising Bank:  Wachovia Bank, National Association
                                                              401 Linden Street
Avondale Mills, Inc.                                          Winston-Salem, NC 27101
506 South Broad Street                                        Attention: Standby Letters of Credit
Monroe, Georgia 30655

-----------------------------------------------------------------------------------------------------------
Beneficiary (Full Name and Address)           Currency and Amount in Figures:
                                              Currency and Amount in Words:
                                              -------------------------------------------------------------
                                              Expiration Date
                                              -------------------------------------------------------------
                                              * SPECIAL INSTRUCTIONS

                                              Is EVERGREEN language required?    Yes     No
                                              If yes, what is the number of days notification required
                                              for customary non-renewal notice?
                                                Thirty days   Sixty Days   Ninety days   Other
-----------------------------------------------------------------------------------------------------------
Charges:  GE Capital's charges are for our account, all other charges are to be paid by beneficiary.
-----------------------------------------------------------------------------------------------------------
</TABLE>

Credit to be available to payment against Beneficiary's draft(s) at sight drawn
on GE Capital or its correspondent at GE Capital's option accompanied by the
following documents:

  Statement, purportedly signed by the Beneficiary, reading as follows
(please state below exact wording to appear on the statement):

  Other Documents

  Special Conditions

  Issue substantially in form of attached specimen. (Specimen must also be
signed by applicant)

--------------------------------------------------------------------------------
Complete only when the Beneficiary (Foreign Bank, or other Financial
Institution) is to issue its undertaking based on this Credit.

         Request Beneficiary to issue and deliver their (specify the type of
         undertaking) ______________________________________ in favor of
         ______________________________________ for an amount not exceeding the
         amount specified above, effective immediately relative to (specify
         contract number or other pertinent reference) _________________________
         ___________________________________________________ to expire on
         ______________________________________. (This date must be at least 15
         days prior to the expiry date indicated above). It is understood that
         if the Credit is issued in favor of any bank or other financial or
         commercial entity which has issued or is to issue an undertaking on
         behalf of Applicant of the Credit in connection with the Credit,
         Applicant hereby agrees to remain liable under the Master
--------------------------------------------------------------------------------

<PAGE>

--------------------------------------------------------------------------------
         Agreement and this Application in respect of the Credit (even after its
         expiry date) until GE Capital is released by such bank or entity.
--------------------------------------------------------------------------------
The undersigned Applicant affirms that it has fully read and agrees to this
Application. IN CONSIDERATION OF GE CAPITAL'S ISSUANCE OF THE CREDIT, APPLICANT
AGREES TO BE BOUND BY THE MASTER AGREEMENT FOR STANDBY LETTERS OF CREDIT BETWEEN
APPLICANT AND GE CAPITAL (THE "MASTER AGREEMENT"), THE TERMS OF WHICH ARE
INCORPORATED BY REFERENCE. All actions to be taken by GE Capital hereunder or in
connection with any Credit may be taken by Wachovia Bank, National Association
or another bank designated by GE Capital as GE Capital's agent.

            Avondale Mills, Inc.
           506 South Broad Street
            Monroe, Georgia 30655

--------------------------------------------
            Authorized Signature

Customer Contact
--------------------------------------------------------------------------------

                               GE CAPITAL USE ONLY
   (NOTE: Application will NOT be processed if this section is not complete.)

Approved:________________   City:_________________  Date:_______________________
                            Telephone:____________
---------------------------
   (Print name and title)

<PAGE>

[GE CAPITAL LOGO]                                                  GE CAPITAL
                                                FOR DOCUMENTARY LETTER OF CREDIT

                                                             REVISED: 10/01/2002

Dear Sir/Madam:

The undersigned hereby requests General Electric Capital Corporation ("GE
CAPITAL") to arrange for GE Capital Trade Services, Ltd. (the "Issuer"), to open
(as the undersigned's agent) the irrevocable Letter of Credit.

<TABLE>
<S>                                            <C>
--------------------------------------------------------------------------------------------------------------
APPLICANT:                                     BENEFICIARY: (FULL NAME AND ADDRESS)

Avondale Mills, Inc.
506 South Broad Street
Monroe, Georgia 30655

--------------------------------------------------------------------------------------------------------------
UP TO AN AGGREGATE CURRENCY  AMOUNT OF:        AVAILABLE BY DRAFTS AT  ____________   DRAWN AT THE ISSUER'S
                                               OPTION, ON THE ISSUER OR IT'S CORRESPONDENT FOR ____________%
                                               OF INVOICE VALUE

CURRENCY:                                      PRESENTED NO LATER THAN__________________________________
                                                                      (Letter of Credit Expiration date)
--------------------------------------------------------------------------------------------------------------

EVIDENCING SHIPMENT OF________________________________________________________________________________________
                         (PLEASE MENTION COMMODITY ONLY, OMITTING DETAILS ON PRICE, GRADE, QUALITY, ETC.)

DOCUMENTS REQUIRED (INDICATE # ORIGINALS AND COPIES)
--------------------------------------------------------------------------------------------------------------
COMMERCIAL INVOICE:                            US SPECIAL CUSTOMS FORM #5515:

--------------------------------------------------------------------------------------------------------------
INSURANCE POLICY/CERTIFICATE/ADDRESS           PACKING LIST:
(Insurance to be effected by the undersigned
if "Insurance Policy/Certificate" is not       ---------------------------------------------------------------
completed:                                     CERTIFICATE OF ORIGIN:

                                               ---------------------------------------------------------------
                                               OTHER DOCUMENTS (USE A SEPARATE PAGE ("3") IF NEEDED NOTING
                                               HERE "SEE ATTACHED"):

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

--------------------------------------------------------------------------------------------------------------
SHIPPING DOCUMENTS/TERMS:
AIR WAY BILL CONSIGNED TO FIRST UNION NATIONAL BANK _____________
_______________________________________________

FULL SET CLEAN ON BOARD OCEAN BILLS OF LADING ISSUED OR ENDORSED TO THE ORDER OF FIRST UNION NATIONAL BANK
MARKED "FREIGHT ______ COLLECT ______ PREPAID LATEST SHIPPING DATE__________________________________________

NOTIFY PARTY:_______________________________________________________________________________________________

SHIPMENT FROM ____________________________________________  TO
______________________________________________________

PARTIAL SHIPMENTS ____ ARE _____ARE NOT PERMITTED. TRANSHIPMENTS     ______ ARE   ______  ARE NOT PERMITTED.

INDICATE SHIPPING TERMS: (FOB, C&F, CIF) ____________CONTAINER SHIPMENTS ______ ARE _____ ARE NOT PERMITTED
------------------------------------------------------------------------------------------------------------
</TABLE>

-DOCUMENTS MUST BE PRESENTED FOR PAYMENT, ACCEPTANCE OR NEGOTIATION WITHIN
_________DAYS AFTER THE DATE OF ISSUANCE OF THE BILL OF LADING OR OTHER SHIPPING
DOCUMENTS (LATEST DATE OF PRESENTATION, 21 DAYS IF SILENT).

-Unless otherwise stated, all banking charges outside USA are for account of the
Beneficiary

-The negotiating bank, if any, is to be authorized to forward all documents in
one registered airmail.

-THE MASTER AGREEMENT FOR DOCUMENTARY LETTERS OF CREDIT DATED AS OF __________,
20___ BETWEEN APPLICANT AND GE CAPITAL IS INCORPORATED HEREIN BY REFERENCE.

<TABLE>
<S>                                      <C>
===========================================================================================================
NAME OF APPLICANT:                       APPLICANT AUTHORIZED SIGNATURE AND TITLE:
Avondale Mills, Inc.
                                         DATE:
===========================================================================================================
GE CAPITAL UNIT AND REGION:              GE OFFICIAL SIGNATURE AND TITLE:
                                         DATE:

===========================================================================================================
</TABLE>

<PAGE>

OTHER DOCUMENTS:
--------------------------------------------------------------------------------

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

<TABLE>
<CAPTION>
     INITIAL GE CAPITAL                INITIAL APPLICANT AUTHORIZED SIGNATURE
--------------------------------------------------------------------------------
<S>                                    <C>
























--------------------------------------------------------------------------------
</TABLE>

<PAGE>

                             DISCLOSURE SCHEDULE 3.1

         Avondale Mills, Inc. is a corporation incorporated under the laws of
the State of Alabama. Avondale Mills Graniteville Fabrics, Inc. is a corporation
incorporated under the laws of the State of Delaware.

<PAGE>

                             DISCLOSURE SCHEDULE 3.2

<TABLE>
<CAPTION>
                                                                               Location of Chief
Name of each Credit Party        State of     Organization   Organization     Executive Office and
        Party                 Incorporation       Type          Number         Books and Records            FEIN
        -----                 -------------       ----          ------         -----------------            ----
<S>                           <C>             <C>            <C>             <C>                         <C>
Avondale Mills, Inc.             Alabama       corporation        N/A        900 Avondale Ave.           63-0936782
                                                                             Sylacauga, AL 35150

                                                                             506 South Broad Street
                                                                             Monroe, Georgia 30655

Avondale Mills                   Delaware      corporation        N/A        133 Marshall St.            59-2739861
Graniteville Fabrics, Inc.                                                   Graniteville, SC 29829

                                                                             506 South Broad Street
                                                                             Monroe, Georgia 30655
</TABLE>

Collateral locations: Avondale Mills, Inc.

<TABLE>
<CAPTION>
Plant Name                City, State, County
----------                -------------------
<S>                       <C>
Alex City(1)              Alexander City, AL
                          Tallapoosa

Eva Jane                  Sylacauga, AL
                          Talladega

Sylacauga                 Sylacauga, AL
Finishing                 Talladega

Bon Air(2)                Bon Air, AL
                          Talladega

Walhalla                  Walhalla, SC
                          Oconee

Catherine                 Sylacauga, AL
                          Talladega

Coosa(3)                  Rockford, AL
                          Coosa

Pell City                 Pell City, AL
                          St. Clair
</TABLE>

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

(1) Equipment at this location is subject to a lien in favor of CIT.

(2) Plant has been closed. The remaining equipment is to be sold or relocated in
the near future.

(3) Equipment at this location is subject to a lien in favor of CIT.

<PAGE>

<TABLE>
<CAPTION>
Plant Name                City, State, County
----------                -------------------
<S>                       <C>
Tifton                    Tifton, GA
                          Tift

Burnsville                Burnsville, NC
                          Yancey

Walton                    Monroe, GA
                          Walton

Gregg Dyeing              Graniteville, SC
and Finishing             Aiken

Hickman                   Graniteville, SC
                          Aiken

Sibley Dyeing and         August, GA
Finishing                 Richmond

Swint                     Graniteville, SC
                          Aiken

Townsend                  Graniteville, SC
                          Aiken

Warren Dyeing             Graniteville, SC
                          Aiken

Woodhead                  Graniteville, SC
                          Aiken

Sylacauga Cotton          Sylacauga, AL
Warehouse                 Talladega

Vaucluse                  Graniteville, SC
                          Aiken

Supply Distribution       Sylacauga, AL
Center                    Talladega
</TABLE>

Collateral locations: Avondale Mills Graniteville Fabrics, Inc.

<TABLE>
<CAPTION>
Plant Name                City, State, County
----------                -------------------
<S>                       <C>
Horse Creek               Graniteville, SC
                          Aiken

Sage Mill Warehouse       Graniteville, SC
                          Aiken
</TABLE>

<PAGE>

                           DISCLOSURE SCHEDULE 3.4(A)

See Attached.

<PAGE>

                           DISCLOSURE SCHEDULE 3.4(B)

See Attached.

<PAGE>

                             DISCLOSURE SCHEDULE 3.6

Real Property Locations: Avondale Mills, Inc.

<TABLE>
<CAPTION>
                                                                 Owned/
Plant Name                City, State, County                    Leased
----------                -------------------                    ------
<S>                       <C>                                    <C>
Alex City                 Alexander City, AL                     Owned
                          Tallapoosa

Eva Jane                  Sylacauga, AL                          Owned
                          Talladega

Sylacauga                 Sylacauga, AL                          Owned
Finishing                 Talladega

Bon Air(4)                Bon Air, AL                            Owned
                          Talladega

Walhalla                  Walhalla, SC                           Owned
                          Oconee

Catherine                 Sylacauga, AL                          Owned
                          Talladega

Coosa                     Rockford, AL                           Owned
                          Coosa

Pell City                 Pell City, AL                          Owned
                          St. Clair

Sanford(5)                Sanford, NC                            Owned
                          Lee

Tifton                    Tifton, GA                             Owned
                          Tift

Burnsville                Burnsville, NC                         Owned
                          Yancey

Walton                    Monroe, GA                             Owned
                          Walton

Gregg Dyeing              Graniteville, SC                       Owned
and Finishing             Aiken

Hickman                   Graniteville, SC                       Owned
                          Aiken
</TABLE>

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

(4) Plant has been closed. The land/building(s) are for sale.

(5) Plant has been closed. The equipment has been sold or relocated and the
land/building(s) are for sale.

<PAGE>

<TABLE>
<CAPTION>
                                                                 Owned/
Plant Name                City, State, County                    Leased
----------                -------------------                    ------
<S>                       <C>                                    <C>
Sibley Dyeing and         August, GA                             Owned
Finishing                 Richmond

Swint                     Graniteville, SC                       Owned
                          Aiken

Townsend                  Graniteville, SC                       Owned
                          Aiken

Warren Dyeing             Graniteville, SC                       Owned
                          Aiken

Woodhead                  Graniteville, SC                       Owned
                          Aiken

Sylacauga Cotton          Sylacauga, AL                          Owned
Warehouse                 Talladega

Vaucluse                  Graniteville, SC                       Owned
                          Aiken

Supply Distribution       Sylacauga, AL                          Owned
Center                    Talladega
</TABLE>

Real Property Locations: Avondale Mills Graniteville Fabrics, Inc.

<TABLE>
<CAPTION>
                                                                 Owned/
Plant Name                City, State, County                    Leased
----------                -------------------                    ------
<S>                       <C>                                    <C>
Horse Creek               Graniteville, SC                       Owned
                          Aiken

Sage Mill Warehouse       Graniteville, SC                       Leased
                          Aiken
</TABLE>

<PAGE>

                             DISCLOSURE SCHEDULE 3.7

         Neither of the Credit Parties is subject to any collective bargaining
agreements. All plants and facilities are non-union. Additionally, other than
non-material workers' compensation claims, Borrower is currently a defendant in
one labor related lawsuit which is a retaliatory discharge action brought by a
former employee; the Borrower does not deem this action to be material.

<PAGE>

                             DISCLOSURE SCHEDULE 3.8

         Avondale Incorporated, a Georgia corporation, is the owner of 100% of
the issued and outstanding Stock of Avondale Mills, Inc., an Alabama corporation
("Borrower"); Borrower is the owner of 100% of the issued and outstanding Stock
of each of Avondale Mills Graniteville Fabrics, Inc., a Delaware corporation,
and Avondale Funding, LLC, a Delaware limited liability company.

<PAGE>

                            DISCLOSURE SCHEDULE 3.11

None.

<PAGE>

                            DISCLOSURE SCHEDULE 3.12

-        Avondale Mills, Inc. Associate Profit Sharing and Savings Plan (401-K
         and profit sharing)

-        Phantom Stock Program adopted March 15, 1990 (deferred compensation
         plan for upper management)

<PAGE>

                            DISCLOSURE SCHEDULE 3.13

         On January 13, 2000, a case was filed in the Circuit Court of Jefferson
County, Alabama by Larry and Cynthia Locke and the owners of fourteen other
residences in the Raintree subdivision of Lake Martin, against Russell
Corporation, Alabama Power and the Borrower. The Court subsequently dismissed
Alabama Power as a defendant in the case, based on their motion for summary
judgment. The complaint alleges that the Borrower, among others, negligently
and/or wantonly caused or permitted the discharge and disposal of sewage sludge
and contaminants into the lake adjacent to the plaintiffs' property, which
allegedly interfered with the plaintiffs' use of the property. As a result of
these alleged actions, the plaintiffs claim that the value of their property has
been diminished and that they suffered other damages. The complaint seeks
compensatory and punitive damages in an undisclosed amount. After an initial
series of actions, the case was stayed by the trial court pending resolution of
an appeal in the case of Sullivan versus Russell Corporation, the Borrower and
others ("Sullivan case"), which also involved the Raintree subdivision. On
January 12, 2001, the Alabama Supreme Court issued a final order in the Sullivan
case rendering that case in favor of the defendants. Subsequent to the Alabama
Supreme Court's actions with regard to the Sullivan case, plaintiff's counsel,
which includes attorneys who acted as co-plaintiff's counsel on the Sullivan
case, presented arguments in a hearing before the trial judge on May 4, 2001
based on a narrow legal theory that the nuisance claimed in this action is
sufficiently different from the Sullivan case, and therefore, that this case
should be allowed to proceed in spite of the fact that the Sullivan case was
ultimately decided in favor of the defendants. The trial court allowed the case
to proceed to the discovery phase. On April 25, 2002, the trial court held a
hearing on summary judgment motions and, on May 22, 2002, entered judgment as a
matter of law in the Borrower's favor on all counts except the narrow legal
theory involving public nuisance tort. A trial on this single count, scheduled
to begin in October 2003, has been continued indefinitely based on a motion by
the plaintiffs. The Court granted the continuance to allow additional time for
summary judgment practice and the production of additional material information
in the case. The Borrower intends to vigorously defend this case and believes
that it has a number of defenses available to it. While the outcome of this case
cannot be predicted with certainty, based upon currently available information,
the Borrower does not believe that it will have a material adverse effect on the
Borrower's financial condition or results of operations.

         The Borrower is also a party to other litigation incidental to its
business from time to time. The Borrower is not currently a party to any
litigation that management believes, if determined adversely to the Borrower,
would have a material adverse effect on the Borrower.

<PAGE>

                            DISCLOSURE SCHEDULE 3.15

None.

<PAGE>

                            DISCLOSURE SCHEDULE 3.17

1.       In 1987, the South Carolina Department of Health and Environmental
         Control ("DHEC") notified The Graniteville Company (the prior owner of
         assets sold to the Borrower; "Graniteville") that DHEC had discovered
         certain contamination in a pond near Graniteville, South Carolina and
         that Graniteville may be one of the responsible parties. In 1990 and
         1991, Graniteville provided reports to DHEC summarizing its required
         study and investigation of the alleged pollution and its sources which
         concluded that pond sediments should be left undisturbed and that other
         remediation alternatives either provided no significant benefit or
         themselves involved adverse effects. Since that time, the Borrower has
         performed sedimentation sampling and analysis, reporting the results to
         DHEC. At the present time, the Borrower has been asked to perform no
         remedial work or further evaluative work at this site.

2.       Graniteville owned a nine acre property near Vaucluse in Aiken County,
         South Carolina which was operated jointly by Graniteville and Aiken
         County as a landfill from approximately 1950 through 1973. Pursuant to
         various site investigations performed by U.S. EPA, DHEC and
         Graniteville, DHEC asked the Borrower to prepare an evaluation of
         various remedial actions that might be appropriate for the site. The
         Borrower prepared and submitted such an evaluation, concluding that a
         simple earthen cover, specified institutional controls and specified
         periodic groundwater monitoring would be appropriate for this site.
         DHEC has not yet responded to the recommended measures.

3.       Litigation described in DISCLOSURE SCHEDULE 3.13.

The Borrower does not now expect any of the foregoing to have or cause a
Material Adverse Effect.

<PAGE>

                            DISCLOSURE SCHEDULE 3.18

         $1,700,000,000 Property Damage Insurance Policy (Policy No. JC200),
issued by Factory Mutual Insurance Company covering all real and personal
property of the Borrower, Holdings and AMGF.

<PAGE>

                            DISCLOSURE SCHEDULE 3.19

<TABLE>
<CAPTION>
                                                ACCOUNT
                   BANK NAME                    NUMBER                      TYPE / USE
                   ---------                    ------                      ----------
<S>                                            <C>                 <C>
BRANCH PETTY CASH / IMPREST ACCOUNTS

      Wachovia Bank of South Carolina          310264866           Graniteville Fabrics Imprest
      111 Laurens St., NW                                                (Gale Whisenant)
      P.O. Drawer 940
      Aiken, SC 29801
      Contact: Christine Lewis
      Tel: (803) 642-6607
      Fax: (803) 642-6621

      The Bank                                01-00059-8            Sylacauga/Eva Jane Imprest
      P. O. Box 420
      126 North Broadway Ave.
      Sylacauga, AL 35150
      Contact: Betty Culver
      Tel: (256)245-2281
      Contact: Brook Calhoun

      The First National Bank                 70-037-396               Catherine Petty Cash
           in Sylacauga
      P.O. Drawer 630
      43 N. Broadway Avenue
      Sylacauga, Alabama 35150-0630
      Contact: Tina Jackson
      Tel: (256)249-0341

      The First National Bank in Sylacauga    70-038-767                 Trucking Imprest
      P.O. Drawer 630
      43 N. Broadway Avenue
      Sylacauga, Alabama 35150-0630
      Contact: Tina Jackson
      Tel: (256)249-0341

      First Bank                                 0700622                 Coosa Petty Cash
      P.O. Box 9
      Rockford, AL 35136
      Contact: Ginger Goolspy
      Tel: (256) 377-1000

      Aliant Bank                              25-3730-3            Bevelle Branch Imprest Fund
</TABLE>

<PAGE>

<TABLE>
<S>                                           <C>             <C>
      P.O. Box 1237
      1237 Aliant Parkway
      Alexander City, AL 35011-1237
      Contact: Shelby
      Tel: (256) 329-7485

      Union State Bank                        01-000-268               Pell City Petty Cash
      P.O. Box 647
      15 20th Street N.
      Pell City, AL 35125
      Tel: (205) 884-1520

      Wachovia Bank, N.A.                     15-030-536              Monroe Imprest Account
      Mail Code GA212
      191 Peachtree Street, N.E.
      Atlanta, GA 30303
      Contact: Germaine Jenkins (800) 590-7868 (Team #406 Ext. 89561)

      Wachovia Bank, N.A.                     12-421-171              Walton Fabrics Imprest
      Mail Code GA212
      191 Peachtree Street, N.E.
      Atlanta, GA 30303
      Contact: Germaine Jenkins (800) 590-7868 (Team #406 Ext. 89561)

      First Citizens Bank & Trust Co.         4811504729               Burnsville Petty Cash
      P.O. Box 26
      364 East By Pass
      Burnsville, NC 28714
      Contact: Gerald Presnell
      Tel: (828) 682-6191
      Fax: (828) 682-6497

      Blue Ridge Bank                           400847-0      Walhalla Branch Office Imprest Account
      PO Box 889
      100 East Main Street
      Walhalla, SC  29691
      Tel: (864) 638-5444

      SunTrust Bank                           6006118951                  Tifton Imprest
      P. O. Box 847
      200 John Howard Way
      Tifton, GA 31793
      Contact: Rita Bromlow
      Tel: (229) 382-4411
</TABLE>

<PAGE>

<TABLE>
<S>                                          <C>                    <C>
      Fax: (229) 382-4417

GENERAL PURPOSES

      Wachovia Bank, N.A.                    2079900426603                Master Account
      191 Peachtree Street, N.E.                                          (Concentration)
      Atlanta, GA 30303
      ABA #061000010
      Contact: Germaine Jenkins (800) 590-7868 (Team #406 Ext. 89561)

      Wachovia Bank, N.A.                    2000130229487          LockBox Collection Account
      191 Peachtree Street, N.E.
      Atlanta, GA 30303
      ABA #061000010
      Contact: Germaine Jenkins (800) 590-7868 (Team #406 Ext. 89561)

      Wachovia Bank, N.A.                    2000143085511             Avondale Funding, LLC
      191 Peachtree Street, N.E.
      Atlanta, GA 30303
      ABA #061000010
      Contact: Germaine Jenkins (800) 590-7868 (Team #406 Ext. 89561)

      Wachovia Bank, N.A.                    2079900415216               General Payables
      191 Peachtree Street, N.E.                                               (ZBA)
      Atlanta, GA 30303
      Contact: Germaine Jenkins (800) 590-7868 (Team #406 Ext. 89561)

      Wachovia Bank, N.A.                    2079900415229            Workman's Compensation
      191 Peachtree Street, N.E.                                               (ZBA)
      Atlanta, GA 30303
      Contact: Germaine Jenkins (800) 590-7868 (Team #406 Ext. 89561)

      Wachovia Bank, N.A.                    2079900426470             Avondale Incorporated
      191 Peachtree Street, N.E.                                          (Dividend ZBA)
      Atlanta, GA 30303
      Contact: Germaine Jenkins (800) 590-7868 (Team #406 Ext. 89561)

      Regions Bank                            205-0059-146               Real Estate Trust
      70 James B. Payton Blvd.
      PO Box 107
      Sylacauga, AL  35150
      Contact: Angie Lett
      Tel: (256) 249-1142
      Fax: (256) 249-6046

PAYROLL ACCOUNTS                                                           [TO COME OFF]
</TABLE>

<PAGE>

<TABLE>
<S>                                           <C>              <C>
      The Bank                                01-00060-9             Sylacauga Branch Payroll
      P. O. Box 420                                                 (Catherine, Coosa & Supply)
      126 North Broadway Ave.                                       (Penny Rodgers - Catherine)
      Sylacauga, AL 35150                                        (June Dobson or Kristy Bearden -
      Contact: Betty Culver                                                   Coosa)
      Tel: (256)245-2281
      Contact: Brook Calhoun
      Tel: (256)208-6180

      The First National Bank                 70-020-299             Sylacauga Branch Payroll
           in Sylacauga                                        (Eva Jane, Syl Finishing & Trucking)
      P.O. Drawer 630                                           (Judy Armstrong or Shirley Brooks -
      43 N. Broadway Avenue                                                  Eva Jane)
      Sylacauga, Alabama  35150-0630
      Contact: Tina Jackson
      Tel: (256)249-0341

      Aliant Bank                              25-3728-1              Bevelle Branch Payroll
      P.O. Box 1237                                                      (Janet McDaniel)
      1237 Aliant Parkway
      Alexander City, AL  35011-1237
      Contact: Shelby
      Tel: (256) 329-7485

      Union State Bank                        01-008-166             Pell City Payroll Account
      P. O. Box 647                                                       (Guin Robinson)
      15 20th Street, N.
      Pell City, AL  35125
      Tel: (205) 884-1520

      Wachovia Bank, N.A.                    2079900409578           Salaried Payroll Account
      191 Peachtree Street, N.E.                                         Sylacauga Payroll
      Atlanta, GA 30303                                                (Tommie Butterworth)
      Contact: Germaine Jenkins (800) 590-7868 (Team #406 Ext. 89561)

      First Citizens Bank & Trust Co.         4811504710                Burnsville Payroll
      P. O. Box 26                                                      (Jackie Gillespie)
      364 East By Pass
      Burnsville, NC 26714
      Contact: Gerald Presnell
      Tel: (828) 682-6191
      Fax: (828) 682-6497

      Blue Ridge Bank of Walhalla              400846-2       Walhalla Branch Office Payroll Account
      PO Box 889                                                         (Rebecca Cromer)
      100 East Main Street
      Walhalla, SC  29691
</TABLE>

<PAGE>

<TABLE>
<S>                                          <C>              <C>
      Tel: (864) 638-5444

      SunTrust Bank                           6006118969                  Tifton Payroll
      P. O. Box 847                                                       (Carole Walker)
      200 John Howard Way
      Tifton, GA 31793
      Contact: Rita Bromlow
      Tel: (229) 382-4411
      Fax: (229) 382-4417

      Wachovia Bank, N.A.                    2079900419571         Walton Hourly Payroll Account
      191 Peachtree Street, N.E.                                       (Tommie Butterworth)
      Atlanta, GA 30303
      Contact: Germaine Jenkins (800) 590-7868 (Team #406 Ext. 89561)

      Regions Bank                           39-0399-3884       Graniteville Hourly Payroll Account
      P.O. Box 1116                                                    (Tommie Butterworth)
      Aiken, SC  29802-9918
      Contact:  Frank Townsend (803) 642-1479  Fax (803) 642-1353

      Regions Bank                           39-0399-3892     AVGRAN Fabrics Inc. Hourly Payroll Acct
      P.O. Box 1116                                                 Horse Creek Payroll Account
      Aiken, SC  29802-9918                                            (Tommie Butterworth)
      Contact:  Frank Townsend (803) 642-1479  Fax (803) 642-1353

LOCKBOX ACCOUNTS

      Wachovia Bank, N.A.                     LB # 101586              Avondale Mills, Inc.
      191 Peachtree Street, N.E.                                           Miscellaneous
      Atlanta, GA 30303                                                      (Atlanta)
      (Deposit into acct # 15-031-691)

      Wachovia Bank, N. A.                    LB # 101307             Avondale Mills, Inc. /
      191 Peachtree Street, N.E.                                          Fabric Division
      Atlanta, GA 30303                                                      (Atlanta)
      (Deposit into ARC acct # 13-022-948)

      Wachovia Bank, N. A.                    LB # 101264             Avondale Mills, Inc. /
      P. O. Box 4148 (Mail Code 415)                                     Trucking Division
      Atlanta, GA 30302-4148                                                 (Atlanta)
      (Deposit into ARC acct # 13-022-948)

      Wachovia Bank, N. A.                    LB # 101436             Avondale Mills, Inc. /
      P. O. Box 4148 (Mail Code 415)                                       Yarn Division
      Atlanta, GA 30302-4148                                                 (Atlanta)
      (Deposit into ARC acct # 13-022-948)


      Wachovia Bank of Texas                  LB # 951280              Avondale Mills, Inc.
</TABLE>

<PAGE>

<TABLE>
<S>                                         <C>                       <C>
      (Deposit into ARC acct # 13-022-948)
                                                                       Graniteville Fabrics
                                                                             (Dallas)

      Wachovia Bank of North Carolina         LB # 875431              Avondale Mills, Inc.
      (Deposit into ARC acct # 13-022-948)
                                                                       Graniteville Fabrics

INVESTMENT ACCOUNT

      Evergreen Investments                 495-1009316481             Avondale Mills, Inc.
      P.O. Box 8400                                                   Money Market Investment
      Boston, MA  02266-8400
      800-343-2898
      800-847-5397 (Redemptions or
                    Additional Invests.)

      Refco, LLC - LFG Division             JJ JJ02 271MK                Cotton Futures
      550 West Jackson Blvd.
      Suite 1300
      Chicago, IL 60661

      AG Edwards & Sons, Inc.               111-297657-017                Cotton Futures
      3421 N. Causeway Blvd.
      Suite 202
      PO Box 8630
      Metairie, LA 70011-8630

      Smith Barney                           373-46654-019                Cotton Futures
      Citigroup Global Markets
      3455 Peachtree Road NE
      Suite 1400
      Atlanta, GA 30326
</TABLE>

<PAGE>

                            DISCLOSURE SCHEDULE 3.20

         Neither of the Credit Parties sells directly to any Governmental
Authority as of the Closing Date.

<PAGE>

                            DISCLOSURE SCHEDULE 3.22

1.       $500,000 Surety Bond - NC Workmen's Compensation Travelers Property and
         Casualty Group

2.       $10 million Fidelity bond covering the assets of the profit sharing
         plan with Chubb Corporation

3.       $10 million Fiduciary liability bond covering errors and omissions by
         directors and officers with Travelers Property and Casualty Group

<PAGE>

                             DISCLOSURE SCHEDULE 5.1

Avondale Mills, Inc.
Avondale Mills Graniteville Fabrics, Inc.

<PAGE>

                             DISCLOSURE SCHEDULE 6.2
                     EXISTING INVESTMENTS (INCLUDING LOANS)

1.9% membership interest in The Seam, LLC, a Delaware limited liability company.

<PAGE>

                             DISCLOSURE SCHEDULE 6.3
                        (BALANCES AS OF OCTOBER 3, 2003)

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
    Principal Amount Outstanding                Description                      Principal Document(s)
-----------------------------------------------------------------------------------------------------------------
<C>                                  <C>                              <C>
$150,000,000                         10.25% Senior Subordinated       Indenture, dated as June 30, 2003, by and
                                     Notes due 2013                   among Avondale Mills, Inc., Avondale
                                                                      Incorporated and Wachovia Bank, National
                                                                      Association

-----------------------------------------------------------------------------------------------------------------
$17,116,444                          Equipment Financing              Negotiable Promissory Note, dated as of
                                                                      July 30, 2002, made by Avondale Mills,
                                                                      Inc. in favor of The CIT Group/Equipment
                                                                      Financing, Inc.

                                                                      Master Security Agreement, dated as of
                                                                      July 30, 2002, by and between Avondale
                                                                      Mills, Inc. and of The CIT
                                                                      Group/Equipment Financing, Inc

-----------------------------------------------------------------------------------------------------------------
$50,100,000                          Accounts Receivable              Receivables Purchase and Servicing
                                     Securitization                   Agreement, dated as of August 30, 2002,
                                                                      by and among Avondale Funding, LLC,
                                                                      Avondale Mills, Inc., and General
                                                                      Electric Capital Corporation; Sale and
                                                                      Contribution Agreement, dated as of
                                                                      August 30, 2002, by and among Avondale
                                                                      Mills, Inc., Avondale Funding, LLC and
                                                                      Avondale Incorporated
-----------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

                           DISCLOSURE SCHEDULE 6.4(a)

         Management Agreement, dated as of March 3, 1997, by and between
Avondale Mills, Inc. and Avondale Mills Graniteville Fabrics, Inc.

<PAGE>

                             DISCLOSURE SCHEDULE 6.7

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
             Liens in favor of:                              Collateral Description
----------------------------------------------------------------------------------------------------------------------
<S>                                             <C>
Bankers/Softech Division of EAB Leasing         Leased property, goods, inventory and equipment (mainframe software
Corp.                                           and equipment)

----------------------------------------------------------------------------------------------------------------------
THE CIT Group/Equipment Financing Inc.          Specific equipment (Textile equipment at the Coosa and Alex City
                                                plants)

----------------------------------------------------------------------------------------------------------------------
Avondale Funding, LLC                           Accounts, contract rights, payment intangibles, promissory notes,
Assignee: General Electric Capital              chattel paper, documents, instruments, investment property,
Corporation, as Administrative Agent            financial assets, deposit accounts, general intangibles and other
                                                property.

----------------------------------------------------------------------------------------------------------------------
Toyota Motor Credit Corporation, as             Specific Equipment (lift trucks)
assignee of Vesco Industrial Trucks of
Hickory, Inc.

----------------------------------------------------------------------------------------------------------------------
US Bancorp                                      Specific Equipment

----------------------------------------------------------------------------------------------------------------------
First American Commercial Bancorp Inc.          Leased Equipment

----------------------------------------------------------------------------------------------------------------------
Pacific Rim Capital , Inc.                      Leased Equipment
Assignee: Pullman Bank & Trust Company

----------------------------------------------------------------------------------------------------------------------
California First Leasing Corporation            Leased Equipment

----------------------------------------------------------------------------------------------------------------------
ePlus Group, inc.                               Specific Equipment

----------------------------------------------------------------------------------------------------------------------
SouthTrust Bank of Alabama, N.A.                Specific Equipment

----------------------------------------------------------------------------------------------------------------------
Lease Corporation of America                    Specific Equipment

----------------------------------------------------------------------------------------------------------------------
Georgia Bank & Trust Company Leasing            Specific Equipment
Division

----------------------------------------------------------------------------------------------------------------------
Seydel-Woolley & Co., Inc.                      Consigned Inventory

----------------------------------------------------------------------------------------------------------------------
IBM Credit Corporation                          Specific Equipment

----------------------------------------------------------------------------------------------------------------------
Cameron & Barkley Company                       Specific Equipment
Assignee: Magemeyer North America, Inc.
----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>

                            ANNEX D (SECTION 2.1(a))
                                       TO
                                CREDIT AGREEMENT

                              CLOSING CHECKLIST(1)

In addition to, and not in limitation of, the conditions described in Section
2.1 of the Agreement, pursuant to Section 2.1(a), the following items must be
received by Agent in form and substance satisfactory to Agent on or prior to the
Closing Date (each capitalized term used but not otherwise defined herein shall
have the meaning ascribed thereto in Annex A to the Agreement):

A.       CREDIT AND SECURITY DOCUMENTS

1.   Credit Agreement (the "Credit Agreement") dated as of the Closing Date by
     and among Avondale Mills, Inc. ("Avondale") as borrower (the "Borrower"),
     Avondale and Avondale Mills Graniteville Fabrics, Inc. ("AMGF") as credit
     parties (the "Credit Parties"), the lenders from time to time party thereto
     (the "Lenders") and General Electric Capital Corporation, in its individual
     capacity as a agent for the lenders party thereto (the "Agent").

