<PAGE>

                                                                  EXECUTION COPY

                                                                   EXHIBIT 10.19


                               MEMBERS AGREEMENT



                                by and between



                      GRUPO INDUSTRIAL ZAGA, S.A. de C.V.

                                      and

                         DAN RIVER INTERNATIONAL LTD.


                                  Dated as of


                                January 5, 2000
<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<S>                                                                                      <C>
ARTICLE I DEFINITIONS...................................................................  1
      1.1  Definitions..................................................................  1
      1.2  Other References.............................................................  1
      1.3  Governing Language...........................................................  2
ARTICLE II BASIC STRUCTURE OF COMPANY...................................................  2
      2.1  Formation of the Company.....................................................  2
      2.2  Name.........................................................................  2
      2.3  Place of Business............................................................  2
      2.4  Purpose......................................................................  2
ARTICLE III CAPITAL INTERESTS AND FUNDING...............................................  2
      3.1  Capital of the Company.......................................................  2
      3.2  Mandatory Member Funding.....................................................  3
      3.3  Priority Subscription Rights.................................................  3
      3.4  Subscription.................................................................  3
ARTICLE IV BOARD OF MANAGERS............................................................  4
      4.1  Board of Managers............................................................  4
      4.2  Alternate Manager............................................................  4
      4.3  Term and Vacancies...........................................................  4
      4.4  Meetings and Agenda..........................................................  4
      4.5  Quorum and Decisions.........................................................  5
      4.6  Powers of the Board of Managers..............................................  5
      4.7  Execution of Documents.......................................................  6
      4.8  Compliance...................................................................  6
      4.9  Remuneration.................................................................  6
ARTICLE V MEETING OF MEMBERS............................................................  6
      5.1  Members Meeting..............................................................  6
      5.2  Calling a Members Meeting; Agenda............................................  6
      5.3  Related Matters..............................................................  7
      5.4  Quorum for Members Meeting...................................................  7
      5.5  Voting Generally.............................................................  7
      5.6  Ordinary Resolutions.........................................................  7
      5.7  Extraordinary Resolutions....................................................  8
ARTICLE VI BUY-SELL.....................................................................  9
      6.1  Buy-Sell Notice..............................................................  9
      6.2  Actions by Receiving Member..................................................  9
      6.3  Closing......................................................................  9
ARTICLE VII COMPETITION................................................................. 10
      7.1  Competition.................................................................. 10
ARTICLE VIII TRANSFERS.................................................................. 10
      8.1  Restrictions on Capital Interest Transfers and Encumbrances and New Issues... 10
</TABLE>
<PAGE>

<TABLE>
<S>                                                                                      <C>
      8.2  Preferential Purchase Right.................................................. 11
ARTICLE IX MANAGEMENT................................................................... 13
      9.1  Management................................................................... 13
      9.2  Operation of the Project..................................................... 13
ARTICLE X REPORTING AND INFORMATION..................................................... 14
     10.1  Accounting; Fiscal Year; Tax Information..................................... 14
     10.2  Annual Financial Statements and Auditing..................................... 14
     10.3  Inspection and Other Information............................................. 14
     10.4  Reports...................................................................... 15
     10.5  Tax Returns and Partnership Status........................................... 15
     10.6  Submission of Annual and..................................................... 16
     10.7  Approval of Annual Business Plan and Three-Year Business Plan................ 16
ARTICLE XI RESOLUTION OF DISPUTES....................................................... 17
     11.1  Conciliation................................................................. 17
     11.2  Agreement to Arbitrate....................................................... 17
     11.3  Appointment of Arbitrators................................................... 17
     11.4  Authority of the Arbitrators................................................. 17
     11.5  Place of Arbitration......................................................... 18
     11.6  Conduct of the Arbitration................................................... 18
     11.7  ICC Rules.................................................................... 18
     11.8  Payment of Award............................................................. 18
     11.9  Finality of the Arbitrators' Award........................................... 18
    11.10  Use of the Courts............................................................ 18
    11.11  Confidentiality.............................................................. 19
    11.12  Arbitration Provision Enforceable............................................ 19
ARTICLE XII OBLIGATIONS OF THE PARTIES.................................................. 19
     12.1  Observance of Laws........................................................... 19
     12.2  Confidentiality.............................................................. 20
     12.3  Publicity.................................................................... 21
ARTICLE XIII REPRESENTATIONS, WARRANTIES, AND LIABILITIES............................... 21
     13.1  Representations and Warranties............................................... 21
     13.2  Limitation on Liability...................................................... 22
ARTICLE XIV MISCELLANEOUS PROVISIONS.................................................... 22
     14.1  Notices...................................................................... 22
     14.2  Governing Law................................................................ 23
     14.3  Interest..................................................................... 24
     14.4  Further Assurances........................................................... 24
     14.5  No Further Relationship...................................................... 24
     14.6  Conflict of Terms............................................................ 24
     14.7  Assignment................................................................... 24
     14.8  Specific Performance......................................................... 24
     14.9  Entire Agreement............................................................. 24
    14.10  Amendment.................................................................... 25
    14.11  Waivers...................................................................... 25
    14.12  No Third Party Beneficiaries................................................. 25
</TABLE>

                                      ii
<PAGE>

<TABLE>
<S>                                                                                      <C>
    14.13  Severability................................................................. 25
    14.14  Counterparts................................................................. 25
    14.15  Interpretation............................................................... 25
    14.16  Force Majeure................................................................ 25
ANNEX A  DEFINITIONS....................................................................  1
EXHIBIT A    ...........................................................................  1
EXHIBIT B    ...........................................................................  1
EXHIBIT C    ...........................................................................  1
EXHIBIT D    ...........................................................................  1
</TABLE>

                                      iii
<PAGE>

                               MEMBERS AGREEMENT

     This Members Agreement (this "Agreement"), dated as of January 5, 2000, is
entered into by and between Grupo Industrial Zaga, S.A. de C.V., a sociedad
anonima de capital variable organized under the laws of the United Mexican
States ("Zaga") and Dan River International Ltd., a corporation organized under
the laws of the Commonwealth of Virginia, USA ("Dan River").

                                   RECITALS

     Zaga and Dan River shall be the sole Members, and thus shall own in the
aggregate 100% of the corporate capital of the Company.  The Company shall own
and operate the Project.

     The Members desire to set forth herein the terms and conditions concerning
their ownership of and cooperation concerning the Company.

     Contemporaneously with the execution of this Agreement, Dan River Inc., the
parent company of Dan River, and Zaga shall enter into a separate letter
agreement for the allocation of certain selling, general and administrative
expenses, a copy of which is attached hereto as Exhibit A.
                                                ---------

     NOW, THEREFORE, intending to be legally bound, the Members agree as
follows:


                                   ARTICLE I

                                  DEFINITIONS

     1.1  Definitions. The capitalized words and phrases set forth on Annex A
                                                                      -------
hereto, and the capitalized words and phrases defined elsewhere in this
Agreement, have the indicated meanings for purposes of this Agreement.

     1.2  Other References. Unless otherwise provided, all references to
"Articles" and "Sections" are to Articles and Sections of this Agreement, and
all references to "Exhibits" are to Exhibits attached to this Agreement, each of
which is made a part of this Agreement for all purposes. References to any
gender include all others if applicable in the context. Terms defined in the
singular shall have the corresponding meaning when used in the plural and vice
versa. All uses of "include" or "including" mean without limitation. References
to a law, rule, regulation, contract, agreement, or other document mean that
law, rule, regulation, contract, agreement, or document as amended, modified, or
supplemented, if applicable. Any definition of one part of speech of a word,
such as definition of the noun form of that word, shall have a comparable
meaning when used as a different part of speech, such as the verb form of that
word.
<PAGE>

     1.3  Governing Language. The governing language of this Agreement shall be
the English language; provided, however, that with respect to the Organizational
Documents, their governing language shall be Spanish. Except as otherwise
required by applicable law, all notices, correspondence, information,
literature, reports, data, manuals, procedures and other documents required
under this Agreement shall be in the English language.


                                  ARTICLE II

                          BASIC STRUCTURE OF COMPANY

     2.1  Formation of the Company. The Members agree to form the Company within
fifteen (15) days following the date of this Agreement, and the Company shall be
governed by the Organizational Documents attached hereto as Exhibit B; provided,
                                                            ---------
however, that the Company shall not be formed unless and until DanZa Textil, S.
de R.L. de C.V. is formed.

     2.2  Name.  Subject to the approval from the Ministry of Foreign Affairs
(Secretaria de Relaciones Exteriores), the name of the Company shall be Zadar,
S. de R.L. de C.V.

     2.3  Place of Business.  The corporate domicile and principal place of
business of the Company shall be located in Jilotepec, State of Mexico, or such
other place as the Members may from time to time designate.

     2.4  Purpose. The purposes for which the Company shall be organized
include, but are not limited to, the following:

          (a)  to develop, finance, build, own and operate a manufacturing plant
          at a location to be selected by the Board of Managers in Mexico, and
          to engage in manufacturing operations, primarily for the manufacture
          of finished garments, and the sale of such finished garments to
          garment retailers and other sectors; and

          (b)  such other activities as are lawful and approved by an
          Extraordinary Resolution of the Members.


                                  ARTICLE III

                         CAPITAL INTERESTS AND FUNDING

     3.1  Capital of the Company.  The Company shall have a minimum fixed
capital of 3,000 Pesos.  Each Member shall own one capital interest (parte
social) ("Capital Interest"), which initially shall have the value set forth in
Exhibit C.  All additional equity contributions in excess of the minimum fixed
---------
capital amount shall constitute the variable capital of the Company and shall
cause an increase in the Value of the Capital Interest of such contributing
Member by

                                       2
<PAGE>

the amount of equity so contributed. The Value of a Capital Interest shall
always represent a multiple of one Peso. The Capital Interests shall be of free
subscription.

     3.2  Mandatory Member Funding.

          (a)  Each Member shall be required, severally and not jointly, to make
          equity contributions to provide its pro rata portion of the funds
          necessary to fund the Project; provided that in no event shall any
          Member be required to make equity contributions in excess of $6
          million Dollars.  Each time that such equity contributions are to be
          made, they shall be made by all Members on the same day pro rata in
          accordance with their Ownership Percentages.  The timing for the
          making of the equity contributions shall be governed by a separate
          agreement among the Members.

          (b)  The Members shall authorize and cause the Company to increase the
          capital of the Company to correspond to the amounts required to be
          contributed from time to time in accordance with Section 3.2(a).  The
                                                           --------------
          Company shall register in its books any increase in the Value of a
          Member's Capital Interest based on and corresponding to the amounts so
          contributed.

          (c)  If one Member fails or refuses to provide funds as required by
          this Section 3.2, and such failure or refusal continues for five
               -----------
          Business Days after receipt by such Member of notice thereof from the
          other Member, the other Member may at its option provide such funds,
          and the Member providing such funds shall have the Value of its
          Capital Interest increased accordingly.

     3.3  Priority Subscription Rights.  Upon any decision of the Members to
increase the capitalization of the Company, except for increases pursuant to
Section 3.2, each Member shall have the right to subscribe for such increase pro
-----------
rata based on such Member's Ownership Percentage.  If any Member fails to
subscribe or pay for the pro rata portion to which it is entitled, the other
Member may take up the unsubscribed or unpaid portion.

     3.4  Subscription.  The funding needs of the Company to be provided by the
Members shall be denominated in Dollars, and the commitment of the Members to
fund such needs shall be made in Dollars (the "Commitment Amounts").
Notwithstanding the foregoing, the amount of any equity contributions to the
Company, and the subscriptions of the Members in respect thereof, shall be
denominated and paid in Pesos (the "Subscriptions"), it being understood that
foreign capital contributed by the Members shall be converted to Pesos at the
prevailing rate of exchange published by the Banco de Mexico in the Official
Daily Gazette (Diario Oficial).  Equity capital thus paid to the Company shall
then be converted to Dollars (the "Dollar Amounts").  To the extent that any
Dollar Amount realized by the Company in connection with any Subscription shall
be less than the relevant Commitment Amount, additional equity increases shall
be made and the Members shall subscribe for such increases and effect payment in
connection therewith until the Company shall have realized Dollar Amounts that
are not less than the Commitment Amounts.

                                       3
<PAGE>

                                  ARTICLE IV

                               BOARD OF MANAGERS

     4.1  Board of Managers.  The Company shall be governed by a Board of
Managers consisting of six managers.  The managers shall not be required to be
nationals of Mexico. Dan River shall be entitled to designate three persons to
the Board of Managers, and to the extent permitted by applicable law, Dan River
shall have the right to cause such managers to be removed. Zaga shall be
entitled to designate three persons to the Board of Managers, and to the extent
permitted by applicable law, Zaga shall have the right to cause such managers to
be removed.  Each Member agrees to vote its Capital Interest so as to achieve
the results referred to in this Section 4.1.  Zaga shall appoint a manager to
                                -----------
serve as chairman of the Board of Managers during the first year, after which
control of the chairmanship of the Board of Managers will alternate annually
between Zaga and Dan River appointed managers.

     4.2  Alternate Manager.  Each Member entitled to nominate a manager
pursuant to Section 4.1 shall be entitled to designate an alternate manager for
            -----------
each of its nominees (an "Alternate Manager").  Each Alternate Manager shall be
entitled to receive notice of all meetings of the Board of Managers and to
attend and vote at any such meeting at which the manager for whom he is the
Alternate Manager is not personally present, and generally to perform all
functions of the manager for whom he is the alternate as a manager in his
absence.  An Alternate Manager shall cease to be an Alternate Manager if the
manager for whom he is the alternate ceases to be a manager; provided, however,
that if a manager retires and is immediately reappointed, any appointment of an
Alternate Manager for such manager that was in force immediately prior to his
retirement shall continue after his reappointment.  An Alternate Manager shall
be deemed for all purposes a manager and shall alone be responsible for his own
acts and defaults and he shall not be deemed to be the agent of the manager for
whom he is the alternate.

     4.3  Term and Vacancies.  The managers shall be elected for a term of
office of one year.  A manager whose term of office expires may be reelected.
Any vacancy on the Board of Managers shall be filled by the Member that
nominated the manager whose departure created such vacancy.

     4.4  Meetings and Agenda.  The Board of Managers shall meet at least
quarterly ("Regular Meetings"), and additional meetings may be convened by call
of the chairman or by any manager at any time ("Special Meetings").  Regular
Meetings shall be held at the Company's head office or at such other location as
may be agreed by the Board of Managers.  Unless otherwise agreed upon by the
Board of Managers, Special Meetings shall be held on an alternating basis at the
Company's head office and at the offices of Dan River Inc. in Danville,
Virginia, U.S.A.  Managers shall receive not less than ten Business Days'
written notice of any meeting, with such written notice also provided to each
Member.  Managers may, by unanimous written consent, waive the notice
requirement for meetings, and any manager that attends a

                                       4
<PAGE>

meeting of the Board of Managers shall be deemed to have waived any requirement
for notice thereof. The agenda of each meeting shall be included in the notice
for such meeting and shall be established in accordance with the requirements of
the Code and the Organizational Documents, but shall include any matter
submitted to the Company by any manager at least three Business Days prior to
the sending of the notice for such meeting. Managers may attend meetings of the
Board of Managers by telephone or videoconference.

     4.5  Quorum and Decisions.  A quorum for meetings of the Board of Managers
shall require the presence of at least four managers.  All decisions of the
Board of Managers shall be taken by the affirmative vote of at least four
managers.  The chairman of the Board of Managers shall not be entitled to any
vote in addition to his vote as a manager.  In the event of a deadlock among the
managers, the matters shall be decided by vote of the Members as set forth in
Article V.  The proceedings of meetings of the Board of Managers will be in
---------
English. Unless otherwise required by applicable law, the official minutes of
meetings and resolutions taken therein shall be kept in English and Spanish,
shall be circulated to all managers before finalization and shall be kept in the
minute books of the Company.  If permitted by applicable law, decisions may be
taken by the Board of Managers without a meeting if a proposal for action is
submitted in writing to each of the managers and each such manager consents in
writing to such action.

