<PAGE>
--------------------------------------------------------------------------------
                                                                   EXHIBIT 10.31



                             INTERCREDITOR AGREEMENT

         THIS INTERCREDITOR AGREEMENT ("Agreement") is made as of this 30th day
of July, 2002, by WACHOVIA BANK, NATIONAL ASSOCIATION, a national banking
association, in its capacity as Agent and collateral agent for the Banks under
the Bank Credit Agreement described below (the "BANK AGENT"), AVONDALE MILLS,
INC., an Alabama corporation (the "BORROWER") and THE CIT GROUP/EQUIPMENT
FINANCING, INC., a Delaware corporation (the "EQUIPMENT LENDER").

                                    RECITALS

A.                The Borrower has requested that the Equipment Lender make
         available to it a term loan in the amount of $20,000,000 (the
         "EQUIPMENT LOAN"), secured by certain equipment of the Borrower now or
         hereafter located at its plant known as the Alexander City Plant in
         Alexander City, Tallapoosa County, Alabama (the "ALEXANDER CITY PLANT")
         and its plant known as the Coosa Plant in Rockford, Coosa County,
         Alabama (the "COOSA PLANT"), and collectively, the "PLANTS") pursuant
         to a Master Security Agreement dated as of even date herewith (as
         hereafter amended or supplemented from time to time, the "EQUIPMENT
         LENDER SECURITY AGREEMENT"; the Equipment Lender Security Agreement and
         all other documents from time to time evidencing, securing or relating
         to the Equipment Loan are collectively referred to as the "EQUIPMENT
         LENDER LOAN DOCUMENTS"); and

B.                In accordance with a Second Amended and Restated Credit
         Agreement dated as of September 28, 2000 (as amended to date, and as
         hereafter amended or supplemented from time to time, the "BANK CREDIT
         AGREEMENT"; the Bank Credit Agreement, the Bank Security Agreement and
         Mortgages described below and all other "Loan Documents", as defined in
         the Bank Credit Agreement, are collectively referred to as the "BANK
         LOAN DOCUMENTS") by and among the Borrower, the Bank Agent and the
         Banks party thereto from time to time (the "BANKS"), the Bank Agent has
         (i) pursuant to an Amended and Restated Security Agreement dated as of
         April 29, 1996, by and between the Borrower and the Bank Agent (as
         amended to date, and as it may hereafter be amended or supplemented
         from time to time, the "BANK SECURITY AGREEMENT"), a blanket security
         interest in all equipment of the Borrower, or in which it has rights,
         whether now owned or hereafter acquired, wherever located, including,
         without limitation, all machinery, furniture, furnishings, leasehold
         improvements, motor vehicles, forklifts, rolling stock, dies and tools
         used or useful in the Borrower's business, excluding certain machinery
         and equipment listed on Exhibit "B" attached thereto, but including all
         "Equipment Lender Equipment Collateral", as defined below
         (collectively, the "EQUIPMENT COLLATERAL"), (ii)


<PAGE>

         pursuant to a Master Mortgage, Deed of Trust, Leasehold Deed of Trust,
         Deed to Secure Debt, Leasehold Deed to Secure Debt, Uniform Commercial
         Code Security Agreement and Assignment of Leases, Rents and Profits
         recorded October 23, 2001, (a) as to the Alexander City Plant (together
         with the Bevelle Plant as described in Section 2 below), recorded in
         Tallapoosa County, Alabama, Recorded Card No. 165200 (the "ALEXANDER
         CITY/BEVELLE MORTGAGE"), and (b) as to the Coosa Plant, recorded in
         Coosa County, Alabama, Book 350, Page 484 (the "COOSA MORTGAGE"; the
         Alexander City/Bevelle Mortgage and the Coosa Mortgage are collectively
         referred to as the "MORTGAGES"), a mortgage and lien on the Alexander
         City Plant and the Coosa Plant.

