NOTE EXCHANGE AGREEMENT


         THIS AGREEMENT made as of the 1st day of December, 1997 by and between
THE THAXTON GROUP, INC., a South Carolina corporation (the "Company"), and
AMERICAN BANKERS INSURANCE COMPANY OF FLORIDA ("American").

                                    RECITALS:

         A. American holds two promissory notes issued by the Company, one dated
May 16, 1994 in the principal amount of $300,000, and another dated March 18,
1996 in the principal amount of $200,000 (collectively, the "Notes").

         B. American desires to exchange the Notes for shares of the Company's
Series C Convertible Preferred Stock (the "Series C Preferred Stock") and the
Company desires to make such an exchange in accordance with the terms hereof. A
copy of the Certificate of Designations, Preferences and Rights of the Series C
Preferred Stock is attached hereto as Exhibit A.

         NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:

         1. Exchange of Notes; Restrictions Upon Transfer. Subject to the terms
and conditions contained herein, and as of the date hereof, the Company hereby
agrees to issue Fifty Thousand (50,000) shares of Series C Preferred Stock, par
value $.01 per share, of the Company (the "Shares"), to American in exchange for
the surrender by American of the Notes. The Certificate(s) representing the
Shares shall bear an appropriate legend reflecting the aforementioned transfer
restriction as well as the status of such Shares as "restricted securities"
under the Securities Act of 1933, as amended (the "Act").

         2. Representations and Warranties of the Company. In order to induce
American to enter into this Agreement, the Company hereby represents and
warrants that:

                  (a) The Company has the legal right to execute and deliver
         this Agreement and to carry out the transactions and perform its
         obligations hereunder. This Agreement constitutes a valid, legal and
         binding obligation of the Company, enforceable in accordance with its
         terms.

                  (b) The Company is a corporation, duly organized, validly
         existing and in good standing under the laws of the State of South
         Carolina.

         3. Representations and Warranties of American. In order to induce the
Company to enter into this Agreement, American hereby represents and warrants to
the Company that:

                  (a) American has the legal right to execute and deliver this
         Agreement and to carry out the transactions and perform its obligations
         contemplated hereunder. This


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         Agreement has been duly authorized by American and constitutes the
         legal, valid and binding obligations of American enforceable in
         accordance with its terms.

                  (b) American is acquiring the Shares for investment and not
         with a view to or for resale in connection with the distribution
         thereof and acknowledges that the Shares have not been registered under
         the Act.

                  (c) American is the true and lawful beneficial and record
         holder of the Notes and has good an marketable title thereto, free and
         clear of mortgages, pledges, liens, security interests or any other
         encumbrances.

         4. Indemnification. The parties hereto agree to indemnify and hold each
other harmless as follows:

                  (a) The Company agrees to indemnify and hold American harmless
         at all times after the date of this Agreement from and against any and
         all loss, liability, damage or deficiency resulting from any
         misrepresentation, breach of warranty or nonfulfillment of any
         covenants or agreements on the part of the Company contained herein or
         in any other document or certificate furnished by the Company pursuant
         hereto and any loss or damage resulting from any claims, litigation,
         actions, suits, proceedings, judgments, reasonable attorneys' fees,
         costs and expenses relating to or arising out of such
         misrepresentation, breach or nonfulfillment.

                  (b) American agrees to indemnify and hold the Company harmless
         at all times after the date of this Agreement from and against any and
         all loss, liability, damage or deficiency resulting from any
         misrepresentation, breach of warranty or nonfulfillment of any
         covenants or agreements on the part of American contained herein or any
         certificate or document furnished by American pursuant hereto and any
         loss or damage resulting from any such claims, litigation, actions,
         suits, proceedings, judgments, reasonable attorneys' fees, costs and
         expenses related to or arising out of such misrepresentation, breach or
         nonfulfillment.

