Exhibit 4C

                              GUILFORD MILLS, INC.
                             4925 West Market Street
                        Greensboro, North Carolina 27407


         December 18, 1998



TO EACH OF THE PURCHASERS LISTED IN
         THE ATTACHED SCHEDULE A:

Ladies and Gentlemen:

         Guilford Mills,  Inc., a Delaware  corporation (the "COMPANY"),  agrees
with you as follows:


 .  AUTHORIZATION  OF NOTES.  The Company  will  authorize  the issue and sale of
$145,000,000  aggregate  principal amount of its 7.06% Senior Notes due December
18, 2008 (the "1998  NOTES").  The terms "NOTE" and "NOTES" as used herein shall
include each 1998 Note delivered pursuant to any provision of this Agreement and
each Note  delivered in  substitution  or exchange for any such Note pursuant to
any such  provision.  The form of each  Note  shall be in the form of  Exhibit 1
hereto.

         The term "1998  Note" as used  herein  shall  include  notes  issued in
substitution  therefor  pursuant  to Section 13 of this  Agreement  or the Other
Agreements (as  hereinafter  defined).  Certain  capitalized  terms used in this
Agreement are defined in Schedule B;  references to a "Schedule" or an "Exhibit"
are, unless  otherwise  specified,  to a Schedule or an Exhibit attached to this
Agreement.

 . SALE AND  PURCHASE  OF NOTES.  Subject  to the terms  and  conditions  of this
Agreement,  the Company will issue and sell to you (also  sometimes  referred to
herein as a "PURCHASER") and you will purchase from the Company,  at the Closing
provided for in Section 3, Notes in the principal amount specified opposite your
name in  Schedule  A at the  purchase  price  of 100%  of the  principal  amount
thereof.  Contemporaneously  with entering into this  Agreement,  the Company is
entering  into  separate  Note  Purchase  Agreements  (the  "OTHER  AGREEMENTS")
identical  with  this  Agreement  with  each of the  other  purchasers  named in
Schedule A (the "OTHER  PURCHASERS"),  providing for the sale at such Closing to
each of the  Other  Purchasers  of  promissory  notes  in the  principal  amount
specified  opposite its name in Schedule A. Your  obligation  hereunder  and the
obligations of the Other  Purchasers  under the Other Agreements are several and
not joint obligations and you shall have no obligation under any Other Agreement
and no liability to any Person for the  performance  or  non-performance  by any
Other Purchaser thereunder.

 . CLOSING.  The sale and  purchase of the Notes to be  purchased  by you and the
Other Purchasers  shall occur at the offices of King & Spalding,  1185 Avenue of
the Americas,  New York, New York 10036, at 10:00 a.m., New York City time, at a
closing  (the  "Closing")  on December  18, 1998 or on such other  Business  Day
thereafter on or prior to December 31, 1998 as may be agreed upon by the Company
and you and the Other  Purchasers.  At the Closing,  the Company will deliver to
you the  Notes to be  purchased  by you in the  form of a  single  Note (or such
greater  number  of  Notes in  denominations  of at  least  $100,000  as you may
request)  dated the date of the Closing and  registered  in your name (or in the
name of your  nominee),  against  delivery by you to the Company or its order of
immediately available funds in the amount of the purchase price therefor by wire
transfer  of  immediately  available  funds for the  account  of the  Company to
account  number  3750332999 at NationsBank  of Texas,  N.A. (ABA#  111-000-012),
reference  $145,000,000  7.06%  Senior  Notes Dues 2008.  If at the  Closing the
Company shall fail to tender such Notes to you as provided above in this Section
3),  or any of the  conditions  specified  in  Section  4 shall  not  have  been
fulfilled to your satisfaction,  you shall, at your election, be relieved of all
further obligations under this Agreement, without thereby waiving any rights you
may have by reason of such failure or such nonfulfillment.

 . CONDITIONS TO CLOSING. Your obligation to purchase and pay for any Notes to be
sold to you at Closing is subject to the fulfillment to your satisfaction, prior
to or at the Closing, of the following conditions:

          .. REPRESENTATIONS AND WARRANTIES.  The representations and warranties
of the Company in this  Agreement  shall be correct when made and at the time of
the Closing.

          ..  PERFORMANCE;  NO DEFAULT.  The Company  shall have  performed  and
complied with all agreements and conditions contained in this Agreement required
to be  performed  or  complied  with by it prior to or at the  Closing and after
giving  effect to the issue and sale of the Notes  (and the  application  of the
proceeds  thereof  as  contemplated  by  Schedule  5.14) no  Default or Event of
Default shall have occurred and be continuing.

          ..  COMPLIANCE  CERTIFICATES.  () OFFICER'S  CERTIFICATE.  The Company
shall have  delivered  to you an  Officer's  Certificate,  dated the date of the
Closing,  certifying that the conditions  specified in Sections 4.1, 4.2 and 4.9
have been fulfilled.

         () SECRETARY'S  CERTIFICATE.  The Company shall have delivered to you a
certificate  certifying  as  to  the  resolutions  attached  thereto  and  other
corporate  proceedings relating to the authorization,  execution and delivery of
the Notes, this Agreement and the Other Agreements.

         .. OPINIONS OF COUNSEL.  You shall have  received  opinions in form and
substance  satisfactory  to you,  dated the date of the  Closing () from each of
Weil,  Gotshal & Manges LLP and from the General  Counsel or  Assistant  General
Counsel of the  Company,  covering  the matters set forth in Exhibit  4.4(a) and
covering such other matters incident to the transactions  contemplated hereby as
you or your counsel may reasonably request (and the Company hereby instructs its
counsel  to  deliver  such  opinion  to you) and () from King &  Spalding,  your
special counsel in connection with such transactions,  substantially in the form
set forth in Exhibit  4.4(b) and covering  such other  matters  incident to such
transactions as you may reasonably request.

         ..  PURCHASE  PERMITTED  BY  APPLICABLE  LAW,  ETC.  On the date of the
Closing your purchase of Notes shall () be permitted by the laws and regulations
of each  jurisdiction to which you are subject,  without  recourse to provisions
(such as Section  1405(a)(8) of the New York Insurance Law)  permitting  limited
investments by insurance  companies  without  restriction as to the character of
the  particular  investment,  () not violate any  applicable  law or  regulation
(including,  without limitation,  Regulation T, U or X of the Board of Governors
of the Federal  Reserve  System)  and () not subject you to any tax,  penalty or
liability  under or pursuant to any applicable  law or regulation,  which law or
regulation was not in effect on the date hereof.  If requested by you, you shall
have received an Officer's Certificate  certifying as to such matters of fact as
you may reasonably  specify to enable you to determine  whether such purchase is
so permitted.

          ..  SALE OF  OTHER  NOTES.  Contemporaneously  with the  Closing,  the
Company  shall  sell to the  Other  Purchasers  and the Other  Purchasers  shall
purchase  the  promissory  notes  to be  purchased  by  them at the  Closing  as
specified in Schedule A (the "Other Notes").

         .. PAYMENT OF SPECIAL COUNSEL FEES.  Without limiting the provisions of
Section  15.1,  the  Company  shall  have paid on or before  such  Closing,  the
reasonable fees,  charges and  disbursements of your special counsel referred to
in Section 4.4 to the extent  reflected in a statement of such counsel  rendered
to the Company at least one Business Day prior to such Closing.

         .. PRIVATE  PLACEMENT  NUMBER.  A Private  Placement  number  issued by
Standard & Poor's  CUSIP  Service  Bureau (in  cooperation  with the  Securities
Valuation Office of the National  Association of Insurance  Commissioners) shall
have been obtained for the Notes to be purchased at the Closing.

         .. CHANGES IN CORPORATE  STRUCTURE.  The Company shall not have changed
its jurisdiction of incorporation or been a party to any merger or consolidation
and shall not have succeeded to all or any  substantial  part of the liabilities
of any other entity, at any time following the date of the most recent financial
statements referred to in Schedule 5.5.

         ..  PROCEEDINGS AND DOCUMENTS.  All corporate and other  proceedings in
connection  with  the  transactions  contemplated  by  this  Agreement  and  all
documents and instruments incident to such transactions shall be satisfactory to
you and your  special  counsel,  and you and your  special  counsel  shall  have
received  all such  counterpart  originals  or certified or other copies of such
documents as you or they may reasonably request.

 .  REPRESENTATIONS  AND  WARRANTIES OF THE COMPANY.  The Company  represents and
warrants to you that:

         .. ORGANIZATION; POWER AND AUTHORITY. The Company is a corporation duly
organized,  validly  existing  and  in  good  standing  under  the  laws  of its
jurisdiction of  incorporation,  and is duly qualified as a foreign  corporation
and is in good  standing in each  jurisdiction  in which such  qualification  is
required by law, other than those jurisdictions as to which the failure to be so
qualified  or in good  standing  would not,  individually  or in the  aggregate,
reasonably be expected to have a Material  Adverse  Effect.  The Company has the
corporate  power and  authority  to own or hold under  lease the  properties  it
purports to own or hold under lease,  to transact the business it transacts  and
proposes  to  transact,  to execute  and deliver  this  Agreement  and the Other
Agreements and the Notes and to perform the provisions hereof and thereof.

         .. AUTHORIZATION,  ETC. This Agreement and the Other Agreements and the
Notes have been duly authorized by all necessary corporate action on the part of
the Company,  and this  Agreement  constitutes,  and upon execution and delivery
thereof each Note will constitute,  a legal, valid and binding obligation of the
Company  enforceable against the Company in accordance with its terms, except as
such  enforceability  may be limited by ()  applicable  bankruptcy,  insolvency,
reorganization,  moratorium or other similar laws  affecting the  enforcement of
creditors' rights generally and () general  principles of equity  (regardless of
whether such enforceability is considered in a proceeding in equity or at law).

         ..  DISCLOSURE.  The  Company,  through  its  agent,  Wachovia  Capital
Markets, Inc., has delivered to you and each Other Purchaser a copy of a Private
Placement  Memorandum,  dated November 1998 (the "MEMORANDUM"),  relating to the
transactions  contemplated  hereby.  This  Agreement,  the  Memorandum  and  the
financial  statements  listed in Schedule 5.5, taken as a whole,  do not contain
any untrue  statement  of a  material  fact or omit to state any  material  fact
necessary  to make  the  statements  therein  not  misleading  in  light  of the
circumstances  under which they were made. Except as disclosed in the Memorandum
or as  expressly  described  in  Schedule  5.3,  or in  one  of  the  documents,
certificates  or  other  writings   identified  therein,  or  in  the  financial
statements  listed in Schedule 5.5, since September 28, 1997,  there has been no
change in the  financial  condition,  operations,  business or properties of the
Company or any of its  Subsidiaries  except changes that  individually or in the
aggregate would not reasonably be expected to have a Material Adverse Effect.

         There is no fact known to the Company that could reasonably be expected
to have a Material  Adverse  Effect that has not been set forth herein or in the
Memorandum or in the other documents,  certificates and other writings delivered
to you by or on behalf of the Company  specifically  for use in connection  with
the  transactions   contemplated  hereby.  The  projections   contained  in  the
Memorandum  are  based  on the  good  faith  estimates  and  assumptions  of the
management of the Company  which has no reason to believe that such  projections
are not reasonable; it being recognized,  however, that projections as to future
events are not to be viewed as fact and that actual results during the period or
periods covered by any such projections  probably will differ from the projected
results and that the differences may be material.

          ..  ORGANIZATION AND OWNERSHIP OF SHARES OF SUBSIDIARIES.  () Schedule
5.4 is (except as noted  therein) a complete and correct  list of the  Company's
Subsidiaries,  showing,  as to each  Subsidiary,  the correct name thereof,  the
jurisdiction of its organization,  and the percentage of shares of each class of
its capital stock or similar equity interests  outstanding  owned by the Company
and each other Subsidiary.

         () All of the  outstanding  shares of capital  stock or similar  equity
interests  of each  Subsidiary  shown in  Schedule  5.15 as  being  owned by the
Company  and its  Subsidiaries  have been  validly  issued,  are fully  paid and
nonassessable and are owned by the Company or another  Subsidiary free and clear
of any Lien (except as otherwise disclosed in Schedule 5.4). Except as set forth
in Schedule 5.4, all of the entities set forth on Schedule 5.4 are  consolidated
with the Company's financial statements in accordance with GAAP.

         () Each Subsidiary identified in Schedule 5.4 is a corporation or other
legal entity duly  organized,  validly  existing and in good standing  under the
laws of its  jurisdiction  of  organization,  and is duly qualified as a foreign
corporation  or other legal entity and is in good standing in each  jurisdiction
in which such  qualification is required by law, other than those  jurisdictions
as to which the  failure  to be so  qualified  or in good  standing  would  not,
individually  or in the  aggregate,  reasonably  be  expected to have a Material
Adverse  Effect.  Each such  Subsidiary  has the  corporate  or other  power and
authority to own or hold under lease the  properties  it purports to own or hold
under lease and to transact the business it transacts and proposes to transact.

         () No  Subsidiary  is a party to,  or  otherwise  subject  to any legal
restriction or any agreement (other than this Agreement,  the agreements  listed
on Schedule 5.4 and  customary  limitations  imposed by corporate  law statutes)
restricting  the ability of such  Subsidiary  to pay dividends out of profits or
make any other  similar  distributions  of profits to the  Company or any of its
Subsidiaries  that owns  outstanding  shares of capital stock or similar  equity
interests of such Subsidiary.

         ..  FINANCIAL  STATEMENTS.  The Company has delivered to each Purchaser
copies of the financial statements of the Company and its Subsidiaries listed on
Schedule  5.5.  All of said  financial  statements  (including  in each case the
related  schedules  and notes)  fairly  present  in all  material  respects  the
consolidated  financial  position of the Company and its  Subsidiaries as of the
respective  dates  specified in such  Schedule and the  consolidated  results of
their operations and cash flows for the respective periods so specified and have
been  prepared in  accordance  with GAAP  consistently  applied  throughout  the
periods involved except as set forth in the notes thereto (subject,  in the case
of any interim financial statements, to normal year-end adjustments).

         ..  COMPLIANCE  WITH  LAWS,  OTHER  INSTRUMENTS,  ETC.  The  execution,
delivery and performance by the Company of this Agreement and the Notes will not
() contravene, result in any breach of, constitute a default under, or result in
the  creation  of any Lien in  respect  of any  property  of the  Company or any
Subsidiary  under, any indenture,  mortgage,  deed of trust,  loan,  purchase or
credit agreement, lease, corporate charter or by-laws, or any other agreement or
instrument  to which  the  Company  or any  Subsidiary  is bound or by which the
Company or any Subsidiary or any of their respective  properties may be bound or
affected, () conflict with or result in a breach of any of the terms, conditions
or provisions of any order, judgment, decree, or ruling of any court, arbitrator
or  Governmental  Authority  applicable  to the Company or any  Subsidiary or ()
violate  any  provision  of any  statute  or  other  rule or  regulation  of any
Governmental Authority applicable to the Company or any Subsidiary.

          ..  GOVERNMENTAL   AUTHORIZATIONS,   ETC.  No  consent,   approval  or
authorization of, or registration,  filing or declaration with, any Governmental
Authority is required in connection with the execution,  delivery or performance
by the Company of this Agreement or the Notes.

          ..  LITIGATION;  OBSERVANCE  OF  STATUTES  AND  ORDERS.  ()  Except as
disclosed in Schedule 5.8, there are no actions,  suits or  proceedings  pending
or, to the knowledge of the Company, threatened against or affecting the Company
or any  Subsidiary or any property of the Company or any Subsidiary in any court
or before any arbitrator of any kind or before or by any Governmental  Authority
that,  individually or in the aggregate,  would reasonably be expected to have a
Material Adverse Effect.

         () Neither the Company nor any  Subsidiary is in default under any term
of any  agreement or  instrument to which it is a party or by which it is bound,
or  any  order,  judgment,   decree  or  ruling  of  any  court,  arbitrator  or
Governmental Authority or is in violation of any applicable law, ordinance, rule
or  regulation   (including  without  limitation   Environmental  Laws)  of  any
Governmental  Authority,  which  default or  violation,  individually  or in the
aggregate, would reasonably be expected to have a Material Adverse Effect.

         .. TAXES. The Company and its  Subsidiaries  have filed all tax returns
that are  required  to have been  filed in any  jurisdiction,  and have paid all
taxes  shown to be due and  payable  on such  returns  and all  other  taxes and
assessments levied upon them or their properties,  assets, income or franchises,
to the extent such taxes and assessments  have become due and payable and before
they have become delinquent,  except for any taxes and assessments () the amount
of which is not  individually  or in the  aggregate  Material  or () the amount,
applicability or validity of which is currently being contested in good faith by
appropriate  proceedings  and with respect to which the Company or a Subsidiary,
as the case may be, has established  adequate  reserves in accordance with GAAP.
The  Company  knows of no basis  for any  other  tax or  assessment  that  could
reasonably be expected to have a Material Adverse Effect. The charges,  accruals
and  reserves  on the books of the Company  and its  Subsidiaries  in respect of
Federal,  state or other taxes for all fiscal periods are adequate.  The Federal
income tax liabilities of the Company and its Subsidiaries  have been determined
by the  Internal  Revenue  Service  and  paid  for all  fiscal  years  up to and
including the fiscal year ended September 1993.

         .. TITLE TO PROPERTY;  LEASES.  The Company and its  Subsidiaries  have
good and sufficient title to their respective Material properties, including all
such  properties  reflected in the most recent audited balance sheet referred to
in  Section  5.5 or  purported  to have  been  acquired  by the  Company  or any
Subsidiary  after said date  (except  as sold or  otherwise  disposed  of in the
ordinary course of business), in each case free and clear of Liens prohibited by
this Agreement,  except for those defects in title and Liens that,  individually
or in the  aggregate,  would not have a Material  Adverse  Effect.  All Material
leases are valid and subsisting and are in full force and effect in all material
respects.