C.                The Equipment Lender has required, as a condition for the
         Equipment Lender to make the Equipment Loan to the Borrower, that (i)
         the Bank Agent subordinate its security interest in the "EQUIPMENT
         LENDER EQUIPMENT COLLATERAL", which term shall mean that portion of the
         Equipment Collateral that is now located at the Plants or that
         hereafter is relocated from one of the Plants to a location other than
         a Plant (an "OTHER LOCATION"), other than "Substituted Equipment
         Collateral", as defined and provided in Section 1(b) hereof (and the
         Borrower agrees not to effect any such relocation, except for
         substitutions permitted by Section 1(b) hereof or otherwise permitted
         under the Equipment Lender Loan Documents or agreed in writing by the
         Equipment Lender) or that hereafter is acquired by the Borrower and
         located at the Plants, all general intangibles relating to such
         Equipment Collateral, including embedded software, patents, patent
         applications, copyrights, inventions and designs and all rights to
         payment of money deriving from the ownership or use of such Equipment
         Collateral, such as warranty claims and rights of indemnification, all
         books and records of the Borrower relating to the foregoing, and all
         proceeds of the foregoing, including, without limitation, proceeds of
         insurance to the extent relating to the foregoing, and any such
         Equipment Lender Equipment Collateral that constitutes fixtures, but
         only to the extent such fixtures reasonably can be removed without
         doing irreparable damage to such premises, but not including Equipment
         Collateral that after the date hereof has been relocated to one of the
         Plants from an Other Location, other than "Replacement Equipment Lender
         Equipment Collateral", as defined and provided in Section 1(b) hereof
         (and the Borrower agrees to not effect any such relocation, except for
         substitutions permitted by Section 1(b) hereof or otherwise permitted
         under the Bank Loan Documents or agreed in writing by the Bank Agent)
         and (ii) that the Bank Agent enter into this Agreement and agrees to
         the other terms and provisions hereof.

D.                The Bank Agent and the Borrower have agreed to the foregoing,
         subject to the terms and conditions hereof, in order to induce
         Equipment Lender to make the Equipment Loan to the Borrower.

                                    AGREEMENT

         NOW, THEREFORE, in consideration of the foregoing recitals, which are
incorporated herein, the mutual covenants and agreements herein contained, and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereby agree as follows:


                                        2
<PAGE>

1.                Subordination; Substitutions.

         (a)                 Subordination. Provided that the "Net Cash
                  Proceeds" (as defined in the Bank Credit Agreement) of the
                  Equipment Loan are paid to the Bank Agent as required by the
                  Bank Credit Agreement, the Bank Agent hereby agrees that,
                  regardless of the time of attachment or perfection, the
                  Equipment Lender's right, title and interest in and to the
                  Equipment Lender Equipment Collateral, and to all proceeds
                  therefrom (including without limitation insurance proceeds),
                  whether now in existence or hereafter arising, shall be prior
                  and superior to the security interest which the Bank Agent now
                  has or in the future may have in the Equipment Lender
                  Equipment Collateral, however and whenever arising, but only
                  to the extent the Equipment Lender Equipment Collateral
                  secures the principal and interest of the Equipment Loan and
                  all fees, charges, expenses, indemnification amounts and other
                  amounts owing by the Borrower to the Equipment Lender under
                  the Equipment Lender Loan Documents. Bank Agent hereby
                  subordinates in favor of Equipment Lender in accordance with
                  the foregoing any such liens which Bank Agent may now have or
                  in the future may have with respect to the Equipment Lender
                  Equipment Collateral.

         (b)                 Substitutions. The Bank Agent and the Equipment
                  Lender hereby agree that from time to time the Borrower may,
                  upon notice to the Bank Agent and the Equipment Lender
                  containing a reasonably detailed description of the
                  substitutions and the Equipment Collateral involved, and
                  certifying that the terms and conditions of this Section 1(b)
                  have been satisfied (or will be satisfied upon completion of
                  the substitution) (i) purchase and locate at a Plant new
                  Equipment Collateral, or relocate existing Equipment
                  Collateral from an Other Location to a Plant, in either case
                  in substitution for existing Equipment Lender Equipment
                  Collateral to be relocated from a Plant to an Other Location
                  (such new Equipment Collateral or relocated existing Equipment
                  Collateral that replaces existing Equipment Lender Equipment
                  Collateral at a Plant is "REPLACEMENT EQUIPMENT LENDER
                  EQUIPMENT COLLATERAL", and such existing Equipment Lender
                  Equipment Collateral that is relocated from a Plant to an
                  Other Location and has been replaced by Replacement Equipment
                  Lender Equipment Collateral is "SUBSTITUTED EQUIPMENT");
                  provided, however, that where any existing Equipment
                  Collateral is relocated from an Other Location to a Plant as
                  Replacement Equipment Lender Equipment Collateral, the value,
                  condition and utility of the Substituted Equipment Collateral
                  that is relocated to an Other Location from a Plant in
                  substitution therefor is at least comparable to the value,
                  condition and utility of such Replacement Equipment Lender
                  Equipment Collateral. Subject to the foregoing terms and
                  conditions, upon any such substitution, such Substituted
                  Equipment Collateral shall no longer constitute Equipment
                  Lender Equipment Collateral, and such Replacement Equipment
                  Lender Equipment Collateral shall constitute Equipment Lender
                  Equipment Collateral.