     4.6  Powers of the Board of Managers. Except as otherwise expressly
provided by applicable law or this Agreement, the Board of Managers shall,
consistent with any resolution of the Members Meeting, administer the business
and property of the Company and manage the affairs of the Company and shall have
full authority to do so, provided that its resolutions and acts are consistent
with the Code, this Agreement and the Organizational Documents. Subject to the
foregoing, the functions and powers of the Board of Managers shall include, but
not be limited to:

          (a)  The appointment or removal of the director of marketing and the
          general manager of the Project;

          (b)  The approval of the Annual Business Plan;

          (c)  The approval of the annual audited financial statements;

          (d)  The approval of any acquisition or Transfer of assets or capital
          expenditures having a value in excess of $250,000;

          (e)  The approval of any loans or the issuance of any credits in the
          ordinary course of business in excess of $200,000 in the aggregate to
          any one Person or its Affiliates;

          (f)  Any material amendment or modification of any Project Contract or
          Financing Agreement;

                                       5
<PAGE>

          (g)  Any declaration by the Company of a default under, any exercise
          by the Company of remedies under, or any termination or cancellation
          by the Company of, any Project Contract or Financing Agreement; and

          (h)  The performance of any other acts necessary or appropriate for a
          Board of Managers under this Agreement, the Organizational Documents
          or the Code.

     4.7  Execution of Documents. To be valid and binding, all notes, offers and
acceptances, powers of attorney, commitments, deeds, transfers, assignments,
contracts, obligations, certificates and other instruments of the Company must
be authorized by the Board of Managers. Subject to the Code, this Agreement and
the Organizational Documents, the Board of Managers may delegate such of this
authority and power as it considers appropriate to the director of marketing,
the general manager and other executives of the Company (subject to
authorization and spending limits to be specified by the Board of Managers).

     4.8  Compliance. The Members hereby expressly covenant and agree to cause
each manager elected from nominees nominated by it to comply in full with the
provisions of this Agreement, the Organizational Documents, and the Code.

     4.9  Remuneration. Remuneration, if any, of the managers shall be as
stipulated by the Members. The reasonable out-of-pocket expenses of such
managers incurred with respect to attendance at meetings of the Board of
Managers shall be reimbursed by the Company.


                                   ARTICLE V

                              MEETING OF MEMBERS

     5.1  Members Meeting. The Members Meeting is the supreme authority of the
Company.  The Members Meeting may be ordinary (an "Ordinary Members Meeting") or
extraordinary (an "Extraordinary Members Meeting"), depending on the matters to
be discussed at each meeting.  Members Meetings shall be held at the corporate
domicile of the Company and Members may attend such meetings by telephone or
videoconference.  According to the Code, resolutions may be adopted outside of
Members Meetings by unanimous written consent of all of the Members.  An
Ordinary Members Meeting shall be held at least once a year within the four (4)
months following the closing of each fiscal period. Ordinary Members Meetings
may be those called to discuss any of the matters that are not expressly
reserved by this Agreement to the Extraordinary Members Meeting.  The matters
reserved for Extraordinary Members Meetings are any matters that are identified
as Extraordinary Resolutions pursuant to Section 5.7 below.
                                         -----------

     5.2  Calling a Members Meeting; Agenda.  A Members Meeting shall be called
by any Member, the Board of Managers or any other Person authorized under the
Organizational Documents or applicable law.  Notice of a Members Meeting shall
be provided in writing by the Company or other applicable Person to each Member
at least 15 Business Days prior to such Members Meeting, unless a longer period
is required by applicable law or unless such

                                       6
<PAGE>

requirement is waived by all Members, and any Member that attends a Members
Meeting shall be deemed to have waived any requirement for notice thereof. The
agenda of each meeting shall be included in the notice for such meeting and
shall be established in accordance with the requirements of the Code and the
Organizational Documents, but shall include any matter submitted to the Company
by any Member at least three Business Days prior to the sending of the notice
for such Members Meeting. Unless approved by all Members of the Company, no
matter may be considered at a Members Meeting unless such matter was set forth
in the notice for such Members Meeting.

     5.3  Related Matters.  The chairman of the Board of Managers shall act as
the chairman of the Members Meeting, and the secretary of the Company shall
serve as secretary of the Members Meeting.  In the event that either the
chairman of the Board of Managers or the secretary of the Company are
unavailable to so act, then the chairman and the secretary shall be elected by
the Members (or their representatives) by a majority vote of the total votes of
the Members represented at the relevant meeting.  In all instances, the vote
collector shall be elected from among the Members (or their representatives) by
a majority vote of the total votes of the Members represented at the relevant
meeting.  Unless otherwise required by applicable law, each Members Meeting
shall be conducted in English, and the minutes of each Members Meeting shall be
prepared in English and Spanish promptly after each meeting, shall be circulated
to all Members before finalization and shall be kept in the minute books of the
Company.

     5.4  Quorum for Members Meeting. Unless a higher number is required by
applicable law, a quorum for any Members Meeting shall consist of Members
present or represented by proxy holding more than 75% of the total votes of the
Members, provided that the presence of a quorum shall not modify or lessen the
affirmative vote required by Sections 5.6 and 5.7; and provided, further, that a
                             --------------------
quorum for a Members Meeting that is held with notice at least five Business
Days following the date that a Members Meeting was properly called pursuant to
Section 5.2 but was not held due to the failure of a quorum shall consist of
-----------
Members present or represented by proxy holding any number of the total votes of
the Members.

     5.5  Voting Generally. Each Member shall have one vote for each one Peso
contributed by the Member and its predecessors to the equity of the Company.
Votes shall be cast by written ballot. Members may be represented at Members
Meetings by proxies, the holders of which need not be Members. Proxy holders
that are Members shall be entitled to vote based on the number of votes of the
Members they represent separately, in addition to voting based on their own
number of votes. Proxies shall be issued in accordance with the Code.
Resolutions may be approved by the Members without a meeting if the resolution
is submitted in writing to each Member and each such Member consents in writing
to such resolution.

     5.6  Ordinary Resolutions.  Resolutions, actions and decisions of the
Members shall be adopted, taken or made at an Ordinary Members Meeting by the
affirmative vote of Members (or their representatives) representing more than
50% of the total votes of the Members ("Ordinary Resolutions").

                                       7
<PAGE>

     5.7  Extraordinary Resolutions. Resolutions, actions and decisions of the
Members shall be adopted, taken or made at an Extraordinary Members Meeting by
the affirmative vote of Members (or their representatives) representing 75% or
more of the total votes of the Members with respect to the following matters
("Extraordinary Resolutions"), unless such matters shall have been approved by
the Board of Managers or are required by law to be approved of by the Members:

          (a)  Any merger, consolidation or similar amalgamation of the Company,
          or the Transfer during any fiscal year, exceeding  an aggregate of
          more than 20% of the Fair Market Value of the Company's total assets;

          (b)  The appointment or removal of auditors;

          (c)  Any proposal for additional contributions of capital, other than
          with respect to the contributions made pursuant to Section 3.2;
                                                             -----------

          (d)  Any proposals for the Company to accept contributions of or
          conversions of debt-to-capital from third parties in exchange for
          Capital Interests;

          (e)  Any proposals by a Member to Transfer all of its Capital
          Interests or a portion of the Value of its Capital Interest other than
          as permitted by this Agreement;

          (f)  The dissolution of the Company;

          (g)  Any acquisitions or capital expenditures during any fiscal year
          exceeding an aggregate of more than 20% of the Fair Market Value of
          the Company's total assets;

          (h)  The amendment of the Organizational Documents;

          (i)  Entering into a transaction or series of transactions with any
          Affiliate (or any Person in which a Member or its Affiliate has a 10%
          or greater equity interest), member of the Board of Managers, officer,
          or executive of the Company or a Member (or any individual who is a
          member of the immediate family of such manager, officer or executive)
          that in the aggregate will have a value during any fiscal year in
          excess of $100,000;

          (j)  Incurring additional indebtedness if the ratio of debt to total
          capitalization of the Company would exceed 60% after giving effect to
          such borrowing;

          (k)  Borrowing for the purpose of accomplishing any matter listed in
          Section 5.7; and
          -----------

          (l)  Making payments of liquidating or partially liquidating
          dividends.

                                       8
<PAGE>

                                  ARTICLE VI

                                   BUY-SELL

     6.1  Buy-Sell Notice.  If (a) at any time any Member desires to adopt one
or more Extraordinary Resolutions, but approval of the other Member for the
passing of such Extraordinary Resolutions cannot be obtained in accordance with
Article V and (b) such situation continues without resolution for at least 90
---------
days (during which period the Members shall conduct good faith negotiations and
discussions, which shall include, without limitation, a requirement of a face to
face meeting of the chief executive officers of the respective Member's Ultimate
Parents), then any Member (the "Triggering Member") may, at any time thereafter
while such situation continues without resolution, send a notice (the "Buy-Sell
Notice") to the other Member (the "Receiving Member"). The Buy-Sell Notice shall
constitute an offer by the Triggering Member either (i) to sell the Capital
Interest of the Triggering Member or (ii) to purchase the Capital Interest of
the Receiving Member, in either case for a cash price in Dollars equal to the
price per one Peso contributed to the equity of the Company (the "Capital
Interest Price") set forth in the Buy-Sell Notice. The Buy-Sell Notice shall be
accompanied by an irrevocable letter of credit issued by a reputable financial
institution in favor of the Receiving Member in the amount of 10% of the Capital
Interest Price multiplied by the number of whole Pesos contributed to the equity
of the Company by the Receiving Member, which letter of credit shall provide
that in the event the Receiving Member elects to sell its Capital Interest and
the Triggering Member for any reason (other than due to the fault of the
Receiving Member or the failure, through no fault of the Receiving Member, to
obtain the consent, if required, of the Lenders) fails to complete the closing
of the transaction within the time period set forth in Section 6.3, then the
                                                       -----------
Receiving Member shall have the right (without limitation to any other remedy
available), for a period of 10 Business Days after the expiration of such
period, to draw on the letter of credit and retain the proceeds thereof.

     6.2  Actions by Receiving Member. Not later than 30 days after the giving
of the Buy-Sell Notice to the Receiving Member, the Receiving Member shall
notify (the "Response Notice") the other Member whether such Receiving Member
elects (a) to sell or (b) to purchase, in either case at the Capital Interest
Price.  Failure to give the Response Notice within such 30-day period shall be
deemed to be an election to sell by the Receiving Member.  If the Receiving
Member elects to purchase, the Receiving Member shall be required to purchase
all of the Capital Interest of the Triggering Member and shall include with its
Response Notice the original letter of credit it received from the Triggering
Member and a letter of credit in favor of the Triggering Member substantially as
described in Section 6.1 above (except that the amount of the letter of credit
             -----------
shall be measured by reference to the  Triggering  Member's equity
contributions).  If the Receiving Member does not elect to purchase, the
Receiving Member shall sell its Capital Interest to the Triggering Member.  In
each case, the sale or purchase of the Capital Interest shall be at the Capital
Interest Price multiplied by the number of whole Pesos contributed to the equity
of the Company by the Member who is selling its Capital Interest.

     6.3  Closing.  The closing of the sale and purchase in accordance with this
Article VI shall be consummated no later than the first Business Day after 90
----------
days after the giving of the

                                       9
<PAGE>

Response Notice or the deemed election (pursuant to Section 6.2) to sell. Such
                                                    -----------
closing shall occur at the head office of the Company unless otherwise agreed,
and at the closing, the Closing Actions shall occur. Any tax withholding
obligations with respect to the Transfers of the Capital Interests imposed by
the laws of Mexico shall be complied with.


                                  ARTICLE VII

                                  COMPETITION

     7.1  Competition.  The objectives of the Company, in general terms, are the
development, financing, building, ownership and operation of the Project.
Except as set forth below in Section 7.2, no Member or Affiliate of a Member, by
                             -----------
reason of the Member's participation in the ownership of the Company or the
election of any representative of that Member to the Board of Managers, shall be
precluded in any manner whatsoever from engaging in any other similar or related
activities in Mexico, the United States, or anywhere else, nor shall any Member
or Affiliate of a Member have any obligation, by reason of its participation in
the ownership of the Company or the election of any representative of that
Member to the Board of Managers, to make available to the Company or any of the
other Members or their Affiliates any other opportunity that such Member or its
Affiliates may have to develop, construct, finance or operate any other project.

     7.2  Restrictions on Competition. Notwithstanding the provisions in Section
                                                                         -------
7.1, no Member or Affiliate of a Member shall directly or indirectly engage in
---
the manufacture of shirts, blouses and/or trousers (pants) from woven apparel
fabrics in Mexico.


                                 ARTICLE VIII

                                   TRANSFERS

     8.1  Restrictions on Capital Interest Transfers and Encumbrances and New
Issues.

          (a)  Notwithstanding any other provision of this Agreement, a Transfer
          or Encumbrance of Capital Interests or an issuance of new Capital
          Interests of the Company may only be made in accordance with the
          provisions of this Agreement, the Code, the Organizational Documents
          and the Financing Agreements, and any other attempted Transfer,
          Encumbrance or issuance shall be void.  It shall be a condition to the
          Transfer or issuance of Capital Interests to any Person under any
          provision hereof that such Person shall agree in writing (i) to be
          bound by the provisions of this Agreement and (ii) to assume all
          liabilities and obligations of the transferring Member (and Affiliates
          thereof) under or with respect to any agreement between or among any
          of the Members (or Affiliates thereof) in relation to the Project; and
          any Transfer or subscription in respect of which such conditions have
          not been satisfied shall be void.

                                      10
<PAGE>

          (b)  No Member may Transfer or Encumber its Capital Interest or its
          Value in a Capital Interest unless (i) such Transfer is to an
          Affiliate of the transferor, (ii) such action is approved by the Board
          of Managers in accordance with Section 4.5 herein, or (iii) if such
                                         -----------
          action is not so approved by the Board of Managers, such action is
          approved by an Extraordinary Resolution.

          (c)  Any Transfer of a Capital Interest or of a Member's Value in a
          Capital Interest hereunder shall take effect as of the date of
          registration of such Transfer in the books of the Company, and the
          Company shall not register any Transfer that does not comply with this
          Article VIII, but the Members and the Board of Managers agree promptly
          ------------
          to take and cause to be taken any action necessary under the
          Organizational Documents, this Agreement and applicable law to
          effectuate and register any such Transfer that does so comply.

          (d)  The certificates representing the Capital Interests shall all
          bear the following legend in English and in Spanish:

               "The transfer or encumbrance in any manner of the
               Capital Interest represented by this certificate are
               restricted by and subject to the provisions of the
               Estatutos of the Company, as well as a certain Members
               Agreement, dated January 5, 2000, copies of which may
               be reviewed at the Company's head office during
               business hours."

     8.2  Preferential Purchase Right.

          (a)  If Zaga or any of its Affiliates desires to Transfer its Capital
          Interest and such Transfer has been approved in accordance with the
          provisions of Section 8.1, Zaga must first offer Dan River, in
                        -----------
          accordance with the terms of Section 8.2(b), the right to purchase
                                       --------------
          from Zaga a portion of Zaga's Capital Interest in an amount sufficient
          to provide Dan River with a 50%, but no more and no less than a 50%,
          Ownership Percentage in accordance with Section 8.2(b); provided,
                                                  --------------
          however, that this preferential purchase right shall not apply if Dan
          River's Ownership Percentage at the time of the Transfer is less than
          37%.

          (b)  Should Zaga or any of its Affiliates desire to Transfer its
          Capital Interest pursuant to an Offer from another Person (the
          "Potential Acquirer") and such Transfer is permitted pursuant to the
          provisions of Section 8.1, Zaga  shall promptly give notice thereof
                        -----------
          (the "Transfer Notice") to the Company and Dan River. The Transfer
          Notice shall include a copy of the Offer and shall set forth in
          reasonable detail all relevant information with respect to the
          proposed Transfer, including the name and address of the Potential
          Acquirer, the cash purchase price (expressed in Dollars) per Peso
          contributed to the equity of the Company by Zaga (the "Preferential
          Purchase Price"), the Capital Interests that are to be the subject of
          the Transfer (the "Subject Capital Interests"), and any other terms
          and conditions of the proposed Transfer.  Dan River shall have the
          preferential right to purchase from Zaga a portion of Zaga's Capital
          Interest in an amount sufficient to

                                      11
<PAGE>

          provide Dan River with a 50% Ownership Percentage at the Preferential
          Purchase Price and on the same material terms and conditions set forth
          in the Transfer Notice. Dan River shall have 20 Business Days
          following the giving of the Transfer Notice in which to notify Zaga
          whether it desires to exercise its preferential right. A notice in
          which Dan River exercises such right is referred to herein as an
          "Exercise Notice." The Exercise Notice shall be accompanied by an
          irrevocable letter of credit issued by a reputable financial
          institution in favor of Zaga (or such other instrument or arrangement
          reasonably satisfactory to Zaga) in the amount of the Preferential
          Purchase Price multiplied by the number of whole Pesos contributed to
          the equity of the Company by Zaga times (y) the percentage amount
          equal to the positive difference between 50% and the Ownership
          Percentage of Dan River immediately prior to the exercise of the
          preferential purchase, times (z) 10%, which letter of credit shall
          provide that in the event Dan River fails for any reason (other than
          due to the fault of Zaga or the failure, through no fault of Zaga, to
          obtain any required consent of the Lenders) to complete the closing of
          the transaction within the time period set forth in Section 8.2(c),
                                                              --------------
          then Zaga shall have the right (without limitation to any other remedy
          available), for a period of 10 Business Days after the expiration of
          such period, to draw on the letter of credit and to retain the
          proceeds thereof. If Dan River does not duly exercise such right
          during the applicable period, it shall be deemed to have waived such
          right.