         ..  LICENSES,  PERMITS,  ETC. The Company and its  Subsidiaries  own or
possess all licenses, permits, franchises, authorizations,  patents, copyrights,
service marks,  trademarks and trade names, or rights thereto, that individually
or in the  aggregate are  Material,  without  known  conflict with the rights of
others, except for those conflicts that, individually or in the aggregate, would
not have a Material Adverse Effect.

         ..  COMPLIANCE WITH ERISA. () The Company and each ERISA Affiliate have
operated and  administered  each Plan in  compliance  with all  applicable  laws
except for such instances of noncompliance as have not resulted in and could not
reasonably  be  expected  to result in a Material  Adverse  Effect.  Neither the
Company nor any ERISA  Affiliate has incurred any liability  pursuant to Title I
or IV of ERISA or the penalty or excise tax  provisions  of the Code relating to
employee  benefit  plans  (as  defined  in  Section 3 of  ERISA),  and no event,
transaction  or  condition  has  occurred  or exists  that would  reasonably  be
expected to result in the incurrence of any such liability by the Company or any
ERISA  Affiliate,  or in the  imposition  of  any  Lien  on  any of the  rights,
properties  or assets of the  Company  or any ERISA  Affiliate,  in either  case
pursuant to Title I or IV of ERISA or to such  penalty or excise tax  provisions
or to Section  401(a)(29)  or 412 of the Code,  other than such  liabilities  or
Liens as would not be individually or in the aggregate Material.

         () The present value of the aggregate benefit liabilities under each of
the Plans (other than  Multiemployer  Plans),  determined  as of the end of such
Plan's most recently  ended plan year on the basis of the actuarial  assumptions
specified for funding  purposes in such Plan's most recent  actuarial  valuation
report,  did not exceed the  aggregate  current value of the assets of such Plan
allocable to such benefit  liabilities  in the case of any single Plan or in the
aggregate  for all  Plans  by an  amount  not to  exceed  $10,000,000.  The term
"benefit liabilities" has the meaning specified in Section 4001 of ERISA and the
terms "current value" and "present value" have the meaning specified in Sections
3(26) and (27), respectively, of ERISA.

         () The Company and its ERISA  Affiliates  have not incurred  withdrawal
liabilities  (and are not subject to contingent  withdrawal  liabilities)  under
Section  4201  or  4204  of  ERISA  in  respect  of  Multiemployer   Plans  that
individually or in the aggregate are Material.

         () The expected postretirement benefit obligation (determined as of the
last day of the  Company's  most recently  ended fiscal year in accordance  with
Financial  Accounting  Standards  Board  Statement  No. 106,  without  regard to
liabilities  attributable to continuation  coverage mandated by Section 4980B of
the Code) of the Company and its Subsidiaries is not Material.

         () The  execution  and delivery of this  Agreement and the issuance and
sale of the Notes hereunder will not involve any transaction  that is subject to
the prohibitions of Section 406 of ERISA or in connection with which a tax could
be imposed pursuant to Section 4975(c)(1)(A)-(D) of the Code. The representation
by the Company in the first sentence of this Section 5.12(e) is made in reliance
upon and subject to () the accuracy of your  representation in Section 6.2 as to
the  sources  of the  funds  used to pay the  purchase  price of the Notes to be
purchased  by you and () the  assumption,  made solely for the purpose of making
such  representation,  that Department of Labor Interpretive  Bulletin 75-2 with
respect to prohibited  transactions  remains valid in the  circumstances  of the
transactions contemplated herein.

         ..  PRIVATE  OFFERING  BY THE  COMPANY.  Neither the Company nor anyone
acting on its behalf has offered the Notes or any  similar  securities  for sale
to, or solicited any offer to buy any of the same from, or otherwise  approached
or  negotiated  in respect  thereof  with,  any person other than you, the Other
Purchasers and not more than 25 other Institutional Investors, each of which has
been offered the Notes at a private sale for investment. Neither the Company nor
anyone  acting on its  behalf has taken,  or will  take,  any action  that would
subject the issuance or sale of the Notes to the  registration  requirements  of
Section 5 of the Securities Act.

         .. USE OF  PROCEEDS;  MARGIN  REGULATIONS.  The Company  will apply the
proceeds of the sale of the Notes as set forth in Schedule  5.14. No part of the
proceeds  from  the  sale of the  Notes  hereunder  will be  used,  directly  or
indirectly,  for the purpose of buying or carrying  any margin  stock within the
meaning of Regulation U of the Board of Governors of the Federal  Reserve System
(12 CFR 207),  or for the  purpose  of  buying or  carrying  or  trading  in any
securities under such  circumstances as to involve the Company in a violation of
Regulation  X of said Board (12 CFR 224) or to involve any broker or dealer in a
violation  of  Regulation  T of said Board (12 CFR 220).  Margin  stock does not
constitute more than 5% of the value of the  consolidated  assets of the Company
and its  Subsidiaries  and the Company does not have any present  intention that
margin stock will constitute  more than 5% of the value of such assets.  As used
in this Section,  the terms  "margin  stock" and "purpose of buying or carrying"
shall have the meanings assigned to them in said Regulation U.

         .. EXISTING INDEBTEDNESS.  The audited financial statements dated as of
September 28, 1997 disclose all outstanding  Indebtedness of the Company and its
Subsidiaries  as of such date, and except as set forth in Schedule  5.15,  there
has been no Material  change in the  amounts,  interest  rates,  sinking  funds,
installment  payments or  maturities of the  Indebtedness  of the Company or its
Subsidiaries. Neither the Company nor any Subsidiary is in default and no waiver
of default is currently in effect,  in the payment of any  principal or interest
on any  Indebtedness of the Company or such Subsidiary and no event or condition
exists with respect to any  Indebtedness  of the Company or any Subsidiary  that
would permit (or that with notice or the lapse of time,  or both,  would permit)
one or more Persons to cause such  Indebtedness to become due and payable before
its stated maturity or before its regularly scheduled dates of payment.

         .. FOREIGN ASSETS  CONTROL  REGULATIONS,  ETC.  Neither the sale of the
Notes by the Company  hereunder nor its use of the proceeds thereof will violate
the Trading with the Enemy Act, as amended, or any of the foreign assets control
regulations  of the United  States  Treasury  Department  (31 CFR,  Subtitle  B,
Chapter V, as amended) or any enabling  legislation or executive  order relating
thereto.

          .. ENVIRONMENTAL  MATTERS.  Neither the Company nor any Subsidiary has
knowledge of any claim or has received any notice of any claim,  and neither the
Company  nor any  Subsidiary  has any  knowledge  that any  proceeding  has been
instituted  raising any claim against the Company or any of its  Subsidiaries or
any of their  respective  real  properties  now or  formerly  owned,  leased  or
operated by any of them or other assets,  alleging any damage to the environment
or violation of any Environmental  Laws, except, in each case, such as could not
reasonably  be  expected  to  result in a  Material  Adverse  Effect.  Except as
otherwise disclosed to you in writing,

                  () neither the Company nor any Subsidiary has knowledge of any
         facts  which  would  give  rise to any  claim,  public or  private,  of
         violation of Environmental Laws or damage to the environment  emanating
         from,  occurring  on or in any way  related to real  properties  now or
         formerly owned, leased or operated by any of them or to other assets or
         their  use,  except,  in each  case,  such as could not  reasonably  be
         expected to result in a Material Adverse Effect;

                  () neither the Company nor any of its  Subsidiaries has stored
         any  Hazardous  Materials  on real  properties  now or formerly  owned,
         leased or operated by any of them and has not disposed of any Hazardous
         Materials in a manner contrary to any  Environmental  Laws in each case
         in any manner that could reasonably be expected to result in a Material
         Adverse Effect; and

                  () all buildings on all real  properties now owned,  leased or
         operated by the Company or any of its  Subsidiaries  are in  compliance
         with  applicable  Environmental  Laws,  except where  failure to comply
         could not  reasonably  be  expected  to result  in a  Material  Adverse
         Effect.

         ..  STATUS  UNDER  CERTAIN  STATUTES.   Neither  the  Company  nor  any
Subsidiary is subject to regulation under the Investment Company Act of 1940, as
amended,  the Public  Utility  Holding  Company  Act of 1935,  as  amended,  the
Interstate Commerce Act, as amended, or the Federal Power Act, as amended.

 .        REPRESENTATIONS OF THE PURCHASER.

         .. PURCHASE FOR  INVESTMENT.  You represent that you are purchasing the
Notes for your own account or for one or more  separate  accounts  maintained by
you or for the account of one or more pension or trust funds and not with a view
to the  distribution  thereof  provided  that the  disposition  of your or their
property shall at all times be within your or their control. You understand that
the Notes have not been  registered  under the  Securities Act and may be resold
only if registered  pursuant to the  provisions of the  Securities  Act or if an
exemption  from  registration  is available,  except under  circumstances  where
neither such registration nor such an exemption is required by law, and that the
Company is not required to register the Notes.

     ..  SOURCE  OF FUNDS.  You  represent  that at least  one of the  following
     statements  is an  accurate  representation  as to each  source of funds (a
     "Source")  to be used by you to pay the  purchase  price of the Notes to be
     purchased by you hereunder:

                  () if you  are an  insurance  company,  the  Source  does  not
         include assets allocated to any separate  account  maintained by you in
         which  any  employee  benefit  plan  (or  its  related  trust)  has any
         interest,  other than a separate  account that is maintained  solely in
         connection  with your fixed  contractual  obligations  under  which the
         amounts  payable,  or credited,  to such plan and to any participant or
         beneficiary of such plan  (including any annuitant) are not affected in
         any manner by the investment performance of the separate account; or

                  ()  the  Source  is  either  () an  insurance  company  pooled
         separate  account,   within  the  meaning  of  Prohibited   Transaction
         Exemption  ("PTE")  90-1  (issued  January  29,  1990),  or  () a  bank
         collective  investment  fund,  within  the  meaning  of the PTE  91-38)
         (issued July 12, 1991) and, except as you have disclosed to the Company
         in writing  pursuant to this paragraph (b), no employee benefit plan or
         group of plans maintained by the same employer or employee organization
         beneficially  owns more than 10% of all assets allocated to such pooled
         separate account or collective investment fund; or

                  () the  Source  constitutes  assets  of an  "investment  fund"
         (within  the  meaning  of Part V of the QPAM  Exemption)  managed  by a
         "qualified professional asset manager" or "QPAM" (within the meaning of
         Part V of the QPAM  Exemption),  no employee benefit plan's assets that
         are included in such investment  fund, when combined with the assets of
         all other employee benefit plans  established or maintained by the same
         employer or by an affiliate  (within the meaning of Section  V(c)(1) of
         the  QPAM   Exemption)  of  such  employer  or  by  the  same  employee
         organization  and managed by such QPAM,  exceed 20% of the total client
         assets managed by such QPAM, the conditions of Part I(c) and (g) of the
         QPAM Exemption are satisfied, neither the QPAM nor a person controlling
         or  controlled  by the QPAM  (applying  the  definition of "control" in
         Section V(e) of the QPAM  Exemption)  owns a 5% or more interest in the
         Company  and () the  identity  of such  QPAM  and () the  names  of all
         employee  benefit  plans whose assets are  included in such  investment
         fund have been  disclosed  to the  Company in writing  pursuant to this
         paragraph (c); or

                  ()       the Source is a governmental plan; or

                  ()       the   Source  is  one  or   more   employee   benefit
          plans,  or a separate  account or trust fund  comprised of one or more
          employee  benefit  plans,  each of which  has been  identified  to the
          Company in writing pursuant to this paragraph (e); or

                  ()       the Source  does not  include  assets of any employee
          benefit plan, other than a plan exempt from the coverage of ERISA.

As used in this Section 6.2, the terms  "employee  benefit plan",  "governmental
plan",  "party in interest" and  "separate  account"  shall have the  respective
meanings assigned to such terms in Section 3 of ERISA.

 .        INFORMATION AS TO COMPANY.

         ..       FINANCIAL   AND  BUSINESS   INFORMATION.   The  Company  shall
deliver to each holder of Notes that is an  Institutional Investor:

                  () QUARTERLY  STATEMENTS.  Within 45 days (or, if an extension
         for  filing  its  Form  10-Q  has  been  made by the  Company  with the
         Securities  and Exchange  Commission,  within 50 days) after the end of
         each quarterly  fiscal period in each fiscal year of the Company (other
         than the last  quarterly  fiscal  period  of each  such  fiscal  year),
         duplicate copies of,

                           ()       a consolidated  balance sheet of the Company
                        and its Subsidiaries as at the end of such quarter, and

                           ()       consolidated  statements of income,  changes
                        in  shareholders'  equity and  cash flows of the Company
                        and  its  Subsidiaries,  for such  quarter  and (in  the
                        case of the second and third  quarters)  for the portion
                        of the fiscal year ending with such quarter,

         setting  forth in each case in  comparative  form the  figures  for the
         corresponding  periods in the previous  fiscal year,  all in reasonable
         detail,  prepared  in  accordance  with GAAP  applicable  to  quarterly
         financial  statements  generally,  and certified by a Senior  Financial
         Officer as fairly presenting,  in all material respects,  the financial
         position  of the  companies  being  reported  on and their  results  of
         operations and cash flows,  subject to changes  resulting from year-end
         adjustments,  provided that delivery  within the time period  specified
         above of copies of the Company's Quarterly Report on Form 10-Q prepared
         in  compliance  with  the  requirements  therefor  and  filed  with the
         Securities  and  Exchange  Commission  shall be deemed to  satisfy  the
         requirements  of this  Section  7.1(a)  so long  as such  report  shall
         contain the items set forth above;

                  ()       ANNUAL  STATEMENTS.   Within  90  days   (or,  if  an
          extension  for filing its Form 10-K has been made by the Company  with
          the Securities and Exchange  Commission within 105 days) after the end
          of each fiscal year of the Company, duplicate copies of,

                           ()       a consolidated balance sheet of the Company
                        and its Subsidiaries, as at the end of such year, and

                           ()       consolidated  statements of income,  changes
                        in  shareholders'  equity and  cash flows of the Company
                        and its Subsidiaries, for such year,

         setting  forth in each case in  comparative  form the  figures  for the
         previous fiscal year, all in reasonable detail,  prepared in accordance
         with  GAAP,  and  accompanied  by an  opinion  thereon  of  independent
         certified public  accountants of recognized  national  standing,  which
         opinion shall state that such financial  statements  present fairly, in
         all material  respects,  the financial  position of the companies being
         reported upon and their  results of operations  and cash flows and have
         been prepared in conformity with GAAP, and that the examination of such
         accountants in connection with such financial  statements has been made
         in accordance with generally accepted auditing standards, and that such
         audit   provides   a   reasonable   basis  for  such   opinion  in  the
         circumstances,  provided  that the  delivery  within  the  time  period
         specified  above of the  Company's  Annual Report on Form 10-K for such
         fiscal year (together with the Company's annual report to shareholders,
         if any,  prepared  pursuant  to Rule  14a-3)  under the  Exchange  Act)
         prepared in accordance  with the  requirements  therefor and filed with
         the Securities and Exchange  Commission  shall be deemed to satisfy the
         requirements  of this  Section  7.1(b)  so long  as such  report  shall
         contain the items set forth above;

                  ()  SEC  AND  OTHER  REPORTS.  Promptly  upon  their  becoming
         available,  one copy of () each financial statement,  report, notice or
         proxy  statement  sent  by the  Company  or any  Subsidiary  to  public
         securities holders  generally,  and () each regular or periodic report,
         each registration  statement that shall have become effective  (without
         exhibits except as expressly requested by such holder),  and each final
         prospectus  and all  amendments  thereto  filed by the  Company  or any
         Subsidiary with the Securities and Exchange Commission;

                  () NOTICE OF DEFAULT OR EVENT OF DEFAULT. Promptly, and in any
         event within five days after a Responsible  Officer  becoming  aware of
         the  existence  of any  Default or Event of Default,  a written  notice
         specifying  the nature and period of existence  thereof and what action
         the Company is taking or proposes to take with respect thereto;

                  () ERISA MATTERS.  Promptly, and in any event within five days
         after a Responsible  Officer becoming aware of any of the following,  a
         written notice setting forth the nature thereof and the action, if any,
         that the Company or an ERISA  Affiliate  proposes to take with  respect
         thereto:

                           () with respect to any Plan,  any  reportable  event,
                  as defined  in section  4043(b) of  ERISA and  the regulations
                  thereunder,  for which  notice  thereof  has not  been  waived
                  pursuant to such  regulations as in effect on the date hereof,
                  or

                           () the taking by the PBGC of steps to  institute,  or
                  the threatening by the PBGC of the institution of, proceedings
                  under  section  4042 of ERISA for the  termination  of, or the
                  appointment  of a trustee  to  administer,  any  Plan,  or the
                  receipt by the Company or any ERISA Affiliate of a notice from
                  a  Multiemployer  Plan that such  action has been taken by the
                  PBGC with respect to such Multiemployer Plan; or

                           (iii) any event,  transaction or condition that could
                  reasonably  result in the  incurrence  of any liability by the
                  Company or any ERISA  Affiliate  pursuant  to Title I or IV of
                  ERISA or the  penalty  or excise  tax  provisions  of the Code
                  relating to employee  benefit  plans,  or in the imposition of
                  any Lien on any of the  rights,  properties  or  assets of the
                  Company or any ERISA  Affiliate  pursuant  to Title I or IV of
                  ERISA  or such  penalty  or  excise  tax  provisions,  if such
                  liability  or  Lien,   taken  together  with  any  other  such
                  liabilities  or  Liens  then  existing,  would  reasonably  be
                  expected to have a Material Adverse Effect; and

                  ()  MANAGEMENT  REPORTS.  Promptly  upon  receipt  thereof,  a
         copy of each  other  report (including,  without limitation, management
         letters)  submitted  to  the  Company or any  Restricted Subsidiary  by
         independent  accountants  in  connection  with any annual audit made by
         them of  the  books  of the  Company or any  Restricted  Subsidiary  or
         special audit by them of the books of the Company; and

                  () REQUESTED  INFORMATION.  With reasonable  promptness,  such
         other  data  and  information  relating  to the  business,  operations,
         affairs,  financial  condition,  assets or properties of the Company or
         any of its  Subsidiaries  or  relating to the ability of the Company to
         perform its  obligations  hereunder and under the Notes as from time to
         time may be reasonably requested by any such holder of Notes.