2.   Annexes, Exhibits and Disclosure Schedules to the Credit Agreement:

     Annex A (Recitals)            -   Definitions
     Annex B (Section 1.2)         -   Letters of Credit
     Annex C (Section 1.8)         -   Cash Management System
     Annex D (Section 2.1(a))      -   Closing Checklist
     Annex E (Section 4.1(a))      -   Financial Statements and Projections -
                                         Reporting
     Annex F (Section 4.1(b))      -   Collateral Reports
     Annex G (Section 6.10)        -   Financial Covenants
     Annex H (Section 9.9(a))      -   Lenders' Wire Transfer Information
     Annex I (Section 11.10)       -   Notice Addresses
     Annex J (from Annex A-
         Commitments definition)   -   Revolving Loan Commitment as of Closing
                                         Date

     Exhibit 1.1(a)(i)             -   Form of Notice of Revolving Credit
                                         Advance
     Exhibit 1.1(a)(ii)            -   Form of Note
     Exhibit 1.5(e)                -   Form of Notice of Conversion/Continuation
     Exhibit 4.1(b)                -   Form of Borrowing Base Certificate
     Exhibit 9.1(a)                -   Form of Assignment Agreement
     Exhibit B-1                   -   Application for Standby Letter of Credit
     Exhibit B-2                   -   Application for Documentary Letter of
                                         Credit

     Schedule  1.1                 -   Agent's Representatives

---------------
(1) Items which are listed in BOLD AND ITALICS are to be prepared or obtained by
the Borrower or the Borrower's counsel.

<PAGE>

     DISCLOSURE SCHEDULE  3.1      -   TYPE OF ENTITY; STATE OF ORGANIZATION
     DISCLOSURE SCHEDULE  3.2      -   EXECUTIVE OFFICES, COLLATERAL LOCATIONS,
                                         FEIN
     DISCLOSURE SCHEDULE  3.4(a)   -   FINANCIAL STATEMENTS
     DISCLOSURE SCHEDULE  3.4(b)   -   PROJECTIONS
     DISCLOSURE SCHEDULE  3.6      -   REAL ESTATE AND LEASES
     DISCLOSURE SCHEDULE  3.7      -   LABOR MATTERS
     DISCLOSURE SCHEDULE  3.8      -   VENTURES, SUBSIDIARIES AND AFFILIATES;
                                         OUTSTANDING STOCK
     DISCLOSURE SCHEDULE  3.11     -   TAX MATTERS
     DISCLOSURE SCHEDULE  3.12     -   ERISA PLANS
     DISCLOSURE SCHEDULE  3.13     -   LITIGATION
     DISCLOSURE SCHEDULE  3.14     -   BROKERS
     DISCLOSURE SCHEDULE  3.15     -   INTELLECTUAL PROPERTY
     DISCLOSURE SCHEDULE  3.17     -   HAZARDOUS MATERIALS
     DISCLOSURE SCHEDULE  3.18     -   INSURANCE
     DISCLOSURE SCHEDULE  3.19     -   DEPOSIT, DISBURSEMENT AND INVESTMENT
                                         ACCOUNTS
     DISCLOSURE SCHEDULE  3.20     -   GOVERNMENT CONTRACTS
     DISCLOSURE SCHEDULE  3.22     -   SURETY BONDS AND INTELLECTUAL PROPERTY
                                         LICENSES
     DISCLOSURE SCHEDULE  3.24         MATERIAL AGREEMENTS
     DISCLOSURE SCHEDULE  5.1      -   TRADE NAMES
     DISCLOSURE SCHEDULE  6.3      -   INDEBTEDNESS
     DISCLOSURE SCHEDULE  6.4(a)   -   TRANSACTIONS WITH AFFILIATES
     DISCLOSURE SCHEDULE  6.7      -   EXISTING LIENS

3.   Note dated the Closing Date made by the Borrower in favor of the Lender.

4.   Guaranty dated the Closing Date, executed and delivered by Avondale
     Incorporated ("Holdings") and evidencing the guarantee by Holdings of the
     Borrower's Obligations under the Credit Agreement.

5.   Subsidiary Guaranty dated the Closing Date, executed and delivered by AMGF
     and evidencing the guarantee by AMGF of the Borrower's Obligations under
     the Credit Agreement.

6.   Security Agreement dated the Closing Date, executed and delivered each
     Credit Party evidencing the grant of a security interest in the Collateral,
     in favor of the Agent, for the benefit of the Lenders.

     Schedule  I   -   Filing Jurisdictions

     SCHEDULE II   -   SCHEDULE OF OFFICES, LOCATIONS OF COLLATERAL AND RECORDS
                       CONCERNING COLLATERAL

     Exhibit A     -   Power of Attorney

7.   Power of Attorney executed by Borrower in favor of the Agent.

8.   Power of Attorney executed AMGF in favor of the Agent.

                                      D-2
<PAGE>

9.   Pledge Agreement dated the Closing Date, executed and delivered by Borrower
     and AMGF, pledging (i) intercompany notes and (ii) the Borrower's stock or
     other equity interests in AMGF and Avondale Funding, LLC ("Avondale
     Funding"), in favor of the Agent, for the benefit of the Agent and the
     Lenders, together with, in the case of the equity interests in Avondale
     Funding, certificates and undated powers executed in blank.

         SCHEDULE I        -        (PART A)    PLEDGED STOCK
                           -        (PART B)    PLEDGED INDEBTEDNESS

         Schedule II       -        Pledge Amendment

10.  Pledge Agreement dated the Closing Date, executed and delivered by the
     Holdings, pledging its Stock of Borrower, in favor of the Agent, for the
     benefit of the Agent and the Lenders.

         SCHEDULE I        -        PLEDGED STOCK

         SCHEDULE II       -        SCHEDULE OF OFFICES, ETC.

         Schedule III      -        Pledge Amendment

B.   UCC AND LIEN DOCUMENTATION

11.  Pre-filing UCC Lien Search Reports and Tax Lien and Judgment Search Reports
     relating to Borrower, AMGF and Holdings in the offices listed on Schedule I
     hereto.

12.  UCC-1 Financing Statements, filed against Borrower, AMGF and Holdings
     listing the Agent as secured party in the offices listed on Schedule II
     hereto.

13.  BAILEE LETTER EXECUTED BY AVGRAN, BORROWER AND AGENT.

E.       CORPORATE DOCUMENTS

14.  CERTIFICATE OF THE SECRETARY OF BORROWER, AMGF AND HOLDINGS DATED AS OF THE
     CLOSING DATE ATTACHING THERETO (i) COPIES OF SUCH PERSON'S ARTICLES OF
     INCORPORATION, BY-LAWS OR OTHER SIMILAR ORGANIZATIONAL DOCUMENTS, (ii) A
     COPY OF THE RESOLUTIONS OF THE BOARD OF DIRECTORS, OR SUCH SIMILAR
     GOVERNING BODY, OF SUCH PERSON APPROVING AND AUTHORIZING THE EXECUTION,
     DELIVERY AND PERFORMANCE OF THE CREDIT AGREEMENT AND EACH LOAN DOCUMENT TO
     WHICH IT IS A PARTY, AND (iii) THE NAMES AND TRUE SIGNATURES OF THE
     INCUMBENT OFFICERS OF EACH SUCH PERSON AUTHORIZED TO SIGN THE CREDIT
     AGREEMENT AND /OR EACH LOAN DOCUMENT TO WHICH IT IS A PARTY.

15.  CERTIFICATE OF THE CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER OF
     BORROWER DATED AS OF THE CLOSING DATE CERTIFYING, (i) THAT SINCE AUGUST 31,
     2003 (a) NO EVENT OR CONDITION HAS OCCURRED OR IS EXISTING WHICH COULD
     REASONABLY BE EXPECTED TO HAVE A MATERIAL ADVERSE EFFECT; (b) THERE HAS
     BEEN NO MATERIAL ADVERSE CHANGE IN THE INDUSTRY IN WHICH BORROWER OPERATES;
     (c) NO LITIGATION HAS BEEN COMMENCED WHICH, IF SUCCESSFUL, WOULD HAVE A
     MATERIAL ADVERSE EFFECT OR COULD CHALLENGE ANY OF THE TRANSACTIONS
     CONTEMPLATED BY THE AGREEMENT AND THE OTHER LOAN DOCUMENTS; AND (d) THERE
     HAVE BEEN NO RESTRICTED PAYMENTS MADE BY BORROWER; (ii) THAT BEFORE AND
     AFTER GIVING EFFECT TO THE TRANSACTIONS CONTEMPLATED BY THE CREDIT
     AGREEMENT, BORROWER WILL BE SOLVENT, (iii) THAT THE CONDITIONS

                                      D-3
<PAGE>

     LISTED IN SECTIONS 2.1(f) AND 2.1(g) OF THE CREDIT AGREEMENT HAVE BEEN
     SATISFIED, (iv) THERE HAS BEEN NO MATERIAL INCREASE IN LIABILITIES,
     LIQUIDATED OR CONTINGENT, AND NO MATERIAL DECREASE IN ASSETS OF BORROWER OR
     ANY OF ITS SUBSIDIARIES; (v) THE AUGUST 31, 2002 AUDITED CONSOLIDATED
     FINANCIAL STATEMENTS OF HOLDINGS, AND (vi) THE AUGUST 31, 2003 UNAUDITED
     CONSOLIDATED FINANCIAL STATEMENTS OF HOLDINGS.

16.  Articles of Incorporation of Borrower, AMGF and Holdings, certified by the
     secretary of the state of incorporation for each such entity.

17.  Good Standing Certificates delivered on the Closing Date for Borrower, AMFG
     and Holdings from the Secretary of State identified with respect thereto on
     Schedule III attached hereto.

F.       LEGAL OPINIONS

18.  OPINION OF KING & SPALDING LLP, COUNSEL FOR BORROWER, AMFG, AVONDALE
     FUNDING AND HOLDINGS, IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO
     AGENT AND ITS COUNSEL, DATED AS OF THE CLOSING DATE RELATING TO, AMONG
     OTHER THINGS, THE LOAN DOCUMENTS, AMENDMENT NO. 3 TO THE RECEIVABLES
     PURCHASE AND SERVICING AGREEMENT AND THE INTERCREDITOR AGREEMENT.

19.  OPINION OF BRADLEY ARANT ROSE & WHITE LLP, COUNSEL FOR BORROWER, IN FORM
     AND SUBSTANCE REASONABLY SATISFACTORY TO AGENT AND ITS COUNSEL, DATED AS OF
     THE CLOSING DATE RELATING TO, AMONG OTHER THINGS, MATTERS RELATED TO
     ALABAMA LAW.

G.       MISCELLANEOUS AND THIRD-PARTY DOCUMENTS

20.  WACHOVIA BANK, NATIONAL ASSOCIATION PAYOUT LETTER.

21.  LETTER OF CREDIT TRANSFER AGREEMENT.

22.  UCC-3 TERMINATION STATEMENTS FILED WITH RESPECT TO THOSE UCC-1 FINANCING
     STATEMENTS DESCRIBED ON SCHEDULE IV HERETO.

23.  MORTGAGE TERMINATIONS DESCRIBED ON SCHEDULE IV HERETO.

24.  FIXTURE FILING TERMINATIONS DESCRIBED ON SCHEDULE IV HERETO.

25.  INITIAL BORROWING BASE CERTIFICATE FROM BORROWER, DATED THE CLOSING DATE,
     REFLECTING INFORMATION CONCERNING ELIGIBLE INVENTORY OF THE BORROWER AS OF
     A DATE NOT MORE THAN SEVEN (7) DAYS PRIOR TO THE CLOSING DATE.

26.  NOTICE OF REVOLVING CREDIT ADVANCE, DATED THE CLOSING DATE, WITH RESPECT TO
     THE INITIAL REVOLVING CREDIT ADVANCE TO BE REQUESTED BY BORROWER ON THE
     CLOSING DATE INCLUDING DIRECTIONS FROM BORROWER ADDRESSED TO THE AGENT, ON
     BEHALF OF ITSELF AND THE LENDERS, WITH RESPECT TO THE DISBURSEMENT ON THE
     CLOSING DATE OF THE PROCEEDS OF THE INITIAL REVOLVING CREDIT ADVANCE.

27.  LETTER APPOINTING KING & SPALDING LLP AS EACH OF BORROWER'S, AMGF'S AND
     HOLDINGS'S AGENT FOR SERVICE OF PROCESS.

                                      D-4
<PAGE>

28.  LETTER FROM THE CREDIT PARTIES TO THEIR INDEPENDENT AUDITORS AUTHORIZING
     THE INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS OF CREDIT PARTIES TO
     COMMUNICATE WITH THE AGENT AND THE LENDERS IN ACCORDANCE WITH SECTION 4.2.

29.  Master Agreement for Standby Letters of Credit dated as of the Closing Date
     between the Borrower and GE Capital.

30.  Master Agreement for Documentary Letters of Credit dated as of the Closing
     Date between the Borrower and GE Capital.

31.  Fee Letter between the Borrower and the Agent.

32.  Amendment No. 3 to Receivables Purchase and Servicing Agreement Avondale
     Funding, LLC, Avondale Mills, Inc. and GE Capital in its capacity as
     Administrative Agent and Receivables Collateral Agent under the trade
     receivables securitization facility.

33.  Intercreditor Agreement dated as of the Closing Date among the Agent,
     Avondale Mills, Inc., Avondale Funding, LLC and GE Capital in its capacity
     as Administrative Agent and Receivables Collateral Agent under the trade
     receivables securitization facility.

H.       POST-CLOSING ITEMS

34.  EVIDENCE SATISFACTORY TO THE AGENT THAT, AS OF THE CLOSING DATE, CASH
     MANAGEMENT SYSTEMS COMPLYING WITH ANNEX C TO THE CREDIT AGREEMENT HAVE BEEN
     ESTABLISHED AND ARE CURRENTLY BEING MAINTAINED IN THE MANNER SET FORTH IN
     SUCH ANNEX C, TOGETHER WITH COPIES OF DULY EXECUTED TRI-PARTY BLOCKED
     ACCOUNT AND LOCK BOX AGREEMENTS, REASONABLY SATISFACTORY TO THE AGENT, WITH
     RESPECT TO EACH OF THE BANK ACCOUNTS LISTED ON SCHEDULE V HERETO.(2)

35.  CERTIFICATES OF INSURANCE EVIDENCING THAT THE INSURANCE POLICIES REQUIRED
     BY SECTION 5.4 ARE IN FULL FORCE AND EFFECT, TOGETHER WITH APPROPRIATE
     EVIDENCE SHOWING LOSS PAYABLE AND/OR ADDITIONAL INSURED CLAUSES OR
     ENDORSEMENTS, AS REASONABLY REQUESTED BY THE AGENT, IN FAVOR OF THE AGENT,
     ON BEHALF OF THE LENDERS.(3)

36.  Post-Filing UCC Lien Search Reports relating to Borrower, AMGF and Holdings
     in the offices listed on Schedule II hereto.

37.  Acknowledgment by Wachovia Bank, National Association to Pledged Account
     Agreement Side Letter dated as of July 3, 2003.(4)

-----------------
(2) To be delivered within 45 days of the Closing Date.

(3) To be delivered on or before November 10, 2003.

(4) To be delivered within 45 days of the Closing Date.

                                      D-5
<PAGE>

SCHEDULE I TO ANNEX D (CLOSING CHECKLIST)

PRE-FILING UCC LIEN SEARCH REPORTS AND TAX LIEN AND JUDGMENT SEARCH REPORT
LOCATIONS

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
                        ENTITY                TYPE OF SEARCH                    JURISDICTION
------------------------------------------------------------------------------------------------------------
<S>                                           <C>                       <C>
Avondale Mills, Inc.                            UCC/TL                  S/S Alabama
                                                                        Georgia State Index
                                                                        Walton County, Georgia
                                                                        S/S North Carolina
                                                                        Yancy County, North Carolina
                                                                        S/S South Carolina
------------------------------------------------------------------------------------------------------------
                                                STL/FTL                 Coosa County, Alabama
                                                                        St. Clair County, Alabama
                                                                        Talladega County, Alabama
                                                                        Tallapoosa County, Alabama
                                                                        Richmond County, Georgia
                                                                        Tift County, Georgia
                                                                        Walton County, Georgia
                                                                        Yancy County, North Carolina
                                                                        Aiken County, South Carolina
                                                                        Oconee County, South Carolina
------------------------------------------------------------------------------------------------------------
                                                SPSJ                    Coosa County, Alabama
                                                                        St. Clair County, Alabama
                                                                        Talladega County, Alabama
                                                                        Tallapoosa County, Alabama
                                                                        Richmond County, Georgia
                                                                        Tift County, Georgia
                                                                        Walton County, Georgia
                                                                        Yancy County, North Carolina
                                                                        Aiken County, South Carolina
                                                                        Oconee County, South Carolina
------------------------------------------------------------------------------------------------------------
                                                FPSJ                    Coosa County, Alabama
                                                                        St. Clair County, Alabama
                                                                        Talladega County, Alabama
                                                                        Tallapoosa County, Alabama
                                                                        Richmond County, Georgia
                                                                        Tift County, Georgia
                                                                        Walton County, Georgia
                                                                        Yancy County, North Carolina
                                                                        Aiken County, South Carolina
                                                                        Oconee County, South Carolina
------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------
Avondale Mills Graniteville Fabrics, Inc.       UCC/TL                  S/S Delaware
                                                                        S/S South Carolina
------------------------------------------------------------------------------------------------------------

                                                STL/FTL                 Aiken County, South Carolina
------------------------------------------------------------------------------------------------------------
                                                SPSJ                    Aiken County, South Carolina
------------------------------------------------------------------------------------------------------------
</TABLE>

                                      D-6
<PAGE>

<TABLE>
<S>                                             <C>                     <C>
                                                FPSJ                    Aiken County, South Carolina
------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------
Avondale Incorporated                           UCC/TL                  S/S Georgia
------------------------------------------------------------------------------------------------------------
                                                STL/FTL
------------------------------------------------------------------------------------------------------------
                                                SPSJ
------------------------------------------------------------------------------------------------------------
                                                FPSJ
------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------
"Avondale Mills"                                Name Variation          S/S Alabama
                                                                        S/S Delaware
                                                                        Georgia State Index
                                                                        S/S North Carolina
                                                                        S/S South Carolina
------------------------------------------------------------------------------------------------------------
</TABLE>

                                      D-7
<PAGE>

                   SCHEDULE II TO ANNEX D (CLOSING CHECKLIST)

                              UCC FILING LOCATIONS

                                      AND

                  POST-FILING UCC LIEN SEARCH REPORTS LOCATIONS

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
                                                                        POST FILING UCC LIEN SEARCH REPORT
                  DEBTOR                      UCC-1 FILING LOCATION                  LOCATIONS
------------------------------------------------------------------------------------------------------------
<S>                                           <C>                       <C>
           Avondale Mills, Inc.                    S/S Alabama                      S/S Alabama
------------------------------------------------------------------------------------------------------------
Avondale Mills Graniteville Fabrics, Inc.         S/S Delaware                     S/S Delaware
------------------------------------------------------------------------------------------------------------
          Avondale Incorporated                    S/S Georgia                      S/S Georgia
------------------------------------------------------------------------------------------------------------
</TABLE>

                                      D-8
<PAGE>

                   SCHEDULE III TO ANNEX D (CLOSING CHECKLIST)

                           GOOD STANDING CERTIFICATES

<TABLE>
--------------------------------------------------------------------------------
                BORROWER                            JURISDICTION
--------------------------------------------------------------------------------
<S>                                              <C>
          Avondale Mills, Inc.                      S/S Alabama
                                                    S/S Georgia
                                                 S/S North Carolina
                                                 S/S South Carolina
--------------------------------------------------------------------------------
Avondale Mills Graniteville Fabrics, Inc.           S/S Delaware
                                                 S/S South Carolina
--------------------------------------------------------------------------------
          Avondale Incorporated                     S/S Georgia
--------------------------------------------------------------------------------
          Avondale Funding, LLC                     S/S Delaware
--------------------------------------------------------------------------------
</TABLE>

                                      D-9

<PAGE>

                   SCHEDULE IV TO ANNEX D (CLOSING CHECKLIST)

                          LIEN TERMINATION INSTRUMENTS

A. UCC-3 Termination Statements

Debtor of Record:          Avondale Mills, Inc.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
               LOCATION                           DATE FILED                     FILE NUMBER
--------------------------------------------------------------------------------------------------------
<S>                                            <C>                        <C>
Alabama Secretary of State                     April 4, 1994              B94-11561
--------------------------------------------------------------------------------------------------------
                                               May 31, 2002               02-0348739
--------------------------------------------------------------------------------------------------------
                                               May 31, 2002               02-0348745
--------------------------------------------------------------------------------------------------------
In-Lieu Filing                                 March 28, 2003             03-0253689
--------------------------------------------------------------------------------------------------------
                                               September 19, 2001         2001-36546
--------------------------------------------------------------------------------------------------------
                                               October 1, 2001            2001-37829
--------------------------------------------------------------------------------------------------------
California Secretary of State                  April 7, 1994              94069505
--------------------------------------------------------------------------------------------------------
Los Angeles County, California                 July 5, 1996               96-1067465
--------------------------------------------------------------------------------------------------------
Connecticut Secretary of State                 April 5, 1994              1052193
--------------------------------------------------------------------------------------------------------
Floyd County, Georgia                          April 4, 1994              33817
--------------------------------------------------------------------------------------------------------
Fulton County, Georgia                         October 19, 2001           060-2001-016658
--------------------------------------------------------------------------------------------------------
Richmond County, Georgia                       May 2, 1996                121-1996-001528
--------------------------------------------------------------------------------------------------------
Richmond County, Georgia                       September, 10, 2001        BK00747:1680
                                                                          2001027284
--------------------------------------------------------------------------------------------------------
Tift County, Georgia                           April 4, 1994              137-1994-606
--------------------------------------------------------------------------------------------------------
Tift County, Georgia                           September 10, 2001         137-2001-1569
--------------------------------------------------------------------------------------------------------
Walton County, Georgia                         April 4, 1994              147-1994-30395
--------------------------------------------------------------------------------------------------------
Massachusetts Secretary of State               April 4, 1994              225684
--------------------------------------------------------------------------------------------------------
Town of New Bedford, Massachusetts             May 3, 1996                58923
--------------------------------------------------------------------------------------------------------
Town of Fall River, Massachusetts              May 3, 1996                72047
--------------------------------------------------------------------------------------------------------
New Hampshire Secretary of State               May 20, 1996               464138
--------------------------------------------------------------------------------------------------------
Town of Somersworth, New Hampshire             May 3, 1996                12613
--------------------------------------------------------------------------------------------------------
New Jersey Secretary of State                  April 12, 1994             1563871
--------------------------------------------------------------------------------------------------------
North Carolina Secretary of State              April 5, 1994              1093872
--------------------------------------------------------------------------------------------------------
Alexander County, North Carolina               May 3, 1996                Bk 96 Pg 306
--------------------------------------------------------------------------------------------------------
Catawba County, North Carolina                 May 3, 1996                96-1265
--------------------------------------------------------------------------------------------------------
Henderson County, North Carolina               May 6, 1996                96 0441
--------------------------------------------------------------------------------------------------------
Mecklenberg County, North Carolina             May 6, 1996                986194
--------------------------------------------------------------------------------------------------------
Rowan County, North Carolina                   May 6, 1996                960544
--------------------------------------------------------------------------------------------------------
Randolph County, North Carolina                May 2, 1996                Bk 96 Pg 2247
--------------------------------------------------------------------------------------------------------
Yancey County, North Carolina                  September 26, 1995         95-182
--------------------------------------------------------------------------------------------------------
Pennsylvania Secretary of State                April 6, 1994              23000343
--------------------------------------------------------------------------------------------------------
Luzerne Prothonotary, Pennsylvania             May 6, 1996                739-96
--------------------------------------------------------------------------------------------------------
</TABLE>

                                      D-10
<PAGE>

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
               LOCATION                           DATE FILED                     FILE NUMBER
--------------------------------------------------------------------------------------------------------
<S>                                            <C>                        <C>
South Carolina Secretary of State              April 5, 1994              940405-132723A
--------------------------------------------------------------------------------------------------------
Aiken County, South Carolina                   May 3, 1996                96-899
                                                                          Vol. 1862 Pg. 61
--------------------------------------------------------------------------------------------------------
Anderson County, South Carolina                May 2, 1996                96-17555
--------------------------------------------------------------------------------------------------------
Charleston County, South Carolina              May 28, 1996               96-08786
--------------------------------------------------------------------------------------------------------
Cherokee County, South Carolina                May 2, 1996                29875
--------------------------------------------------------------------------------------------------------
Greenville County, South Carolina              May 7, 1996                961531
--------------------------------------------------------------------------------------------------------
Greenwood County, South Carolina               May 3, 1996                8222
--------------------------------------------------------------------------------------------------------
Laurens County, South Carolina                 May 3, 1996                056763
--------------------------------------------------------------------------------------------------------
Marlboro County, South Carolina                May 2, 1996                27370
--------------------------------------------------------------------------------------------------------
Orangeburg County, South Carolina              May 3, 1996                96511
--------------------------------------------------------------------------------------------------------
Pickens County, South Carolina                 May 3, 1996                96-00459
--------------------------------------------------------------------------------------------------------
Spartanburg County, South Carolina             May 31, 1996               9601021
--------------------------------------------------------------------------------------------------------
Tennessee Secretary of State                   April 6,1994               297179
--------------------------------------------------------------------------------------------------------
Texas Secretary of State                       April 5, 1994              064691
--------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------
</TABLE>

Debtor of Record:          Avondale Mills Graniteville Fabrics, Inc.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
               LOCATION                           DATE FILED                     FILE NUMBER
--------------------------------------------------------------------------------------------------------
<S>                                            <C>                        <C>
Delaware Secretary of State                    September 11, 2001         11136899
--------------------------------------------------------------------------------------------------------
Delaware Secretary of State                    March 3, 2003              30520331
--------------------------------------------------------------------------------------------------------
Walton County, Georgia                         September 8, 1997          147-1997-1314
--------------------------------------------------------------------------------------------------------
South Carolina Secretary of State              September 9, 1997          970909-120935A
--------------------------------------------------------------------------------------------------------
Aiken County, South Carolina                   September 5, 1997          97-1869
                                                                          Vol. 2004, Pg. 340
--------------------------------------------------------------------------------------------------------
</TABLE>

B.       Mortgages to be terminated

Mortgagor of Record:       Avondale Mills, Inc.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
                        COUNTY                                       RECORDING INFORMATION
--------------------------------------------------------------------------------------------------------
<S>                                                       <C>
Lee Co., NC (Lee)                                         Recorded 9/10/01; Book 754, Page 721
--------------------------------------------------------------------------------------------------------
Yancey Co., GA (Burnsville)                               Recorded: 9/10/01; Book 379, Page 373
--------------------------------------------------------------------------------------------------------
Walton Co., GA (Walton)                                   Recorded: 9/12/01; Book 1293, Page 9
--------------------------------------------------------------------------------------------------------
Tallapoosa Co., AL (Bevelle)                              Recorded: 10/23/01; Recorded Card No. 165200
--------------------------------------------------------------------------------------------------------
Talladega Co., AL (Eva Jane, Sylacauga Finishing, Bon     Recorded: 10/22/01; Mort. Book 960, Page 54
Air, Catherine)
--------------------------------------------------------------------------------------------------------
Oconee Co., SC (Walhalla)                                 Recorded:  9/10/01; Book 1341, Page 1
--------------------------------------------------------------------------------------------------------
Coosa Co., AL (Coosa)                                     Recorded: 10/23/01; Book 350, Page 484
--------------------------------------------------------------------------------------------------------
</TABLE>

                                      D-11
<PAGE>

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
                        COUNTY                                       RECORDING INFORMATION
--------------------------------------------------------------------------------------------------------
<S>                                                       <C>
St. Clair Co., AL (Pell City)                             Recorded: 10/22/01; Book 2001, Page 38035
--------------------------------------------------------------------------------------------------------
Lee Co., NC (Sanford Plant)                               Recorded: 9/10/01; Book 754, Page 795
--------------------------------------------------------------------------------------------------------
Tift Co., GA (Tifton)                                     Recorded: 9/10/01; Book 889; Page 34
--------------------------------------------------------------------------------------------------------
Aiken Co., SC (Gregg Dyeing & Finishing, Hickman,         Recorded: 9/10/01; Book 2653, Page 1; Recorded:
Swint, Townsend, Warren Dyeing, Warren Garment            9/10/01
Processing & Woodhead)
--------------------------------------------------------------------------------------------------------
Richmond Co., GA (Sibley & Sibley Dyeing & Finishing)     Recorded: 9/10/01; Book 747, Page 1612
--------------------------------------------------------------------------------------------------------
</TABLE>

Mortgagor of Record:       Avondale Mills Graniteville Fabrics, Inc.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
                         COUNTY                                      RECORDING INFORMATION
--------------------------------------------------------------------------------------------------------
<S>                                                       <C>
Aiken Co., SC (Horse Creek)                               Book 2653, Page 69
--------------------------------------------------------------------------------------------------------
</TABLE>

C.       Fixture Filings to be terminated

Debtor of Record:        Avondale Mills, Inc.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
               COUNTY OR JURISDICTION                               RECORDING INFORMATION
--------------------------------------------------------------------------------------------------------
<S>                                                       <C>
Lee Co., NC (Lee)                                         Recorded: 9/10/01; Book 754, Page 789
--------------------------------------------------------------------------------------------------------
Yancey Co., GA (Burnsville)                               Recorded: 9/10/01; Book 379, Page 441
--------------------------------------------------------------------------------------------------------
Walton Co., GA (Walton)                                   Recorded: 9/12/01; Book 1293, Page 77
--------------------------------------------------------------------------------------------------------
Tallapoosa Co., AL (Bevelle)                              Recorded: 10/23/01; Recorded Card No. 12003
--------------------------------------------------------------------------------------------------------
Talladega Co., AL (Eva Jane, Sylacauga Finishing, Bon     Recorded: 10/22/01; File No. 173699
Air, Catherine)
--------------------------------------------------------------------------------------------------------
Oconee Co., SC (Walhalla)                                 Recorded: 9/10/01; Book 1340, Page 301
--------------------------------------------------------------------------------------------------------
Coosa Co., AL (Coosa)                                     Recorded: 10/23/01; File No. 4992
--------------------------------------------------------------------------------------------------------
St. Clair Co., AL (Pell City)                             Recorded: 10/22/01; Book 2001, Page 1571
--------------------------------------------------------------------------------------------------------
Lee Co., NC (Sanford Plant)                               Recorded 9/10/01; Book 754, Page 863
--------------------------------------------------------------------------------------------------------
Tift Co., GA (Tifton)                                     Recorded: 9/10/01; No. 137-2001-1569
--------------------------------------------------------------------------------------------------------
Aiken Co., SC (Gregg Dyeing & Fininshing, Hickman,        Recorded: 9/10/01; Volume 2654, Page 164
Swint, Townsend, Warren Dyeing, Warren Garment
Processing & Woodhead)
--------------------------------------------------------------------------------------------------------
Richmond Co., GA (Sibley & Sibley Dyeing & Finishing)     Recorded: 9/10/01; Book 747, Page 1680
--------------------------------------------------------------------------------------------------------
Alabama Secretary of State                                Recorded: 9/19/01; B2001-36546FS
--------------------------------------------------------------------------------------------------------
Fulton Co., GA                                            Recorded: 10/19/01; Financing Statement No.
--------------------------------------------------------------------------------------------------------
</TABLE>

                                      D-12
<PAGE>

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
               COUNTY OR JURISDICTION                               RECORDING INFORMATION
--------------------------------------------------------------------------------------------------------
<S>                                                       <C>
                                                          060200116658
--------------------------------------------------------------------------------------------------------
</TABLE>

Debtor of Record:       Avondale Mills Graniteville Fabrics, Inc.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
               COUNTY OR JURISDICTION                               RECORDING INFORMATION
--------------------------------------------------------------------------------------------------------
<S>                                                       <C>
Aiken Co., SC (Horse Creek)                               Recorded: 9/10/01; Book 2654, Page 172
--------------------------------------------------------------------------------------------------------
Delaware Secretary of State (Avondale Mills               Recorded: 9/11/01; No. 1113689 9-0000000;
Graniteville Fabrics, Inc.)                               Correction Statement - Recorded: 10/15/01; No.
                                                          1113689 9-1138635
--------------------------------------------------------------------------------------------------------
</TABLE>

                                      D-13
<PAGE>

                    SCHEDULE V TO ANNEX D (CLOSING CHECKLIST)

                           COVERED ACCOUNTS AT CLOSING

<TABLE>
<CAPTION>
        Depositary Bank                         Type/Use                       Account Number
        ---------------                         --------                       --------------
<S>                                         <C>                            <C>
Wachovia Bank, National                     Maser Account                  01-1000-1101046-0000
  Association                               (Concentration)
Atlanta, GA  30303

Wachovia Bank, National                     General Payables               01-1000-1101009-0000
  Association                               (ZBA)
Atlanta, GA  30303
</TABLE>

                     COVERED INVESTMENT ACCOUNTS AT CLOSING

<TABLE>
<CAPTION>
    Securities Intermediary                   Type Use                        Account Number
    -----------------------                   --------                        --------------
<S>                                         <C>                            <C>
Evergreen Investment                        Money Market                   01-1000-2102001-0000
  Services, Inc.                            Investments
Boston, MA  02266
(held through Wachovia)
</TABLE>

                                      D-14
<PAGE>

                                                                  EXECUTION COPY

                               SECURITY AGREEMENT

                  SECURITY AGREEMENT, dated as of November 7, 2003, among
AVONDALE MILLS, INC., an Alabama corporation ("Avondale"), AVONDALE MILLS
GRANITEVILLE FABRICS, INC., a Delaware corporation ("AMGF" and together with
Avondale, the "Grantors" and individually as a "Grantor"), and GENERAL ELECTRIC
CAPITAL CORPORATION ("GE Capital"), a Delaware corporation, individually and in
its capacity as Agent for Lenders ("Agent").

                               W I T N E S S T H:

                  WHEREAS, pursuant to that certain Credit Agreement dated as of
the date hereof by and among Avondale as Borrower, the Grantors as Credit
Parties, Agent and Lenders (including all annexes, exhibits and schedules
thereto, as from time to time amended, restated, supplemented or otherwise
modified, the "Credit Agreement"), Lenders have agreed to make the Revolving
Loans and to incur Letter of Credit Obligations on behalf of Avondale;

                  WHEREAS, in order to induce Agent and Lenders to enter into
the Credit Agreement and other Loan Documents and to induce Lenders to make the
Revolving Loans and to incur Letter of Credit Obligations as provided for in the
Credit Agreement, Grantors have agreed to grant a continuing Lien on the
Collateral (as hereinafter defined) to secure the Obligations;

                  NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:

                  1.       DEFINED TERMS.

                  (a)      All capitalized terms used but not otherwise defined
herein have the meanings given to them in the Credit Agreement or in Annex A
thereto. All other terms contained in this Security Agreement, unless the
context indicates otherwise, have the meanings provided for by the Code to the
extent the same are used or defined therein.