          (c)  If the preferential right is exercised in accordance with Section
                                                                         -------
          8.2(b), the closing of such purchase shall occur at the head office of
          ------
          the Company on the first Business Day 120 days after the expiration of
          the preferential right period.  At the closing, the Closing Actions
          shall occur.

          (d)  If Dan River does not deliver an Exercise Notice or if for any
          reason (other than due to the fault of Zaga or the failure of the
          Lenders, other than the failure to grant any required consent, to take
          any action that prevented the preferential purchase transaction to
          close within the time period set forth in Section 8.2(c)) the
                                                    --------------
          preferential purchase transaction does not close within the time
          period set forth in Section 8.2(c), Zaga shall have the right, subject
          to compliance with the other provisions of this Article VIII, to
                                                          ------------
          Transfer the Subject Capital Interests to the Potential Acquirer in
          accordance with the terms of the Transfer Notice for a period of 90
          days after the expiration of the preferential right period.  If,
          however, Zaga fails to Transfer the Subject Capital Interests within
          such period, the proposed Transfer shall again become subject to the
          preferential right set forth in this Section 8.2.
                                               -----------

                                      12
<PAGE>

                                  ARTICLE IX

                                  MANAGEMENT

     9.1  Management.  The Board of Managers shall appoint the general manager,
the director of marketing, the deputy general manager and the other officers of
the Company.  The officers shall be responsible for the day-to-day management
and conduct of the operations of the Company in accordance with powers granted
by the Members Meeting and the Board of Managers from time to time. The duration
of the terms of the general manager, the director of marketing, the deputy
general manager and other officers having authority to sign and execute
documents on behalf of the Company shall not be limited to the term of the
managers.

     9.2  Operation of the Project.

          (a)  The parties to this Agreement, in cooperation with the director
          of marketing, will work together to determine the product mix for the
          Project. Zaga will provide its help and expertise on all local
          matters, including, but not limited to, issues associated with
          locating and constructing the Project in Mexico, complying with any
          governmental authorities or regulations, and addressing labor issues.
          The layout, manning and equipping of the Project will be approved by
          the Board of Managers. The efforts of the Members in regard to the
          foregoing matters will be subject to the provisions of Section 12.2.
                                                                 ------------

          (b)  The Project will be managed and operated on a day-to-day basis by
          a team hired by the Company and headed by the director of marketing
          and the general manager, in accordance with guidelines and reporting
          authority established by the Board of Managers.

          (c)  The Members shall create a task force consisting of one
          individual selected by each Member (the "Representatives"). The
          Representatives shall be directly responsible for working with the
          director of marketing and the general manager to supervise the
          construction, equipping and initial operations of the Project during
          construction and the first year of the Project's full operation. The
          Representatives will work closely with the director of marketing and
          the general manager and will have significant approval authority on
          behalf of the Members whom they represent. In the event it becomes
          necessary to replace the director of marketing or the general manager,
          a separate task force will be formed by the Board of Managers in the
          manner provided above to recommend candidates to the Board of
          Managers.

                                      13
<PAGE>

                                   ARTICLE X

                           REPORTING AND INFORMATION

     10.1 Accounting; Fiscal Year; Tax Information.  The Members shall cause the
Company to keep, in addition to any books and accounts required under the Code,
books and records in accordance with US GAAP and Mexico GAAP applied on a
consistent basis. The Members shall cause the Company to make and keep books,
records, and accounts that, in reasonable detail, accurately and fairly reflect
all of its transactions.  The records shall include monthly unaudited financial
reports (including an income statement, balance sheet and statement of cash
flows) prepared in accordance with US GAAP and Mexico GAAP by or under the
supervision of the Company's chief financial officer, which shall be furnished
to each of the Members.  The fiscal year of the Company shall be the year ending
December 31. The Members shall cause the Company to furnish to each Member such
information concerning the Company and its operations as is required for each
Member and its Affiliates to prepare their tax returns on a timely basis.

     10.2 Annual Financial Statements and Auditing.  The books and records of
the Company maintained under Section 10.1 shall be audited annually by Ernst &
                             ------------
Young.  The Board of Managers shall direct that the audit be completed on or
before the 90/th/ day following the end of each fiscal year of the Company and
that the auditors provide drafts of the annual financial statements and their
report thereon to each Member prior to finalization thereof.  The audit shall be
in accordance with US GAAP and Mexico GAAP applied on a consistent basis.  The
audit under this Section 10.2 is in addition to any audit required under the
                 ------------
Code.

     10.3 Inspection and Other Information.

          (a)  Each Member, through its authorized representatives, shall have,
          from time to time upon reasonable advance notice, (i) full and
          complete access to the managers, officers and employees of the
          Company, and (ii) the right, at such Member's expense, (A) to inspect,
          copy, audit and retain copies of any Company books and records, (B) to
          cause the Company to provide such financial and support information or
          information about Project operations in such detail and with such
          frequency as such Member reasonably may require, (C) to have the
          Company prepare financial statements of the Company, in such manner
          and by such date as such Member may reasonably request (in addition to
          the financial statements provided for in Sections 10.1 and 10.2), and
                                                   ----------------------
          (D) to inspect the plants, properties and physical assets of the
          Company.

          (b)  All inspection, auditing or other activities conducted by a
          Member pursuant to this Section 10.3 shall be conducted so as to not
                                  ------------
          unreasonably interfere with the conduct of the business of the
          Company.

          (c)  Without limitation, the provisions of Section 12.2 shall be
                                                    ------------
          complied with in connection with actions undertaken pursuant to this
          Section 10.3.
          ------------

                                      14
<PAGE>

     10.4 Reports.  In addition to the reports provided for in Sections 10.6 and
                                                               -----------------
10.7, the director of marketing and the general manager of the Project shall
----
furnish the following monthly reports to the Board of Managers and to the
Members:

          (a)  income statement, balance sheet and statement of cash flows as
          compared to the Annual Business Plan;

          (b)  competitive position and unfilled order position; and

          (c)  analysis of variances from the then current Annual Business Plan.

     On a quarterly basis, the director of marketing and the general manager of
the Project shall furnish the foregoing information as well as the following
information:

          (a)  Marketing overview -- current and anticipated product mix,
          current market conditions, strategy, organization, competitive
          position and unfilled order position;

          (b)  Manufacturing review -- capital expenditure status, plans and
          needs, status of cost reduction programs, variance analysis, safety,
          management issues and running conditions;

          (c)  Financial review -- sales, operating income, working capital
          management, and status of systems implementation.  The actual and
          forecast is to be compared to the Annual Business Plan;

          (d)  Forecast covering the current and three succeeding quarters;

          (e)  Analysis of developments in governmental relations concerning the
          Project;

          (f)  Matters requiring action in the immediate future and an analysis
          of the status of such matters listed in prior monthly reports;

          (g)  An overall statement as to the status of the Project, including
          with particularity any matters that director of marketing and the
          general manager determine should be brought to the attention of the
          Managers or Members; and

          (h)  Any other report reasonably requested by any manager or Member.

     10.5 Tax Returns and Partnership Status. Each Member, through its
authorized representatives and at its expense, may review all Mexican income and
other tax returns filed by the Company to comply with Mexican laws. The Members
shall cause the Company to provide to each Member a preliminary copy of all
income tax returns on or before the 30/th/ day prior to the due date of the
returns. Promptly after the filing of any such return with the appropriate
governmental authority, the Members shall cause the Company to provide each
Member with a copy of the return, along with copies of proof of payment remitted
in connection with the return.

                                      15
<PAGE>

Each Member agrees that the Company will be treated as a partnership for United
States federal income tax purposes and that it will not take any action or omit
to take any action that would cause the Company to be treated differently. For
US federal tax purposes, each Member agrees that it will take such actions as
may be requested by Dan River Inc. from time to time, including the execution
and delivery of a United States Internal Revenue Service Form 8832, in order to
achieve the classification of the Company for such purposes as a partnership,
pursuant to United States Treasury Regulations (S)(S) 301.7701-1 through
301.7701-3.

     10.6 Submission of Annual and Three-Year Business Plans.  At least ninety
(90) days prior to the end of the calendar year beginning with December 31,
1999, the director of marketing and general manager of the Company shall prepare
a report on the Company's working capital requirements and operating budget for
the succeeding calendar year, which will substantially contain an estimate or
projection of (a) working capital requirements, including breakout of accounts
receivable, inventory, and accounts payable, (b) sources of revenue (by
geographic area, product type, trade areas, or established areas of
distribution), (c) the cost of goods sold, (d) selling, general, and
administrative expense detail, (e) interest expense, (f) an income statement,
balance sheet, and statement of cash flows, all on a quarterly basis, (g)
funding requirements, capital expenditures, and repairs and maintenance expense,
(h) manufacturing objectives, including yield objectives by product type and
planned capacity, (i) distribution objectives, (j) information technology
objectives, (k) engineering objectives, (l) sales plan, (m) marketing plan,
including marketing programs, (n) finance goals, (o) general administrative
goals, and (p) all expenditures proposed to be undertaken by the Company for
such year (the "Annual Business Plan").  Upon preparation of the Annual Business
Plan, the director of marketing and the general manager shall promptly submit
the Annual Business Plan to the Board of Managers for consideration.
Approximately mid-year, beginning in 2000, the director of marketing and the
general manager shall prepare a three year business plan containing essentially
the same elements as are contained in the Annual Business Plan (the "Three-Year
Business Plan").

     10.7 Approval of Annual Business Plan and Three-Year Business Plan.
Promptly after receipt of the Annual Business Plan, but in any event not less
than thirty (30) days prior to the end of the fiscal year, the Board of Managers
shall meet to review the Annual Business Plan. Upon such review, the Board of
Managers will vote on the Annual Business Plan. If the Annual Business Plan is
approved, the Annual Business Plan shall become the Company's operating budget
for the succeeding calendar year. If the Annual Business Plan is not approved,
the director of marketing and the general manager will revise the Annual
Business Plan as soon as possible and resubmit it to the Board of Managers for
consideration. The operating budget for the previous calendar year shall
continue to govern the operations of the Company until such time as an Annual
Business Plan is approved by the Board of Managers. Similarly, the Three Year
Business Plan shall be in a form and shall contain information satisfactory to
the Board of Managers.

                                      16
<PAGE>

                                  ARTICLE XI

                            RESOLUTION OF DISPUTES

     11.1 Conciliation. No Claim (as defined below) shall be submitted to
arbitration until 60 days have passed (without mutual agreement having been
reached) following the first written notice from a Disputing Party to the other
Disputing Party that sets forth the subject matter of the Claim and that states
that it is being given pursuant to this Section 11.1. Each Disputing Party
                                        ------------
shall, if requested by another Disputing Party, select and appoint a senior
executive (not concerned with the day-to-day performance of the appointor's
obligations under this Agreement) to serve on a panel seeking to reach mutual
agreement with respect to the applicable Claim. Each such appointment shall be
made by the giving of notice by the appointor to the other Disputing Parties
within ten Business Days of the request for the appointment. The appointees
shall meet and shall endeavor to reach such mutual agreement as soon as
practicable.

     11.2 Agreement to Arbitrate. Any and all disputes, including claims,
counterclaims, demands, causes of action, controversies, and other matters in
question arising out of or relating to this Agreement, or the alleged breach
hereof, or in any way relating to the subject matter of this Agreement or the
relationship between the parties created by this Agreement (all of which are
referred to herein as "Claims") between the Members (each a "Disputing Party")
that are not resolved during the 60 day period provided in Section 11.1 shall be
                                                           ------------
resolved by binding arbitration.

     11.3 Appointment of Arbitrators. If no such mutual agreement has been
reached within such 60 day period, then any Disputing Party may refer the claim
to arbitration under the following provisions:

          (a)  To refer a claim to arbitration, a Disputing Party must submit
          its Request for Arbitration to the ICC and the other Disputing Parties
          in accordance with the ICC Rules.

          (b)  The Disputing Parties shall endeavor to agree promptly on a panel
          of three arbitrators. One (1) arbitrator shall be nominated by each
          Disputing Party in accordance with ICC Rules, and the third arbitrator
          shall be nominated by the two (2) ICC-confirmed party-nominated
          arbitrators or, failing agreement, shall be appointed by the ICC in
          accordance with ICC Rules.  Each Disputing Party shall be permitted to
          nominate an arbitrator that is of the same nationality as the
          Disputing Party making the nomination.

     11.4 Authority of the Arbitrators. The validity, construction, and
interpretation of this agreement to arbitrate, and all procedural aspects of the
arbitration conducted pursuant to this agreement to arbitrate, including, but
not limited to, the determination of the issues that are subject to arbitration
(i.e., arbitrability), the scope of the arbitrable issues, allegations of "fraud
in the inducement" to enter into this agreement to arbitrate, allegations of
waiver, laches, delay or other defenses to arbitrability, and the rules
governing the conduct of the arbitration (including the time for filing an
answer, the time for the filing of counterclaims, the times for amending the

                                      17
<PAGE>

pleadings, the specificity of the pleadings, the extent and scope of discovery,
the issuance of subpoenas, the times for the designation of experts, whether the
arbitration is to be stayed pending resolution of related litigation involving
third parties not bound by this agreement to arbitrate, the receipt of evidence,
and the like) shall be decided in accordance with the ICC Rules. However, the
arbitrators shall have absolutely no authority to award treble, exemplary or
punitive damages of any type under any circumstances, regardless of whether such
damages may be available under applicable law; in addition, the arbitrators
shall have no authority to amend, modify, supplement or otherwise change any of
the terms of this Agreement. The Award shall fix the costs of the arbitration
and decide which of the Disputing Parties shall bear them or in what proportion
they shall be borne by the Disputing Parties; provided that each Disputing Party
shall bear its own attorneys' fees, and the arbitrators shall have no authority
to award attorneys' fees.

     11.5  Place of Arbitration. The arbitration proceeding shall be conducted
in New York, New York.

     11.6  Conduct of the Arbitration. The arbitration shall be conducted by the
arbitrators as expeditiously as possible. The arbitration proceedings and the
award or decision (the "Award") of the arbitrators shall be in English.

     11.7  ICC Rules. The arbitration shall be conducted under the ICC Rules.

     11.8  Payment of Award. The Award shall be payable in cash in Dollars.

     11.9  Finality of the Arbitrators' Award. The arbitrators' Award shall, as
between the Disputing Parties and those in privity with them, be final and
entitled to all of the protections and benefits of a final judgment, e.g., res
judicata (claim preclusion) and collateral estoppel (issue preclusion), as to
all Claims, including compulsory counterclaims, that were or could have been
presented to the arbitrators. The arbitrators' Award shall not be reviewable by
or appealable to any court; provided, however, the Award may be corrected or
interpreted pursuant to the ICC Rules.