         ..       OFFICER'S/ACCOUNTANT'S CERTIFICATE.

         7.2().  Each  set  of financial  statements  delivered  to a  holder of
Notes  pursuant to Section  7.1(a) or Section 7.1(b) hereof shall be accompanied
by a certificate of a Senior Financial Officer setting forth:

                   () COVENANT  COMPLIANCE.  The information (including detailed
         calculations) required in order to establish whether the Company was in
         compliance with the  requirements of Sections 10.1,  10.2(A),  10.2(B),
         10.3 and 10.7 hereof during the  quarterly or annual period  covered by
         the statements  then being  furnished  (including  with respect to each
         such Section,  where  applicable,  the  calculations  of the maximum or
         minimum amount,  ratio or percentage,  as the case may be,  permissible
         under the terms of such  Sections,  and the  calculation of the amount,
         ratio or percentage then in existence); and

                  () EVENT  OF  DEFAULT.  A  statement  that  such  officer  has
         reviewed the relevant  terms hereof and has made, or caused to be made,
         under  his  or her  supervision,  a  review  of  the  transactions  and
         conditions  of the Company and its  Subsidiaries  from the beginning of
         the quarterly or annual  period  covered by the  statements  then being
         furnished to the date of the certificate and that such review shall not
         have  disclosed  the  existence  during such period of any condition or
         event that constitutes a Default or an Event of Default or, if any such
         condition or event existed or exists  (including,  without  limitation,
         any such event or condition  resulting  from the failure of the Company
         or any Subsidiary to comply with any Environmental Law), specifying the
         nature and period of  existence  thereof  and what  action the  Company
         shall have taken or proposes to take with respect thereto.

         7.2().  Together with each delivery of financial statements required by
Section  7.1(b) above,  the Company will deliver to each Purchaser a certificate
of the accountants  preparing such statements  stating that, in making the audit
necessary for their report on such financial  statements,  they have obtained no
knowledge  of any  Event of  Default  or  Default,  or,  if they  have  obtained
knowledge of any Event of Default or Default,  specifying  the nature and period
of existence thereof. Such accountants,  however,  shall not be liable to anyone
by reason  of their  failure  to obtain  knowledge  of any Event of  Default  or
Default  which would not be  disclosed  in the course of an audit  conducted  in
accordance with generally accepted auditing standards.

         ..       INSPECTION.  The Company  shall permit the  representatives of
each holder of Notes that is an Institutional Investor:

                  () NO DEFAULT.  If no Default or Event of Default then exists,
         at the expense of such holder and upon  reasonable  prior notice to the
         Company,  to visit the principal  executive  office of the Company,  to
         discuss  the  affairs,  finances  and  accounts  of the Company and its
         Subsidiaries with the Company's officers,  and, with the consent of the
         Company  (which  consent  will  not  be   unreasonably   withheld)  its
         independent public  accountants,  and (with the consent of the Company,
         which  consent  will not be  unreasonably  withheld) to visit the other
         offices and properties of the Company, and each Subsidiary, all at such
         reasonable  times  and  as  often  as may be  reasonably  requested  in
         writing; and

                  () DEFAULT.  If a Default or Event of Default then exists,  at
         the  expense of the  Company to visit and inspect any of the offices or
         properties  of the  Company or any  Subsidiary,  to  examine  all their
         respective books of account, records, reports and other papers, to make
         copies and extracts therefrom, and to discuss their respective affairs,
         finances and accounts with their  respective  officers and  independent
         public  accountants (and by this provision the Company  authorizes said
         accountants  to discuss  the  affairs,  finances  and  accounts  of the
         Company and its Subsidiaries), all at such times and as often as may be
         requested.

 .        PAYMENT OF THE NOTES.

         ..       PAYMENTS AT  MATURITY.  On  December  18,  2008,  the  Company
shall pay the entire  outstanding  principal amount of outstanding Notes and the
Other Notes in a single installment at par and without payment of the Make-Whole
Amount or any premium.

         .. OPTIONAL PREPAYMENTS WITH MAKE-WHOLE AMOUNT. The Company may, at its
option,  upon notice as provided below, prepay on any Business Day, or from time
to time any part of, the Notes and the Other  Notes,  in an amount not less than
10% of the  aggregate  principal  amount of the Notes and the Other  Notes  then
outstanding in the case of a partial prepayment, at 100% of the principal amount
so prepaid,  plus the Make-Whole  Amount determined for the prepayment date with
respect to such principal amount. The Company will give each holder of Notes and
the Other Notes written  notice of each optional  prepayment  under this Section
8.2 not less than 15 days and not more than 60 days  prior to the date fixed for
such  prepayment.  Each such  notice  shall  specify  such date,  the  aggregate
principal  amount of the Notes and the Other  Notes to be  prepaid on such date,
the principal amount of each Note held by such holder to be prepaid  (determined
in accordance  with Section 8.3),  and the interest to be paid on the prepayment
date  with  respect  to such  principal  amount  being  prepaid,  and  shall  be
accompanied by a certificate of a Senior  Financial  Officer as to the estimated
Make-Whole  Amount due in connection with such prepayment  (calculated as if the
date of such notice were the date of the prepayment),  setting forth the details
of such  computation.  Two Business Days prior to such  prepayment,  the Company
shall  deliver  to each  holder  of Notes a  certificate  of a Senior  Financial
Officer specifying the calculation of such Make-Whole Amount as of the specified
prepayment date.

         ..  ALLOCATION  OF  PARTIAL  PREPAYMENTS.  In the case of each  partial
prepayment of the Notes,  the principal  amount of the Notes to be prepaid shall
be allocated  among all of the Notes at the time  outstanding in proportion,  as
nearly as practicable,  to the respective  unpaid principal  amounts thereof not
theretofore called for prepayment.

         .. MATURITY;  SURRENDER,  ETC. In the case of each  prepayment of Notes
pursuant  to this  Section  8, the  principal  amount of each Note to be prepaid
shall  mature and become due and payable on the date fixed for such  prepayment,
together with  interest on such  principal  amount  accrued to such date and the
applicable  Make-Whole  Amount,  if any.  From and after such  date,  unless the
Company  shall  fail to pay  such  principal  amount  when  so due and  payable,
together with the interest and Make-Whole Amount, if any, as aforesaid, interest
on such principal amount shall cease to accrue. Any Note paid or prepaid in full
shall be surrendered to the Company and canceled and shall not be reissued,  and
no Note shall be issued in lieu of any prepaid principal amount of any Note.

         ..  PURCHASE OF NOTES.  The Company  will not,  and will not permit any
Affiliate,  to  purchase,  redeem,  prepay or  otherwise  acquire,  directly  or
indirectly,  any of the outstanding  Notes except upon the payment or prepayment
of the Notes in accordance  with the terms of this Agreement and the Notes.  The
Company will promptly cancel all Notes acquired by it or any Affiliate  pursuant
to any payment,  prepayment  or purchase of Notes  pursuant to any  provision of
this  Agreement and no Notes may be issued in  substitution  or exchange for any
such Notes.

         ..       OFFER TO PREPAY NOTES IN THE EVENT OF A CHANGE IN CONTROL.

                  (i) NOTICE OF IMPENDING  CHANGE IN CONTROL.  The Company shall
         give to each holder of Notes  prompt  written  notice of any  impending
         Change in Control for which it has received a written offer or notice.

                  (ii) NOTICE OF  OCCURRENCE  OF CHANGE IN CONTROL.  The Company
         will,  within  five  Business  Days after any  Responsible  Officer has
         knowledge  of the  occurrence  of any Change in Control,  give  written
         notice of such Change in Control to each  holder of Notes.  If a Change
         in Control has occurred,  such notice shall  contain and  constitute an
         offer  to  prepay  the  Notes  as  described  in  clause  (iii) of this
         paragraph 8.6 and shall be accompanied by the certificate  described in
         clause (vi) hereof.

                  (iii)  OFFER  TO  PREPAY  NOTES.  The  offer to  prepay  Notes
         contemplated by the foregoing  clause (ii) shall be an offer to prepay,
         in accordance with and subject to this paragraph 8.6, all, but not less
         than all, the Notes held by each holder (in this case only, "holder" in
         respect of any Note registered in the name of a nominee for a disclosed
         beneficial owner shall mean such beneficial  owner) on a date specified
         in  such  offer  (the  "PROPOSED   PREPAYMENT  DATE").   Such  Proposed
         Prepayment  Date  shall be not less  than 30 days and not more  than 90
         days  after the date of such  offer (if the  Proposed  Prepayment  Date
         shall not be specified  in such offer,  the  Proposed  Prepayment  Date
         shall be the 60th day after the date of such offer).

                  (iv) REJECTION,  ACCEPTANCE.  A holder of Notes may accept the
         offer to prepay made pursuant to this paragraph 8.6 by causing a notice
         of such  acceptance to be delivered to the Company within 60 days after
         receipt  of the  notice  required  pursuant  to  clause  (ii)  of  this
         paragraph 8.6. A failure by a holder of Notes to respond to an offer to
         prepay made  pursuant to this  paragraph  8.6 within such 60-day period
         shall be deemed to constitute a rejection of such offer by such holder.

                  (v) PREPAYMENT. Prepayment of the Notes to be prepaid pursuant
         to this paragraph 8.6 shall be at 100% of the principal  amount of such
         Notes, plus the Make-Whole  Amount, if any,  determined for the date of
         prepayment  with  respect  to  such  principal  amount,  together  with
         interest  on  such  Notes  accrued  to  the  date  of  prepayment.  The
         prepayment shall be made on the Proposed Prepayment Date.

                  (vi)  OFFICER'S  CERTIFICATE.  Each  offer to prepay the Notes
         pursuant to this  paragraph 8.6 shall be  accompanied by a certificate,
         executed by a Responsible  Officer of the Company and dated the date of
         such offer,  specifying:  () the Proposed Prepayment Date; () that such
         offer is made pursuant to this paragraph  8.6; () the principal  amount
         of each Note offered to be prepaid;  () the interest  that would be due
         on each Note offered to be prepaid,  accrued to the Proposed Prepayment
         Date; () that the conditions of this paragraph 8.6 have been fulfilled;
         and () in  reasonable  detail,  the  nature  and date of the  Change in
         Control.

         .. MAKE-WHOLE AMOUNT. The term "MAKE-WHOLE  AMOUNT" means, with respect
to any Note, an amount equal to the excess,  if any, of the Discounted  Value of
the Remaining  Scheduled  Payments with respect to the Called  Principal of such
Note over the amount of such  Called  Principal,  provided  that the  Make-Whole
Amount may in no event be less than zero.  For the purposes of  determining  the
Make-Whole Amount, the following terms have the following meanings:

                  "CALLED  PRINCIPAL"  means,  with  respect  to any  Note,  the
         principal of such Note that is to be prepaid pursuant to Section 8.2 or
         has become or is declared to be immediately due and payable pursuant to
         Section 12.1, as the context requires.

                  "DISCOUNTED VALUE" means, with respect to the Called Principal
         of any Note, the amount obtained by discounting all Remaining Scheduled
         Payments with respect to such Called  Principal  from their  respective
         scheduled due dates to the Settlement  Date with respect to such Called
         Principal,  in  accordance  with accepted  financial  practice and at a
         discount  factor  (applied on the same periodic  basis as that on which
         interest on the Notes is payable) equal to the Reinvestment  Yield with
         respect to such Called Principal.

                  "REINVESTMENT   YIELD"  means,  with  respect  to  the  Called
         Principal of any Note,  0.50% over the yield to maturity  implied by ()
         the  yields  reported,  as of 10:00  A.M.  (New York City  time) on the
         second  Business Day preceding the Settlement Date with respect to such
         Called Principal, on page C4 of the Bloomberg Financial Markets Service
         (or, if not available,  any other nationally  recognized trading screen
         reporting   on-line  intra-day  trading  in  United  States  government
         securities)  for  actively  traded U.S.  Treasury  securities  having a
         maturity equal to the Remaining  Average Life of such Called  Principal
         as of such Settlement Date, or () if such yields are not reported as of
         such time or the yields reported as of such time are not ascertainable,
         the Treasury Constant  Maturity Series Yields reported,  for the latest
         day for which  such  yields  have  been so  reported  as of the  second
         Business Day preceding the Settlement  Date with respect to such Called
         Principal,  in Federal Reserve  Statistical  Release H.15 (519) (or any
         comparable  successor  publication)  for actively traded U.S.  Treasury
         securities  having a constant  maturity equal to the Remaining  Average
         Life of such Called  Principal as of such Settlement Date. Such implied
         yield will be determined,  if necessary, by () converting U.S. Treasury
         bill quotations to bond  equivalent  yields in accordance with accepted
         financial  practice  and  ()  interpolating  linearly  between  ()  the
         actively traded U.S. Treasury security with the maturity closest to and
         greater than the Remaining Average Life and () the actively traded U.S.
         Treasury  security  with the  duration  closest  to and  less  than the
         Remaining Average Life.

                  "REMAINING  AVERAGE  LIFE"  means,  with respect to any Called
         Principal,  the number of years (calculated to the nearest  one-twelfth
         year) obtained by dividing () such Called  Principal into () the sum of
         the products  obtained by  multiplying  (a) the principal  component of
         each Remaining  Scheduled Payment with respect to such Called Principal
         by (b) the number of years (calculated to the nearest one-twelfth year)
         that will  elapse  between  the  Settlement  Date with  respect to such
         Called Principal and the scheduled due date of such Remaining Scheduled
         Payment.

                  "REMAINING  SCHEDULED  PAYMENTS"  means,  with  respect to the
         Called Principal of any Note, all payments of such Called Principal and
         interest  thereon  that  would be due  after the  Settlement  Date with
         respect to such Called Principal if no payment of such Called Principal
         were  made  prior to its  scheduled  due  date,  provided  that if such
         Settlement Date is not a date on which interest  payments are due to be
         made  under  the  terms  of the  Notes,  then  the  amount  of the next
         succeeding  scheduled interest payment will be reduced by the amount of
         interest  accrued to such  Settlement  Date and  required to be paid on
         such Settlement Date pursuant to Section 8.2 or 12.1.

                  "SETTLEMENT  DATE" means, with respect to the Called Principal
         of any Note,  the date on which such Called  Principal is to be prepaid
         pursuant to Section 8.2 or has become or is declared to be  immediately
         due and payable pursuant to Section 12.1, as the context requires.

 .        AFFIRMATIVE COVENANTS.  The  Company  covenants  that so long as any of
the Notes are outstanding:

         ..  COMPLIANCE  WITH LAW.  The Company  will and will cause each of its
Subsidiaries  to  comply  with all laws,  ordinances  or  governmental  rules or
regulations  to which each of them is subject,  including,  without  limitation,
Environmental  Laws,  and will  obtain  and  maintain  in effect  all  licenses,
certificates,   permits,   franchises  and  other  governmental   authorizations
necessary to the ownership of their  respective  properties or to the conduct of
their respective businesses, in each case to the extent necessary to ensure that
non-compliance  with such laws,  ordinances or governmental rules or regulations
or  failures  to  obtain or  maintain  in effect  such  licenses,  certificates,
permits,  franchises and other governmental  authorizations would not reasonably
be expected,  individually  or in the  aggregate,  to have a materially  adverse
effect on the business, operations,  affairs, financial condition, properties or
assets of the Company and its Subsidiaries taken as a whole.

         ..  INSURANCE.  The Company will and will cause each of its  Restricted
Subsidiaries  to  maintain,  with  financially  sound  and  reputable  insurers,
insurance with respect to, their  respective  properties and businesses  against
such  casualties  and  contingencies,  of such types,  on such terms and in such
amounts (including  deductibles,  co-insurance and  self-insurance,  if adequate
reserves are  maintained  with  respect  thereto) as is customary in the case of
entities of established  reputations  engaged in the same or a similar  business
and similarly situated.

         ..  MAINTENANCE OF PROPERTIES.  The Company will and will cause each of
its Restricted  Subsidiaries to maintain and keep, or cause to be maintained and
kept,  their respective  properties in good repair,  working order and condition
(other  than  ordinary  wear  and  tear)  so that  the  business  carried  on in
connection therewith may be properly conducted at all times,  provided that this
Section  shall  not  prevent  the  Company  or any  Restricted  Subsidiary  from
discontinuing the operation and the maintenance of any of its properties if such
discontinuance  is  desirable in the conduct of its business and the Company has
concluded that such discontinuance would not,  individually or in the aggregate,
have a materially adverse effect on the business, operations, affairs, financial
condition,  properties or assets of the Company and its Subsidiaries  taken as a
whole.