                  (b)      "Uniform Commercial Code jurisdiction" means any
jurisdiction that has adopted all or substantially all of Article 9 as contained
in the 2000 Official Text of the Uniform Commercial Code, as recommended by the
National Conference of Commissioners on Uniform State Laws and the American Law
Institute, together with any subsequent amendments or modifications to the
Official Text.

                  2.       GRANT OF LIEN.

                  (a)      To secure the prompt and complete payment,
performance and observance of all of the Obligations, each Grantor hereby
grants, assigns, conveys, mortgages, pledges, hypothecates and transfers to
Agent, for itself and the benefit of Lenders, a Lien upon all of its right,
title and interest in, to and under the following property and assets, whether
now owned by or owing to, or hereafter acquired by or arising in favor of such
Grantor (including under any

<PAGE>

trade names, styles or derivations thereof), regardless of where located (all of
which being hereinafter collectively referred to as the "Collateral"),
including:

                           (i)      all Accounts;

                           (ii)     all Inventory;

                           (iii)    all claims and causes of action relating to
                                    Inventory;

                           (iv)     all documents of title with respect to
         Inventory;

                           (v)      all Equipment (other than (A) Equipment
         subject to a Lien granted to any third party before the Closing Date;
         provided; that such Lien has been listed on Disclosure Schedule 6.7 to
         the Credit Agreement, (B) Equipment subject to a Lien granted to a
         third party after the Closing Date; provided; that such Lien is
         permitted pursuant to Section 6.7(c) of the Credit Agreement, and (C)
         Fixtures);

                           (vi)     all Goods;

                           (vii)    solely with respect to Avondale, all Stock
         of Avondale Funding and AMGF;

                           (viii)   all Covered Accounts and Covered Investment
         Accounts and all deposits therein (including, without limitation, all
         cash deposits therein);

                           (ix)     all books and records of any Grantor with
         respect to any of the foregoing; and

                           (x)      to the extent not otherwise included, all
         Proceeds, insurance claims and other rights to payments not otherwise
         included in the foregoing and products of the foregoing and all
         accessions to, substitutions and replacements for, and rents and
         profits of, each of the foregoing.

         The grant of all the above Liens is subject to the terms and conditions
of that certain Intercreditor Agreement dated as of the date hereof among
Avondale Funding LLC, Avondale and GE Capital in its capacity as Agent for the
Lenders and in its capacity as Administrative Agent for the "Committed
Purchasers" party to the Securitization Facility.

                  (b)      In addition, and subject to the terms of the
Intercreditor Agreement, to secure the prompt and complete payment, performance
and observance of the Obligations and in order to induce Agent and Lenders as
aforesaid, each Grantor hereby grants to Agent, for itself and the benefit of
Lenders, a right of setoff against the property of such Grantor held by Agent or
any Lender, consisting of property described above in Section 2(a) now or
hereafter in the possession or custody of or in transit to Agent or any Lender,
for any purpose, including safekeeping, collection or pledge, for the account of
such Grantor, or as to which such Grantor may have any right or power.

                                       2
<PAGE>

                  (c)      With respect to any Equipment subject to a Lien in
favor of any third party described in Section 2(a)(v)(A) or Section 2(a)(v)(B)
above, which Lien has been released and has not been replaced by a Lien in favor
of a third party permitted under the terms and conditions of the Credit
Agreement, the applicable Grantor agrees to grant a security interest on such
Equipment in favor of the Agent, for itself and for the benefit of the Lenders,
promptly upon release of such Lien.

                  3.       AGENT'S AND LENDERS' RIGHTS: LIMITATIONS ON AGENT'S
AND LENDERS' OBLIGATIONS.

                  (a)      It is expressly agreed by Grantors that, anything
herein to the contrary notwithstanding, each Grantor shall remain liable under
each of its contracts to observe and perform all the conditions and obligations
to be observed and performed by it thereunder. Neither Agent nor any Lender
shall have any obligation or liability under any contract by reason of or
arising out of this Security Agreement or the granting herein of a Lien thereon
or the receipt by Agent or any Lender of any payment relating to any contract
pursuant hereto. Neither Agent nor any Lender shall be required or obligated in
any manner to perform or fulfill any of the obligations of any Grantor under or
pursuant to any contract, or to make any payment, or to make any inquiry as to
the nature or the sufficiency of any payment received by it or the sufficiency
of any performance by any party under any contract, or to present or file any
claims, or to take any action to collect or enforce any performance or the
payment of any amounts which may have been assigned to it or to which it may be
entitled at any time or times.

                  (b)      Subject to the terms of the Intercreditor Agreement,
Agent may at any time after an Event of Default has occurred and is continuing
without prior notice to any Grantor, notify Account Debtors and other Persons
obligated on the Collateral that Agent has a security interest therein, and that
payments shall be made directly to Agent. Upon the request of Agent, each
Grantor shall so notify Account Debtors and other Persons obligated on
Collateral. Once any such notice has been given to any Account Debtor or other
Person obligated on the Collateral, the affected Grantor shall not give any
contrary instructions to such Account Debtor or other Person without Agent's
prior written consent, subject to the terms of the Intercreditor Agreement.

                  (c)      Subject to the terms of the Intercreditor Agreement,
Agent may upon the occurrence and during the continuation of an Event of
Default, in Agent's own name, in the name of a nominee of Agent or in the name
of any Grantor communicate (by mail, telephone, facsimile or otherwise) with
Account Debtors, to Agent's satisfaction, the existence, amount terms of, and
any other matter relating to, Accounts in which Agent retains a Lien. If an
Event of Default shall have occurred and be continuing, each Grantor, at its own
expense, shall cause the independent certified public accountants then engaged
by such Grantor to prepare and deliver to Agent and each Lender at any time and
from time to time promptly upon Agent's request the following reports with
respect to each Grantor: (i) a reconciliation of all Accounts in which Agent
retains a Lien; (ii) an aging of all such Accounts; (iii) trial balances; and
(iv) a test verification of such Accounts as Agent may reasonably request. Each
Grantor, at its own expense, shall deliver to Agent the results of each physical
verification, if any, which such Grantor may in its discretion have made, or
caused any other Person to have made on its behalf, of all or any portion of its
Inventory.

                                       3
<PAGE>

                  4.       REPRESENTATIONS AND WARRANTIES. Each Grantor
represents and warrants that:

                  (a)      Each Grantor has rights in and the power to transfer
each item of the Collateral upon which it purports to grant a Lien hereunder
free and clear of any and all Liens other than Permitted Encumbrances.

                  (b)      No effective security agreement, financing statement,
equivalent security or Lien instrument or continuation statement covering all or
any part of the Collateral is on file or of record in any public office, except
such as may have (i) been filed in favor of Agent pursuant to this Security
Agreement or the other Loan Documents, (ii) been filed in connection with any
other Permitted Encumbrances, and (iii) been filed in connection with Liens in
existence on the Closing Date which are disclosed in Disclosure Schedule 6.7 of
the Credit Agreement.

                  (c)      This Security Agreement is effective to create a
valid and continuing Lien on and, upon the filing of the appropriate financing
statements listed on Schedule I hereto, a perfected Lien in favor of Agent, for
itself and the benefit of Lenders, on the Collateral with respect to which a
Lien may be perfected by filing pursuant to the Code. Such Lien is prior to all
other Liens, except Permitted Encumbrances that would be prior to Liens in favor
of Agent for the benefit of Agent and Lenders as a matter of law and Liens on
Collateral disclosed in Disclosure Schedule 6.7 of the Credit Agreement, and is
enforceable as such as against any and all creditors of and purchasers from any
Grantor (other than purchasers and lessees of Inventory in the ordinary course
of business).

                  (d)      As of the Closing Date, each Grantor's name as it
appears in official filings in the state of its incorporation, the type of
entity of each Grantor, organizational identification number issued by each
Grantor's state of incorporation or a statement that no such number has been
issued, each Grantor's state of incorporation, the location of each Grantor's
chief executive office, and the warehouses and premises at which any Collateral,
other than Collateral having an aggregate book value of $100,000 or less, are
located are set forth in Disclosure Schedule 3.2 of the Credit Agreement. Each
Grantor has only one state of incorporation.

                  (e)      With respect to any Inventory scheduled or listed as
Eligible Inventory on the most recent Collateral Report delivered to Agent
pursuant to the terms of this Security Agreement or the Credit Agreement, (i)
such Inventory is located at one of the locations permitted pursuant to Section
1.7 of the Credit Agreement, (ii) the applicable Grantor has good, indefeasible
and merchantable title to such Inventory and such Inventory is not subject to
any Lien or security interest or document whatsoever except for the Lien granted
to Agent, for the benefit of Agent and Lenders, and except for Permitted
Encumbrances, (iii) all such Inventory is of good and merchantable quality, and
is not obsolete, slow moving (in excess of one year's supply), unsalable,
shopworn, seconds, damaged or unfit for sale, (iv) such Inventory is not subject
to any patent or trademark licenses with any third parties which would require
any consent of any third party upon sale or disposition of that Inventory or the
payment of any monies to any third party upon such sale or other disposition,
and (v) the completion of manufacture, sale or other disposition of such
Inventory by Agent following an Event of Default

                                       4
<PAGE>

shall not require the consent of any Person and shall not constitute a breach or
default under any contract or agreement to which any Grantor is a party or to
which such property is subject.

                  5.       COVENANTS. Each Grantor covenants and agrees with
Agent, for the benefit of Agent and Lenders, that from and after the date of
this Security Agreement and until the Termination Date:

                  (a)      Further Assurances.

                           (i)      At any time and from time to time, upon the
         written request of Agent and at the sole expense of Grantors, each
         Grantor shall promptly and duly execute and deliver any and all such
         further instruments and documents and take such further actions as
         Agent may reasonably deem desirable to obtain the full benefits of this
         Security Agreement and of the rights and powers herein granted,
         including filing any financing or continuation statements under the
         Code with respect to the Liens granted hereunder or under any other
         Loan Document as to those jurisdictions that are not Uniform Commercial
         Code jurisdictions.

                           (ii)     Each Grantor shall, in accordance with the
         terms of the Credit Agreement, obtain or use its commercially
         reasonable efforts to obtain waivers or subordinations of Liens from
         landlords and mortgagees, and each Credit Party shall in all instances
         obtain signed acknowledgements of Agent's Liens from bailees having
         possession of any Inventory identified by the Borrower as Eligible
         Inventory that they hold for the benefit of Agent.

                           (iii)    If required by the terms of the Credit
         Agreement and not waived by Agent in writing (which waiver may be
         revoked), each Grantor shall obtain authenticated Control Letters from
         each Person with which such Grantor has a Covered Investment Account.

                           (iv)     In accordance with Annex C to the Credit
         Agreement, each Grantor shall obtain a blocked account, lockbox or
         similar agreement with each bank or financial institution holding a
         Covered Account for such Grantor.

                           (v)      Each Grantor hereby irrevocably authorizes
         the Agent at any time and from time to time to file in any filing
         office in any Uniform Commercial Code jurisdiction any initial
         financing statements and amendments thereto that (a) indicate the
         Collateral (i) as the assets described in Section 2 above, regardless
         of whether any particular asset comprised in the Collateral falls
         within the scope of Article 9 of the Code or such jurisdiction, or (ii)
         as being of an equal or lesser scope or with greater detail, and (b)
         contain any other information required by part 5 of Article 9 of the
         Code for the sufficiency or filing office acceptance of any financing
         statement or amendment, including whether such Grantor is an
         organization, the type of organization and any organization
         identification number issued to such Grantor Each Grantor also ratifies
         its authorization for the Agent to have filed in any Uniform Commercial
         Code jurisdiction any initial financing statements or amendments
         thereto if filed prior to the date hereof.

                                       5
<PAGE>

                  (b)      Maintenance of Records. Grantors shall keep and
maintain, at their own cost and expense, satisfactory and complete records of
the Collateral, including a record of any and all payments received and any and
all credits granted with respect to the Collateral and all other dealings with
the Collateral.

                  (c)      Indemnification. In any suit, proceeding or action
brought by Agent or any Lender relating to any Collateral for any sum owing with
respect thereto or to enforce any rights or claims with respect thereto, each
Grantor will save, indemnify and keep Agent and Lenders harmless from and
against all expense (including reasonable attorneys' fees and expenses), loss or
damage suffered by reason of any defense, setoff, counterclaim, recoupment or
reduction of liability whatsoever of the Account Debtor or other Person
obligated on the Collateral, arising out of a breach by any Grantor of any
obligation thereunder or arising out of any other agreement, indebtedness or
liability at any time owing to, or in favor of, such obligor or its successors
from such Grantor, except in the case of Agent or any Lender, to the extent such
expense, loss, or damage is attributable solely to the gross negligence or
willful misconduct of Agent or such Lender as finally determined by a court of
competent jurisdiction. All such obligations of Grantors shall be and remain
enforceable against and only against Grantors and shall not be enforceable
against Agent or any Lender.

                  (d)      Compliance with Terms of Collateral, etc. In all
material respects, each Grantor will perform and comply with all obligations in
respect of the Collateral and all other agreements to which it is a party or by
which it is bound relating to the Collateral.

                  (e)      Limitation on Liens on Collateral. No Grantor will
create, permit or suffer to exist, and each Grantor will defend the Collateral
against, and take such other action as is necessary to remove, any Lien on the
Collateral except Permitted Encumbrances or as otherwise expressly permitted by
the Credit Agreement and those in existence on the Closing Date and listed in
Disclosure Schedule 6.7 of the Credit Agreement, and will defend the right,
title and interest of Agent and Lenders in and to any of such Grantor's rights
under the Collateral against the claims and demands of all Persons whomsoever.

                  (f)      Limitations on Disposition. No Grantor will sell,
license, lease, transfer or otherwise dispose of any of the Collateral, or
attempt or contract to do so except as permitted by the Credit Agreement or any
other Loan Document.

                  (g)      Further Identification of Collateral. Grantors will,
if so requested by Agent, furnish to Agent, as often as Agent reasonably
requests, statements and schedules further identifying and describing the
Collateral and such other reports in connection with the Collateral as Agent may
reasonably request, all in such detail as Agent may specify.

                  (h)      Notices. Grantors will advise Agent promptly, in
reasonable detail, (i) of any Lien (other than Permitted Encumbrances) or claim
made or asserted against any of the Collateral, and (ii) of the occurrence of
any other event in any case that would have a material adverse effect on the
aggregate value of the Collateral or on the Liens created hereunder or under any
other Loan Document.

                                       6
<PAGE>

                  (i)      Good Standing Certificates. Upon written request from
Agent, not more frequently than twice during each calendar year, each Grantor
shall provide to Agent a certificate of good standing from its state of
incorporation or organization.

                  (j)      No Reincorporation. Without limiting the prohibitions
on mergers involving the Grantors contained in the Credit Agreement, no Grantor
shall reincorporate or reorganize itself under the laws of any jurisdiction
other than the jurisdiction in which it is incorporated or organized as of the
date hereof without the prior written consent of Agent.

                  (k)      Terminations; Amendments Not Authorized. Each Grantor
acknowledges that it is not authorized to file any amendment or termination
statement with respect to any financing statement filed by or on behalf of Agent
in respect of any Collateral without the prior written consent of Agent and
agrees that it will not do so without the prior written consent of Agent,
subject to such Grantor's rights under Section 9-509(d)(2) of the Code.

                  (l)      Authorized Terminations. Agent will promptly deliver
to each Grantor for filing or authorize each Grantor to prepare and file
termination statements and releases in accordance with Section 11.2(e) of the
Credit Agreement.

                  6.       AGENT'S APPOINTMENT AS ATTORNEY-IN-FACT.

                  On the Closing Date each Grantor shall execute and deliver to
Agent a power of attorney (the "Power of Attorney") substantially in the form
attached hereto as Exhibit A. The power of attorney granted pursuant to the
Power of Attorney is a power coupled with an interest and shall be irrevocable
until the Termination Date. The powers conferred on Agent, for the benefit of
Agent and Lenders, under the Power of Attorney are solely to protect Agent's
interests (for the benefit of Agent and Lenders) in the Collateral and shall not
impose any duty upon Agent or any Lender to exercise any such powers. Agent
agrees that (a) except for the powers granted in clause (g) of the Power of
Attorney, it shall not exercise any power or authority granted under the Power
of Attorney unless an Event of Default has occurred and is continuing, and (b)
Agent shall account for any moneys received by Agent in respect of any
foreclosure on or disposition of Collateral pursuant to the Power of Attorney
provided that none of Agent or any Lender shall have any duty as to any
Collateral, and Agent and Lenders shall be accountable only for amounts that
they actually receive as a result of the exercise of such powers. NONE OF AGENT,
LENDERS OR THEIR RESPECTIVE AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS
OR REPRESENTATIVES SHALL BE RESPONSIBLE TO ANY GRANTOR FOR ANY ACT OR FAILURE TO
ACT UNDER ANY POWER OF ATTORNEY OR OTHERWISE, EXCEPT IN RESPECT OF DAMAGES
ATTRIBUTABLE SOLELY TO THEIR OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT AS
FINALLY DETERMINED BY A COURT OF COMPETENT JURISDICTION, NOR FOR ANY PUNITIVE,
EXEMPLARY, INDIRECT OR CONSEQUENTIAL DAMAGES.

                  7.       REMEDIES: RIGHTS UPON DEFAULT.

                  (a)      In addition to all other rights and remedies granted
to it under this Security Agreement, the Credit Agreement, the other Loan
Documents and under any other instrument or agreement securing, evidencing or
relating to any of the Obligations, if any Event of Default

                                       7
<PAGE>

shall have occurred and be continuing, Agent may exercise all rights and
remedies of a secured party under the Code. Without limiting the generality of
the foregoing, each Grantor expressly agrees that in any such event Agent,
without demand of performance or other demand, advertisement or notice of any
kind (except the notice specified below of time and place of public or private
sale) to or upon such Grantor or any other Person (all and each of which
demands, advertisements and notices are hereby expressly waived to the maximum
extent permitted by the Code and other applicable law), may forthwith enter upon
the premises of such Grantor where any Collateral is located through self-help,
without judicial process, without first obtaining a final judgment or giving
such Grantor or any other Person notice and opportunity for a hearing on Agent's
claim or action and may collect, receive, assemble, process, appropriate and
realize upon the Collateral, or any part thereof, and may forthwith sell, lease,
license, assign, give an option or options to purchase, or sell or otherwise
dispose of and deliver said Collateral (or contract to do so), or any part
thereof, in one or more parcels at a public or private sale or sales, at any
exchange at such prices as it may deem acceptable, for cash or on credit or for
future delivery without assumption of any credit risk. Agent or any Lender shall
have the right upon any such public sale or sales and, to the extent permitted
by law, upon any such private sale or sales, to purchase for the benefit of
Agent and Lenders, the whole or any part of said Collateral so sold, free of any
right or equity of redemption, which equity of redemption each Grantor hereby
releases. Such sales may be adjourned and continued from time to time with or
without notice. Agent shall have the right to conduct such sales on any
Grantor's premises or elsewhere and shall have the right to use any Grantor's
premises without charge for such time or times as Agent deems necessary or
advisable.

                  If any Event of Default shall have occurred and be continued,
each Grantor further agrees, at Agent's request, to assemble the Collateral and
make it available to Agent at a place or places designated by Agent which are
reasonably convenient to Agent and such Grantor, whether at such Grantor's
premises or elsewhere. Until Agent is able to effect a sale, lease, or other
disposition of Collateral, Agent shall have the right to hold or use Collateral,
or any part thereof, to the extent that it deems appropriate for the purpose of
preserving Collateral or its value or for any other purpose deemed appropriate
by Agent. Agent shall have no obligation to any Grantor to maintain or preserve
the rights of such Grantor as against third parties with respect to Collateral
while Collateral is in the possession of Agent. Agent may, if it so elects, seek
the appointment of a receiver or keeper to take possession of Collateral and to
enforce any of Agent's remedies (for the benefit of Agent and Lenders), with
respect to such appointment without prior notice or hearing as to such
appointment. Agent shall apply the net proceeds of any such collection,
recovery, receipt, appropriation, realization or sale to the Obligations as
provided in the Credit Agreement, and only after so paying over such net
proceeds, and after the payment by Agent of any other amount required by any
provision of law, need Agent account for the surplus, if any, to any Grantor. To
the maximum extent permitted by applicable law, each Grantor waives all claims,
damages, and demands against Agent or any Lender arising out of the
repossession, retention or sale of the Collateral except such as arise solely
out of the gross negligence or willful misconduct of Agent or such Lender as
finally determined by a court of competent jurisdiction. Each Grantor agrees
that ten (10) Business Days prior notice by Agent of the time and place of any
public sale or of the time after which a private sale may take place is
reasonable notification of such matters. Grantors shall remain liable for any
deficiency if the proceeds of any sale or disposition of the Collateral are
insufficient to pay all Obligations,

                                       8
<PAGE>

including any attorneys' fees and other expenses incurred by Agent or any Lender
to collect such deficiency.

                  (b)      Except as otherwise specifically provided herein,
each Grantor hereby waives presentment, demand, protest or any notice (to the
maximum extent permitted by applicable law) of any kind in connection with this
Security Agreement or any Collateral.

                  (c)      To the extent that applicable law imposes duties on
the Agent to exercise remedies in a commercially reasonable manner, each Grantor
acknowledges and agrees that it is not commercially unreasonable for the Agent
(i) to fail to incur expenses reasonably deemed significant by the Agent to
prepare Collateral for disposition or otherwise to complete raw material or work
in process into finished goods or other finished products for disposition, (ii)
to fail to obtain third party consents for access to Collateral to be disposed
of, or to obtain or, if not required by other law, to fail to obtain
governmental or third party consents for the collection or disposition of
Collateral to be collected or disposed of, (iii) to fail to exercise collection
remedies against Account Debtors or other Persons obligated on Collateral or to
remove Liens on or any adverse claims against Collateral, (iv) to exercise
collection remedies against Account Debtors (subject to the terms of the
Intercreditor Agreement) and other Persons obligated on Collateral directly or
through the use of collection agencies and other collection specialists, (v) to
advertise dispositions of Collateral through publications or media of general
circulation, whether or not the Collateral is of a specialized nature, (vi) to
contact other Persons, whether or not in the same business as the Grantor, for
expressions of interest in acquiring all or any portion of such Collateral,
(vii) to hire one or more professional auctioneers to assist in the disposition
of Collateral, whether or not the Collateral is of a specialized nature, (viii)
to dispose of Collateral by utilizing internet sites that provide for the
auction of assets of the types included in the Collateral or that have the
reasonable capacity of doing so, or that match buyers and sellers of assets,
(ix) to dispose of assets in wholesale rather than retail markets, (x) to
disclaim disposition warranties, such as title, possession or quiet enjoyment,
(xi) to purchase insurance or credit enhancements to insure the Agent against
risks of loss, collection or disposition of Collateral or to provide to the
Agent a guaranteed return from the collection or disposition of Collateral, or
(xii) to the extent deemed appropriate by the Agent, to obtain the services of
other brokers, investment bankers, consultants and other professionals to assist
the Agent in the collection or disposition of any of the Collateral. Each
Grantor acknowledges that the purpose of this Section 7(c) is to provide
non-exhaustive indications of what actions or omissions by the Agent would not
be commercially unreasonable in the Agent's exercise of remedies against the
Collateral and that other actions or omissions by the Agent shall not be deemed
commercially unreasonable solely on account of not being indicated in this
Section 7(c). Without limitation upon the foregoing, nothing contained in this
Section 7(c) shall be construed to grant any rights to any Grantor or to impose
any duties on Agent that would not have been granted or imposed by this Security
Agreement or by applicable law in the absence of this Section 7(c).

                  (d)      Neither the Agent nor the Lenders shall be required
to make any demand upon, or pursue or exhaust any of their rights or remedies
against, any Grantor, any other obligor, guarantor, pledgor or any other Person
with respect to the payment of the Obligations or to pursue or exhaust any of
their rights or remedies with respect to any Collateral therefor or any direct
or indirect guarantee thereof. Neither the Agent nor the Lenders shall be
required to marshal the Collateral or any guarantee of the Obligations or to
resort to the Collateral or any

                                       9
<PAGE>

such guarantee in any particular order, and all of its and their rights
hereunder or under any other Loan Document shall be cumulative. To the extent it
may lawfully do so, each Grantor absolutely and irrevocably waives and
relinquishes the benefit and advantage of, and covenants not to assert against
the Agent or any Lender, any valuation, stay, appraisement, extension,
redemption or similar laws and any and all rights or defenses it may have as a
surety now or hereafter existing which, but for this provision, might be
applicable to the sale of any Collateral made under the judgment, order or
decree of any court, or privately under the power of sale conferred by this
Security Agreement, or otherwise.

                  8.       LIMITATION ON AGENT'S AND LENDERS' DUTY IN RESPECT OF
COLLATERAL. Agent and each Lender shall use reasonable care with respect to the
Collateral in its possession or under its control. Neither Agent nor any Lender
shall have any other duty as to any Collateral in its possession or control or
in the possession or control of any agent or nominee of Agent or such Lender, or
any income thereon or as to the preservation of rights against prior parties or
any other rights pertaining thereto.

                  9.       REINSTATEMENT. This Security Agreement shall remain
in full force and effect and continue to be effective should any petition be
filed by or against any Grantor for liquidation or reorganization, should any
Grantor become insolvent or make an assignment for the benefit of any creditor
or creditors or should a receiver or trustee be appointed for all or any
significant part of any Grantor's assets, and shall continue to be effective or
be reinstated, as the case may be, if at any time payment and performance of the
Obligations, or any part thereof, is, pursuant to applicable law, rescinded or
reduced in amount, or must otherwise be restored or returned by any obligee of
the Obligations, whether as a "voidable preference," "fraudulent conveyance," or
otherwise, all as though such payment or performance had not been made. In the
event that any payment, or any part thereof, is rescinded, reduced, restored or
returned, the Obligations shall be reinstated and deemed reduced only by such
amount paid and not so rescinded, reduced, restored or returned.

                  10.      NOTICES. Except as otherwise provided herein,
whenever it is provided herein that any notice, demand, request, consent,
approval, declaration or other communication shall or may be given to or served
upon any of the parties by any other party, or whenever any of the parties
desires to give and serve upon any other party any communication with respect to
this Security Agreement, each such notice, demand, request, consent, approval,
declaration or other communication shall be in writing and shall be given in the
manner, and deemed received, as provided for in the Credit Agreement.

                  11.      SEVERABILITY. Whenever possible, each provision of
this Security Agreement shall be interpreted in a manner as to be effective and
valid under applicable law, but if any provision of this Security Agreement
shall be prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity without invalidating
the remainder of such provision or the remaining provisions of this Security
Agreement. This Security Agreement is to be read, construed and applied together
with the Credit Agreement and the other Loan Documents which, taken together,
set forth the complete understanding and agreement of Agent, Lenders and
Grantors with respect to the matters referred to herein and therein.

                                       10
<PAGE>

                  12.      NO WAIVER; CUMULATIVE REMEDIES. Neither Agent nor any
Lender shall by any act, delay, omission or otherwise be deemed to have waived
any of its rights or remedies hereunder, and no waiver shall be valid unless in
writing, signed by Agent and then only to the extent therein set forth. A waiver
by Agent of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which Agent would otherwise have had
on any future occasion. No failure to exercise nor any delay in exercising on
the part of Agent or any Lender, any right, power or privilege hereunder, shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege hereunder preclude any other or future exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies hereunder provided are cumulative and may be exercised singly or
concurrently, and are not exclusive of any rights and remedies provided by law.
None of the terms or provisions of this Security Agreement may be waived,
altered, modified or amended except by an instrument in writing, duly executed
by Agent and Grantors.

                  13.      LIMITATION BY LAW. All rights, remedies and powers
provided in this Security Agreement may be exercised only to the extent that the
exercise thereof does not violate any applicable provision of law, and all the
provisions of this Security Agreement are intended to be subject to all
applicable mandatory provisions of law that may be controlling and to be limited
to the extent necessary so that they shall not render this Security Agreement
invalid, unenforceable, in whole or in part, or not entitled to be recorded,
registered or filed under the provisions of any applicable law.

                  14.      TERMINATION OF THIS SECURITY AGREEMENT. Subject to
Section 9 hereof, this Security Agreement shall terminate upon the Termination
Date.

                  15.      SUCCESSORS AND ASSIGNS. This Security Agreement and
all obligations of Grantors hereunder shall be binding upon the successors and
assigns of each Grantor (including any debtor-in-possession on behalf of such
Grantor) and shall, together with the rights and remedies of Agent, for the
benefit of Agent and Lenders, hereunder, inure to the benefit of Agent and
Lenders, all future holders of any instrument evidencing any of the Obligations
and their respective successors and assigns. No sales of participations, other
sales, assignments, transfers or other dispositions of any agreement governing
or instrument evidencing the Obligations or any portion thereof or interest
therein shall in any manner impair the Lien granted to Agent, for the benefit of
Agent and Lenders, hereunder. No Grantor may assign, sell, hypothecate or
otherwise transfer any interest in or obligation under this Security Agreement.

                  16.      COUNTERPARTS. This Security Agreement may be
authenticated in any number of separate counterparts, each of which shall
collectively and separately constitute one agreement. This Security Agreement
may be authenticated by manual signature, facsimile or, if approved in writing
by Agent, electronic means, all of which shall be equally valid.

                  17.      GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED
IN ANY OF THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS SECURITY AGREEMENT AND THE
OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA APPLICABLE TO CONTRACTS
MADE AND

                                       11
<PAGE>

PERFORMED IN THAT STATE, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF
AMERICA. EACH GRANTOR HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL
COURTS LOCATED IN FULTON COUNTY, CITY OF ATLANTA, STATE OF GEORGIA, SHALL HAVE
EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN
GRANTORS, AGENT AND LENDERS PERTAINING TO THIS SECURITY AGREEMENT OR ANY OF THE
OTHER LOAN DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR RELATING TO THIS
SECURITY AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, PROVIDED, THAT AGENT,
LENDERS AND GRANTORS ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO
BE HEARD BY A COURT LOCATED OUTSIDE OF FULTON COUNTY, AND, PROVIDED, FURTHER,
NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE AGENT FROM
BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE
ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A
JUDGMENT OR OTHER COURT ORDER IN FAVOR OF AGENT. EACH GRANTOR EXPRESSLY SUBMITS
AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN
ANY SUCH COURT, AND EACH GRANTOR HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE
BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS
AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS
DEEMED APPROPRIATE BY SUCH COURT. EACH GRANTOR 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, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY
REGISTERED OR CERTIFIED MAIL ADDRESSED TO SUCH GRANTOR AT THE ADDRESS SET FORTH
ON ANNEX I TO THE CREDIT AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED
COMPLETED UPON THE EARLIER OF ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER
DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID.

                  18.      WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN
CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY
RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE
STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES
DESIRE THAT DISPUTES ARISING HEREUNDER OR RELATING HERETO BE RESOLVED BY A JUDGE
APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE
BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL
RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO RESOLVE ANY
DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, AMONG AGENT, LENDERS,
AND GRANTORS ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED IN CONNECTION WITH, THIS SECURITY AGREEMENT OR ANY OF
THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO.

                                       12
<PAGE>

                  19.      SECTION TITLES. The Section titles contained in this
Security Agreement are and shall be without substantive meaning or content of
any kind whatsoever and are not a part of the agreement between the parties
hereto.

                  20.      NO STRICT CONSTRUCTION. The parties hereto have
participated jointly in the negotiation and drafting of this Security Agreement.
In the event an ambiguity or question of intent or interpretation arises, this
Security Agreement shall be construed as if drafted jointly by the parties
hereto and no presumption or burden of proof shall arise favoring or disfavoring
any party by virtue of the authorship of any provisions of this Security
Agreement.

                  21.      ADVICE OF COUNSEL. Each of the parties represents to
each other party hereto that it has discussed this Security Agreement and,
specifically, the provisions of Section 17 and Section 18, with its counsel.

                  22.      BENEFIT OF LENDERS. All Liens granted or contemplated
hereby shall be for the benefit of Agent, individually, and Lenders, and all
proceeds or payments realized from Collateral in accordance herewith shall be
applied to the Obligations in accordance with the terms of the Credit Agreement.

                           [signature page to follow]

                                       13
<PAGE>

                  IN WITNESS WHEREOF, each of the parties hereto has caused this
Security Agreement to be executed and delivered by its duly authorized officer
as of the date first set forth above.

                                   AVONDALE MILLS, INC., as a Grantor

                                   By:__________________________________________

                                   Name:________________________________________

                                   Title:_______________________________________

                                   AVONDALE MILLS GRANITEVILLE
                                   FABRICS, INC., as a Grantor

                                   By:__________________________________________

                                   Name:________________________________________

                                   Title:_______________________________________

                                   GENERAL ELECTRIC CAPITAL
                                   CORPORATION, as Agent

                                   By:__________________________________________

                                   Name:________________________________________

                                   Title:_______________________________________

                      Signature Page to Security Agreement

<PAGE>

                                   SCHEDULE I
                                       to
                               SECURITY AGREEMENT

                              FILING JURISDICTIONS

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
                 DEBTOR                             UCC-1 FILING LOCATION
--------------------------------------------------------------------------------
<S>                                                 <C>
          Avondale Mills, Inc.                           S/S Alabama
--------------------------------------------------------------------------------
Avondale Mills Graniteville Fabrics, Inc.                S/S Delaware
--------------------------------------------------------------------------------
</TABLE>

<PAGE>

                                    EXHIBIT A

                                POWER OF ATTORNEY

                  This Power of Attorney is executed and delivered by
______________________, a _____________________ corporation ("Grantor") to
General Electric Capital Corporation, a Delaware corporation (hereinafter
referred to as "Attorney"), as Agent for the benefit of Agent and Lenders, under
a Credit Agreement and a Security Agreement, both dated as of
__________________, and other related documents (the "Loan Documents"). No
person to whom this Power of Attorney is presented, as authority for Attorney to
take any action or actions contemplated hereby, shall be required to inquire
into or seek confirmation from Grantor as to the authority of Attorney to take
any action described below, or as to the existence of or fulfillment of any
condition to this Power of Attorney, which is intended to grant to Attorney
unconditionally the authority to take and perform the actions contemplated
herein, and Grantor irrevocable waives any right to commence any suit or action,
in law or equity, against any person or entity which acts in reliance upon or
acknowledges the authority granted under this Power of Attorney. The power of
attorney granted hereby is coupled with an interest, and may not be revoked or
canceled by Grantor without Attorney' s written consent.