     11.10 Use of the Courts. It is the intent of the parties that the
arbitration proceeding shall be conducted expeditiously, without initial
recourse to the courts and without interlocutory appeals of the arbitrators'
decisions to the courts. However, if a Disputing Party refuses to honor its
obligations under this agreement to arbitrate, any other Disputing Party may
obtain appropriate relief compelling arbitration in any court having
jurisdiction over the Disputing Parties; the order compelling arbitration shall
require that the arbitration proceedings take place in New York, New York as
specified above. The Disputing Parties may apply to any court having
jurisdiction for orders requiring witnesses to obey subpoenas issued by the
arbitrators. Moreover, any and all of the arbitrators' orders and decisions may
be enforced if necessary by any court having jurisdiction. The arbitrators'
Award may be confirmed in, and judgment upon the Award entered by, any court
having jurisdiction. FOR PURPOSES OF COMPELLING A MEMBER TO HONOR ITS OBLIGATION
TO ARBITRATE, EACH OF THE MEMBERS IRREVOCABLY CONSENTS AND SUBMITS
UNCONDITIONALLY TO THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT
OF

                                      18
<PAGE>

COMPETENT JURISDICTION IN THE STATE OF NEW YORK, AND IRREVOCABLY WAIVES ANY
PRESENT OR FUTURE OBJECTION TO SUCH VENUE FOR SUCH PURPOSES.

     11.11  Confidentiality. To the fullest extent permitted by applicable law,
the arbitration proceeding and the arbitrators' Award shall be maintained in
confidence by the Disputing Parties. However, a violation of this covenant shall
not affect the enforceability of this agreement to arbitrate or of the
arbitrators' Award.

     11.12  Arbitration Provision Enforceable. A Disputing Party's breach of
this Agreement shall not affect this agreement to arbitrate. Moreover, the
parties' obligations under this arbitration provision are enforceable even after
this Agreement has terminated. The invalidity or unenforceability of any
provision of this agreement to arbitrate shall not affect the validity or
enforceability of the Disputing Parties' obligation to submit their Claims to
binding arbitration or the other provisions of this agreement to arbitrate.

                                  ARTICLE XII

                          OBLIGATIONS OF THE PARTIES

     12.1   Observance of Laws.

            (a)  With respect to all matters and activities relating to the
            Project and the Company, each Member shall comply with and shall
            cause its Affiliates that are involved in the Project as well as the
            Company to comply with all applicable laws, rules, or regulations of
            Mexico, and any other jurisdiction that is applicable to the
            Company's business and the Members' and their such Affiliates'
            activities in connection with the Project. In particular, each
            Member agrees that it and its Affiliates, in connection with their
            activities in connection with the Company and the Project, will
            comply with the United States Foreign Corrupt Practices Act (the
            "FCPA"), and the Members shall cause the Company and its employees
            to comply with the Dan River Inc. Code of Business Conduct. Each
            Member shall comply with, and shall cause its Affiliates and the
            Company to comply with all laws applicable to its or their
            performance under this Agreement dealing with improper or illegal
            payment, gifts, or gratuities. Furthermore, each Member agrees that
            it, its Affiliates and the Company will not take any action or fail
            to take any action, which act or failure to act would subject any
            other Member or any of its Affiliates to liability under the laws of
            its country of domicile dealing with improper payments as described
            in this Section 12.1.
                    ------------

            (b)  Each Member agrees that it, its Affiliates or the Company will
            obtain the agreement of each consultant or contractor it or, if
            applicable, its Affiliates employs in conducting activities for,
            related to or on behalf of the Project to

                                      19
<PAGE>

            comply with the FCPA, and if the employment cost exceeds $100,000 in
            the aggregate, shall obtain written agreement to that effect.

            (c)  Each Member warrants and represents to the other Members and
            the Company that prior to the execution of this Agreement it and its
            Affiliates have not taken any action, or failed to take any action,
            with respect to the Project that would have violated this Section
                                                                      -------
            12.1 had this Section 12.1 then been in effect.
            ----          ------------

     12.2   Confidentiality.

            (a)  Subject to the provisions of Section 12.2(c), any and all data,
                                              ---------------
            plans, customer lists, fabric or garment specifications, proposals,
            or other material related to the Company, including the design,
            construction, configuration, operation, or financing of the Project,
            provided to a Member or any of its Affiliates by or on behalf of the
            Company or another Member or Affiliate of a Member in writing and
            identified as being confidential shall be used only with regard to
            the Project and not for any other purpose and shall be held in
            confidence and shall not be disclosed to any third party, except to
            attorneys or other consultants or representatives with respect to
            the business of the Company who are bound by a comparable
            confidentiality agreement or who are bound by a duty of non-
            disclosure of confidential information and except as reasonably may
            be required in the fulfillment of this Agreement or in connection
            with the procurement of financing or the Financing Agreements.
            Notwithstanding the foregoing, the obligation of confidentiality
            shall not apply to any disclosure (i) of information that is in or
            enters the public domain through no fault of the receiving Person,
            (ii) of information that was in the possession of the receiving
            Person prior to receipt under this Agreement, or (iii) required by
            law, regulation, legal process, stock exchange, or order of any
            court or governmental body having jurisdiction.

            (b)  Notwithstanding Section 12.2(a), in the course of an offer to a
                                 ---------------
            third party to sell its Capital Interest, a Member may disclose
            information concerning the Company to the third party, provided:

                 (i)  the Member informs the Company and the other Member of all
                 information disclosed, and

                 (ii) information is disclosed only after the third party has
                 delivered to the Company a written agreement to comply with and
                 be bound by the provisions of this Section 12.2 as if it were a
                                                    ------------
                 Member.

            (c)  The provisions of this Section 12.2 are intended to benefit,
                                        ------------
            and to be enforceable by, the Company, each Member and its
            Affiliates.

            (d)  The Members recognize that the Company may enter into more
            detailed and encompassing confidentiality agreements with third
            parties. Each Member waives any right it may have to examine
            information subject to any such

                                      20
<PAGE>

            agreement unless and until it enters into an agreement to be bound
            by the same restrictions that bind the Company.

     12.3   Publicity. To the fullest extent possible in light of any applicable
legal requirements, each Member shall provide the other Member and the Company
with a copy of each public announcement or filing with or notification to any
governmental authority regarding the Company or the Project or identifying any
Member or Affiliate of a Member by name in connection with the Project that the
Company or a Member or Affiliate of a Member, as applicable, intends to make
prior to making it, and shall entertain in good faith suggestions from each
receiving Member and, if applicable, the Company regarding the announcement,
filing or notification. Such announcement, filing or notification shall not be
made without the approval of the Members; provided, that the approval of the
Members shall not be required in the case of announcements, filings or
notifications that are required to be made by applicable stock exchange rules,
or any law or regulation.


                                 ARTICLE XIII

                 REPRESENTATIONS, WARRANTIES, AND LIABILITIES

     13.1   Representations and Warranties.  Each Member represents and warrants
to the other Member that:

            (a)  It is a duly organized, validly existing entity of the type
            described in the introductory paragraph of this Agreement and is in
            good standing under the laws of the jurisdiction of its formation.
            It has all requisite corporate or other applicable power and
            authority to own its Capital Interest and to enter into and to
            perform its obligations under this Agreement and has obtained (to
            the extent applicable law permits the obtaining of same at this
            point in time) all permits and approvals from applicable
            governmental authorities necessary for it to enter into and to
            perform its obligations under this Agreement.

            (b)  Its execution, delivery, and performance of this Agreement have
            been authorized by all necessary action on its part and that of its
            equity owners (if required), and do not and will not (i) violate any
            law, rule, regulation, order, or decree applicable to it or (ii)
            violate its organizational documents.

            (c)  This Agreement is a legal and binding obligation of that
            Member, enforceable against that Member in accordance with its
            terms, except to the extent enforceability is modified by
            bankruptcy, reorganization and other similar laws affecting the
            rights of creditors generally and by general principles of equity.

            (d)  There is no litigation pending or, to the best of its
            knowledge, threatened to which that Member or any of its Affiliates
            is a party that could reasonably be expected to have a material
            adverse effect on the financial condition, prospects, or

                                      21
<PAGE>

            business of that Member or its ability to perform its obligations
            under this Agreement.

            (e)  The execution, delivery and performance of this Agreement will
            not conflict with, violate or breach the terms of any agreement of
            that Member or of any agreement to which its properties are subject.

            (f)  That Member has provided to other Member, concurrently with the
            execution hereof, (i) a balance sheet of that Member as of the date
            there indicated (which date is not more than 60 days prior to the
            date of this Agreement), and such balance sheet has been prepared in
            accordance with US GAAP or Mexico GAAP (except to the extent, if
            any, therein otherwise specifically indicated) and presents fairly
            the financial condition of that Member as of the date thereof, and
            (ii) a certificate setting forth a description in reasonable detail
            of all Projects, if any, in existence or in the developmental or
            planning phase (A) that may reasonably be considered to be
            competitive with the Project and (B) in which that Member or its
            Affiliates own an equity interest.

            (g)  The information set forth in Exhibit D concerning the equity
                                              ---------
            owners of that Member is true and correct.

     13.2   Limitation on Liability. Notwithstanding any other provision of this
Agreement, but without prejudice to the provisions of any other agreement
entered into in connection with the Project, neither a Member nor any of its
Affiliates shall be liable, whether in contract, tort, warranty, negligence,
strict liability, or otherwise, for any special, indirect, incidental, or
consequential damages arising out of or in connection with this Agreement or its
status as a Member or an Affiliate of a Member; provided, however, that
liabilities arising under any of the Project Contracts to which a Member or an
Affiliate of a Member is a party shall be determined in accordance with those
contracts.

                                  ARTICLE XIV

                           MISCELLANEOUS PROVISIONS

     14.1   Notices. All notices, requests, or consents provided for or
permitted to be given under this Agreement must be in writing and are effective
(a) on actual receipt by the addressee if personally delivered (including
delivery against a written receipt by an internationally recognized courier) to
the address below or (b) on transmission (with written confirmation of receipt,
whether from the transmitter's machine or otherwise) to the addressee if
transmitted by facsimile to the number below during normal business hours of the
addressee on a Business Day (or if transmitted outside such hours, as of the
opening of business of the addressee on the next Business Day):

                                      22
<PAGE>

     To:  Zaga at:

     Grupo Industrial Zaga
     Antigua Carretera Mexico-Queretaro Km. 7074
     Edificio A-P.B.: Interior 19
     Colonia San Mateo 2/nd/ Secc.
     Tepeji del Rio de Ocampo, Hidalgo, Mexico
     C.P. 42850
     Attn: Rafael Zaga
     Fax: (525) 333-0391

     To:  Dan River at:

     Dan River International Ltd.
     c/o Dan River Inc.
     1065 Avenue of the Americas
     19/th/ Floor
     New York, NY 10018 USA
     Attn: President, Apparel Fabrics Division
     Fax: (212) 554-5711

     With copy to:

     Dan River Inc.
     2291 Memorial Drive
     Danville, Virginia 24541 USA
     Attn: General Counsel
     Fax: (804) 799-7276

     To:  The Company at:

     Fraccionamiento Industrial Jilotepec
     Manzana 2, Lote 1
     Jilotepec, Estado de Mexico
     Mexico

     Any Member may change the address or facsimile number to which notices are
to be directed to it by notice to the other Members and the Company in the
manner specified above.

     14.2   Governing Law. THIS AGREEMENT AND THE RIGHTS AND DUTIES OF THE
MEMBERS ARISING OUT OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK, U.S.A. (WITHOUT REFERENCE TO
CONFLICTS OF LAWS PRINCIPLES THAT WOULD APPLY THE LAWS OF ANOTHER JURISDICTION),
EXCEPT TO THE EXTENT THAT ANY OF THE MATTERS COVERED HEREIN ARE MANDATORILY
GOVERNED BY THE LAWS OF MEXICO IN WHICH CASE

                                      23
<PAGE>

SUCH MATTERS SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
MEXICO (WITHOUT REFERENCE TO CONFLICTS OF LAWS PRINCIPLES THAT WOULD APPLY THE
LAWS OF ANOTHER JURISDICTION).

     14.3   Interest.  If any amount payable under this Agreement is not paid on
or before the date due, the Person liable for the payment also must pay interest
on the amount not paid from and including the date it was due to but excluding
the date actually paid at a rate per annum equal to the Specified Rate.

     14.4   Further Assurances. Each Member shall take all additional actions
and shall execute all other and further deeds and documents as are necessary or
appropriate to give full effect to the provisions of this Agreement. In
addition, the Members shall cause the Company to take all additional actions as
are necessary or appropriate to give full effect to the provisions of this
Agreement.

     14.5   No Further Relationship.  The Members agree that no Member is the
agent of any other Member and no such Person is authorized to take any action on
behalf of the other, except as expressly provided in this Agreement or a Project
Contract.

     14.6   Conflict of Terms.  If the terms of this Agreement and the terms of
the Organizational Documents shall conflict, the Members shall endeavor to amend
the Organizational Documents so as to reflect the terms of this Agreement, so
far as permitted by applicable law.

     14.7   Assignment.  All the terms of this Agreement shall be binding on and
inure to the benefit of the parties, their permitted assigns and successors-in-
interests.  Rights under this Agreement may be assigned only in conjunction with
a Transfer of Capital Interests permitted under this Agreement and the
Organizational Documents.  It is expressly understood that Dan River intends to
assign its interest in this Agreement to Dan River B.V., a newly formed
corporation organized under the laws of The Netherlands, and that such
assignment is permitted under this Agreement without Zaga's consent.  If a
Member ceases to own its Capital Interest in a transaction permitted by this
Agreement, it shall cease to be a party to this Agreement and to have any
liability to the other Member and the Company (except as may be otherwise
provided in the documentation with respect to such transaction); provided,
however, that it shall continue to be bound by the provisions of Sections 12.2,
                                                                 --------------
12.3 and 13.2 and Article XI, and it shall continue to remain liable for matters
-------------     ----------
accruing prior to its ceasing to be a Member.

     14.8   Specific Performance.  The Members acknowledge that the harm that
would be caused by a breach of this Agreement, including, without limitation,
Articles VII and XII, would be difficult, if not impossible, to calculate, and
--------------------
accordingly the Company, each Member, and its Affiliates shall be entitled to
injunctive relief to compel compliance with the provisions of this Agreement,
but nothing in this Section 14.8 shall amend or modify Article XII in any
                    ------------                       -----------
respect.

     14.9   Entire Agreement. This Agreement, together with the Exhibits hereto,
constitutes the entire agreement among the Members with respect to the subject
matter of this Agreement

                                      24
<PAGE>

and supersedes all prior agreements and undertakings, oral or written, between
the Members with respect to the subject matter of this Agreement.

     14.10  Amendment.  An amendment or modification of this Agreement shall be
effective or binding on the parties only if it is in writing and signed by
Members having the vote to pass an Extraordinary Resolution; provided, however,
that an amendment or modification that alters the voting power of Members under
Article V shall be effective only if signed by all Members; and provided further
---------
that a Member's right to receive payments in its capacity as such may be reduced
only with that Member's consent.

     14.11  Waivers. Any waiver, express or implied, by any of the Members of
any right under this Agreement or of any breach by another Member shall not
constitute or be deemed as a waiver of any other right or any other breach,
whether of a similar or dissimilar nature to the right or breach being waived. A
waiver of a Member's rights under this Agreement shall be effective only if that
Member agrees.

     14.12  No Third Party Beneficiaries.  Except as provided in Section 12.2,
                                                                 ------------
this Agreement is solely for the benefit of the Members and their respective
successors and permitted assigns, and this Agreement shall not otherwise be
deemed to confer upon or give to any other third party, including any Lender or
other creditor, any remedy, claim, liability, reimbursement, cause of action or
other right.

     14.13  Severability. If any of the provisions of this Agreement are held to
be invalid or unenforceable under the applicable law of any jurisdiction, the
remaining provisions shall not be affected, and any such invalidity or
unenforceability shall not invalidate or render unenforceable that provision in
any other jurisdiction. In that event, the Members agree that the provisions of
this Agreement shall be modified and reformed so as to effect the original
intent of the Members as closely as possible with respect to those provisions
that were held to be invalid or unenforceable.

     14.14  Counterparts.  This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
constitute but one agreement.

     14.15  Interpretation.  This Agreement shall be construed without regard to
the identity of the Member or Person who drafted the Agreement, and any rule of
construction that a document is to be construed against the drafting party shall
not be applicable.

     14.16  Force Majeure.  Neither Member shall be liable or deemed to be in
default on account of any breach of the terms of this Agreement due to a force
majeure event.  For purposes of this Agreement, force majeure shall include the
following: acts of God; strikes, lockouts or similar industrial disturbances;
acts of public enemies; orders or restraints of any kind by the government of
Mexico or the United States, or any of their departments, agencies, political
subdivisions or officials, or any civil or military authority; war;
insurrections; civil disturbances; riots; lightning; earthquakes; hurricanes;
washouts; arrests; restraints of government and people; explosions; change in
government standards and regulations; or any other cause, circumstance or event
not reasonably within the control of either Member.