         .. PAYMENT OF TAXES AND CLAIMS. The Company will and will cause each of
its  Subsidiaries  to  file  all  tax  returns  required  to  be  filed  in  any
jurisdiction  and to pay and  discharge all taxes shown to be due and payable on
such returns and all other taxes,  assessments,  governmental charges, or levies
imposed on them or any of their properties, assets, income or franchises, to the
extent  such taxes and  assessments  have become due and payable and before they
have become delinquent and all claims for which sums have become due and payable
that have or might become a Lien on  properties  or assets of the Company or any
Subsidiary,  provided that neither the Company nor any  Subsidiary  need pay any
such tax or  assessment  or claims if () the amount,  applicability  or validity
thereof is contested by the Company or such Subsidiary on a timely basis in good
faith and in  appropriate  proceedings,  and the  Company  or a  Subsidiary  has
established  adequate  reserves therefor in accordance with GAAP on the books of
the  Company  or such  Subsidiary  or () the  nonpayment  of all such  taxes and
assessments  in the  aggregate  would  not  reasonably  be  expected  to  have a
materially  adverse  effect  on the  business,  operations,  affairs,  financial
condition,  properties or assets of the Company and its Subsidiaries  taken as a
whole

         .. CORPORATE EXISTENCE, ETC. The Company will at all times preserve and
keep in full force and effect its corporate existence.  Subject to Sections 10.6
and 10.7,  the  Company  will at all times  preserve  and keep in full force and
effect the corporate  existence of each of its  Subsidiaries  (unless  merged or
liquidated  into the Company or a Subsidiary)  and all rights and  franchises of
the  Company  and its  Subsidiaries  unless,  in the good faith  judgment of the
Company,  the  termination  of or failure to preserve and keep in full force and
effect such corporate existence,  right or franchise would not,  individually or
in the aggregate, have a materially adverse effect on the business,  operations,
affairs,  financial  condition,  properties  or  assets of the  Company  and its
Subsidiaries taken as a whole.

         .. COVENANT TO SECURE NOTE EQUALLY.  The Company  covenants that, if it
or any  Restricted  Subsidiary  shall  create or assume any Lien upon any of its
property or assets,  whether now owned or hereafter  acquired,  other than Liens
permitted by the provisions of Section 10.4 (unless prior written consent to the
creation or  assumption  thereof  shall have been  obtained  pursuant to Section
17.1),  it will make or cause to be made effective  provision  whereby the Notes
will be  secured  by such  Lien  equally  and  ratably  with  any and all  other
Indebtedness  thereby secured so long as any such other Indebtedness shall be so
secured.  However,  the  compliance by the Company of this Section 9.6 shall not
constitute a waiver of, or cure for, any violation of Section 10.4 hereof.

 .        NEGATIVE COVENANTS.  The Company  covenants that so long  as any of the
Notes are outstanding:

         ..       EBITDAR TO FIXED  CHARGE  COVERAGE  RATIO.  The  Company shall
not permit at any time the ratio of EBITDAR to Fixed Charges to be less than 3.0
to 1.0.

         ..       DEBT TO CAP/PRIORITY DEBT.

         10.2(A).  DEBT TO CAP.  The Company  shall not permit at any time Total
Debt to exceed the percentage of  Consolidated  Total  Capitalization  set forth
below opposite the applicable  percentage of  Consolidated  Total Assets sold as
part of the securitization program described in Section 10.7(b):
<TABLE>
<CAPTION>

                               Percentage of                     Percentage
                         Consolidated Total Assets
                                   <S>                                <C>
                                   less than 10%                      60%
                                   AE10%                              55%
</TABLE>

         10.2(B).  PRIORITY  DEBT.  The Company shall not, as of the end of each
fiscal  quarter  during which any Notes are  outstanding,  permit the  aggregate
outstanding  amount of Priority Debt to exceed 25% of Consolidated  Net Worth at
such time.

         .. RESTRICTED PAYMENTS. The Company shall not, and shall not permit any
Restricted Subsidiary, to declare, make, pay or become obligated to make or pay,
any Restricted  Payment  (other than any Restricted  Payment to the Company or a
Wholly-Owned  Restricted Subsidiary) or any Restricted Investment unless, at the
time  and  immediately  after  giving  effect  to  such  Restricted  Payment  or
Restricted  Investment,  no  Default  or  Event  of  Default  would  exist or be
continuing.

         ..       LIENS.  The  Company  shall  not, and  shall  not  permit  any
Restricted Subsidiary to, create, assume or suffer to exist any Lien upon any of
its  respective  property or assets,  whether now owned or  hereafter  acquired,
except:

                  ()       Liens  existing  on  the  Closing  and  specified  on
         Schedule 10.4;

                  ()       Liens  ()  for   taxes  (including  ad   valorem  and
         property  taxes) and assessments or governmental  charges or levies not
         yet due or () for taxes due or () resulting from any judgment or award,
         and in the  case of  clause  (B) and (C),  are being actively contested
         in  good faith  by appropriate  proceedings and with  respect  to which
         adequate reserves under GAAP are being maintained;

                  ()   landlord   liens  and   statutory   liens  of   carriers,
         warehousemen,  mechanics,  material men and other liens imposed by law,
         created in the  ordinary  course of business for amounts not yet due or
         which are being  contested in good faith by appropriate  proceedings or
         with  respect  to  which   adequate   reserves  under  GAAP  are  being
         maintained,  and  which  were  not  incurred  in  connection  with  the
         borrowing of money;

                  () Liens  incurred or deposits made in the ordinary  course of
         business  in  connection  with  workers'   compensation,   unemployment
         insurance  and  other  types  of  social  security  or  to  secure  the
         performance of tenders, statutory obligations, surety and appeal bonds,
         bids,  leases,  government  contracts,  performance and return of money
         bonds and similar obligations;

                  ()         easements,    rights-of-way,   zoning  and  similar
         restrictions  and other similar  charges or encumbrances not materially
         interfering with the ordinary conduct of the business of the Company or
         any of its Restricted Subsidiaries;

                  () other Liens  incidental  to the conduct of its  business or
         the  ownership  of its  property  and assets which were not incurred in
         connection  with  the  borrowing  of  money,  and  which  do not in the
         aggregate  materially  detract  from the value of property or assets of
         the  Company  and its  Restricted  Subsidiaries  taken  as a  whole  or
         materially  impair the use of such  property or assets in the operation
         of the business of the Company or any of its Restricted Subsidiaries;

                  ()        leases,   subleases,   licenses   and   sublicenses
         granted to third  parties not interfering  in any material respect with
         the business of the Company or any of its Restricted Subsidiaries;

                  ()   Liens on property  or assets of a  Restricted  Subsidiary
         of  the  Company  to  secure  obligations  of  such  Subsidiary  to the
         Company or another Wholly-Owned Restricted Subsidiary;

                  ()   any right of set off or banker's  lien (whether by common
         law,  statute,  contract or otherwise) in favor of any bank (other than
         Liens securing Debt);

                  ()   Liens on receivables (and  intangibles  related  thereto)
         of  the Company  and its  Restricted  Subsidiaries  granted pursuant to
         Maturity Factoring Arrangements; and

                  () other Liens in addition to those described in subparagraphs
         (i) through (ix) above and securing Indebtedness of the Company and any
         Restricted Security; provided, however, that after giving effect to the
         Indebtedness  secured by such Liens, the Company shall be in compliance
         with Section 10.2(B) hereof.

         ..  TRANSACTIONS  WITH  AFFILIATES.  The Company  will not and will not
permit any  Restricted  Subsidiary  to enter into  directly  or  indirectly  any
Material  transaction  or  Material  group of  related  transactions  (including
without  limitation the purchase,  lease,  sale or exchange of properties of any
kind or the rendering of any service) with any Affiliate (other than the Company
or another  Subsidiary),  except: () pursuant to the reasonable  requirements of
the Company's or such  Subsidiary's  business and upon fair and reasonable terms
no less favorable to the Company or such  Subsidiary than would be obtainable in
a comparable arm's-length  transaction with a Person not an Affiliate and () any
stock issuances that may occur under the Rights Agreement dated as of August 23,
1990, as amended prior to the Closing,  between the Company and Wachovia Bank of
North Carolina,  N.A., as Rights Agent or stock redemptions that may occur under
the  Stockholders'  Agreement dated as of June 22, 1990, as amended prior to the
Closing, among the Company,  Maurice Fishman, George Greenberg and Charles Hayes
or the  Stockholders  Agreement  dated as of April 30, 1991, as amended prior to
the  Closing,  among the Company,  Maurice  Fishman and Charles  Hayes  (without
giving  effect  to  any  amendment,   supplement  or  modification  which  would
materially  change the terms and provisions of any of the foregoing to which the
Required Holders have not consented).

         ..  MERGER,  CONSOLIDATION,  SALES OF  SUBSTANTIALLY  ALL  ASSETS.  The
Company  shall not, and shall not permit any  Restricted  Subsidiary  to, merge,
consolidate or exchange  shares with any other Person or sell,  assign,  convey,
transfer or lease  substantially  all of its assets in a single  transaction  or
series of transactions to any Person, except that:

                  () any Restricted Subsidiary may merge or consolidate with and
         into the Company or with a  Wholly-Owned  Restricted  Subsidiary or, if
         not a  Wholly-Owned  Subsidiary,  a Restricted  Subsidiary in which the
         ownership  interest  of  the  Company  is not  reduced  or  diluted  in
         connection with or as a result of such merger or consolidation;

                  () a Restricted Subsidiary may sell or transfer  substantially
         all of  its  assets  to the  Company  or to a  Wholly-Owned  Restricted
         Subsidiary  or,  if  not  a  Wholly-Owned   Restricted  Subsidiary,   a
         Restricted  Subsidiary where the direct or indirect  ownership interest
         of the  Company in such sold or  transferred  assets is not  reduced or
         diluted;

                  () a Restricted Subsidiary may sell or transfer  substantially
         all of its assets to a Person  other than the  Company or a  Restricted
         Subsidiary  so long as:  (x) if such sale or  transfer  constitutes  an
         Asset Sale, the Restricted Subsidiary complies with Section 10.7 hereof
         with respect to such Asset Sale and (y) such sale or transfer  does not
         constitute a sale or transfer of substantially all of the assets of the
         Company; and

                  ()       the  Company  may merge or consolidate with any other
         corporation,  or  sell,  assign,  convey,  transfer  or  lease  all  or
         substantially all of the assets of the Company, so long as:

                           () the surviving  corporation  (or the corporation to
                  which such sale, assignment,  transfer, conveyance or lease is
                  made  (the  "transferee"))  shall be the  Company  or  another
                  corporation organized under the laws of the United States or a
                  State thereof or the District of Columbia;

                           ()       the  surviving  (or transferee)  corporation
                  (if  not  the  Company) shall  assume  the  obligations of the
                  Company   hereunder   pursuant  to  an   agreement  reasonably
                  acceptable to the Required Holders; and

                           ()       immediately  after  giving  effect  to  such
                  merger,  consolidation  or sale  or  transfer  of  assets,  no
                  Default or Event of Default shall have occurred or exist.

         ..       SALES OF ASSETS.

         () The Company  shall not,  and shall not permit any of its  Restricted
Subsidiaries  to,  engage in Asset  Sales  during any fiscal year of the Company
unless the assets to be sold in such Asset Sale,  together with all other assets
of the Company and its  Restricted  Subsidiaries  sold,  leased,  transferred or
otherwise  disposed  of in all  other  Asset  Sales  during  such  fiscal  year,
constitute less than 10% of the Consolidated Total Assets measured as of the end
of the  immediately  preceding  Fiscal  Year or  contributed  less  than  10% of
Consolidated  Operating  Income  during the  immediately  preceding  fiscal year
(disregarding  any fiscal  quarter in which there was an  operating  loss,  on a
consolidated basis).

         () The foregoing limitation shall not prohibit the Company from selling
accounts  receivable in an aggregate face amount if, when combined with the face
amount of all  other  receivables  then  outstanding  under  any  securitization
program,  such amount  would not exceed the  percentage  of  Consolidated  Total
Assets set forth below opposite the applicable ratio:
<TABLE>
<CAPTION>

      ----------------------------------------------------------------------
                   Ratio of Total Debt to                     Percentage
             Consolidated Total Capitalization
              (as of the Date of Determination)
      -----------------------------------------------------------------------
                     <S>                                         <C>
                     ae .55 to 1.0                               20%
      -----------------------------------------------------------------------
                      >.55 to 1.0                                10%
      -----------------------------------------------------------------------
</TABLE>

         ..  NATURE  OF  BUSINESS.   Neither  the  Company  nor  any  Restricted
Subsidiary shall engage in any business,  if as a result, when taken as a whole,
the  general  nature of the  business  then  engaged in by the  Company  and its
Restricted  Subsidiaries  would be substantially  changed from the nature of the
business of the Company and its Subsidiaries on the date hereof and described in
the Memorandum.

         .. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES.  The
Company  shall  not  permit  any of its  Restricted  Subsidiaries  to  create or
otherwise  cause or suffer  to exist or  become  effective  any  encumbrance  or
restriction on the ability of any Restricted Subsidiary to ()() pay dividends or
make  any  other   distributions  to  the  Company  or  any  of  its  Restricted
Subsidiaries  with respect to, or on account of, its Equity  Interests or () pay
any Indebtedness owed to the Company or any of its Restricted  Subsidiaries,  ()
make loans or advances to the Company or any of its Restricted  Subsidiaries  or
()  transfer  any of its  properties  or  assets  to the  Company  or any of its
Restricted  Subsidiaries,  except for such encumbrances or restrictions existing
under or by reason of () agreements evidencing  Indebtedness as in effect on the
Closing and described on Schedule 5.15 hereof and any agreement  which evidences
any renewal, extension, substitution or refinancing of such Indebtedness so long
as the provisions  relating to such encumbrance or restriction  contained in any
such  agreement  are no more  restrictive  or  onerous  to the  Company  or such
Subsidiary,  () agreements evidencing Priority Debt of Subsidiaries permitted to
be incurred under this  Agreement,  () applicable law, () by reason of customary
non-assignment  provisions  in leases  entered  into in the  ordinary  course of
business and consistent with past practices,  () purchase money  obligations for
property acquired in the ordinary course of business that impose restrictions of
the nature  described in clause (iii) above on the property so acquired,  and ()
an agreement  that has been entered into for the sale or  disposition  of all or
substantially  all of the Equity Interests or property or assets of a Restricted
Subsidiary.

 .        EVENTS OF  DEFAULT.  An "EVENT OF  DEFAULT"  shall  exist if any of the
following  conditions  or events  shall  occur and be continuing:

                  ()      the Company  defaults in the payment of any  principal
         or  Make-Whole  Amount,  if any, on  any Note when the same becomes due
         and payable, whether  at maturity or at a date fixed  for prepayment or
         by declaration or otherwise; or

                  ()     the Company  defaults in the payment of any interest on
         any Note for more  than five  Business  Days after the same becomes due
         and payable; or

                  ()    the Company defaults in the performance of or compliance
          with any term contained in Section 10 hereof; or

                  () the Company  defaults in the  performance  of or compliance
         with any  term  contained  herein  (other  than  those  referred  to in
         paragraphs (a), (b) and (c) of this Section 11) and such default is not
         remedied  within 30 days after the earlier of () a Responsible  Officer
         obtaining actual knowledge of such default and () the Company receiving
         written  notice  of such  default  from any  holder of a Note (any such
         written  notice to be  identified as a "notice of default" and to refer
         specifically to this paragraph (d) of Section 11); or

                  () any  representation  or  warranty  made in writing by or on
         behalf  of  the  Company  or by any  officer  of the  Company  in  this
         Agreement  or  in  any  writing   furnished  in  connection   with  the
         transactions contemplated hereby proves to have been false or incorrect
         in any material respect on the date as of which made; or

                  () () the Company or any  Restricted  Subsidiary is in default
         (as  principal or as  guarantor or other  surety) in the payment of any
         principal  of or  premium  or  make-whole  amount  or  interest  on any
         Indebtedness that is outstanding in an aggregate principal amount of at
         least  $10,000,000  beyond any period of grace  provided  with  respect
         thereto,  or () the Company or any Restricted  Subsidiary is in default
         in the  performance  of or compliance  with any term of any evidence of
         any  Indebtedness in an aggregate  outstanding  principal  amount of at
         least  $10,000,000  or of any  mortgage,  indenture or other  agreement
         relating thereto or any other condition exists, and as a consequence of
         such default or condition  such  Indebtedness  has become,  or has been
         declared  (or  one  or  more  Persons  are  entitled  to  declare  such
         Indebtedness  to be),  due and  payable  before its stated  maturity or
         before its regularly  scheduled dates of payment or () as a consequence
         of the occurrence or continuation of any event or condition (other than
         the  passage  of time or the  right of the  holder of  Indebtedness  to
         convert such  Indebtedness into equity  interests),  (x) the Company or
         any  Restricted  Subsidiary  has become  obligated to purchase or repay
         Indebtedness  before  its  regular  maturity  or before  its  regularly
         scheduled dates of payment in an aggregate outstanding principal amount
         of at least  $10,000,000,  or (y) one or more Persons have the right to
         require  the  Company or any  Restricted  Subsidiary  so to purchase or
         repay such Indebtedness; or

                  ()       the  Company  or  any  Restricted  Subsidiary  ()  is
          generally  not paying,  or admits in writing its inability to pay, its
          debts as they become due, () files, or consents by answer or otherwise
          to the filing  against it of, a petition for relief or  reorganization
          or arrangement or any other petition in bankruptcy, for liquidation or
          to  take  advantage  of any  bankruptcy,  insolvency,  reorganization,
          moratorium  or  other  similar  law of any  jurisdiction,  () makes an
          assignment  for the  benefit  of its  creditors,  ()  consents  to the
          appointment  of a custodian,  receiver,  trustee or other officer with
          similar  powers with respect to it or with respect to any  substantial
          part  of  its  property,  ()  is  adjudicated  as  insolvent  or to be
          liquidated, or () takes corporate action for the purpose of any of the
          foregoing; or

                  () a court or governmental authority of competent jurisdiction
         enters an order  appointing,  without  consent by the Company or any of
         its Restricted Subsidiaries,  a custodian,  receiver,  trustee or other
         officer with  similar  powers with respect to it or with respect to any
         substantial  part of its property,  or constituting an order for relief
         or  approving  a  petition  for relief or  reorganization  or any other
         petition in bankruptcy or for  liquidation  or to take advantage of any
         bankruptcy  or  insolvency  law of any  jurisdiction,  or ordering  the
         dissolution,  winding-up  or  liquidation  of the Company or any of its
         Restricted  Subsidiaries,  or any such petition  shall be filed against
         the Company or any of its  Restricted  Subsidiaries  and such  petition
         shall not be dismissed within 60 days; or

                  () a final  judgment  or  judgments  for the  payment of money
         aggregating in excess of $10,000,000  are rendered  against one or more
         of the Company and its Restricted  Subsidiaries and which judgments are
         not, within 60 days after entry thereof,  bonded,  discharged or stayed
         pending  appeal,  or are  not  discharged  within  60  days  after  the
         expiration of such stay; or

                  () if () any Plan shall fail to satisfy  the  minimum  funding
         standards  of ERISA or the Code for any plan year or part  thereof or a
         waiver of such  standards or extension  of any  amortization  period is
         sought or granted  under section 412 of the Code, () a notice of intent
         to terminate any Plan shall have been or is  reasonably  expected to be
         filed with the PBGC or the PBGC shall have instituted proceedings under
         ERISA section 4042 to terminate or appoint a trustee to administer  any
         Plan or the PBGC shall have notified the Company or any ERISA Affiliate
         that a Plan may become a subject of any such  proceedings  and,  in the
         case  of (i)  or  (ii),  the  aggregate  "amount  of  unfunded  benefit
         liabilities"  (within the meaning of section  4001(a)(18)  of ERISA) of
         the applicable Plan or Plans, determined in accordance with Title IV of
         ERISA, shall exceed $10,000,000,  () the Company or any ERISA Affiliate
         shall have  incurred or is  reasonably  expected to incur any liability
         pursuant  to  Title I or IV of  ERISA  or the  penalty  or  excise  tax
         provisions of the Code relating to employee  benefit plans in excess of
         $10,000,000,  () the Company or any ERISA Affiliate  withdraws from any
         Multiemployer Plan with a resulting  withdrawal  liability in excess of
         $10,000,000,  or () the Company or any Subsidiary establishes or amends
         any employee welfare benefit plan that provides post-employment welfare
         benefits in a manner that would increase the unfunded  liability of the
         Company or any Subsidiary  thereunder by in excess of  $10,000,000;  or
         any such event or events  described  in clauses  (i) through (v) above,
         either  individually  or together  with any other such event or events,
         would reasonably be expected to have a Material Adverse Effect. As used
         in  Section  11(j)  the terms  "employee  benefit  plan" and  "employee
         welfare  benefit plan" shall have the respective  meanings  assigned to
         such terms in Section 3 of ERISA; or

                  () The Company shall fail to provide legal  opinions,  in form
         and  substance  satisfactory  to you,  with  respect to the  Restricted
         Subsidiaries  specified  on  Schedule  11(k) on or prior to January 15,
         1999.