                  Grantor hereby irrevocably constitutes and appoints Attorney
(and all officers, employees or agents designated by Attorney), with full power
of substitution, as Grantor's true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of Grantor and in the
name of Grantor or in its own name, from time to time in Attorney's discretion,
to take any and all appropriate action and to execute and deliver any and all
documents and instruments which may be necessary or desirable to accomplish the
purposes of the Loan Documents and, without limiting the generality of the
foregoing, Grantor hereby grants to Attorney the power and right, on behalf of
Grantor, without notice to or assent by Grantor, and at any time, to do the
following: (a) to the extent not prohibited pursuant to terms of that certain
Intercreditor Agreement dated as of October [__] (the "Intercreditor Agreement")
among Avondale Mills, Inc., Avondale Funding LLC and General Electric Capital
Corporation in its capacity as "Banks' Agent" and "Administrative Agent", change
the mailing address of Grantor, open a post office box on behalf of Grantor,
open mail for Grantor, and ask, demand, collect, give acquittances and receipts
for, take possession of, endorse any invoices, freight or express bills, bills
of lading, storage or warehouse receipts, drafts against debtors, assignments,
verifications, and notices in connection with any property of Grantor; (b)
effect any repairs to any asset of Grantor, or continue or obtain any insurance
and pay all or any part of the premiums therefor and costs thereof, and make,
settle and adjust all claims under such policies of insurance, and make all
determinations and decisions with respect to such policies; (c) pay or discharge
any taxes, liens, security interests, or other encumbrances levied or placed on
or threatened against Grantor or its property; (d) defend any suit, action or
proceeding brought against Grantor if Grantor does not defend such suit, action
or proceeding or if Attorney believes that Grantor is not pursuing such defense
in a manner that will maximize the recovery to Attorney, and settle, compromise
or adjust any suit, action, or proceeding described above and, in connection
therewith, give such discharges or releases as Attorney may deem appropriate;
(e) to the extent not prohibited pursuant to the Intercreditor Agreement, file
or prosecute any claim, litigation, suit

<PAGE>

or proceeding in any court of competent jurisdiction or before any arbitrator,
or take any other action otherwise deemed appropriate by Attorney for the
purpose of collecting any and all such moneys due to Grantor whenever payable
and to enforce any other right in respect of Grantor's property; (f) cause the
certified public accountants then engaged by Grantor to prepare and deliver to
Attorney at any time and from time to time, promptly upon Attorney's request,
the following reports: (1) a reconciliation of all accounts included in the
"Collateral" (as such term is defined in the Credit Agreement), (2) an aging of
all such accounts, (3) trial balances with respect to such accounts, (4) test
verifications of such accounts as Attorney may request, and (5) the results of
each physical verification of inventory; (g) to file such financing statements
with respect to the Security Agreement, with or without Grantor's signature, or
to file a photocopy of the Security Agreement in substitution for a financing
statement, as the Agent may deem appropriate and to execute in Grantor's name
such financing statements and amendments thereto and continuation statements
which may require the Grantor's signature; and (h) execute, in connection with
any sale provided for in any Loan Document, any endorsements, assignments or
other instruments of conveyance or transfer with respect to the Collateral and
to otherwise direct such sale or resale, all as though Attorney were the
absolute owner of the property of Grantor for all purposes, and to do, at
Attorney's option and Grantor's expense, at any time or from time to time, all
acts and other things that Attorney reasonably deems necessary to perfect,
preserve, or realize upon Grantor's property or assets and Attorney's Liens
thereon, all as fully and effectively as Grantor might do. Grantor hereby
ratifies, to the extent permitted by law, all that said Attorney shall lawfully
do or cause to be done by virtue hereof.

                  IN WITNESS WHEREOF, this Power of Attorney is executed by
Grantor, and Grantor has caused its seal to be affixed pursuant to the authority
of its board of directors this _____________ day of ______________________.

                                   [                 GRANTOR                   ]
                                    ___________________________________________

                                   By:__________________________________________
                                   Name:________________________________________
                                   Title:_______________________________________

                            NOTARY PUBLIC CERTIFICATE

                  On this _____ day of ______________, 200_, [officer's name]
who is personally known to me appeared before me in his/her capacity as the
[title] of [Grantor] ("Grantor") and executed on behalf of Grantor the Power of
Attorney in favor of General Electric Capital Corporation to which this
Certificate is attached.

                                                ________________________________
                                                Notary Public

<PAGE>

                                                                  EXECUTION COPY

                                PLEDGE AGREEMENT

                  This PLEDGE AGREEMENT, dated as of November 7, 2003 (together
with all amendments, if any, from time to time hereto, this "Agreement") between
AVONDALE INCORPORATED, a Georgia corporation (the "Pledgor") and GENERAL
ELECTRIC CAPITAL CORPORATION in its capacity as Agent for Lenders ("Agent").

                              W I T N E S S E T H:


                  WHEREAS, pursuant to that certain Credit Agreement dated as of
the date hereof by and among Avondale Mills, Inc., as borrower ("Borrower"), the
Persons named therein as Credit Parties, Agent and the Persons signatory thereto
from time to time as Lenders (including all annexes, exhibits and schedules
thereto, and as from time to time amended, restated, supplemented or otherwise
modified (the "Credit Agreement") the Lenders have agreed to make Revolving
Loans to, and incur Letter of Credit Obligations for the benefit of, Borrower;

                  WHEREAS, Pledgor is the record and beneficial owner of the
shares of Stock listed in Schedule I hereto;

                  WHEREAS, Pledgor benefits from the credit facilities made
available to Borrower under the Credit Agreement;

                  WHEREAS, in order to induce Agent and Lenders to enter into
the Credit Agreement and the other Loan Documents and to make the Revolving
Loans and to incur the Letter of Credit Obligations as provided for in the
Credit Agreement, Pledgor has agreed to pledge the Pledged Collateral to Agent
in accordance herewith;

                  NOW, THEREFORE, in consideration of the premises and the
covenants hereinafter contained and to induce Lenders to make Revolving Loans
and to incur Letter of Credit Obligations under the Credit Agreement, it is
agreed as follows:

         1.       Definitions. Unless otherwise defined herein, terms defined in
the Credit Agreement are used herein as therein defined, and the following shall
have (unless otherwise provided elsewhere in this Agreement) the following
respective meanings (such meanings being equally applicable to both the singular
and plural form of the terms defined):

                  "Bankruptcy Code" means title 11, United States Code, as
amended from time to time, and any successor statute thereto.

                  "Pledged Collateral" has the meaning assigned to such term in
Section 2 hereof.

                  "Pledged Entity" means an issuer of Pledged Shares.

                  "Pledged Shares" means the equity interests of Borrower listed
on Schedule I hereto.

<PAGE>

                  "Secured Obligations" has the meaning assigned to such term in
Section 3 hereof.

         2.       Pledge. Pledgor hereby pledges to Agent, and grants to Agent
for itself and the benefit of Lenders, a first priority security interest in all
of the following (collectively, the "Pledged Collateral"):

                  (a)      the Pledged Shares and the certificates representing
         the Pledged Shares, and all dividends, distributions, cash, instruments
         and other property or proceeds from time to time received, receivable
         or otherwise distributed in respect of or in exchange for any or all of
         the Pledged Shares; and

                  (b)      such portion, as determined by Agent as provided in
         Section 6(d) below, of any additional Stock of a Pledged Entity from
         time to time acquired by Pledgor in any manner (which shares shall be
         deemed to be part of the Pledged Shares), and the certificates
         representing such additional shares, and all dividends, distributions,
         cash, instruments and other property or proceeds from time to time
         received, receivable or otherwise distributed in respect of or in
         exchange for any or all of such Stock.

         3.       Security for Obligations. This Agreement secures, and the
Pledged Collateral is security for, the prompt payment in full when due, whether
at stated maturity, by acceleration or otherwise, and performance of all
Obligations of any kind under or in connection with the Credit Agreement and the
other Loan Documents and all obligations of Pledgor now or hereafter existing
under this Agreement including, without limitation, all fees, costs and expenses
whether in connection with collection actions hereunder or otherwise
(collectively, the "Secured Obligations").

         4.       Delivery of Pledged Collateral. All certificates evidencing
the Pledged Collateral shall be delivered to and held by or on behalf of Agent,
for itself and the benefit of the Lenders upon the occurrence of (a) an Event of
Default, or (b) any Activation Event. All certificates evidencing the Pledged
Shares shall be accompanied by duly stock powers in blank in form and substance
satisfactory to Agent. After the occurrence of a Deactivation Event, the Agent
(upon the written request of the Pledgor) shall promptly return such
certificates and stock powers in blank to the Pledgor.

         5.       Representations and Warranties. Pledgor represents and
warrants to Agent that:

                  (a)      Pledgor is, and at the time of delivery of the
         certificates evidencing the Pledged Shares to Agent will be, the sole
         holder of record and the sole beneficial owner of such Pledged
         Collateral pledged by Pledgor free and clear of any Lien thereon or
         affecting the title thereto, except for any Lien created by this
         Agreement;

                  (b)      All of the Pledged Shares have been duly authorized,
         validly issued and are fully paid and non-assessable;

                  (c)      Pledgor has the right and requisite authority to
         pledge, assign, transfer, deliver, deposit and set over the Pledged
         Collateral pledged by Pledgor to Agent as provided herein;

                                       2
<PAGE>

                  (d)      None of the Pledged Shares has been issued or
         transferred in violation of the securities registration, securities
         disclosure or similar laws of any jurisdiction to which such issuance
         or transfer may be subject;

                  (e)      All of the Pledged Shares are presently owned by
         Pledgor, and are presently represented by the certificates listed on
         Schedule I hereto. As of the date hereof, there are no existing
         options, warrants, calls or commitments of any character whatsoever
         relating to the Pledged Shares;

                  (f)      No consent, approval, authorization or other order or
         other action by, and no notice to or filing with, any Governmental
         Authority or any other Person is required (i) for the pledge by Pledgor
         of the Pledged Collateral pursuant to this Agreement or for the
         execution, delivery or performance of this Agreement by Pledgor, or
         (ii) for the exercise by Agent of the voting or other rights provided
         for in this Agreement or the remedies in respect of the Pledged
         Collateral pursuant to this Agreement, except as may be required in
         connection with such disposition by laws affecting the offering and
         sale of securities generally;

                  (g)      This Pledge Agreement is effective to create a valid
         and continuing Lien on and, upon the filing of the appropriate
         financing statement with the Secretary of the State of Delaware, a
         perfected Lien in favor of Agent, for itself and the benefit of
         Lenders, on the (i) the Pledged Shares and (ii) the other Pledged
         Collateral with respect to which a Lien may be perfected by filing
         pursuant to the Code. Such Lien is prior to all other Liens and is
         enforceable as such as against any and all creditors of and purchasers
         from Pledgor. All action by Pledgor necessary or desirable to protect
         and perfect such Lien on each item of the Collateral has been duly
         taken;

                  (h)      The pledge, assignment and delivery of the Pledged
         Collateral pursuant to this Agreement will create a valid first
         priority Lien on and a first priority perfected security interest in
         favor of the Agent for the benefit of Agent and Lenders in the Pledged
         Collateral and the proceeds thereof, securing the payment of the
         Secured Obligations, subject to no other Lien;

                  (i)      This Agreement has been duly authorized, executed and
         delivered by Pledgor and constitutes a legal, valid and binding
         obligation of Pledgor enforceable against Pledgor in accordance with
         its terms;

                  (j)      The Pledged Shares constitute 100% of the issued and
         outstanding shares of Stock of the Pledged Entity;

                  (k)      Pledgor has rights in and the power to transfer each
         item of the Pledged Collateral upon which it purports to grant a Lien
         hereunder free and clear of any and all Liens.

                  (l)      No effective security agreement, financing statement,
         equivalent security or Lien instrument or continuation statement
         covering all or any part of the Pledged Collateral is on file or of
         record in any public office, except such as may have been filed

                                       3
<PAGE>

         by Pledgor in favor of Agent pursuant to this Pledge Agreement or the
         other Loan Documents; and

                  (m)      Pledgor's name as it appears in official filings in
         the state of its incorporation or other organization, the type of
         entity of Pledgor, organizational identification number issued by
         Pledgor's state of incorporation or a statement that no such number has
         been issued, Pledgor's state of organization or incorporation, the
         location of Pledgor's chief executive office are set forth on Schedule
         II hereto. Pledgor has only one state of incorporation or organization.

                  The representations and warranties set forth in this Section 5
shall survive the execution and delivery of this Agreement.

         6.       Covenants. Pledgor covenants and agrees that until the
Termination Date:

                  (a)      Upon the occurrence of (a) an Event of Default, or
         (b) any Activation Event, Pledgor will promptly deliver all
         certificates evidencing the Pledged Shares to Agent together with stock
         powers in blank for each such certificate, for itself and the benefit
         of the Lenders; provided, that, after the occurrence of a Deactivation
         Event, the Agent (upon the written request of the Pledgor) shall
         promptly return such certificates and stock powers in blank to the
         Pledgor;

                  (b)      Without the prior written consent of Agent, Pledgor
         will not sell, assign, transfer, pledge, or otherwise encumber any of
         its rights in or to the Pledged Collateral, or any unpaid dividends,
         interest or other distributions or payments with respect to the Pledged
         Collateral or grant a Lien in the Pledged Collateral, unless otherwise
         expressly permitted by the Credit Agreement;

                  (c)      Pledgor will, at its expense, promptly execute,
         acknowledge and deliver all such instruments and take all such actions
         as Agent from time to time may request in order to ensure to Agent and
         Lenders the benefits of the Liens in and to the Pledged Collateral
         intended to be created by this Agreement, including the filing of any
         necessary Code financing statements, which may be filed by Agent with
         or (to the extent permitted by law) without the signature of Pledgor,
         and will cooperate with Agent, at Pledgor's expense, in obtaining all
         necessary approvals and making all necessary filings under federal,
         state, local or foreign law in connection with such Liens or any sale
         or transfer of the Pledged Collateral;

                  (d)      Pledgor has and will defend the title to the Pledged
         Collateral and the Liens of Agent in the Pledged Collateral against the
         claim of any Person and will maintain and preserve such Liens;

                  (e)      Pledgor will, upon obtaining ownership of any
         additional Stock of a Pledged Entity required to be pledged to Agent
         pursuant to any of the Loan Documents, which Stock is not already
         Pledged Collateral, promptly (and in any event within ten (10) Business
         Days) deliver to Agent a Pledge Amendment, duly executed by Pledgor, in
         substantially the form of Schedule III hereto (a "Pledge Amendment") in
         respect of any such additional Stock, pursuant to which Pledgor shall
         pledge to Agent all of such

                                       4
<PAGE>

         additional Stock. Pledgor hereby authorizes Agent to attach each Pledge
         Amendment to this Agreement and agrees that all Pledged Shares listed
         on any Pledge Amendment and the certificates or instruments evidencing
         such Pledged Shares delivered to Agent shall for all purposes hereunder
         be considered Pledged Collateral. It being understood that the
         certificates evidencing the Pledged Shares and the stock powers in
         blank relating to each such certificate are not required to be
         delivered to the Agent until the occurrence of (a) an Event of Default,
         or (b) an Activation Event;

                  (f)      At any time and from time to time, upon the written
         request of Agent and at the sole expense of Pledgor, Pledgor shall
         promptly and duly execute and deliver any and all such further
         instruments and documents and take such further actions as Agent may
         deem desirable to obtain the full benefits of this Pledge Agreement and
         of the rights and powers herein granted, including, but not limited to,
         filing any financing or continuation statements under the Code with
         respect to the Liens granted hereunder or under any other Loan Document
         as to those jurisdictions that are not Uniform Commercial Code
         jurisdictions; provided, that, Pledgor will have no obligation to
         deliver certificates evidencing the Pledged Shares to Agent or any
         stock powers in blank related to such certificates, until the
         occurrence of (a) an Event of Default, or (b) an Activation Event;

                  (g)      Pledgor hereby irrevocably authorizes the Agent at
         any time and from time to time to file in any filing office in any
         Uniform Commercial Code jurisdiction any initial financing statements
         and amendments thereto that (a) indicate the Pledged Collateral (i) as
         described in Section 2 above, regardless of whether any particular
         asset comprised in the Collateral falls within the scope of Article 9
         of the Code or such jurisdiction, or (ii) as being of an equal or
         lesser scope or with greater detail, and (b) contain any other
         information required by part 5 of Article 9 of the Code for the
         sufficiency or filing office acceptance of any financing statement or
         amendment, including whether Pledgor is an organization, the type of
         organization and any organization identification number issued to
         Pledgor. Pledgor agrees to furnish any such information to the Agent
         promptly upon request. Pledgor also ratifies its authorization for the
         Agent to have filed in any Uniform Commercial Code jurisdiction any
         initial financing statements or amendments thereto if filed prior to
         the date hereof;

                  (h)      Pledgor will not create, permit or suffer to exist,
         and will defend the Pledged Collateral against, and take such other
         action as is necessary to remove, any Lien on the Pledged Collateral
         and will defend the right, title and interest of Agent and Lenders in
         and to any of Grantor's rights under the Pledged Collateral against the
         claims and demands of all Persons whomsoever;

                  (i)      Pledgor will not sell, transfer or otherwise dispose
         of any of the Pledged Collateral; and

                  (j)      Pledgor will advise Agent promptly, in reasonable
         detail, (i) of any Lien or claim made or asserted against any of the
         Collateral, and (ii) of the occurrence of any other event which would
         have a material adverse effect on the aggregate value of the Pledged
         Collateral or on the Liens created hereunder or under any other Loan
         Document.

                                       5
<PAGE>

         7.       Pledgor's Rights. As long as no Event of Default shall have
occurred and be continuing and until written notice shall be given to Pledgor in
accordance with Section 8(a) hereof:

                  (a)      Pledgor shall have the right, from time to time, to
         vote and give consents with respect to the Pledged Collateral, or any
         part thereof for all purposes not inconsistent with the provisions of
         this Agreement, the Credit Agreement or any other Loan Document;
         provided, however, that no vote shall be cast, and no consent shall be
         given or action taken, which would have the effect of impairing the
         position or interest of Agent in respect of the Pledged Collateral or
         which would authorize, effect or consent to (unless and to the extent
         expressly permitted by the Credit Agreement):

                           (i)      the dissolution or liquidation, in whole or
in part, of a Pledged Entity;

                           (ii)     the consolidation or merger of a Pledged
Entity with any other Person;

                           (iii)    the sale, disposition or encumbrance of all
or substantially all of the assets of a Pledged Entity, except for Liens in
favor of Agent;

                           (iv)     any change in the authorized number of
shares, the stated capital or the authorized share capital of a Pledged Entity
or the issuance of any additional shares of its Stock; or

                           (v)      the alteration of the voting rights with
respect to the Stock of a Pledged Entity; and

                  (b)      (i)      Pledgor shall be entitled, from time to
         time, to collect and receive for its own use all cash dividends and
         interest paid in respect of the Pledged Shares to the extent not in
         violation of the Credit Agreement other than any and all: (A) dividends
         and interest paid or payable other than in cash in respect of any
         Pledged Collateral, and instruments and other property received,
         receivable or otherwise distributed in respect of, or in exchange for,
         any Pledged Collateral; (B) dividends and other distributions paid or
         payable in cash in respect of any Pledged Shares in connection with a
         partial or total liquidation or dissolution or in connection with a
         reduction of capital, capital surplus or paid-in capital of the Pledged
         Entity; and (C) cash paid, payable or otherwise distributed, in respect
         of principal of, or in redemption of, or in exchange for, any Pledged
         Collateral; provided, however, that until actually paid all rights to
         such distributions shall remain subject to the Lien created by this
         Agreement; and

                           (ii)     all dividends and interest (other than such
cash dividends and interest as are permitted to be paid to Pledgor in accordance
with clause (i) above) and all other distributions in respect of any of the
Pledged Shares, whenever paid or made, shall be delivered to Agent to hold as
Pledged Collateral and shall, if received by Pledgor, be received in trust for
the benefit of Agent, be segregated from the other property or funds of Pledgor,
and be forthwith delivered to Agent as Pledged Collateral in the same form as so
received (with any necessary indorsement).

                                       6
<PAGE>

         8.       Defaults and Remedies; Proxy.

                  (a)      Upon the occurrence of an Event of Default and during
         the continuation of such Event of Default, and concurrently with
         written notice to Pledgor, Agent (personally or through an agent) is
         hereby authorized and empowered to transfer and register in its name or
         in the name of its nominee the whole or any part of the Pledged
         Collateral, to exchange certificates or instruments representing or
         evidencing Pledged Collateral for certificates or instruments of
         smaller or larger denominations, to exercise the voting and all other
         rights as a holder with respect thereto, to collect and receive all
         cash dividends, interest, principal and other distributions made
         thereon, to sell in one or more sales after ten (10) days' notice of
         the time and place of any public sale or of the time at which a private
         sale is to take place (which notice Pledgor agrees is commercially
         reasonable) the whole or any part of the Pledged Collateral and to
         otherwise act with respect to the Pledged Collateral as though Agent
         was the outright owner thereof. Any sale shall be made at a public or
         private sale at Agent's place of business, or at any place to be named
         in the notice of sale, either for cash or upon credit or for future
         delivery at such price as Agent may deem fair, and Agent may be the
         purchaser of the whole or any part of the Pledged Collateral so sold
         and hold the same thereafter in its own right free from any claim of
         Pledgor or any right of redemption. Each sale shall be made to the
         highest bidder, but Agent reserves the right to reject any and all bids
         at such sale which, in its discretion, it shall deem inadequate.
         Demands of performance, except as otherwise herein specifically
         provided for, notices of sale, advertisements and the presence of
         property at sale are hereby waived and any sale hereunder may be
         conducted by an auctioneer or any officer or agent of Agent. PLEDGOR
         HEREBY IRREVOCABLY CONSTITUTES AND APPOINTS AGENT AS THE PROXY AND
         ATTORNEY-IN-FACT OF PLEDGOR WITH RESPECT TO THE PLEDGED COLLATERAL,
         INCLUDING THE RIGHT TO VOTE THE PLEDGED SHARES, WITH FULL POWER OF
         SUBSTITUTION TO DO SO. THE APPOINTMENT OF AGENT AS PROXY AND
         ATTORNEY-IN-FACT IS COUPLED WITH AN INTEREST AND SHALL BE IRREVOCABLE
         UNTIL THE TERMINATION DATE. IN ADDITION TO THE RIGHT TO VOTE THE
         PLEDGED SHARES, THE APPOINTMENT OF AGENT AS PROXY AND ATTORNEY-IN-FACT
         SHALL INCLUDE THE RIGHT TO EXERCISE ALL OTHER RIGHTS, POWERS,
         PRIVILEGES AND REMEDIES TO WHICH A HOLDER OF THE PLEDGED SHARES WOULD
         BE ENTITLED (INCLUDING GIVING OR WITHHOLDING WRITTEN CONSENTS OF
         SHAREHOLDERS, CALLING SPECIAL MEETINGS OF SHAREHOLDERS AND VOTING AT
         SUCH MEETINGS). SUCH PROXY SHALL BE EFFECTIVE, AUTOMATICALLY AND
         WITHOUT THE NECESSITY OF ANY ACTION (INCLUDING ANY TRANSFER OF ANY
         PLEDGED SHARES ON THE RECORD BOOKS OF THE ISSUER THEREOF) BY ANY PERSON
         (INCLUDING THE ISSUER OF THE PLEDGED SHARES OR ANY OFFICER OR AGENT
         THEREOF), UPON THE OCCURRENCE OF AN EVENT OF DEFAULT. NOTWITHSTANDING
         THE FOREGOING, AGENT SHALL NOT HAVE ANY DUTY TO EXERCISE ANY SUCH RIGHT
         OR TO PRESERVE THE SAME AND SHALL NOT BE LIABLE FOR ANY FAILURE TO DO
         SO OR FOR ANY DELAY IN DOING SO.

                                       7
<PAGE>

                  (b)      If, at the original time or times appointed for the
         sale of the whole or any part of the Pledged Collateral, the highest
         bid, if there be but one sale, shall be inadequate to discharge in full
         all the Secured Obligations, or if the Pledged Collateral be offered
         for sale in lots, if at any of such sales, the highest bid for the lot
         offered for sale would indicate to Agent, in its discretion, that the
         proceeds of the sales of the whole of the Pledged Collateral would be
         unlikely to be sufficient to discharge all the Secured Obligations,
         Agent may, on one or more occasions and in its discretion, postpone any
         of said sales by public announcement at the time of sale or the time of
         previous postponement of sale, and no other notice of such postponement
         or postponements of sale need be given, any other notice being hereby
         waived; provided, however, that any sale or sales made after such
         postponement shall be after ten (10) days' notice to Pledgor.

                  (c)      If, at any time when Agent shall determine to
         exercise its right to sell the whole or any part of the Pledged
         Collateral hereunder, such Pledged Collateral or the part thereof to be
         sold shall not, for any reason whatsoever, be effectively registered
         under the Securities Act of 1933, as amended (or any similar statute
         then in effect) (the "Act"), Agent may, in its discretion (subject only
         to applicable requirements of law), sell such Pledged Collateral or
         part thereof by private sale in such manner and under such
         circumstances as Agent may deem necessary or advisable, but subject to
         the other requirements of this Section 8, and shall not be required to
         effect such registration or to cause the same to be effected. Without
         limiting the generality of the foregoing, in any such event, Agent in
         its discretion (x) may, in accordance with applicable securities laws,
         proceed to make such private sale notwithstanding that a registration
         statement for the purpose of registering such Pledged Collateral or
         part thereof could be or shall have been filed under said Act (or
         similar statute), (y) may approach and negotiate with a single possible
         purchaser to effect such sale, and (z) may restrict such sale to a
         purchaser who is an accredited investor under the Act and who will
         represent and agree that such purchaser is purchasing for its own
         account, for investment and not with a view to the distribution or sale
         of such Pledged Collateral or any part thereof. In addition to a
         private sale as provided above in this Section 8, if any of the Pledged
         Collateral shall not be freely distributable to the public without
         registration under the Act (or similar statute) at the time of any
         proposed sale pursuant to this Section 8, then Agent shall not be
         required to effect such registration or cause the same to be effected
         but, in its discretion (subject only to applicable requirements of
         law), may require that any sale hereunder (including a sale at auction)
         be conducted subject to restrictions:

                           (i)      as to the financial sophistication and
ability of any Person permitted to bid or purchase at any such sale;

                           (ii)     as to the content of legends to be placed
upon any certificates representing the Pledged Collateral sold in such sale,
including restrictions on future transfer thereof;

                           (iii)    as to the representations required to be
made by each Person bidding or purchasing at such sale relating to that Person's
access to financial information about Pledgor and such Person's intentions as to
the holding of the Pledged Collateral so sold for investment for its own account
and not with a view to the distribution thereof; and

                                       8
<PAGE>

                           (iv)     as to such other matters as Agent may, in
its discretion, deem necessary or appropriate in order that such sale
(notwithstanding any failure so to register) may be effected in compliance with
the Bankruptcy Code and other laws affecting the enforcement of creditors'
rights and the Act and all applicable state securities laws.

                  (d)      Pledgor recognizes that Agent may be unable to effect
         a public sale of any or all the Pledged Collateral and may be compelled
         to resort to one or more private sales thereof in accordance with
         clause (c) above. Pledgor also acknowledges that any such private sale
         may result in prices and other terms less favorable to the seller than
         if such sale were a public sale and, notwithstanding such
         circumstances, agrees that any such private sale shall not be deemed to
         have been made in a commercially unreasonable manner solely by virtue
         of such sale being private. Agent shall be under no obligation to delay
         a sale of any of the Pledged Collateral for the period of time
         necessary to permit the Pledged Entity to register such securities for
         public sale under the Act, or under applicable state securities laws,
         even if Pledgor and the Pledged Entity would agree to do so.

                  (e)      Pledgor agrees to the maximum extent permitted by
         applicable law that following the occurrence and during the continuance
         of an Event of Default it will not at any time plead, claim or take the
         benefit of any appraisal, valuation, stay, extension, moratorium or
         redemption law now or hereafter in force in order to prevent or delay
         the enforcement of this Agreement, or the absolute sale of the whole or
         any part of the Pledged Collateral or the possession thereof by any
         purchaser at any sale hereunder, and Pledgor waives the benefit of all
         such laws to the extent it lawfully may do so. Pledgor agrees that it
         will not interfere with any right, power and remedy of Agent provided
         for in this Agreement or now or hereafter existing at law or in equity
         or by statute or otherwise, or the exercise or beginning of the
         exercise by Agent of any one or more of such rights, powers or
         remedies. No failure or delay on the part of Agent to exercise any such
         right, power or remedy and no notice or demand which may be given to or
         made upon Pledgor by Agent with respect to any such remedies shall
         operate as a waiver thereof, or limit or impair Agent's right to take
         any action or to exercise any power or remedy hereunder, without notice
         or demand, or prejudice its rights as against Pledgor in any respect.

                  (f)      Pledgor further agrees that a breach of any of the
         covenants contained in this Section 8 will cause irreparable injury to
         Agent, that Agent shall have no adequate remedy at law in respect of
         such breach and, as a consequence, agrees that each and every covenant
         contained in this Section 8 shall be specifically enforceable against
         Pledgor, and Pledgor hereby waives and agrees not to assert any
         defenses against an action for specific performance of such covenants
         except for a defense that the Secured Obligations are not then due and
         payable in accordance with the agreements and instruments governing and
         evidencing such obligations.

         9.       Waiver. No delay on Agent's part in exercising any power of
sale, Lien, option or other right hereunder, and no notice or demand which may
be given to or made upon Pledgor by Agent with respect to any power of sale,
Lien, option or other right hereunder, shall constitute a waiver thereof, or
limit or impair Agent's right to take any action or to exercise any power of

                                       9
<PAGE>

sale, Lien, option, or any other right hereunder, without notice or demand, or
prejudice Agent's rights as against Pledgor in any respect.

         10.      Assignment. Agent may assign, indorse or transfer any
instrument evidencing all or any part of the Secured Obligations as provided in,
and in accordance with, the Credit Agreement, and the holder of such instrument
shall be entitled to the benefits of this Agreement.

         11.      Termination. Immediately following the Termination Date, Agent
shall deliver to Pledgor the Pledged Collateral pledged by Pledgor at the time
subject to this Agreement and all instruments of assignment executed in
connection therewith, free and clear of the Liens hereof and, except as
otherwise provided herein, all of Pledgor's obligations hereunder shall at such
time terminate.

         12.      Lien Absolute. All rights of Agent hereunder, and all
obligations of Pledgor hereunder, shall be absolute and unconditional
irrespective of:

                  (a)      any lack of validity or enforceability of the Credit
         Agreement, any other Loan Document or any other agreement or instrument
         governing or evidencing any Secured Obligations;

                  (b)      any change in the time, manner or place of payment
         of, or in any other term of, all or any part of the Secured
         Obligations, or any other amendment or waiver of or any consent to any
         departure from the Credit Agreement, any other Loan Document or any
         other agreement or instrument governing or evidencing any Secured
         Obligations;

                  (c)      any exchange, release or non-perfection of any other
         Collateral, or any release or amendment or waiver of or consent to
         departure from any guaranty, for all or any of the Secured Obligations;

                  (d)      the insolvency of any Credit Party; or

                  (e)      any other circumstance which might otherwise
         constitute a defense available to, or a discharge of, Pledgor.

         13.      Release. Pledgor consents and agrees that Agent may at any
time, or from time to time, in its discretion:

                  (a)      renew, extend or change the time of payment, and/or
         the manner, place or terms of payment of all or any part of the Secured
         Obligations; and

                  (b)      exchange, release and/or surrender all or any of the
         Collateral (including the Pledged Collateral), or any part thereof, by
         whomsoever deposited, which is now or may hereafter be held by Agent in
         connection with all or any of the Secured Obligations; all in such
         manner and upon such terms as Agent may deem proper, and without notice
         to or further assent from Pledgor, it being hereby agreed that Pledgor
         shall be and remain bound upon this Agreement, irrespective of the
         value or condition of any of the Collateral, and notwithstanding any
         such change, exchange, settlement, compromise, surrender, release,
         renewal or extension, and notwithstanding also that the Secured

                                       10
<PAGE>

         Obligations may, at any time, exceed the aggregate principal amount
         thereof set forth in the Credit Agreement, or any other agreement
         governing any Secured Obligations. Pledgor hereby waives notice of
         acceptance of this Agreement, and also presentment, demand, protest and
         notice of dishonor of any and all of the Secured Obligations, and
         promptness in commencing suit against any party hereto or liable
         hereon, and in giving any notice to or of making any claim or demand
         hereunder upon Pledgor. No act or omission of any kind on Agent's part
         shall in any event affect or impair this Agreement.

         14.      Reinstatement. This Agreement shall remain in full force and
effect and continue to be effective should any petition be filed by or against
Pledgor or any Pledged Entity for liquidation or reorganization, should Pledgor
or any Pledged Entity become insolvent or make an assignment for the benefit of
creditors or should a receiver or trustee be appointed for all or any
significant part of Pledgor's or any Pledged Entity's assets, and shall continue
to be effective or be reinstated, as the case may be, if at any time payment and
performance of the Secured Obligations, or any part thereof, is, pursuant to
applicable law, rescinded or reduced in amount, or must otherwise be restored or
returned by any obligee of the Secured Obligations, whether as a "voidable
preference", "fraudulent conveyance", or otherwise, all as though such payment
or performance had not been made. In the event that any payment, or any part
thereof, is rescinded, reduced, restored or returned, the Secured Obligations
shall be reinstated and deemed reduced only by such amount paid and not so
rescinded, reduced, restored or returned.

         15.      Miscellaneous.

                  (a)      Agent may execute any of its duties hereunder by or
         through agents or employees and shall be entitled to advice of counsel
         concerning all matters pertaining to its duties hereunder.

                  (b)      Pledgor agrees to promptly reimburse Agent for actual
         out-of-pocket expenses, including, without limitation, reasonable
         counsel fees, incurred by Agent in connection with the administration
         and enforcement of this Agreement.

                  (c)      Neither Agent, nor any of its respective officers,
         directors, employees, agents or counsel shall be liable for any action
         lawfully taken or omitted to be taken by it or them hereunder or in
         connection herewith, except for its or their own gross negligence or
         willful misconduct as finally determined by a court of competent
         jurisdiction.

                  (d)      THIS AGREEMENT SHALL BE BINDING UPON PLEDGOR AND ITS
         SUCCESSORS AND ASSIGNS (INCLUDING A DEBTOR-IN-POSSESSION ON BEHALF OF
         PLEDGOR), AND SHALL INURE TO THE BENEFIT OF, AND BE ENFORCEABLE BY,
         AGENT AND ITS SUCCESSORS AND ASSIGNS, AND SHALL BE GOVERNED BY, AND
         CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
         GEORGIA APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE, AND
         NONE OF THE TERMS OR PROVISIONS OF THIS AGREEMENT MAY BE WAIVED,
         ALTERED, MODIFIED OR AMENDED EXCEPT IN WRITING DULY SIGNED FOR AND ON
         BEHALF OF AGENT AND PLEDGOR.

                                       11
<PAGE>

         16.      Severability. If for any reason any provision or provisions
hereof are determined to be invalid and contrary to any existing or future law,
such invalidity shall not impair the operation of or effect those portions of
this Agreement which are valid.

         17.      Notices. Except as otherwise provided herein, whenever it is
provided herein that any notice, demand, request, consent, approval, declaration
or other communication shall or may be given to or served upon any of the
parties by any other party, or whenever any of the parties desires to give or
serve upon any other a communication with respect to this Agreement, each such
notice, demand, request, consent, approval, declaration or other communication
shall be in writing and either shall be delivered in person or sent by
registered or certified mail, return receipt requested, with proper postage
prepaid, or by facsimile transmission and confirmed by delivery of a copy by
personal delivery or United States Mail as otherwise provided herein:

                  (a)      If to Agent, at:

                           General Electric Capital Corporation
                           1100 Abernathy Road, Suite 900
                           Atlanta, Georgia 30328
                           Attention: Avondale Mills, Inc. Account Manager
                           Telecopier No.: 678-320-8902
                           Telephone No.: 678-320-8900

                           With copies to:

                           If to Pledgor, at:

                           Avondale Incorporated
                           506 South Bend Street
                           Monroe, Georgia 30655
                           Attn: Vice Chairman and Chief Financial Officer
                           Telecopier No.: 770-267-2543
                           Telephone No.: 770-267-2226

or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration or other communication hereunder shall be deemed
to have been duly served, given or delivered (a) upon the earlier of actual
receipt and three (3) Business Days after deposit in the United States Mail,
registered or certified mail, return receipt requested, with proper postage
prepaid, (b) upon transmission, when sent by telecopy or other similar facsimile
transmission (with such telecopy or facsimile promptly confirmed by delivery of
a copy by personal delivery or United States Mail as otherwise provided in this
Section 17, (c) one (1) Business Day after deposit with a reputable overnight
courier with all charges prepaid, or (d) when delivered, if hand-delivered by
messenger. Failure or delay in delivering copies of any notice, demand, request,
consent, approval, declaration or other communication to the persons designated
above to receive copies shall in no way adversely affect the effectiveness of
such notice, demand, request, consent, approval, declaration or other
communication.

