AVONDALE INC
EX-10.32 SALE AND CONTRIBUTION AGREEMENT
<DOCUMENT>
<TYPE>EX-10.32
<SEQUENCE>10
<FILENAME>g78896exv10w32.txt
<DESCRIPTION>EX-10.32 SALE AND CONTRIBUTION AGREEMENT
<TEXT>
<PAGE>
                                                                  EXHIBIT 10.32


                        SALE AND CONTRIBUTION AGREEMENT

                          Dated as of August 30, 2002

                                     among

                             AVONDALE MILLS, INC.,

                                 as Originator,

                             AVONDALE INCORPORATED,

                                   as Parent,

                                      and

                             AVONDALE FUNDING, LLC,

                                    as Buyer


<PAGE>


                               TABLE OF CONTENTS


<TABLE>
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                                                                                                                Page
                                                                                                                ----

<S>                                                                                                             <C>
ARTICLE I  DEFINITIONS AND INTERPRETATION.........................................................................2

     Section 1.01.  Definitions...................................................................................2
     Section 1.02.  Rules of Construction.........................................................................2

ARTICLE II  TRANSFERS OF RECEIVABLES..............................................................................3

     Section 2.01.  Agreement to Transfer.........................................................................3
     Section 2.02.  Grant of Security Interest....................................................................4

ARTICLE III  CONDITIONS PRECEDENT.................................................................................5

     Section 3.01.  Conditions to Initial Transfer................................................................5
     Section 3.02.  Conditions to all Transfers...................................................................6

ARTICLE IV  REPRESENTATIONS, WARRANTIES AND COVENANTS.............................................................6

     Section 4.01.  Representations and Warranties of the Originator and the Parent...............................6
     Section 4.02.  Affirmative Covenants of the Originator and the Parent.......................................13
     Section 4.03.  Negative Covenants of the Originator and the Parent..........................................20
     Section 4.04.  Breach of Representations, Warranties or Covenants...........................................23

ARTICLE V  INDEMNIFICATION.......................................................................................23

     Section 5.01.  Indemnification..............................................................................23

ARTICLE VI  PARENT GUARANTY......................................................................................25

     Section 6.01.  Guaranty of Performance of Guaranteed Obligations............................................25
     Section 6.02.  Parent's Further Agreements to Pay...........................................................26
     Section 6.03.  Waivers by Parent............................................................................26
     Section 6.04.  Unenforceability of Guaranteed Obligations Against the Originator or any Affiliated Servicer.27
     Section 6.05.  Subrogation; Subordination...................................................................28
     Section 6.06.  Termination of Performance Undertaking.......................................................28
     Section 6.07.  Effect of Bankruptcy.........................................................................29
     Section 6.08.  Setoff.......................................................................................29

ARTICLE VII  [RESERVED]..........................................................................................29


ARTICLE VIII  MISCELLANEOUS......................................................................................29
</TABLE>


                                       i
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<TABLE>
<S>                                                                                                              <C>
     Section 8.01.  Notices......................................................................................29
     Section 8.02.  No Waiver; Remedies..........................................................................30
     Section 8.03.  Successors and Assigns.......................................................................31
     Section 8.04.  Termination; Survival of Obligations.........................................................31
     Section 8.05.  Complete Agreement; Modification of Agreement................................................32
     Section 8.06.  Amendments and Waivers.......................................................................32
     Section 8.07.  GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL.................................32
     Section 8.08.  Counterparts.................................................................................34
     Section 8.09.  Severability.................................................................................34
     Section 8.10.  Section Titles...............................................................................34
     Section 8.11.  No Setoff....................................................................................34
     Section 8.12.  Confidentiality..............................................................................34
     Section 8.13.  Further Assurances...........................................................................35
     Section 8.14.  Fees and Expenses............................................................................36
</TABLE>


                              INDEX OF APPENDICES

Exhibit 2.01(a)            Form of Receivables Assignment
Exhibit 3.01(a)(i)         Form of Solvency Certificate
Exhibit 3.01(a)(ii)        Form of Originator Certificate (Closing)

Schedule  4.01(a)          Jurisdictions of Incorporation/Organization
Schedule  4.01(b)          Executive Offices; Collateral Locations, Corporate,
                           Legal or Other Names, Organizational Identification
                           Number/FEIN
Schedule  4.01(d)          Litigation
Schedule  4.01(h)          Ventures, Subsidiaries and Affiliates; Outstanding
                           Stock; Debt
Schedule  4.01(i)          Tax Matters
Schedule  4.01(m)          ERISA
Schedule  4.01(t)          Deposit and Disbursement Accounts
Schedule  4.02(g)          Corporate or Legal and Trade Names
Schedule  4.03(b)          Existing Liens

Annex X                    Definitions
Annex Y                    Schedule of Documents


                                      ii
<PAGE>
                  THIS SALE AND CONTRIBUTION AGREEMENT (as amended,
supplemented or otherwise modified and in effect from time to time, this
"Agreement") is entered into as of August 30, 2002, by and among AVONDALE
MILLS, INC., an Alabama corporation (the "Originator"), AVONDALE INCORPORATED,
a Georgia corporation (the "Guarantor") and AVONDALE FUNDING, LLC, a Delaware
limited liability company (the "Buyer").

                                    RECITALS

                  A.       The Originator owns all of the outstanding Stock of
Buyer.

                  B.       Buyer has been formed for the sole purpose of
purchasing, or otherwise acquiring by capital contribution, and reselling to
the Purchasers, all Receivables originated by the Originator.

                  C.       The Originator intends to sell, and Buyer intends to
purchase, such Receivables, from time to time, as described herein.

                  D.       In addition, the Originator may, from time to time,
contribute capital to Buyer in the form of Contributed Receivables or cash.

                  E.       The Parent is the parent of the Originator and as
such will receive direct and indirect economic benefits from the transfer of
the trade receivables described herein

                  F.       The Parent has agreed to guarantee certain
obligations of the Originator and the Servicer to the Seller and its successors
and assigns.

                                   AGREEMENT

                  NOW, THEREFORE, in consideration of the premises and the
mutual covenants hereinafter contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:

                                   ARTICLE I
                         DEFINITIONS AND INTERPRETATION

         Section 1.01.     Definitions. Capitalized terms used and not
otherwise defined herein shall have the meanings ascribed to them in Annex X.

         Section 1.02.     Rules of Construction. For purposes of this
Agreement, the rules of construction set forth in Annex X shall govern. All
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.


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<PAGE>
                                  ARTICLE II
                            TRANSFERS OF RECEIVABLES

         Section 2.01.     Agreement to Transfer.

         (a)      Receivables Transfers. Subject to the terms and conditions
hereof, the Originator agrees to sell or contribute to Buyer on the Closing
Date and on each Business Day thereafter until the Facility Termination Date
(each such date, a "Transfer Date") all Receivables owned by it on each such
Transfer Date, and Buyer agrees to purchase or acquire as a capital
contribution all such Receivables on each such Transfer Date (each such sale or
contribution and purchase, a "Transfer"). Each such Transfer shall collectively
be evidenced by a certificate of assignment substantially in the form of
Exhibit 2.01(a) (each, a "Receivables Assignment," and collectively, the
"Receivables Assignments"), and the Originator and Buyer shall execute and
deliver a Receivables Assignment on or before the Closing Date.

         (b)      Determination of Sold Receivables. On and as of each Transfer
Date, all Receivables owned by the Originator and not previously acquired by
Buyer shall be identified for sale to Buyer such that the Sale Price to be paid
by Buyer therefor does not exceed the amount of cash available to Buyer for the
payment thereof (each such Receivable identified for sale, individually, a
"Sold Receivable" and, collectively, the "Sold Receivables"). The Sold
Receivables will be identified by reference to the General Trial Balance of the
Originator.

         (c)      Payment of Purchase Price. In consideration for each Sale of
Sold Receivables hereunder, Buyer shall pay to the Originator on the Transfer
Date therefor the Sale Price therefor in Dollars in immediately available
funds. All such payments by Buyer under this Section 2.01(c) shall be effected
by means of a wire or intrabank transfer on the day when due to such account or
accounts as the Originator may designate.

         (d)      Determination of Contributed Receivables. To the extent that,
on and as of any Transfer Date, Receivables owned by the Originator which do
not constitute Sold Receivables pursuant to Section 2.01(b) then the Originator
shall, unless it has delivered an Election Notice (as defined below) to Buyer,
contribute such Receivables to Buyer as a capital contribution (each such
contributed Receivable, individually, a "Contributed Receivable," and
collectively, the "Contributed Receivables"). If the Originator elects not to
contribute Receivables to Buyer on any Transfer Date, or if any Receivables
eligible for sale and owned by the Originator are not sold on any Transfer
Date, the Originator shall deliver to Buyer not later than 5:00 p.m. (New York
time) on the Business Day immediately preceding such Transfer Date a notice of
election thereof (each such notice, an "Election Notice").

         (e)      Ownership of Transferred Receivables. On and after each
Transfer Date and after giving effect to the Transfers to be made on each such
date, Buyer shall own the Transferred Receivables and the Originator shall take
no action inconsistent with such ownership nor shall the Originator claim any
ownership interest in such Transferred Receivables.


                                      -3-
<PAGE>
         (f)      Reconstruction of General Trial Balance. If at any time the
Originator fails to generate its General Trial Balance, Buyer shall have the
right to reconstruct such General Trial Balance so that a determination of the
Sold Receivables can be made pursuant to Section 2.01(b). The Originator agrees
to cooperate with such reconstruction, including by delivery to Buyer, upon
Buyer's request, of copies of all Contracts and Records.

         (g)      Servicing of Receivables. So long as no Event of Servicer
Termination shall have occurred and be continuing and no Successor Servicer has
assumed the responsibilities and obligations of the Servicer pursuant to
Section 9.02 of the Purchase Agreement, the Servicer shall (i) conduct the
servicing, administration and collection of the Transferred Receivables and
shall take, or cause to be taken, all such actions as may be necessary or
advisable to service, administer and collect the Transferred Receivables, all
in accordance with (A) the terms of the Purchase Agreement, (B) customary and
prudent servicing procedures for trade receivables of a similar type and (C)
all applicable laws, rules and regulations, and (ii) hold all Contracts and
other documents and incidents relating to the Transferred Receivables in trust
for the benefit of Buyer, as the owner thereof, and for the sole purpose of
facilitating the servicing of the Transferred Receivables in accordance with
the terms of the Purchase Agreement.

         Section 2.02.     Grant of Security Interest. (a) Grant of Security
Interest. The parties hereto intend that each Transfer shall constitute a
purchase and sale or capital contribution, as applicable, and not a loan.
Notwithstanding the foregoing, in addition to and not in derogation of any
rights now or hereafter acquired by Buyer under Section 2.01 hereof, the
parties hereto intend that this Agreement shall constitute a security agreement
under applicable law and that the Originator shall be deemed to have granted,
and the Originator does hereby grant, to the Buyer a continuing security
interest in all of the Originator's right, title and interest in, to and under
the Transferred Receivables whether now owned or hereafter acquired by the
Originator to secure all of the obligations of the Originator to the Buyer
hereunder (including, if and to the extent that any Transfer is recharacterized
as a transfer for security, the repayment of a loan deemed to have been made by
the Buyer in the amount of the Sale Price with respect thereto and which
secures the Buyer's right to receive all Collections of the Transferred
Receivables as otherwise contemplated under this Agreement). Nothing contained
in this Section 2.02 shall limit the rights of the Buyer in and to any other
collateral that may have been or may hereafter be granted to Buyer by the
Originator or any third party pursuant to any other agreement or the rights of
Buyer under any of the Transferred Receivables.

         (b)      Delivery of Certificates and Instruments. All certificates or
instruments representing or evidencing any part of the Transferred Receivables
shall be delivered to and held by or on behalf of the Buyer (and its assigns)
and shall be in suitable form for transfer by delivery or shall be accompanied
by duly executed instruments of transfer or assignment in blank, all in form
and substance satisfactory to the Buyer (and its assigns). The Buyer (and its
assigns) shall have the right at any time (a) to exchange certificates or
instruments representing or evidencing the Transferred Receivables for
certificates or instruments of smaller or larger denominations and (b) to
transfer to or to register in the name of the Buyer (and its assigns) or its
nominee any or all of such certificates or instruments.


                                      -4-
<PAGE>
         (c)      Originator Remains Liable. It is expressly agreed by the
Originator that, anything herein to the contrary notwithstanding, the
Originator shall remain liable under any and all of the Receivables originated
by it and the Contracts therefor to observe and perform all the conditions and
obligations to be observed and performed by it thereunder. The Buyer shall not
have any obligation or liability under any such Receivables or Contracts by
reason of or arising out of this Agreement or the granting herein of a Lien
thereon or the receipt by the Buyer of any payment relating thereto pursuant
hereto. The Buyer shall not be required or obligated in any manner to perform
or fulfill any of the obligations of the Originator under or pursuant to any
such Receivable or 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 such Receivable or
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 that may have been
assigned to it or to which it may be entitled at any time or times.

                                  ARTICLE III
                              CONDITIONS PRECEDENT

         Section 3.01.     Conditions to Initial Transfer. The initial Transfer
hereunder shall be subject to satisfaction of each of the following conditions
precedent (any one or more of which may be waived in writing by each of Buyer
and the Administrative Agent):

         (a)      This Agreement; Information; Other Documents. This Agreement
or counterparts hereof shall have been duly executed by, and delivered to, the
Originator, the Parent and Buyer, and Buyer shall have received such documents,
instruments, information, agreements and legal opinions as Buyer shall request
in connection with the transactions contemplated by this Agreement, including
the documents, instruments, agreements and legal opinions and all those
identified in the Schedule of Documents, each in form and substance
satisfactory to Buyer.

         (b)      Governmental Approvals. Buyer shall have received (i)
satisfactory evidence that the Originator and the Parent 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 Related Documents and the consummation of the
transactions contemplated hereby and thereby or (ii) an Officer's Certificate
from the Originator and the Parent in form and substance satisfactory to Buyer
affirming that no such consents or approvals are required.

         (c)      Compliance with Laws. The Originator and the Parent shall be
in compliance with all applicable foreign, federal, state and local laws and
regulations, including, without limitation, those specifically referenced in
Section 4.02(f) except to the extent that failure to be in compliance, either
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.

         (d)      Payment and Fees and Taxes. The Originator and each
Subsidiary of the Originator shall have paid all fees required to be paid by it
on the Closing Date, including all fees, costs and expenses required hereunder
or required to be paid by it in connection with


                                      -5-
<PAGE>
closing the transactions contemplated hereunder and under the other Related
Documents. The Originator and each Subsidiary of the Originator shall have paid
all taxes, including without limitation any stamp duty, which may be imposed as
a result of the transaction contemplated by this Agreement and the Related
Documents.


         (e) Purchase Agreement Conditions. Each of those conditions precedent
set forth in Sections 3.01 and 3.02 of the Purchase Agreement shall have been
satisfied or waived in writing as provided therein.

         Section 3.02.     Conditions to all Transfers. Each Transfer hereunder
(including the initial Transfer) shall be subject to satisfaction of the
following further conditions precedent as of the Transfer Date therefor:

         (a)      the representations and warranties of the Originator and the
Parent contained herein or in any other Related Document (including, without
limitation, in its role as Servicer) shall be true and correct as of such
Transfer Date both before and after giving effect to such Transfer and to the
application of the Sale Price therefor, except to the extent that any such
representation or warranty expressly relates to an earlier date and except for
changes therein expressly permitted by this Agreement;

         (b)      no Termination Event shall have occurred and be continuing or
would result after giving effect to such Transfer or the application of the
Sale Price therefor;

         (c)      the Originator and the Parent shall be in compliance with
each of its covenants and other agreements set forth herein or in any Related
Agreement (including, without limitation, in its role as Servicer); and

         (d)      the Originator and the Parent shall have taken such other
action, including delivery of approvals, consents, opinions, documents and
instruments to Buyer as Buyer may reasonably request.