                                      25
<PAGE>

                      [Rest of page purposely left blank]

                                      26
<PAGE>

     IN WITNESS WHEREOF, the Members have entered into this Agreement as of the
day and year first above written.


                              GRUPO INDUSTRIAL ZAGA, S.A. de C.V.


                              By:______________________________________
                              Name:  Mayer Zaga
                              Title: President



                              DAN RIVER INTERNATIONAL LTD.


                              By:______________________________________
                              Name:____________________________________
                              Title:___________________________________

                                      27
<PAGE>

                                    ANNEX A

                                  DEFINITIONS

     "Affiliate" means, with respect to any Person, any other Person that (a)
owns or controls the first Person, (b) is owned or controlled by the first
Person, or (c) is under common ownership or control with the first Person, where
"own" means ownership of 50% or more of the equity interests or rights to
distributions on account of equity of the Person and "control" means the power
to direct the management or policies of the Person, whether through the
ownership of voting securities, by contract, or otherwise; provided, however,
that the Company shall not be considered to be an Affiliate of a Member or of an
Affiliate of a Member.

     "Agreement" has the meaning set forth in the introductory paragraph.

     "Alternate Manager" shall have the meaning set forth in Section 4.2.
                                                             -----------

     "Annual Business Plan" has the meaning given that term in Section 10.6.
                                                               ------------

     "Award" has the meaning given that term in Section 11.6.
                                                ------------

     "Board of Managers" means the Board of Managers (consejo de gerentes) of
the Company.

     "Business Day" means any day other than a Saturday, a Sunday, or a day on
which banks in New York, New York, or Mexico City, Mexico are authorized or
required by law to be closed.

     "Buy-Sell Notice"  has the meaning given that term in Section 6.1.
                                                           -----------

     "Capital Interest" has the meaning given that term in Section 3.1.
                                                           -----------

     "Capital Interest Price" has the meaning given that term in Section 6.1.
                                                                 -----------

     "Claims" has the meaning given that term in Section 11.2.
                                                 ------------

     "Closing Actions" means (a) the taking by the applicable selling Members of
all necessary or appropriate actions to Transfer the applicable Capital
Interests to the applicable purchasing Members, with such selling Members
warranting against all Encumbrances against such Capital Interests, except for
this Agreement and the Encumbrances provided for in Section 8.1(b), and (b) the
                                                    --------------
payment by such purchasing Members to such selling Members of the applicable
purchase price in Dollars in immediately available funds.

     "Code" means the General Law of Mercantile Companies of Mexico (Ley General
de Sociedades Mercantiles).

     "Commitment Amounts"  has the meaning given that term in Section 3.5.
                                                              -----------

                                    Annex A
                                    Page 1
<PAGE>

     "Company" means the limited liability company (sociedad de responsabilidad
limitada de capital variable) formed by the Members pursuant to Article II.
                                                                ----------

     "Dan River Inc. Code of Business Conduct" means the code of business
conduct of Dan River Inc. and its Affiliates, as such code may be amended or
modified from time to time.

     "Disputing Party" has the meaning given that term in Section 11.2.
                                                          ------------

     "Dollars" or "$" means freely transferable lawful money of the United
States of America.

     "Dollar Amounts" has the meaning given that term in Section 3.4.
                                                         -----------

     "Dan River"  has the meaning given such term in the introductory paragraph
of this Agreement.

     "Encumbrance" means a security interest, charge, lien, pledge, mortgage or
similar encumbrance.

     "Exercise Notice" has the meaning given that term in Section 8.2(b).
                                                          --------------

     "Extraordinary Resolutions" has the meaning given that term in Section 5.7.
                                                                    -----------

     "Extraordinary Members Meeting" has the meaning given that term in Section
                                                                        -------
5.1.
---

     "Fair Market Value" means the value that would be obtained in an arm's-
length transaction between an informed and willing buyer and an informed and
willing seller, determined by mutual agreement or pursuant to Article VIII.
                                                              ------------

     "Financing Agreement" means any of:

     (a)  the Company's agreements with Persons (other than the Members and
their Affiliates) for the making available to the Company of loans, credit
facilities, or other funds (other than by way of equity or quasi-equity
participation); and

     (b)  the security documents, direct agreements, and other ancillary
undertakings in favor of Lenders required pursuant to the agreements referred to
in clause (a) above.

     "FCPA" has the meaning given that term in Section 12.1.
                                               ------------

     "US GAAP" means generally accepted accounting principles in the United
States.

     "ICC" means the Court of Arbitration of the International Chamber of
Commerce.

     "ICC Rules" means the Rules of Arbitration of the International Chamber of
Commerce.

     "Lenders" means the Persons providing loans or credit under the Financing
Agreements.

                                    Annex A
                                    Page 2
<PAGE>

     "Member" means any registered owner of a Capital Interest.

     "Members Meeting" means any meeting of Members of the Company, conducted
pursuant to this Agreement, the Organizational Documents and the Code, including
any Ordinary Members Meeting and Extraordinary Members Meeting.

     "Mexico" means the United Mexican States.

     "Mexico GAAP" means generally accepted accounting principles in Mexico.

     "Offer" means a bona fide written offer.

     "Ordinary Resolutions" has the meaning given that term in Section 5.6.
                                                               -----------

     "Ordinary Members Meeting" has the meaning given that term in Section 5.1.
                                                                   -----------

     "Organizational Documents" means the Company's charter/bylaws (estatutos)
as further described in Section 2.1.  Upon formation of the Company, the
                        -----------
Ownership Percentage of each Member shall be as set forth in Exhibit C.
                                                             ---------

     "Ownership Percentage" of any Member means at the time in question the
ratio (expressed as a percentage) that the Value of a Capital Interest then
owned by such Member bears to the aggregate amount of all equity contributions
made by the Members.

     "Person" means any natural person, corporation, company, partnership
(general or limited), limited liability company, business trust, or other entity
or association.

     "Pesos" means freely transferable lawful money of Mexico.

     "Potential Acquirer" has the meaning given that term in Section 8.2(b).
                                                             --------------

     "Preferential Purchase Price" has the meaning given that term in Section
                                                                      -------
8.2(b).
------

     "Project" means the construction and operation of a manufacturing plant at
a location to be selected by the Board of Managers in Mexico primarily for the
manufacture of finished garments, and the sale of such finished garments to
garment retailers and other sectors, including, without limitation, the
development, financing, construction, ownership, maintenance, and operation of
such facility and the sale and marketing of products thereof by or on behalf of
the Company.

     "Project Contract" means any of the following agreements to which the
Company will be a party:

          (a)  Any agreement with an Affiliate pertaining to the leasing or
          purchase of real estate, construction of Project facilities,
          employment or labor matters;

                                    Annex A
                                    Page 3
<PAGE>

          (b)  the agreement or agreements under which the Company will acquire
          title to the sites for the Project or will be granted leasehold title
          to those sites; and

          (c)  any other agreement material to the completion of the Project.

     "Receiving Members" has the meaning given that term in Section 6.1.
                                                            -----------

     "Regular Meetings" has the meaning given that term in Section 4.4.
                                                           -----------

     "Representatives" has the meaning given that term in Section 9.2(c).
                                                          --------------

     "Request for Arbitration" has the meaning given that term in Section 11.3
(a).

     "Response Notice" has the meaning given that term in Section 6.2.
                                                          -----------

     "Special Meetings" has the meaning given that term in Section 4.4.
                                                           -----------

     "Specified Rate" means, for any period for which interest is to be
calculated, a rate of interest per annum for each day during that period equal
to 4% per annum over the three-month London Interbank Offered Rate for Dollars
quoted in The Wall Street Journal for that day (or if not published that day,
the next preceding day on which it is published), or if a range is quoted, the
midpoint of that range.

     "Subscriptions" has the meaning given that term in Section 3.4.
                                                        -----------

     "Subject Capital Interests" has the meaning given that term in Section
                                                                    -------
8.2(b).
------

     "Three-Year Business Plan" has the meaning given that term in Section 10.6.
                                                                   ------------

     "Transfer" means to sell, transfer, assign, or otherwise dispose of, or the
act of doing any of the foregoing, but not the act of granting or imposing an
Encumbrance.

     "Transfer Notice" has the meaning given that term in Section 8.2(b).
                                                          --------------

     "Ultimate Parent" means the Affiliate of the applicable Member that
controls, directly or indirectly, such Member and all of such Member's other
Affiliates; thus, as of the date hereof the Ultimate Parent of Zaga is Zaga (as
no Affiliate controls Zaga) and the Ultimate Parent of Dan River is Dan River
Inc.

     "United States" or "US" means the United States of America.

     "Value of a Capital Interest" means the aggregate amount of equity
contributions expressed in multiples of one Peso made by a Member and its
predecessors to the Company.

     "Zaga" has the meaning given such term in the introductory paragraph of
this Agreement.

                                    Annex A
                                    Page 4
<PAGE>

                                   EXHIBIT A
                                   ---------


                            [Dan River Letterhead]


                                January 5, 2000


Grupo Industrial Zaga, S.A. de C.V.
Antigua Carretera Mexico-Queretaro Km. 7074
Edificia A-P.B.: Interior 19
Colonia San Mateo 2/nd/ Secc.
Tepeji del Rio de Ocampo, Hidalgo, Mexico
C.P. 42850


     Re:  Allocation of Selling, General and Administrative Expenses


Dear Sirs:


     Reference is made to that certain Members Agreement dated as of January 5,
2000 between Grupo Industrial Zaga, S.A. de C.V. ("Zaga") and Dan River
International Ltd. ("DRIL") with respect to the ownership and management of
DanZa Textil, S. de R.L. de C.V. ("Danza") and that certain  Members Agreement
dated as of January 5, 2000 between Zaga and DRIL with respect to the ownership
and management of Zadar, S. de R.L. de C.V. ("Zadar").  The purpose of this
letter agreement (the "Agreement") is to set out the understanding between Zaga
and Dan River Inc. ("DR") regarding the allocation of the selling, general and
administrative ("S, G & A") expenses of DR and Zaga, and their respective
affiliates, that are chargeable to Danza and Zadar.  Capitalized terms not
otherwise defined herein shall have the meanings ascribed to them in the
aforementioned Members Agreements.

     The S, G & A expenses of DR and its Affiliates will be allocated to and
paid by Danza and Zadar to DR with respect to any fiscal year of DR in an amount
equal to:  10% of Danza's annual net sales, plus 0.5% of Zadar's annual net
sales, the total of which shall not exceed an amount equal to the product of
DR's actual annual divisional S, G & A expenses for its Apparel Fabrics Division
(excluding sample layout, dye lab and color matching expense) times a percentage
                                                              -----
equal to Danza's annual net sales divided by total Apparel Fabrics Division
                                  ----------
annual net sales plus an allocation of $2.4 million Dollars for DR's corporate
                 ----
S, G & A/1/; provided, however, to the extent Danza's annual operating income
             -----------------
(earnings before interest and taxes) exceeds 10% of its annual net sales, DR may
charge an additional amount of corporate S G & A expenses up to an additional
$1.1 million Dollars, to the extent that such additional allocation does not
cause Danza's annual operating income as a percentage of its annual net sales to
drop below 10%.  An example of the foregoing calculation is attached.
Notwithstanding the foregoing, it is understood that the allocation of
divisional S, G & A expenses shall not be

___________________

/1/  DR will allocate corporate S,G & A to the Apparel Fabrics Division based on
its cost of sales compared to DR's total cost of sales, calculated on a basis
consistent with prior practice.  Danza will receive a proportionate part of that
allocation based on Danza's sales compared to total Apparel Fabrics Division's
sales, not to exceed $2.4 million Dollars or $3.5 million Dollars, as determined
herein.

                                   Exhibit A
                                    Page 1
<PAGE>

increased based upon reductions in DR's U.S. apparel fabrics sales, unless such
reductions result primarily from transfer of DR's production capacity to Danza.
DR agrees that it will make reasonable commercial efforts to limit increases in
the Apparel Fabrics Division's S, G & A expense over time.

     It is further agreed that the S, G & A expenses of Zaga will be allocated
to and paid by Zadar and Danza with respect to any fiscal year of Zaga in an
amount equal to 3.5% of Zadar's annual net sales, plus 0.7% of Danza's annual
net sales, provided that the total amount of such allocation shall not exceed
$1.5 million Dollars. Examples of the calculations described above are attached.

     The amounts owed will be paid to DR and Zaga, as the case may be, as soon
as practicable following the end of each of Danza's and Zadar's fiscal quarters,
and in any event within 30 Days thereof.  All payments shall be made in U.S.
Dollars.

     This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns; provided, that it is
understood that in the event either Members Agreement referenced above is
terminated as provided therein, each of the obligations set forth herein shall
be terminated, and no party shall have any further obligation to the other
thereafter, other than with respect to any obligations that have accrued to the
date of termination.  This Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York, U.S.A.,
without reference to the conflicts of laws principles that would apply the laws
of another jurisdiction.  In addition, the provisions of Article XI of the
aforementioned Members Agreements are hereby incorporated mutatis mutandi.  This
Agreement may be modified or supplemented only by written agreement of the
parties hereto.


                                        Signed:

                                        Dan River Inc.



                                      By:_______________________

                                      Name:_____________________

                                      Title:____________________


Acknowledged and agreed to:
Grupo Industrial Zaga, S.A. de C.V.


By:___________________________
   Mayer Zaga
   President

                                   Exhibit A
                                    Page 2
<PAGE>

                CALCULATION OF THE ALLOCATION OF DAN RIVER (US)
                          CORPORATE & DIVISIONAL SG&A

<TABLE>
<CAPTION>

          EXAMPLE 1                                $ MILLIONS
  <S>                                              <C>
  Danza Sales                                          65.0
  Zadar Sales                                          15.0
  Danza Operating Inc. (EBIT)                           5.0
  Dan River AF Sales                                  140.0
  Dan River AF Divisional SG&A                         14.2
  Sample, layout, dye lab & color matching              2.6

  Danza Sales          65         =                    46.4% Allocable %
                      ---
  Dan River AF Sales  140

  Dan River AF Divisional SG&A                         14.2  MM
  Less Sample Layout etc.                               2.6  MM
                                                     ------
  Actual Dan River Divisional SG&A                     11.6  MM

  (Allocable %)                                      X 46.4  %
                                                     ------
                                                       5.38  MM
  Corp. SG&A                                        +  2.40  MM
                                                    -------
                                                       7.78  MM
                                                        vs.
                                                       65.0  MM
  Danza Sales                                        X 10.0  %
                                                     ------
                                                        6.5  MM

                                                       15.0  MM
  Zadar Sales                                        X  0.5  %
                                                     ------
                                                      0.075  MM
</TABLE>

Dan River SG & A allocated to Danza and Zadar is $6.575 MM because $7.78 MM is
greater than the sum of 10.0% of Danza sales and 0.5% of Zadar sales.

                                   Exhibit A
                                    Page 3
<PAGE>

                CALCULATION OF THE ALLOCATION OF DAN RIVER (US)
                          CORPORATE & DIVISIONAL SG&A

<TABLE>
<CAPTION>
          EXAMPLE 2                                    $ MILLIONS
  <S>                                                  <C>
  Danza Sales                                             150.0
  Zadar Sales                                              50.0
  Danza Operating Inc. (EBIT)                              14.5
  Dan River AF Sales                                      250.0
  Dan River AF Divisional SG&A                             14.2
  Sample, layout expense                                    2.6

  Danza Sales            150       =                       60.0% Allocable %
                         ---
  Dan River AF Sales     250

  Dan River AF Divisional SG&A                             14.2  MM
  Less Sample Layout etc.                                   2.6  MM
                                                       ---------
  Actual Dan River Divisional SG&A                         11.6  MM

  (Allocable %)                                        X   60.0  %
                                                       ---------
                                                           8.52   MM
  Corp. SG&A                                           +   2.40   MM
                                                       ---------
                                                          10.92   MM


     Total                                                10.92   MM
</TABLE>


   10.92  SG&A =  7.28% (less than 10.0% of Danza sales
   -----
    150   Danza Sales   and 0.5% of Zadar sales so full
                        so full amount allowed)

                                   Exhibit A
                                       4
<PAGE>

                                   EXHIBIT B
                                   ---------

                           ZADAR, S. DE R.L. DE C.V.