                                       12
<PAGE>

         18.      Section Titles. The Section titles contained in this Agreement
are and shall be without substantive meaning or content of any kind whatsoever
and are not a part of the agreement between the parties hereto.

         19.      Counterparts. This Agreement may be executed in any number of
counterparts, which shall, collectively and separately, constitute one
agreement.

         20.      Benefit of Lenders. All security interests granted or
contemplated hereby shall be for the benefit of Agent and Lenders, and all
proceeds or payments realized from the Pledged Collateral in accordance herewith
shall be applied to the Obligations in accordance with the terms of the Credit
Agreement.

                            [signature page follows]

                                       13
<PAGE>

                  IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first written above.

                                     AVONDALE INCORPORATED, as Pledgor

                                     By:________________________________________
                                     Name:______________________________________
                                     Title:_____________________________________

                                     GENERAL ELECTRIC CAPITAL
                                     CORPORATION, as Agent

                                     By:________________________________________
                                     Name:______________________________________
                                     Its Duly Authorized Signatory

                   Signature Page to Parent Pledge Agreement

<PAGE>

                                   SCHEDULE I

                                 PLEDGED SHARES

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
                           Class       Stock Certificate          Number        Percentage of
Pledged Entity             of Stock    Number(s)                  of Shares     Outstanding Shares
--------------------------------------------------------------------------------------------------
<S>                        <C>         <C>                        <C>           <C>
AVONDALE MILLS, INC.                                                            100%
--------------------------------------------------------------------------------------------------
</TABLE>

                                       15
<PAGE>

                                   SCHEDULE II
                                       to
                                PLEDGE AGREEMENT

I.       Guarantor's official name:         Avondale Incorporated

II.      Type of entity:                    Corporation

III.     Organizational identification number issued by Avondale Incorporated's
         state of incorporation or organization or a statement that no such
         number has been issued:

         [TO BE DETERMINED]

IV.      State or Incorporation or Organization of Avondale Incorporated:

         Georgia

V.       Chief Executive Office and principal place of business of Avondale
         Incorporated:

         [TO BE DETERMINED]

                                       16
<PAGE>

                                  SCHEDULE III

                                PLEDGE AMENDMENT

                  This Pledge Amendment, dated ________________, ___ is
delivered pursuant to Section 6(d) of the Pledge Agreement referred to below.
All defined terms herein shall have the meanings ascribed thereto or
incorporated by reference in the Pledge Agreement. The undersigned hereby
certifies that the representations and warranties in Section 5 of the Pledge
Agreement are and continue to be true and correct, as to shares pledged prior to
this Pledge Amendment and as to the shares pledged pursuant to this Pledge
Amendment. The undersigned further agrees that this Pledge Amendment may be
attached to that certain Pledge Agreement, dated November 7, 2003, between
undersigned, as Pledgor, and General Electric Capital Corporation, as Agent,
(the "Pledge Agreement") and that the Pledged Shares listed on this Pledge
Amendment shall be and become a part of the Pledged Collateral referred to in
said Pledge Agreement and shall secure all Secured Obligations referred to in
said Pledge Agreement. The undersigned acknowledges that any shares not included
in the Pledged Collateral at the discretion of Agent may not otherwise be
pledged by Pledgor to any other Person or otherwise used as security for any
obligations other than the Secured Obligations.

                                         AVONDALE INCORPORATED, as Pledgor

                                     By:________________________________________
                                     Name:______________________________________
                                     Title:_____________________________________

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Name and                                Class      Certificate    Number
Address of Pledgor     Pledged Entity   of Stock   Number(s)      of Shares
--------------------------------------------------------------------------------
<S>                    <C>              <C>        <C>            <C>

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

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

--------------------------------------------------------------------------------
</TABLE>

                                       17

<PAGE>

                                   SCHEDULE I

                                 PLEDGED SHARES

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
                      Class        Stock Certificate   Number         Percentage of
Pledged Entity        of Stock     Number(s)           of Shares      Outstanding Shares
----------------------------------------------------------------------------------------
<S>                   <C>          <C>                 <C>            <C>
AVONDALE MILLS, INC.  Common                           1000           100%
----------------------------------------------------------------------------------------
</TABLE>

<PAGE>

                                  SCHEDULE II
                                       to
                                PLEDGE AGREEMENT

I.       Guarantor's official name:         Avondale Incorporated

II.      Type of entity:                    Corporation

III.     Organizational identification number issued by Avondale Incorporated's
         state of incorporation or organization or a statement that no such
         number has been issued:

         J 315 245

IV.      State or Incorporation or Organization of Avondale Incorporated:

         Georgia

V.       Chief Executive Office and principal place of business of Avondale
         Incorporated:

         506 South Broad Street
         Monroe, Georgia 30655

<PAGE>

                                                                  EXECUTION COPY

                                PLEDGE AGREEMENT

                  This PLEDGE AGREEMENT, dated as of November 7, 2003 (together
with all amendments, if any, from time to time hereto, this "Agreement") among
AVONDALE MILLS, INC. ("Avondale"), an Alabama corporation, AVONDALE MILLS
GRANITEVILLE FABRICS, INC., a Delaware corporation (and together with Avondale,
the "Pledgors" and each individually a "Pledgor") and GENERAL ELECTRIC CAPITAL
CORPORATION in its capacity as Agent for Lenders ("Agent").

                              W I T N E S S E T H:

                  WHEREAS, pursuant to that certain Credit Agreement dated as of
the date hereof by and among Avondale, as borrower ("Borrower"), the Pledgors in
their capacities as Credit Parties, Agent and the Persons signatory thereto from
time to time as Lenders (including all annexes, exhibits and schedules thereto,
and as from time to time amended, restated, supplemented or otherwise modified
(the "Credit Agreement") the Lenders have agreed to make Revolving Loans to, and
incur Letter of Credit Obligations for the benefit of, Borrower;

                  WHEREAS, the Pledgors are the record and beneficial owner of
the shares of Stock listed in Part A of Schedule I hereto and the owner of the
promissory notes and instruments listed in Part B of Schedule I hereto;

                  WHEREAS, the Pledgors benefit from the credit facilities made
available to Borrower under the Credit Agreement;

                  WHEREAS, in order to induce Agent and Lenders to enter into
the Credit Agreement and the other Loan Documents and to make the Loans and to
incur the Letter of Credit Obligations as provided for in the Credit Agreement,
the Pledgors have agreed to pledge the Pledged Collateral to Agent in accordance
herewith;

                  NOW, THEREFORE, in consideration of the premises and the
covenants hereinafter contained and to induce Lenders to make Loans and to incur
Letter of Credit Obligations under the Credit Agreement, it is agreed as
follows:

         1.       Definitions. Unless otherwise defined herein, terms defined in
the Credit Agreement are used herein as therein defined, and the following shall
have (unless otherwise provided elsewhere in this Agreement) the following
respective meanings (such meanings being equally applicable to both the singular
and plural form of the terms defined):

                  "Bankruptcy Code" means title 11, United States Code, as
amended from time to time, and any successor statute thereto.

                  "Pledged Collateral" has the meaning assigned to such term in
Section 2 hereof.

<PAGE>

                  "Pledged Entity" means an issuer of Pledged Shares or Pledged
Indebtedness.

                  "Pledged Indebtedness" means the Indebtedness evidenced by
promissory notes and instruments listed on Part B of Schedule I hereto;

                  "Pledged Shares" means those shares or membership interests
listed on Part A of Schedule I hereto.

                  "Secured Obligations" has the meaning assigned to such term in
Section 3 hereof.

                  2.       Pledge. Each Pledgor hereby pledges to Agent, and
grants to Agent for itself and the benefit of Lenders, a first priority security
interest in all of the following (collectively, the "Pledged Collateral"):

                  (a)      the Pledged Shares and the certificates representing
the Pledged Shares, and all dividends, distributions, cash, instruments and
other property or proceeds from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of the Pledged Shares;
and

                  (b)      such portion, as determined by Agent as provided in
Section 6(d) below, of any additional shares of stock of a Pledged Entity from
time to time acquired by such Pledgor in any manner (which shares shall be
deemed to be part of the Pledged Shares), and the certificates representing such
additional shares, and all dividends, distributions, cash, instruments and other
property or proceeds from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such Stock;

                  (c)      the Pledged Indebtedness and the promissory notes or
instruments evidencing the Pledged Indebtedness, and all interest, cash,
instruments and other property and assets from time to time received, receivable
or otherwise distributed in respect of the Pledged Indebtedness; and

                  (d)      all additional Indebtedness consisting of
intercompany loans and advances made by any Pledgor to any other Pledgor or
Holdings arising after the date hereof and owing to such Pledgor and evidenced
by promissory notes or other instruments, together with such promissory notes
and instruments, and all interest, cash, instruments and other property and
assets from time to time received, receivable or otherwise distributed in
respect of that Pledged Indebtedness.

         3.       Security for Obligations. This Agreement secures, and the
Pledged Collateral is security for, the prompt payment in full when due, whether
at stated maturity, by acceleration or otherwise, and performance of all
Obligations of any kind under or in connection with the Credit Agreement and the
other Loan Documents and all obligations of any Pledgor now or hereafter
existing under this Agreement including, without limitation, all fees, costs and
expenses whether in connection with collection actions hereunder or otherwise
(collectively, the "Secured Obligations").

         4.       Delivery of Pledged Collateral. All certificates and all
promissory notes and instruments evidencing the Pledged Collateral shall be
delivered to and held by or on behalf of

                                       2
<PAGE>

Agent, for itself and the benefit of the Lenders upon the occurrence of (a) an
Event of Default, or (b) any Activation Event. All certificates evidencing the
Pledged Shares (other than those Pledged Shares consisting of uncertificated
membership interests) shall be accompanied by duly executed instruments of
transfer or assignment in blank and all promissory notes or other instruments
evidencing the Pledged Indebtedness shall be endorsed by Pledgor, all in form
and substance satisfactory to Agent. After the occurrence of a Deactivation
Event, the Agent (upon the written request of the applicable Pledgor) shall
promptly return such certificates and stock powers in blank, promissory notes
and other instruments evidencing the Pledged Indebtedness to the applicable
Pledgor.

         5.       Representations and Warranties. Each Pledgor represents and
warrants to Agent with respect to itself, its Pledged Collateral, its Pledged
Shares and its Pledged Indebtedness that:

                  (a)      Such Pledgor is, and at the time of delivery of any
         certificates evidencing the Pledged Shares to Agent will be, the sole
         holder of record and the sole beneficial owner of such Pledged
         Collateral pledged by such Pledgor free and clear of any Lien thereon
         or affecting the title thereto, except for any Lien created by this
         Agreement; such Pledgor is and at the time of delivery of the Pledged
         Indebtedness to Agent will be, the sole owner of such Pledged
         Collateral free and clear of any Lien thereon or affecting title
         thereto, except for any Lien created by this Agreement;

                  (b)      All of the Pledged Shares have been duly authorized,
         validly issued and are fully paid and non-assessable; such Pledged
         Indebtedness has been duly authorized, authenticated or issued and
         delivered by, and is the legal, valid and binding obligations of, the
         applicable Pledged Entities, and no such Pledged Entity is in default
         thereunder;

                  (c)      Such Pledgor has the right and requisite authority to
         pledge, assign, transfer, deliver, deposit and set over the Pledged
         Collateral pledged by such Pledgor to Agent as provided herein;

                  (d)      None of the Pledged Shares or Pledged Indebtedness
         has been issued or transferred in violation of the securities
         registration, securities disclosure or similar laws of any jurisdiction
         to which such issuance or transfer may be subject;

                  (e)      All of such Pledged Shares that are presently owned
         by such Pledgor are set forth on Part A of Schedule I hereto, and,
         other than those Pledged Shares consisting of uncertificated membership
         interests, are presently represented by the certificates listed on Part
         A of Schedule I hereto. As of the date hereof, there are no existing
         options, warrants, calls or commitments of any character whatsoever
         relating to such Pledged Shares;

                  (f)      No consent, approval, authorization or other order or
         other action by, and no notice to or filing with, any Governmental
         Authority or any other Person is required (i) for the pledge by such
         Pledgor of such Pledged Collateral pursuant to this Agreement or for
         the execution, delivery or performance of this Agreement by such
         Pledgor, or (ii) for the exercise by Agent of the voting or other
         rights provided for in this Agreement or the remedies in respect of
         such Pledged Collateral pursuant to this Agreement, except as

                                       3
<PAGE>

         may be required in connection with such disposition by laws
         affecting the offering and sale of securities generally;

                  (g)      The pledge, assignment and delivery of such Pledged
         Collateral pursuant to this Agreement will create a valid first
         priority Lien on and a first priority perfected security interest in
         favor of the Agent for the benefit of Agent and Lenders in such Pledged
         Collateral and the proceeds thereof, securing the payment of the
         Secured Obligations, subject to no other Lien;

                  (h)      This Agreement has been duly authorized, executed and
         delivered by such Pledgor and constitutes a legal, valid and binding
         obligation of such Pledgor enforceable against such Pledgor in
         accordance with its terms;

                  (i)      Such Pledged Shares constitute 100% of the issued and
         outstanding shares of Stock of the applicable Pledged Entities; and

                  (j)      Except as disclosed on Part B of Schedule I, none of
         such Pledged Indebtedness is subordinated in right of payment to other
         Indebtedness (except for the Secured Obligations) or subject to the
         terms of an indenture.

                  (k)      Solely with respect to Avondale, as of the Closing
         Date, the Pledged Shares of Avondale Funding are not represented by
         certificates.

                  The representations and warranties set forth in this Section 5
shall survive the execution and delivery of this Agreement.

         6.       Covenants. Each Pledgor covenants and agrees that until the
Termination Date:

                  (a)      Solely with respect to Avondale, if the Pledged
         Shares of Avondale Funding are represented by certificates on any date
         after the Closing Date, Avondale will promptly deliver all certificates
         representing the Pledged Shares of Avondale Funding, together with
         stock powers in blank with respect to each such certificate, to the
         Agent, for itself and the benefit of the Lenders;

                  (b)      Solely with respect to Avondale, upon the occurrence
         of (a) an Event of Default, or (b) any Activation Event, Avondale will
         promptly deliver all certificates evidencing the Pledged Shares of
         AMGF, together with stock powers in blank with respect to each such
         certificate, to Agent, for itself and the benefit of the Lenders;
         provided, that, after the occurrence of a Deactivation Event, the Agent
         (upon the written request of the applicable Pledgor) shall promptly
         return such certificates and stock powers in blank to the applicable
         Pledgor;

                  (c)      Without the prior written consent of Agent, such
         Pledgor will not sell, assign, transfer, pledge, or otherwise encumber
         any of its rights in or to its Pledged Collateral, or any unpaid
         dividends, interest or other distributions or payments with respect to
         its Pledged Collateral or grant a Lien in its Pledged Collateral,
         unless otherwise expressly permitted by the Credit Agreement;

                                       4
<PAGE>

                  (d)      Such Pledgor will, at its expense, promptly execute,
         acknowledge and deliver all such instruments and take all such actions
         as Agent from time to time may request in order to ensure to Agent and
         Lenders the benefits of the Liens in and to its Pledged Collateral
         intended to be created by this Agreement, including the filing of any
         necessary Code financing statements, which may be filed by Agent with
         or (to the extent permitted by law) without the signature of such
         Pledgor, and will cooperate with Agent, at such Pledgor's expense, in
         obtaining all necessary approvals and making all necessary filings
         under federal, state, local or foreign law in connection with such
         Liens or any sale or transfer of the Pledged Collateral;

                  (e)      Such Pledgor has and will defend the title to its
         Pledged Collateral and the Liens of Agent in its Pledged Collateral
         against the claim of any Person and will maintain and preserve such
         Liens; and

                  (f)      Such Pledgor will, upon obtaining ownership of any
         additional Stock or promissory notes or instruments of a Pledged Entity
         or Stock or promissory notes or instruments otherwise required to be
         pledged to Agent pursuant to any of the Loan Documents, which Stock,
         notes or instruments are not already Pledged Collateral, promptly (and
         in any event within ten (10) Business Days) deliver to Agent a Pledge
         Amendment, duly executed by such Pledgor, in substantially the form of
         Schedule II hereto (a "Pledge Amendment") in respect of any such
         additional Stock, notes or instruments, pursuant to which such Pledgor
         shall pledge to Agent all of such additional Stock, notes and
         instruments. Pledgor hereby authorizes Agent to attach each Pledge
         Amendment to this Agreement and agrees that all Pledged Shares and
         Pledged Indebtedness listed on any Pledge Amendment and all notes and
         instruments evidencing such Pledged Shares or Pledged Indebtedness
         delivered to Agent shall for all purposes hereunder be considered
         Pledged Collateral. It being understood that the certificates
         evidencing the Pledged Shares of AMGF and the stock powers in blank
         relating to each such certificate are not required to be delivered to
         the Agent by Avondale until the occurrence of (a) an Event of Default,
         or (b) an Activation Event

         7.       Pledgors' Rights. As long as no Event of Default shall have
occurred and be continuing and until written notice shall be given to any
Pledgor in accordance with Section 8(a) hereof:

                  (a)      Such Pledgor shall have the right, from time to time,
         to vote and give consents with respect to the Pledged Collateral, or
         any part thereof for all purposes not inconsistent with the provisions
         of this Agreement, the Credit Agreement or any other Loan Document;
         provided, however, that no vote shall be cast, and no consent shall be
         given or action taken, which would have the effect of impairing the
         position or interest of Agent in respect of the Pledged Collateral or
         which would authorize, effect or consent to (unless and to the extent
         expressly permitted by the Credit Agreement):

                           (i)      the dissolution or liquidation, in whole or
in part, of a Pledged Entity;

                                       5
<PAGE>

                           (ii)     the consolidation or merger of a Pledged
Entity with any other Person;

                           (iii)    the sale, disposition or encumbrance of all
or substantially all of the assets of a Pledged Entity, except for Liens in
favor of Agent;

                           (iv)     any change in the authorized number of
shares, the stated capital or the authorized share capital of a Pledged Entity
or the issuance of any additional shares of its Stock; or

                           (v)      the alteration of the voting rights with
respect to the Stock of a Pledged Entity; and

                  (b)      (i)      Such Pledgor shall be entitled, from time
         to time, to collect and receive for its own use all cash dividends and
         interest paid in respect of its Pledged Shares and Pledged Indebtedness
         to the extent not in violation of the Credit Agreement other than any
         and all: (A) dividends and interest paid or payable other than in cash
         in respect of any Pledged Collateral, and instruments and other
         property received, receivable or otherwise distributed in respect of,
         or in exchange for, any Pledged Collateral; (B) dividends and other
         distributions paid or payable in cash in respect of any Pledged Shares
         in connection with a partial or total liquidation or dissolution or in
         connection with a reduction of capital, capital surplus or paid-in
         capital of a Pledged Entity; and (C) cash paid, payable or otherwise
         distributed, in respect of principal of, or in redemption of, or in
         exchange for, any Pledged Collateral; provided, however, that until
         actually paid all rights to such distributions shall remain subject to
         the Lien created by this Agreement; and

                           (ii)     all dividends and interest (other than such
cash dividends and interest as are permitted to be paid to such Pledgor in
accordance with clause (i) above) and all other distributions in respect of any
of its Pledged Shares or Pledged Indebtedness, whenever paid or made, shall be
delivered to Agent to hold as Pledged Collateral and shall, if received by such
Pledgor, be received in trust for the benefit of Agent, be segregated from the
other property or funds of such Pledgor, and be forthwith delivered to Agent as
Pledged Collateral in the same form as so received (with any necessary
indorsement).

         8.       Defaults and Remedies; Proxy. Subject to the limitations set
forth in Section 21 below:

                  (a)      Upon the occurrence of an Event of Default and during
         the continuation of such Event of Default, and concurrently with
         written notice to each Pledgor, Agent (personally or through an agent)
         is hereby authorized and empowered to transfer and register in its name
         or in the name of its nominee the whole or any part of the Pledged
         Collateral, to exchange certificates or instruments representing or
         evidencing Pledged Collateral for certificates or instruments of
         smaller or larger denominations, to exercise the voting and all other
         rights as a holder with respect thereto, to collect and receive all
         cash dividends, interest, principal and other distributions made
         thereon, to sell in one or more sales after ten (10) days' notice of
         the time and place of any public sale or of the

                                       6
<PAGE>

         time at which a private sale is to take place (which notice each
         Pledgor agrees is commercially reasonable) the whole or any part of the
         Pledged Collateral and to otherwise act with respect to the Pledged
         Collateral as though Agent was the outright owner thereof. Any sale
         shall be made at a public or private sale at Agent's place of business,
         or at any place to be named in the notice of sale, either for cash or
         upon credit or for future delivery at such price as Agent may deem
         fair, and Agent may be the purchaser of the whole or any part of the
         Pledged Collateral so sold and hold the same thereafter in its own
         right free from any claim of any Pledgor or any right of redemption.
         Each sale shall be made to the highest bidder, but Agent reserves the
         right to reject any and all bids at such sale which, in its discretion,
         it shall deem inadequate. Demands of performance, except as otherwise
         herein specifically provided for, notices of sale, advertisements and
         the presence of property at sale are hereby waived and any sale
         hereunder may be conducted by an auctioneer or any officer or agent of
         Agent. EACH PLEDGOR HEREBY IRREVOCABLY CONSTITUTES AND APPOINTS AGENT
         AS THE PROXY AND ATTORNEY-IN-FACT OF SUCH PLEDGOR WITH RESPECT TO ITS
         PLEDGED COLLATERAL, INCLUDING THE RIGHT TO VOTE ITS PLEDGED SHARES,
         WITH FULL POWER OF SUBSTITUTION TO DO SO. THE APPOINTMENT OF AGENT AS
         PROXY AND ATTORNEY-IN-FACT IS COUPLED WITH AN INTEREST AND SHALL BE
         IRREVOCABLE UNTIL THE TERMINATION DATE. IN ADDITION TO THE RIGHT TO
         VOTE THE PLEDGED SHARES, THE APPOINTMENT OF AGENT AS PROXY AND
         ATTORNEY-IN-FACT SHALL INCLUDE THE RIGHT TO EXERCISE ALL OTHER RIGHTS,
         POWERS, PRIVILEGES AND REMEDIES TO WHICH A HOLDER OF THE PLEDGED SHARES
         WOULD BE ENTITLED (INCLUDING GIVING OR WITHHOLDING WRITTEN CONSENTS OF
         SHAREHOLDERS, CALLING SPECIAL MEETINGS OF SHAREHOLDERS AND VOTING AT
         SUCH MEETINGS). SUCH PROXY SHALL BE EFFECTIVE, AUTOMATICALLY AND
         WITHOUT THE NECESSITY OF ANY ACTION (INCLUDING ANY TRANSFER OF ANY
         PLEDGED SHARES ON THE RECORD BOOKS OF THE ISSUER THEREOF) BY ANY PERSON
         (INCLUDING THE ISSUER OF THE PLEDGED SHARES OR ANY OFFICER OR AGENT
         THEREOF), UPON THE OCCURRENCE OF AN EVENT OF DEFAULT. NOTWITHSTANDING
         THE FOREGOING, AGENT SHALL NOT HAVE ANY DUTY TO EXERCISE ANY SUCH RIGHT
         OR TO PRESERVE THE SAME AND SHALL NOT BE LIABLE FOR ANY FAILURE TO DO
         SO OR FOR ANY DELAY IN DOING SO.

                  (b)      If, at the original time or times appointed for the
         sale of the whole or any part of the Pledged Collateral, the highest
         bid, if there be but one sale, shall be inadequate to discharge in full
         all the Secured Obligations, or if the Pledged Collateral be offered
         for sale in lots, if at any of such sales, the highest bid for the lot
         offered for sale would indicate to Agent, in its discretion, that the
         proceeds of the sales of the whole of the Pledged Collateral would be
         unlikely to be sufficient to discharge all the Secured Obligations,
         Agent may, on one or more occasions and in its discretion, postpone any
         of said sales by public announcement at the time of sale or the time of
         previous postponement of sale, and no other notice of such postponement
         or postponements of sale need be given, any other notice being hereby
         waived; provided, however, that any sale or

                                       7
<PAGE>

         sales made after such postponement shall be after ten (10) days' notice
         to the applicable Pledgor.

                  (c)      If, at any time when Agent shall determine to
         exercise its right to sell the whole or any part of the Pledged
         Collateral hereunder, such Pledged Collateral or the part thereof to be
         sold shall not, for any reason whatsoever, be effectively registered
         under the Securities Act of 1933, as amended (or any similar statute
         then in effect) (the "Act"), Agent may, in its discretion (subject only
         to applicable requirements of law), sell such Pledged Collateral or
         part thereof by private sale in such manner and under such
         circumstances as Agent may deem necessary or advisable, but subject to
         the other requirements of this Section 8, and shall not be required to
         effect such registration or to cause the same to be effected. Without
         limiting the generality of the foregoing, in any such event, Agent in
         its discretion (x) may, in accordance with applicable securities laws,
         proceed to make such private sale notwithstanding that a registration
         statement for the purpose of registering such Pledged Collateral or
         part thereof could be or shall have been filed under said Act (or
         similar statute), (y) may approach and negotiate with a single possible
         purchaser to effect such sale, and (z) may restrict such sale to a
         purchaser who is an accredited investor under the Act and who will
         represent and agree that such purchaser is purchasing for its own
         account, for investment and not with a view to the distribution or sale
         of such Pledged Collateral or any part thereof. In addition to a
         private sale as provided above in this Section 8, if any of the Pledged
         Collateral shall not be freely distributable to the public without
         registration under the Act (or similar statute) at the time of any
         proposed sale pursuant to this Section 8, then Agent shall not be
         required to effect such registration or cause the same to be effected
         but, in its discretion (subject only to applicable requirements of
         law), may require that any sale hereunder (including a sale at auction)
         be conducted subject to restrictions:

                           (i)      as to the financial sophistication and
ability of any Person permitted to bid or purchase at any such sale;

                           (ii)     as to the content of legends to be placed
upon any certificates representing the Pledged Collateral sold in such sale,
including restrictions on future transfer thereof;

                           (iii)    as to the representations required to be
made by each Person bidding or purchasing at such sale relating to that Person's
access to financial information about the applicable Pledgor and such Person's
intentions as to the holding of the Pledged Collateral so sold for investment
for its own account and not with a view to the distribution thereof; and

                           (iv)     as to such other matters as Agent may, in
its discretion, deem necessary or appropriate in order that such sale
(notwithstanding any failure so to register) may be effected in compliance with
the Bankruptcy Code and other laws affecting the enforcement of creditors'
rights and the Act and all applicable state securities laws.

                  (d)      Each Pledgor recognizes that Agent may be unable to
         effect a public sale of any or all the Pledged Collateral and may be
         compelled to resort to one or more private sales thereof in accordance
         with clause (c) above. Each Pledgor also acknowledges that

                                       8
<PAGE>

         any such private sale may result in prices and other terms less
         favorable to the seller than if such sale were a public sale and,
         notwithstanding such circumstances, agrees that any such private sale
         shall not be deemed to have been made in a commercially unreasonable
         manner solely by virtue of such sale being private. Agent shall be
         under no obligation to delay a sale of any of the Pledged Collateral
         for the period of time necessary to permit any Pledged Entity to
         register such securities for public sale under the Act, or under
         applicable state securities laws, even if such Pledgor and such Pledged
         Entity would agree to do so.

                  (e)      Each Pledgor agrees to the maximum extent permitted
         by applicable law that following the occurrence and during the
         continuance of an Event of Default it will not at any time plead, claim
         or take the benefit of any appraisal, valuation, stay, extension,
         moratorium or redemption law now or hereafter in force in order to
         prevent or delay the enforcement of this Agreement, or the absolute
         sale of the whole or any part of the Pledged Collateral or the
         possession thereof by any purchaser at any sale hereunder, and each
         Pledgor waives the benefit of all such laws to the extent it lawfully
         may do so. Each Pledgor agrees that it will not interfere with any
         right, power and remedy of Agent provided for in this Agreement or now
         or hereafter existing at law or in equity or by statute or otherwise,
         or the exercise or beginning of the exercise by Agent of any one or
         more of such rights, powers or remedies. No failure or delay on the
         part of Agent to exercise any such right, power or remedy and no notice
         or demand which may be given to or made upon any Pledgor by Agent with
         respect to any such remedies shall operate as a waiver thereof, or
         limit or impair Agent's right to take any action or to exercise any
         power or remedy hereunder, without notice or demand, or prejudice its
         rights as against such Pledgor in any respect.

                  (f)      Each Pledgor further agrees that a breach of any of
         the covenants contained in this Section 8 will cause irreparable injury
         to Agent, that Agent shall have no adequate remedy at law in respect of
         such breach and, as a consequence, agrees that each and every covenant
         contained in this Section 8 shall be specifically enforceable against
         each Pledgor, and each Pledgor hereby waives and agrees not to assert
         any defenses against an action for specific performance of such
         covenants except for a defense that the Secured Obligations are not
         then due and payable in accordance with the agreements and instruments
         governing and evidencing such obligations.

         9.       Waiver. No delay on Agent's part in exercising any power of
sale, Lien, option or other right hereunder, and no notice or demand which may
be given to or made upon any Pledgor by Agent with respect to any power of sale,
Lien, option or other right hereunder, shall constitute a waiver thereof, or
limit or impair Agent's right to take any action or to exercise any power of
sale, Lien, option, or any other right hereunder, without notice or demand, or
prejudice Agent's rights as against such Pledgor in any respect.

         10.      Assignment. Agent may assign, indorse or transfer any
instrument evidencing all or any part of the Secured Obligations as provided in,
and in accordance with, the Credit Agreement, and the holder of such instrument
shall be entitled to the benefits of this Agreement.

                                       9
<PAGE>

         11.      Termination. Immediately following the Termination Date, Agent
shall deliver to each Pledgor the Pledged Collateral pledged by such Pledgor at
the time subject to this Agreement and all instruments of assignment executed in
connection therewith, free and clear of the Liens hereof and, except as
otherwise provided herein, all of the Pledgors' obligations hereunder shall at
such time terminate.

         12.      Lien Absolute. All rights of Agent hereunder, and all
obligations of the Pledgors hereunder, shall be absolute and unconditional
irrespective of:

                  (a)      any lack of validity or enforceability of the Credit
         Agreement, any other Loan Document or any other agreement or instrument
         governing or evidencing any Secured Obligations;

                  (b)      any change in the time, manner or place of payment
         of, or in any other term of, all or any part of the Secured
         Obligations, or any other amendment or waiver of or any consent to any
         departure from the Credit Agreement, any other Loan Document or any
         other agreement or instrument governing or evidencing any Secured
         Obligations;

                  (c)      any exchange, release or non-perfection of any other
         Collateral, or any release or amendment or waiver of or consent to
         departure from any guaranty, for all or any of the Secured Obligations;

                  (d)      the insolvency of any Credit Party; or

                  (e)      any other circumstance which might otherwise
         constitute a defense available to, or a discharge of, any Pledgor.

         13.      Release. Each Pledgor consents and agrees that Agent may at
any time, or from time to time, in its discretion:

                  (a)      renew, extend or change the time of payment, and/or
         the manner, place or terms of payment of all or any part of the Secured
         Obligations; and

                  (b)      exchange, release and/or surrender all or any of the
         Collateral (including the Pledged Collateral), or any part thereof, by
         whomsoever deposited, which is now or may hereafter be held by Agent in
         connection with all or any of the Secured Obligations; all in such
         manner and upon such terms as Agent may deem proper, and without notice
         to or further assent from such Pledgor, it being hereby agreed that
         such Pledgor shall be and remain bound upon this Agreement,
         irrespective of the value or condition of any of the Collateral, and
         notwithstanding any such change, exchange, settlement, compromise,
         surrender, release, renewal or extension, and notwithstanding also that
         the Secured Obligations may, at any time, exceed the aggregate
         principal amount thereof set forth in the Credit Agreement, or any
         other agreement governing any Secured Obligations. Each Pledgor hereby
         waives notice of acceptance of this Agreement, and also presentment,
         demand, protest and notice of dishonor of any and all of the Secured
         Obligations, and promptness in commencing suit against any party hereto
         or liable hereon, and in giving any notice to or of making any claim or
         demand hereunder upon any Pledgor. No act or omission of any kind on
         Agent's part shall in any event affect or impair this Agreement.

                                       10
<PAGE>

         14.      Reinstatement. This Agreement shall remain in full force and
effect and continue to be effective should any petition be filed by or against
any Pledgor or any Pledged Entity for liquidation or reorganization, should any
Pledgor or any Pledged Entity become insolvent or make an assignment for the
benefit of creditors or should a receiver or trustee be appointed for all or any
significant part of any Pledgors' or a Pledged Entity's assets, and shall
continue to be effective or be reinstated, as the case may be, if at any time
payment and performance of the Secured Obligations, or any part thereof, is,
pursuant to applicable law, rescinded or reduced in amount, or must otherwise be
restored or returned by any obligee of the Secured Obligations, whether as a
"voidable preference", "fraudulent conveyance", or otherwise, all as though such
payment or performance had not been made. In the event that any payment, or any
part thereof, is rescinded, reduced, restored or returned, the Secured
Obligations shall be reinstated and deemed reduced only by such amount paid and
not so rescinded, reduced, restored or returned.

         15.      Miscellaneous.

                  (a)      Agent may execute any of its duties hereunder by or
         through agents or employees and shall be entitled to advice of counsel
         concerning all matters pertaining to its duties hereunder.

                  (b)      Each Pledgor agrees to promptly reimburse Agent for
         actual out-of-pocket expenses, including, without limitation,
         reasonable counsel fees, incurred by Agent in connection with the
         administration and enforcement of this Agreement.

                  (c)      Neither Agent, nor any of its respective officers,
         directors, employees, agents or counsel shall be liable for any action
         lawfully taken or omitted to be taken by it or them hereunder or in
         connection herewith, except for its or their own gross negligence or
         willful misconduct as finally determined by a court of competent
         jurisdiction.

                  (d)      THIS AGREEMENT SHALL BE BINDING UPON EACH PLEDGOR AND
         ITS SUCCESSORS AND ASSIGNS (INCLUDING A DEBTOR-IN-POSSESSION ON BEHALF
         OF ANY PLEDGOR), AND SHALL INURE TO THE BENEFIT OF, AND BE ENFORCEABLE
         BY, AGENT AND ITS SUCCESSORS AND ASSIGNS, AND SHALL BE GOVERNED BY, AND
         CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
         GEORGIA APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE, AND
         NONE OF THE TERMS OR PROVISIONS OF THIS AGREEMENT MAY BE WAIVED,
         ALTERED, MODIFIED OR AMENDED EXCEPT IN WRITING DULY SIGNED FOR AND ON
         BEHALF OF AGENT AND EACH PLEDGOR.

         16.      Severability. If for any reason any provision or provisions
hereof are determined to be invalid and contrary to any existing or future law,
such invalidity shall not impair the operation of or effect those portions of
this Agreement which are valid.

         17.      Notices. Except as otherwise provided herein, whenever it is
provided herein that any notice, demand, request, consent, approval, declaration
or other communication shall or may be given to or served upon any of the
parties by any other party, or whenever any of the parties desires to give and
serve upon any other party any communication with respect to this Pledge

                                       11
<PAGE>

Agreement, each such notice, demand, request, consent, approval, declaration or
other communication shall be in writing and shall be given in the manner, and
deemed received, as provided for in the Credit Agreement.

         18.      Section Titles. The Section titles contained in this Agreement
are and shall be without substantive meaning or content of any kind whatsoever
and are not a part of the agreement between the parties hereto.

         19.      Counterparts. This Agreement may be executed in any number of
counterparts, which shall, collectively and separately, constitute one
agreement.