The acceptance by the Originator of the Sale Price for any Sold Receivables or
the contribution by the Originator of any Contributed Receivable on any
Transfer Date shall be deemed to constitute, as of any such Transfer Date, a
representation and warranty by the Originator and the Parent that the
conditions in this Section 3.02 have been satisfied. Upon any such acceptance,
title to the Transferred Receivables sold or contributed on such Transfer Date
shall be vested absolutely in Buyer, whether or not such conditions were in
fact so satisfied.

                                  ARTICLE IV
                   REPRESENTATIONS, WARRANTIES AND COVENANTS

         Section 4.01.     Representations and Warranties of the Originator and
the Parent. To induce Buyer to purchase the Sold Receivables and to acquire the
Contributed Receivables, the Originator and the Parent each makes the following
representations and warranties to Buyer as of


                                      -6-
<PAGE>
the Closing Date and as of each Transfer Date, each and all of which shall
survive the execution and delivery of this Agreement.

         (a)      Corporate Existence; Compliance with Law. Each of the
Originator and the Parent (i) is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation as set
forth on Schedule 4.01(a) attached hereto (which is such Person's only state of
organization); (ii) 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 is not reasonably likely to result in a Material
Adverse Effect; (iii) has the requisite corporate 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, in each case, as now, heretofore and proposed to be conducted; (iv)
has all licenses, permits, consents or approvals from or by, and has made all
filings with, and has given all notices to, all Governmental Authorities having
jurisdiction, to the extent required for such ownership, operation and conduct,
except where the failure to make such filings or obtain such licenses, permits,
consents or approvals is not reasonably likely to result in a Material Adverse
Effect; (v) is in compliance with its charter and bylaws; and (vi) subject to
specific representations set forth herein regarding ERISA, Environmental Laws,
tax laws 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. The
Originator is a wholly-owned subsidiary of the Parent.

         (b)      Executive Offices; Collateral Locations; Corporate; Legal or
Other Names; FEIN. As of the Closing Date, the current location of the
Originator's chief executive offices, sole jurisdiction of incorporation,
principal places of business, locations of inventory the sale of which has
given rise to Transferred Receivables, and the locations of all records
concerning the Transferred Receivables are set forth in Schedule 4.01(b) and
none of such locations have changed within the past 12 months. During the prior
five years, except as set forth in Schedule 4.01(b), the Originator has not
been known as or used any corporate, legal, fictitious or trade name. In
addition, Schedule 4.01(b) lists the organizational identification number
issued by the Originator's state of organization or states that no such number
has been issued and lists the federal employer identification number of the
Originator.

         (c)      Corporate Power, Authorization, Enforceable Obligations. The
execution, delivery and performance by the Originator and the Parent of this
Agreement and any other Related Documents to which it is a party and the
creation and perfection of all Transfers and Liens provided for herein and
therein: (i) are within such Person's corporate power; (ii) have been duly
authorized by all necessary or proper corporate and shareholder action; (iii)
do not contravene any provision of such Person's charter or bylaws; (iv) do not
violate any law or regulation, or any order or decree of any court or
Governmental Authority; (v) 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 indenture or any material
mortgage, deed of trust, lease, agreement or other instrument to which such
Person is a party or by which such Person or any of its property is bound; (vi)
do not result in the creation or imposition of any Adverse Claim upon any of
the property of such Person; and (vii) do not require the consent or


                                      -7-
<PAGE>
approval of any Governmental Authority or any other Person, except those which
will have been duly obtained, made or complied with prior to the Closing Date
as provided Section 3.01(b). The exercise by Buyer of any of its rights and
remedies under any Related Document to which it is a party, does not require
the consent or approval of any Governmental Authority or any other Person
(other than consents or approvals solely relating to or required to be obtained
by the Buyer, and subject to the Bankruptcy Code), except those which will have
been duly obtained, made or complied with prior to the Closing Date as provided
in Section 3.01(b). On or prior to the Closing Date, each of the Related
Documents to which such Person is a party shall have been duly executed and
delivered by the Originator and the Parent, as applicable, is a party thereto
and each such Related Document shall then constitute a legal, valid and binding
obligation of the Originator and the Parent, as applicable, enforceable against
it in accordance with its terms, except as such enforcement may be limited by
applicable bankruptcy, insolvency, moratorium or other similar laws of general
applicability affecting the enforcement of creditors' rights generally or by
principles of equity.

         (d)      No Litigation. No Litigation is now pending or, to the
knowledge of the Originator or the Parent, as applicable, threatened against
the Parent, the Originator (or any Subsidiary of the Parent or the Originator)
that (i) challenges the Originator's or the Parent's right or power to enter
into or perform any of its obligations under the Related Documents to which it
is a party, or the validity or enforceability of any Related Document or any
action taken thereunder, (ii) seeks to prevent the Transfer, Purchase,
contribution or pledge of any Receivable or the consummation of any of the
transactions contemplated under this Agreement or the other Related Documents
or (iii) has a reasonable risk of being determined adversely to the Parent or
the Originator (or any Subsidiary of the Parent or the Originator) and that, if
so determined, could reasonably be expected to have a Material Adverse Effect.
Except as set forth on Schedule 4.01(d), as of the Closing Date there is no
Litigation pending that seeks damages in excess of $1,000,000 or injunctive
relief against, or alleges criminal misconduct by, the Parent or the Originator
(or any Subsidiary of the Parent or the Originator).

         (e)      Solvency. Both before and after giving effect to (i) the
transactions contemplated by this Agreement and the other Related Documents and
(ii) the payment and accrual of all transaction costs in connection with the
foregoing, each of the Originator and the Parent is and will be Solvent. No
event of the type described in Section 9.01(c) of the Purchase Agreement has
been commenced or threatened against the Originator or the Parent.

         (f)      Material Adverse Effect. Except as otherwise disclosed in the
financial statements dated as of May 31, 2002, delivered to the Buyer and the
Administrative Agent, between August 31, 2001, and the Closing Date, (i)
neither the Originator nor the Parent has incurred any obligations, contingent
or non-contingent liabilities, liabilities for charges, long-term leases or
unusual forward or long-term commitments that, alone or in the aggregate, could
reasonably be expected to have a Material Adverse Effect, (ii) no contract,
lease or other agreement or instrument has been entered into by the Originator
or the Parent or has become binding upon the Originator's or the Parent's
assets and no law or regulation applicable to the Originator or the Parent has
been adopted that has had or could reasonably be expected to have a Material
Adverse Effect; and (iii) neither the Originator nor the Parent is in default
and no third party is in default under any material contract, lease or other
agreement or instrument to which


                                      -8-
<PAGE>
the Originator or the Parent is a party that alone or in the aggregate could
reasonably be expected to have a Material Adverse Effect. Except as otherwise
disclosed in the financial statements dated as of May 31, 2002, delivered to
the Buyer and the Administrative Agent, between August 31, 2001, and the
Closing Date no event has occurred that alone or together with other events
could reasonably be expected to have a Material Adverse Effect.

         (g)      Ownership of Receivables; Liens. The Originator owns each
Receivable originated or acquired by it free and clear of any Adverse Claim
(other than Permitted Originator Encumbrances) and, from and after each
Transfer Date, Buyer will acquire valid and properly perfected title to and the
sole record and beneficial ownership interest in each Transferred Receivable
purchased or otherwise acquired on such date, free and clear of any Adverse
Claim or restrictions on transferability. As of the Closing Date, none of the
Transferred Receivables is subject to any Adverse Claims other than Permitted
Originator Encumbrances, and there are no facts, circumstances or conditions
known to the Originator or the Parent that may result in any Adverse Claims
(including Adverse Claims arising under Environmental Laws) other than
Permitted Originator Encumbrances. The Originator has received all assignments,
bills of sale and other documents, and has duly effected all recordings,
filings and other actions necessary to establish, protect and perfect the
Originator's right, title and interest in and to the Receivables originated by
it or the Transferred Receivables attributable to it and its other properties
and assets. The Originator has rights in and the power to transfer the
Receivables. The Originator has rights in and the power to transfer each item
contained in the Transferred Receivables upon which it purports to grant a Lien
hereunder free and clear of any and all Liens other than Permitted Originator
Encumbrances. The Liens granted to Buyer pursuant to Section 2.02 will at all
times be fully perfected first priority Liens in and to the Transferred
Receivables, subject only to Permitted Originator Encumbrances.

         (h)      Ventures, Subsidiaries and Affiliates; Outstanding Stock.
Except as set forth in Schedule 4.01(h), as of the date hereof, neither the
Originator nor the Parent 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 the Originator is owned by the
Parent and all of the issued and outstanding Stock of the Buyer is owned by the
Originator. As of the date hereof, there are no outstanding rights to purchase,
options, warrants or similar rights or agreements pursuant to which the
Originator 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. As of the date hereof, all outstanding Debt of the Originator and
the Parent as of the Closing Date is described in Schedule 4.01(h).

         (i)      Taxes. All tax returns, reports and statements, including
information returns, required by any Governmental Authority to be filed by the
Originator and the Parent and each of its Affiliates included in the Parent
Group 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 (or any such fine,
penalty, interest, late charge or loss has been paid), excluding charges or
other amounts being contested in accordance with Section 4.02(l). Proper and
accurate amounts have been withheld by the Originator and the Parent and each
such Affiliate 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


                                      -9-
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been timely paid to the respective Governmental Authorities. Schedule 4.01(i)
sets forth as of the Closing Date (i) those taxable years for which the
Originator's, the Parent's or such Affiliates' tax returns are currently being
audited by the IRS or any other applicable Governmental Authority and (ii) any
assessments or threatened assessments in connection with such audit or
otherwise currently outstanding. Except as described on Schedule 4.01(i), none
of the Originator, the Parent and each such Affiliate 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. The Originator, the Parent and such
Affiliates and their respective predecessors are not liable for any charges:
(A) under any agreement (including any tax sharing agreements) or (B) to the
best of the Originator's and the Parent's knowledge, as a transferee. As of the
Closing Date, none of the Originator, the Parent and each such Affiliate has
agreed or been requested to make any adjustment under IRC Section 481(a), by
reason of a change in accounting method or otherwise, that would have a
Material Adverse Effect.

         (j)      Intellectual Property. As of the Closing Date, each of the
Originator and the Parent owns or has rights to use all intellectual property
necessary for the servicing and collection of the Receivables, without
infringement of or interference with any intellectual property of any other
Person.

         (k)      Full Disclosure. (i) All information contained in this
Agreement, any of the other Related Documents, or any written statement
furnished by or on behalf of the Originator or the Parent to Buyer, any
Purchaser or the Administrative Agent pursuant to the terms of this Agreement
or any of the other Related Documents is true and accurate in every material
respect as of the date prepared, and (ii) none of this Agreement, any of the
other Related Documents, or any written statement furnished by or on behalf of
the Originator or the Parent to Buyer, any Purchaser or the Administrative
Agent pursuant to the terms of this Agreement or any of the other Related
Documents (including any such statement furnished by the Originator in its
capacity as a Servicer or Sub-Servicer), is misleading as of the date prepared
as a result of the failure to include therein a material fact.

         (l)      Notices to Obligors. Each of the Originator and the Parent
has directed all Obligors of Transferred Receivables originated by it to remit
all payments with respect to such Receivables for deposit in a Lockbox or
Lockbox Account.


                                     -10-
<PAGE>
         (m)      ERISA.

                  (i)      The Originator (i) terminated its only Employee
         Pension Plan on or about October 31, 1986 pursuant to the termination
         provisions under Section 4041 of ERISA and received all necessary
         approvals for such termination and (ii) has distributed all vested
         benefits under such Employee Pension Plan, and the assets of such
         Employee Pension Plan so distributed exceeded the amount of such
         vested benefits. The Parent has no, and at no time in the past has had
         any, Employee Pension Plans. Neither the Originator nor the Parent is
         required pursuant to the terms of any applicable collective bargaining
         agreement to pay or accrue any contributions with respect to any plan
         which is a Multiemployer Plan and there has been no complete or
         partial withdrawal by the Originator or the Parent from any such
         Multiemployer Plan as provided by MPPAA.

                  (ii)     No non-exempt "prohibited transaction" within the
         meaning of Section 4975 of the IRC or Section 406 of ERISA has
         occurred with respect to any "employee benefit plan" as defined in
         Section 3 of ERISA, maintained by the Originator or the Parent and
         which has had or would be reasonably expected to have or cause a
         Material Adverse Effect.

         (n)      Brokers. No broker or finder acting on behalf of the
Originator or the Parent was employed or utilized in connection with this
Agreement or the other Related Documents or the transactions contemplated
hereby or thereby and neither the Originator nor the Parent has any obligation
to any Person in respect of any finder's or brokerage fees in connection
herewith or therewith.

         (o)      Margin Regulations. Neither the Originator nor the Parent 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 security" as such terms are defined in Regulations T, U
or X of the Federal Reserve Board as now and from time to time hereafter in
effect (such securities being referred to herein as "Margin Stock"). Neither
the Originator nor the Parent owns any Margin Stock, and no portion of the Sale
Price for any Sale hereunder will be used, directly or indirectly, for the
purpose of purchasing or carrying any Margin Stock, for the purpose of reducing
or retiring any Debt that was originally incurred to purchase or carry any
Margin Stock or for any other purpose that might cause any portion of such
proceeds to be considered a "purpose credit" within the meaning of Regulations
T, U or X of the Federal Reserve Board. Neither the Originator nor the Parent
will take or permit to be taken any action that might cause any Related
Document to violate any regulation of the Federal Reserve Board.

         (p)      Nonapplicability of Bulk Sales Laws. No transaction
contemplated by this Agreement or any of the other Related Documents requires
compliance with any bulk sales act or similar law.

         (q)      Securities Act and Investment Company Act Exemptions. Each
purchase of Transferred Receivables under this Agreement constitutes (i) a
"current transaction" within the meaning of Section 3(a)(3) of the Securities
Act and (ii) a purchase or other acquisition of notes,


                                     -11-
<PAGE>
drafts, acceptances, open accounts receivable or other obligations representing
part or all of the sales price of merchandise, insurance or services within the
meaning of Section 3(c)(5) of the Investment Company Act.

         (r)      Government Regulation. Neither the Originator nor the Parent
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. Neither the Originator nor the Parent 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 Debt or to perform its obligations hereunder or under any
other Related Document. The purchase or acquisition of the Transferred
Receivables by Buyer hereunder, the application of the Sale Price for the
foregoing and the consummation of the transactions contemplated by this
Agreement and the other Related Documents will not violate any provision of any
such statute or any rule, regulation or order issued by the Securities and
Exchange Commission.

         (s)      Books and Records; Minutes. Each of the Originator and the
Parent maintain (i) books and records of account and (ii) minutes of the
meetings and other proceedings of its Stockholders and board of directors.

         (t)      Deposit and Disbursement Accounts. Schedule 4.01(t) lists all
banks and other financial institutions at which the Originator and the Parent
maintains any deposit accounts established for the receipt of collections on
accounts receivable as of the Closing Date, including any Lockbox Accounts and
the Concentration Account (including a notation as to whether any such account
receives or has received collections of Excluded Receivables), 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, in each case as of
the Closing Date.

         (u)      Representations and Warranties in Other Related Documents.
Each of the representations and warranties of the Originator and the Parent
contained in the Related Documents (other than this Agreement) is true and
correct in all material respects and the Originator and the Parent hereby makes
each such representation and warranty to, and for the benefit of, the Buyer as
if the same were set forth in full herein, and Originator and the Parent
consents to the assignment of Buyer's rights with respect thereto to the
Purchasers and the Administrative Agent (and their successors and assigns) as
contemplated in Section 4.02(e).