                                   CHAPTER I

                     NAME, DOMICILE, PURPOSE AND DURATION

     FIRST.- The name of the Company is ZADAR.  This denomination shall always
be followed by the words "SOCIEDAD DE RESPONSABILIDAD LIMITADA DE CAPITAL
VARIABLE" or their abbreviation "S. DE R.L. DE C.V."

     SECOND.- The domicile of the Company is Jilotepec, State of Mexico, Mexico,
but the Company may establish agencies or branches elsewhere in Mexico and
designate conventional domiciles for the execution of specific acts and
contracts.

     THIRD.- The purposes of the Company are:

     (a)  To develop, finance, build, own and operate a manufacturing plant at a
location to be selected by the Board of Managers in Mexico, and to engage in
manufacturing operations, primarily for the manufacture of finished garments,
and the sale of such finished garments to garment retailers and other sectors.

     (b)  To establish agencies or branches in Mexico.

     (c)  To render technical, professional, administrative and consultant
services related to the purpose, as well as to hire workers, technicians,
distributors and administrative personnel.

     (d)  To acquire, hold and dispose of, in any legal manner, all kinds of
shares, capital interests or participations in other corporations or
associations, whether of a civil or mercantile nature, consistent with these
corporate purposes.

     (e)  To acquire, own, lease, encumber and transfer in any legal manner such
real or personal properties as may be required by or convenient for the
corporate purpose.

     (f)  To represent all kinds of companies and individuals within or outside
of Mexico as agent, commission agent, representative or attorney-in-fact.

     (g)  To lend and borrow money with or without mortgage or pledge security
or in any other legal manner and to guarantee the obligations of third persons
by means of bond, mortgage, pledge, or otherwise.

     (h)  To sign and grant all kinds of credit instruments and other documents
and contracts of indebtedness and to guarantee the payment thereof in any legal
manner.

                                   Exhibit B
                                       1
<PAGE>

     (i)  To acquire and dispose of in any legal manner such patents, patent
rights, inventions, trade-marks, copyrights and trade names as may be required
or convenient for attainment of the corporate purpose.

     (j)  To render any and all services whether of a civil, administrative or
mercantile nature relating to the corporate purpose.

     (k)  Such other activities as are lawful and approved by an Extraordinary
Resolution of the Members.

     (l)  In general, to carry out and perform any and all business or
activities relating to the corporate purpose.

     FOURTH.- The term of duration of the Company shall be undefined from the
date of these by-laws.

                                  CHAPTER II

                         CAPITAL AND CAPITAL INTERESTS

     FIFTH.- The capital of the Company shall be variable.  The Company shall
have a minimum fixed capital of $3,000 (THREE THOUSAND PESOS 00/100).  Each
Member shall own one capital interest (parte social) ("Capital Interest"), which
initially shall have the value set forth in the transitory clauses.  All
additional equity contributions in excess of the minimum fixed capital amount
shall constitute the variable capital of the Company, which shall have an
unlimited maximum and shall cause an increase in the Value of the Capital
Interest of such contributing Member by the amount of equity so contributed.
The Value of a Capital Interest shall always represent a multiple of one Peso.

     (a)  Subject to the Equity Contribution Agreement signed by the Members,
each Member shall be required, severally and not jointly, to make equity
contributions to provide its pro rata portion of the funds necessary to fund the
Company; provided that in no event shall any Member be required to make equity
contributions in excess of US$6,000,000 (SIX MILLION DOLLARS 00/100).  Each time
that such equity contributions are to be made, they shall be made by all Members
on the same day pro rata in accordance with their Ownership Percentages.

     (b)  The Members shall authorize and cause the Company to increase the
capital of the Company to correspond to the amounts required to be contributed
from time to time in accordance with paragraph (a) above.  The Company shall
register in its books any increase in the Value of a Member's Capital Interest
based on and corresponding to the amounts so contributed.

                                   Exhibit B
                                       2
<PAGE>

     (c)  If one Member fails or refuses to provide funds as required by this
Clause Fifth, and such failure or refusal continues for five Business Days after
receipt by such Member of notice thereof from the other Member, the other Member
may at its option provide such funds, and the Member providing such funds shall
have the Value of its Capital Interest increased accordingly.

     (d)  Upon any decision of the Members to increase the capitalization of the
Company, except for increases pursuant to paragraphs (a), (b) and (c) above,
each Member shall have the right to subscribe for such increase pro rata based
on such Member's Ownership Percentage.  If any Member fails to subscribe or pay
for the pro rata portion to which it is entitled, the other Member may take up
the unsubscribed or unpaid portion.

     The funding needs of the Company to be provided by the Members shall be
denominated in Dollars, and the commitment of the Members to fund such needs
shall be made in Dollars (the "Commitment Amounts").  Notwithstanding the
foregoing, the amount of any equity contributions to the Company, and the
subscriptions of the Members in respect thereof, shall be denominated and paid
in Pesos (the "Subscriptions"), it being understood that foreign capital
contributed by the Members shall be converted to Pesos at the prevailing rate of
exchange published by the Banco de Mexico in the Official Daily Gazette (Diario
Oficial).  Equity capital thus paid to the Company shall then be converted to
Dollars (the "Dollar Amounts").  To the extent that any Dollar Amount realized
by the Company in connection with any Subscription shall be less than the
relevant Commitment Amount, additional equity increases shall be made and the
Members shall subscribe for such increases and effect payment in connection
therewith until the Company shall have realized Dollar Amounts that are not less
than the Commitment Amounts.

     SIXTH.- The Capital Interests which represent the capital shall be of free
subscription and may be subscribed or acquired by Mexican or foreign
individuals, companies or economic entities.  The Capital Interests shall be
represented by certificates, which shall not be negotiable instruments.

     The certificates shall be printed and cover one Capital Interest; they
shall be numbered consecutively and shall bear the autograph signatures of the
chairman and of the secretary of the Board of Managers.  The certificates shall
contain the name, nationality and domicile of the Member, all the information
regarding the incorporation of the Company, the total capital and the capital
contribution.  In addition, Clauses Fifth, Sixth, Seventh and Thirty-fourth of
these by-laws shall be transcribed on the certificates.  Save in the case of
legal issuance of more than one series for reasons of preferential rights of
different participation in dividends or other reasons, Capital Interests will
confer on their holders the same rights and impose the same obligations.

     SEVENTH.- The Company shall deem as owner of Capital Interests any person
who is registered as such in the Capital Interest register to be kept by the
Company.

                                   Exhibit B
                                       3
<PAGE>

     (a)  Notwithstanding any other provision of these by-laws, a Transfer or
Encumbrance of Capital Interests or an issuance of new Capital Interests of the
Company may only be made in accordance with the provisions of these by-laws, the
General Law of Commercial Companies and the Financing Agreements, and any other
attempted Transfer, Encumbrance or issuance shall be void.  It shall be a
condition to the Transfer or issuance of Capital Interests to any Person under
any provision hereof that such Person shall agree in writing (i) to be bound by
the provisions of these by-laws and (ii) to assume all liabilities and
obligations of the transferring Member (and Affiliates thereof) under or with
respect to any agreement between or among any of the Members (or Affiliates
thereof) in relation to the Project; and any Transfer or subscription in respect
of which such conditions have not been satisfied shall be void.

     (b)  No Member may Transfer or Encumber its Capital Interest or its Value
in a Capital Interest unless (i) such Transfer is to an Affiliate of the
transferor, (ii) such action is approved by the Board of Managers in accordance
with Clause Twenty-third herein, or (iii) if such action is not so approved by
the Board of Managers, such action is approved by an Extraordinary Resolution.

     (c)  Any Transfer of a Capital Interest or of a Member's Value in a Capital
Interest hereunder shall take effect as of the date of registration of such
Transfer in the books of the Company, and the Company shall not register any
Transfer that does not comply with this Clause Seventh, but the Members and the
Board of Managers agree promptly to take and cause to be taken any action
necessary under these by-laws and applicable law to effectuate and register any
such Transfer that does so comply.

     (d)  The certificates representing the Capital Interests shall all bear the
following legend in English and in Spanish:

     "The transfer or encumbrance in any manner of the Capital Interest
     represented by this certificate are restricted by and subject to the
     provisions of the Estatutos of the Company, as well as a certain Members
     Agreement, dated January 5, 2000, copies of which may be reviewed at the
     Company's head office during business hours."

     EIGHTH.-

     (a)  If a Member owning more than 50% of the capital of the Company or any
of its Affiliates desires to Transfer its Capital Interest (the "Transferor")
and such Transfer has been approved in accordance with the provisions of Clause
Seventh, the Transferor must first offer to the other Member (the "Transferee"),
in accordance with the terms of  paragraph (b) below, the right to purchase from
the Transferor a portion of the Transferor's Capital Interest in an amount
sufficient to provide the Transferee with a 50%, but no more and no less than a
50%, Ownership Percentage in accordance with paragraph (b) below; provided,
however, that this preferential purchase right shall not apply if the
Transferee's Ownership Percentage at the time of the Transfer is less than 37%.

                                   Exhibit B
                                       4
<PAGE>

     (b)  Should a Member owning more than 50% of the capital of the Company or
any of its Affiliates desire to Transfer its Capital Interest (the "Transferor")
pursuant to an Offer from another Person (the "Potential Acquirer") and such
Transfer is permitted pursuant to the provisions of Clause Seventh, the
Transferor shall promptly give notice thereof (the "Transfer Notice") to the
Company and the Transferee.  The Transfer Notice shall include a copy of the
Offer and shall set forth in reasonable detail all relevant information with
respect to the proposed Transfer, including the name and address of the
Potential Acquirer, the cash purchase price (expressed in Dollars) per Peso
contributed to the equity of the Company by the Transferor (the "Preferential
Purchase Price"), the Capital Interests that are to be the subject of the
Transfer (the "Subject Capital Interests"), and any other terms and conditions
of the proposed Transfer.  The Transferee shall have the preferential right to
purchase from the Transferor a portion of the Transferor's Capital Interest in
an amount sufficient to provide the Transferee  with a 50% Ownership Percentage
at the Preferential Purchase Price and on the same material terms and conditions
set forth in the Transfer Notice.  The Transferee shall have 20 Business Days
following the giving of the Transfer Notice in which to notify the Transferor
whether it desires to exercise its preferential right. A notice in which the
Transferee exercises such right is referred to herein as an "Exercise Notice."
The Exercise Notice shall be accompanied by an irrevocable letter of credit
issued by a reputable financial institution in favor of the Transferor (or such
other instrument or arrangement reasonably satisfactory to the Transferor) in
the amount of the Preferential Purchase Price multiplied by the number of whole
Pesos contributed to the equity of the Company by the Transferor times (y) the
percentage amount equal to the positive difference between 50% and the Ownership
Percentage of the Transferee immediately prior to the exercise of the
preferential purchase, times (z) 10%, which letter of credit shall provide that
in the event the Transferee fails for any reason (other than due to the fault of
the Transferor or the failure, through no fault of the Transferor, to obtain any
required consent of the Lenders) to complete the closing of the transaction
within the time period set forth in paragraph (c) below, then the Transferor
shall have the right (without limitation to any other remedy available), for a
period of 10 Business Days after the expiration of such period, to draw on the
letter of credit and to retain the proceeds thereof.  If the Transferee does not
duly exercise such right during the applicable period, it shall be deemed to
have waived such right.

     (c)  If the preferential right is exercised in accordance with paragraph
(b) above, the closing of such purchase shall occur at the head office of the
Company on the first Business Day 120 days after the expiration of the
preferential right period. At the closing, the Closing Actions shall occur.

     (d)  If the Transferee does not deliver an Exercise Notice or if for any
reason (other than due to the fault of the Transferor or the failure of the
Lenders, other than the failure to grant any required consent, to take any
action that prevented the preferential purchase transaction to close within the
time period set forth in paragraph (c) above) the preferential purchase
transaction does not close within the time period set forth in paragraph (c)
above, the Transferor shall have the right, subject to compliance with the other
provisions of these by-laws, to Transfer

                                   Exhibit B
                                       5
<PAGE>

the Subject Capital Interests to the Potential Acquirer in accordance with the
terms of the Transfer Notice for a period of 90 days after the expiration of the
preferential right period. If, however, the Transferor fails to Transfer the
Subject Capital Interests within such period, the proposed Transfer shall again
become subject to the preferential right set forth in this Clause Eighth.

     NINTH.-  The variable capital of the Company may be increased or reduced
without need of amending these by-laws.  The only formality required for said
increase or reduction will be the approval by the Members in an Extraordinary
Meeting other than with respect to contributions made pursuant to Clause Fifth
(a), (b) and (c).  Every increase or reduction of the capital of the Company
shall be recorded in a Capital Interest register kept for such purpose by the
Company.

     (a)  Capital increases.  In a capital increase the Members shall have the
preferential right to subscribe in accordance with Clause Fifth.  No capital
increase may be declared until the previous increase has been fully paid for.

     (b)  Capital reductions.  Reductions of the capital of the Company shall be
carried out by reimbursement to the Members.

     The Members shall have the right to withdraw all or any part of their
contributions, and obtain reimbursement, in accordance with Articles 220 and 221
of the General Law of Commercial Companies, provided they so notify the Company
five years in advance, unless the Members agree to a shorter notice.
Reimbursement shall be made in proportion to the net worth of the Company in
accordance with the last approved balance sheet.


                                  CHAPTER III

                               MEMBERS MEETINGS

     TENTH.-  The Members Meeting is the supreme authority of the Company.
Subject to the terms of the by-laws, the Members Meeting may adopt all kinds of
resolutions and appoint and remove any officer.  Its resolutions shall be
enforced by the Board of Managers or the person or persons expressly designated
therefore by the Members.

     Every Member as such submits and is subject to the stipulations of these
by-laws and the resolutions duly adopted by the Members in a Members Meeting or
by the Board of Managers.

     The resolutions of the Members shall be binding even on absentees or
dissenters except for the right of opposition provided in the General Law of
Commercial Companies.

     The Members Meeting may be ordinary (an "Ordinary Members Meeting") or
extraordinary (an "Extraordinary Members Meeting"), depending on the matters to
be discussed at each meeting.  Members Meetings shall be held at the corporate
domicile of the Company and

                                   Exhibit B
                                       6
<PAGE>

Members may attend such meetings by telephone or . According to the General Law
of Commercial Companies, resolutions may be adopted outside of Members Meetings
by unanimous written consent of all of the Members. An Ordinary Members Meeting
shall be held at least once a year within the four (4) months following the
closing of each fiscal period. Ordinary Members Meetings may be those called to
discuss any of the matters that are not expressly reserved by these by-laws to
the Extraordinary Members Meeting. The matters reserved for Extraordinary
Members Meetings are any matters that are identified as Extraordinary
Resolutions pursuant to Clause Fifteenth below.

     ELEVENTH.-  A Members Meeting shall be called by any Member, the Board of
Managers or any other Person authorized under applicable law. Notice of a
Members Meeting shall be provided in writing by the Company or other applicable
Person to each Member at least 15 Business Days prior to such Members Meeting,
unless a longer period is required by applicable law or unless such requirement
is waived by all Members, and any Member that attends a Members Meeting shall be
deemed to have waived any requirement for notice thereof. The notice shall be
published in a newspaper of wide circulation in the Company's domicile and by
means of a notice sent by fax and confirmed by air mail confirmed receipt or
courier addressed to each Member at his domicile or to the place that he may
have designated for such purpose. The notice shall set forth the hour, date and
place of the Meeting and the agenda, and shall be signed by the person issuing
the notice. The notice shall include any matter submitted to the Company by any
Member at least three Business Days prior to the sending of the notice for such
Members Meeting. Unless approved by all Members of the Company, no matter may be
considered at a Members Meeting unless such matter was set forth in the notice
for such Members Meeting.

     No notice shall be required in the case that a duly convened Members
Meeting is to be continued, provided that when the Members Meeting was
postponed, the date and hour for its continuation were determined.