         20.      Benefit of Lenders. All security interests granted or
contemplated hereby shall be for the benefit of Agent and Lenders, and all
proceeds or payments realized from the Pledged Collateral in accordance herewith
shall be applied to the Obligations in accordance with the terms of the Credit
Agreement.

         21.      Pledged Shares of Avondale Funding; Limitation on Actions. The
Parties hereto acknowledge that Avondale Funding and Avondale have entered into
a structured receivables financing transaction with and General Electric Capital
Corporation (the "Securitization Agent") pursuant to a Receivables Purchase and
Servicing Agreement (the "Purchase Agreement"). To induce Securitization Agent
to permit Avondale Funding to be a Pledged Entity, the parties hereto agree to
the following limitations. Capitalized terms used in this Section 21 and not
otherwise defined herein shall have the meanings ascribed to such terms in Annex
X to the Purchase Agreement.

                  (a)      Anything herein or in the Credit Agreement to the
         contrary notwithstanding:

                  (i) Until the date on which the Purchaser Interest and all
                  other amounts owed under the Related Documents have been
                  indefeasibly paid in full in cash in accordance with the terms
                  of the Related Documents and the Purchase Agreement has
                  terminated in accordance with its terms, the Agent, for itself
                  and as agent for the Lenders, agrees that, upon exercising its
                  rights with respect to the Pledged Collateral, it will not
                  exercise any rights to vote the Pledged Collateral or
                  otherwise control the actions and operations of Avondale
                  Funding with respect to any matters, except (i) to vote in
                  favor of a prepayment or termination of the Purchase Agreement
                  in accordance with its terms and (ii) to vote in favor of a
                  dividend or distribution, and, until the Purchaser Interest
                  and all other amounts owed under the Related Documents have
                  been indefeasibly paid as described above, the Agent's rights
                  will be limited to receiving any dividends and distributions
                  on the Pledged Collateral which, pursuant to the terms of the
                  Related Documents, are allowed to be distributed on account of
                  the Pledged Collateral. Without limiting the foregoing, the
                  Agent shall not vote the Pledged Collateral or otherwise
                  exercise control over Avondale Funding so as to cause Avondale
                  Funding: (A) to violate or breach any term or provision in any
                  Related Documents, (B) to make dividends or distributions on
                  such Pledged Collateral except as described above, (C) to
                  amend or alter any of Avondale Funding's

                                       12
<PAGE>

                  organizational documents, or (D) to incur any debt other than
                  as expressly permitted under the Related Documents;

                  (ii) In the event that the Agent receives any payments or
                  funds relating to the Receivables Program Assets (as defined
                  in the Intercreditor Agreement) (the "Receivables Program
                  Assets") prior to the date on which the Purchaser Interest and
                  all other amounts owed under the Related Documents have been
                  indefeasibly paid in full in cash in accordance with the terms
                  of the Related Documents, the Agent shall hold such payments
                  or funds in trust for the benefit of the Securitization Agent,
                  and shall promptly transfer such payments or funds to the
                  Securitization Agent;

                  (iii) The provisions of this Section 21 shall continue to be
                  effective or be reinstated, as the case may be, if at any time
                  any payment of the Purchaser Interest or any other amounts
                  owed under the Related Documents is rescinded or must
                  otherwise be returned by the Securitization Agent or the
                  Purchasers upon the insolvency, bankruptcy or reorganization
                  of Avondale Funding or otherwise, all as though such payment
                  had not been made; and

                  (iv) Prior to the date on which the Purchaser Interest and all
                  other amounts owed under the Related Documents have been
                  indefeasibly paid in full in cash in accordance with the terms
                  of the Related Documents and the Purchase Agreement has
                  terminated in accordance with its terms, neither the Agent nor
                  any Lender shall object to or contest in any administrative,
                  legal or equitable action or proceeding (including, without
                  limitation, any insolvency, bankruptcy, receivership,
                  liquidation, reorganization, winding up, readjustment,
                  composition or other similar proceeding relating to Avondale
                  or Avondale Funding or their respective property) or object to
                  or contest in any other manner (A) the interests of Avondale
                  Funding and its successors and assigns in any of the
                  Receivables Program Assets transferred by Borrower or its
                  Affiliates to Avondale Funding pursuant to the Related
                  Documents and/or (B) the interests of the Securitization Agent
                  or the Purchasers in the Receivables Program Assets. Neither
                  the Agent, nor any Lender shall object to or contest in any
                  manner the receipt of any payment by the Securitization Agent
                  and/or the Purchasers with respect to the Receivables Program
                  Assets for the satisfaction of the Purchaser Interest.

         (b)      The Securitization Agent shall be a third-party beneficiary
         with respect to this Section 21.

         (c)      So long as the Purchaser Interest and all other amounts owed
         under the Related Documents have not been indefeasibly paid in full in
         cash in accordance with the terms of the Related Documents, this
         Section 21 shall not be amended, modified or supplemented without the
         prior written consent of the Securitization Agent, which consent shall
         be at the sole discretion of the Securitization Agent, and the
         provisions of this Section 21 shall be contained in any agreement that
         amends and restates this Agreement. The Agent and the Lenders agree
         that no such party shall enter into any

                                       13
<PAGE>

         additional agreement that would adversely affect the rights of the
         Securitization Agent as provided hereunder.

                            [signature page follows]

                                       14

<PAGE>

                  IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first written above.

                                     AVONDALE MILLS, INC., as a Pledgor

                                     By:________________________________________
                                     Name:______________________________________
                                     Title:_____________________________________

                                     AVONDALE MILLS GRANITEVILLE FABRICS,
                                     INC., as a Pledgor

                                     By:________________________________________
                                     Name:______________________________________
                                     Title:_____________________________________

                                     GENERAL ELECTRIC CAPITAL CORPORATION,
                                     as Agent

                                     By:________________________________________
                                     Name:______________________________________
                                     Its Duly Authorized Signatory

                       Signature Page to Pledge Agreement

<PAGE>

                                   SCHEDULE I

                                     PART A

                                 PLEDGED SHARES

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
                                                               Stock                         Percentage of
                                                Class          Certificate        Number     Outstanding
     Pledgor             Pledged Entity         of Stock       Number(s)          of Shares  Shares
----------------------------------------------------------------------------------------------------------
<S>                      <C>                    <C>            <C>                <C>        <C>
Avondale Mills, Inc.     Avondale Mills                                                      100%
                         Graniteville
                         Fabrics, Inc.
----------------------------------------------------------------------------------------------------------
Avondale Mills, Inc.     Avondale Funding, LLC                                               100%
----------------------------------------------------------------------------------------------------------
</TABLE>

                                     PART B

                              PLEDGED INDEBTEDNESS

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
                                  Initial                           Maturity
Pledgor       Pledged Entity      Principal Amount    Issue Date    Date            Interest Rate
-------------------------------------------------------------------------------------------------
<S>           <C>                 <C>                 <C>           <C>             <C>
-------------------------------------------------------------------------------------------------

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

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

-------------------------------------------------------------------------------------------------
</TABLE>

                                       16
<PAGE>

                                   SCHEDULE II

                                PLEDGE AMENDMENT

                  This Pledge Amendment, dated [_____________] is delivered
pursuant to Section 6(d) of the Pledge Agreement referred to below. All defined
terms herein shall have the meanings ascribed thereto or incorporated by
reference in the Pledge Agreement. The undersigned hereby certifies that the
representations and warranties in Section 5 of the Pledge Agreement are and
continue to be true and correct, both as to the promissory notes, instruments
and shares pledged prior to this Pledge Amendment and as to the promissory
notes, instruments and shares pledged pursuant to this Pledge Amendment. The
undersigned further agrees that this Pledge Amendment may be attached to that
certain Pledge Agreement, dated November 7, 2003, between undersigned, as a
Pledgor, and General Electric Capital Corporation, as Agent, (the "Pledge
Agreement") and that the Pledged Shares and Pledged Indebtedness listed on this
Pledge Amendment shall be and become a part of the Pledged Collateral referred
to in said Pledge Agreement and shall secure all Secured Obligations referred to
in said Pledge Agreement. The undersigned acknowledges that any promissory
notes, instruments or shares not included in the Pledged Collateral at the
discretion of Agent may not otherwise be pledged by any Pledgor to any other
Person or otherwise used as security for any obligations other than the Secured
Obligations.

                                    [PLEDGOR]

                                    By:
                                    Name: -------------------------------------
                                    Title: ------------------------------------

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
Name and                                        Class        Certificate   Number
Address of Pledgor         Pledged Entity       of Stock     Number(s)     of Shares
------------------------------------------------------------------------------------
<S>                        <C>                  <C>          <C>           <C>
------------------------------------------------------------------------------------

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

------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
                   Initial
Pledged Entity     Principal Amount     Issue Date   Maturity Date     Interest Rate
------------------------------------------------------------------------------------
<S>                <C>                  <C>          <C>               <C>
------------------------------------------------------------------------------------

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

------------------------------------------------------------------------------------
</TABLE>

                                       17
<PAGE>

                                   SCHEDULE II
                                       to
                                PLEDGE AGREEMENT

I.       Guarantor's official name:         Avondale Incorporated

II.      Type of entity:                    Corporation

III.     Organizational identification number issued by Avondale Incorporated's
         state of incorporation or organization or a statement that no such
         number has been issued:

         J 315 245

IV.      State or Incorporation or Organization of Avondale Incorporated:

         Georgia

V.       Chief Executive Office and principal place of business of Avondale
         Incorporated:

         506 South Broad Street
         Monroe, Georgia 30655

<PAGE>

                                   SCHEDULE I
                                     PART A
                                 PLEDGED SHARES

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
                                                                               Stock                                Percentage of
                                                       Class                   Certificate          Number          Outstanding
      Pledgor                   Pledged Entity         of Stock                Number(s)            of Shares       Shares
---------------------------------------------------------------------------------------------------------------------------------
<S>                             <C>                    <C>                     <C>                  <C>             <C>
Avondale Mills, Inc.            Avondale Mills         Common                                       1000            100%
                                Graniteville
                                Fabrics, Inc.
---------------------------------------------------------------------------------------------------------------------------------
Avondale Mills, Inc.            Avondale Funding, LLC  N/A                     N/A                  N/A             100%
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                     PART B

                              PLEDGED INDEBTEDNESS

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
                                            Initial
Pledgor              Pledged Entity         Principal Amount        Issue Date           Maturity Date   Interest Rate
----------------------------------------------------------------------------------------------------------------------
<S>                  <C>                    <C>                     <C>                  <C>             <C>

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

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

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

----------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

                                                                  EXECUTION COPY

                               SUBSIDIARY GUARANTY

                  This GUARANTY (this "Guaranty"), dated as of November 7, 2003,
by and between AVONDALE MILLS GRANITEVILLE FABRICS, INC., a Delaware corporation
("Guarantor"), and GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation,
individually and as agent (in such capacity, "Agent") for itself and the lenders
from time to time signatory to the Credit Agreement, as hereinafter defined
("Lenders").

                              W I T N E S S E T H:

                  WHEREAS, pursuant to that certain Credit Agreement dated as of
the date hereof by and among Avondale Mills, Inc., an Alabama corporation
("Borrower"), the Persons named therein as Credit Parties, Agent and the Persons
signatory thereto from time to time as Lenders (as from time to time amended,
restated, supplemented or otherwise modified, the "Credit Agreement") Lenders
have agreed to make Revolving Loans to, and incur Letter of Credit Obligations
for the benefit of, Borrower.

                  WHEREAS, Guarantor will derive indirect economic benefits from
the making of the Revolving Loans and other financial accommodations provided to
Borrower pursuant to the Credit Agreement; and

                  WHEREAS, in order to induce Agent and Lenders to enter into
the Credit Agreement and other Loan Documents and to induce Lenders to make the
Revolving Loans and to incur Letter of Credit Obligations as provided for in the
Credit Agreement, Guarantor has agreed to guarantee payment of the Obligations;

                  NOW, THEREFORE, in consideration of the premises and the
covenants hereinafter contained, and to induce Lenders to provide the Revolving
Loans and other financial accommodations under the Credit Agreement, it is
agreed as follows:

1.       DEFINITIONS.

                  Capitalized terms used herein shall have the meanings assigned
to them in the Credit Agreement, unless otherwise defined herein.

                  References to this "Guaranty" shall mean this Guaranty,
including all amendments, modifications and supplements and any annexes,
exhibits and schedules to any of the foregoing, and shall refer to this Guaranty
as the same may be in effect at the time such reference becomes operative.

2.       THE GUARANTY.

         2.1      Guaranty of Guaranteed Obligations of Borrower. Guarantor
hereby unconditionally guarantees to Agent and Lenders, and their respective
successors, endorsees, transferees and assigns, the prompt payment (whether at
stated maturity, by acceleration or otherwise) and performance of the
Obligations of Borrower (hereinafter the "Guaranteed

<PAGE>

Obligations"). Guarantor agrees that this Guaranty is a guaranty of payment and
performance and not of collection, and that its obligations under this Guaranty
shall be primary, absolute and unconditional, irrespective of, and unaffected
by:

                  (a)      the genuineness, validity, regularity, enforceability
         or any future amendment of, or change in this Guaranty, any other Loan
         Document or any other agreement, document or instrument to which any
         Credit Party and/or Guarantor is or may become a party;

                  (b)      the absence of any action to enforce this Guaranty or
         any other Loan Document or the waiver or consent by Agent and/or
         Lenders with respect to any of the provisions thereof;

                  (c)      the existence, value or condition of, or failure to
         perfect Agent's Lien against, any Collateral for the Guaranteed
         Obligations or any action, or the absence of any action, by Agent in
         respect thereof (including, without limitation, the release of any such
         security); or

                  (d)      the insolvency of any Credit Party; or

                  (e)      any other action or circumstances which might
         otherwise constitute a legal or equitable discharge or defense of a
         surety or guarantor,

it being agreed by Guarantor that its obligations under this Guaranty shall not
be discharged until the Termination Date. Guarantor shall be regarded, and shall
be in the same position, as principal debtor with respect to the Guaranteed
Obligations. Guarantor agrees that any notice or directive given at any time to
Agent which is inconsistent with the waiver in the immediately preceding
sentence shall be null and void and may be ignored by Agent and Lenders, and, in
addition, may not be pleaded or introduced as evidence in any litigation
relating to this Guaranty for the reason that such pleading or introduction
would be at variance with the written terms of this Guaranty, unless Agent and
Lenders have specifically agreed otherwise in writing. It is agreed among
Guarantor, Agent and Lenders that the foregoing waivers are of the essence of
the transaction contemplated by the Loan Documents and that, but for this
Guaranty and such waivers, Agent and Lenders would decline to enter into the
Credit Agreement.

         2.2      Demand by Agent or Lenders. In addition to the terms of the
Guaranty set forth in Section 2.1 hereof, and in no manner imposing any
limitation on such terms, it is expressly understood and agreed that, if, at any
time, the outstanding principal amount of the Guaranteed Obligations under the
Credit Agreement (including all accrued interest thereon) is declared to be
immediately due and payable, then Guarantor shall, without demand, pay to the
holders of the Guaranteed Obligations the entire outstanding Guaranteed
Obligations due and owing to such holders. Payment by Guarantor shall be made to
Agent in immediately available funds to an account, designated by Agent or at
the address set forth herein for the giving of notice to Agent or at any other
address that may be specified in writing from time to time by Agent, and shall
be credited and applied to the Guaranteed Obligations.

                                       2
<PAGE>

         2.3      Enforcement of Guaranty. In no event shall Agent have any
obligation (although it is entitled, at its option) to proceed against Borrower
or any other Credit Party or any Collateral pledged to secure Guaranteed
Obligations before seeking satisfaction from the Guarantor, and Agent may
proceed, prior or subsequent to, or simultaneously with, the enforcement of
Agent's rights hereunder, to exercise any right or remedy which it may have
against any Collateral, as a result of any Lien it may have as security for all
or any portion of the Guaranteed Obligations.

         2.4      Waiver. In addition to the waivers contained in Section 2.1
hereof, Guarantor waives and agrees that it shall not at any time insist upon,
plead or in any manner whatever claim or take the benefit or advantage of, any
appraisal, valuation, stay, extension, marshaling of assets or redemption laws,
or exemption, whether now or at any time hereafter in force, which may delay,
prevent or otherwise affect the performance by Guarantor of its Guaranteed
Obligations under, or the enforcement by Agent or Lenders of, this Guaranty.
Guarantor hereby waives diligence, presentment and demand (whether for
non-payment or protest or of acceptance, maturity, extension of time, change in
nature or form of the Guaranteed Obligations, acceptance of further security,
release of further security, composition or agreement arrived at as to the
amount of, or the terms of, the Guaranteed Obligations, notice of adverse change
in Borrower's financial condition or any other fact which might increase the
risk to Guarantor) with respect to any of the Guaranteed Obligations or all
other demands whatsoever and waives the benefit of all provisions of law which
are or might be in conflict with the terms of this Guaranty. Guarantor
represents, warrants and agrees that, as of the date of this Guaranty, its
obligations under this Guaranty are not subject to any offsets or defenses
against Agent or Lenders or any Credit Party of any kind. Guarantor further
agrees that its obligations under this Guaranty shall not be subject to any
counterclaims, offsets or defenses against Agent or any Lender or against any
Credit Party of any kind which may arise in the future.

         2.5      Benefit of Guaranty. The provisions of this Guaranty are for
the benefit of Agent and Lenders and their respective successors, transferees,
endorsees and assigns, and nothing herein contained shall impair, as between any
Credit Party and Agent or Lenders, the obligations of any Credit Party under the
Loan Documents. In the event all or any part of the Guaranteed Obligations are
transferred, indorsed or assigned by Agent or any Lender to any Person or
Persons, any reference to "Agent" or "Lender" herein shall be deemed to refer
equally to such Person or Persons.

         2.6      Modification of Guaranteed Obligations, Etc. Guarantor hereby
acknowledges and agrees that Agent and Lenders may at any time or from time to
time, with or without the consent of, or notice to, Guarantor:

                  (a)      change or extend the manner, place or terms of
         payment of, or renew or alter all or any portion of, the Guaranteed
         Obligations;

                  (b)      take any action under or in respect of the Loan
         Documents in the exercise of any remedy, power or privilege contained
         therein or available to it at law, equity or otherwise, or waive or
         refrain from exercising any such remedies, powers or privileges;

                  (c)      amend or modify, in any manner whatsoever, the Loan
         Documents;

                                       3
<PAGE>

                  (d)      extend or waive the time for any Credit Party's
         performance of, or compliance with, any term, covenant or agreement on
         its part to be performed or observed under the Loan Documents, or waive
         such performance or compliance or consent to a failure of, or departure
         from, such performance or compliance;

                  (e)      take and hold Collateral for the payment of the
         Guaranteed Obligations guaranteed hereby or sell, exchange, release,
         dispose of, or otherwise deal with, any property pledged, mortgaged or
         conveyed, or in which Agent or Lenders have been granted a Lien, to
         secure any Obligations;

                  (f)      release anyone who may be liable in any manner for
         the payment of any amounts owed by Guarantor or any Credit Party to
         Agent or any Lender;

                  (g)      modify or terminate the terms of any intercreditor or
         subordination agreement pursuant to which claims of other creditors of
         Guarantor or any Credit Party are subordinated to the claims of Agent
         and Lenders; and/or

                  (h)      apply any sums by whomever paid or however realized
         to any amounts owing by Guarantor or any Credit Party to Agent or any
         Lender in such manner as Agent or any Lender shall determine in its
         discretion, subject to the terms and conditions of the Credit
         Agreement;

and Agent and Lenders shall not incur any liability to Guarantor as a result
thereof, and no such action shall impair or release the Guaranteed Obligations
of Guarantor under this Guaranty.

         2.7      Reinstatement. This Guaranty shall remain in full force and
effect and continue to be effective should any petition be filed by or against
any Credit Party or Guarantor for liquidation or reorganization, should any
Credit Party or Guarantor become insolvent or make an assignment for the benefit
of creditors or should a receiver or trustee be appointed for all or any
significant part of such Credit Party's or Guarantor's assets, and shall
continue to be effective or be reinstated, as the case may be, if at any time
payment and performance of the Guaranteed Obligations, or any part thereof, is,
pursuant to applicable law, rescinded or reduced in amount, or must otherwise be
restored or returned by Agent or any Lender, whether as a "voidable preference",
"fraudulent conveyance", or otherwise, all as though such payment or performance
had not been made. In the event that any payment, or any part thereof, is
rescinded, reduced, restored or returned, the Guaranteed Obligations shall be
reinstated and deemed reduced only by such amount paid and not so rescinded,
reduced, restored or returned.

         2.8      Waiver of Subrogation, Etc. Notwithstanding anything to the
contrary in this Guaranty, or in any other Loan Document, Guarantor hereby:

                  (a)      expressly and irrevocably waives, on behalf of itself
         and its successors and assigns (including any surety), any and all
         rights at law or in equity to subrogation, to reimbursement, to
         exoneration, to contribution, to indemnification, to set off or to any
         other rights that could accrue to a surety against a principal, to a
         guarantor against a principal, to a guarantor against a maker or
         obligor, to an accommodation party against the party accommodated, to a
         holder or transferee against a maker, or to the holder of any

                                       4
<PAGE>

         claim against any Person, and which Guarantor may have or hereafter
         acquire against any Credit Party in connection with or as a result of
         Guarantor's execution, delivery and/or performance of this Guaranty, or
         any other documents to which Guarantor is a party or otherwise; and

                  (b)      acknowledges and agrees (i) that this waiver is
         intended to benefit Agent and Lenders and shall not limit or otherwise
         affect Guarantor's liability hereunder or the enforceability of this
         Guaranty, and (ii) that Agent, Lenders and their respective successors
         and assigns are intended third party beneficiaries of the waivers and
         agreements set forth in this Section 2.8 and their rights under this
         Section 2.8 shall survive payment in full of the Guaranteed
         Obligations.

         2.9      Election of Remedies. If Agent may, under applicable law,
proceed to realize benefits under any of the Loan Documents giving Agent and
Lenders a Lien upon any Collateral owned by any Credit Party, either by judicial
foreclosure or by non-judicial sale or enforcement, Agent may, at its sole
option, determine which of such remedies or rights it may pursue without
affecting any of such rights and remedies under this Guaranty. If, in the
exercise of any of its rights and remedies, Agent shall forfeit any of its
rights or remedies, including its right to enter a deficiency judgment against
any Credit Party, whether because of any applicable laws pertaining to "election
of remedies" or the like, Guarantor hereby consents to such action by Agent and
waives any claim based upon such action, even if such action by Agent shall
result in a full or partial loss of any rights of subrogation which Guarantor
might otherwise have had but for such action by Agent. Any election of remedies
which results in the denial or impairment of the right of Agent to seek a
deficiency judgment against any Credit Party shall not impair Guarantor's
obligation to pay the full amount of the Guaranteed Obligations. In the event
Agent shall bid at any foreclosure or trustee's sale or at any private sale
permitted by law or the Loan Documents, Agent may bid all or less than the
amount of the Guaranteed Obligations and the amount of such bid need not be paid
by Agent but shall be credited against the Guaranteed Obligations. The amount of
the successful bid at any such sale shall be conclusively deemed to be the fair
market value of the collateral and the difference between such bid amount and
the remaining balance of the Guaranteed Obligations shall be conclusively deemed
to be the amount of the Guaranteed Obligations guaranteed under this Guaranty,
notwithstanding that any present or future law or court decision or ruling may
have the effect of reducing the amount of any deficiency claim to which Agent
and Lenders might otherwise be entitled but for such bidding at any such sale.

3.       DELIVERIES.

                  In a form reasonably satisfactory to Agent, Guarantor shall
deliver to Agent (with sufficient copies for each Lender), concurrently with the
execution of this Guaranty and the Credit Agreement, the Loan Documents and
other instruments, certificates and documents as are required to be delivered by
Guarantor to Agent under the Credit Agreement.

                                       5
<PAGE>

         4.       REPRESENTATIONS AND WARRANTIES. To induce Lenders to make the
Loans and incur Letter of Credit Obligations under the Credit Agreement,
Guarantor makes the representations and warranties as to Guarantor contained in
the Credit Agreement, each of which is incorporated herein by reference, and all
of which shall survive the execution and delivery of this Guaranty.

5.       FURTHER ASSURANCES.

                  Guarantor agrees, upon the written request of Agent or any
Lender, to execute and deliver to Agent or such Lender, from time to time, any
additional instruments or documents reasonably considered necessary by Agent or
such Lender to cause this Guaranty to be, become or remain valid and effective
in accordance with its terms.

6.       PAYMENTS FREE AND CLEAR OF TAXES.

                  All payments required to be made by Guarantor hereunder shall
be made to Agent and Lenders free and clear of, and without deduction for, any
and all present and future Taxes. If Guarantor shall be required by law to
deduct any Taxes from or in respect of any sum payable hereunder, (a) the sum
payable shall be increased as much as shall be necessary so that after making
all required deductions (including deductions applicable to additional sums
payable under this Section 6) Agent or Lenders, as applicable, receive an amount
equal to the sum they would have received had no such deductions been made, (b)
Guarantor shall make such deductions, and (c) Guarantor shall pay the full
amount deducted to the relevant taxing or other authority in accordance with
applicable law. Within thirty (30) days after the date of any payment of Taxes,
Guarantor shall furnish to Agent the original or a certified copy of a receipt
evidencing payment thereof. Guarantor shall indemnify and, within ten (10) days
of demand therefor, pay Agent and each Lender for the full amount of Taxes
(including any Taxes imposed by any jurisdiction on amounts payable under this
Section 6) paid by Agent or such Lender, as appropriate, and any liability
(including penalties, interest and expenses) arising therefrom or with respect
thereto, whether or not such Taxes were correctly or legally asserted.

7.       OTHER TERMS.

         7.1      Entire Agreement. This Guaranty, together with the other Loan
Documents, constitutes the entire agreement between the parties with respect to
the subject matter hereof and supersedes all prior agreements relating to a
guaranty of the loans and advances under the Loan Documents and/or the
Guaranteed Obligations.

         7.2      Headings. The headings in this Guaranty are for convenience of
reference only and are not part of the substance of this Guaranty.

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

                                       6
<PAGE>

         7.4      Notices. Except as otherwise provided herein, whenever it is
provided herein that any notice, demand, request, consent, approval, declaration
or other communication shall or may be given to or served upon any of the
parties by any other party, or whenever any of the parties desires to give and
serve upon any other party any communication with respect to this Guaranty, each
such notice, demand, request, consent, approval, declaration or other
communication shall be in writing and shall be given in the manner, and deemed
received, as provided for in the Credit Agreement.

         7.5      Successors and Assigns. This Guaranty and all obligations of
Guarantor hereunder shall be binding upon the successors and assigns of
Guarantor (including a debtor-in-possession on behalf of Guarantor) and shall,
together with the rights and remedies of Agent, for itself and for the benefit
of Lenders, hereunder, inure to the benefit of Agent and Lenders, all future
holders of any instrument evidencing any of the Obligations and their respective
successors and assigns. No sales of participations, other sales, assignments,
transfers or other dispositions of any agreement governing or instrument
evidencing the Obligations or any portion thereof or interest therein shall in
any manner affect the rights of Agent and Lenders hereunder. Guarantor may not
assign, sell, hypothecate or otherwise transfer any interest in or obligation
under this Guaranty.

         7.6      No Waiver; Cumulative Remedies; Amendments. Neither Agent nor
any Lender shall by any act, delay, omission or otherwise be deemed to have
waived any of its rights or remedies hereunder, and no waiver shall be valid
unless in writing, signed by Agent and then only to the extent therein set
forth. A waiver by Agent, for itself and the ratable benefit of Lenders, of any
right or remedy hereunder on any one occasion shall not be construed as a bar to
any right or remedy which Agent would otherwise have had on any future occasion.
No failure to exercise nor any delay in exercising on the part of Agent or any
Lender, any right, power or privilege hereunder, shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or future exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies
hereunder provided are cumulative and may be exercised singly or concurrently,
and are not exclusive of any rights and remedies provided by law. None of the
terms or provisions of this Guaranty may be waived, altered, modified,
supplemented or amended except by an instrument in writing, duly executed by
Agent and Guarantor.

         7.7      Termination. This Guaranty is a continuing guaranty and shall
remain in full force and effect until the Termination Date. Upon payment and
performance in full of the Guaranteed Obligations, Agent shall deliver to
Guarantor such documents as Guarantor may reasonably request to evidence such
termination.

         7.8      Counterparts. This Guaranty may be executed in any number of
counterparts, each of which shall collectively and separately constitute one and
the same agreement.

         7.9      GOVERNING LAW; CONSENT TO JURISDICTION AND VENUE.

                  EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE LOAN
DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION,

                                       7
<PAGE>

VALIDITY AND PERFORMANCE, THIS GUARANTY AND THE OBLIGATIONS ARISING HEREUNDER
SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF GEORGIA APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE,
AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. EACH GUARANTOR HEREBY
CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN FULTON COUNTY,
CITY OF ATLANTA, GEORGIA, SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND
DETERMINE ANY CLAIMS OR DISPUTES BETWEEN OR AMONG GUARANTOR, THE AGENT OR ANY
LENDER PERTAINING TO THIS GUARANTY OR TO ANY MATTER ARISING OUT OF OR RELATING
TO THIS GUARANTY OR ANY OF THE OTHER LOAN DOCUMENTS, PROVIDED, THAT THE AGENT
AND GUARANTOR ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE
HEARD BY A COURT LOCATED OUTSIDE OF FULTON COUNTY, AND, PROVIDED, FURTHER, THAT
NOTHING IN THIS GUARANTY SHALL BE DEEMED OR OPERATE TO PRECLUDE THE AGENT FROM
BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE
ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE GUARANTEED OBLIGATIONS, OR TO
ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF SUCH AGENT, FOR THE BENEFIT
OF THE AGENT AND THE LENDERS. GUARANTOR EXPRESSLY SUBMITS AND CONSENTS IN
ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT,
AND GUARANTOR HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF
PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY
CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY SUCH COURT. GUARANTOR 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, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY
REGISTERED OR CERTIFIED MAIL ADDRESSED TO GUARANTOR AT THE ADDRESS SET FORTH ON
SCHEDULE III-B OF THE SECURITY AGREEMENT AND THAT SERVICE SO MADE SHALL BE
DEEMED COMPLETED UPON THE EARLIER OF ACTUAL RECEIPT THEREOF OR THREE (3) DAYS
AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID.

         7.10     WAIVER OF JURY TRIAL.

                  BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL
TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND
EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY
(RATHER THAN ARBITRATION RULES), GUARANTOR AND AGENT DESIRE THAT DISPUTES
ARISING HEREUNDER OR RELATING HERETO BE RESOLVED BY A JUDGE APPLYING SUCH
APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF
THE JUDICIAL SYSTEM AND OR ARBITRATION, GUARANTOR AND AGENT WAIVE ALL RIGHTS TO
TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE,
WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, ARISING OUT OF,

                                       8
<PAGE>

CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED IN
CONNECTION WITH THIS GUARANTY AND THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS
RELATED HERETO OR THERETO.

         7.11     Limitation on Guaranteed Obligations. Notwithstanding any
provision herein contained to the contrary, Guarantor's liability hereunder
shall be limited to an amount not to exceed as of any date of determination the
amount which could be claimed by the Agent and Lenders from the Guarantor under
this Guaranty without rendering such claim voidable or avoidable under Section
548 of Chapter 11 of the Bankruptcy Code or under any applicable state Uniform
Fraudulent Transfer Act, Uniform Fraudulent Conveyance Act.

         8.       SECURITY.

                  To secure payment of Guarantor's obligations under this
Guaranty, concurrently with the execution of this Guaranty, Guarantor has
entered into a Security Agreement pursuant to which Guarantor has granted to
Agent for the benefit of Lenders a security interest in all the Collateral to
which it has any right, title or interest.

                  [remainder of page left intentionally blank]

                                       9
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Guaranty as of the date first above written.

                                     AVONDALE MILLS GRANITEVILLE FABRICS, INC.,
                                     as Guarantor

                                     By:________________________________________

                                     Name:______________________________________

                                     Title:_____________________________________

                                     GENERAL ELECTRIC CAPITAL
                                     CORPORATION, as Agent

                                     By:________________________________________

                                     Name:______________________________________

                                     Title:_____________________________________

                      Signature Page to Subsidiary Guaranty

<PAGE>

                                                                  EXECUTION COPY

                                 PARENT GUARANTY

                  This PARENT GUARANTY (this "Guaranty"), dated as of November
7, 2003, by and between Avondale Incorporated, a Georgia corporation
("Guarantor"), and GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation,
individually and as agent (in such capacity, "Agent") for itself and the lenders
from time to time signatory to the Credit Agreement, as hereinafter defined
("Lenders").

                              W I T N E S S E T H:

                  WHEREAS, pursuant to that certain Credit Agreement dated as of
the date hereof by and among Avondale Mills, Inc., an Alabama corporation
("Borrower"), the Persons named therein as Credit Parties, Agent and the Persons
signatory thereto from time to time as Lenders (as from time to time amended,
restated, supplemented or otherwise modified, the "Credit Agreement") Lenders
have agreed to make Revolving Loans to, and incur Letter of Credit Obligations
for the benefit of, Borrower.

                  WHEREAS, Guarantor owns 100% of the outstanding Stock of
Borrower and as such will derive direct and indirect economic benefits from the
making of the Revolving Loans and other financial accommodations provided to
Borrower pursuant to the Credit Agreement; and

                  WHEREAS, in order to induce Agent and Lenders to enter into
the Credit Agreement and other Loan Documents and to induce Lenders to make the
Revolving Loans and to incur Letter of Credit Obligations as provided for in the
Credit Agreement, Guarantor has agreed to guarantee payment of the Obligations;

                  NOW, THEREFORE, in consideration of the premises and the
covenants hereinafter contained, and to induce Lenders to provide the Revolving
Loans and other financial accommodations under the Credit Agreement, it is
agreed as follows:

1.       DEFINITIONS.

                  Capitalized terms used herein shall have the meanings assigned
to them in the Credit Agreement, unless otherwise defined herein.

                  References to this "Guaranty" shall mean this Guaranty,
including all amendments, modifications and supplements and any annexes,
exhibits and schedules to any of the foregoing, and shall refer to this Guaranty
as the same may be in effect at the time such reference becomes operative.

2.       THE GUARANTY.

         2.1      Guaranty of Guaranteed Obligations of Borrower. Guarantor
hereby unconditionally guarantees to Agent and Lenders, and their respective
successors, endorsees,

<PAGE>

transferees and assigns, the prompt payment (whether at stated maturity, by
acceleration or otherwise) and performance of the Obligations of Borrower
(hereinafter the "Guaranteed Obligations"). Guarantor agrees that this Guaranty
is a guaranty of payment and performance and not of collection, and that its
obligations under this Guaranty shall be primary, absolute and unconditional,
irrespective of, and unaffected by:

                  (a)      the genuineness, validity, regularity, enforceability
         or any future amendment of, or change in this Guaranty, any other Loan
         Document or any other agreement, document or instrument to which any
         Credit Party and/or Guarantor is or may become a party;

                  (b)      the absence of any action to enforce this Guaranty or
         any other Loan Document or the waiver or consent by Agent and/or
         Lenders with respect to any of the provisions thereof;

                  (c)      the existence, value or condition of, or failure to
         perfect Agent's Lien against, any Collateral for the Guaranteed
         Obligations or any action, or the absence of any action, by Agent in
         respect thereof (including, without limitation, the release of any such
         security); or

                  (d)      the insolvency of any Credit Party; or

                  (e)      any other action or circumstances which might
         otherwise constitute a legal or equitable discharge or defense of a
         surety or guarantor,

it being agreed by Guarantor that its obligations under this Guaranty shall not
be discharged until the Termination Date. Guarantor shall be regarded, and shall
be in the same position, as principal debtor with respect to the Guaranteed
Obligations. Guarantor agrees that any notice or directive given at any time to
Agent which is inconsistent with the waiver in the immediately preceding
sentence shall be null and void and may be ignored by Agent and Lenders, and, in
addition, may not be pleaded or introduced as evidence in any litigation
relating to this Guaranty for the reason that such pleading or introduction
would be at variance with the written terms of this Guaranty, unless Agent and
Lenders have specifically agreed otherwise in writing. It is agreed among
Guarantor, Agent and Lenders that the foregoing waivers are of the essence of
the transaction contemplated by the Loan Documents and that, but for this
Guaranty and such waivers, Agent and Lenders would decline to enter into the
Credit Agreement.