 .        REMEDIES ON DEFAULT, ETC.

         ..       ACCELERATION.  () If an  Event of Default  with respect to the
Company  described in paragraph (g) or (h) of Section 11 (other than an Event of
Default  described in clause (i) of paragraph (g) or described in clause (vi) of
paragraph (g) by virtue of the fact that such clause  encompasses  clause (i) of
paragraph (g)) has occurred,  all the Notes then outstanding shall automatically
become immediately due and payable.

         () If any other Event of Default has  occurred and is  continuing,  any
holder or holders of more than 51% in principal  amount of the Notes at the time
outstanding may at any time at its or their option,  by notice or notices to the
Company,  declare  all the Notes  then  outstanding  to be  immediately  due and
payable.

         () If any Event of Default described in paragraph (a) or (b) of Section
11 has  occurred and is  continuing,  any holder or holders of Notes at the time
outstanding  affected by such Event of Default may at any time,  at its or their
option, by notice or notices to the Company, declare all the Notes held by it or
them to be immediately due and payable.

         Upon any Notes  becoming  due and  payable  under  this  Section  12.1,
whether  automatically  or by declaration,  such Notes will forthwith mature and
the entire  unpaid  principal  amount of such  Notes,  plus (x) all  accrued and
unpaid interest thereon and (y) the Make-Whole  Amount  determined in respect of
such principal  amount (to the full extent  permitted by applicable  law), shall
all be immediately due and payable, in each and every case without  presentment,
demand,  protest or further notice,  all of which are hereby waived. The Company
acknowledges,  and the parties hereto agree,  that each holder of a Note has the
right to maintain its investment in the Notes free from repayment by the Company
(except as herein specifically  provided for) and that the provision for payment
of a Make-Whole Amount by the Company in the event that the Notes are prepaid or
are  accelerated  as a result of an Event of  Default,  is  intended  to provide
compensation for the deprivation of such right under such circumstances.

         .. OTHER REMEDIES.  If any Default or Event of Default has occurred and
is continuing,  and  irrespective  of whether any Notes have become or have been
declared  immediately due and payable under Section 12.1, the holder of any Note
at the time  outstanding  may  proceed to protect and enforce the rights of such
holder  by an action at law,  suit in  equity or other  appropriate  proceeding,
whether for the specific performance of any agreement contained herein or in any
Note,  or for an  injunction  against a violation  of any of the terms hereof or
thereof,  or in aid of the exercise of any power granted hereby or thereby or by
law or otherwise.

         ..  RESCISSION.  At any time after any Notes have been declared due and
payable  pursuant to clause (b) or (c) of Section 12.1,  the holders of not less
than 51% in principal amount of the Notes then outstanding, by written notice to
the Company,  may rescind and annul any such declaration and its consequences if
() the Company has paid all overdue  interest on the Notes, all principal of and
Make-Whole  Amount, if any, on any Notes that are due and payable and are unpaid
other  than by reason of such  declaration,  and all  interest  on such  overdue
principal  and  Make-Whole  Amount,  if any,  and (to the  extent  permitted  by
applicable  law) any overdue  interest  in respect of the Notes,  at the Default
Rate,  () all Events of Default and Defaults,  other than  nonpayment of amounts
that have  become due solely by reason of such  declaration,  have been cured or
have been  waived  pursuant to Section 17, and () no judgment or decree has been
entered for the payment of any monies due  pursuant  hereto or to the Notes.  No
rescission  and  annulment  under this Section 12.3 will extend to or affect any
subsequent Event of Default or Default or impair any right consequent thereon.

         .. NO WAIVERS OR  ELECTION  OF  REMEDIES,  EXPENSES,  ETC. No course of
dealing  and no delay on the part of any  holder of any Note in  exercising  any
right, power or remedy shall operate as a waiver thereof or otherwise  prejudice
such holder's rights, powers or remedies. No right, power or remedy conferred by
this  Agreement or by any Note upon any holder thereof shall be exclusive of any
other right,  power or remedy  referred to herein or therein or now or hereafter
available  at law, in equity,  by statute or  otherwise.  Without  limiting  the
obligations  of the Company under Section 15, the Company will pay to the holder
of each Note on demand such further  amount as shall be  sufficient to cover all
costs and  expenses of such holder  incurred in any  enforcement  or  collection
under this Section 12,  including,  without  limitation,  reasonable  attorneys'
fees, expenses and disbursements.

 .        REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.

         ..  REGISTRATION  OF NOTES.  The  Company  shall keep at its  principal
executive  office a register for the  registration and registration of transfers
of  Notes.  The name and  address  of each  holder  of one or more  Notes,  each
transfer  thereof  and the name and  address of each  transferee  of one or more
Notes  shall  be  registered  in such  register.  Prior to due  presentment  for
registration of transfer,  the Person in whose name any Note shall be registered
shall be deemed and  treated as the owner and holder  thereof  for all  purposes
hereof,  and the Company shall not be affected by any notice or knowledge to the
contrary.  The  Company  shall  give  to  any  holder  of  a  Note  that  is  an
Institutional  Investor promptly upon request  therefor,  a complete and correct
copy of the names and addresses of all registered holders of Notes.

         ..  TRANSFER AND EXCHANGE OF NOTES.  Upon  surrender of any Note at the
principal  executive  office of the  Company  for  registration  of  transfer or
exchange  (and in the case of a surrender  for  registration  of transfer,  duly
endorsed or accompanied by a written instrument of transfer duly executed by the
registered  holder of such Note or his attorney  duly  authorized in writing and
accompanied  by the address for notices of each  transferee of such Note or part
thereof),  the Company  shall  execute and  deliver,  at the  Company's  expense
(except as provided  below),  one or more new Notes (as  requested by the holder
thereof) in exchange  therefor,  in an aggregate  principal  amount equal to the
unpaid  principal  amount of the  surrendered  Note. Each such new Note shall be
payable to such Person as such holder may request and shall be  substantially in
the form of Exhibit 1. Each such new Note shall be dated and bear  interest from
the date to which interest shall have been paid on the surrendered Note or dated
the date of the  surrendered  Note if no interest  shall have been paid thereon.
The Company may require  payment of a sum  sufficient  to cover any stamp tax or
governmental  charge  imposed in respect of any such  transfer  of Notes.  Notes
shall not be transferred in denominations  of less than $500,000,  provided that
if  necessary to enable the  registration  of transfer by a holder of its entire
holding of Notes,  one Note may be in a denomination of less than $500,000.  Any
transferee,  by its acceptance of a Note  registered in its name (or the name of
its  nominee),  shall be  deemed to have  made the  representation  set forth in
Section 6.2.

         ..       REPLACEMENT OF NOTES.  Upon receipt by the Company of evidence
reasonably  satisfactory  to it  of  the  ownership  of  and  the  loss,  theft,
destruction  or mutilation of any Note (which  evidence shall be, in the case of
an  Institutional  Investor,  notice  from such  Institutional  Investor of such
ownership and such loss, theft, destruction or mutilation), and

                  () in the case of loss,  theft or  destruction,  of  indemnity
         reasonably satisfactory to it (provided that if the holder of such Note
         is, or is a nominee for, an original  Purchaser or another  holder of a
         Note with a minimum net worth of at least  $100,000,000,  such Person's
         own   unsecured   agreement  of   indemnity   shall  be  deemed  to  be
         satisfactory), or

                  ()  in the case of mutilation, upon surrender and cancellation
         thereof,

         the  Company at its own expense  shall  execute  and  deliver,  in lieu
         thereof a new Note,  dated and bearing  interest from the date to which
         interest  shall  have  been paid on such  lost,  stolen,  destroyed  or
         mutilated  Note or dated the date of such lost,  stolen,  destroyed  or
         mutilated Note if no interest shall have been paid thereon.

 .        PAYMENTS ON NOTES.

         .. PLACE OF PAYMENT.  Subject to Section  14.2,  payments of principal,
Make-Whole  Amount,  if any, and interest  becoming due and payable on the Notes
shall be made in New York, New York at the principal  office of Morgan  Guaranty
Trust Company of New York in such jurisdiction.  The Company may at any time, by
notice to each  holder of a Note,  change  the place of  payment of the Notes so
long as such  place of  payment  shall be  either  the  principal  office of the
Company in such  jurisdiction or the principal office of a bank or trust company
in such jurisdiction.

         .. HOME OFFICE  PAYMENT.  So long as you or your  nominee  shall be the
holder of any Note, and notwithstanding anything contained in Section 14.1 or in
such Note to the  contrary,  the Company will pay all sums  becoming due on such
Note for principal, Make-Whole Amount, if any, and interest by the method and at
the address specified for such purpose below your name in Schedule A, or by such
other  method  or at such  other  address  as you  shall  have from time to time
specified to the Company in writing for such purpose,  without the  presentation
or  surrender of such Note or the making of any  notation  thereon,  except that
upon  written  request  of the  Company  made  concurrently  with or  reasonably
promptly  after payment or prepayment in full of any Note,  you shall  surrender
such Note for cancellation,  reasonably  promptly after any such request, to the
Company  at its  principal  executive  office  or at the place of  payment  most
recently  designated by the Company  pursuant to Section 14.1. Prior to any sale
or other  disposition  of any Note held by you or your nominee you will, at your
election,  either  endorse  thereon the amount of principal paid thereon and the
last date to which  interest has been paid thereon or surrender such Note to the
Company  in  exchange  for a new Note or Notes  pursuant  to Section  13.2.  The
Company  will afford the  benefits  of this  Section  14.2 to any  Institutional
Investor that is the direct or indirect  transferee of any Note purchased by you
under this Agreement and that has made the same agreement  relating to such Note
as you have made in this Section 14.2.

 .        EXPENSES, ETC.

         .. TRANSACTION EXPENSES.  Whether or not the transactions  contemplated
hereby are consummated,  the Company will pay all costs and expenses  (including
reasonable  attorneys'  fees of a special  counsel and, if reasonably  required,
local or other counsel)  incurred by you and each Other Purchaser or holder of a
Note in connection with such transactions and in connection with any amendments,
waivers or consents  under or in respect of this Agreement or the Notes (whether
or not such amendment, waiver or consent becomes effective),  including, without
limitation:  () the costs and expenses  incurred in  enforcing or defending  (or
determining whether or how to enforce or defend) any rights under this Agreement
or the Notes or in responding to any subpoena or other legal process or informal
investigative  demand issued in connection  with this Agreement or the Notes, or
by  reason  of  being a holder  of any  Note,  and () the  costs  and  expenses,
including  financial  advisors' fees, incurred in connection with the insolvency
or  bankruptcy  of the  Company  or any  Subsidiary  or in  connection  with any
work-out or  restructuring of the  transactions  contemplated  hereby and by the
Notes.  The Company  will pay, and will save you and each other holder of a Note
harmless from,  all claims in respect of any fees,  costs or expenses if any, of
brokers and finders (other than those retained by you).

         ..       SURVIVAL.  The  obligations  of the Company under this Section
15 will survive the payment or transfer of any Note, the enforcement,  amendment
or waiver of any provision of this Agreement or the Notes,  and the  termination
of this Agreement.

 .  SURVIVAL  OF   REPRESENTATIONS   AND  WARRANTIES;   ENTIRE   AGREEMENT.   All
representations and warranties  contained herein shall survive the execution and
delivery of this Agreement and the Notes, the purchase or transfer by you of any
Note or portion thereof or interest therein and the payment of any Note, and may
be  relied  upon  by  any  subsequent  holder  of  a  Note,  regardless  of  any
investigation  made at any time by or on behalf of you or any other  holder of a
Note. All statements  contained in any certificate or other instrument delivered
by or on  behalf  of the  Company  pursuant  to this  Agreement  shall be deemed
representations  and warranties of the Company under this Agreement.  Subject to
the preceding sentence, this Agreement and the Notes embody the entire agreement
and understanding between you and the Company and supersede all prior agreements
and understandings relating to the subject matter hereof.


 .        AMENDMENT AND WAIVER.

         .. REQUIREMENTS.  This Agreement and the Notes may be amended,  and the
observance  of  any  term  hereof  or  of  the  Notes  may  be  waived   (either
retroactively or prospectively), with (and only with) the written consent of the
Company and the Required  Holders,  except that () no amendment or waiver of any
of the provisions of Section 1, 2, 3, 4, 6 or 21 hereof, or any defined term (as
it is used therein),  will be effective as to you unless  consented to by you in
writing,  and () no such amendment or waiver may, without the written consent of
the holder of each Note at the time outstanding  affected thereby, () subject to
the provisions of Section 12 relating to acceleration or rescission,  change the
amount or time of any  prepayment or payment of principal of, or change the rate
or the time of payment or method of computation of interest or of the Make-Whole
Amount on, the Notes,  () change the  percentage of the principal  amount of the
Notes the  holders of which are  required  to consent to any such  amendment  or
waiver, or ()
amend any of Sections 8, 11(a), 11(b), 12, 17 or 20.

         .. SOLICITATION OF HOLDERS OF NOTES. () SOLICITATION.  The Company will
provide each holder of the Notes (irrespective of the amount of Notes then owned
by it) with sufficient  information,  sufficiently  far in advance of the date a
decision is required,  to enable such holder to make an informed and  considered
decision with respect to any proposed amendment, waiver or consent in respect of
any of the provisions  hereof or of the Notes. The Company will deliver executed
or true and  correct  copies  of each  amendment,  waiver  or  consent  effected
pursuant to the  provisions  of this  Section 17 to each  holder of  outstanding
Notes  promptly  following the date on which it is executed and delivered by, or
receives the consent or approval of, the requisite holders of Notes.

         () PAYMENT. The Company will not directly or indirectly pay or cause to
be paid any remuneration, whether by way of supplemental or additional interest,
fee or otherwise, or grant any security, to any holder of Notes as consideration
for or as an  inducement  to the  entering  into by any  holder  of Notes or any
waiver or  amendment  of any of the  terms and  provisions  hereof  unless  such
remuneration is concurrently paid, or security is concurrently  granted,  on the
same terms, ratably to each holder of Notes then outstanding even if such holder
did not consent to such waiver or amendment.

         ..  BINDING  EFFECT,  ETC.  Any  amendment  or waiver  consented  to as
provided  in this  Section  17 applies  equally  to all  holders of Notes and is
binding  upon them and upon each future  holder of any Note and upon the Company
without  regard to whether such Note has been marked to indicate such  amendment
or waiver.  No such amendment or waiver will extend to or affect any obligation,
covenant, agreement, Default or Event of Default not expressly amended or waived
or impair any right consequent thereon. No course of dealing between the Company
and the holder of any Note nor any delay in exercising  any rights  hereunder or
under any Note  shall  operate  as a waiver of any  rights of any holder of such
Note. As used herein,  the term "this  Agreement" and  references  thereto shall
mean this Agreement as it may from time to time be amended or supplemented.

         .. NOTES HELD BY COMPANY,  ETC.  Solely for the purpose of  determining
whether the  holders of the  requisite  percentage  of the  aggregate  principal
amount of Notes then outstanding approved or consented to any amendment,  waiver
or consent to be given under this  Agreement or the Notes,  or have directed the
taking  of any  action  provided  herein  or in the  Notes to be taken  upon the
direction of the holders of a specified  percentage of the  aggregate  principal
amount of Notes then  outstanding,  Notes  directly or  indirectly  owned by the
Company or any of its Affiliates shall be deemed not to be outstanding.