         (v)      Receivables. With respect to each Transferred Receivable
designated as an Eligible Receivable in any Investment Base Certificate
delivered on or after the Transfer Date of such Transferred Receivable:

                  (i)      such Receivable satisfies the criteria for an
         Eligible Receivable;

                  (ii)     at the time of its Transfer to Buyer such Receivable
         was owned by the Originator thereof free and clear of any Adverse
         Claim (other than Permitted Originator


                                     -12-
<PAGE>
         Encumbrances), and the Originator had the full right, power and
         authority to sell, contribute, assign, transfer and pledge its
         interest therein as contemplated under this Agreement and the other
         Related Documents and, upon such Transfer, Buyer will acquire valid
         and properly perfected title to and the sole record and beneficial
         ownership interest in such Receivable, free and clear of any Adverse
         Claim and, following such Transfer, such Receivable will not be
         subject to any Adverse Claim as a result of any action or inaction on
         the part of the Originator; and

                  (iii)    the Transfer of each such Receivable pursuant to
         this Agreement and the Receivables Assignment executed by the
         Originator in respect thereof constitutes, as applicable, a valid
         sale, contribution, transfer, assignment, setover and conveyance to
         Buyer of all right, title and interest of the Originator in and to
         such Receivable.

The representations and warranties described in this Section 4.01 shall survive
the Transfer of the Transferred Receivables to Buyer, any subsequent assignment
of the Transferred Receivables by Buyer, and the termination of this Agreement
and the other Related Documents and shall continue until the indefeasible
payment in full of all Transferred Receivables; it being understood that any
representation and warranty with respect to a specific Receivable shall
continue only until the earlier of the date the Outstanding Balance of such
Receivable has been paid in full in cash or the date such Receivable has been
repurchased from the Buyer by the Originator pursuant to Section 4.04 hereof.

         Section 4.02.     Affirmative Covenants of the Originator and the
Parent. The Originator and the Parent each covenants and agrees that, unless
otherwise consented to by Buyer and the Administrative Agent, from and after
the Closing Date and until the Termination Date:

         (a)      Offices and Records. Each of the Originator and the Parent
shall maintain its principal place of business and chief executive office and
the office at which it keeps its Records at the respective locations specified
in Schedule 4.01(b) or, upon 30 days' prior written notice to Buyer and the
Administrative Agent, at such other location in a jurisdiction where all action
requested by Buyer, any Purchaser or the Administrative Agent pursuant to
Section 8.13 shall have been taken with respect to the Transferred Receivables.
The Originator shall at its own cost and expense, for not less than one year
from the date on which each Transferred Receivable was originated, or for such
longer period as may be required by law, maintain adequate Records with respect
to such Transferred Receivable, including records of all payments received,
credits granted and merchandise returned with respect thereto. Originator will,
(A) at all times from and after the date hereof, clearly and conspicuously mark
its computer and master data processing books and records relating to the
Transferred Receivables with a legend as described in Section 7.07(a) of the
Purchase Agreement describing the Buyer's interest in the Receivable, and (B)
segregate (from all other receivables then owned or being serviced by
Originator) all contracts relating to each Receivable,

         (b)      Access. Each of the Originator and the Parent shall, during
normal business hours, from time to time upon three Business Day's prior notice
and as frequently as Buyer or the Servicer determines to be appropriate: (i)
provide Buyer or the Servicer and any of their


                                     -13-
<PAGE>
respective officers, employees and agents access to its properties (including
properties utilized in connection with the collection, processing or servicing
of the Transferred Receivables), facilities, advisors and employees (including
officers), (ii) permit Buyer or the Servicer and any of their respective
officers, employees and agents, to inspect, audit and make extracts and copies
(including computer tapes and disks) from its books and records, including all
Records, (iii) permit Buyer, the Servicer or the Administrative Agent and their
respective officers, employees and agents, to inspect, review and evaluate the
Transferred Receivables, and (iv) permit Buyer or the Servicer and their
respective officers, employees and agents to discuss matters relating to the
Transferred Receivables or the Originator's and the Parent's performance under
this Agreement or the affairs, finances and accounts of the Originator and the
Parent with any of their respective officers, directors, employees,
representatives or agents (in each case, with those Persons designated by the
Originator or the Parent, as applicable, in a reasonable manner and having
knowledge of such matters) and, provided that the Originator or the Parent (as
applicable) has been afforded a reasonable opportunity to have its
representatives present, with its independent certified public accountants, in
each case, whether on or off the premises of the Originator and the Parent. If
(i) an Incipient Termination Event or a Termination Event shall have occurred
and be continuing or (ii) the Administrative Agent, in good faith, believes
that an Incipient Termination Event or a Termination Event is imminent or deems
that the payment or performance of the Purchasers' rights or interests in the
Transferred Receivables has been impaired, the Originator and the Parent shall
provide such access at all times and without advance notice. If a Termination
Event shall have occurred and be continuing, each of the Originator and the
Parent shall use reasonable efforts to respond to inquires by the Buyer, the
Servicer and the Administrative Agent regarding the Transferred Receivables and
related Obligors.

         (c)      Communication with Accountants. The Originator and the Parent
authorize the Buyer and the Servicer to communicate directly with their
independent certified public accountants provided that the Originator or the
Parent, as applicable, have been afforded a reasonable opportunity to have its
representatives present at such time, and authorizes and, at the Buyer's
request, shall instruct those accountants to disclose and make available to
Buyer and the Servicer any and all financial statements and other supporting
financial documents, schedules and information relating to the Originator and
the Parent (including copies of any issued management letters) with respect to
the business, financial condition and other affairs of the Originator and the
Parent. The Originator and the Parent agrees to render to Buyer and the
Servicer at the Originator's or the Parent's own cost and expense, such
clerical and other assistance as may be reasonably requested with regard to the
foregoing. If any Termination Event shall have occurred and be continuing, the
Originator and the Parent shall, promptly upon request therefor, assist Buyer
in delivering to its assigns Records reflecting activity through the close of
business on the Business Day immediately preceding the date of such request.

         (d)      Compliance With Credit and Collection Policies Transferred
Receivables and Contracts. The Originator shall comply in all material respects
with the Credit and Collection Policies applicable to each Transferred
Receivable and the Contracts therefor, and with the terms of such Receivables
and Contracts.


                                     -14-
<PAGE>
         (e)      Assignment. The Originator and the Parent each agrees that,
to the extent permitted under the Purchase Agreement, Buyer may assign all of
its right, title and interest in, to and under the Transferred Receivables and
this Agreement, including its right to exercise the remedies set forth in
Section 4.04. The Originator and the Parent each agrees that, upon any such
assignment, the assignee thereof may enforce directly, without joinder of
Buyer, all of the obligations of the Originator and the Parent hereunder,
including any obligations of the Originator and the Parent set forth in
Sections 4.02(o), 4.04, 5.01 and 8.14.

         (f)      Compliance with Agreements and Applicable Laws. The
Originator and the Parent shall perform each of its obligations under this
Agreement and the other Related Documents and comply with all federal, state
and local laws and regulations applicable to it and the Receivables, including
those relating to truth in lending, retail installment sales, fair credit
billing, fair credit reporting, equal credit opportunity, fair debt collection
practices, privacy, licensing, securities laws, margin regulations taxation,
ERISA and labor matters and Environmental Laws and Environmental Permits,
except to the extent that the failure to so comply, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
The Originator and the Parent shall (and shall cause each of its Subsidiaries
to) continue to pay all governmental fees and all taxes, including without
limitation any stamp duty, which may be imposed as a result of the transactions
contemplated by this Agreement and the Related Documents.

         (g)      Maintenance of Existence and Conduct of Business. The
Originator and the Parent shall: (i) 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; (ii) continue to conduct its business
in accordance with the terms of its certificate or articles of incorporation
and bylaws; and (iii) transact business only in such corporate and trade names
as are set forth in Schedule 4.02(g) or, upon 30 days' prior written notice to
Buyer, the Administrative Agent and each Rating Agency, in such other corporate
or trade names with respect to which all action requested by Buyer, any
Purchaser or the Administrative Agent pursuant to Section 8.13 shall have been
taken with respect to the Transferred Receivables. The Originator shall not
change the type of entity it is, its jurisdiction of incorporation or
organization, or its organizational number, if any, issued by its state of
incorporation or organization, except upon 30 days' prior written notice to
Buyer and the Administrative Agent, and with respect to which jurisdiction all
action requested by Buyer, any Purchaser or the Administrative Agent pursuant
to Section 8.13 shall have been taken with respect to the Transferred
Receivables.

         (h)      Notice of Material Event. The Originator and the Parent shall
(and shall cause each of its Subsidiaries to) promptly inform Buyer in writing
of the occurrence of any of the following, in each case setting forth the
details thereof and what action, if any, the Originator proposes to take with
respect thereto:

                  (i)      any Litigation commenced or threatened against the
         Parent or the Originator or with respect to or in connection with all
         or any portion of the Transferred Receivables that (A) seeks damages
         or penalties in an uninsured amount that would reasonably be expected
         to cause a Material Adverse Effect in any one instance, (B) seeks


                                     -15-
<PAGE>
         injunctive relief, (C) is instituted against any Plan, its fiduciaries
         or its assets or against the Originator or ERISA Affiliate in
         connection with any Plan, (D) alleges criminal misconduct by the
         Parent or the Originator, (E) alleges the violation of any law
         regarding, or seeks remedies in connection with, any Environmental
         Liability, (F) could, if determined adversely, have a Material Adverse
         Effect;

                  (ii)     the commencement of a case or proceeding by or
         against the Parent or the Originator or any such Subsidiary thereof
         seeking a decree or order in respect of the Parent, the Originator or
         any Subsidiary (A) under the Bankruptcy Code or any other applicable
         federal, state or foreign bankruptcy, liquidation, insolvency,
         moratorium, receivership or other similar law, (B) appointing a
         custodian, receiver, liquidator, assignee, trustee or sequestrator (or
         similar official) for the Parent, the Originator or any such
         Subsidiary or for any substantial part of such Person's assets, or (C)
         ordering the winding-up or liquidation of the affairs of the Parent,
         the Originator or any such Subsidiary;

                  (iii)    the receipt of notice that (A) the Parent, the
         Originator or any such Subsidiary thereof is being placed under
         regulatory supervision as a result of any violation of any law or
         regulation, (B) any license, permit, charter, registration or approval
         necessary for the conduct of the Parent's, the Originator's or any
         such Subsidiary; business is to be, or may be, suspended or revoked,
         (C) the Parent, the Originator or any such Subsidiary has received a
         material notice relating to ERISA, Environmental Laws or Environmental
         Permits or (D) or the Parent, the Originator or any such Subsidiary is
         to cease and desist any practice, procedure or policy employed by such
         Person in the conduct of its business if such cessation may have a
         Material Adverse Effect;

                  (iv)     (A) any Adverse Claim made or asserted against any
         of the Transferred Receivables of which it becomes aware or (B) any
         determination that a Transferred Receivable designated as an Eligible
         Receivable in an Investment Base Certificate or otherwise was not an
         Eligible Receivable at the time of such designation unless the
         Outstanding Balance has previously been paid in full in cash or the
         Originator has repurchased such Receivable pursuant to Section 4.04
         hereof;

                  (v)      (A) each infringement or claim of infringement by
         any other Person of any intellectual property of the Parent, the
         Originator or any Subsidiary thereof necessary for the servicing and
         collection of the Receivables and (B) each item of intellectual
         property necessary for the servicing and collection of the Receivables
         by the Parent, the Originator or any Subsidiary thereof which it does
         not own or have rights to use;

                  (vi)     the execution or filing with the IRS or any other
         Government Authority of any agreement or other document extending, or
         having the effect of extending, the period for assessment or
         collection of any taxes, assessments or other charges which if not
         paid would reasonably be expected to cause a Material Adverse Effect;


                                     -16-
<PAGE>
                  (vii)    the establishment of any Plan, Pension Plan, Title
         IV Plan, Multiemployer Plan, ESOP, Welfare Plan or Retiree Welfare
         Plan not listed on Schedule 4.01(m);

                  (viii)   (A) the occurrence of any "Event of Default" (as
         defined in the Credit Facility), (B) the termination of the Credit
         Facility or any event that has caused the Credit Facility to cease to
         be in full force and effect, (C) the occurrence of any "Event of
         Default" (as defined in the Indenture), or (D) the termination of the
         Indenture or any event that has caused the Indenture to cease to be in
         full force and effect; or

                  (ix)     any other event, circumstance or condition that has
         had or could reasonably be expected to have a Material Adverse Effect.

         (i)      Use of Proceeds. The Originator shall utilize the proceeds of
the Sale Price obtained by it for each Sale made by it hereunder solely for
general corporate purposes and to pay any related expenses payable by the
Originator under this Agreement and the other Related Documents in connection
with the transactions contemplated hereby and thereby.

         (j)      Separate Identity.

                  (i)      The Originator and the Parent shall, and shall cause
         each of its Affiliates included in the Parent Group to, maintain
         corporate records and books of account separate from those of Buyer.

                  (ii)     The financial statements of the Originator and the
         Parent and its consolidated Subsidiaries shall disclose the effects of
         the Originator's and the Parent's transactions in accordance with GAAP
         and, in addition, disclose that (A) Buyer's sole business consists of
         the purchase or acceptance through capital contribution of the
         Receivables from the Originator and the subsequent resale of such
         Receivables to the Purchasers, (B) Buyer is a separate legal entity
         with its own separate creditors who will be entitled, upon its
         liquidation, to be satisfied out of Buyer's assets prior to any value
         in Buyer becoming available to Buyer's equity holders and (C) the
         assets of Buyer are not available to pay creditors of the Originator
         or the Parent or any other Affiliate of the Originator or the Parent.

                  (iii)    The resolutions, agreements and other instruments
         underlying the transactions described in this Agreement shall be
         continuously maintained by the Originator and the Parent as official
         records.

                  (iv)     The Originator and the Parent shall, and shall cause
         each Affiliate included in the Parent Group to, maintain an
         arm's-length relationship with Buyer and shall not hold itself out as
         being liable for the Debts of Buyer.

                  (v)      The Originator and the Parent shall, and shall cause
         each the Parent Group to, keep its assets and its liabilities wholly
         separate from those of Buyer.


                                     -17-
<PAGE>
                  (vi)     The Originator and the Parent shall, and shall cause
         each Affiliate included in the Parent Group to, conduct its business
         solely in its own name through its duly Authorized Officers or agents
         and in a manner designed not to mislead third parties as to the
         separate identity of the Buyer.

                  (vii)    Neither the Originator nor the Parent shall, and
         shall cause each Affiliate included in the Parent Group not to,
         mislead third parties by conducting or appearing to conduct business
         on behalf of Buyer or expressly or implicitly representing or
         suggesting that the Originator or the Parent or such Affiliate is
         liable or responsible for the Debts of Buyer or that the assets of the
         Originator or the Parent or such Affiliate are available to pay the
         creditors of Buyer.

                  (viii)   The Originator and the Parent shall cause operating
         expenses and liabilities of Buyer to be paid from Buyer's own assets
         and not from the assets of the Originator or the Parent.

                  (ix)     The Originator and the Parent shall at all times
         have, and cause each Affiliate included in the Parent Group (other
         than Buyer) at all times to have, stationery and other business forms
         and a telephone number (to the extent that any such entity uses
         stationery, business forms or telephone numbers) separate from those
         of Buyer.

                  (x)      The Originator and the Parent shall, and shall cause
         each Affiliate included in the Parent Group to, at all times limit its
         transactions with Buyer only to those permitted hereunder or under any
         other Related Document.

                  (xi)     The Originator and the Parent shall, and cause each
         Affiliate included in the Parent Group to, comply with (and cause to
         be true and correct) each of the facts and assumptions contained in
         the opinion of King & Spalding delivered pursuant to the Schedule of
         Documents.

         (k)      ERISA. The Originator and the Parent shall give Buyer and the
Administrative Agent prompt written notice of any event that could result in
the imposition of a Lien under Section 412 of the IRC or Section 302 or 4068 of
ERISA.

         (l)      Payment, Performance and Discharge of Obligations.

                  (i)      Subject to Section 4.02(l)(ii), the Originator and
         the Parent shall, and shall cause each of its Subsidiaries, to pay,
         perform and discharge or cause to be paid, performed and discharged
         all of its obligations and liabilities, including all taxes,
         assessments and governmental charges upon its income and properties
         and all lawful claims for labor, materials, supplies and services,
         which if not paid would reasonably be expected to have a Material
         Adverse Effect, promptly when due.