         2.2      Demand by Agent or Lenders. In addition to the terms of the
Guaranty set forth in Section 2.1 hereof, and in no manner imposing any
limitation on such terms, it is expressly understood and agreed that, if, at any
time, the outstanding principal amount of the Guaranteed Obligations under the
Credit Agreement (including all accrued interest thereon) is declared to be
immediately due and payable, then Guarantor shall, without demand, pay to the
holders of the Guaranteed Obligations the entire outstanding Guaranteed
Obligations due and owing to such holders. Payment by Guarantor shall be made to
Agent in immediately available funds to an account, designated by Agent or at
the address set forth herein for the giving of notice to Agent or at any other
address that may be specified in writing from time to time by Agent, and shall
be credited and applied to the Guaranteed Obligations.

                                       2
<PAGE>

         2.3      Enforcement of Guaranty. In no event shall Agent have any
obligation (although it is entitled, at its option) to proceed against Borrower
or any other Credit Party or any Collateral pledged to secure Guaranteed
Obligations before seeking satisfaction from the Guarantor, and Agent may
proceed, prior or subsequent to, or simultaneously with, the enforcement of
Agent's rights hereunder, to exercise any right or remedy which it may have
against any Collateral, as a result of any Lien it may have as security for all
or any portion of the Guaranteed Obligations.

         2.4      Waiver. In addition to the waivers contained in Section 2.1
hereof, Guarantor waives and agrees that it shall not at any time insist upon,
plead or in any manner whatever claim or take the benefit or advantage of, any
appraisal, valuation, stay, extension, marshaling of assets or redemption laws,
or exemption, whether now or at any time hereafter in force, which may delay,
prevent or otherwise affect the performance by Guarantor of its Guaranteed
Obligations under, or the enforcement by Agent or Lenders of, this Guaranty.
Guarantor hereby waives diligence, presentment and demand (whether for
non-payment or protest or of acceptance, maturity, extension of time, change in
nature or form of the Guaranteed Obligations, acceptance of further security,
release of further security, composition or agreement arrived at as to the
amount of, or the terms of, the Guaranteed Obligations, notice of adverse change
in Borrower's financial condition or any other fact which might increase the
risk to Guarantor) with respect to any of the Guaranteed Obligations or all
other demands whatsoever and waives the benefit of all provisions of law which
are or might be in conflict with the terms of this Guaranty. Guarantor
represents, warrants and agrees that, as of the date of this Guaranty, its
obligations under this Guaranty are not subject to any offsets or defenses
against Agent or Lenders or any Credit Party of any kind. Guarantor further
agrees that its obligations under this Guaranty shall not be subject to any
counterclaims, offsets or defenses against Agent or any Lender or against any
Credit Party of any kind which may arise in the future.

         2.5      Benefit of Guaranty. The provisions of this Guaranty are for
the benefit of Agent and Lenders and their respective successors, transferees,
endorsees and assigns, and nothing herein contained shall impair, as between any
Credit Party and Agent or Lenders, the obligations of any Credit Party under the
Loan Documents. In the event all or any part of the Guaranteed Obligations are
transferred, indorsed or assigned by Agent or any Lender to any Person or
Persons, any reference to "Agent" or "Lender" herein shall be deemed to refer
equally to such Person or Persons.

         2.6      Modification of Guaranteed Obligations, Etc. Guarantor hereby
acknowledges and agrees that Agent and Lenders may at any time or from time to
time, with or without the consent of, or notice to, Guarantor:

                  (a)      change or extend the manner, place or terms of
         payment of, or renew or alter all or any portion of, the Guaranteed
         Obligations;

                  (b)      take any action under or in respect of the Loan
         Documents in the exercise of any remedy, power or privilege contained
         therein or available to it at law, equity or otherwise, or waive or
         refrain from exercising any such remedies, powers or privileges;

                  (c)      amend or modify, in any manner whatsoever, the Loan
         Documents;

                                       3
<PAGE>

                  (d)      extend or waive the time for any Credit Party's
         performance of, or compliance with, any term, covenant or agreement on
         its part to be performed or observed under the Loan Documents, or waive
         such performance or compliance or consent to a failure of, or departure
         from, such performance or compliance;

                  (e)      take and hold Collateral for the payment of the
         Guaranteed Obligations guaranteed hereby or sell, exchange, release,
         dispose of, or otherwise deal with, any property pledged, mortgaged or
         conveyed, or in which Agent or Lenders have been granted a Lien, to
         secure any Obligations;

                  (f)      release anyone who may be liable in any manner for
         the payment of any amounts owed by Guarantor or any Credit Party to
         Agent or any Lender;

                  (g)      modify or terminate the terms of any intercreditor or
         subordination agreement pursuant to which claims of other creditors of
         Guarantor or any Credit Party are subordinated to the claims of Agent
         and Lenders; and/or

                  (h)      apply any sums by whomever paid or however realized
         to any amounts owing by Guarantor or any Credit Party to Agent or any
         Lender in such manner as Agent or any Lender shall determine in its
         discretion, subject to the terms and conditions of the Credit
         Agreement;

and Agent and Lenders shall not incur any liability to Guarantor as a result
thereof, and no such action shall impair or release the Guaranteed Obligations
of Guarantor under this Guaranty.

         2.7      Reinstatement. This Guaranty shall remain in full force and
effect and continue to be effective should any petition be filed by or against
any Credit Party or Guarantor for liquidation or reorganization, should any
Credit Party or Guarantor become insolvent or make an assignment for the benefit
of creditors or should a receiver or trustee be appointed for all or any
significant part of such Credit Party's or Guarantor's assets, and shall
continue to be effective or be reinstated, as the case may be, if at any time
payment and performance of the Guaranteed Obligations, or any part thereof, is,
pursuant to applicable law, rescinded or reduced in amount, or must otherwise be
restored or returned by Agent or any Lender, whether as a "voidable preference",
"fraudulent conveyance", or otherwise, all as though such payment or performance
had not been made. In the event that any payment, or any part thereof, is
rescinded, reduced, restored or returned, the Guaranteed Obligations shall be
reinstated and deemed reduced only by such amount paid and not so rescinded,
reduced, restored or returned.

         2.8      Waiver of Subrogation, Etc. Notwithstanding anything to the
contrary in this Guaranty, or in any other Loan Document, Guarantor hereby:

                  (a)      expressly and irrevocably waives, on behalf of itself
         and its successors and assigns (including any surety), any and all
         rights at law or in equity to subrogation, to reimbursement, to
         exoneration, to contribution, to indemnification, to set off or to any
         other rights that could accrue to a surety against a principal, to a
         guarantor against a principal, to a guarantor against a maker or
         obligor, to an accommodation party against the party accommodated, to a
         holder or transferee against a maker, or to the holder of any

                                       4
<PAGE>

         claim against any Person, and which Guarantor may have or hereafter
         acquire against any Credit Party in connection with or as a result of
         Guarantor's execution, delivery and/or performance of this Guaranty, or
         any other documents to which Guarantor is a party or otherwise; and

                  (b)      acknowledges and agrees (i) that this waiver is
         intended to benefit Agent and Lenders and shall not limit or otherwise
         affect Guarantor's liability hereunder or the enforceability of this
         Guaranty, and (ii) that Agent, Lenders and their respective successors
         and assigns are intended third party beneficiaries of the waivers and
         agreements set forth in this Section 2.8 and their rights under this
         Section 2.8 shall survive payment in full of the Guaranteed
         Obligations.

         2.9      Election of Remedies. If Agent may, under applicable law,
proceed to realize benefits under any of the Loan Documents giving Agent and
Lenders a Lien upon any Collateral owned by any Credit Party, either by judicial
foreclosure or by non-judicial sale or enforcement, Agent may, at its sole
option, determine which of such remedies or rights it may pursue without
affecting any of such rights and remedies under this Guaranty. If, in the
exercise of any of its rights and remedies, Agent shall forfeit any of its
rights or remedies, including its right to enter a deficiency judgment against
any Credit Party, whether because of any applicable laws pertaining to "election
of remedies" or the like, Guarantor hereby consents to such action by Agent and
waives any claim based upon such action, even if such action by Agent shall
result in a full or partial loss of any rights of subrogation which Guarantor
might otherwise have had but for such action by Agent. Any election of remedies
which results in the denial or impairment of the right of Agent to seek a
deficiency judgment against any Credit Party shall not impair Guarantor's
obligation to pay the full amount of the Guaranteed Obligations. In the event
Agent shall bid at any foreclosure or trustee's sale or at any private sale
permitted by law or the Loan Documents, Agent may bid all or less than the
amount of the Guaranteed Obligations and the amount of such bid need not be paid
by Agent but shall be credited against the Guaranteed Obligations. The amount of
the successful bid at any such sale shall be conclusively deemed to be the fair
market value of the collateral and the difference between such bid amount and
the remaining balance of the Guaranteed Obligations shall be conclusively deemed
to be the amount of the Guaranteed Obligations guaranteed under this Guaranty,
notwithstanding that any present or future law or court decision or ruling may
have the effect of reducing the amount of any deficiency claim to which Agent
and Lenders might otherwise be entitled but for such bidding at any such sale.

         2.10     Funds Transfers. If Guarantor shall engage in any transaction
as a result of which Borrower is required to make a mandatory prepayment with
respect to the Guaranteed Obligations under the terms of the Credit Agreement
(including any issuance or sale of Guarantor's Stock or any sale of its assets),
Guarantor shall distribute to, or make a contribution to the capital of, the
Borrower an amount equal to the mandatory prepayment required under the terms of
the Credit Agreement.

3.       DELIVERIES.

                  In a form reasonably satisfactory to Agent, Guarantor shall
deliver to Agent (with sufficient copies for each Lender), concurrently with the
execution of this Guaranty and the

                                       5
<PAGE>

Credit Agreement, the Loan Documents and other instruments, certificates and
documents as are required to be delivered by Guarantor to Agent under the Credit
Agreement.

4.       REPRESENTATIONS AND WARRANTIES.

                  To induce Lenders to make the Revolving Loans and incur Letter
of Credit Obligations under the Credit Agreement, Guarantor makes the following
representations and warranties to Agent and each Lender, each and all of which
shall survive the execution and delivery of this Guaranty:

         4.1      Corporate Existence; Compliance with Law. Guarantor (i) is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation; (ii) is duly qualified to do business and
is in good standing under the laws of each jurisdiction where its ownership or
lease of property or the conduct of its business requires such qualification
except where failure to be so qualified would not result in exposure to losses
or liabilities which could be expected to have a Material Adverse Effect; (iii)
has the requisite corporate power and authority and the legal right to own,
pledge and mortgage its properties; (iv) has all material licenses, permits,
consents or approvals from or by, and has made all material filings with, and
has given all material notices to, all Governmental Authorities having
jurisdiction, to the extent required for such ownership, operation and conduct;
(v) is in compliance with its charter and by-laws; and (vi) is in compliance
with all applicable provisions of law, except where the failure to comply,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.

         4.2      Executive Offices. Guarantor's jurisdiction of organization,
federal employee identification number, organizational identification number,
executive office and principal place of business are as set forth in Schedule II
to the Holdings Pledge Agreement.

         4.3      Corporate Power; Authorization; Enforceable Guaranteed
Obligations. The execution, delivery and performance of this Guaranty and all
other Loan Documents and all instruments and documents to be delivered by
Guarantor hereunder and under the Credit Agreement are within Guarantor's
corporate power, have been duly authorized by all necessary or proper corporate
action, including the consent of stockholders where required, are not in
contravention of any provision of Guarantor's charter or by-laws, do not violate
any law or regulation, or any order or decree of any Governmental Authority, do
not conflict with or result in the breach of, or constitute a default under, or
accelerate or permit the acceleration of any performance required by, any
material indenture, mortgage, deed of trust, lease, agreement or other material
instrument to which Guarantor is a party or by which Guarantor or any of its
property is bound, do not result in the creation or imposition of any Lien upon
any of the property of Guarantor, other than those in favor of Agent, for itself
and the benefit of Lenders, and the same do not require the consent or approval
of any Governmental Authority or any other Person except those referred to in
Section 2.1(c) of the Credit Agreement, all of which have been duly obtained,
made or complied with prior to the Closing Date. On or prior to the Closing
Date, this Guaranty and each of the Loan Documents to which Guarantor is a party
shall have been duly executed and delivered for the benefit of or on behalf of
Guarantor, and each shall then constitute a legal, valid and binding obligation
of Guarantor, enforceable against Guarantor in

                                       6
<PAGE>

accordance with its terms, subject to limitations resulting from bankruptcy,
reorganization, and other insolvency laws and general equitable principles.

5.       COVENANTS.

         5.1      Scope of Business. Guarantor agrees that it will not engage in
any business other than as a holding company for Borrower.

         5.2      Further Assurances. Guarantor agrees, upon the written request
of Agent or any Lender, to execute and deliver to Agent or such Lender, from
time to time, any additional instruments or documents reasonably considered
necessary by Agent or such Lender to cause this Guaranty to be, become or remain
valid and effective in accordance with its terms.

6.       PAYMENTS FREE AND CLEAR OF TAXES.

                  All payments required to be made by Guarantor hereunder shall
be made to Agent and Lenders free and clear of, and without deduction for, any
and all present and future Taxes. If Guarantor shall be required by law to
deduct any Taxes from or in respect of any sum payable hereunder, (a) the sum
payable shall be increased as much as shall be necessary so that after making
all required deductions (including deductions applicable to additional sums
payable under this Section 6) Agent or Lenders, as applicable, receive an amount
equal to the sum they would have received had no such deductions been made, (b)
Guarantor shall make such deductions, and (c) Guarantor shall pay the full
amount deducted to the relevant taxing or other authority in accordance with
applicable law. Within thirty (30) days after the date of any payment of Taxes,
Guarantor shall furnish to Agent the original or a certified copy of a receipt
evidencing payment thereof. Guarantor shall indemnify and, within ten (10) days
of demand therefor, pay Agent and each Lender for the full amount of Taxes
(including any Taxes imposed by any jurisdiction on amounts payable under this
Section 6) paid by Agent or such Lender, as appropriate, and any liability
(including penalties, interest and expenses) arising therefrom or with respect
thereto, whether or not such Taxes were correctly or legally asserted.

7.       OTHER TERMS.

         7.1      Entire Agreement. This Guaranty, together with the other Loan
Documents, constitutes the entire agreement between the parties with respect to
the subject matter hereof and supersedes all prior agreements relating to a
guaranty of the loans and advances under the Loan Documents and/or the
Guaranteed Obligations.

         7.2      Headings. The headings in this Guaranty are for convenience of
reference only and are not part of the substance of this Guaranty.

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

                                       7
<PAGE>

         7.4      Notices. Whenever it is provided herein that any notice,
demand, request, consent, approval, declaration or other communication shall or
may be given to or served upon any of the parties by any other party, or
whenever any of the parties desires to give or serve upon another any such
communication with respect to this Guaranty, each such notice, demand, request,
consent, approval, declaration or other communication shall be in writing and
shall be addressed to the party to be notified as follows:

                  (a)      General Electric Capital Corporation

                           1100 Abernathy Road, Suite 900
                           Atlanta, Georgia 30328
                           Attention: Avondale Mills, Inc. Account Manager
                           Telecopier No.: 678-320-8902
                           Telephone No.: 678-320-8900

                  (b)      If to Guarantor, at the address of Guarantor
         specified on Schedule 4.2 hereto.

or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration or other communication hereunder shall be deemed
to have been validly served, given or delivered (i) upon the earlier of actual
receipt and five (5) Business Days after the same shall have been deposited with
the United States mail, registered or certified mail, return receipt requested,
with proper postage prepaid, (ii) upon transmission, when sent by telecopy or
other similar facsimile transmission (with such telecopy or facsimile promptly
confirmed by delivery of a copy by personal delivery or United States mail as
otherwise provided in this Section 7.4), (iii) one (1) Business Day after
deposit with a reputable overnight carrier with all charges prepaid, or (iv)
when delivered, if hand-delivered by messenger.

         7.5      Successors and Assigns. This Guaranty and all obligations of
Guarantor hereunder shall be binding upon the successors and assigns of
Guarantor (including a debtor-in-possession on behalf of Guarantor) and shall,
together with the rights and remedies of Agent, for itself and for the benefit
of Lenders, hereunder, inure to the benefit of Agent and Lenders, all future
holders of any instrument evidencing any of the Obligations and their respective
successors and assigns. No sales of participations, other sales, assignments,
transfers or other dispositions of any agreement governing or instrument
evidencing the Obligations or any portion thereof or interest therein shall in
any manner affect the rights of Agent and Lenders hereunder. Guarantor may not
assign, sell, hypothecate or otherwise transfer any interest in or obligation
under this Guaranty.

         7.6      No Waiver; Cumulative Remedies; Amendments. Neither Agent nor
any Lender shall by any act, delay, omission or otherwise be deemed to have
waived any of its rights or remedies hereunder, and no waiver shall be valid
unless in writing, signed by Agent and then only to the extent therein set
forth. A waiver by Agent, for itself and the ratable benefit of Lenders, of any
right or remedy hereunder on any one occasion shall not be construed as a bar to
any right or remedy which Agent would otherwise have had on any future occasion.
No failure

                                       8
<PAGE>

to exercise nor any delay in exercising on the part of Agent or any Lender, any
right, power or privilege hereunder, shall operate as a waiver thereof, nor
shall any single or partial exercise of any right, power or privilege hereunder
preclude any other or future exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies hereunder provided are
cumulative and may be exercised singly or concurrently, and are not exclusive of
any rights and remedies provided by law. None of the terms or provisions of this
Guaranty may be waived, altered, modified, supplemented or amended except by an
instrument in writing, duly executed by Agent and Guarantor.

         7.7      Termination. This Guaranty is a continuing guaranty and shall
remain in full force and effect until the Termination Date. Upon payment and
performance in full of the Guaranteed Obligations, Agent shall deliver to
Guarantor such documents as Guarantor may reasonably request to evidence such
termination.

         7.8      Counterparts. This Guaranty may be executed in any number of
counterparts, each of which shall collectively and separately constitute one and
the same agreement.

7.9      GOVERNING LAW; CONSENT TO JURISDICTION AND VENUE.

                  EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE LOAN
DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE, THIS GUARANTY AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE
GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF GEORGIA APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, AND
ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. EACH GUARANTOR HEREBY
CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN FULTON COUNTY,
CITY OF ATLANTA, GEORGIA, SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND
DETERMINE ANY CLAIMS OR DISPUTES BETWEEN OR AMONG GUARANTOR, THE AGENT OR ANY
LENDER PERTAINING TO THIS GUARANTY OR TO ANY MATTER ARISING OUT OF OR RELATING
TO THIS GUARANTY OR ANY OF THE OTHER LOAN DOCUMENTS, PROVIDED, THAT THE AGENT
AND GUARANTOR ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE
HEARD BY A COURT LOCATED OUTSIDE OF FULTON COUNTY, AND, PROVIDED, FURTHER, THAT
NOTHING IN THIS GUARANTY SHALL BE DEEMED OR OPERATE TO PRECLUDE THE AGENT FROM
BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE
ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE GUARANTEED OBLIGATIONS, OR TO
ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF SUCH AGENT, FOR THE BENEFIT
OF THE AGENT AND THE LENDERS. GUARANTOR EXPRESSLY SUBMITS AND CONSENTS IN
ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT,
AND GUARANTOR HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF
PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY
CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY SUCH COURT. GUARANTOR 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, COMPLAINTS AND

                                       9
<PAGE>

OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO GUARANTOR
AT THE ADDRESS SET FORTH ON SCHEDULE 4.2 HERETO AND THAT SERVICE SO MADE SHALL
BE DEEMED COMPLETED UPON THE EARLIER OF ACTUAL RECEIPT THEREOF OR THREE (3) DAYS
AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID.

         7.10     WAIVER OF JURY TRIAL.

                  BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL
TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND
EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY
(RATHER THAN ARBITRATION RULES), GUARANTOR AND AGENT DESIRE THAT DISPUTES
ARISING HEREUNDER OR RELATING HERETO BE RESOLVED BY A JUDGE APPLYING SUCH
APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF
THE JUDICIAL SYSTEM AND OR ARBITRATION, GUARANTOR AND AGENT WAIVE ALL RIGHTS TO
TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE,
WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, ARISING OUT OF, CONNECTED
WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED IN CONNECTION
WITH THIS GUARANTY AND THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS RELATED
HERETO OR THERETO.

8.       SECURITY.

                  To secure payment of Guarantor's obligations under this
Guaranty, concurrently with the execution of this Guaranty, Guarantor has
entered into a Pledge Agreement pursuant to which Guarantor has pledged all of
the Stock of Borrower to Agent for the benefit of Lenders.

                  [remainder of page left intentionally blank]

                                       10
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Guaranty as of the date first above written.

                                     AVONDALE INCORPORATED, as Guarantor

                                     By:________________________________________
                                     Name:______________________________________
                                     Title:_____________________________________

                                     GENERAL ELECTRIC CAPITAL
                                     CORPORATION,  as Agent

                                     By:________________________________________
                                     Name:______________________________________
                                     Title:_____________________________________

                        Signature Page to Parent Guaranty

<PAGE>

                                  SCHEDULE 4.2
                                       to
                                    GUARANTY

I.       Guarantor's official name:         Avondale Incorporated

II.      Type of entity:                    Corporation

III.     Organizational identification number issued by Avondale Incorporated's
         state of incorporation or organization or a statement that no such
         number has been issued:

         [TO BE DETERMINED]

IV.      State or Incorporation or Organization of Avondale Incorporated:

         Georgia

V.       Chief Executive Office and principal place of business of Avondale
         Incorporated:

         [TO BE DETERMINED]

                                       12
<PAGE>

                                                                  EXECUTION COPY

                                MASTER AGREEMENT

                                       FOR

                          DOCUMENTARY LETTERS OF CREDIT

                              TERMS AND CONDITIONS

General Electric Capital Corporation
201 High Ridge Road
Stamford, CT 06927

                  The undersigned ("APPLICANT") will require, from time to time,
Documentary Letters of Credit. General Electric Capital Corporation ("GE
CAPITAL") will, upon Applicant's application therefor, and to the extent such
application is approved by GE Capital in its sole discretion, arrange for the
issuance of Credits (as defined herein) through GE Capital Trade Services,
Limited or another subsidiary of GE Capital appointed in accordance with Section
3(d) (the "ISSUER"), an indirect wholly-owned subsidiary of GE Capital. Each
Credit will be governed by and interpreted in accordance with the following
terms and conditions. Capitalized terms shall have the meanings accorded them in
Section 9, Definitions, below.

         1.       PAYMENT TERMS.

                  In addition to all commissions, charges, fees and expenses
payable in connection with Credits pursuant to the Credit Agreement (including,
without limitation the Letter of Credit Fee, as defined in the Credit
Agreement), but without duplication of any such amounts, Applicant agrees to pay
to GE Capital on demand, at GE Capital's office located at 201 High Ridge Road,
Stamford, Connecticut 06927 or at such other address or account as may be
designated in writing by GE Capital, in Dollars, in immediately available funds:
(i) each amount drawn under any Credit in Dollars or in the event that the
Credit permits Drafts under such Credit to be payable in a currency other than
Dollars, the Dollar Equivalent of each amount so drawn; (ii) interest on each
amount (or the Dollar Equivalent thereof) so drawn for each day from the date of
payment of the relevant Draft to and including the date of payment in full of
such amount by Applicant to GE Capital, at the rate specified in the Credit
Agreement; and (iii) any and all other customary commissions and charges of, and
any and all costs and expenses incurred by, GE Capital, Issuer and each of their
correspondents in relation to the Credits and all Drafts thereunder. A schedule
of such other customary commissions and charges is attached hereto as Annex I.

         2.       SECURITY INTEREST.

                  To secure the payment and performance of all Obligations
(including, without limitation, Letter of Credit Obligations), the Applicant
hereby grants to Agent a security interest in the Collateral, including, without
limitation, the unqualified right to the possession and disposal of all property
shipped under or in connection with each Credit, whether released to the
Applicant under security agreements or otherwise, and also in and to all
shipping documents, documents of title, or Drafts drawn under each Credit and in
and to all other property owned by

<PAGE>

the Applicant, in or coming into GE Capital's possession or custody, and in any
Covered Account, together with the proceeds of each and all of the foregoing,
until the Termination Date (subject to reinstatement as provided in the Loan
Documents); provided, however, that in the event of any conflict or
inconsistency between the foregoing and the provisions of any Loan Documents
(besides this Agreement), the provisions of such Loan Document shall be deemed
to govern and in control in all respects. The grant of a security interest in
the preceding sentence supplements, rather than limits or supersedes, any grant
of a security interest by Applicant in the Loan Documents. If Issuer honors any
presentation or demand and Applicant fails to reimburse GE Capital therefor in
accordance with the terms of the Credit Agreement, GE Capital and Issuer may
assert their rights of subrogation under applicable law, whether Issuer's honor
satisfies all or only part of the underlying obligation. The Applicant must, on
reasonable notice, cooperate with Issuer and GE Capital in their assertion of
the Applicant's rights against the Beneficiary, the Beneficiary's rights against
the Applicant, and any other rights that Issuer or GE Capital may have by
subrogation or assignment.

         3.       ADMINISTRATION OF CREDIT.

                  (a)      Applicant will promptly examine a copy of each Credit
(and any amendments thereof) sent to Applicant, as well as all other instruments
and documents delivered to Applicant from time to time in connection with such
Credit, and, in the event Applicant has any claim of non-compliance with the
instructions or of any discrepancy or other irregularity, Applicant will notify
GE Capital thereof in writing within two business days after its receipt of a
copy of such Credit (and any amendments thereof), and Applicant will
conclusively be deemed to have waived any such claim against GE Capital, Issuer
and their subcontractors, servicers and agents unless such notice is given as
aforesaid.

                  (b)      Neither Issuer, GE Capital nor any of their
correspondents shall be responsible for, and neither Issuer's and GE Capital's
powers and rights hereunder nor Applicant's Obligations shall be affected by:
(i) any act or omission pursuant to Applicant's instructions; (ii) any other act
or omission of Issuer, GE Capital or their subcontractors, servicers and agents
or their respective agents or employees other than any such arising from its or
their gross negligence or willful misconduct; (iii) the validity, accuracy or
genuineness of Drafts, documents or required statements, even if such Drafts,
documents or statements should in fact prove to be in any or all respects
invalid, inaccurate, fraudulent or forged (and notwithstanding that Applicant
shall have notified Issuer or GE Capital thereof); (iv) failure of any Draft to
bear any reference or adequate reference to the applicable Credit; (v) errors,
omissions, interruptions or delays in transmission of delivery of any messages
however sent and whether or not in code or otherwise; (vi) any act, default,
omission, insolvency or failure in business of any other person (including any
correspondent) or any consequences arising from causes beyond Issuer's or GE
Capital's control, other than any acts, defaults or omissions of GE Capital or
its subcontractors, agents, servicers, or employees of GE Capital constituting
gross negligence or willful misconduct; (vii) any acts or omissions of any
Beneficiary of any Credit or transferee of any Credit, if transferable; (viii)
any act or omission of GE Capital or Issuer required or permitted under any (1)
law or practice to which a Credit is subject, (2) applicable order, ruling or
decree of any court, arbitrator or governmental agency, or (3) published
statement or interpretation on a matter of law or practice; (ix) honor or other
recognition of a presentation or demand that includes forged or fraudulent
documents or that is otherwise affected by the fraudulent or illegal

                                       2
<PAGE>

conduct of the Beneficiary or other person (excluding GE Capital's and Issuer's
employees), or (x) dishonor of any presentation that does not strictly comply
with the terms of the applicable Credit or that is fraudulent, forged or
otherwise not entitled to be honored. Without limiting the generality of the
foregoing, Issuer may (1) act in reliance on any oral, telephone, telegraphic,
electronic, facsimile or written request, notice, or instruction believed in
good faith to be from or have been authorized by the Applicant, (2) receive,
accept or pay as complying with the terms of a Credit any Drafts or other
documents, otherwise in order, which are signed by or issued to any person or
entity acting as the representative of, or in the place of, the party in whose
name such Credit provides that any Drafts or other documents should be drawn or
issued and (3) waive its stipulation that the bank nominated in the applicable
Credit shall accept or pay the Drafts, and Issuer may then accept presentations
of Drafts and documents for payment directly.

                  (c)      Notwithstanding any waiver by Applicant of
discrepancies in Drafts, documents or required statements, GE Capital or Issuer,
either one acting alone, has the right in its reasonable judgement, to decline
to approve any discrepancies and to refuse payment on that basis under any
Credit issued hereunder. Such right is in addition to and not in limitation of
rights of Issuer under the UCP (as defined in paragraph 14(e) below).

                  (d)      GE Capital may appoint any of its other subsidiaries
as "Issuer" at any time and any such Issuer may assign all or any portion of its
rights under this Agreement or any Credit, including without limitation any
reimbursement obligation owing to it to any subsidiary of GE Capital, in each
case without prior notice to Applicant.

         4.       RESERVE REQUIREMENTS AND SIMILAR COSTS.

                  If Issuer is now or hereafter becomes subject to any law,
regulation, or other governmental requirement imposing any reserve, special
deposit or similar requirement against assets of, deposits with, or for the
account of, or credit extended by, Issuer, or any other condition is imposed
upon Issuer which imposes a cost upon Issuer, and the result, in the
determination of Issuer is to increase the cost to Issuer of maintaining a
Credit or paying or funding the payment of any Draft thereunder, or to reduce
the amount of any sum received or receivable, directly or indirectly, by Issuer
hereunder, Applicant will pay to Issuer upon demand such amounts required to
compensate Issuer for such increased cost or reduction. In making the
determinations contemplated hereunder, Issuer may make such estimates,
assumptions, allocations and the like which Issuer in good faith determines to
be appropriate, but Issuer's selection thereof, and Issuer's determinations
based thereon, shall be final and binding and conclusive upon Applicant.

         5.       POSSESSION OF PROPERTY BY APPLICANT.

                  If the Applicant receives possession of documents, goods or
other property, if any, covered by a Credit, and accepts and approves of such
documents, goods or other property, prior to Issuer's review of documents, then
all discrepancies and other irregularities of said documents shall be deemed
waived by the Applicant, and Issuer is authorized and directed to pay any Drafts
drawn or purporting to be drawn upon such Credit.

                                       3
<PAGE>

         6.       PARTIAL SHIPMENTS.

                  (a)      Except as otherwise expressly stated in any Credit
(i) partial shipments may be made under such Credit, and Issuer may honor the
relative Drafts without inquiry regardless of any apparent disproportion between
the quantity shipped and the amount of the relative Draft and the total amount
of such Credit and the total quantity to be shipped under such Credit, and (ii)
if such Credit specifies shipments in installments within stated periods and the
shipper fails to ship in any designated period, shipments of subsequent
installments may nevertheless be made in their respective designated periods and
Issuer may honor the relative Drafts.

         7.       EVENTS OF DEFAULT, REMEDIES; PRE-FUNDING.

                  (a)      If any Event of Default has occurred and is
continuing, other than an Event of Default specified in Sections 8.1(h) or
8.1(I) of the Credit Agreemen, Issuer may direct GE Capital in its capacity as
Agent under the Credit Agreement to pursue any of the remedies provided for in
the Loan Documents, including without limitation declaring that all of the
Obligations (including any such Obligations that may be contingent and not
matured) are immediately due and payable. If an Event of Default under Section
8.1(h) or Section 8.1(i) of the Credit Agreement has occurred, the Obligations
shall automatically be due and payable.

                  (b)      Without limiting the generality of the foregoing,
Applicant agrees that if: i) any Default or Event of Default shall have occurred
and be continuing; or ii) in the event that a Credit is denominated in a
currency other than Dollars, GE Capital determines that such currency is
unavailable or that the transactions contemplated by this Agreement are unlawful
or contrary to any regulations to which GE Capital, Issuer or any agent,
servicer or subcontractor of either of them may be subject or that due to
currency fluctuations the Dollar Equivalent of the amount of a Credit exceeds
the amount of Dollars that Issuer in its sole judgment expected to be its
maximum exposure under such Credit, then Applicant will upon demand pay to GE
Capital an amount equal to the undisbursed portion, if any, of such Credit (or
such greater amount as may be specified in the Credit Agreement), and such
amount shall be held as additional Collateral for the payment of all Letter of
Credit Obligations, and after the expiration hereof, to the extent not applied
to the Letter of Credit Obligations, shall be returned to Applicant (unless
otherwise provided in the Credit Agreement or any other Loan Document).

         8.       DEFINITIONS.

                  As used herein, the following terms shall have the following
meanings:

                  "AGENT" shall have the meaning given such term in the Credit
Agreement.

                  "AGREEMENT" shall mean, collectively, these terms and
conditions, each Application for Documentary Letter of Credit entered into
between GE Capital and/or Issuer and Applicant, as the same may be amended,
modified, supplemented or restated from time to time.

                  "APPLICANT" shall mean the person or entity executing this
Agreement as Applicant.

                                       4
<PAGE>

                  "BENEFICIARY" shall mean, as to any Credit, the beneficiary of
that Credit.

                  "COLLATERAL" shall have the meaning given to such term in the
Credit Agreement.

                  "COVERED ACCOUNT" shall have the meaning given to such term in
the Credit Agreement.

                  "CREDIT" shall mean a Documentary Letter of Credit issued by
Issuer upon Applicant's request of GE Capital, as the same may be amended and
supplemented from time to time, and any and all renewals, increases, extensions
and replacements thereof and therefor.

                  "CREDIT AGREEMENT" shall mean the Credit Agreement, dated as
of November 7, 2003 among the Applicant, the other credit parties signatory
thereto, the lenders signatory thereto from time to time and GE Capital as agent
and as lender, as such Credit Agreement may be amended, modified, supplemented
or restated from time to time.

                  "DEFAULT" shall have the meaning given such term in the Credit
Agreement.

                  "DOLLAR EQUIVALENT" shall mean: a) the number of Dollars that
is equivalent to an amount of a currency other than Dollars, determined by
applying the selling rate of First Union National Bank, First Union Bank
International or another bank of comparable size selected by Issuer; or b) in
the event that Issuer shall not at the time be offering such a rate, the amount
of Dollars that Issuer, in its sole judgment, specifies as sufficient to
reimburse or provide funds to Issuer in respect of amounts drawn or drawable
under a Credit; in either case as and when determined by Issuer.

                  "DOLLARS" shall mean lawful currency of the United States of
America.

                  "DRAFT" shall mean any Draft (sight or time), receipt,
acceptance, cable or other written demand for payment.

                  "EVENT OF DEFAULT" shall have the meaning given such term in
the Credit Agreement.

                  "GUARANTOR" shall have the meaning given such term in the
Credit Agreement.

                  "LETTER OF CREDIT OBLIGATIONS" shall have the meaning given
such term in the Credit Agreement.

                  "LOAN DOCUMENTS" shall have the meaning given such term in the
Credit Agreement.

                  "OBLIGATIONS" shall have the meaning given such term in the
Credit Agreement.

                  "TERMINATION DATE" shall have the meaning given such term in
the Credit Agreement.