     TWELFTH.-  The chairman of the Board of Managers shall act as the chairman
of the Members Meeting, and the secretary of the Company shall serve as
secretary of the Members Meeting.  In the event that either the chairman of the
Board of Managers or the secretary of the Company are unavailable to so act,
then the chairman and the secretary shall be elected by the Members (or their
representatives) by a majority vote of the total votes of the Members
represented at the relevant meeting.  In all instances, the vote collector shall
be elected from among the Members (or their representatives) by a majority vote
of the total votes of the Members represented at the relevant meeting.  Unless
otherwise required by applicable law, each Members Meeting shall be conducted in
English, and the minutes of each Members Meeting shall be prepared in English
and Spanish promptly after each meeting, shall be circulated to all Members
before finalization and shall be kept in the minute books of the Company.

     THIRTEENTH.-  Unless a higher number is required by applicable law, a
quorum for any Members Meeting shall consist of Members present or represented
by proxy holding more than 75% of the total votes of the Members, provided that
the presence of a quorum shall not modify

                                   Exhibit B
                                       7
<PAGE>

or lessen the affirmative vote required by Clauses Fourteenth and Fifteenth; and
provided, further, that a quorum for a Members Meeting that is held with notice
at least five Business Days following the date that a Members Meeting was
properly called pursuant to Clause Eleventh but was not held due to the failure
of a quorum shall consist of Members present or represented by proxy holding any
number of the total votes of the Members.

     Each Member shall have one vote for each one Peso contributed by the Member
and its predecessors to the equity of the Company.  Votes shall be cast by
written ballot.  Members may be represented at Members Meetings by proxies, the
holders of which need not be Members.  Proxy holders that are Members shall be
entitled to vote based on the number of votes of the Members they represent
separately, in addition to voting based on their own number of votes.  Proxies
shall be issued in accordance with the General Law of Commercial Companies.
Resolutions may be approved by the Members without a meeting if the resolution
is submitted in writing to each Member and each such Member consents in writing
to such resolution.

     FOURTEENTH.-  Resolutions, actions and decisions of the Members shall be
adopted, taken or made at an Ordinary Members Meeting by the affirmative vote of
Members (or their representatives) representing more than 50% of the total votes
of the Members ("Ordinary Resolutions").

     FIFTEENTH.-  Resolutions, actions and decisions of the Members shall be
adopted, taken or made at an Extraordinary Members Meeting by the affirmative
vote of Members (or their representatives) representing 75% or more of the total
votes of the Members with respect to the following matters ("Extraordinary
Resolutions"), unless such matters shall have been approved by the Board of
Managers or are required by law to be approved of by the Members:

     (a)  Any merger, consolidation or similar amalgamation of the Company, or
the Transfer during any fiscal year, exceeding  an aggregate of more than 20% of
the Fair Market Value of the Company's total assets;

     (b)  The appointment or removal of auditors;

     (c)  Any proposal for additional contributions of capital, other than with
respect to the contributions made pursuant to Clause Fifth (a), (b) and (c);

     (d)  Any proposals for the Company to accept contributions of or
conversions of debt-to-capital from third parties in exchange for Capital
Interests;

     (e)  Any proposals by a Member to Transfer all of its Capital Interests or
a portion of the Value of its Capital Interest other than as permitted by these
by-laws;

     (f)  The dissolution of the Company;

                                   Exhibit B
                                       8
<PAGE>

     (g)  Any acquisitions or capital expenditures during any fiscal year
exceeding an aggregate of more than 20% of the Fair Market Value of the
Company's total assets;

     (h)  The amendment of these by-laws;

     (i)  Entering into a transaction or series of transactions with any
Affiliate (or any Person in which a Member or its Affiliate has a 10% or greater
equity interest), member of the Board of Managers, officer, or executive of the
Company or a Member (or any individual who is a member of the immediate family
of such manager, officer or executive) that in the aggregate will have a value
during any fiscal year in excess of US$100,000 (ONE HUNDRED THOUSAND DOLLARS
00/100);

     (j)  Incurring additional indebtedness if the ratio of debt to total
capitalization of the Company would exceed 60% after giving effect to such
borrowing;

     (k)  Borrowing for the purpose of accomplishing any matter listed in this
Clause; and

     (l)  Making payments of liquidating or partially liquidating dividends.

     SIXTEENTH.-  If (a) at any time any Member desires to adopt one or more
Extraordinary Resolutions, but approval of the other Member for the passing of
such Extraordinary Resolutions cannot be obtained in accordance with Clause
Fifteenth and (b) such situation continues without resolution for at least 90
days (during which period the Members shall conduct good faith negotiations and
discussions, which shall include, without limitation, a requirement of a face to
face meeting of the chief executive officers of the respective Member's Ultimate
Parents), then any Member (the "Triggering Member") may, at any time thereafter
while such situation continues without resolution, send a notice (the "Buy-Sell
Notice") to the other Member (the "Receiving Member").  The Buy-Sell Notice
shall constitute an offer by the Triggering Member either (i) to sell the
Capital Interest of the Triggering Member or (ii) to purchase the Capital
Interest of the Receiving Member, in either case for a cash price in Dollars
equal to the price per one Peso contributed to the equity of the Company (the
"Capital Interest Price") set forth in the Buy-Sell Notice.  The Buy-Sell Notice
shall be accompanied by an irrevocable letter of credit issued by a reputable
financial institution in favor of the Receiving Member in the amount of 10% of
the Capital Interest Price multiplied by the number of whole Pesos contributed
to the equity of the Company by the  Receiving Member, which letter of credit
shall provide that in the event the Receiving Member elects to sell its Capital
Interest and the Triggering Member for any reason (other than due to the fault
of the Receiving Member or the failure, through no fault of the Receiving
Member, to obtain the consent, if required, of the Lenders) fails to complete
the closing of the transaction within the time period set forth in Clause
Eighteenth, then the Receiving Member shall have the right (without limitation
to any other remedy available), for a period of 10 Business Days after the
expiration of such period, to draw on the letter of credit and retain the
proceeds thereof.

                                   Exhibit B
                                       9
<PAGE>

     SEVENTEENTH.-  Not later than 30 days after the giving of the Buy-Sell
Notice to the Receiving Member, the Receiving Member shall notify (the "Response
Notice") the other Member whether such Receiving Member elects (a) to sell or
(b) to purchase, in either case at the Capital Interest Price.  Failure to give
the Response Notice within such 30-day period shall be deemed to be an election
to sell by the Receiving Member.  If the Receiving Member elects to purchase,
the Receiving Member shall be required to purchase all of the Capital Interest
of the Triggering Member and shall include with its Response Notice the original
letter of credit it received from the Triggering Member and a letter of credit
in favor of the Triggering Member substantially as described in Clause Sixteenth
above (except that the amount of the letter of credit shall be measured by
reference to the Triggering Member's equity contributions).  If the Receiving
Member does not elect to purchase, the Receiving Member shall sell its Capital
Interest to the Triggering Member.  In each case, the sale or purchase of the
Capital Interest shall be at the Capital Interest Price multiplied by the number
of whole Pesos contributed to the equity of the Company by the Member who is
selling its Capital Interest.

     EIGHTEENTH.-  The closing of the sale and purchase in accordance with
Clauses Sixteenth and Seventeenth shall be consummated no later than the first
Business Day after 90 days after the giving of the Response Notice or the deemed
election (pursuant to Clause Seventeenth) to sell.  Such closing shall occur at
the head office of the Company unless otherwise agreed, and at the closing, the
Closing Actions shall occur. Any tax withholding obligations with respect to the
Transfers of the Capital Interests imposed by the laws of Mexico shall be
complied with.


                                  CHAPTER IV

                                ADMINISTRATION

     NINETEENTH.-  The Company shall be governed by a Board of Managers
consisting of six managers.  The managers shall not be required to be nationals
of Mexico.   Any Member shall be entitled to designate three persons to the
Board of Managers, and to the extent permitted by applicable law, shall have the
right to cause such managers to be removed.  The appointment of the chairman and
the secretary of the Board of Managers will alternate annually between the
managers appointed by each Member.

     The managers may but need not be Members of the Company.

     The chairman of the Board of Managers shall not have the deciding vote in
case of a tie in the voting of the Board.

     The chairman and the secretary of the Board shall have exclusively those
powers conferred upon them by these by-laws.

                                   Exhibit B
                                      10
<PAGE>

     TWENTIETH.-  Each Member entitled to nominate a manager pursuant to Clause
Nineteenth shall be entitled to designate an alternate manager for each of its
nominees (an "Alternate Manager").  Each Alternate Manager shall be entitled to
receive notice of all meetings of the Board of Managers and to attend and vote
at any such meeting at which the manager for whom he is the Alternate Manager is
not personally present, and generally to perform all functions of the manager
for whom he is the alternate as a manager in his absence.  An Alternate Manager
shall cease to be an Alternate Manager if the manager for whom he is the
alternate ceases to be a manager; provided, however, that if a manager retires
and is immediately reappointed, any appointment of an Alternate Manager for such
manager that was in force immediately prior to his retirement shall continue
after his reappointment.  An Alternate Manager shall be deemed for all purposes
a manager and shall alone be responsible for his own acts and defaults and he
shall not be deemed to be the agent of the manager for whom he is the alternate.

     TWENTY-FIRST.-  The managers shall be elected for a term of office of one
year.  A manager whose term of office expires may be reelected.  Any vacancy
occurring in the managership of the Board of Managers shall be filled by the
Member that nominated the manager whose departure created such vacancy.

     TWENTY-SECOND.-  The Board of Managers shall meet at least quarterly
("Regular Meetings"), and additional meetings may be convened by notice of the
chairman or by any manager at any time ("Special Meetings").  Regular Meetings
shall be held at the Company's head office or at such other location as may be
agreed by the Board of Managers.  Unless otherwise agreed upon by the Board of
Managers, Special Meetings shall be held on an alternating basis at the
Company's head office and in Danville, Virginia, U.S.A.  Managers shall receive
not less than ten Business Days' written notice of any meeting, with such
written notice also provided to each Member.  Managers may, by unanimous written
consent, waive the notice requirement for meetings, and any manager that attends
a meeting of the Board of Managers shall be deemed to have waived any
requirement for notice thereof.  The agenda of each meeting shall be included in
the notice for such meeting and shall be established in accordance with the
requirements of the General Law of Commercial Companies and these by-laws, but
shall include any matter submitted to the Company by any manager at least three
Business Days prior to the sending of the notice for such meeting.  Managers may
attend meetings of the Board of Managers by telephone.

     TWENTY-THIRD.-  A quorum for meetings of the Board of Managers shall
require the presence of at least four managers.  All decisions of the Board of
Managers shall be taken by the affirmative vote of at least four managers.  The
chairman of the Board of Managers shall not be entitled to any vote in addition
to his vote as a manager.  In the event of a deadlock among the managers, the
matters shall be decided by vote of the Members as set forth in Chapter III.
The proceedings of meetings of the Board of Managers will be in English.  Unless
otherwise required by applicable law, the official minutes of meetings and
resolutions taken therein shall be kept in English and Spanish, shall be
circulated to all managers before finalization and shall be kept in

                                   Exhibit B
                                      11
<PAGE>

the minute books of the Company. If permitted by applicable law, decisions may
be taken by the Board of Managers without a meeting if a proposal for action is
submitted in writing to each of the managers and each such manager consents in
writing to such action.

     TWENTY-FOURTH.-.  Except as otherwise expressly provided by applicable law
or these by-laws, the Board of Managers shall, consistent with any resolution of
the Members Meeting, administer the business and property of the Company and
manage the affairs of the Company and shall have full authority to do so,
provided that its resolutions and acts are consistent with the General Law of
Commercial Companies and these by-laws.  Subject to the foregoing, the functions
and powers of the Board of Managers shall include, but not be limited to:

     (a)  The appointment or removal of the director of marketing and the
general manager of the Project;

     (b)  The approval of the Annual Business Plan;

     (c)  The approval of the annual audited financial statements;

     (d)  The approval of any acquisition or Transfer of assets or capital
expenditures having a value in excess of US$250,000 (TWO HUNDRED FIFTY THOUSAND
DOLLARS 00/100);

     (e)  The approval of any loans or the issuance of any credits in the
ordinary course of business in excess of US$200,000 (TWO HUNDRED THOUSAND
DOLLARS 00/100) in the aggregate to any one Person or its Affiliates;

     (f)  Any material amendment or modification of any Project Contract or
Financing Agreement;

     (g)  Any declaration by the Company of a default under, any exercise by the
Company of remedies under, or any termination or cancellation by the Company of,
any Project Contract or Financing Agreement;

     (h)  General power of attorney for lawsuits and collections, in the terms
of the first paragraph of Article 2554 of the Civil Code for the Federal
District, with all general and such special powers as are mentioned in Article
2587 of said Code, including but not limited to the following:

     To exercise all types of rights and actions before any and all authorities
and boards of conciliation and arbitration; to submit to any jurisdiction; to
desist from injunction (amparo) proceedings; to file charges and complaints as
aggrieved party and assist the District Attorney; and to sign such documents as
may be required in the exercise of this power of attorney;

                                   Exhibit B
                                      12
<PAGE>

     (i)  General power of attorney for acts of administration, in the terms of
the second paragraph of said Article 2554, with powers to carry out all
operations inherent in the corporate purpose;

     (j)  General power of attorney for acts of dominion, in the terms of the
third paragraph of said Article 2554;

     (k)  Power to grant and sign credit instruments in accordance with Article
9 of the General Law of Credit Instruments and Operations;

     (l)  Power to carry out and enforce the resolutions adopted in Members
Meetings;

     (m)  Power to revoke and confer general and special powers of attorney
within the scope of the aforementioned powers; and

     (n)  The performance of any other acts necessary or appropriate for a Board
of Managers under these by-laws or the General Law of Commercial Companies.

     TWENTY-FIFTH.-  To guarantee the faithful discharge of their duties, the
managers shall give the guaranty determined by the Ordinary Members Meeting
which appointed them, and it may consist of a cash deposit or bond.

     TWENTY-SIXTH.-  The Board of Managers shall appoint the general manager,
the director of marketing, the deputy general manager and the other officers of
the Company.  The officers shall be responsible for the day-to-day management
and conduct of the operations of the Company in accordance with powers granted
by the Members Meeting and the Board of Managers from time to time.  The
duration of the terms of the general manager, the director of marketing, the
deputy general manager and other officers having authority to sign and execute
documents on behalf of the Company shall not be limited to the term of the
managers.


                                   CHAPTER V

                FISCAL YEAR, BALANCE SHEET, PROFITS AND LOSSES

     TWENTY-SEVENTH.-  The fiscal year of the Company shall be a calendar year.

     TWENTY-EIGHTH.-  A balance sheet shall be prepared within three months
following the close of the fiscal year and kept in the principal offices of the
Company, available to the Company Members and officers, together with its
supporting documents, one month before the respective Ordinary Members Meeting
is held.

     TWENTY-NINTH.-  The profits obtained in each fiscal year shall be applied
as follows:

                                   Exhibit B
                                      13
<PAGE>

     (a)  First the amount agreed upon by the Ordinary Members Meeting will be
set aside for the establishment or reconstitution, as the case may be, of the
legal reserve fund, an amount that at minimum will be 5% of the net profit,
until an amount equal to one fifth of the capital is accumulated.

     (b)  Such sum as may be determined by the Members shall be set aside for
creating or increasing reinvestment, contingency or such special reserves as may
be deemed advisable;

     (c)  Such sum as may be determined by the Members shall be distributed to
the Members in proportion to the Value of their Capital Interests;

     (d)  The remainder, if any, shall be passed to the undistributed profits
account.

     THIRTY.-  The Members shall be liable for the Company losses but their
liability shall be limited to payment of the unpaid portion of their Capital
Interests; hence, the owners of fully-paid Capital Interests shall have no
liability whatsoever.


                                  CHAPTER VI

                          DISSOLUTION AND LIQUIDATION

     THIRTY-FIRST.-  The Company shall be dissolved:

     (a)  If continued execution of the corporate purposes shall become
impossible;

     (b)  By resolution of the Members adopted in accordance with these by-laws
and the General Law of Commercial Companies; or

     (c)  In case of loss of two-thirds of the corporate capital unless the
Members restore or reduce same.

     THIRTY-SECOND.-

     (a)  Upon dissolution, the Company shall be placed in liquidation which
shall be entrusted to one or more receivers, as determined by the Members in an
Extraordinary Meeting.

     (b)  The Board of Managers shall continue in the discharge of their duties
until the appointment of the receivers shall have been recorded in the Public
Registry of Commerce and the receivers shall have taken office.