                  (ii)     The Originator or the Parent may in good faith
         contest, by appropriate proceedings, the validity or amount of any
         charges or claims described in


                                     -18-
<PAGE>
         Section 4.02(l)(i); provided, that (A) adequate reserves with respect
         to such contest are maintained on the books of the Originator or the
         Parent and such Subsidiary, as applicable, in accordance with GAAP,
         (B) such contest is maintained and prosecuted continuously and with
         diligence, (C) none of the Transferred Receivables may become subject
         to forfeiture or loss as a result of such contest, (D) no Lien may be
         imposed to secure payment of such charges or claims other than
         inchoate tax liens and (E) Buyer has affirmatively advised the
         Originator and the Parent in writing that Buyer reasonably believes
         that nonpayment or nondischarge thereof could not reasonably be
         expected to have or result in a Material Adverse Effect.

         (m)      Deposit of Collections. The Originator and the Parent shall
(and shall cause each of its Subsidiaries to) instruct all Obligors to remit
all payments with respect to any Transferred Receivables directly into a
Lockbox Account and shall deposit and cause its Subsidiaries to deposit or
cause to be deposited promptly into a Lockbox Account, and in any event no
later than the first Business Day after receipt thereof, all Collections it may
receive in respect of Transferred Receivables, and until so deposited all such
items or other proceeds shall be held in trust, as trustee, for the benefit of
the Buyer and its assigns (including the Administrative Agent and the
Purchasers).

         (n)      Accounting Changes. If any Accounting Changes occur and such
changes result in a change in the standards or terms used herein, then the
parties hereto agree to enter into negotiations in order to amend such
provisions so as to equitably reflect such Accounting Changes with the desired
result that the criteria for evaluating the financial condition of such Persons
and their Subsidiaries shall be the same after such Accounting Changes as if
such Accounting Changes had not been made; it being understood that the
obligations of the Buyer hereunder shall not terminate solely as a result of
any such Accounting Change. If the parties hereto agree upon the required
amendments to this Agreement, then after appropriate amendments have been
executed and the underlying Accounting Change with respect thereto has been
implemented, any reference to GAAP contained herein 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 such parties cannot
agree upon the required amendments within 30 days following the date of
implementation of any Accounting Change, then all financial statements
delivered and all standards and terms used herein shall be prepared, delivered
and used without regard to the underlying Accounting Change.

         (o)      Adjustments to Sale Price. If on any day the Billed Amount of
any Transferred Receivable is reduced as a result of any Dilution Factors, and
the amount of such reduction exceeds the amount, if any, of Dilution Factors
taken into account in the calculation of the Sale Price for such Transferred
Receivable, the Originator shall make a cash payment to Buyer in the amount of
such excess by remitting such amount to the Collection Account in accordance
with the terms of the Purchase Agreement.

         (p)      Books and Records. The Originator and the Parent shall each
cause its books and Records to be marked as to clearly distinguish Excluded
Receivables from Transferred Receivables.


                                     -19-
<PAGE>
         (q)      Parent Financial Covenants. The Parent shall comply with all
of the financial covenants set forth in Annex G to the Purchase Agreement.

         (r)      Reports and Records regarding Transferred Receivables and
Reconveyed Receivables. The Originator and the Parent each hereby agrees that,
from and after the Closing Date until the Termination Date, it shall prepare
and deliver all reports, statements and records required to be delivered by it
hereunder or under any other Related Document so as to clearly distinguish (i)
Excluded Receivables from Transferred Receivables and (ii) Transferred
Receivables that are subsequently reconveyed to the Originator pursuant to
Section 4.04 hereof from Transferred Receivables that are not so reconveyed.

         (s)      Collections and Proceeds of Transferred Receivables. The
Originator and the Parent shall instruct all Obligors of Transferred
Receivables that are reconveyed to it pursuant to Section 4.04 hereof to remit
payments on such Receivables to deposit accounts other than the Lockboxes,
Lockbox Accounts and the Concentration Account.

         (t)      Credit Facility Refinancing Information. Not later than (but
no more than fifteen days prior to) the dates that are 6 months, 3 months and 1
month prior to the then current expiration date of the Credit Facility, the
Originator shall provide information reports to the Buyer (in each case in form
and substance reasonably satisfactory to the Buyer and its assigns) detailing
the Originator's plans to refinance the then existing Credit Facility.

         (u)      Reporting Requirements of the Parent. The Parent shall
deliver or cause to be delivered to the Buyer and to Buyer's assignee, the
Administrative Agent, for distribution to the Purchasers, the financial
statements, notices and other information at the times, to the Persons and in
the manner set forth in Annex 5.02(a) to the Purchase Agreement (with each
reference therein to the Seller being read as a reference to the Parent).

         (v)      Securities and Exchange Commission Reporting. The Originator
and the Parent hereby agree to make public disclosures regarding the Transfers
hereunder in connection with applicable Securities and Exchange Commission
reporting requirements.

         (w)      Servicing Software. The Originator shall use its best efforts
to obtain written authorization of the licensor of the Servicing Software to
grant the Buyer (and its assigns) the right to use such Servicing Software for
purposes of obtaining information about and servicing the Transferred
Receivables by the date that is 90 days after the Closing Date.

         Section 4.03.     Negative Covenants of the Originator and the Parent.
The Originator and the Parent each covenants and agrees that, without the prior
written consent of Buyer and the Administrative Agent, from and after the
Closing Date and until the Termination Date:

         (a)      Sale of Stock and Assets. Neither the Originator nor the
Parent shall sell, transfer, convey, assign (by operation of law or otherwise)
or otherwise dispose of, or assign any right to receive income in respect of
any Transferred Receivable or Contract therefor, any of its rights with respect
to any Lockbox or Lockbox Account.


                                     -20-
<PAGE>
         (b)      Liens. Neither the Originator nor the Parent shall create,
incur, assume or permit to exist any Adverse Claim on or with respect to its
Receivables (whether now owned or hereafter acquired) except for the Liens set
forth in Schedule 4.03(b) and other Permitted Originator Encumbrances.

         (c)      Modifications of Receivables, Contracts or Credit and
Collection Policy. Neither the Originator nor the Parent shall extend, amend,
forgive, discharge, compromise, cancel or otherwise modify the terms of any
Transferred Receivable, or amend, modify or waive any term or condition of any
Contract therefor; provided, that as long as no Incipient Termination Event or
Termination Event has occurred and is continuing, the Originator acting as
Servicer, in its capacity as a Servicer, may take such of the foregoing actions
to the extent that they are expressly permitted by the terms of the Purchase
Agreement.

         (d)      Sale Characterization. Neither the Originator nor the Parent
shall make statements or disclosures or prepare any financial statements for
any purpose, including for federal income tax, reporting or accounting
purposes, that shall account for the transactions contemplated by this
Agreement in any manner other than (i) with respect to the Sale of each
Receivable originated by it, as a true sale or absolute assignment of its full
right, title and ownership interest in such Receivable and (ii) with respect to
the Transfer of each Contributed Receivable under this Agreement, as a
contribution to the capital of Buyer.

         (e)      Capital Structure and Business. Neither the Originator nor
the Parent shall and shall not permit its Subsidiaries to (i) make any changes
in any of its business objectives, purposes or operations that could have or
result in a Material Adverse Effect or (ii) amend, supplement or otherwise
modify its certificate or articles of incorporation or bylaws in a manner that
could have or result in a Material Adverse Effect. The Originator shall not
change its jurisdiction of incorporation or reincorporate itself except as
permitted by Section 4.02(g). Neither the Originator nor the Parent shall
engage in any business other than the businesses currently engaged in by it and
related businesses in the textile and apparel manufacturing industry.

         (f)      Actions Affecting Rights. Neither the Originator nor the
Parent shall (i) take any action, or fail to take any action, if such action or
failure to take action may interfere with the enforcement of any rights
hereunder or under the other Related Documents, including rights with respect
to the Transferred Receivables; (ii) waive or alter any rights with respect to
the Transferred Receivables (or any agreement or instrument relating thereto)
except to the extent permitted under Section 4.03(c); or (iii) fail to pay any
tax, assessment, charge, fee or other obligation of the Originator with respect
to the Transferred Receivables, or fail to defend any action, if such failure
to pay or defend may adversely affect the priority or enforceability of the
perfected title of Buyer to and the sole record and beneficial ownership
interest of Buyer in the Transferred Receivables or, prior to their Transfer
hereunder, the Originator's right, title or interest therein.

         (g)      ERISA. Neither the Originator nor the Parent shall, nor shall
cause or permit any ERISA Affiliate or any of its Subsidiaries to, cause or
permit to occur an event that could result


                                     -21-
<PAGE>
in the imposition of a Lien under Section 412 of the IRC or Section 302 or 4068
of ERISA or cause or permit to cause an ERISA Event to the extent such ERISA
Event could reasonably be expected to have a Material Adverse Effect.

         (h)      Change to Credit and Collection Policies. The Originator and
the Parent shall comply with the Credit and Collection Policies, and no change
shall be made to, the Credit and Collection Policies without the prior written
consent of Buyer and the Administrative Agent.

         (i)      Adverse Tax Consequences. Neither the Originator nor the
Parent shall take or permit to be taken any action (other than with respect to
actions taken or to be taken solely by a Governmental Authority), or fail or
neglect to perform, keep or observe any of its obligations hereunder or under
the other Related Documents, that would have the effect directly or indirectly
of subjecting any payment to Buyer, any Purchaser or holders of the Commercial
Paper who are residents of the United States of America to withholding
taxation.

         (j)      No Proceedings. From and after the Closing Date and until the
date one year plus one day following the date on which the Commercial Paper
issued by the Conduit Purchaser (at any time) with the latest maturity has been
indefeasibly paid in full in cash, neither the Originator nor the Parent shall
directly or indirectly, institute or cause to be instituted against Buyer or
Conduit Purchaser any proceeding of the type referred to in Sections 9.01(c)
and 9.01(d) of the Purchase Agreement.

         (k)      Commingling. Neither the Originator nor the Parent shall give
instructions to any Person to remit or deposit any funds that do not constitute
Collections of Transferred Receivables into any Lockbox, Lockbox Account or the
Concentration Account. Further, the Originator shall not deposit or give
instructions to any Person to remit any funds that constitute Collections of
Excluded Receivables into any Lockbox, Lockbox Account or the Concentration
Account. If such funds are nonetheless deposited into a Lockbox, Lockbox
Account or the Concentration Account and the Originator so notifies the
Applicable Purchaser, the Applicable Purchaser shall notify the Administrative
Agent to promptly remit any such amounts as directed by the Originator.

         (l)      [Reserved]

         (m)      Mergers, Subsidiaries, Etc. Neither the Originator nor the
Parent shall (and shall not allow any of its Subsidiaries to) directly or
indirectly, by operation of law or otherwise, (i) form or acquire any
Subsidiary or (ii) merge with, consolidate with, convey, transfer, lease or
otherwise dispose of all (or substantially all) of its assets (whether now
owned or hereafter acquired) to, or acquire all (or substantially all) of the
assets or capital Stock or other ownership interests of, or otherwise combine
with or acquire, any Person (whether in one transaction or in a series of
transactions) other than (x) dispositions of accounts receivable and related
assets as contemplated by this Agreement and (y) transactions expressly
permitted by Section 5.14 of the Credit Agreement as in effect on the Closing
Date.


                                     -22-
<PAGE>
         (n)      Invoices with respect to Receivables. Neither the Originator
nor the Parent shall retain in its possession any copy purporting to be an
"original" of any invoice with respect to any Receivable.

         Section 4.04.     Breach of Representations, Warranties or Covenants.
Upon discovery by the Originator, the Parent or the Buyer of any breach of any
representation, warranty or covenant described in Sections 4.01, 4.02 or 4.03
(other than a representation, warranty or covenant relating to the absence of
Dilution Factors), which breach is reasonably likely to have a material adverse
effect on the value of any part of the Transferred Receivable or the interests
of Buyer therein, the party discovering the same shall give prompt written
notice thereof to the other parties hereto. The Originator may, at any time on
any Business Day, or shall, if requested by notice from Buyer, on the first
Business Day following receipt of such notice, either (a) repurchase such
Transferred Receivable from Buyer for cash, (b) transfer ownership of a new
Eligible Receivable or new Eligible Receivables to Buyer on such Business Day,
or (c) make a capital contribution in cash to Buyer by remitting the amount
(the "Rejected Amount") of such capital contribution to the Collection Account
in accordance with the terms of the Purchase Agreement, in each case in an
amount equal to the Billed Amount of such Transferred Receivable minus the sum
of (A) Collections received in respect thereof and (B) the amount of any
Dilution Factors taken into account in the calculation of the Sale Price
therefor. Notwithstanding the foregoing, if any Receivable is not paid in full
on account of any Dilution Factors, the Originator's repurchase obligation
under this Section 4.04 with respect to such Receivable shall be reduced by the
amount of any such Dilution Factors taken into account in the calculation of
the Sale Price therefor. The Originator and the Parent shall ensure that no
Collections or other proceeds with respect to a Transferred Receivable so
reconveyed to it are paid or deposited into any Lockbox Account.

                                   ARTICLE V
                                INDEMNIFICATION

         Section 5.01.     Indemnification. Without limiting any other rights
that Buyer or any of its Stockholders, officers, directors, employees,
attorneys, agents or representatives (each, an "Originator Indemnified Person")
may have hereunder or under applicable law, the Originator and the Parent each
hereby agrees to indemnify and hold harmless each Originator Indemnified Person
from and against any and all Indemnified Amounts that may be claimed or
asserted against or incurred by any such Originator Indemnified Person in
connection with or arising out of the transactions contemplated under this
Agreement or under any other Related Document, any actions or failures to act
in connection therewith, including any and all legal costs and expenses arising
out of or incurred in connection with disputes between or among any parties to
any of the Related Documents, or in respect of any Transferred Receivable or
any Contract therefor or the use by the Originator of the Sale Price therefor;
provided, that neither the Originator nor the Parent shall be liable for any
indemnification to an Originator Indemnified Person to the extent that any such
Indemnified Amounts result solely from (a) such Originator Indemnified Person's
gross negligence or willful misconduct, as finally determined by a court of
competent jurisdiction, (b) recourse for uncollectible or uncollected
Transferred Receivables due to the lack of creditworthiness of the Obligor or
the occurrence of any event of bankruptcy with respect to such Obligor as
described more fully in the next-to-last paragraph of this Section 5.01,


                                     -23-
<PAGE>
or (c) any income tax or franchise tax incurred by any Originator Indemnified
Person, except to the extent that the incurrence of any such tax results from a
breach of or default under this Agreement or any other Related Document.
Subject to the exceptions set forth in clauses (a), (b) and (c) of the
immediately preceding sentence but otherwise without limiting the generality of
the foregoing, the Originator and the Parent shall pay on demand to each
Originator Indemnified Person any and all Indemnified Amounts relating to or
resulting from:

                  (i)      reliance on any representation or warranty made or
         deemed made by the Parent or the Originator (or any of its officers)
         under or in connection with this Agreement or any other Related
         Document or on any other information delivered by the Originator or
         the Parent pursuant hereto or thereto that shall have been incorrect
         in any material respect when made or deemed made or delivered;

                  (ii)     the failure by the Originator or the Parent to
         comply with any term, provision or covenant contained in this
         Agreement, any other Related Document or any agreement executed in
         connection herewith or therewith, any applicable law, rule or
         regulation with respect to any Transferred Receivable or Contract
         therefor, or the nonconformity of any Transferred Receivable or the
         Contract therefor with any such applicable law, rule or regulation;

                  (iii)    the failure to vest and maintain vested in Buyer, or
         to Transfer to Buyer, valid and properly perfected title to and sole
         record and beneficial ownership of the Receivables that constitute
         Transferred Receivables, together with all Collections in respect
         thereof, free and clear of any Adverse Claim;

                  (iv)     any dispute, claim, offset or defense of any Obligor
         (other than its discharge in bankruptcy) to the payment of any
         Receivable (including a defense based on such Receivable or the
         Contract therefor not being a legal, valid and binding obligation of
         such Obligor enforceable against it in accordance with its terms), or
         any other claim resulting from the sale of the merchandise or services
         giving rise to such Receivable or the furnishing or failure to furnish
         such merchandise or services or relating to collection activities with
         respect to such Receivable (if such collection activities were
         performed by the Originator, the Parent or any Affiliate acting as the
         Servicer or a Sub-Servicer), except to the extent that such dispute,
         claim, offset or defense results solely from any action or inaction on
         the part of Buyer;

                  (v)      any products liability claim or other claim arising
         out of or in connection with merchandise, insurance or services that
         is the subject of any Contract;

                  (vi)     the commingling of Collections with respect to
         Transferred Receivables by the Originator or the Parent at any time
         with its other funds or the funds of any other Person;

                  (vii)    any failure by the Parent or the Originator to cause
         the filing of, or any delay in filing, financing statements or other
         similar instruments or documents under the


                                     -24-
<PAGE>
         UCC of any applicable jurisdiction or any other applicable laws with
         respect to any Receivable that is the subject of a Transfer hereunder,
         whether at the time of any such Transfer or at any subsequent time;

                  (viii)   any failure by the Originator, the Parent or the
         Servicer to perform, keep or observe any of their respective duties or
         obligations hereunder, under any other Related Document or under any
         Contract related to a Transferred Receivable;

                  (ix)     any investigation, Litigation or proceeding related
         to this Agreement or the use of the Sale Price obtained in connection
         with any Sale or the ownership of Receivables or Collections with
         respect thereto or in respect of any Receivable or Contract; or

                  (x)      any claim brought by any Person other than an
         Originator Indemnified Person arising from any activity by the Parent,
         Originator or any of their Affiliates in servicing, administering or
         collecting any Transferred Receivables.