                  (c) Should any claim be made by a person not a party to this
         Agreement with respect to any matter to which the foregoing indemnity
         relates, the party against whom such claim is asserted (the
         "Indemnified Party"), within a reasonable period of time, shall give
         written notice to the other party (the "Indemnifying Party") of any
         such claim, and the Indemnifying Party shall thereafter defend or
         settle any such claim, at its sole expense, on its own behalf and with
         counsel of its selection. In such defense or settlement of any claims,
         the Indemnified Party shall cooperate with and assist the Indemnifying
         Party to the maximum extent reasonably possible. Any payment resulting
         from such defense or settlement, together with the total expense
         thereof, shall be binding on the Company and American for the purposes
         of this paragraph 5.

                  (d) Notwithstanding the foregoing, should any claim be made by
         a person not a party to this Agreement with respect to any matter to
         which the foregoing indemnity relates, the Indemnified Party, on not
         less than thirty (30) days' notice to the Indemnifying Party, may make
         settlement of such claims, and such settlement shall be



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<PAGE>


         binding on the Indemnifying Party and the Indemnified Party for the
         purposes of this paragraph 5; provided, however, that if within said
         thirty (30) day period the Indemnifying Party shall have requested the
         Indemnified Party not to settle such claim and to deny such claim at
         the expense of the Indemnifying Party, the Indemnified Party will
         promptly comply and the Indemnifying Party shall have the right to
         defend on its own behalf with counsel of its selection. Any payment of
         settlement resulting from such contest, together with the total expense
         thereof, shall be binding on the Company and American for the purposes
         of this paragraph 5.

         5.       Due Diligence Acknowledgment.

                  (a) American acknowledges that it has had an opportunity to
         review, for information purposes only, the business and financial
         information contained in the Company's prospectus dated November 12,
         1997 (the "Prospectus"). A copy of the Prospectus is attached hereto as
         an Exhibit B.

                  (b) American acknowledges that it has had an opportunity to
         make its own independent examination, investigation, analysis and
         evaluation of the Company, including, but not limited to, an
         opportunity to ask questions of and receive answers from management
         concerning the terms and conditions of the transaction and the business
         and financial prospects of the Company.

         6. Closing. The closing of the transactions contemplated by this
Agreement shall occur on or before December 31, 1997 on a date and at a time
mutually agreed upon by the parties.

         7. Further Assurances. The Company and American hereby covenant and
agree that at any time and from time to time that they will promptly execute and
deliver such further instruments and documents and take such further action as
is reasonably necessary in order to further carry out the intent and purpose of
this Agreement.

         8. Notices. All notices, requests and demands and other communications
to any party hereto shall be in writing and shall be deemed to have been duly
given as if delivered by hand or mailed, certified or registered, with postage
prepaid to the following address of each party or such other addresses as may be
hereafter designated in writing by such party to the other parties:

                  To the Company:  The Thaxton Group, Inc.
                                   1524 Pageland Highway
                                   Lancaster, South Carolina  29721
                                   Attn:   Kenneth H. James
                                           Chief Financial Officer

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                  To American:     American Bankers Insurance Company of Florida
                                   11222 Quail Roost Drive
                                   Miami, Florida 33157
                                   Attn:    Len Garcia
                                            Chief Investment Officer and
                                              Senior Vice President

         9. Expenses. It is hereby agreed and understood that Thaxton shall bear
and pay all expenses relative to the consummation of the transaction referred to
in this Agreement.

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

         11. Applicable Law. The Agreement shall be governed by, and construed
in accordance with, the laws of the State of Florida.

         12. Severability. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction, shall as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

         13. Counterparts. This Agreement may be executed in one or more
counterparts, all of which together shall represent the same single agreement.

         14. Survival of Representations and Indemnity. The representations and
warranties and the indemnification provisions contained herein shall survive the
closing and the delivery of all the required documents hereunder.

         15. Entire Agreement. This Agreement contains the entire agreement
between the parties hereto with respect to the transactions contemplated herein.


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<PAGE>


         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.


                                       THE THAXTON GROUP, INC.



                                       By:________________________________
                                           James D. Thaxton
                                           President


                                       AMERICAN BANKERS INSURANCE
                                         COMPANY OF FLORIDA



                                       By:________________________________
                                           Len Garcia
                                           Chief Investment Officer and
                                             Senior Vice President

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