Document:

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                                                                     EXHIBIT 4.1

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                                RIGHTS AGREEMENT,

                          DATED AS OF NOVEMBER 9, 2000,

                                 BY AND BETWEEN

                                T/R SYSTEMS, INC.

                                       AND

                          EQUISERVE TRUST COMPANY, N.A.
                                 AS RIGHTS AGENT

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                                TABLE OF CONTENTS

<TABLE>
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1.  Certain Definitions ...............................................................       1

2.  Appointment of Rights Agent .......................................................       5

3.  Issue of Right Certificates .......................................................       5

4.  Form of Right Certificates ........................................................       7

5.  Countersignature and Registration .................................................       7

6.  Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated,
    Destroyed, Lost or Stolen Right Certificates ......................................       7

7.  Exercise of Rights; Purchase Price; Expiration Date of Rights .....................       8

8.  Cancellation and Destruction of Right Certificates ................................       9

9.  Company Covenants Concerning Securities and Rights ................................       9

10. Record Date .......................................................................      11

11. Adjustment of Purchase Price, Number and Kind of Securities or Number of Rights ...      11

12. Certificate of Adjusted Purchase Price or Number of Securities ....................      19

13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power ..............      19

14. Fractional Rights and Fractional Securities .......................................      22

15. Rights of Action ..................................................................      23

16. Agreement of Rights Holders .......................................................      24

17. Right Certificate Holder Not Deemed a Stockholder .................................      24

18. Concerning the Rights Agent .......................................................      25

19. Merger or Consolidation or Change of Name of Rights Agent .........................      25

20. Duties of Rights Agent ............................................................      25
</TABLE>

                                       (i)

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<TABLE>
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21. Change of Rights Agent ............................................................      27

22. Issuance of New Right Certificates ................................................      28

23. Redemption ........................................................................      28

24. Exchange ..........................................................................      29

25. Notice of Certain Events ..........................................................      30

26. Notices ...........................................................................      31

27. Supplements and Amendments ........................................................      32

28. Successors; Certain Covenants .....................................................      32

29. Benefits of This Agreement ........................................................      32

30. Governing Law .....................................................................      32

31. Severability ......................................................................      33

32. Descriptive Headings, Etc .........................................................      33

33. Determinations and Actions by the Directors .......................................      33

34. Counterparts ......................................................................      33

Exhibit A .............................................................................      A-1

Exhibit B .............................................................................      B-1

Exhibit C .............................................................................      C-1
</TABLE>

                                      (ii)

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                                RIGHTS AGREEMENT

         This RIGHTS AGREEMENT, dated as of November 9, 2000 (this "Agreement"),
is made and entered into by and between T/R Systems, Inc., a Georgia corporation
(the "Company"), and EquiServe Trust Company, N.A., as rights agent (the "Rights
Agent").

                                    RECITALS

         WHEREAS, on November 9, 2000, the Directors of the Company authorized
and declared a dividend distribution of one right (a "Right") for each share of
Common Stock, par value $0.01 per share, of the Company (a "Common Share")
outstanding as of the Close of Business (as hereinafter defined) on November 27,
2000 (the "Record Date"), each Right initially representing the right to
purchase one one-hundredth of a Preferred Share (as hereinafter defined), on the
terms and subject to the conditions herein set forth, and further authorized and
directed the issuance of one Right (subject to adjustment as provided herein)
with respect to each Common Share issued or delivered by the Company (whether
originally issued or delivered from the Company's treasury) after the Record
Date but prior to the earlier of the Distribution Date (as hereinafter defined)
and the Expiration Date (as hereinafter defined) or as provided in Section 22.

         NOW, THEREFORE, in consideration of the mutual agreements herein set
forth, the parties hereto hereby agree as follows:

         1.       Certain Definitions. For purposes of this Agreement, the
following terms have the meanings indicated:

         (a)      "Acquiring Person" means any Person (other than the Company or
any Related Person) who or which, together with all Affiliates and Associates of
such Person, is the Beneficial Owner of 15% or more of the then-outstanding
Common Shares; provided, however, that a Person will not be deemed to have
become an Acquiring Person solely as a result of a reduction in the number of
Common Shares outstanding unless and until such time as (i) such Person or any
Affiliate or Associate of such Person thereafter becomes the Beneficial Owner of
additional Common Shares representing 1% or more of the then-outstanding Common
Shares, other than as a result of a stock dividend, stock split or similar
transaction effected by the Company in which all holders of Common Shares are
treated equally, or (ii) any other Person who is the Beneficial Owner of Common
Shares representing 1% or more of the then-outstanding Common Shares thereafter
becomes an Affiliate or Associate of such Person. Notwithstanding the foregoing,
if the Directors of the Company determine in good faith that a Person who would
otherwise be an "Acquiring Person" as defined pursuant to the foregoing
provisions of this paragraph (a), has become such inadvertently, and such Person
divests as promptly as practicable a sufficient number of Common Shares so that
such Person would no longer be an "Acquiring Person" as defined pursuant to the
foregoing provisions of this paragraph (a), then such Person shall not be deemed
to be an "Acquiring Person" for any purposes of this Agreement.