Notwithstanding the foregoing, (i) the foregoing indemnification is not
intended to, and shall not, constitute a guarantee of the collectibility or
payment of any Transferred Receivable conveyed hereunder; and (ii) nothing in
this Section 5.01 shall require the Originator to indemnify any Seller
Indemnified Person for any Transferred Receivable which is not collected, not
paid or otherwise uncollectible on account of the insolvency, bankruptcy,
creditworthiness or financial inability to pay of the applicable Obligor. The
agreements in this subsection shall survive the collection of all Transferred
Receivables, the termination of this Agreement and the payment of all amounts
payable hereunder.

NO ORIGINATOR INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY OTHER
PARTY TO THIS AGREEMENT OR ANY OTHER RELATED 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 THAT MAY BE ALLEGED AS A RESULT OF ANY TRANSACTION
CONTEMPLATED HEREUNDER OR THEREUNDER.

                                  ARTICLE VI
                                PARENT GUARANTY

         Section 6.01.     Guaranty of Performance of Guaranteed Obligations.
The Parent hereby guarantees to Buyer, the full and punctual payment and
performance by the Originator and each Servicer that is a Subsidiary or an
Affiliate of the Parent (each, an "Affiliated Servicer") of its respective
Guaranteed Obligations. The undertaking embodied in this Article VI (this
"Undertaking") is an absolute, unconditional and continuing guaranty of the
full and punctual performance of all Guaranteed Obligations under this
Agreement or the Purchase Agreement, as


                                      -25-


<PAGE>

applicable, and each other document executed and delivered by the Originator or
an Affiliated Servicer pursuant to such agreements, as applicable, and is in no
way conditioned upon any requirement that Buyer first attempt to collect any
amounts owing by the Originator or any Affiliated Servicer to Buyer, the
Administrative Agent or the Purchasers from any other Person or resort to any
collateral security, any balance of any deposit account or credit on the books
of Buyer, the Administrative Agent or the Purchasers in favor of the Originator
or any Affiliated Servicer or any other Person or other means of obtaining
payment. Should the Originator or any Affiliated Servicer default in the payment
or performance of any of its Guaranteed Obligations, Buyer (or its assigns
including, without limitation, the Administrative Agent and the Purchasers) may
cause the immediate performance by the Parent of such Guaranteed Obligations and
cause any payment of Guaranteed Obligations to become forthwith due and payable
to Buyer (or its assigns, as applicable) by the Parent, without demand or notice
of any nature (other than as expressly provided herein), all of which are hereby
expressly waived by the Parent. Notwithstanding the foregoing, this Undertaking
is not a guarantee of the collection of any of the Receivables and the Parent
shall not be responsible for any Guaranteed Obligations to the extent the
failure to perform such Guaranteed Obligations by the Originator or any
Affiliated Servicer results from Receivables being uncollectible on account of
the insolvency, bankruptcy or lack of creditworthiness of the related Obligor;
provided that nothing herein shall relieve the Originator or any Affiliated
Servicer from performing in full its Guaranteed Obligations under the Related
Documents to which it is a party or the Parent of its Undertaking hereunder with
respect to the full performance of such duties.

Section 6.02. Parent's Further Agreements to Pay. Parent further agrees, as the
principal obligor and not as a guarantor only, to pay to Buyer (and its
assigns), forthwith upon demand in funds immediately available to Buyer, all
reasonable costs and expenses (including court costs and reasonable legal
expenses) incurred or expended by Buyer in connection with the Guaranteed
Obligations, this Undertaking and the enforcement thereof, together with
interest on amounts recoverable under this Undertaking from the time when such
amounts become due until payment, at a rate of interest (computed for the actual
number of days elapsed based on a 360-day year) equal to the sum of the Index
Rate plus the Daily Margin plus the Daily Default Margin per annum, such rate of
interest changing when and as the Index Rate changes.

Section 6.03. Waivers by Parent. Parent waives notice of acceptance of this
Undertaking, notice of any action taken or omitted by Buyer (or its assigns) in
reliance on this undertaking, and any requirement that Buyer (or its assigns) be
diligent or prompt in making demands under this undertaking, giving notice of
any Termination Event, Event of Servicer Termination, other default or omission
by the Originator or any Affiliated Servicer or asserting any other rights of
Buyer under this Undertaking. Parent warrants that it has adequate means to
obtain from the Originator and the Affiliated Servicers, on a continuing basis,
information concerning their financial condition, and that it is not relying on
Buyer to provide such information, now or in the future. Parent also irrevocably
waives all defenses (i) that at any time may be available in respect of the
Guaranteed Obligations by virtue of any statute of limitations, valuation, stay,
moratorium law or other similar law now or hereafter in effect or (ii) that
arise under the law of suretyship, including impairment of collateral. Buyer
(and its assigns) shall be at liberty, without giving notice to or obtaining the
assent of the Parent and without relieving the Parent of any liability under
this Undertaking, to deal with each of the Originator and each


                                     -26-

<PAGE>
Affiliated Servicer and with each other party who now is or after the date
hereof becomes liable in any manner for any of the Guaranteed Obligations, in
such manner as Buyer (or its assigns) in its sole discretion deems fit, and to
this end the Parent agrees that the validity and enforceability of this
Undertaking, shall not be impaired or affected by any of the following: (a) any
extension, modification or renewal of, or indulgence with respect to, or
substitutions for, the Guaranteed Obligations or any part thereof or any
agreement relating thereto at any time; (b) any failure or omission to enforce
any right, power or remedy with respect to the Guaranteed Obligations or any
part thereof or any agreement relating thereto, or any collateral securing the
Guaranteed Obligations or any part thereof; (c) any waiver of any right, power
or remedy or of any Termination Event, Event of Servicer Termination, or
default with respect to the Guaranteed Obligations or any part thereof or any
agreement relating thereto; (d) any release, surrender, compromise, settlement,
waiver, subordination or modification, with or without consideration, of any
other obligation of any Person or entity with respect to the Guaranteed
Obligations or any part thereof; (e) the enforceability or validity of the
Guaranteed Obligations or any part thereof or the genuineness, enforceability
or validity of any agreement relating thereto or with respect to the Guaranteed
Obligations or any part thereof; (f) the application of payments received from
any source to the payment of any payment obligations of the Originator or any
Affiliated Servicer or any part thereof or amounts which are not covered by
this Undertaking even though Buyer (or its assigns) might lawfully have elected
to apply such payments to any part or all of the payment obligations of the
Originator or any Affiliated Servicer or to amounts which are not covered by
this Undertaking; (g) the existence of any claim, setoff or other rights which
the Parent may have at any time against the Originator or any Affiliated
Servicer in connection herewith or any unrelated transaction; (h) any
assignment or transfer of the Guaranteed Obligations or any part thereof; or
(i) any failure on the part of the Originator or any Affiliated Servicer to
perform or comply with any term of the Related Documents or any other document
executed in connection therewith or delivered thereunder, all whether or not
the Parent shall have had notice or knowledge of any act or omission referred
to in the foregoing clauses (a) through (i) of this Section 6.03.

         Section 6.04.     Unenforceability of Guaranteed Obligations Against
the Originator or any Affiliated Servicer. Notwithstanding (a) any change of
ownership of the Originator or any Affiliated Servicer or the insolvency,
bankruptcy or any other change in the legal status of the Originator or any
Affiliated Servicer; (b) any change in or the imposition of any law, decree,
regulation or other governmental act which does or might impair, delay or in
any way affect the validity, enforceability or the payment when due of the
Guaranteed Obligations; (c) the failure of any of the Originator, any
Affiliated Servicer or the Parent to maintain in full force, validity or effect
or to obtain or renew when required all governmental and other approvals,
licenses or consents required in connection with the Guaranteed Obligations or
this Undertaking, or to take any other action required in connection with the
performance of all obligations pursuant to the Guaranteed Obligations or this
Undertaking; or (d) if any of the moneys included in the Guaranteed Obligations
have become irrecoverable from the Originator or any Affiliated Servicer for
any other reason other than final payment in full of the Guaranteed Obligations
in accordance with their terms, this Undertaking shall nevertheless be binding
on the Parent. This Undertaking shall be in addition to any other guaranty or
other security for the Guaranteed Obligations, and it shall not be rendered
unenforceable by the invalidity of any such other guaranty or security. In the
event that acceleration of the time for payment of any of the


                                     -27-
<PAGE>
Guaranteed Obligations is stayed upon the insolvency, bankruptcy or
reorganization of the Originator or any Affiliated Servicer or for any other
reason with respect to the Originator or any Affiliated Servicer, all such
amounts then due and owing with respect to the Guaranteed Obligations under the
terms of the Agreements, or any other agreement evidencing, securing or
otherwise executed in connection with the Guaranteed Obligations, shall be
immediately due and payable by the Parent.

         Section 6.05.     Subrogation; Subordination. Notwithstanding anything
to the contrary contained herein, until the Guaranteed Obligations are paid in
full, the Parent: (a) will not enforce or otherwise exercise any right of
subrogation to any of the rights of Buyer, the Administrative Agent or the
Purchasers against the Originator or any Affiliated Servicer, (b) hereby waives
all rights of subrogation (whether contractual, under Section 509 of the United
States Bankruptcy Code, at law or in equity or otherwise) to the claims of
Buyer, the Administrative Agent and the Purchasers against the Originator or
any Affiliated Servicer and all contractual, statutory or legal or equitable
rights of contribution, reimbursement, indemnification and similar rights and
"claims" (as such term is defined in the United States Bankruptcy Code) which
the Parent might now have or hereafter acquire against the Originator or any
Affiliated Servicer that arise from the existence or performance of the
Parent's obligations hereunder, (c) will not claim any setoff, recoupment or
counterclaim against the Originator or any Affiliated Servicer in respect of
any liability of the Parent to the Originator or any Affiliated Servicer and
(d) waives any benefit of and any right to participate in any collateral
security which may be held by the Administrative Agent or any Purchaser. The
payment of any amounts due with respect to any Indebtedness of the Originator
or any Affiliated Servicer now or hereafter owed to the Parent is hereby
subordinated to the prior payment in full of all of the Guaranteed Obligations.
The Parent agrees that, after the occurrence of any default in the payment or
performance of any of the Guaranteed Obligations, the Parent will not demand,
sue for or otherwise attempt to collect any such Indebtedness of the Originator
or any Affiliated Servicer to the Parent until all of the Guaranteed
Obligations shall have been paid and performed in full. If, notwithstanding the
foregoing sentence, the Parent shall collect, enforce or receive any amounts in
respect of such Indebtedness while any Guaranteed Obligations are still
unperformed or outstanding, such amounts shall be collected, enforced and
received by the Parent as trustee for Buyer (and its assigns) and be paid over
to Buyer (or its assigns, as applicable) on account of the Guaranteed
Obligations without affecting in any manner the liability of the Parent under
the other provisions of this Undertaking. The provisions of this Section shall
be supplemental to and not in derogation of any rights and remedies of Buyer
under any separate subordination agreement which Buyer may at any time and from
time to time enter into with the Parent.

         Section 6.06.     Termination of Performance Undertaking. The Parent's
obligations hereunder shall continue in full force and effect until all Seller
Secured Obligations are finally paid and satisfied in full and the Purchase
Agreement is terminated in accordance with its terms, provided that this
Undertaking shall continue to be effective or shall be reinstated, as the case
may be, if at any time payment or other satisfaction of any of the Guaranteed
Obligations is rescinded or must otherwise be restored or returned upon the
bankruptcy, insolvency, or reorganization of the Originator or any Affiliated
Servicer or otherwise, as though such payment had not been made or other
satisfaction occurred, whether or not Buyer (or its assigns) is in possession
of this Undertaking. No invalidity, irregularity or unenforceability by reason
of the


                                     -28-
<PAGE>
federal bankruptcy code or any insolvency or other similar law, or any law or
order of any government or agency thereof purporting to reduce, amend or
otherwise affect the Guaranteed Obligations shall impair, affect, be a defense
to or claim against the obligations of the Parent under this Undertaking.

         Section 6.07.     Effect of Bankruptcy. This Performance Undertaking
shall survive the insolvency of the Originator and each Affiliated Servicer and
the commencement of any case or proceeding by or against the Originator or any
Affiliated Servicer under the federal bankruptcy code or other federal, state
or other applicable bankruptcy, insolvency or reorganization statutes. No
automatic stay under the federal bankruptcy code with respect to the Originator
or any Affiliated Servicer or other federal, state or other applicable
bankruptcy, insolvency or reorganization statutes to which the Originator or
any Affiliated Servicer is subject shall postpone the obligations of the Parent
under this Undertaking.

         Section 6.08.     Setoff. Regardless of the other means of obtaining
payment of any of the Guaranteed Obligations, Buyer (and its assigns) is hereby
authorized at any time and from time to time, without notice to the Parent (any
such notice being expressly waived by the Parent) and to the fullest extent
permitted by law, to set off and apply any deposits and other sums against the
obligations of the Parent under this Undertaking, whether or not Buyer (or any
such assign) shall have made any demand under this Undertaking.

                                  ARTICLE VII
                                   [RESERVED]

                                 ARTICLE VIII
                                 MISCELLANEOUS

         Section 8.01.     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 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 8.01), (c) one 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 be
notified and sent to the address or facsimile number set forth below in this
Section 8.01 or to such other address (or facsimile number) as may be
substituted by notice given as herein provided:


                                     -29-
<PAGE>
                  the Originator:           Avondale Mills, Inc.
                                            506 South Broad Street
                                            Monroe, Georgia  30655
                                            Attention:  Chief Financial Officer
                                            Telecopy:  (770) 267-2543;

                  Buyer:                    Avondale Funding, LLC
                                            133 Marshall Street
                                            Graniteville, South Carolina  29829
                                            Attention:  S. Felker
                                            Telecopy:  803-663-2399; or

                  Parent:                   Avondale Incorporated
                                            506 South Broad Street
                                            Monroe, Georgia  30655
                                            Attention:  Chief Financial Officer
                                            Telecopy:  (770) 267-2543;

provided, that each such declaration or other communication shall be deemed to
have been validly delivered to the Administrative Agent under this Agreement
only upon delivery to the Administrative Agent in accordance with the terms of
the Purchase Agreement. 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 Buyer) designated
in any written communication provided hereunder to receive copies shall in no
way adversely affect the effectiveness of such notice, demand, request,
consent, approval, declaration or other communication. Notwithstanding the
foregoing, whenever it is provided herein that a notice is to be given to any
other party hereto by a specific time, such notice shall only be effective if
actually received by such party prior to such time, and if such notice is
received after such time or on a day other than a Business Day, such notice
shall only be effective on the immediately succeeding Business Day.