 . NOTICES.  All notices and  communications  provided for hereunder  shall be in
writing  and  sent  (a) by  telecopy  if the  sender  on the  same  day  sends a
confirming  copy of such  notice  by a  recognized  overnight  delivery  service
(charges  prepaid),  or (b) by registered or certified  mail with return receipt
requested (postage prepaid),  or (c) by a recognized  overnight delivery service
(with charges prepaid). Any such notice must be sent:

                  ()      if to you or your nominee, to you or it at the address
         specified  for  such  communications  in Schedule  A, or  at such other
         address as you or it shall have specified to the Company in writing,

                  ()       if to any other  holder  of any Note,  to such holder
         at such  address  as such  other  holder  shall  have  specified to the
         Company in writing, or

                  () if to the Company,  to the Company at its address set forth
         at the beginning hereof to the attention of the Treasurer,  with a copy
         thereof to the  Company at the same  address  to the  attention  of the
         Legal  Department,  or at such other  address as the Company shall have
         specified to the holder of each Note in writing.

Notices under this Section 18 will be deemed given only when actually received.

 . REPRODUCTION OF DOCUMENTS.  This Agreement and all documents relating thereto,
including,  without limitation, () consents,  waivers and modifications that may
hereafter be executed,  () documents  received by you at the Closing (except the
Notes  themselves),   and  ()  financial  statements,   certificates  and  other
information  previously or hereafter  furnished to you, may be reproduced by you
by any photographic,  photostatic,  microfilm, microcard, miniature photographic
or  other  similar  process  and  you  may  destroy  any  original  document  so
reproduced.  The Company agrees and stipulates  that, to the extent permitted by
applicable  law, any such  reproduction  shall be  admissible in evidence as the
original itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not such reproduction was made by you in
the  regular  course of  business)  and any  enlargement,  facsimile  or further
reproduction of such reproduction shall likewise be admissible in evidence. This
Section 19 shall not  prohibit  the  Company  or any other  holder of Notes from
contesting  any such  reproduction  to the same extent that it could contest the
original, or from introducing evidence to demonstrate the inaccuracy of any such
reproduction.

 . CONFIDENTIAL  INFORMATION.  For the purposes of this Section 20, "CONFIDENTIAL
INFORMATION"  means information  delivered to you by or on behalf of the Company
or any  Subsidiary  in  connection  with  the  transactions  contemplated  by or
otherwise  pursuant to this Agreement that is proprietary in nature and that was
clearly marked or labeled or otherwise  adequately  identified  when received by
you as  being  confidential  information  of the  Company  or  such  Subsidiary,
provided that such term does not include  information that () was publicly known
or otherwise known to you prior to the time of such disclosure,  () subsequently
becomes publicly known through no act or omission by you or any person acting on
your behalf, () otherwise becomes known to you other than through  disclosure by
the Company or any Subsidiary or () constitutes  financial  statements delivered
to you  under  Section  7.1  that are  otherwise  publicly  available.  You will
maintain the confidentiality of such Confidential Information in accordance with
procedures adopted by you in good faith to protect  confidential  information of
third  parties  delivered  to you,  provided  that you may  deliver or  disclose
Confidential  Information to () your  directors,  officers,  employees,  agents,
attorneys and affiliates,  (to the extent such disclosure  reasonably relates to
the  administration  of the  investment  represented  by  your  Notes),  () your
financial   advisors  and  other   professional   advisors  who  agree  to  hold
confidential the Confidential  Information  substantially in accordance with the
terms of this Section 20, () any other holder of any Note, () any  Institutional
Investor to which you sell or offer to sell such Note or any part thereof or any
participation therein (if such Person has agreed in writing prior to its receipt
of such  Confidential  Information to be bound by the provisions of this Section
20), () any Person from which you offer to purchase  any security of the Company
(if such Person has agreed in writing prior to its receipt of such  Confidential
Information to be bound by the provisions of this Section 20), () any federal or
state  regulatory  authority  having  jurisdiction  over  you,  () the  National
Association  of  Insurance  Commissioners  or any similar  organization,  or any
nationally  recognized  rating agency that requires access to information  about
your  investment  portfolio,  or () any other  Person to which such  delivery or
disclosure may be necessary or  appropriate  (w) to effect  compliance  with any
law,  rule,  regulation  or order  applicable  to you,  (x) in  response  to any
subpoena or other legal process,  (y) in connection with any litigation to which
you are a party or (z) if an Event of Default has occurred and is continuing, to
the extent you may  reasonably  determine  such  delivery and  disclosure  to be
necessary or appropriate in the  enforcement or for the protection of the rights
and remedies under your Notes and this Agreement.  Each holder of a Note, by its
acceptance  of a Note,  will be deemed  to have  agreed to be bound by and to be
entitled to the  benefits  of this  Section 20 as though it were a party to this
Agreement.  On reasonable request by the Company in connection with the delivery
to any holder of a Note of  information  required to be delivered to such holder
under this  Agreement or requested by such holder (other than a holder that is a
party  to this  Agreement  or its  nominee),  such  holder  will  enter  into an
agreement with the Company embodying the provisions of this Section 20.

 . SUBSTITUTION  OF PURCHASER.  You shall have the right to substitute any one of
your  Affiliates  as the purchaser of the Notes that you have agreed to purchase
hereunder by written notice to the Company, which notice shall be signed by both
you and such Affiliate,  shall contain such Affiliate's agreement to be bound by
this  Agreement  and  shall  contain a  confirmation  by such  Affiliate  of the
accuracy with respect to it of the  representations set forth in Section 6. Upon
receipt of such notice, wherever the word "you" is used in this Agreement (other
than in this Section 21),  such word shall be deemed to refer to such  Affiliate
in lieu of  you.  In the  event  that  such  Affiliate  is so  substituted  as a
purchaser  hereunder and such Affiliate  thereafter  transfers to you all of the
Notes then held by such Affiliate, upon receipt by the Company of notice of such
transfer,  wherever the word "you" is used in this Agreement (other than in this
Section 21), such word shall no longer be deemed to refer to such Affiliate, but
shall refer to you,  and you shall have all the rights of an original  holder of
the Notes under this Agreement.

 .        MISCELLANEOUS.

         .. SUCCESSORS AND ASSIGNS. All covenants and other agreements contained
in this Agreement by or on behalf of any of the parties hereto bind and inure to
the  benefit of their  respective  successors  and assigns  (including,  without
limitation, any subsequent holder of a Note) whether so expressed or not.

         .. PAYMENTS DUE ON NON-BUSINESS DAYS. Anything in this Agreement or the
Notes to the contrary notwithstanding, any payment of principal of or Make-Whole
Amount or interest  on any Note that is due on a date other than a Business  Day
shall  be made  on the  next  succeeding  Business  Day  without  including  the
additional days elapsed in the computation of the interest  payable on such next
succeeding Business Day.

         .. SEVERABILITY.  Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability  without  invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction  shall (to the full  extent  permitted  by law) not  invalidate  or
render unenforceable such provision in any other jurisdiction.

         ..  CONSTRUCTION.  Each  covenant  contained  herein shall be construed
(absent  express  provision to the contrary) as being  independent of each other
covenant  contained  herein,  so that compliance with any one covenant shall not
(absent such an express contrary  provision) be deemed to excuse compliance with
any other covenant.  Where any provision  herein refers to action to be taken by
any Person, or which such Person is prohibited from taking, such provision shall
be  applicable  whether  such  action is taken  directly or  indirectly  by such
Person.

         ..       COUNTERPARTS.  This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together shall
constitute one  instrument.  Each  counterpart may consist of a number of copies
hereof, each signed by less than all, but together signed by all, of the parties
hereto.

         ..  GOVERNING  LAW. This  Agreement  shall be construed and enforced in
accordance  with, and the rights of the parties shall be governed by, the law of
the  State of New York  excluding  choice-of-law  principles  of the law of such
State that would require the  application  of the laws of a  jurisdiction  other
than such State.

                                   * * * * *

                         [Signatures on following page]



<PAGE>


         If you are in  agreement  with the  foregoing,  please sign the form of
agreement on the accompanying counterpart of this Agreement and return it to the
Company,  whereupon the foregoing shall become a binding  agreement  between you
and the Company.

                                 Very truly yours,

                                 GUILFORD MILLS, INC.

                                  By: ______________________________
                                      Name:
                                      Title:

The foregoing is hereby
agreed to as of the
date thereof:

[INSERT APPROPRIATE PURCHASER
SIGNATURE BLOCK]




<PAGE>


                      SCHEDULE A TO NOTE PURCHASE AGREEMENT

                       INFORMATION RELATING TO PURCHASERS


              Name and Address of Purchaser               Principal Amount of
                                                          Notes to be Purchased


THE PRUDENTIAL INSURANCE COMPANY OF AMERICA                   $ 97,000,000

(1) All payments by wire transfer of immediately available funds for credit to:

Account No. 890-0304-391, Prudential Managed Account

         Bank of New York
         New York, New York
         (ABA No.: 021-000-018)

Each such wire transfer shall set forth the name of the Company,  a reference to
"7.06% Senior Notes due December __, 2008, PPN No. 401794@\A,  INV6266", and the
due date and application (as among principal, interest and Make-Whole Amount) of
the payment being made.

(2) All notices of payments and written confirmation of such wire transfers:

         The Prudential Insurance Company of America
         Three Gateway Center
         100 Mulberry Street
         Newark, New Jersey 07102-4077
         Attention:        Manager, Billings and Collections
Telephone:        973.802.5260
Telecopier:       973.802.8055

(3)      All other communications:

The Prudential Insurance Company of America
c/o Prudential Capital Group
Two Ravinia Drive, Suite 1400
Atlanta, Georgia 30346
Attention:        Senior Vice President
Telephone:        770.395.8424
Telecopier:       770.395.8478

(4) Recipient of telephonic prepayment notices:

Manager, Trade Management
Telephone:        973.802.7398
Telecopier:       973.802.9425

(5)      Tax Identification No.: 22-1211670



<PAGE>


              Name and Address of Purchaser                Principal Amount of
                                                         Notes to be Purchased


THE PRUDENTIAL INSURANCE COMPANY OF AMERICA                   $ 3,000,000


(1) All payments by wire transfer of immediately available funds for credit to:

Account No. 890-0304-944, PRIVEST Portfolio Account

         Bank of New York
         New York, New York
         (ABA No.: 021-000-018)

Each such wire transfer shall set forth the name of the Company,  a reference to
"7.06% Senior Notes due December __, 2008, PPN No. 401794@\A,  INV6267", and the
due date and application (as among principal, interest and Make-Whole Amount) of
the payment being made.

(2) All notices of payments and written confirmation of such wire transfers:

         The Prudential Insurance Company of America
         Three Gateway Center
         100 Mulberry Street
         Newark, New Jersey 07102-4077
         Attention:        Manager, Billings and Collections
Telephone:        973.802.5260
Telecopier:       973.802.8055

(3)      All other communications:

The Prudential Insurance Company of America
c/o Prudential Capital Group
Two Ravinia Drive, Suite 1400
Atlanta, Georgia 30346
Attention:        Senior Vice President
Telephone:        770.395.8424
Telecopier:       770.395.8478

(4) Recipient of telephonic prepayment notices:

Manager, Trade Management
Telephone:        973.802.7398
Telecopier:       973.802.9425

(5)      Tax Identification No.: 22-1211670



<PAGE>


               Name and Address of Other Purchasers        Principal Amount of
                                                          Notes to be Purchased


THE VARIABLE ANNUITY LIFE INSURANCE COMPANY                  $ 10,000,000

(1)        All payments by wire transfer of immediately available funds to:

ABA No. 011000028
State Street Bank and Trust Company
Boston, Massachusetts 02101
Re: The Variable Annuity Life Insurance Company
AC-0125-821-9
[OBI=PPN # and description of payment]
Fund Number PA 54

with sufficient information to identify the source and application of such funds
(including PPN#, interest rate, maturity date, interest amount, principal amount
and premium amount, if applicable)

(2) All notices of payments and written confirmation of such wire transfers:

The Variable Annuity Life Insurance Company and PA 54
c/o State Street Bank and Trust Company
Insurance Services WES2S
105 Rosemont Road
Westwood, Massachusetts 02090
Facsimile Number: 781.302.8005

(3) Duplicate payment notices and all other communications:

The Variable Annuity Life Insurance Company
c/o American General Corporation
Attn: Investment Research Department, A37-01
P.O. Box 3247
Houston, Texas 77253-3247
Overnight Mail Address:     2929 Allen Parkway, A37-01
Houston, Texas 77019-2155
Facsimile Number: 713.831.1366
Tax I.D. Number: 74-1625348



<PAGE>


              Name and Address of Other Purchasers        Principal Amount of
                                                         Notes to be Purchased


AMERICAN GENERAL ANNUITY INSURANCE COMPANY                   $ 15,000,000

(1)      All payments by wire transfer of immediately available funds to:

ABA No. 011000028
State Street Bank and Trust Company
Boston, Massachusetts 02101
Re: American General Annuity Insurance Company
AC-7215-132-7
[OBI=PPN # and description of payment]
Fund Number WE1B

with sufficient information to identify the source and application of such funds
(including PPN#, interest rate, maturity date, interest amount, principal amount
and premium amount, if applicable)

(2) All notices of payments and written confirmation of such wire transfers:

American General Annuity Insurance Company and WE1B
c/o State Street Bank and Trust Company
Insurance Services WES2S
105 Rosemont Road
Westwood, Massachusetts 02090
Facsimile Number: 781.302.8005

(3) Duplicate payment notices and all other communications:

American General Annuity Insurance Company
c/o American General Corporation
Attn: Investment Research Department, A37-01
P.O. Box 3247
Houston, Texas 77253-3247
Overnight Mail Address:    2929 Allen Parkway, A37-01
Houston, Texas 77019-2155
Facsimile Number: 713.831.1366
Tax I.D. Number: 75-0770838



<PAGE>


            Name and Address of Other Purchasers          Principal Amount of
                                                          Notes to be Purchased


MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY                    $ 8,500,000

(1)      All payments by wire transfer of immediately available funds to:

Citibank, N.A.
111 Wall Street
New York, New York 10043
ABA No. 021000089
For MassMutual Long-Term Pool
Account No. 4067-3488
Re: Description of security, principal and interest split

With  telephone  advise of  payment to the  Securities  Custody  and  Collection
Department of Massachusetts Mutual Life Insurance Company at 413.744.3561
         with sufficient information to identify the source and
application of such funds

(2) All notices of payments and written confirmation of such wire transfers:

Massachusetts Mutual Life Insurance Company
1295 State Street
Springfield, Massachusetts 01111
Attention:        Securities Custody and Collection Department
F381

(3)      All other communications:

Massachusetts Mutual Life Insurance Company
1295 State Street
Springfield, Massachusetts 01111
Attention:        Securities Investment Division

Tax Identification No. 04-1590850



<PAGE>


              Name and Address of Other Purchasers         Principal Amount of
                                                          Notes to be Purchased


MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY                    $ 5,600,000

(1)      All payments by wire transfer of immediately available funds to:

Chase Manhattan Bank, N.A.
4 Chase Metro Tech Center
New York, New York 10081
ABA No. 021000021
For MassMutual Pension Management
Account No. 910-2594018
Re: Description of security, principal and interest split

With  telephone  advise of  payment to the  Securities  Custody  and  Collection
Department of Massachusetts Mutual Life Insurance Company at 413.744.3561
         with sufficient information to identify the source and
application of such funds

(2) All notices of payments and written confirmation of such wire transfers:

Massachusetts Mutual Life Insurance Company
1295 State Street
Springfield, Massachusetts 01111
Attention:        Securities Custody and Collection Department
F381

(3)      All other communications:

Massachusetts Mutual Life Insurance Company
1295 State Street
Springfield, Massachusetts 01111
Attention:        Securities Investment Division

Tax Identification No. 04-1590850



<PAGE>


              Name and Address of Other Purchasers         Principal Amount of
                                                          Notes to be Purchased


MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY                    $ 4,900,000

(1)      All payments by wire transfer of immediately available funds to:

Chase Manhattan Bank, N.A.
4 Chase Metro Tech Center
New York, New York 10081
ABA No. 021000021
For MassMutual IFM Non-Traditional
Account No. 910-2509073
Re: Description of security, principal and interest split

With  telephone  advise of  payment to the  Securities  Custody  and  Collection
Department of Massachusetts Mutual Life Insurance Company at 413.744.3561
         with sufficient information to identify the source and
application of such funds

(2) All notices of payments and written confirmation of such wire transfers:

Massachusetts Mutual Life Insurance Company
1295 State Street
Springfield, Massachusetts 01111
Attention:        Securities Custody and Collection Department
F381

(3)      All other communications:

Massachusetts Mutual Life Insurance Company
1295 State Street
Springfield, Massachusetts 01111
Attention:        Securities Investment Division

Tax Identification No. 04-1590850



<PAGE>


              Name and Address of Other Purchasers         Principal Amount of
                                                          Notes to be Purchased


CM LIFE INSURANCE COMPANY                                      $ 1,000,000

(1)      All payments by wire transfer of immediately available funds to:

Citibank, N.A.
111 Wall Street
New York, New York 10043
ABA No. 021000089
For Segment 43 - Universal Life
Account No. 4068-6561
Re: Description of security, principal and interest split

With  telephone  advise of  payment to the  Securities  Custody  and  Collection
Department of Massachusetts Mutual Life Insurance Company at 413.744.3561
         with sufficient information to identify the source and
application of such funds

(2) All notices of payments and written confirmation of such wire transfers:

Massachusetts Mutual Life Insurance Company
1295 State Street
Springfield, Massachusetts 01111
Attention:        Securities Custody and Collection Department
F381

(3)      All other communications:

Massachusetts Mutual Life Insurance Company
1295 State Street
Springfield, Massachusetts 01111
Attention:        Securities Investment Division

Tax Identification No. 06-1041383


<PAGE>


                      SCHEDULE B TO NOTE PURCHASE AGREEMENT


                                  DEFINED TERMS


         As used herein,  the following  terms have the respective  meanings set
forth below or set forth in the Section hereof following such term:

                  "AFFILIATE" shall mean, with respect to any entity,  any other
         entity () directly or indirectly  controlling or controlled by or under
         direct or common  control with such entity or () directly or indirectly
         owning or holding five  percent (5%) or more of the equity  interest in
         such entity. For purposes of this definition,  "control" when used with
         respect to any  entity  means the power to direct  the  management  and
         policies of such entity,  directly or indirectly,  whether  through the
         ownership of voting securities, by contract or otherwise; and the terms
         "controlling"  and  "controlled"  have  meanings   correlative  to  the
         foregoing.