     (c)  The liquidation shall be conducted as prescribed in the General Law of
Commercial Companies but the Members, upon determining to liquidate, shall
establish the rules which, in

                                   Exhibit B
                                      14
<PAGE>

addition to the provisions of the General Law of Commercial Companies and these
by-laws, shall govern all action taken by the receivers.

     (d)  The Extraordinary Members Meeting wherein the final balance sheet is
approved must be presided over by one of the receivers.  The receivers shall
have the authority vested in the Board of Managers and the duties and
obligations granted to the receivers by the General Law of Commercial Companies.


                                  CHAPTER VII

                              GENERAL PROVISIONS

     THIRTY-THIRD.-  The founding Members do not reserve to themselves any
special participation in the Company profits.

     THIRTY-FOURTH..-  Any foreigner who upon incorporation or at any time
thereafter acquires an interest or participation in the Company and/or the
property rights, concessions, participations or interests owned by such
companies or the rights and obligations derived from the agreements to which
such companies are parties with Mexican authorities, shall be considered ipso
facto as a Mexican citizen with respect to such interest, participation,
concession, right, obligation and agreement and it shall be understood that he
agrees not to seek the protection of his government under penalty, in case of
breaching said agreement, of forfeiting such interest or participation to the
Mexican Nation.

     THIRTY-FIFTH.-  In all matters not specifically provided for herein, the
provisions of the General Law of Commercial Companies shall govern.

     THIRTY-SIXTH.-  No Claim (as defined below) shall be submitted to
arbitration until 60 days have passed (without mutual agreement having been
reached) following the first written notice from a Disputing Party to the other
Disputing Party that sets forth the subject matter of the Claim and that states
that it is being given pursuant to this Clause.  Each Disputing Party shall, if
requested by another Disputing Party, select and appoint a senior executive (not
concerned with the day-to-day performance of the appointor's obligations under
these by-laws) to serve on a panel seeking to reach mutual agreement with
respect to the applicable Claim.  Each such appointment shall be made by the
giving of notice by the appointor to the other Disputing Parties within ten
Business Days of the request for the appointment.  The appointees shall meet and
shall endeavor to reach such mutual agreement as soon as practicable.

                                   Exhibit B
                                      15
<PAGE>

     THIRTY-SEVENTH.-  Any and all disputes, including claims, counterclaims,
demands, causes of action, controversies, and other matters in question arising
out of or relating to these by-laws, or the alleged breach hereof, or in any way
relating to the subject matter of these by-laws or the relationship between the
parties created by these by-laws (all of which are referred to herein as
"Claims") between the Members (each a "Disputing Party") that are not resolved
during the 60 day period provided in Clause Thirty-sixth shall be resolved by
binding arbitration.

     THIRTY-EIGHTH.-  If no such mutual agreement has been reached within such
60 day period, then any Disputing Party may refer the claim to arbitration under
the following provisions:

     (a)  To refer a claim to arbitration, a Disputing Party must submit its
Request for Arbitration to the ICC and the other Disputing Parties in accordance
with the ICC Rules.

     (b)  The Disputing Parties shall endeavor to agree promptly on a panel of
three arbitrators. One (1) arbitrator shall be nominated by each Disputing Party
in accordance with ICC Rules, and the third arbitrator shall be nominated by the
two (2) ICC-confirmed party-nominated arbitrators or, failing agreement, shall
be appointed by the ICC in accordance with ICC Rules.  Each Disputing Party
shall be permitted to nominate an arbitrator that is of the same nationality as
the Disputing Party making the nomination.

     THIRTY-NINTH.-  The validity, construction, and interpretation of this
agreement to arbitrate, and all procedural aspects of the arbitration conducted
pursuant to this agreement to arbitrate, including, but not limited to, the
determination of the issues that are subject to arbitration (i.e.,
arbitrability), the scope of the arbitrable issues, allegations of "fraud in the
inducement" to enter into this agreement to arbitrate, allegations of waiver,
laches, delay or other defenses to arbitrability, and the rules governing the
conduct of the arbitration (including the time for filing an answer, the time
for the filing of counterclaims, the times for amending the pleadings, the
specificity of the pleadings, the extent and scope of discovery, the issuance of
subpoenas, the times for the designation of experts, whether the arbitration is
to be stayed pending resolution of related litigation involving third parties
not bound by this agreement to arbitrate, the receipt of evidence, and the like)
shall be decided in accordance with the ICC Rules. However, the arbitrators
shall have absolutely no authority to award treble, exemplary or punitive
damages of any type under any circumstances, regardless of whether such damages
may be available under applicable law; in addition, the arbitrators shall have
no authority to amend, modify, supplement or otherwise change any of the terms
of these by-laws.  The Award shall fix the costs of the arbitration and decide
which of the Disputing Parties shall bear them or in what proportion they shall
be borne by the Disputing Parties; provided that each Disputing Party shall bear
its own attorneys' fees, and the arbitrators shall have no authority to award
attorneys' fees.

     FOURTIETH.-  The arbitration proceeding shall be conducted in New York, New
York USA.  The arbitration shall be conducted by the arbitrators as
expeditiously as possible.  The arbitration proceedings and the award or
decision (the "Award") of the arbitrators shall be in

                                   Exhibit B
                                      16
<PAGE>

English. The arbitration shall be conducted under the ICC Rules. The Award shall
be payable in cash in Dollars.

     The arbitrators' Award shall, as between the Disputing Parties and those in
privity with them, be final and entitled to all of the protections and benefits
of a final judgment, e.g., res judicata (claim preclusion) and collateral
estoppel (issue preclusion), as to all Claims, including compulsory
counterclaims, that were or could have been presented to the arbitrators.  The
arbitrators' Award shall not be reviewable by or appealable to any court;
provided, however, the Award may be corrected or interpreted pursuant to the ICC
Rules.

     It is the intent of the parties that the arbitration proceeding shall be
conducted expeditiously, without initial recourse to the courts and without
interlocutory appeals of the arbitrators' decisions to the courts.  However, if
a Disputing Party refuses to honor its obligations under this agreement to
arbitrate, any other Disputing Party may obtain appropriate relief compelling
arbitration in any court having jurisdiction over the Disputing Parties; the
order compelling arbitration shall require that the arbitration proceedings take
place in New York, New York, USA as specified above.  The Disputing Parties may
apply to any court having jurisdiction for orders requiring witnesses to obey
subpoenas issued by the arbitrators.  Moreover, any and all of the arbitrators'
orders and decisions may be enforced if necessary by any court having
jurisdiction.  The arbitrators' Award may be confirmed in, and judgment upon the
Award entered by, any court having jurisdiction.  FOR PURPOSES OF COMPELLING A
MEMBER TO HONOR ITS OBLIGATION TO ARBITRATE, EACH OF THE MEMBERS IRREVOCABLY
CONSENTS AND SUBMITS UNCONDITIONALLY TO THE NON-EXCLUSIVE JURISDICTION OF ANY
STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF NEW YORK, USA
AND IRREVOCABLY WAIVES ANY PRESENT OR FUTURE OBJECTION TO SUCH VENUE FOR SUCH
PURPOSES.

     To the fullest extent permitted by applicable law, the arbitration
proceeding and the arbitrators' Award shall be maintained in confidence by the
Disputing Parties.  However, a violation of this covenant shall not affect the
enforceability of this agreement to arbitrate or of the arbitrators' Award.

     A Disputing Party's breach of these by-laws shall not affect this agreement
to arbitrate.  Moreover, the parties' obligations under this arbitration
provision are enforceable even after these by-laws have terminated.  The
invalidity or unenforceability of any provision of this agreement to arbitrate
shall not affect the validity or enforceability of the Disputing Parties'
obligation to submit their Claims to binding arbitration or the other provisions
of this agreement to arbitrate.

     FOURTY-FIRST.-  For purposes of these by-laws:

                                   Exhibit B
                                      17
<PAGE>

     "Affiliate" means, with respect to any Person, any other Person that (a)
owns or controls the first Person, (b) is owned or controlled by the first
Person, or (c) is under common ownership or control with the first Person, where
"own" means ownership of 50% or more of the equity interests or rights to
distributions on account of equity of the Person and "control" means the power
to direct the management or policies of the Person, whether through the
ownership of voting securities, by contract, or otherwise; provided, however,
that the Company shall not be considered to be an Affiliate of a Member or of an
Affiliate of a Member.

     "Alternate Manager" has the meaning given that term in Clause Twentieth.

     "Award" has the meaning given that term in Clause Fourtieth.

     "Board of Managers" means the Board of Managers (consejo de gerentes) of
the Company.

     "Business Day" means any day other than a Saturday, a Sunday, or a day on
which banks in New York, New York USA, or Mexico City, Mexico are authorized or
required by law to be closed.

     "Buy-Sell Notice"  has the meaning given that term in Clause Sixteenth.

     "Capital Interest" has the meaning given that term in Clause Fifth.

     "Capital Interest Price" has the meaning given that term in Clause
Sixteenth.

     "Claims" has the meaning given that term in Clause Thirty-seventh.

     "Closing Actions" means (a) the taking by the applicable selling Members of
all necessary or appropriate actions to Transfer the applicable Capital
Interests to the applicable purchasing Members, with such selling Members
warranting against all Encumbrances against such Capital Interests, except for
these by-laws and the Encumbrances provided for in Clause Seventh (b), and (b)
the payment by such purchasing Members to such selling Members of the applicable
purchase price in Dollars in immediately available funds.

     "Commitment Amounts" has the meaning given that term in Clause Fifth.

     "Company" means the limited liability company (sociedad de responsabilidad
limitada de capital variable) formed by the Members.

     "Disputing Party" has the meaning given that term in Clause Thirty-seventh.

     "Dollars" means freely transferable lawful money of the United States of
America.

                                   Exhibit B
                                      18
<PAGE>

     "Dollar Amounts" has the meaning given that term in Clause Fifth.

     "Equity Contribution Agreement" means the agreement signed by the Members
on January 5, 2000.

     "Encumbrance" means a security interest, charge, lien, pledge, mortgage or
similar encumbrance.

     "Exercise Notice" has the meaning given that term in Clause Eighth.

     "Extraordinary Resolutions" has the meaning given that term in Clause
Fifteenth.

     "Extraordinary Members Meeting" has the meaning given that term in Clause
Tenth.

     "Fair Market Value" means the value that would be obtained in an arm's-
length transaction between an informed and willing buyer and an informed and
willing seller, determined by mutual agreement.

     "Financing Agreement" means any of:

     (a)  the Company's agreements with Persons (other than the Members and
their Affiliates) for the making available to the Company of loans, credit
facilities, or other funds (other than by way of equity or quasi-equity
participation); and

     (b)  the security documents, direct agreements, and other ancillary
undertakings in favor of Lenders required pursuant to the agreements referred to
in clause (a) above.

     "General Law of Commercial Companies" means the Ley General de Sociedades
Mercantiles.

     "ICC" means the International Chamber of Commerce.

     "ICC Rules" means the Rules of Arbitration of the International Chamber of
Commerce.

     "Lenders" means the Persons providing loans or credit under the Financing
Agreements.

     "Member" means any registered owner of a Capital Interest.

     "Members Meeting" means any meeting of Members of the Company, conducted
pursuant to these by-laws, and the General Law of Commercial Companies,
including any Ordinary Members Meeting and Extraordinary Members Meeting.

     "Mexico" means the United Mexican States.

     "Offer" means a bona fide written offer.

                                   Exhibit B
                                      19
<PAGE>

     "Ordinary Resolutions" has the meaning given that term in Clause
Fourteenth.

     "Ordinary Members Meeting" has the meaning given that term in Clause Tenth.

     "Ownership Percentage" of any Member means at the time in question the
ratio (expressed as a percentage) that the Value of a Capital Interest then
owned by such Member bears to the aggregate amount of all equity contributions
made by the Members.

     "Person" means any natural person, corporation, company, partnership
(general or limited), limited liability company, business trust, or other entity
or association.

     "Pesos" means freely transferable lawful money of Mexico.

     "Potential Acquirer" has the meaning given that term in Clause Eighth.

     "Preferential Purchase Price" has the meaning given that term in Clause
Eighth.

     "Project" means the construction and operation of a manufacturing plant at
a location to be selected by the Board of Managers in Mexico primarily for the
manufacture of finished garments, and the sale of such finished garments to
garment retailers and other sectors, including, without limitation, the
development, financing, construction, ownership, maintenance, and operation of
such facility and the sale and marketing of products thereof by or on behalf of
the Company.

     "Project Contract" means any of the following agreements to which the
Company will be a party:

     (a)  Any agreement with an Affiliate pertaining to the leasing or purchase
of real estate, construction of Project facilities, employment or labor matters;

     (b)  to the sites for the Project or will be granted leasehold title to
those sites; and

     (c)  any other agreement material to the completion of the Project.

     "Receiving Members" has the meaning given that term in Clause Sixteenth.

     "Regular Meetings" has the meaning given that term in Clause Twenty-second.

     "Request for Arbitration" has the meaning given that term in Clause Thirty-
eighth.

     "Response Notice" has the meaning given that term in Clause Seventeenth.

                                   Exhibit B
                                      20
<PAGE>

     "Special Meetings" has the meaning given that term in Clause Twenty-second.

     "Subscriptions" has the meaning given that term in Clause Fifth.

     "Subject Capital Interests" has the meaning given that term in Clause
Eighth.

     "Transfer" means to sell, transfer, assign, or otherwise dispose of, or the
act of doing any of the foregoing, but not the act of granting or imposing an
Encumbrance.

     "Transferee" has the meaning given that term in Clause Eighth.

     "Transferor" has the meaning given that term in Clause Eighth.

     "Transfer Notice" has the meaning given that term in Clause Eighth.

     "Triggering Member" has the meaning given that term in Clause Sixteenth.

     "Ultimate Parent" means the Affiliate of the applicable Member that
controls, directly or indirectly, such Member and all of such Member's other
Affiliates.

     "United States" or "US" means the United States of America.

     "Value of a Capital Interest" means the aggregate amount of equity
contributions expressed in multiples of one Peso made by a Member and its
predecessors to the Company.

                               TRANSITORY CLAUSES

FIRST.    The issuers subscribe to and pay for in cash the total value of
the minimum fixed capital of the Company of $3,000.00 (THREE THOUSAND PESOS
00/100), which amount shall be allocated in the following way and proportion:

<TABLE>
<CAPTION>
----------------------------------------------------------------------
Member                   Value           Capital Interest     Votes
----------------------------------------------------------------------
<S>                     <C>              <C>                  <C>
Dan River               $1,499.00        1                    1,499
International Ltd.
----------------------------------------------------------------------
Grupo Industrial        $1,501.00        2                    1,501
Zaga, S.A. de C.V.
----------------------------------------------------------------------
</TABLE>

SECOND.   The issuers, pursuant to the meeting for the execution of these by-
laws that is the first Ordinary Members Meeting of the Company, adopt the
following by unanimous vote:

                                   Exhibit B
                                      21
<PAGE>

                                  RESOLUTION

FIRST.    It is agreed to that the Company shall be managed by a Board of
Managers, which shall be comprised of the of the following individuals:

On behalf of Grupo Industrial Zaga, S.A. de C.V.

Managers                      Alternates
--------                      ----------
Marcos Zaga Galante           Rafael Zaga Kalach
Mayer Zaga Galante            Salomon Zaga Kalach
Jacobo Saadia Zaga            Moises Saadia Zaga

On behalf of Dan River International Ltd.

Managers                      Alternates
--------                      ----------
Joseph L. Lanier, Jr.         Richard L. Williams
Barry F. Shea                 G. Rodney Reynolds
James E. Martin               Greg R. Boozer

                                   Exhibit B
                                      22
<PAGE>

                                   EXHIBIT C
                                   ---------

<TABLE>
<CAPTION>
-------------------------------------------------------------
       MEMBER          AMOUNT OF CAPITAL     OWNERSHIP
                         CONTRIBUTION        PERCENTAGE

-------------------------------------------------------------
<S>                    <C>                   <C>
     Dan River              1,499               49.9%

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

       Zaga                 1,501               50.1%
--------------------------------------------------------------
</TABLE>

                                   Exhibit C
                                    Page 1
<PAGE>

                                   EXHIBIT D
                                   ---------

                                                     Chain of
             Member                              Equity Ownership
             ------                              ----------------


  Dan River International Ltd.     100% owned by Dan River Inc., a publicly
                                   held company  organized under the laws of
                                   the State of Georgia, USA

                                   Exhibit D
                                    Page 1