         Section 8.02.     No Waiver; Remedies. Buyer's failure, at any time or
times, to require strict performance by the Originator or the Parent of any
provision of this Agreement or any Receivables Assignment shall not waive,
affect or diminish any right of Buyer thereafter to demand strict compliance
and performance herewith or therewith. Any suspension or waiver of any breach
or default hereunder shall not suspend, waive or affect any other breach or
default whether the same is prior or subsequent thereto and whether the same or
of a different type. None of the undertakings, agreements, warranties,
covenants and representations of the Originator or the Parent contained in this
Agreement or any Receivables Assignment, and no breach or default by the
Originator or the Parent hereunder or thereunder, shall be deemed to have been
suspended or waived by Buyer unless such waiver or suspension is by an
instrument in writing signed by an officer of or other duly authorized
signatory of Buyer and directed to the Originator or the Parent specifying such
suspension or waiver. Buyer's rights and remedies under this Agreement shall be
cumulative and nonexclusive of any other rights and remedies that


                                      -30-

<PAGE>
Buyer may have under any other agreement, including the other Related
Documents, by operation of law or otherwise. Recourse to the Originator
Collateral shall not be required.

         Section 8.03.     Successors and Assigns. This Agreement shall be
binding upon and shall inure to the benefit of the Originator, the Parent and
Buyer and their respective successors and permitted assigns, except as
otherwise provided herein. Neither the Originator nor the Parent may not
assign, transfer, hypothecate or otherwise convey its rights, benefits,
obligations or duties hereunder without the prior express written consent of
Buyer, the Purchasers and the Administrative Agent and unless the Rating Agency
Condition shall have been satisfied with respect to any such assignment. Any
such purported assignment, transfer, hypothecation or other conveyance by the
Originator or the Parent without the prior express written consent of Buyer,
the Purchasers and the Administrative Agent shall be void. The Originator and
the Parent each acknowledges that, to the extent permitted under the Purchase
Agreement, Buyer may assign its rights granted hereunder, including the benefit
of any indemnities under Article V, the rights of the Buyer pursuant to Article
VI, and any of its rights in the Originator Collateral granted under Article
VII. Upon each such assignment, such assignee shall have, to the extent of such
assignment, all rights of Buyer hereunder and, to the extent permitted under
the Purchase Agreement, the Purchaser or any assignee thereof may in turn
assign such rights. The Originator and the Parent agrees that, upon any such
assignment, such assignee may enforce directly, without joinder of Buyer, the
rights set forth in this Agreement. All such assignees, including parties to
the Purchase Agreement in the case of any assignment to such parties, shall be
third party beneficiaries of, and shall be entitled to enforce Buyer's rights
and remedies under, this Agreement to the same extent as if they were parties
hereto. Without limiting the generality of the foregoing, all notices to be
provided to the Buyer hereunder shall be delivered to both the Buyer and the
Administrative Agent under the Purchase Agreement, and shall be effective only
upon such delivery to the Administrative Agent in accordance with the terms of
the Purchase Agreement. The terms and provisions of this Agreement are for the
purpose of defining the relative rights and obligations of the Originator, the
Parent and Buyer with respect to the transactions contemplated hereby and,
except for the Purchasers and the Administrative Agent, no Person shall be a
third party beneficiary of any of the terms and provisions of this Agreement.

         Section 8.04.     Termination; Survival of Obligations.

         (a)      This Agreement shall create and constitute the continuing
obligations of the parties hereto in accordance with its terms, and shall
remain in full force and effect until the Termination Date.

         (b)      Except as otherwise expressly provided herein or in any other
Related Document, no termination or cancellation (regardless of cause or
procedure) of any commitment made by Buyer under this Agreement shall in any
way affect or impair the obligations, duties and liabilities of the Originator
or the Parent or the rights of Buyer relating to any unpaid portion of any and
all recourse and indemnity obligations of the Originator and the Parent to
Buyer, including those set forth in Sections 4.02(o), 4.04, 5.01 and 8.14, 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 Facility Termination Date.


                                     -31-

<PAGE>
Except as otherwise expressly provided herein or in any other Related Document,
all undertakings, agreements, covenants, warranties and representations of or
binding upon the Originator and the Parent, and all rights of Buyer hereunder,
all as contained in the Related 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 rights and
remedies pursuant to Sections 4.02(o), 4.04, the indemnification and payment
provisions of Article V, and the provisions of Sections 4.03(j), 8.03, 8.12 and
8.14 shall be continuing and shall survive any termination of this Agreement.

         Section 8.05.     Complete Agreement; Modification of Agreement. This
Agreement and the other Related Documents constitute the complete agreement
between the parties with respect to the subject matter hereof and thereof,
supersede all prior agreements and understandings relating to the subject
matter hereof and thereof, and may not be modified, altered or amended except
as set forth in Section 8.06.

         Section 8.06.     Amendments and Waivers. No amendment, modification,
termination or waiver of any provision of this Agreement or any of the other
Related Documents, or any consent to any departure by the Originator or the
Parent therefrom, shall in any event be effective unless the same shall be in
writing and signed by each of the parties hereto and the Purchasers and the
Administrative Agent. No consent or demand in any case shall, in itself,
entitle any party to any other consent or further notice or demand in similar
or other circumstances.

         Section 8.07.     GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF
JURY TRIAL.

         (a)      THIS AGREEMENT AND EACH RELATED DOCUMENT (EXCEPT TO THE
EXTENT THAT ANY RELATED DOCUMENT EXPRESSLY PROVIDES TO THE CONTRARY) AND THE
OBLIGATIONS ARISING HEREUNDER AND THEREUNDER SHALL IN ALL RESPECTS, INCLUDING
ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, BE GOVERNED BY, AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
(INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAWS BUT OTHERWISE WITHOUT
REGARD TO CONFLICTS OF LAW PRINCIPLES), EXCEPT TO THE EXTENT THAT THE
PERFECTION, EFFECT OF PERFECTION OR PRIORITY OF THE INTERESTS OF THE BUYER IN
THE RECEIVABLES OR REMEDIES HEREUNDER OR THEREUNDER, IN RESPECT THEREOF, ARE
GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK, AND
ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.

         (b)      EACH PARTY HERETO HEREBY CONSENTS AND AGREES THAT THE STATE
OR FEDERAL COURTS LOCATED IN THE BOROUGH OF MANHATTAN IN NEW YORK CITY SHALL
HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES
BETWEEN THEM PERTAINING TO THIS AGREEMENT OR TO ANY MATTER ARISING OUT OF OR


                                     -32-

<PAGE>
RELATING TO THIS AGREEMENT OR ANY RELATED DOCUMENT; PROVIDED, THAT EACH PARTY
HERETO ACKNOWLEDGES THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY
A COURT LOCATED OUTSIDE OF THE BOROUGH OF MANHATTAN IN NEW YORK CITY; PROVIDED
FURTHER, THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE
BUYER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION
TO REALIZE ON THE TRANSFERRED RECEIVABLES OR ANY OTHER SECURITY FOR THE
OBLIGATIONS OF THE ORIGINATOR OR THE PARENT ARISING HEREUNDER, OR TO ENFORCE A
JUDGMENT OR OTHER COURT ORDER IN FAVOR OF BUYER. EACH PARTY HERETO SUBMITS AND
CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY
SUCH COURT, AND EACH PARTY HERETO HEREBY WAIVES ANY OBJECTION THAT SUCH 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 PARTY HERETO HEREBY WAIVES
PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH
ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER
PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO SUCH PARTY AT
THE ADDRESS SET FORTH BENEATH ITS NAME ON THE SIGNATURE PAGES HEREOF AND THAT
SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIEST OF (1) SUCH PARTY'S
ACTUAL RECEIPT THEREOF, (2) CONFIRMATION OF DELIVERY IN ANY FORM ISSUED BY THE
UNITED STATES POSTAL SERVICE OR (3) A DELIVERY CONFIRMATION IN THE FORM
PROVIDED BY ANY NATIONALLY RECOGNIZED COURIER SERVICE. NOTHING IN THIS SECTION
SHALL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE LEGAL PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW.

         (c)      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, ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT OR ANY
RELATED DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.


                                     -33-
<PAGE>
         Section 8.08.     Counterparts. This Agreement may be executed in any
number of separate counterparts, each of which shall collectively and
separately constitute one agreement.

         Section 8.09.     Severability. Wherever possible, each provision of
this Agreement shall be interpreted in such a manner as to be effective and
valid under applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or the remaining provisions of
this Agreement.

         Section 8.10.     Section Titles. The section titles and table of
contents contained in this Agreement are provided for ease of reference only
and shall be without substantive meaning or content of any kind whatsoever and
are not a part of the agreement between the parties hereto.

         Section 8.11.     No Setoff. Except as set forth in Section 6.05,
neither the Originator's nor the Parent's obligations under this Agreement
shall be affected by any right of setoff, counterclaim, recoupment, defense or
other right the Originator or the Parent might have against Buyer, any
Purchaser or the Administrative Agent, all of which rights are hereby expressly
waived by the Originator and the Parent.

         Section 8.12.     Confidentiality.

         (a)      Except to the extent otherwise required by applicable law, as
required to be filed publicly with the Securities and Exchange Commission, or
unless each Affected Party shall otherwise consent in writing, the Originator,
the Parent and Buyer agree to maintain the confidentiality of this Agreement
(and all drafts hereof and documents ancillary hereto) in its communications
with third parties other than any Affected Party or any Originator Indemnified
Person and otherwise and not to disclose, deliver or otherwise make available
to any third party (other than its directors, officers, employees, accountants
or counsel) the original or any copy of all or any part of this Agreement (or
any draft hereof and documents ancillary hereto) except to an Affected Party or
an Originator Indemnified Person.

         (b)      Each of the Originator and the Parent agrees that it shall
not (and shall not permit any of its Subsidiaries to) issue any news release or
make any public announcement pertaining to the transactions contemplated by
this Agreement and the Related Documents without the prior written consent of
Buyer and each of the Committed Purchaser and the Conduit Purchaser (which
consent shall not be unreasonably withheld) unless such news release or public
announcement is required by law, in which case the Originator or the Parent, as
applicable, shall consult with Buyer and each of the Committed Purchaser and
the Conduit Purchaser prior to the issuance of such news release or public
announcement. The Originator and the Parent may, however, disclose the general
terms of the transactions contemplated by this Agreement and the Related
Documents to trade creditors, suppliers and other similarly-situated Persons so
long as such disclosure is not in the form of a news release or public
announcement.

         (c)      Except to the extent otherwise required by applicable law, or
in connection with any judicial or administrative proceedings, as required to
be filed publicly with the Securities


                                     -34-

<PAGE>
Exchange Commission, or unless the Originator and the Parent otherwise consents
in writing, the Buyer agrees (i) to maintain the confidentiality of (A) this
Agreement (and all drafts hereof and documents ancillary hereto) and (B) all
other confidential proprietary information with respect to the Originator, the
Parent and their Affiliates and each of their respective businesses obtained by
the Buyer in connection with the structuring, negotiation and execution of the
transactions contemplated herein and in the other documents ancillary hereto,
in each case, in its communications with third parties other than any Affected
Party, the Originator or the Parent and (ii) not to disclose, deliver, or
otherwise make available to any third party (other than its directors,
officers, employees, accountants or counsel) the original or any copy of all or
any part of this Agreement (or any draft hereof and documents ancillary hereto)
except to an Affected Party, the Originator or the Parent.

         Section 8.13.     Further Assurances.

         (a)      Each of the Originator and the Parent shall at its sole cost
and expense, upon request of Buyer, any Purchaser or the Administrative Agent,
promptly and duly execute and deliver any and all further instruments and
documents, Records, invoices and other documentation relating to the
Receivables and take such further actions that may be necessary or desirable or
that Buyer, any Purchaser or the Administrative Agent may reasonably request to
carry out more effectively the provisions and purposes of this Agreement or any
other Related Document or to obtain the full benefits of this Agreement and of
the rights and powers herein granted, including (i) using its best efforts to
secure all consents and approvals necessary or appropriate for the assignment
to or for the benefit of Buyer of any Transferred Receivable held by an
Originator or in which the Originator has any rights not heretofore assigned,
(ii) filing any financing or continuation statements under the UCC with respect
to the ownership interests or Liens granted hereunder or under any other
Related Document, (iii) transferring any writings or invoices evidencing the
Transferred Receivables to Buyer's possession if such writings or invoices, as
applicable, consist of chattel paper or instruments or if a Lien upon such
Transferred Receivables so evidenced can be perfected only by possession, or if
otherwise requested by Buyer; and (iv) entering into "control agreements" (as
defined in the UCC) with respect to any part of the Transferred Receivables to
the extent that a first priority Lien upon such Transferred Receivables can be
perfected only by control. The Originator hereby authorizes Buyer, each
Purchaser and the Administrative Agent to file any such financing or
continuation statements without the signature of the Originator to the extent
permitted by applicable law. A carbon, photographic or other reproduction of
this Agreement or of any notice or financing statement covering the Transferred
Receivables or any part thereof shall be sufficient as a notice or financing
statement where permitted by law. If any amount payable under or in connection
with any of the Transferred Receivables is or shall become evidenced by any
instrument, such instrument, other than checks and notes received in the
ordinary course of business, shall be duly endorsed in a manner satisfactory to
Buyer immediately upon the Originator's receipt thereof and promptly delivered
to Buyer.

         (b)      If the Originator or the Parent fails to perform any
agreement or obligation under this Section 8.13, Buyer, any Purchaser or the
Administrative Agent may (but shall not be required to) itself perform, or
cause performance of, such agreement or obligation, and the reasonable expenses
of Buyer, such Purchaser or the Administrative Agent incurred in


                                     -35-
<PAGE>
connection therewith shall be payable by the Originator or the Parent upon
demand of Buyer, such Purchaser or the Administrative Agent.

         Section 8.14.     Fees and Expenses. In addition to its
indemnification obligations pursuant to Article V, the Originator and the
Parent agrees to pay on demand all costs and expenses incurred by Buyer in
connection with the negotiation, preparation, execution and delivery of this
Agreement and the other Related Documents, including the reasonable fees of and
out-of-pocket expenses actually incurred by Buyer's (and its assign's) counsel,
advisors, consultants and auditors retained in connection with the transactions
contemplated thereby and advice in connection therewith, and the Originator and
the Parent agrees to pay all costs and expenses, if any (including the
reasonable fees of and expenses actually incurred by Buyer's (and its assign's)
counsel but excluding any costs of enforcement or collection of the Transferred
Receivables), in connection with the enforcement of this Agreement and the
other Related Documents.

         Section 8.15.     Rights under Receivables Termination Agreement. The
Originator hereby assigns all of its rights and interests in, to and under that
certain Receivables Purchase Termination and Reassignment Agreement dated as of
August 30, 2002 (the "Termination Agreement") among Manufacturers and Traders
Trust Company, Avondale Receivables Master Trust, Avondale Receivables Company,
Avondale Mills, Inc., Falcon Asset Securitization Corporation and Bank One,
N.A., to the Buyer and its assigns and acknowledges and agrees that Buyer and
its assigns have entered into the transactions contemplated by this Agreement
and the Related Documents in express reliance upon the terms of the Termination
Agreement.


                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


                                     -36-
<PAGE>
                  IN WITNESS WHEREOF, the parties have caused this Sale and
Contribution Agreement to be executed by their respective duly authorized
representatives, as of the date first above written.


                                    AVONDALE MILLS, INC.