                  "ASSET  SALE"  means  the  sale,  lease,  conveyance  or other
         disposition of any assets (including,  without limitation,  by way of a
         sale and  leaseback)  other  than  sales of  inventory,  assignment  of
         receivables pursuant to any Maturity Factoring  Arrangement or sales of
         obsolete or excess equipment or equipment that is no longer usable,  in
         each case,  in the  ordinary  course of business  consistent  with past
         practices.  Notwithstanding  the foregoing,  () a transfer of assets by
         the Company to a Wholly-Owned  Restricted Subsidiary or by a Restricted
         Subsidiary to the Company or a Wholly-Owned  Restricted Subsidiary,  ()
         an issuance or sale of Equity  Interests by a Restricted  Subsidiary to
         the Company or a Wholly-Owned  Restricted Subsidiary,  () a disposition
         of the types of investments  described in  subparagraphs  (i), (ii) and
         (iii) of the  definition of  "Restricted  Investments"  in the ordinary
         course of business, () the issuance of Equity Interests of a Restricted
         Subsidiary  to an individual  for the sole purpose of  qualifying  such
         individual  as a  director  of such  Restricted  Subsidiary  and () the
         issuance of Equity  Interests of  Restricted  Subsidiaries  to minority
         shareholders  of Restricted  Subsidiaries to satisfy the rights of such
         shareholders to receive  issuances of stock which, in each case, do not
         dilute the ownership interest of the Company (or Restricted Subsidiary)
         in such Restricted Subsidiary,  will not be deemed to be an Asset Sale.
         The designation of a Subsidiary as an Unrestricted  Subsidiary shall be
         deemed to be an Asset  Sale by the  Company  in an amount  equal to the
         book value of the assets of such Subsidiary in the fiscal year in which
         such designation occurs.

                  "BUSINESS  DAY" means () for the  purposes of Section 8.7 only
         any day other than a  Saturday,  a Sunday or a day on which  commercial
         banks in New York City are required or authorized to be closed,  and ()
         for the  purposes of any other  provision  of this  Agreement,  any day
         other than a Saturday,  a Sunday or a day on which  commercial banks in
         New  York,  New York or  Charlotte,  North  Carolina  are  required  or
         authorized to be closed.

                  "CAPITAL  STOCK"  means ()  in  the  case  of  a  corporation,
          corporate  stock, () in the case of an association or business entity,
          any  and  all  shares,  interests,  participations,  rights  or  other
          equivalents (however designated) of corporate stock, () in the case of
          a partnership,  partnership interests (whether general or limited) and
          () any other  interest or  participation  that confers on a Person the
          right  to  receive  a  share  of  the   profits   and  losses  of,  or
          distributions of assets of, the issuing Person.

                  "CAPITAL  LEASE" shall mean the amount at which the  aggregate
         payments  due and to become  due  under all  leases  under  which  such
         person,  as lessee,  would be required to be  capitalized in accordance
         with GAAP and  would be  reflected  as a  liability  on a  consolidated
         balance sheet.

                  "CHANGE IN CONTROL"  shall mean the  beneficial  ownership  or
         acquisition in any transaction or series of related transactions of 50%
         or more of the combined voting power of all then issued and outstanding
         Voting  Stock of the  Company by any Person  (together  with any of its
         Affiliates) holding 10% or more the combined voting power of the issued
         and  outstanding  Voting Stock of the Company as of September 27, 1998,
         acting alone or in concert with one or more Persons.

                  "CLOSING" is defined in Section 3.

                  "CODE"  means the Internal  Revenue  Code of 1986,  as amended
         from time to time, and the rules and regulations promulgated thereunder
         from time to time.

                  "COMPANY" means Guilford Mills, Inc., a Delaware corporation.

                  "CONFIDENTIAL INFORMATION" is defined in Section 20.

                  "CONSOLIDATED  INTEREST  EXPENSE" shall mean,  with respect to
         any period,  the sum (without  duplication)  of the  following (in each
         case, eliminating all offsetting debits and credits between the Company
         and its  Restricted  Subsidiaries  and all other  items  required to be
         eliminated in the course of the preparation of  consolidated  financial
         statements of the Company and its Restricted Subsidiaries in accordance
         with  GAAP):  () all  interest  and  prepayment  charges  in respect of
         Indebtedness of the Company and its Restricted  Subsidiaries (including
         imputed  interest  in respect of Capital  Lease and net costs of Swaps)
         deducted  in  determining  consolidated  net  income  for such  period,
         together with all interest  capitalized or deferred  during such period
         and not  deducted  in  determining  consolidated  net  income  for such
         period,  and () all debt discount and expense  amortized or required to
         be amortized in the  determination  of consolidated net income for such
         period.

                  "CONSOLIDATED NET ASSETS" shall mean, on a consolidated  basis
         for the Company and its Restricted Subsidiaries,  total assets less all
         Restricted Investments less current liabilities.

                  "CONSOLIDATED  NET  INCOME" or  "CONSOLIDATED  NET LOSS" shall
         mean, for any period, the after tax net income or loss, as the case may
         be,  determined  on a  consolidated  basis  for  the  Company  and  its
         Restricted Subsidiaries in accordance with GAAP excluding the effect of
         ()  extraordinary  items (as determined in accordance with GAAP) and ()
         unremitted net income and net losses of any business entity (other than
         a  Restricted  Subsidiary)  in  which  the  Company  or any  Restricted
         Subsidiary has an ownership interest.

                  "CONSOLIDATED NET WORTH" means, as of any date,

                  ()      Consolidated Total Assets, minus

                  ()     the total liabilities of the Company and its Restricted
         Subsidiaries  which  would be  shown as  liabilities on  a consolidated
         balance sheet of the Company and its Restricted Subsidiaries as of such
         time prepared in accordance with GAAP.

                  "CONSOLIDATED  OPERATING  INCOME" means,  for any period,  the
         Operating  Income  of the  Company  and  its  Restricted  Subsidiaries,
         determined on a consolidated basis in accordance with GAAP.

                  "CONSOLIDATED  TOTAL ASSETS" means,  as of any date, the total
         assets of the Company and its  Restricted  Subsidiaries  which would be
         shown as assets on a consolidated  balance sheet of the Company and its
         Restricted  Subsidiaries  as of such time prepared in  accordance  with
         GAAP.

                  "CONSOLIDATED TOTAL  CAPITALIZATION" shall mean as of the date
         of  determination,  the  aggregate of Total Debt and  Consolidated  Net
         Worth.

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

                  "DEFAULT RATE" means that rate of interest that is the greater
         of () 2% per annum above the rate of  interest  stated in clause (a) of
         the first  paragraph  of the  Notes or () 2% over the rate of  interest
         publicly  announced by Morgan  Guaranty  Trust Company of New York, New
         York, New York as its "base" or "prime" rate.

                  "EBITDAR"  shall  mean  for  the  Company  and  its Restricted
          Subsidiaries,  for any period,  the sum of () Consolidated Net Income,
          plus () to the extent  deducted in the  determination  of Consolidated
          Net Income, () all provisions for federal, state and other income tax,
          () Consolidated  Interest Expense,  () provisions for depreciation and
          amortization,  ()  provisions  for  rentals on  Operating  Leases,  ()
          extraordinary items (as defined in accordance with GAAP) and () losses
          on sales  of  assets,  less ()  extraordinary  items  (as  defined  in
          accordance with GAAP) and gains on sales of assets.

                  "ENVIRONMENTAL LAWS" means any and all Federal,  state, local,
         and foreign statutes, laws, regulations,  ordinances, rules, judgments,
         orders, decrees, permits,  concessions,  grants, franchises,  licenses,
         agreements or governmental  restrictions  relating to pollution and the
         protection of the environment or the release of any Hazardous Materials
         into the environment.

                  "EQUITY  INTERESTS"  means  Capital  Stock  and all  warrants,
         options or other rights to acquire  Capital  Stock (but  excluding  any
         debt security that is convertible  into, or exchangeable  for,  Capital
         Stock).

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

                  "ERISA  AFFILIATE" means any trade or business (whether or not
         incorporated)  that is treated as a single  employer  together with the
         Company under section 414 of the Code.

                  "EVENT OF DEFAULT" is defined in Section 11.

                  "EXCHANGE ACT" means  the  Securities Exchange Act of 1934, as
         amended.

                  "FAIR MARKET VALUE" shall mean, at any time, the sale value of
         property  that would be realized  in an arm's  length sale at such time
         between an  informed  and  willing  buyer and an  informed  and willing
         seller, under no compulsion to buy or sell, respectively.

                  "FIXED  CHARGES" shall mean for the Company and its Restricted
         Subsidiaries,  with  respect  to any  period,  the sum of  Consolidated
         Interest Expense for such period plus rentals on Operating Leases.

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

                  "GOVERNMENTAL AUTHORITY" means

                           ()       the government of

                                    ()      the  United States of America or any
                               State or other  political subdivision thereof, or

                                    ()      any  jurisdiction  in  which  the
                               Company  or  any  Subsidiary  conducts all or any
                               part  of  its  business,  or  which  asserts
                               jurisdiction over any  properties of  the Company
                               or any Subsidiary, or

                           ()      any entity exercising executive, legislative,
                  judicial,  regulatory  or  administrative  functions  of,  or
                  pertaining to, any such government.

                  "GUARANTY" means,  with respect to any Person,  any obligation
         (except  the   endorsement  in  the  ordinary  course  of  business  of
         negotiable  instruments  for  deposit  or  collection)  of such  Person
         guaranteeing or in effect  guaranteeing any  indebtedness,  dividend or
         other obligation of any other Person in any manner, whether directly or
         indirectly, including (without limitation) obligations incurred through
         an agreement, contingent or otherwise, by such Person:

                           (a) to  purchase  such  indebtedness or obligation or
                  any property constituting security therefor;

                           (b) to advance or supply  funds (i) for the  purchase
                  or  payment of such  indebtedness  or  obligation,  or (ii) to
                  maintain any working  capital or other balance sheet condition
                  or any  income  statement  condition  of any  other  Person or
                  otherwise to advance or make available  funds for the purchase
                  or payment of such indebtedness or obligation;

                           ()      to lease properties or to purchase properties
                  or services  primarily  for the  purpose of assuring the owner
                  of such indebtedness or obligation of the ability of any other
                  Person to make payment of the  indebtedness or obligation; or

                           ()       otherwise  to  assure  the  owner  of  such
                  indebtedness or obligation against loss in respect thereof.

         In any  computation  of the  indebtedness  or other  liabilities of the
         obligor under any Guaranty,  the indebtedness or other obligations that
         are  the  subject  of such  Guaranty  shall  be  assumed  to be  direct
         obligations of such obligor.

                  "HAZARDOUS  MATERIAL" means any and all materials regulated as
         hazardous, toxic or extremely hazardous under Environmental Laws.

                  "HOLDER" means,  with respect to any Note, the Person in whose
         name such Note is registered in the register  maintained by the Company
         pursuant to Section 13.1.

                  "INDEBTEDNESS" with respect  to any Person means, at any time,
         without duplication,

                           ()       its  liabilities  for  borrowed  money  and
                  its  redemption  obligations  in  respect  of  mandatorily
                  redeemable Preferred Stock;

                           () its liabilities for the deferred purchase price of
                  property acquired by such Person  (excluding  accounts payable
                  arising in the ordinary  course of business but  including all
                  liabilities  created or arising under any conditional  sale or
                  other  title  retention  agreement  with  respect  to any such
                  property);

                           ()       all  liabilities  appearing  on its  balance
                  sheet in  accordance  with GAAP in respect of Capital Leases:

                           ()       all  liabilities  for borrowed money secured
                  by any Lien with respect to any property owned by such Person
                  (whether or not it has assumed or otherwise become liable for
                  such liabilities);

                           ()       all its liabilities in respect of letters of
                  credit or  instruments  serving a similar  function issued  or
                  accepted  for  its  account  by  banks  and   other  financial
                  institutions  (whether  or  not  representing obligations  for
                  borrowed money);

                           ()       Swaps of such Person; and

                           ()       any Guaranty of such Person with respect to
                  liabilities  of a type described in any of clauses (a) through
                 (f) hereof.

                  "INSTITUTIONAL  INVESTOR" means () any original purchaser of a
         Note,  () any holder of a Note  holding  more than 5% of the  aggregate
         principal amount of the Notes then outstanding,  and () any bank, trust
         company,  savings and loan association or other financial  institution,
         any pension plan, any investment  company,  any insurance company,  any
         broker or dealer, or any other similar financial institution or entity,
         regardless of legal form.

                  "LIEN" means, with respect to any Person, any mortgage,  lien,
         pledge, charge, security interest or other encumbrance, or any interest
         or title of any vendor,  lessor, lender or other secured party to or of
         such  Person  under  any  conditional  sale or  other  title  retention
         agreement  or Capital  Lease,  upon or with  respect to any property or
         asset  of such  Person  (including  in the case of  stock,  stockholder
         agreements, voting trust agreements and all similar arrangements).

                  "MAKE-WHOLE AMOUNT" is defined in Section 8.7.

                  "MATERIAL"   means  material  in  relation  to  the  business,
         operations,  affairs, financial condition,  assets or properties of the
         Company and its Subsidiaries taken as a whole.

                  "MATERIAL  ADVERSE  EFFECT"  means a material  adverse  effect
          on () the business,  operations,  affairs, financial condition, assets
          or properties of the Company and its Subsidiaries taken as a whole, or
          () the ability of the Company to perform  its  obligations  under this
          Agreement and the Notes, or () the validity or  enforceability of this
          Agreement or the Notes.

                  "MATURITY  FACTORING  ARRANGEMENT"  shall mean any arrangement
         entered into by the Company or any of its  Restricted  Subsidiaries  in
         the ordinary course of business consistent with the Company's practices
         as of the Closing  relating to the accounts  receivable  of the Company
         and/or its Restricted  Subsidiaries whereby (i) the Company and/or such
         Restricted  Subsidiaries  (a) transfer to a factor the credit functions
         and all  associated  credit  risk  with  respect  to  certain  accounts
         receivable  and (b) do not retain  any  liability  with  respect to the
         collectibility of such accounts receivable or any obligation whatsoever
         with respect thereto except for the settlement of any bona fide dispute
         and (ii) the factor  agrees to pay the Company  and/or such  Restricted
         Subsidiaries the face amount of each such account  receivable  pursuant
         to its original terms of payment.

                  "MEMORANDUM" is defined in Section 5.3.

                  "MULTIEMPLOYER  PLAN" means any Plan that is a "multiemployer
         plan" (as such term is defined in section 4001(a)(3) of ERISA).

                  "1998 NOTE" is defined in Section 1.

                  "NOTE" AND "NOTES" are defined in Section 1.

                  "OFFICER'S  CERTIFICATE"  means  a  certificate  of  a  Senior
         Financial  Officer  or of  any  other  officer  of  the  Company  whose
         responsibilities extend to the subject matter of such certificate.

                  "OPERATING  INCOME"  means,  as  applied to any Person for any
         period,  the  operating  income  of such  Person  for such  period,  as
         determined in accordance with GAAP.

                  "OPERATING  LEASES"  shall mean any lease of real or  personal
         property,  plant,  equipment or  buildings  for a term  (including  any
         renewals or extension  permitted) greater than one year, which is not a
         Capital Lease.

                  "OTHER AGREEMENTS" is defined in Section 2.

                  "OTHER NOTES" is defined in Section 4.6.

                  "OTHER PURCHASERS" is defined in Section 2.

                  "PBGC" means the Pension Benefit Guaranty Corporation referred
to and defined in ERISA or any successor thereto.

                  "PERSON"  means  an  individual,   partnership,   corporation,
         limited   liability   company,   association,   trust,   unincorporated
         organization,  or a  government  or  agency  or  political  subdivision
         thereof.

                  "PLAN" means an "employee benefit plan" (as defined in section
         3(3) of ERISA) that is or,  within the preceding  five years,  has been
         established or maintained, or to which contributions are or, within the
         preceding  five years,  have been made or  required to be made,  by the
         Company or any ERISA  Affiliate or with respect to which the Company or
         any ERISA Affiliate may have any liability.

                  "PREFERRED  STOCK"  means  any  class  of  capital  stock of a
         corporation  that is preferred over any other class of capital stock of
         such  corporation  as to the payment of dividends or the payment of any
         amount upon liquidation or dissolution of such corporation.

                  "PRIORITY  DEBT" shall mean,  with respect to the Company,  at
any time, without duplication, the sum of:

                           ()       unsecured  Indebtedness of each Restricted
                  Subsidiary  (other than such  Indebtedness  held by the
                  Company or a Wholly-Owned Subsidiary thereof);

                           ()       Indebtedness  of the Company  and any
                  Restricted  Subsidiary  secured by any Lien (other than such
                  Indebtedness held by the Company or a Wholly-Owned Subsidiary
                  thereof); and

                           ()       all  Preferred  Stock of  Restricted
                  Subsidiaries  owned by a Person  other than the  Company or a
                  Wholly-Owned Subsidiary thereof.