                                       5
<PAGE>

         9.       EXPENSES; INDEMNIFICATION.

                  Applicant agrees to reimburse GE Capital and Issuer upon
demand for and to indemnify and hold GE Capital and Issuer harmless from and
against all claims, liabilities, losses, costs and expenses ("Indemnified
Liabilities") including attorneys' fees and disbursements, incurred or suffered
by GE Capital and/or Issuer in connection with any Credit. Such Indemnified
Liabilities shall include, but not be limited to, all such Indemnified
Liabilities incurred or suffered by GE Capital and/or Issuer in connection with
(a) GE Capital and/or Issuer's exercise of any right or remedy granted to it
hereunder or under the Loan Documents, (b) any claim and the prosecution or
defense thereof arising out of or in any way connected with this Agreement
including, without limitation, as a result of any act or omission by a
Beneficiary, (c) the collection or enforcement of the Obligations, and (d) any
of the events or circumstances referred to in paragraph 3(b) hereof, including
any defense by GE Capital in an action in which Applicant obtains an injunction
against presentation or honor of any Draft. None of GE Capital, Issuer or any
subcontractor, servicer or agent of either of them shall be liable to Applicant
for any special, indirect, consequential or punitive damages arising with
respect to any Credit. If Issuer honors a Draft or presentation under a Credit
and GE Capital reimburses Issuer therefor, and Applicant claims that it is not
obligated to reimburse GE Capital for such Draft, Applicant shall nonetheless
pay to GE Capital the amount paid by GE Capital, without prejudice to
Applicant's claims against GE Capital or Issuer to recover fees and costs paid
by Applicant with respect to the honored presentation plus any direct damages
resulting therefrom which Applicant is unable to avoid or reduce. Applicant must
in all instances mitigate damages claimed against Issuer or GE Capital or any
subcontractor, servicer or agent of either of them arising with respect to any
Credit. Notwithstanding the foregoing provisions of this paragraph 9, Applicant
shall not be obligated to indemnify or reimburse GE Capital or its
subcontractors, servicers or agents for any actions or omissions by them
constituting gross negligence or willful misconduct.

         10.      LICENSES; INSURANCE.

                  The Applicant shall procure or cause the Beneficiaries of each
Credit to procure promptly any necessary import and export or other licenses for
import or export or shipping of any goods referred to in or pursuant to such
Credit and to comply and to cause the Beneficiaries to comply with all foreign
and domestic governmental regulations in regard to the shipment and warehousing
of such goods or otherwise relating to or affecting such Credit, including
governmental regulations pertaining to transactions involving designated foreign
countries or their nationals, and to furnish such certificates in that respect
as GE Capital may at any time require, and to keep such goods adequately covered
by insurance in amounts, with carriers and for such risks as shall be
satisfactory to GE Capital, and to cause GE Capital's interest to be endorsed
thereon, and to furnish GE Capital on demand with evidence thereof. Should the
insurance upon said goods for any reason be unsatisfactory to GE Capital, GE
Capital may, at its expense, obtain insurance satisfactory to it.

         11.      NO WAIVERS OF RIGHTS HEREUNDER; RIGHTS CUMULATIVE.

                  No delay by GE Capital or Issuer in exercising any right
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any right preclude other or further exercises thereof or the
exercise of any other right. No waiver or amendment of any provision of

                                       6
<PAGE>

this Agreement shall be enforceable against GE Capital or Issuer unless in
writing and signed by an officer of GE Capital, and unless it expressly refers
to the provision affected, any such waiver shall be limited solely to the
specific event waived. All rights granted GE Capital or Issuer hereunder shall
be cumulative and shall be supplementary of and in addition to those granted or
available to GE Capital or Issuer under the Loan Documents or applicable law and
nothing herein shall be construed as limiting any such other right.

         12.      CONTINUING AGREEMENT; TERMINATION.

                  This Agreement shall continue in full force and effect until
the Termination Date (subject to reinstatement, as provided in the Loan
Documents).

         13.      PERFORMANCE STANDARDS.

                  Notwithstanding any provision to the contrary herein, GE
Capital reserves the right to decline (i) any request made by the Applicant for
the issuance of a Credit or (ii) any instruction provided by the Applicant if,
in its discretion, GE Capital determines that the issuance of such Credit or the
carrying out of such instruction contravenes GE Capital's customary procedures
or policy or any applicable law, rule or regulation.

         14.      GOVERNING LAW; JURISDICTION; CERTAIN WAIVERS.

                  (a)      This Agreement shall be governed by and interpreted
and enforced in accordance with the laws of the State of Georgia, and with
respect to all security interests granted in connection herewith, GE Capital and
Issuer shall have the rights and remedies of a secured party under applicable
law, including but not limited to the Uniform Commercial Code of Georgia.

                  (b)      APPLICANT AGREES THAT ALL ACTIONS AND PROCEEDINGS
RELATING DIRECTLY OR INDIRECTLY TO THIS AGREEMENT SHALL BE LITIGATED ONLY IN
COURTS LOCATED WITHIN THE STATE OF GEORGIA AND THAT SUCH COURTS ARE CONVENIENT
FORUMS THEREFOR, AND APPLICANT SUBMITS TO THE PERSONAL JURISDICTION OF SUCH
COURTS.

                  (c)      Applicant waives personal service of process upon it
and consents that any such service of process may be made by certified or
registered mail, return receipt requested, directed to Applicant at its address
last specified for notices hereunder, and service so made shall be deemed
completed two (2) days after the same shall have been so mailed.

                  (d)      APPLICANT WAIVES THE RIGHT TO A TRIAL BY JURY IN ANY
ACTION OR PROCEEDING BETWEEN IT AND GE CAPITAL OR ISSUER AND WAIVES THE RIGHT TO
ASSERT IN ANY ACTION OR PROCEEDING WITH REGARD TO THIS AGREEMENT OR ANY OF THE
OBLIGATIONS ANY OFFSETS OR COUNTERCLAIMS WHICH IT MAY HAVE.

                  (e)      Each Credit and this Agreement shall be subject to
the Uniform Customs and Practice for Documentary Credits (1993 Revision)
International Chamber of Commerce Publication No. 500, or the most recent
revision thereof (the "UCP"), the terms of which are

                                       7
<PAGE>

known to us, and the same shall be considered as incorporated herein. Solely for
purposes of interpreting the UCP's application to this Agreement and Credits
issued hereunder, Issuer shall be deemed to be a "bank" as such term is used in
the UCP.

         15.      NOTICES.

                  Any notice to GE Capital or Issuer shall be effective only if
in writing or by authenticated teletransmission acceptable to GE Capital or
Issuer, as applicable, directed to the attention of and received by GE Capital
or Issuer's Letter of Credit Group, as applicable. Any notice to or demand on
Applicant shall be binding on Applicants and shall be effective when made to
Applicant by mail, telegraph, facsimile, telephone or otherwise, in the case of
mailed, telegraphed or cabled notices, to the address appearing below
Applicant's signature or at such other address as may hereafter be specified in
a notice designated as a notice of change of address under this paragraph, and
in the case of telephonic or facsimile notices, to the telephone number of
Applicant appearing below Applicant's signature. Any requirements under
applicable law of reasonable notice by GE Capital or Issuer to Applicant of any
event shall be met if notice is given to Applicant, as the case may be, in the
manner prescribed above at least seven days before (a) the date of such event or
(b) the date after which such event will occur.

         16.      THIRD PARTY BENEFICIARY.

                  Applicant hereby acknowledges that Issuer is a third party
beneficiary under this Agreement and may enforce its rights under this Agreement
directly against the Applicant as if Issuer were named herein as a party.

         17.      GENERAL.

                  (a)      This Agreement shall be binding upon the heirs,
executors, administrators, assigns and successors Applicant and shall inure to
the benefit of and be enforceable by GE Capital, Issuer and their respective
successors, transferees and assigns.

                  (b)      Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof in that jurisdiction or affecting
the validity or enforceability of such provision in any other jurisdiction.

                  (c)      This Agreement shall be deemed to be a "Loan
Document" for all purposes under the Credit Agreement.

                  (d)      This Agreement may be executed in any number of
separate counterparts, each of which shall collectively and separately
constitute one agreement.

                  (e)      This Agreement may be executed in any number of
separate counterparts, each of which shall collectively and separately
constitute one agreement.

                                       8
<PAGE>

Date: November ___, 2003

NAME OF APPLICANT: AVONDALE MILLS, INC.

                                            GENERAL ELECTRIC CAPITAL
                                            CORPORATION

AVONDALE MILLS, INC.

By:________________________________         By:________________________________
    Name:__________________________             Name:__________________________
    Title:_________________________             Title:_________________________


Address of Applicant:

Avondale Mills, Inc.
506 South Broad Street
Monroe, Georgia 30655

Fax No.:___________________________

      Signature Page To Master Agreement for Documentary Letters Of Credit

<PAGE>

                                     ANNEX I

         The Applicant agrees to pay the following fees with respect to the
Credits:

1.       Upon issuance thereof, the greater of (a) 15bp of the amount of the
         Credit or (b) $150);

2.       Upon any amendment which increases the amount thereof, the greater of
         (c) 15bp of such increased amount or (d) $150;

3.       Upon any other amendment thereof, $150;

4.       Ipon the negotiation thereof, the greater of (e) 15bp of the amount or
         (f) $150

5.       Ocean / Air Releases: $150

6.       Cancellation: $150

7.       Cable Charges: $25

8.       Courier Charges $25.

With respect to any other activity related to such Credit, the standard fees and
charges of Issuer for such activity.

<PAGE>

                                                                  EXECUTION COPY

                                MASTER AGREEMENT

                                       FOR

                            STANDBY LETTERS OF CREDIT

                              TERMS AND CONDITIONS

General Electric Capital Corporation
201 High Ridge Road
Stamford, CT 06927

                  The undersigned ("APPLICANT") will require, from time to time,
Standby Letters of Credit. General Electric Capital Corporation ("GE CAPITAL")
will, upon Applicant's application therefor, and to the extent such application
is approved by GE Capital in its sole discretion, issue Standby Letters of
Credit or arrange for the issuance thereof through an indirect wholly-owned
subsidiary of GE Capital. Each Credit will be governed by and interpreted in
accordance with the following terms and conditions. Capitalized terms shall have
the meanings accorded them in Section 9, Definitions, below.

1. PAYMENT TERMS.

                  In addition to all commissions, charges, fees and expenses
payable in connection with Credits pursuant to the Credit Agreement (including,
without limitation the Letter of Credit Fee, as defined in the Credit
Agreement), but without duplication of any such amounts, Applicant agrees to pay
to GE Capital on demand, at GE Capital's office located at 201 High Ridge Road,
Stamford, Connecticut 06927 or at such other address or account as may be
designated in writing by GE Capital, in Dollars, in immediately available funds:
(i) each amount paid by GE Capital under any Credit (which payment is permitted
or required under this Agreement, ISP 98 or applicable law) in Dollars or in the
event that the Credit permits Drafts under such Credit to be payable in a
currency other than Dollars, the Dollar Equivalent of each amount so drawn; (ii)
interest on each amount (or the Dollar Equivalent thereof) so drawn for each day
from the date of payment of the relevant Draft to and including the date of
payment in full of such amount by Applicant to GE Capital, at the rate specified
in the Credit Agreement; and (iii) any and all other customary commissions and
charges of, and any and all costs and expenses incurred by, GE Capital and its
subcontractors or agents in relation to the Credits and all Drafts thereunder. A
schedule of such other customary commissions and charges is attached hereto as
Annex I. If a Credit provides for sight payment, reimbursement by Applicant is
due on the day on which GE Capital pays on the applicable Draft. All payments by
Applicant hereunder shall be made without withholding, deduction or set-off and
shall be made free and clear of taxes.

2. SECURITY INTEREST.

                  To secure the payment and performance of all Obligations
(including, without limitation, Letter of Credit Obligations), the Applicant
hereby grants to Agent a security interest in the following, including, without
limitation, the unqualified right to the possession and

<PAGE>

disposal of all property shipped under or in connection with each Credit,
whether released to the Applicant under security agreements or otherwise, and
also in and to all shipping documents, documents of title, or Drafts drawn under
each Credit and in and to all other property owned by the Applicant, in or
coming into GE Capital's possession or custody and in any Covered Account,
together with the proceeds of each and all of the foregoing, until the
Termination Date (subject to reinstatement as provided in the Loan Documents);
provided, however, that in the event of any conflict or inconsistency between
the foregoing and the provisions of any Loan Documents (besides this Agreement),
the provisions of such Loan Document shall be deemed to govern and control in
all respects. The grant of a security interest in the preceding sentence
supplements, rather than limits or supersedes, any grant of a security interest
by Applicant in the Loan Documents. If GE Capital honors any presentation,
demand or Draft and Applicant fails to reimburse GE Capital therefor in
accordance with the terms of the Credit Agreement, GE Capital may assert its
rights of subrogation under applicable law, whether GE Capital's honor satisfies
all or only part of the underlying obligation. The Applicant must, on reasonable
notice, cooperate with GE Capital in its assertion of the Applicant's rights
against the Beneficiary, the Beneficiary's rights against the Applicant, and any
other rights that GE Capital may have by subrogation or assignment. Such
cooperation shall include without limitation the prompt return of all Drafts,
documents, instruments and statements in Applicant's possession that were
presented by or on behalf of Beneficiary in connection with any draw under a
Credit.

3. ADMINISTRATION OF CREDIT.

         (a)      Applicant will promptly examine a copy of each Credit (and any
proposed amendments thereto) sent to Applicant, as well as all other instruments
and documents delivered to Applicant from time to time in connection with such
Credit, and, in the event Applicant has any claim of non-compliance with the
instructions or of any discrepancy or other irregularity or any objection to any
action taken or proposed to be taken by GE Capital with respect to any Credit,
Applicant will notify GE Capital thereof in writing within three business days
after its receipt of a copy of such Credit, any amendments thereto, or such
instruments or documents or notice of any such proposed action, and Applicant
will conclusively be deemed to have waived any such claim against GE Capital and
its subcontractors, servicers and agents or any defense to payment of GE
Capital, its subcontractors or agents, unless such notice is given as aforesaid.
This Section 3(a) is intended to substitute three business days for the "not
unreasonable time period" set forth in Rule 5.09 of ISP 98.

         (b)      Neither GE Capital nor any of its agents, subcontractors or
servicers shall be responsible for, and neither GE Capital's powers and rights
hereunder nor Applicant's obligations shall be affected by: (i) any act or
omission pursuant to Applicant's instructions; (ii) any other act or omission of
GE Capital or its subcontractors, servicers, agents or employees other than any
such arising from its or their gross negligence or willful misconduct; (iii) the
validity, accuracy or genuineness of Drafts, documents or required statements,
even if such Drafts, documents or statements should in fact prove to be in any
or all respects invalid, inaccurate, fraudulent or forged (and notwithstanding
that Applicant shall have notified GE Capital thereof); (iv) failure of any
Draft to bear any reference or adequate reference to the applicable Credit; (v)
errors, omissions, interruptions or delays in transmission of delivery of any
messages however sent and whether or not in code or otherwise; (vi) any act,
default, omission, insolvency or failure in business of any other person
(including any agent, subcontractor or

                                       2
<PAGE>

employee) or any consequences arising from causes beyond GE Capital's control,
other than any acts or omissions of GE Capital or its subcontractors, agents,
servicers, or employees of GE Capital constituting gross negligence or willful
misconduct; (vii) any acts or omissions of any Beneficiary of any Credit or
transferee of any Credit, if transferable; (viii) any act or omission of GE
Capital required or permitted under any (1) law or practice to which a Credit is
subject (including ISP 98), (2) applicable order, ruling or decree of any court,
arbitrator or governmental agency, (3) a published statement or interpretation
on a matter of law or practice (including ISP 98); (ix) honor or other
recognition of a presentation or demand that includes forged or fraudulent
documents or that is otherwise affected by the fraudulent, bad faith, or illegal
conduct of the Beneficiary or other person (excluding GE Capital's employees),
including payment to a person who forges the signature of a Beneficiary or the
signature of an assignee of a Credit's proceeds, (x) honor of a presentation
without regard to any nondocumentary condition(s) in the Credit, regardless of
whether Rule 4.11 of ISP 98 applies, or (xi) dishonor of any presentation that
does not strictly comply with the terms of the applicable Credit or that is
fraudulent, forged or otherwise not entitled to be honored. Without limiting the
generality of the foregoing, GE Capital may (1) act in reliance on any oral,
telephone, telegraphic, electronic, facsimile or written request, notice, or
instruction believed in good faith to be from or have been authorized by the
Applicant, (2) receive, accept or pay as complying with the terms of a Credit
any Drafts or other documents, otherwise in order, which are signed by or issued
to any person or entity acting as the representative of, or in the place of, the
party in whose name such Credit provides that any Drafts or other documents
should be drawn or issued and (3) waive its stipulation that the bank nominated
in the applicable Credit shall accept or pay the Drafts, and GE Capital may then
accept presentations of Drafts and documents for payment directly.

         (c)      Subject to GE Capital's obtaining any necessary consent from
the Beneficiary or other third party, GE Capital may for Applicant's account at
any time (i) treat a Credit as governed by the law of the place where GE Capital
or the Beneficiary is located, notwithstanding a choice of law provision in the
Credit, and, in case of conflict, treat the law as prevailing over practice in
such place or vice versa; (ii) shorten or lengthen the examination period; (iii)
specify or amend a specified place or manner of receiving a presentation,
effecting honor, or giving notice of dishonor; or (iv) discount an accepted
Draft or deferred obligation incurred under the Credit.

         (d)      Unless GE Capital is enjoined by a court of competent
jurisdiction, GE Capital may assume that any Beneficiary or other presenter acts
in good faith and that any presentation or other demand is nonfraudulent.

         (e)      Unless the Credit specifically permits and GE Capital
specifically agrees, GE Capital need not check the authenticity or authority of
any purported Beneficiary signature, even if in other transactions the
Beneficiary is a customer or its signature is otherwise known to GE Capital.

         (f)      Unless specifically committed to do so in a writing signed by
GE Capital, GE Capital need not consent to any amendment of a Credit. GE Capital
may, upon the occurrence and continuation of an Event of Default, send a notice
of non-extension to the Beneficiary under a Credit if it provides for automatic
extension. Except as may otherwise be expressly provided in the Credit, any
notice of dishonor given by GE Capital within six business

                                       3
<PAGE>

days after presentation of documents to GE Capital shall not be deemed to be
unreasonable. This Section 3(f) is intended to substitute six business days for
the three business days set forth in Rule 5.01a of ISP 98.

         (g)      Notwithstanding any waiver by Applicant of discrepancies in
Drafts, documents or required statements, GE Capital acting alone has the right
in its reasonable judgement, to decline to approve any discrepancies and to
refuse payment on that basis under any Credit issued hereunder.

         (h)      GE Capital may assign its rights and delegate its duties
hereunder to any subsidiary of GE Capital, in each case without prior notice to
Applicant; provided that such assignment and delegation does not diminish GE
Capital's obligations or Applicant's rights or increase Applicant's duties
hereunder.

         (i)      No Credit shall be issued hereunder providing for the
acceptance of time Drafts or the incurrence of deferred payment undertakings.

         (j)      Notwithstanding any provision herein contained to the
contrary, if Applicant approves the issuance of a Credit requiring payment of a
Draft on the same day on which such Draft is presented, GE Capital shall be
entitled to honor such Draft without review or examination by Applicant and
Applicant waives all defenses to reimbursement thereof based on irregularities
that may have been revealed by Applicant's review or examination.

4. LETTER OF CREDIT TEXT; EXTENSIONS.

Applicant is responsible for preparing or approving the text of each Credit as
issued by GE Capital and as received by the Beneficiary. GE Capital's
recommendation or drafting of text or GE Capital's use or non-use or refusal to
use text submitted by Applicant shall not affect Applicant's ultimate
responsibility for the final text and its receipt by the Beneficiary. Applicant
is responsible for the effect, or lack of effect under ISP 98, Rule 4.11 or
applicable law, of a provision in any Credit that requires GE Capital to verify
facts rather than examine documents or that fails to identify the documents to
which the provision applies.

                  Applicant is responsible for including suitable provisions in
the underlying agreement that permit Applicant to review the text of the Credit
as received by the Beneficiary and that describe the circumstances under which:
a drawing under the Credit may be made, Credit proceeds may be applied to the
underlying agreement, and part or all of those proceeds may be returned.
Applicant accepts the risk that the text of the Credit is consistent with the
underlying obligation, suitable for Applicant's purposes, and received by the
Beneficiary in time to permit the Beneficiary and Applicant to review the Credit
and to request any desired amendments.

5. RESERVE REQUIREMENTS AND SIMILAR COSTS.

                  If GE Capital is now or hereafter becomes subject to any law,
regulation, or other governmental requirement imposing any reserve, special
deposit or similar requirement against assets of, deposits with, or for the
account of, or credit extended by, GE Capital, or any other condition is imposed
upon GE Capital which imposes a cost upon GE Capital, and the result, in

                                       4
<PAGE>

the determination of GE Capital is to increase the cost to GE Capital of
maintaining a Credit or paying or funding the payment of any Draft thereunder,
or to reduce the amount of any sum received or receivable, directly or
indirectly, by GE Capital hereunder, Applicant will pay to GE Capital upon
demand such amounts required to compensate GE Capital for such increased cost or
reduction. In making the determinations contemplated hereunder, GE Capital may
make such estimates, assumptions, allocations and the like which GE Capital in
good faith determines to be appropriate, but GE Capital's selection thereof, and
GE Capital determinations based thereon, shall be final and binding and
conclusive upon Applicant.

6. POSSESSION OF PROPERTY BY APPLICANT.

                  If the Applicant receives possession of documents, goods or
other property, if any, covered by a Credit, and accepts and approves such
documents, goods or other property, prior to GE Capital's review of such
documents, then all discrepancies and other irregularities of said documents
shall be deemed waived by the Applicant, and GE Capital is authorized and
directed to pay any Drafts drawn or purporting to be drawn upon such Credit.

7. PARTIAL SHIPMENTS.

         (a)      Except as otherwise expressly stated in any Credit (i) partial
shipments may be made under such Credit, and GE Capital may honor the relative
Drafts without inquiry regardless of any apparent disproportion between the
quantity shipped and the amount of the relative Draft and the total amount of
such Credit and the total quantity to be shipped under such Credit, and (ii) if
such Credit specifies shipments in installments within stated periods and the
shipper fails to ship in any designated period, shipments of subsequent
installments may nevertheless be made in their respective designated periods and
GE Capital may honor the relative Drafts.

8. EVENTS OF DEFAULT, REMEDIES; PRE-FUNDING.

         (a)      If any Event of Default has occurred and is continuing, other
than an Event of Default specified in Sections 8.1(h) or 8.1(i) of the Credit
Agreement, GE Capital as issuer hereunder and in its capacity as Agent under the
Credit Agreement may pursue any of the remedies provided for in the Loan
Documents, including without limitation declaring that all of the Obligations
(including any such Obligations hereunder that may be contingent and not
matured) are immediately due and payable. If an Event of Default under Section
8.1(h) or Section 8.1(i) of the Credit Agreement has occurred, the Obligations
shall automatically be due and payable.

         (b)      Without limiting the generality of the foregoing, Applicant
agrees that if: i) any Default or Event of Default shall have occurred and be
continuing; or ii) in the event that a Credit is denominated in a currency other
than Dollars, GE Capital determines that such currency is unavailable or that
the transactions contemplated by this Agreement are unlawful or contrary to any
regulations to which GE Capital or any agent, servicer or subcontractor of GE
Capital may be subject or that due to currency fluctuations the Dollar
Equivalent of the amount of a Credit exceeds the amount of Dollars that GE
Capital in its sole judgment expected to be its maximum exposure under such
Credit, then Applicant will upon demand pay to GE Capital an amount equal to the
undisbursed portion, if any, of such Credit (or such greater amount as may

                                       5
<PAGE>

be specified in the Credit Agreement), and such amount shall be held as
additional Collateral for the payment of all Letter of Credit Obligations, and
after the expiration hereof, to the extent not applied to the Letter of Credit
Obligations, shall be returned to Applicant (unless otherwise provided in the
Credit Agreement or any other Loan Document).

9. DEFINITIONS.

                  As used herein, the following terms shall have the following
meanings:

                  "AGENT" shall have the meaning given such term in the Credit
Agreement.

                  "AGREEMENT" shall mean, collectively, this Agreement and each
Application for Standby Letter of Credit entered into between GE Capital and
Applicant, as the same may be amended, modified, supplemented or restated from
time to time.

                  "APPLICANT" shall mean the person or entity executing this
Agreement as Applicant.

                  "BENEFICIARY" shall mean, as to any Credit, the beneficiary of
that Credit.

                  "COLLATERAL" shall have the meaning given to such term in the
Credit Agreement.

                  "COVERED ACCOUNT" shall have the meaning given to such term in
the Credit Agreement.

                  "CREDIT" shall mean a Standby Letter of Credit issued by GE
Capital upon Applicant's request of GE Capital, as the same may be amended and
supplemented from time to time, and any and all renewals, increases, extensions
and replacements thereof and therefor.

                  "CREDIT AGREEMENT" shall mean the Credit Agreement, dated as
of November 7, 2003 among the Applicant, the other credit parties signatory
thereto, the lenders signatory thereto from time to time and GE Capital as agent
and as lender, as such Credit Agreement may be amended, modified, supplemented
or restated from time to time.

                  "DEFAULT" shall have the meaning given such term in the Credit
Agreement.

                  "DOLLAR EQUIVALENT" shall mean: a) the number of Dollars that
is equivalent to an amount of a currency other than Dollars, determined by
applying the selling rate of Wachovia Bank, National Association or another bank
of comparable size selected by GE Capital; or b) in the event that GE Capital
shall not at the time be offering such a rate, the amount of Dollars that GE
Capital, in its sole judgment, specifies as sufficient to reimburse or provide
funds to GE Capital in respect of amounts drawn or drawable under a Credit; in
either case as and when determined by GE Capital.

                  "DOLLARS" shall mean lawful currency of the United States of
America.

                  "DRAFT" shall mean any Draft (sight or time), receipt,
acceptance, cable or other written demand for payment.

                                       6
<PAGE>

                  "EVENT OF DEFAULT" shall have the meaning given such term in
the Credit Agreement.

                  "GUARANTOR" shall have the meaning given such term in the
Credit Agreement.

                  "LETTER OF CREDIT OBLIGATIONS" shall have the meaning given
such term in the Credit Agreement.

                  "LOAN DOCUMENTS" shall have the meaning given such term in the
Credit Agreement.

                  "OBLIGATIONS" shall have the meaning given such term in the
Credit Agreement.

                  "TERMINATION DATE" shall have the meaning given such term in
the Credit Agreement.

10. EXPENSES; INDEMNIFICATION.

                  Applicant agrees to reimburse GE Capital and its
subcontractors, servicers and agents upon demand for and to indemnify and hold
GE Capital harmless from and against all claims, liabilities, losses, costs and
expenses ("Indemnified Liabilities") including attorneys' fees and
disbursements, incurred or suffered by GE Capital and its subcontractors,
servicers and agents in connection with this Agreement or any Credit. Such
Indemnified Liabilities shall include, but not be limited to, all such
Indemnified Liabilities incurred or suffered by GE Capital and its
subcontractors, servicers and agents in connection with (a) GE Capital's
exercise of any right or remedy granted to it hereunder or under the Loan
Documents, (b) any claim and the prosecution or defense thereof arising out of
or in any way connected with this Agreement including, without limitation, as a
result of any act or omission by a Beneficiary, (c) the collection or
enforcement of the Obligations, and (d) any of the events or circumstances
referred to in paragraph 3(b) hereof, including any defense by GE Capital in an
action in which Applicant obtains an injunction against presentation or honor of
any Draft. None of GE Capital or any subcontractor, servicer or agent of GE
Capital shall be liable to Applicant for any special, indirect, consequential or
punitive damages arising with respect to any Credit. Applicant must in all
instances mitigate damages claimed against GE Capital or any subcontractor,
servicer or agent arising with respect to any Credit. If GE Capital honors a
Draft or presentation under a Credit for which Applicant claims it is not
obligated to reimburse GE Capital, Applicant shall nonetheless pay to GE Capital
the amount paid by GE Capital, without prejudice to Applicant's claims against
GE Capital to recover fees and costs paid by Applicant with respect to the
honored presentation plus any direct damages resulting therefrom which Applicant
is unable to avoid or reduce. Applicant's prevailing in an action based on
forgery or fraud of the Beneficiary or other presenter does not relieve
Applicant from its obligation to pay GE Capital's costs and expenses in
contesting the entry or maintenance of injunctive relief. Notwithstanding the
foregoing provisions of this paragraph 10, Applicant shall not be obligated to
indemnify or reimburse GE Capital or its subcontractors, servicers or agents for
any actions or omissions by them constituting gross negligence or willful
misconduct.

                                       7
<PAGE>

11. LICENSES; INSURANCE.

                  If any Credit assures payment for goods to be imported, the
Applicant shall procure or cause the Beneficiaries of each Credit to procure
promptly any necessary import and export or other licenses for import or export
or shipping of any goods referred to in or pursuant to such Credit and to comply
and to cause the Beneficiaries to comply with all foreign and domestic
governmental regulations in regard to the shipment and warehousing of such goods
or otherwise relating to or affecting such Credit, including governmental
regulations pertaining to transactions involving designated foreign countries or
their nationals, and to furnish such certificates in that respect as GE Capital
may at any time require, and to keep such goods adequately covered by insurance
in amounts, with carriers and for such risks as shall be satisfactory to GE
Capital, and to cause GE Capital's interest to be endorsed thereon, and to
furnish GE Capital on demand with evidence thereof. Should the insurance upon
said goods for any reason be unsatisfactory to GE Capital, GE Capital may, at
its expense, obtain insurance satisfactory to it.

12. NO WAIVERS OF RIGHTS HEREUNDER; RIGHTS CUMULATIVE.

                  No delay by GE Capital in exercising any right hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right preclude other or further exercises thereof or the exercise of any other
right. No waiver or amendment of any provision of this Agreement shall be
enforceable against GE Capital unless in writing and signed by an officer of GE
Capital, and unless it expressly refers to the provision affected, any such
waiver shall be limited solely to the specific event waived. All rights granted
GE Capital hereunder shall be cumulative and shall be supplementary of and in
addition to those granted or available to GE Capital under the Loan Documents or
applicable law and nothing herein shall be construed as limiting any such other
right.

13. CONTINUING AGREEMENT; TERMINATION.

                  This Agreement shall continue in full force and effect until
the Termination Date (subject to reinstatement, as provided in the Loan
Documents).

14. PERFORMANCE STANDARDS.

                  Notwithstanding any provision to the contrary herein, GE
Capital reserves the right to decline (i) any request made by the Applicant for
the issuance of a Credit or (ii) any instruction provided by the Applicant if,
in its discretion, GE Capital determines that the issuance of such Credit or the
carrying out of such instruction contravenes GE Capital's customary procedures
or policy, ISP 98 or any applicable law, rule or regulation.

15. GOVERNING LAW; JURISDICTION; CERTAIN WAIVERS.

         (a)      This Agreement shall be governed by and interpreted and
enforced in accordance with the laws of the State of Georgia, and with respect
to all security interests granted in connection herewith, GE Capital shall have
the rights and remedies of a secured party under applicable law, including but
not limited to the Uniform Commercial Code of Georgia. This Agreement
supplements the Loan Documents, including those provisions relating to Letter of

                                       8
<PAGE>

Credit Obligations and, except as expressly provided herein to the contrary,
this Agreement does not supersede the Loan Documents.

         (b)      APPLICANT AGREES THAT ALL ACTIONS AND PROCEEDINGS RELATING
DIRECTLY OR INDIRECTLY TO THIS AGREEMENT SHALL BE LITIGATED ONLY IN COURTS
LOCATED WITHIN THE STATE OF GEORGIA AND THAT SUCH COURTS ARE CONVENIENT FORUMS
THEREFOR, AND APPLICANT SUBMITS TO THE PERSONAL JURISDICTION OF SUCH COURTS.

         (c)      Applicant waives personal service of process upon it and
consents that any such service of process may be made by certified or registered
mail, return receipt requested, directed to Applicant at its address last
specified for notices hereunder, and service so made shall be deemed completed
two (2) days after the same shall have been so mailed.

         (d)      APPLICANT WAIVES THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR
PROCEEDING BETWEEN IT AND GE CAPITAL WAIVES THE RIGHT TO ASSERT IN ANY ACTION OR
PROCEEDING WITH REGARD TO THIS AGREEMENT OR ANY OF THE OBLIGATIONS ANY OFFSETS
OR COUNTERCLAIMS WHICH IT MAY HAVE.

         (e)      Each Credit and this Agreement shall be subject to the
International Standby Practices, International Chamber of Commerce Publication
No. 590 ("ISP 98") and the same are incorporated herein by reference. Applicant
is responsible for knowing applicable letter of credit law and practice,
including ISP 98. Solely for purposes of interpreting the ISP 98's application
to this Agreement and Credits issued hereunder, GE Capital shall be deemed to be
a "bank" as such term is used in ISP 98. To the extent permitted by applicable
law, this Agreement shall prevail in case of a conflict with applicable law or
ISP 98, and ISP 98 shall prevail in case of a conflict with applicable law.

16. NOTICES.

                  Any notice to GE Capital shall be effective only if in writing
or by authenticated teletransmission acceptable to GE Capital, as applicable,
directed to the attention of and received by GE Capital. Any notice to or demand
on Applicant shall be binding on Applicant and shall be effective when made to
Applicant by mail, telegraph, facsimile, telephone or otherwise, in the case of
mailed, telegraphed or cabled notices, to the address appearing below
Applicant's signature or at such other address as may hereafter be specified in
a notice designated as a notice of change of address under this paragraph, and
in the case of telephonic or facsimile notices, to the telephone number of
Applicant appearing below Applicant's signature. Any requirements under
applicable law of reasonable notice by GE Capital to Applicant of any event
shall be met if notice is given to Applicant, as the case may be, in the manner
prescribed above at least two days before (a) the date of such event or (b) the
date after which such event will occur.

17. APPLICANT STATUS.

                  The person identified in this Agreement as Applicant
represents and warrants, except as otherwise provided in this Agreement, that:

                                       9
<PAGE>

         (a)      it acts for itself and for no other person in requesting
issuance of each Credit for its account;

         (b)      it may be identified in each Credit as the "applicant,"
"account party" or "customer" at whose request and on whose instruction and for
those account the Credit is issued;

         (c)      it alone (acting through its officers) may authorize GE
Capital to issue, amend, pay, or otherwise act under any Credit; and

         (d)      it alone has standing to enforce this Agreement or otherwise
to assert the rights and remedies of an applicant, including without limitation,
to sue for any injunction against honor of any Credit.

18. GENERAL.

         (a)      This Agreement shall be binding upon the heirs, executors,
administrators, assigns and successors of the Applicant and shall inure to the
benefit of and be enforceable by GE Capital and its respective successors,
transferees and assigns.

         (b)      Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof in that jurisdiction or affecting the validity or
enforceability of such provision in any other jurisdiction.

         (c)      This Agreement shall be deemed to be a "Loan Document" for all
purposes under the Credit Agreement.

         (d)      This Agreement may be executed in any number of separate
counterparts, each of which shall collectively and separately constitute one
agreement.

                                       10
<PAGE>

Date: November ___, 2003

NAME OF APPLICANT: AVONDALE MILLS, INC.

                                           GENERAL ELECTRIC CAPITAL
                                           CORPORATION

AVONDALE MILLS, INC.

By:__________________________________      By:__________________________________
   Name:_____________________________         Name:_____________________________
   Title:____________________________         Title:____________________________


Address of Applicant:

Avondale Mills, Inc.
506 South Broad Street
Monroe, Georgia 30655

Fax No.:_____________________________

                                       11
<PAGE>

                                     ANNEX I

         The Applicant agrees to pay the following fees with respect to the
Credits:

I. ISSUANCE:

-Upon issuance thereof, [____________].

II AMENDMENT:

-Upon any amendment which increases the amount thereof, the [__________]


</TEXT>
</DOCUMENT>