2.                No other Collateral. The Equipment Lender hereby acknowledges
         that it does not have and will not seek or obtain a security interest
         in or lien on any other property of the


                                        3
<PAGE>

         Borrower, including Equipment Collateral that does not constitute
         Equipment Lender Equipment Collateral, and any other type of property
         whatsoever, other than the Equipment Lender Equipment Collateral and
         the cash and non-cash proceeds thereof. Without limiting the foregoing,
         and for the avoidance of doubt, the following property is not included
         in the Equipment Lender Equipment Collateral and the Equipment Lender
         shall have no security interest in or lien on any such property: (1)
         equipment, fixtures and other personal property of the Borrower used in
         the Borrower's denim operations located within the plant known as the
         Bevelle Plant in Alexander City, Tallapoosa County, Alabama (such plant
         being located at, and contained within the same property and building
         structure as, the Alexander City Plant and being included in the
         Alexander City/Bevelle Mortgage, but having separate and distinct
         operations and location within such property and structure); and (2)
         equipment, fixtures and other personal property owned by third parties
         and leased to the Borrower (a) pursuant to the lease(s) described on
         Exhibit A attached hereto, or (b) pursuant to leases or rental
         agreements hereafter entered into by the Borrower in respect of
         equipment, fixtures or other personal property subsequently acquired by
         the Borrower for use in its operations.

3.                Equipment Lender's Right of Entry and Removal. The Equipment
         Lender hereby is authorized by the Borrower (and the Bank Agent
         consents thereto), subject to the requirements and provisions of the
         Equipment Lender Loan Documents, to enter the Plants for periodic
         inspections of the Equipment Lender Equipment Collateral and, after a
         default under the Equipment Lender Loan Documents (following the giving
         of such notices and the expiration without cure of all applicable cure
         periods as provided therein and in this Agreement), to remove the
         Equipment Lender Equipment Collateral from the Plants, whether or not
         such removal requires a physical detachment of the Equipment Lender
         Equipment Collateral from the Plants or causes injury thereto;
         provided, however, that, by its acceptance hereof, the Equipment Lender
         agrees to repair, or pay the reasonable cost to repair, any physical
         injury to the Plants caused by the removal of the Equipment Lender
         Equipment Collateral. The Equipment Lender shall indemnify, defend and
         hold harmless the Bank Agent and the Banks from and against any and all
         losses, claims, damages, liens and costs (including, without
         limitation, reasonable legal fees), resulting from the Equipment
         Lender's entrance into the Plants and/or the removal of the Equipment
         Lender Equipment Collateral therefrom except to the extent caused by
         the Borrower or its employees, agents or contractors or other persons
         not retained by the Equipment Lender; provided, however, that the
         Equipment Lender shall not be liable for any diminution in the value of
         the Plants resulting from the absence of any of the Equipment Lender
         Equipment Collateral.

4.                Bank Agent's Notice of Default; Standby as to Enforcement. The
         Bank Agent shall use reasonable efforts to promptly deliver to the
         Equipment Lender a copy of any written notice of any Event of Default
         under the Bank Loan Documents (a "BANK LOAN DEFAULT"), or waiver of any
         Bank Loan Default, delivered by the Bank Agent to the Borrower. The
         failure of the Bank Agent to provide the Equipment Lender with notice
         of a Bank Loan Default as required hereunder shall not impair the
         rights of the Bank Agent under the Bank Loan Documents or affect its
         rights hereunder nor create any cause of action or liability against
         the Bank Agent. The Bank Agent agrees that it will not ask for, demand,
         sue for, collect, take, receive, or repossess from Borrower, or
         otherwise seek to


                                        4
<PAGE>

         enforce any remedy with respect to, the whole or any part of the
         Equipment Lender Equipment Collateral, whether by judicial action or
         under power of sale, by self-help, repossession or otherwise, unless
         and until the Equipment Loan and all interest, fees and expenses
         payable in connection therewith have been paid finally and in full.