                  "PROPERTY"   or   "PROPERTIES"    means,    unless   otherwise
         specifically  limited,  real or personal property of any kind, tangible
         or intangible, choate or inchoate.

                  "PURCHASER" is defined in Section 2.

                  "QPAM EXEMPTION" means Prohibited  Transaction Class Exemption
84-14 issued by the United States Department of Labor.

                  "REQUIRED HOLDERS" means, at any time, the holders of at least
         51% in  principal  amount of the Notes and the Other  Notes at the time
         outstanding  (exclusive  of Notes and the Other Notes then owned by the
         Company or any of its Affiliates).

                  "RESPONSIBLE  OFFICER" means any Senior Financial  Officer and
         any  other  officer  of  the  Company  with   responsibility   for  the
         administration of the relevant portion of this agreement.

                  "RESTRICTED   INVESTMENTS"   shall  mean  any  investments  in
         securities  or  extensions  of credit  by the  Company  and  Restricted
         Subsidiaries other than:

                           ()       direct  obligations of the U.S.  Government
                  or its agencies or  obligations  guaranteed by the U.S.
                  Government maturing no later than one year from the date of
                  acquisition:

                           ()    Eurodollar    deposits   with   or   negotiable
                  certificates of deposit,  time deposits or bankers acceptances
                  issued by banks with long-term  debt or deposit  ratings of at
                  least A- by S&P or A3 by Moody's having a combined capital and
                  surplus of over  $250,000,000  and  maturing no later than one
                  year from the date of acquisition;

                           ()       investments  in  commercial  paper  maturing
                  270 days or less and rated at least A-1 by Standard & Poors'
                  Corporation or P-1 by Moody's Investors Services, Inc.;

                           ()       investments in or loans to Restricted
                  Subsidiaries;

                           ()       investments in accounts or notes receivable
                  acquired in the ordinary course of business;

                           ()       any securities received in connection with
                  an Asset Sale that complies with Section 10.7; and

                           ()       notes from employees  issued to the Company
                  representing  payment of the exercise price of options to
                  purchase capital stock of the Company.

                  "RESTRICTED PAYMENTS" shall mean the payment of cash dividends
         and the  purchase  of  Capital  Stock,  warrants,  rights or options to
         acquire shares of Capital Stock or any other distributions with respect
         to Capital Stock other than distributions of any Equity Interests.

                  "RESTRICTED SUBSIDIARY" shall mean any Subsidiary which is not
         an Unrestricted Subsidiary.

                  "SECURITIES  ACT" means the Securities Act of 1933, as amended
from time to time.

                  "SENIOR FINANCIAL  OFFICER" means the chief financial officer,
         principal accounting officer, treasurer or comptroller of the Company.

                  "SUBSIDIARY"   means,  as  to  any  Person,  any  corporation,
         association  or other  business  entity in which such  Person or one or
         more  of its  Subsidiaries  or  such  Person  and  one or  more  of its
         Subsidiaries owns sufficient equity or voting interests to enable it or
         them (as a group) ordinarily, in the absence of contingencies, to elect
         a majority of the directors (or Persons  performing  similar functions)
         of such entity, and any partnership or joint venture if more than a 50%
         interest in the  profits or capital  thereof is owned by such Person or
         one or more of its  Subsidiaries  or such Person and one or more of its
         Subsidiaries  (unless such  partnership  can and does  ordinarily  take
         major business actions without the prior approval of such Person or one
         or more of its  Subsidiaries).  Unless the  context  otherwise  clearly
         requires,  any  reference  to  a  "Subsidiary"  is  a  reference  to  a
         Subsidiary of the Company.

                  "SWAPS" means, with respect to any Person, payment obligations
         with  respect  to  interest  rate  swaps,  currency  swaps and  similar
         obligations   obligating   such  Person  to  make   payments,   whether
         periodically  or upon the happening of a contingency.  For the purposes
         of this Agreement, the amount of the obligation under any Swap shall be
         the amount determined in respect thereof as of the end of the then most
         recently ended fiscal  quarter of such Person,  based on the assumption
         that such Swap had terminated at the end of such fiscal quarter, and in
         making  such  determination,  if any  agreement  relating  to such Swap
         provides  for the  netting  of amounts  payable  by and to such  Person
         thereunder  or if any  such  agreement  provides  for the  simultaneous
         payment of amounts by and to such Person,  then in each such case,  the
         amount of such obligation shall be the net amount so determined.

                  "TOTAL  DEBT" shall mean,  at the time of  determination,  the
         then outstanding  aggregate principal amount of all Indebtedness of the
         Company and its Restricted Subsidiaries on a consolidated basis.

                  "UNRESTRICTED  SUBSIDIARY"  shall mean any Subsidiary that has
         been  designated by the Company's Board of Directors as an Unrestricted
         Subsidiary (a "Designation"), provided that:

                           ()       at the time of such Designation,  the
                  Subsidiary so designated neither holds nor owns,  directly or
                  indirectly, any Indebtedness or capital stock of any
                  Restricted Subsidiary,

                           ()       at the time of such Designation,  no
                  Indebtedness of such Subsidiary is Guaranteed by or secured by
                  a Lien upon the assets of the Company or a Restricted
                  Subsidiary; and

                           ()       at the time of such  designation  or
                  redesignation,  as the case may be,  no  Default  or Event of
                  Default exists or would exist after giving effect to the
                  designation.

                  The Company may revoke any  Designation  of a Subsidiary as an
         Unrestricted Subsidiary (a "REVOCATION") only if:

                           ()  no Default or Event of Default exists or would
                  exist after giving effect to the Revocation; and

                           () all Liens and  Indebtedness  of such  Unrestricted
                  Subsidiary  outstanding  immediately following such Revocation
                  would, if incurred at the time of such  Revocation,  have been
                  permitted to be incurred under this Agreement.

         All Designations and Revocations  shall be evidenced by a resolution of
         the Board of Directors of the Company and, if requested by a Purchaser,
         the  Company  shall send a copy of such  resolution,  together  with an
         Officer's Certificate certifying compliance with the foregoing.

                  "VOTING STOCK" shall mean, securities or other equity interest
         of any class or classes,  the holders of which are  ordinarily,  in the
         absence of contingencies,  entitled to vote for the election or removal
         of  corporate  directors  or  persons  (such  as  general  partners  or
         managers) performing similar functions in the case of business entities
         other than corporations.

                    "WHOLLY-OWNED   SUBSIDIARY"  or   "WHOLLY-OWNED   RESTRICTED
          SUBSIDIARY"  means,  at any time, any  Subsidiary one hundred  percent
          (100%) of all of the Equity Interests  (except  directors'  qualifying
          shares) and voting interests of which are owned by any one or more of
          the Company and the Company's other Wholly-Owned Subsidiaries at such
          time.
<PAGE>

                      EXHIBIT 1 TO NOTE PURCHASE AGREEMENT


                                 [FORM OF NOTE]


THIS NOTE HAS NOT BEEN REGISTERED  PURSUANT TO THE REGISTRATION  REQUIREMENTS OF
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR QUALIFIED PURSUANT TO ANY
APPLICABLE STATE SECURITIES LAW.


                              GUILFORD MILLS, INC.

                     7.06% SENIOR NOTE DUE DECEMBER 18, 2008

No. [R-_____]     December 18, 1998
$[_______]        PPN[_________]

         FOR VALUE  RECEIVED,  the  undersigned,  GUILFORD MILLS,  INC.  (herein
called the  "Company"),  a corporation  organized and existing under the laws of
the  State  of  Delaware,  hereby  promises  to  pay  to  [_______________],  or
registered assigns, the principal sum of  [________________________]  DOLLARS on
[_____________, ____], with interest (computed on the basis of a 360-day year of
twelve 30-day months) () on the unpaid balance  thereof at the rate of 7.06% per
annum from the date hereof,  payable  semiannually,  on the 18th day of June and
December in each year,  commencing with the June or December next succeeding the
date hereof,  until the principal hereof shall have become due and payable,  and
() to the extent permitted by law on any overdue payment  (including any overdue
prepayment)  of  principal,  any  overdue  payment of  interest  and any overdue
payment of any  Make-Whole  Amount (as defined in the Note  Purchase  Agreements
referred to below),  payable semiannually as aforesaid (or, at the option of the
registered  holder  hereof,  on  demand),  at a rate per annum from time to time
equal to the  greater  of () 9.06% or () 2% over the rate of  interest  publicly
announced by Morgan  Guaranty Trust Company of New York from time to time in New
York, New York as its "base" or "prime" rate.

         Payments of principal of,  interest on and any  Make-Whole  Amount with
respect  to this Note are to be made in  lawful  money of the  United  States of
America at Morgan  Guaranty  Trust Company of New York or at such other place as
the Company shall have  designated by written  notice to the holder of this Note
as provided in the Note Purchase Agreements referred to below.

         This Note is one of the Senior Notes (herein called the "Notes") issued
pursuant to separate Note Purchase Agreements, dated as of December 18, 1998 (as
from time to time amended, the "Note Purchase Agreements"),  between the Company
and the  respective  Purchasers  named  therein and is entitled to the  benefits
thereof.  Each holder of this Note will be deemed, by its acceptance  hereof, ()
to have agreed to the confidentiality  provisions set forth in Section 20 of the
Note Purchase  Agreements  and () to have made the  representation  set forth in
Section 6.2 of the Note Purchase Agreements.

         This Note is a  registered  Note and, as provided in the Note  Purchase
Agreements,  upon  surrender of this Note for  registration  of  transfer,  duly
endorsed,  or accompanied by a written instrument of transfer duly executed,  by
the  registered  holder  hereof or such  holder's  attorney  duly  authorized in
writing,  a new  Note  for a like  principal  amount  will  be  issued  to,  and
registered  in the  name  of,  the  transferee.  Prior  to due  presentment  for
registration  of  transfer,  the Company may treat the person in whose name this
Note is registered as the owner hereof for the purpose of receiving  payment and
for all other  purposes,  and the Company  will not be affected by any notice to
the contrary.

         This Note is also subject to optional prepayment, in whole or from time
to time in part,  at the times and on the terms  specified in the Note  Purchase
Agreements, but not otherwise.

         If an Event of  Default,  as defined in the Note  Purchase  Agreements,
occurs  and is  continuing,  the  principal  of this  Note  may be  declared  or
otherwise  become due and payable in the  manner,  at the price  (including  any
applicable  Make-Whole Amount) and with the effect provided in the Note Purchase
Agreements.

         This Note shall be construed and enforced in accordance  with,  and the
rights of the  parties  shall be  governed  by, the law of the State of New York
excluding  choice-of-law  principles of the law of such State that would require
the application of the laws of a jurisdiction other than such State.


                                            GUILFORD MILLS, INC.


                                            By: _____________________________
                                                Title:
<PAGE>


                    EXHIBIT 4.4(a) TO NOTE PURCHASE AGREEMENT


                            Matters To Be Covered In
                    Opinion of Special Counsel To the Company


              . Each of the Company and its Restricted  Subsidiaries  being duly
       incorporated,  validly existing and in good standing and having requisite
       corporate  power and authority to issue and sell the Notes and to execute
       and deliver the documents.

              .  Each  of  the   Company  and  its Restricted   Subsidiaries
     being duly  qualified  and in good  standing  as a foreign  corporation  in
     appropriate jurisdictions.

               . Due authorization and execution of the documents and such
     documents being legal, valid, binding and enforceable.

                   . No conflicts with charter documents, laws or other
                     agreements.

               . All consents required to issue and sell the Notes and to
     execute and deliver the documents having been obtained.

                             . No litigation questioning validity of documents.

               . The Notes not requiring registration under the  Securities  Act
      of 1933, as amended;   no  need  to   qualify   an indenture  under the
      Trust  Indenture Act of 1939, as amended.

                    . No violation of Regulations T, U or X of the Federal
                      Reserve Board.

                    . Company not an "investment company", or a company
                      controlled by an"investment company", under the Investment
                      Company Act of 1940, as amended.

             .A North Carolina state court,  or a federal court sitting in North
              Carolina,   would,   under  North   Carolina   conflicts  of  laws
              principles,  recognize  the  choice of New York law to govern  the
              Note Purchase Agreements and the Notes.

<PAGE>


                    EXHIBIT 4.4(b) TO NOTE PURCHASE AGREEMENT


                       MATTERS TO BE COVERED BY OPINION OF
                        SPECIAL COUNSEL TO THE PURCHASERS


               .    The Note  Purchase Agreement and the Notes would  be  legal,
                    valid  and  binding  obligations,  enforceable  against  the
                    Company in accordance with their respective terms.

               .    The Notes not  requiring  registration under the  Securities
                    Act of 1933,  as  amended,  no need to qualify an  indenture
                    under the Trust Indenture Act of 1939, as amended.

    Opinions   subject  to standard and customary qualifications and exceptions.

<PAGE>


         Page
         Page
         Page
                                TABLE OF CONTENTS

         Page


1. AUTHORIZATION OF NOTES 1

2. SALE AND PURCHASE OF NOTES 1

3. CLOSING 1

4. CONDITIONS TO CLOSING 2
4.1. Representations and Warranties 2
4.2. Performance; No Default 2
4.3. Compliance Certificates 2
4.4. Opinions of Counsel 2
4.5. Purchase Permitted By Applicable Law, Etc. 3
4.6. Sale of Other Notes 3
4.7. Payment of Special Counsel Fees 3
4.8. Private Placement Number 3
4.9. Changes in Corporate Structure 3
4.10. Proceedings and Documents 3

5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY 4
5.1. Organization; Power and Authority 4
5.2. Authorization, Etc. 4
5.3. Disclosure 4
5.4. Organization and Ownership of Shares of Subsidiaries 5
5.5. Financial Statements 5
5.6. Compliance with Laws, Other Instruments, Etc. 5
5.7. Governmental Authorizations, Etc. 6
5.8. Litigation; Observance of Statutes and Orders 6
5.9. Taxes 6
5.10. Title to Property; Leases 7
5.11. Licenses, Permits, Etc. 7
5.12. Compliance with ERISA 7
5.13. Private Offering by the Company 8
5.14. Use of Proceeds; Margin Regulations8
5.15. Existing Indebtedness 8
5.16. Foreign Assets Control Regulations, Etc. 9
5.17. Environmental Matters 9
5.18. Status under Certain Statutes 9

6. REPRESENTATIONS OF THE PURCHASER 10
6.1. Purchase for Investment 10
6.2. Source of Funds 10

7. INFORMATION AS TO COMPANY 11
7.1. Financial and Business Information 11
7.2. Officer's/Accountant's Certificate 13
7.3. Inspection 14

8. PAYMENT OF THE NOTES 15
8.1. Payments at Maturity 15
8.2. Optional Prepayments with Make-Whole Amount 15
8.3. Allocation of Partial Prepayments 15
8.4. Maturity; Surrender, Etc. 15
8.5. Purchase of Notes 16
8.6. Offer to Prepay Notes in the Event of a Change in Control 16
8.7. Make-Whole Amount 17

9. AFFIRMATIVE COVENANTS 18
9.1. Compliance with Law 18
9.2. Insurance 19
9.3. Maintenance of Properties 19
9.4. Payment of Taxes and Claims 19
9.5. Corporate Existence, Etc. 19
9.6. Covenant to Secure Note Equally 20

10. NEGATIVE COVENANTS 20
10.1. EBITDAR to Fixed Charge Coverage Ratio 20
10.2. Debt to Cap/Priority Debt 20
10.3. Restricted Payments 20
10.4. Liens 21
10.5. Transactions with Affiliates 22
10.6. Merger, Consolidation, Sales of Substantially All Assets 22
10.7. Sales of Assets 23
10.8. Nature of Business 24
10.9. Dividend and Other Payment Restrictions Affecting Subsidiaries 24

11. EVENTS OF DEFAULT 24

12. REMEDIES ON DEFAULT, ETC. 27
12.1. Acceleration 27
12.2. Other Remedies 27
12.3. Rescission 27
12.4. No Waivers or Election of Remedies, Expenses, Etc. 28

13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES 28
13.1. Registration of Notes 28
13.2. Transfer and Exchange of Notes 28
13.3. Replacement of Notes 29

14. PAYMENTS ON NOTES 29
14.1. Place of Payment 29
14.2. Home Office Payment 29

15. EXPENSES, ETC. 30
15.1. Transaction Expenses 30
15.2. Survival 30

16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT 30

17. AMENDMENT AND WAIVER 31
17.1. Requirements 31
17.2. Solicitation of Holders of Notes 31
17.3. Binding Effect, Etc. 31
17.4. Notes held by Company, Etc. 32

18. NOTICES 32

19. REPRODUCTION OF DOCUMENTS 32

20. CONFIDENTIAL INFORMATION 33

21. SUBSTITUTION OF PURCHASER 34

22. MISCELLANEOUS 34
22.1. Successors and Assigns 34
22.2. Payments Due on Non-Business Days 34
22.3. Severability 34
22.4. Construction 34
22.5. Counterparts 35
22.6. Governing Law 35



Exhibits

Exhibit 1 Form of Senior Note
Exhibit 4.4(a) Matters to be Covered by Special
Counsel for the Company Exhibit 4.4(b) Matters to
be Covered by Special Counsel for the Purchasers


Schedules

Schedule A Information Relating to Purchasers
Schedule B Defined Terms
Schedule 5.4 Subsidiaries of the Company and Ownership of Subsidiary Stock
Schedule 5.5 Financial Statements
Schedule 5.8 Certain Litigation
Schedule 5.14 Use of Proceeds
Schedule 5.15 Existing Indebtedness
Schedule 10.4 Existing Liens
Schedule 11(k) Restricted Subsidiary Opinions

<PAGE>






                              EXECUTION COUNTERPART












                              GUILFORD MILLS, INC.


              $145,000,000 7.06% Senior Notes due December 18, 2008







                             NOTE PURCHASE AGREEMENT







                             Dated December 18, 1998










                The Prudential Life Insurance Company of America