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


                                    AVONDALE INCORPORATED

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


                                    AVONDALE FUNDING, LLC

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


<PAGE>
                                EXHIBIT 2.01(a)

                                    Form of

                             RECEIVABLES ASSIGNMENT

                  THIS RECEIVABLES ASSIGNMENT (the "Receivables Assignment") is
entered into as of _______, 2002, by and between AVONDALE MILLS, INC. (the
"Originator") and AVONDALE FUNDING, LLC ("Buyer").

                  1.       We refer to that certain Sale and Contribution
Agreement (as amended, restated, supplemented or otherwise modified from time
to time, the "Sale Agreement") of even date herewith among the Originator,
Avondale Incorporated, as guarantor, and Buyer. All of the terms, covenants and
conditions of the Sale Agreement are hereby made a part of this Receivables
Assignment and are deemed incorporated herein in full. Unless otherwise defined
herein, capitalized terms or matters of construction defined or established in
the Sale Agreement shall be applied herein as defined or established therein.

                  2.       For good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Originator hereby sells, or
sells or contributes, to Buyer, without recourse, except as provided in
Sections 4.02(o) and 4.04 of the Sale Agreement, all of the Originator's right,
title and interest in, to and under all of its Receivables (including all
Collections, Records and proceeds with respect thereto) existing as of the
Closing Date and thereafter created or arising at any time until the earliest
to occur of (i) the date the Administrative Agent has declared the Facility
Termination Date to have occurred and (ii) the Facility Termination Date shall
have occurred automatically, in either event in accordance with Section 9.01 of
the Purchase Agreement.

                  3.       Subject to the terms and conditions of the Sale
Agreement, the Originator hereby covenants and agrees to sign, sell or
contribute, as applicable, execute and deliver, or cause to be signed, sold or
contributed, executed and delivered, and to do or make, or cause to be done or
made, upon request of Buyer and at the Originator's expense, any and all
agreements, instruments, papers, deeds, acts or things, supplemental,
confirmatory or otherwise, as may be reasonably required by Buyer for the
purpose of or in connection with acquiring or more effectively vesting in Buyer
or evidencing the vesting in Buyer of the property, rights, title and interests
of the Originator sold or contributed hereunder or intended to be sold or
contributed hereunder.

                  4.       Wherever possible, each provision of this
Receivables Assignment shall be interpreted in such a manner as to be effective
and valid under applicable law, but if any provision of this Receivables
Assignment 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 Receivables Assignment.


                              Exhibit 2.01(a) - 1
<PAGE>
                  5.       THIS RECEIVABLES ASSIGNMENT SHALL BE GOVERNED BY,
AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE
OF NEW YORK, INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW BUT
OTHERWISE WITHOUT REGARD TO THE PRINCIPLES THEREOF REGARDING CONFLICT OF LAWS,
AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.

                  IN WITNESS WHEREOF, the parties have caused this Receivables
Assignment to be executed by their respective officers thereunto duly
authorized, as of the day and year first above written.

AVONDALE MILLS, INC.                         AVONDALE FUNDING, LLC


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


                              Exhibit 2.01(a) - 2
<PAGE>
                                           Exhibit 3.01(a)(i) to Sale Agreement


                  FORM OF OFFICER'S CERTIFICATE AS TO SOLVENCY


                              AVONDALE MILLS, INC.


                             Officer's Certificate

                  I, [Name of Officer], the duly elected [Insert Title] of
Avondale Mills, Inc. (the "ORIGINATOR"), hereby certify in connection with that
certain Receivables Sale Agreement (the "PURCHASE AGREEMENT") dated as of
August 30, 2002 by and among the Originator and Avondale Funding, LLC, as
follows:

                  1.       Capitalized terms herein and not otherwise defined
shall have the respective meanings ascribed to them in the Sale Agreement.

                  2.       Both before and after giving effect to (a) the
transactions contemplated by the Sale Agreement and the other Related Documents
and (b) the payment and accrual of all transaction costs in connection with the
foregoing, the Originator is and will be Solvent. The Originator has no Debt to
any Person other than pursuant to the transactions expressly permitted by the
Sale Agreement and the other Related Documents.

                  IN WITNESS WHEREOF, I have signed and delivered this
Officer's Certificate this __________ day of __________, ___.


                                    AVONDALE MILLS, INC.

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


                            Exhibit 3.01(a)(i) - 1
<PAGE>
                                          Exhibit 3.01(a)(ii) to Sale Agreement


              FORM OF OFFICER'S CLOSING CERTIFICATE OF ORIGINATOR

                              AVONDALE MILLS, INC.

                             Officer's Certificate

                  I, [Name of Officer], the duly elected [Insert Title] of
Avondale Mills, Inc. (the "ORIGINATOR"), hereby certify in connection with that
certain Receivables Sale Agreement (the "SALE AGREEMENT") dated as of August
30, 2002 by and among the Originator and Avondale Funding, LLC, as follows:

                  1.       Capitalized terms herein and not otherwise defined
shall have the respective meanings ascribed to them in the Sale Agreement.

                  2.       Since the date of the financial statements dated as
of May 31, 2002 delivered by the Originator to the Administrative Agent, (a)
the Originator has not incurred any obligations, contingent or non-contingent
liabilities, liabilities for charges, long-term leases or unusual forward or
long-term commitments 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 the Originator or has become
binding upon the Seller's assets and no law or regulation applicable to the
Originator has been adopted that has had or could reasonably be expected to
have a Material Adverse Effect, and (c) the Originator is not in default and no
third party is in default under any material contract, lease or other agreement
or instrument to which the Originator is a party that alone or in the aggregate
could reasonably be expected to have a Material Adverse Effect. Since the date
of the financial statements dated as of May 31, 2002 delivered by the
Originator to the Administrative Agent, no event has occurred that alone or
together with other events could reasonably be expected to have a Material
Adverse Effect.

                  3.       Each of the representations and warranties of the
Originator contained in any of the Related Documents are true and correct on
and as of the Closing Date as though made on and as of such date (except to the
extent any such representation and warranty relates solely to an earlier date).
No Incipient Termination Event or Termination Event shall have occurred and be
continuing, or would result after giving effect to any of the transactions
contemplated on the Closing Date. No "default or "event of default" exists
under the Credit Facility or the Indenture.

                  4.       The Originator is in material compliance with all
federal, state, and local laws and regulations, including those relating to
labor and environmental matters and ERISA.

                  5.       Except as otherwise indicated on a schedule to a
Related Document or another schedule delivered pursuant to the Schedule of
Documents, or as otherwise consented to by the Purchasers and the
Administrative Agent, the Seller has delivered to the Purchasers and the
Administrative Agent true and correct copies of all documents required to be
delivered to such Persons pursuant to the Schedule of Documents, all such
documents are complete and correct in


                            Exhibit 3.01(a)(ii) - 1
<PAGE>
all material respects on and as of the Closing Date, and each and every other
contingency to the closing of the transactions contemplated by the Related
Documents has been performed.

                  6.       No Adverse Claims have arisen or been granted with
respect to the Originator Collateral other than Permitted Originator
Encumbrances.

                  IN WITNESS WHEREOF, I have signed and delivered this
Officer's Certificate this __________ day of __________, ____.


                                    AVONDALE MILLS, INC.

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


                            Exhibit 3.01(a)(ii) - 2
<PAGE>
                                SCHEDULE 4.01(A)

                  JURISDICTIONS OF INCORPORATION/ORGANIZATION

State of Organization:              Avondale Mills, Inc. - Alabama
                                    Avondale Incorporated - Georgia


                            Exhibit 3.01(a)(ii) - 3
<PAGE>
                                SCHEDULE 4.01(B)

   EXECUTIVE OFFICES; COLLATERAL LOCATIONS, CORPORATE, LEGAL OR OTHER NAMES,
                   ORGANIZATIONAL IDENTIFICATION NUMBER FEIN

Avondale Mills, Inc.

Chief Executive Office:             506 South Broad Street
                                    Monroe, Georgia 30655

Sole Jurisdiction of Incorporation: Alabama

Principal Places of Business:       506 South Broad Street
                                    Monroe, Georgia 30655

                                    133 Marshall Street
                                    Graniteville, South Carolina 29829

                                    900 Avondale Avenue
                                    Sylacauga, Alabama 35150

Locations of Inventory the sale of which gives rise to Transferred Receivables:

* DENOTES FINISHED GOODS INVENTORIES
(MAJOR) INDICATES FACILITY HAS HEAVY CONCENTRATION OF FINISHED AND/OR RAW GOODS


<TABLE>
<CAPTION>
                                                              RAW          WIP        GREIGE     FINISHED          INVENTORY
LOCATION                                                   MATERIAL                    INV.        INV.          BILLED & HELD
                                                                                                               TO AVD CUSTOMERS

<S>                                                        <C>             <C>        <C>        <C>           <C>
AVONDALE MILLS, INC.                                           X            X                        X
BURNSVILLE PLANT*
700 WEST MAIN STREET
P. O. BOX 458
BURNSVILLE, NC  28714
YANCY COUNTY

AVONDALE MILLS, INC.                                           X            X                        X
CATHERINE PLANT*
900 AVONDALE AVENUE
SYLACAUGA, AL  35150
TALLADEGA COUNTY
</TABLE>


                            Exhibit 3.01(a)(ii) - 4
<PAGE>
<TABLE>
<CAPTION>
                                                              RAW          WIP        GREIGE     FINISHED          INVENTORY
LOCATION                                                   MATERIAL                    INV.        INV.          BILLED & HELD
                                                                                                               TO AVD CUSTOMERS

<S>                                                        <C>             <C>        <C>        <C>           <C>
AVONDALE MILLS, INC.                                           X            X                        X
COOSA PLANT*
P. O. BOX 278
HIGHWAY 231 NORTH
ROCKFORD, AL  35136
COOSA COUNTY

AVONDALE MILLS, INC.                                           X            X                        X
PELL CITY PLANT*
100 AVONDALE DRIVE
PELL CITY, AL  35125
ST. CLAIR COUNTY

AVONDALE MILLS, INC.                                           X            X                        X
TIFTON PLANT*
905 AVONDALE AVENUE
P. O. DRAWER 68 - 31793
TIFTON, GA  31794
TIFT COUNTY

AVONDALE MILLS, INC.                                           X            X                        X
WALHALLA PLANT*
2 SOUTH JOHN STREET
P. O. BOX 589
WALHALLA, SC  29691
OCONEE COUNTY

AVONDALE MILLS, INC.                                           X            X                        X
BON AIR PLANT*
240 FRONT STREET
P. O. BOX 5
BON AIR, AL  35032
TALLADEGA COUNTY

AVONDALE MILLS, INC.                                           X            X           X            X
ALEX CITY PLANT*
520 COMER STREET
ALEX CITY, AL  35010
TALLAPOOSA COUNTY

AVONDALE MILLS, INC.                                           X            X           X            X                 X
EVA JANE PLANT/WAREHOUSE*                  (MAJOR)
900 AVONDALE AVENUE
SYLACAUGA, AL  35150
TALLADEGA COUNTY

AVONDALE MILLS, INC.                                           X            X           X                              X
WALTON PLANT*
119 FIRST STREET
P. O. BOX 1046
MONROE, GA  30655
WALTON COUNTY
</TABLE>


                            Exhibit 3.01(a)(ii) - 5
<PAGE>
<TABLE>
<CAPTION>
                                                              RAW          WIP        GREIGE     FINISHED          INVENTORY
LOCATION                                                   MATERIAL                    INV.        INV.          BILLED & HELD
                                                                                                               TO AVD CUSTOMERS

<S>                                                        <C>             <C>        <C>        <C>           <C>
AVONDALE MILLS, INC.
SYLACAUGA COTTON WAREHOUSE
(MAJOR)                                                        X
900 AVONDALE AVE
SYLACAUGA, AL  35150
TALLADEGA COUNTY

AVONDALE MILLS, INC.                                           X            X           X
TOWNSEND DIVISION    (PLANT)
418 ASCAUGA LAKE ROAD
GRANITEVILLE, SC 29829
AIKEN COUNTY

AVONDALE MILLS GRANITEVILLE FABRICS, INC.                                   X
HORSECREEK     (PLANT)
164 BETTIS ACADEMY ROAD
GRANITEVILLE, SC 29829
AIKEN COUNTY

AVONDALE MILLS, INC.                                           X            X           X
SWINT DIVISION     (PLANT)
358 ASCAUGA LAKE ROAD
GRANITEVILLE, SC  29829
AIKEN COUNTY

AVONDALE MILLS, INC.                                                        X
HICKMAN DIVISION     (PLANT)
149 MARSHALL STREET
GRANITEVILLE, SC 29829
AIKEN COUNTY

AVONDALE MILLS, INC.                                                                    X
HICKMAN WAREHOUSE
118 HARD STREET
GRANITEVILLE, SC  29829
AIKEN COUNTY

AVONDALE MILLS, INC.                                                        X                        X
GREGG DIVISION (PLANT)
168 MARSHALL STREET
GRANITEVILLE, SC  29829
AIKEN COUNTY

AVONDALE MILLS, INC.
GREGG FINISHED GOODS WAREHOUSE*   (MAJOR)                                                            X                 X
109 ASCAUGA LAKE ROAD
GRANITEVILLE , SC  29829
AIKEN COUNTY
</TABLE>


                            Exhibit 3.01(a)(ii) - 6
<PAGE>
<TABLE>
<CAPTION>
                                                              RAW          WIP        GREIGE     FINISHED          INVENTORY
LOCATION                                                   MATERIAL                    INV.        INV.          BILLED & HELD
                                                                                                               TO AVD CUSTOMERS

<S>                                                        <C>             <C>        <C>        <C>           <C>
AVONDALE MILLS, INC.                                                        X           X            X                 X
WOODHEAD DIVISION (PLANT/WAREHOUSE*  (MAJOR)
387 LEITNER STREET
GRANITEVILLE, SC  29829
AIKEN COUNTY

AVONDALE MILLS, INC.                                                        X                        X
SIBLEY DIVISION  (FINISHING PLANT)
1717 GOODRICH STREET
AUGUSTA, GA  30903
RICHMOND COUNTY

AVONDALE MILLS GRANITEVILLE FABRICS, INC.                      X
SAGE MILL COTTON  WAREHOUSE
1025 TEXTILE COURT
GRANITEVILLE, SC  29829
AIKEN COUNTY

AVONDALE MILLS GRANITEVILLE FABRICS, INC.                                               X            X                 X
SAGE MILL FINISHED GOODS WAREHOUSE*  (MAJOR)
1025 TEXTILE COURT
GRANITEVILLE, SC  29829
AIKEN COUNTY

AVONDALE MILLS, INC.                                                        X                        X
WARREN
1124 AUGUSTA ROAD
WARRENVILLE, SC  29851
AIKEN COUNTY

NON AVONDALE FACILITIES
-----------------------
SAFETY COMPONENTS FABRIC TECHNOLOGIES, INC.                                             X
30 EMORY STREET
GREENVILLE, SC  29605
GREENVILLE COUNTY

MILLIKEN & CO.*                                                                         X                              X
SYCAMORE WAREHOUSE
ROUTE 1 - JUNCTION SC HIGHWAY 56-I26
CLINTON, SC 29325
LAURENS COUNTY

INMAN MILLS, INC                                                                        X.                             X
300 PARK ROAD
INMAN, SC  29349
SPARTANBURG COUNTY
</TABLE>


                            Exhibit 3.01(a)(ii) - 7

<PAGE>
<TABLE>
<CAPTION>
                                                              RAW          WIP        GREIGE     FINISHED          INVENTORY
LOCATION                                                   MATERIAL                    INV.        INV.          BILLED & HELD
                                                                                                               TO AVD CUSTOMERS

<S>                                                        <C>             <C>        <C>        <C>           <C>
GLEN RAVEN MILLS, INC                                                                   X
PO BOX 100
BURNSVILLE, NC 28714
YANCY COUNTY

NRB INDUSTRIES                                                                          X
6540 VISCOE ROAD
RADFORD, VA 24141
FLOYD COUNTY

CONE MILLS CORP.  (FINISHING)                                               X           X            X                 X
CARLISLE FINISHING PLANT
HIGHWAY 72
CARLISLE, SC  29031
UNION COUNTY