5.                Equipment Lender's Notice of Default. The Equipment Lender
         shall use reasonable efforts to promptly notify the Bank Agent in
         writing of any event of default by the Borrower under the provisions of
         the Equipment Lender Loan Documents (an "EQUIPMENT LOAN DEFAULT"), and,
         unless a bankruptcy case under 11 U.S.C 101 et seq. shall have been
         commenced by or against the Borrower, as debtor (a "BANKRUPTCY CASE"),
         the Bank Agent shall have the right, but not the obligation, to cure
         such Equipment Loan Default on behalf of the Borrower within 30 days
         from the date it receives such notice in a manner reasonably acceptable
         to the Equipment Lender. During such 30-day period, the Equipment
         Lender agrees not to remove or otherwise enforce its remedies with
         respect to the Equipment Lender Equipment Collateral; provided,
         however, that the Equipment Lender shall have the right during such
         period to pursue any other remedies available to the Equipment Lender
         under the Equipment Lender Loan Documents that do not impair the use or
         operation of the Equipment Lender Equipment Collateral or the Plants.
         The failure of Equipment Lender to provide such notice to the Bank
         Agent shall not impair the rights of the Equipment Lender under the
         Equipment Lender Loan Documents or affect its rights hereunder nor
         create any cause of action or liability against the Equipment Lender;
         provided, however, that until the Equipment Lender has provided the
         Bank Agent notice of and an opportunity to cure the Equipment Loan
         Defaults as provided herein, the Equipment Lender shall not remove or
         otherwise enforce its remedies with respect to the Equipment Lender
         Equipment Collateral; provided, further, however, that from and after
         the date of the commencement of a Bankruptcy Case, the Equipment Lender
         shall have no obligation to provide any such notice or refrain from
         seeking to exercise its remedies with respect to the Equipment Lender
         Equipment Collateral. Notwithstanding the foregoing provisions of this
         Section 5, the Bank Agent shall have the right to cure no more than 3
         Equipment Loan Defaults during any 12 month period.

6.                Standstill Provisions. During the "Standstill Period", as
         hereafter defined, but subject to the terms and conditions in this
         Section 6 and the provisions of Section 7 hereof, the Bank Agent agrees
         that, in order to permit the Equipment Lender to seek a purchaser
         willing to purchase the Plants and the Equipment Lender Equipment
         Collateral for a price (allocated between the Plants and the Equipment
         Lender Equipment Collateral as may be acceptable to the Equipment
         Lender and the Bank Agent) and on other terms and conditions acceptable
         to the Equipment Lender and the Bank Agent or, to enable the Equipment
         Lender and the Bank Agent to cooperate in a simultaneous foreclosure of
         their respective interests in the Plants and the Equipment Collateral,
         in either case prior to the end of the Standstill Period, the Bank
         Agent will permit the Equipment Lender to maintain the Equipment Lender
         Equipment Collateral at the Plants during the Standstill Period. The
         term "STANDSTILL PERIOD" means a period that (A) commences on the date
         of the Bank Agent's receipt of a notice of an Equipment Loan Default
         pursuant to Section 5; provided, that if such Equipment Loan Default
         arises solely by virtue of receipt by the Equipment Lender of a notice
         from the Bank Agent of such Bank Loan Default (an


                                        5
<PAGE>

         "EQUIPMENT LOAN CROSS DEFAULT"), no Standstill Period may be commenced
         hereunder based on such Equipment Loan Cross Default unless such notice
         to the Bank Agent of the Equipment Loan Cross Default has been given
         within 30 days of the receipt by the Equipment Lender of such notice
         from the Bank Agent of a Bank Loan Default, and (B) terminates on the
         earlier to occur of:

                  (i)      the 30th day following the date on which the
         Equipment Lender receives from the Bank Agent written notice that the
         Bank Agent desires to commence the exercise of foreclosure proceedings
         (including advertisement for a sale under power of sale) upon the
         Plants; provided, that such notice may not be given prior to 17 months
         after commencement of the Standstill Period;

                  (ii)     the commencement of a Bankruptcy Case;

                  (iii)    30 days after the date on which the Equipment Lender
         receives from the Bank Agent written notice of the failure of the
         Plants or the Equipment Lender Equipment Collateral to be maintained in
         good condition, repair and working order, ordinary wear and tear
         excepted and subject to prudent business practices, unless such failure
         has been cured to the reasonable satisfaction of the Bank Agent within
         such 30 day period;

                  (iv)     10 days after the date on which the Equipment Lender
         receives from the Bank Agent written notice of the failure of the
         Equipment Lender Equipment Collateral to be adequately insured, unless
         such failure has been cured to the reasonable satisfaction of the Bank
         Agent within such 10 day period;

                  (v)      the date on which the Bank Agent receives from the
         Equipment Lender written notice that the Equipment Loan Default (other
         than an Equipment Loan Cross Default) has been waived or cured;
         provided, that in such event, no more than 1 additional Standstill
         Period may be commenced under this Section 6, and the Equipment Lender
         agrees that it will not give a notice of cure or waiver under this
         clause (v) simply for the purpose of avoiding the effect of the final
         sentence of this Section 6 or of Section 7 hereof; and

                  (vi)     if the Standstill Period commenced solely due to an
         Equipment Loan Cross Default and the Equipment Lender has received from
         the Bank Agent written notice that the Bank Loan Default giving rise
         thereto has been waived or cured, 10 days after the Equipment Lender's
         receipt of such notice, unless during such 10-day period the Bank Agent
         receives written notice from the Equipment Lender of the occurrence of
         and continued existence of another Equipment Loan Default pursuant to
         Section 5 hereof.

The Equipment Lender agrees that, within 10 days after the date the Equipment
Lender receives notice described in clause (i) above, or within 10 days after
the termination of the Standstill Period pursuant to clause (iii) or (iv) above,
it will notify the Bank Agent in writing whether it elects (1) to remove the
Equipment Lender Equipment Collateral from the Plants pursuant to Section 3
hereof, in which event the Equipment Lender will remove, and complete the
removal, of such Equipment Lender Equipment Collateral from the Plants within 3
months from the end


                                        6
<PAGE>

of the Standstill Period, or (2) to abandon the Equipment Lender Equipment
Collateral, in which event such notice of abandonment shall be accompanied by
appropriate UCC-3 termination statements, terminating the Equipment Lender's
security interest in the Equipment Lender Equipment Collateral, and the Bank
Agent shall be authorized to file such termination statements in the appropriate
public filing offices.

7.                Purchase of Equipment Loan. The Equipment Lender and the
         Borrower agree that the Bank Agent and the Banks shall have the right
         at any time during the Standstill Period to purchase the Equipment Loan
         and the Equipment Lender's interest in the Equipment Lender Equipment
         Collateral by tendering to the Equipment Lender the outstanding
         principal balance of the Equipment Loan, plus all accrued and unpaid
         interest thereon and all unpaid fees and charges and unreimbursed
         expenses, including reasonable legal fees actually incurred, with
         respect thereto, as of the date of purchase. Any such purchase shall be
         made without recourse, representation or warranty by the Equipment
         Lender. Upon the written request of the Bank Agent, the Equipment
         Lender agrees to provide to the Bank Agent from time to time during the
         Standstill Period a certificate setting forth the outstanding principal
         balance of the Equipment Loan and all accrued and unpaid interest
         thereon, and such other information as the Bank Agent may reasonably
         request.

8.                Protective Advances. The parties agree that any sums
         (including reasonable legal fees) expended by the Bank Agent to cure a
         default by the Borrower under the Equipment Lender Loan Documents shall
         be deemed protective advances secured by the "Collateral", as that term
         is defined in the Bank Credit Agreement.