BRITTANY DYEING AND PRINTING CORP. (FINISHING)                              X           X            X                 X
1357 EAST RODNEY FRENCH BLVD.
NEW BEDFORD, MA  02741-3106
BRISTOL COUNTY

KING AMERICA FINISHING, INC.                                                X                                          X
HIGHWAY 301 NORTH
STATESBORO, GA  30459
BULLOCH COUNTY

WILLIAMSON DICKIE, INC.*  (MAJOR) AVONDALE INVENTORY IN CUST "FIELD WAREHOUSE"                       X
510 83 HIGHWAY SOUTH
UVALDE, TEXAS  78801
UVALDE COUNTY

DCLASSE                                                                                              X                 X
CARRTERA LUPERON KM
6 1/2 SANTIAGO, DOMINICAN REPUBLIC
PLANT 380

LM #3 SALON DE CORT                                                                                  X
EXTENSION CARIBBEAN IND. PARK
MATINZAS
SANTIAGO DOMINICAN REPUBLIC

INTERAMERICANA                                                                                       X                 X
ZONA FRANCA IND.
SANTIAGO, DOMINICAN REPUBLIC

ZONETEX (RK FABRICS)                                                                                 X                 X
CALLE 10 ENSANCHE ESPAILLAT
SANTIAGO, DOMINICAN REPUBLIC
</TABLE>


                            Exhibit 3.01(a)(ii) - 8
<PAGE>
<TABLE>
<CAPTION>
                                                              RAW          WIP        GREIGE     FINISHED          INVENTORY
LOCATION                                                   MATERIAL                    INV.        INV.          BILLED & HELD
                                                                                                               TO AVD CUSTOMERS

<S>                                                        <C>             <C>        <C>        <C>           <C>
MINIKIN EIGHT                                                                                        X
NUEVA ZONA FRANCA INDUSTRIAL
SANTIAGO DE LOS CABELLEROS
DOMINICAN REPUBLIC

PAGELAND SCREEN PRINTERS (FINISHING)                                                                 X
512 SOUTH PINE STREET
PAGELAND, SC  29728
CHESTERFIELD COUNTY

INTERPORT SDS, INC.                                                                                  X                 X
1100 JETER AVENUE
OPELIKA, AL   36801
LEE COUNTY
</TABLE>


Locations of Records Concerning

Transferred Receivables:            133 Marshall Street
                                    Graniteville, South Carolina 29829

Corporate, legal, fictitious or trade names:         None

Organizational
Identification Number:              Not issued in Alabama

FEIN:                               63-0936782


                            Exhibit 3.01(a)(ii) - 9
<PAGE>
                                SCHEDULE 4.01(D)

   PENDING LITIGATION SEEKING DAMAGES IN EXCESS OF $1,000,000 OR INJUNCTIVE
      RELIEF AGAINST, OR ALLEGES CRIMINAL MISCONDUCT BY THE PARENT OR THE
        ORIGINATOR (OR ANY SUBSIDIARY OF THE PARENT OR THE ORIGINATOR)

Locke v. Russell and Avondale Mills, Case no. CV00-00216 pending in the Circuit
Court for the 10th Judicial Coulrt of Alabama. This case seeks unspecified
damages for alleged nuisance resulting from alleged pollution of the waters of
Lake Martin, Alabama.

Lemelson Medical, Educational and Research Foundation Limited Partnership v.
R.N. Donalley and Sons, et al. (including Avondale), Case no. IV00664PHXROS
pending in the United States District Court for the District of Arizona. This
case alleges violations of certain patents owned by Lemelson.


                           Exhibit 3.01(a)(ii) - 10
<PAGE>
                                SCHEDULE 4.01(H)

         VENTURES, SUBSIDIARIES AND AFFILIATES; OUTSTANDING STOCK; DEBT

Avondale Mills, Inc.
--------------------

Subsidiaries:              Avondale Receivables Company, a Delaware corporation
                           Avondale Funding, LLC, a Delaware corporation
                           Avondale Mills Graniteville Fabrics, Inc., a
                           Delaware corporation

Joint ventures or
partnerships:              None

Affiliations:              None other than subsidiaries

Avondale Incorporated
---------------------

Subsidiaries:              Avondale Mills, Inc.

Joint ventures or
partnerships:              None

Affiliations:              None other than subsidiaries

Description of all outstanding Debt of the Originator and the Parent:

$125,000,000 10.25% Senior Subordinated Notes maturing May 1, 2006. The notes
are unsecured and the guaranty of these notes by Avondale Mills, Inc. is
subordinate to all existing or future senior indebtedness of Avondale Mills,
Inc.

$20,000,000 negotiable promissory note dated July 30, 2002, by Avondale Mills,
Inc., payable to The CIT Group/Equipment Financing, Inc. made in connection
with equipment lease

$100,000,000 Second Amended and Restated Credit Facility dated September 28,
2000, by and between Avondale Mills, Inc., as borrower, and Wachovia Bank,
N.A., as agent, and other banks ($37,775,000 outstanding Revolving Debt as of
8/26/02)


                           Exhibit 3.01(a)(ii) - 11
<PAGE>
                                SCHEDULE 4.01(I)

                                  TAX MATTERS

Taxable years for which Originator's or Parent's or such Affiliates' tax
returns are currently being audited by the IRS: None

Assessment or threatened assessments in connection with such audit: None

Agreements or documents with the IRS or any other Governmental entity extending
the period for tax assessment or collection of any charges: None


                           Exhibit 3.01(a)(ii) - 12
<PAGE>
                                SCHEDULE 4.01(M)

                                     ERISA

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

Phantom Stock Program adopted March 15, 1990, (deffered compensation plan for
upper management


                           Exhibit 3.01(a)(ii) - 13
<PAGE>
                                SCHEDULE 4.01(T)

                       DEPOSIT AND DISBURSEMENT ACCOUNTS


<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
</TABLE>


                           Exhibit 3.01(a)(ii) - 14
<PAGE>
<TABLE>
      <S>                                                <C>               <C>
      Aliant Bank                                        25-3730-3         Bevelle Branch Imprest Fund
      P.O. Box 1237
      1237 Aliant Parkway
      Alexander City, AL  35011-1237
      Contact: Shelby
      Tel: (256) 329-7485


      First Bank of Childersburg (Frontier)              86-008994         Bon Air Petty Cash
      P. O. Drawer 329                                                     (Kim Miller)
      120 8th Avenue SW
      Childersburg, AL  35044
      Tel: (256) 378-5501


      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
      Tel: (404) 332-1369

      Wachovia Bank, N.A.                               12-421-171         Walton Fabrics Imprest
      Mail Code GA212
      191 Peachtree Street, N.E.
      Atlanta, GA 30303
      Contact: Germaine Jenkins
      Tel: (404) 332-1369

      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
      PO Box 889                                                           Account
      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
      Fax: (229) 382-4417
</TABLE>


                           Exhibit 3.01(a)(ii) - 15
<PAGE>
<TABLE>
<S>                                                     <C>                <C>
General Purposes

      The First National Bank in Sylacauga               70033021          Checking Account
      P.O. Drawer 630                                                      Political Action Committee (PAC)
      43 N. Broadway Avenue
      Sylacauga, Alabama  35150-0630
      Contact: Tina Jackson
      Tel: (256)249-0341

      Wachovia Bank, N.A.                               15-031-691         Master Account
      191 Peachtree Street, N.E.                                           (Concentration)
      Atlanta, GA 30303
      ABA #061000010
      Contact: Germaine Jenkins (404) 332-1369
                 Customer Service (800) 521-5006

      Wachovia Bank, N.A.                               07-529-845         General Payables
      191 Peachtree Street, N.E.                                           (ZBA)
      Atlanta, GA 30303
      Contact: Germaine Jenkins (404) 332-1369

      Wachovia Bank, N.A.                               07-529-856         Workman's Compensation
      191 Peachtree Street, N.E.                                           (ZBA)
      Atlanta, GA 30303
      Contact: Germaine Jenkins (404) 332-1369

      Wachovia Bank, N.A.                               07-529-867         Health Plan                       TO BE CLOSED
      191 Peachtree Street, N.E.                                           (ZBA)
      Atlanta, GA 30303
      Contact: Germaine Jenkins (404) 332-1369

      SunTrust Bank                                     88-00767876        Corporate Checking Account        TO BE CLOSED
      P. O. Box 4418 (Mail Code 126)                                       (General Office)
      Atlanta, GA 30302
      Contact: Kelly Brunson
      (404) 827-6287

</TABLE>


                           Exhibit 3.01(a)(ii) - 16
<PAGE>
<TABLE>
<S>                                                     <C>                <C>
      SunTrust Bank                                     88-00531116        Corporate Checking Account        TO BE CLOSED
      P. O. Box 4418 (Mail Code 0660)                                      (Dividends)
      Atlanta, GA 30302
      Contact: Kelly Brunson
      (404) 827-6287

      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

      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 &
      P.O. Drawer 630                                                      Trucking)
      43 N. Broadway Avenue                                                (Judy Armstrong or Shirley
      Sylacauga, Alabama  35150-0630                                       Brooks -
      Contact: Tina Jackson                                                Eva Jane)
      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

      First Bank of Childersburg (Frontier)              86-008986         Bon Air Payroll
      P. O. Drawer 329                                                     (Lori Slay)
      120 8th Avenue SW
      Childersburg, AL  35044
      Tel: (256) 378-5501
</TABLE>


                           Exhibit 3.01(a)(ii) - 17
<PAGE>
<TABLE>
      <S>                                               <C>                <C>
      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.                               07-500-024         Salaried Payroll Account
      191 Peachtree Street, N.E.                                           Sylacauga  Payroll
      Atlanta, GA 30303                                                    (Tommie Butterworth)




      Wachovia Bank, N. A.                              07-535-840         AVGRAN Fabrics Inc. Hourly
      191 Peachtree Street, N.E.                                           Payroll Acct
      Atlanta, GA 30303                                                    Horse Creek Payroll Account
      Tel: (404) 332-1369                                                  (Tommie Butterworth)





      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
      PO Box 889                                                           Payroll Account
      100 East Main Street                                                 (Rebecca Cromer)
      Walhalla, SC  29691
      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.                               12-559-958         Sanford/Lee                       TO BE CLOSED
      191 Peachtree Street, N.E.                                           Hourly Payroll Account
      Atlanta, GA 30303                                                    (Tommie Butterworth)
      Contact: Germaine Jenkins
      Tel: (404) 332-1369
      Fax: (404) 332-6920
</TABLE>


                           Exhibit 3.01(a)(ii) - 18
<PAGE>
<TABLE>
<S>                                                     <C>                <C>
      Wachovia Bank, N.A.                               12-559-969         Graniteville Hourly
      191 Peachtree Street, N.E.                                           Payroll Account
      Atlanta, GA 30303                                                    (Tommie Butterworth)
      Contact: Germaine Jenkins
      Tel: (404) 332-1369
      Fax: (404) 332-6920

      Wachovia Bank, N.A.                               12-560-376         Walton Hourly Payroll Account
      191 Peachtree Street, N.E.                                           (Tommie Butterworth)
      Atlanta, GA 30303
      Contact: Germaine Jenkins
      Tel: (404) 332-1369
      Fax: (404) 332-6920

LockBox Account

      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)
</TABLE>


<TABLE>
<CAPTION>
Concentration
Account:                            Name:                      Bank:
-------------------------------------------------------------------------------------------------

<S>                                 <C>                        <C>
13-022-948                          AVONDALE MILLS, INC.       WACHOVIA BANK NATIONAL ASSOCIATION
                                                               (F/K/A WACHOVIA BANK, N.A.)
                                                               191 PEACHTREE STREET, N.E.
                                                               ATLANTA, GA  30303
</TABLE>


<TABLE>
<CAPTION>
                           Lockbox
Lockbox:                   Account:         Name:                      Bank:
-----------------------------------------------------------------------------------------------------------

<S>                        <C>              <C>                        <C>
AVONDALE MILLS, INC.       101307           AVONDALE MILLS, INC.       WACHOVIA BANK, NATIONAL ASSOCIATION
P.O. BOX 101307                             FABRIC DIVISION            (F/K/A WACHOVIA BANK, N.A.)
ATLANTA, GA 30392-1307                      (ATLANTA)                  191 PEACHTREE STREET, N.E.
                                                                       ATLANTA, GA  30303
                                                                       (FLOWS INTO ACT. 13-022-948)

AVONDALE MILLS, INC.       101264           AVONDALE MILLS, INC.       WACHOVIA BANK, NATIONAL ASSOCIATION
P.O. BOX 101264                             TRUCKING DIVISION          (F/K/A WACHOVIA BANK, N.A.)
ATLANTA, GA 30392-1264                      (ATLANTA)                  P.O. BOX 4148
                                                                       ATLANTA, GA  30302-1448
                                                                       (FLOWS INTO ACT. 13-022-948)

AVONDALE MILLS, INC.       101436           AVONDALE MILLS, INC.       WACHOVIA BANK, NATIONAL ASSOCIATION
P.O. BOX 101436                             YARN DIVISION              (F/K/A WACHOVIA BANK, N.A.)
ATLANTA, GA 30392-1436                      (ATLANTA)                  P.O. BOX 4148
                                                                       ATLANTA, GA  30302-1448
                                                                       (FLOWS INTO ACT. 13-022-948)

AVONDALE MILLS, INC.       951280           AVONDALE MILLS, INC.       WACHOVIA BANK, NATIONAL ASSOCIATION
P.O. BOX 951280                             GRANITEVILLE FABRICS       (F/K/A WACHOVIA BANK OF TEXAS)
DALLAS, TX  75395-1280                      (DALLAS)                   1010 W. MOCKINGBIRD LANE, SUITE 100
                                                                       DALLAS, TX  75247
                                                                       (FLOWS INTO ACT. 13-022-948)
</TABLE>


                           Exhibit 3.01(a)(ii) - 19
<PAGE>
<TABLE>
<S>                        <C>              <C>                        <C>
AVONDALE MILLS, INC.       75431            AVONDALE MILLS, INC.       WACHOVIA BANK, NATIONAL ASSOCIATION
P.O. BOX 75431                              GRANITEVILLE FABRICS       (F/K/A WACHOVIA BANK OF NORTH CAROLINA)
CHARLOTTE, NC  28275-5431                   (CHARLOTTE)                ATTENTION:  LOCKBOX 75431
                                                                       10301 DAVID TAYLOR DRIVE
                                                                       CHARLOTTE, NC  28262-2334
                                                                       (FLOWS INTO ACT. 13-022-948)
</TABLE>


<TABLE>
<CAPTION>
DEPOSIT ACCOUNT            NAME:                               BANK:

<S>                        <C>                                 <C>
14-308-551                 Avondale Funding, LLC               Wachovia Bank, National Association
                                                               191 Peachtree Street, N.E.
                                                               Atlanta, GA 30303
</TABLE>


                           Exhibit 3.01(a)(ii) - 20
<PAGE>
                                SCHEDULE 4.02(G)

                       CORPORATE OR LEGAL AND TRADE NAMES

Avondale Mills, Inc. transacts business only in the following corporate and/or
trade names: Avondale Mills, Inc.

Avondale Incorporated transacts business only in the following corporate and/or
trade names: Avondale Incorporated and Avondale Mills, Inc.


                           Exhibit 3.01(a)(ii) - 21
<PAGE>
                                SCHEDULE 4.03(B)

                                 EXISTING LIENS

Secured Party                                         Collateral

Wachovia Bank, National Association                   Blanket lien

Val Tech Computer Systems                             Specific Equipment

Val Tech Computer Systems                             Specific Equipment

Forklift Systems, Inc.                                Specific Equipment

Lease Corporation of America                          Specific Equipment

Bankers/SofTech Division of EAB Leasing               Leased and financed
                                                      equipment, securing
                                                      indebtedness not to
                                                      exceed $210,000

The CIT Group/Equipment Financing, Inc.               Specific Equipment


                           Exhibit 3.01(a)(ii) - 22

</TEXT>
</DOCUMENT>