9.                Modification of Equipment Lender Loan Documents. The validity
         and enforceability of this Agreement shall not be impaired, diminished,
         annulled or adversely affected by the modification, alteration,
         extension or renewal of any debt obligation of the Borrower to the
         Equipment Lender; provided, however, that the Equipment Lender and the
         Borrower hereby agree not to amend, modify or supplement the Equipment
         Lender Loan Documents in any way without the written consent of the
         Bank Agent so as to (i) increase the principal amount of the Equipment
         Loan to an amount exceeding $20,000,000 (and the Equipment Lender and
         the Borrower agree that principal amounts repaid on account of the
         Equipment Loan may not be reborrowed), (ii) shorten the maturity of the
         Equipment Loan (other than through the Borrower's voluntary exercise of
         its right to prepay all or any portion of the Equipment Loan) or (iii)
         change the repayment terms of the Equipment Loan so as to increase the
         amount or frequency of the Borrower's payment obligations under the
         Equipment Loan (other than through the Borrower's voluntary exercise of
         its option to have a fixed interest rate apply to the Equipment Loan as
         provided in the Equipment Lender Loan Documents). The validity and
         enforceability of this Agreement shall not be impaired, diminished,
         annulled or adversely affected by the modification, alteration,
         extension or renewal of any debt or other obligations of the Borrower
         to the Bank Agent or the Banks.

10.               Power to Execute Agreement. Each party hereby certifies,
         represents, and warrants to the other parties that it has full power
         and authority to execute this Agreement, that the execution and
         delivery of this Agreement by the party making such


                                        7
<PAGE>

         representation has been fully authorized and directed, that the persons
         executing this Agreement on behalf of the party making such
         representation have been duly authorized to do so, and that this
         Agreement, once executed, shall be the valid and binding obligation of
         the party making such representation enforceable in accordance with its
         terms.

11.               Notices, Demands and Requests. All notices and other
         communications under this Agreement are to be in writing, addressed to
         the respective party to the address as set forth below such party's
         signature hereto, and shall be deemed to have been duly given (a) upon
         delivery, if delivered in person with receipt acknowledged by the
         recipient thereof, or via telecopier, (b) one business day after having
         been timely deposited for overnight delivery, fee prepaid, with any
         reputable overnight courier service, or (c) three business days after
         having been deposited in any post office or mail depository regularly
         maintained by the U.S. Postal Service and sent by certified mail,
         postage prepaid, return receipt requested. Each party may establish a
         new address from time to time by written notice to the other given in
         accordance with this section; provided, however, that no such change of
         address will be effective until written notice thereof is actually
         received by the party to whom such change of address is sent. Notice to
         additional parties designated by a party entitled to notice are for
         convenience only and are not required for notice to a party to be
         effective in accordance with this section.

12.               Miscellaneous.

         (a)               Entire Agreement: Modification. This Agreement
                  supersedes all prior agreements, understandings,
                  representations and communications between the parties,
                  whether oral or written, with respect to the transactions
                  contemplated hereby. Neither this Agreement nor any provisions
                  hereof will be modified, supplemented or waived, except by an
                  instrument in writing signed by both parties hereto and then
                  only to the extent expressly provided in such writing.

         (b)               Binding Effect. The Agreement shall be binding upon
                  and inure to the benefit of the parties hereto and their
                  respective successors and assigns, whether by voluntary action
                  of the parties or by operation of law. The foregoing shall not
                  be construed to permit assignments or other transfers by the
                  Borrower otherwise prohibited under the Bank Loan Documents or
                  the Equipment Lender Loan Documents. Nothing contained in this
                  Agreement shall impair or otherwise affect the ability of the
                  Bank Agent, the Banks or the Equipment Lender to assign or
                  otherwise transfer their rights under the Bank Loan Documents
                  or the Equipment Lender Loan Documents, respectively, as may
                  be provided therein. If any party hereto consists of more than
                  one person or entity, the obligations and liabilities of each
                  such person or entity hereunder shall be joint and several.

         (c)               Applicable Law. This Agreement and all the rights and
                  obligations hereunder will be governed in accordance with the
                  laws of the State of Georgia (without regard to its conflict
                  of laws principles).


                                        8
<PAGE>

         (d)               Enforceability. If any provision of this Agreement is
                  found by competent judicial authority to be invalid or
                  unenforceable, the other provisions of this Agreement that can
                  be carried out without the invalid or unenforceable provision
                  will not be affected, and such invalid or unenforceable
                  provision will be ineffective only to the extent of such
                  invalidity or unenforceability and shall be construed to the
                  greatest extent possible to accomplish fairly the purposes and
                  intentions of the parties hereto. All rights and remedies
                  under this Agreement are distinct and cumulative not only as
                  to each other but as to any rights or remedies afforded by law
                  or equity. They may be exercised together, separately or
                  successively. Any failure by a party to exercise any of its
                  remedies does not constitute a waiver of that remedy in the
                  future as to the same or any other default.

         (e)               Ambiguity; Headings; Gender; and Certain Terms.
                  Neither this Agreement nor any uncertainty or ambiguity herein
                  shall be construed or resolved against the Bank Agent by
                  virtue of the fact that such document has originated with the
                  Bank Agent as drafter. All parties agree that this Agreement
                  shall be construed and interpreted according to the ordinary
                  meaning of the words used so as to fairly accomplish the
                  purposes and intentions of the parties hereto. Words used in
                  this Agreement may be used interchangeably in singular or
                  plural form, and any pronoun shall be deemed to cover all
                  genders. Section headings are for convenience only and shall
                  not be used in interpretation of this Agreement. "Herein,"
                  "hereof" and "hereunder" and other words of similar import
                  refer to this Agreement as a whole and not to any particular
                  section, paragraph or other subdivision. Reference to days for
                  performance shall mean calendar days unless business days are
                  expressly indicated.

         (f)               Multiple Counterparts. This Agreement may be executed
                  in one or more counterparts, each of which counterpart will,
                  for all purposes, be deemed an original, but all such
                  counterparts together will constitute one instrument.

         (g)               Consent to Jurisdiction. Each party hereto agrees and
                  consents to the jurisdiction and venue of any state or federal
                  court sitting in Atlanta, Georgia with respect to any legal
                  action, proceeding, or dispute between them and hereby
                  expressly waives any and all rights under applicable law or in
                  equity to object to the jurisdiction and venue of said courts.
                  Each party further irrevocably consents to service of process
                  by certified mail, return receipt requested, to the address
                  for such party last provided in accordance with the notice
                  provision of this Agreement.


                                        9
<PAGE>

                         [SIGNATURES ON FOLLOWING PAGE]


                                       10
<PAGE>

         IN WITNESS WHEREOF, the parties have entered into this Agreement and
affixed their seals hereto as of the date first above written, intending to be
legally bound hereby.

                                    BANK AGENT:

                                    WACHOVIA BANK, NATIONAL ASSOCIATION



                                    By:
                                       ---------------------------------
                                       Roger W. Pelz
                                       Managing Director

                                    Address for the Bank Agent:

                                    Wachovia Bank, National Association
                                    NC0760, 5th Floor, 301 South College
                                    Street, Charlotte, NC28288-0760
                                    Attention: Roger W. Pelz
                                    Telecopier: 704-374-6319
                                    Telephone: 704-374-6060


                                       11
<PAGE>

                                    BORROWER:

                                    AVONDALE MILLS, INC.



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

                                    Address for the Borrower:

                                    Avondale Mills, Inc.
                                    506 South Broad Street
                                    Monroe, Georgia 30655
                                    Attention:Vice Chairman and Chief
                                    Financial Officer
                                    Telecopier: 770-267-2543
                                    Telephone: 770-267-2226


                                       12
<PAGE>

                                    EQUIPMENT LENDER:

                                    THE CIT GROUP/EQUIPMENT
                                    FINANCING, INC.



                                    By:
                                       ------------------------------------
                                    Name:
                                         ----------------------------------
                                    Title:
                                          ---------------------------------
                                    Address for the Equipment Lender:

                                    The CIT Group/Equipment Financing, Inc.
                                    P.O. Box 27248
                                    Tempe, Arizona 85285-7248
                                    Attention: L.K. Russell
                                    Telecopier: 480-858-1452
                                    Telephone: 480-784-2343


                                       13
<PAGE>

                                    EXHIBIT A

                            Personal Property Leases



Master Lease Agreement dated as of May 18, 1999, between Avondale Mills, Inc.,
as Lessee, and Wachovia Leasing Corporation, as Lessor, including all schedules
and supplementary schedules executed in connection with such Master Lease
Agreement.

Miscellaneous leases pertaining to office equipment.


                                       14