         (b)      "Affiliate" and "Associate" will have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Exchange Act, as in effect on the date

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of this Agreement, provided, however, that a Person will not be deemed to be the
Affiliate or Associate of another Person solely (i) because either or both
Persons (A) are or were Directors of the Company or (B) are parties to any of
the agreements set forth on Schedule I hereto, or (ii) as a result of any of the
transactions contemplated by any of the agreements set forth on Schedule I
hereto as in effect on the date of this Agreement, without giving effect to any
amendment, modification or supplement to such agreements that takes effect after
the date of this Agreement.

         (c)      A Person will be deemed the "Beneficial Owner" of, and to
"Beneficially Own," any securities:

                  (i)      the beneficial ownership of which such Person or any
         of such Person's Affiliates or Associates, directly or indirectly, has
         the right to acquire (whether such right is exercisable immediately or
         only after the passage of time) pursuant to any agreement, arrangement
         or understanding (whether or not in writing), or upon the exercise of
         conversion rights, exchange rights, warrants, options or other rights
         (in each case, other than upon exercise or exchange of the Rights);
         provided, however, that a Person will not be deemed the Beneficial
         Owner of, or to Beneficially Own, securities tendered pursuant to a
         tender or exchange offer made by or on behalf of such Person or any of
         such Person's Affiliates or Associates until such tendered securities
         are accepted for purchase or exchange; or

                  (ii)     which such Person or any of such Person's Affiliates
         or Associates, directly or indirectly, has or shares the right to vote
         or dispose of, including pursuant to any agreement, arrangement or
         understanding (whether or not in writing); or

                  (iii)    of which any other Person is the Beneficial Owner, if
         such Person or any of such Person's Affiliates or Associates has any
         agreement, arrangement or understanding (whether or not in writing)
         with such other Person (or any of such other Person's Affiliates or
         Associates) with respect to acquiring, holding, voting or disposing of
         any securities of the Company;

provided, however, that a Person will not be deemed the Beneficial Owner of, or
to Beneficially Own, any security (A) if such Person has the right to vote such
security pursuant to an agreement, arrangement or understanding (whether or not
in writing) which (1) arises solely from a revocable proxy given to such Person
in response to a public proxy or consent solicitation made pursuant to, and in
accordance with, the applicable rules and regulations of the Exchange Act and
(2) is not also then reportable on Schedule 13D under the Exchange Act (or any
comparable or successor report), or (B) if such beneficial ownership arises
solely as a result of such Person's status as a "clearing agency," as defined in
Section 3(a)(23) of the Exchange Act; provided further, however, that nothing in
this paragraph (c) will cause a Person engaged in business as an underwriter of
securities to be the Beneficial Owner of, or to Beneficially Own, any securities
acquired through such Person's participation in good faith in an underwriting
syndicate until the expiration of 40 calendar days after the date of such
acquisition, or such later date as the Directors of the Company may determine in
any specific case.

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         (d)      "Business Day" means any day other than a Saturday,
Sunday or a day on which banking institutions in the State of Massachusetts (or
such other state in which the principal office of the Rights Agent is located)
are authorized or obligated by law or executive order to close.

         (e)      "Close of Business" on any given date means 5:00 P.M., Boston,
Massachusetts time, on such date; provided, however, that if such date is not a
Business Day it means 5:00 P.M., Boston, Massachusetts time, on the next
succeeding Business Day.

         (f)      "Common Shares" when used with reference to the Company means
the shares of Common Stock, par value $0.01 per share, of the Company; provided,
however, that, if the Company is the continuing or surviving corporation in a
transaction described in Section 13(a)(ii), "Common Shares" when used with
reference to the Company means shares of the capital stock or units of the
equity interests with the greatest aggregate voting power of the Company.
"Common Shares" when used with reference to any corporation or other legal
entity other than the Company, including an Issuer, means shares of the capital
stock or units of the equity interests with the greatest aggregate voting power
of such corporation or other legal entity.

         (g)      "Company" means T/R Systems, Inc., a Georgia corporation.

         (h)      "Continuing Director" means any Director of the Company that
is not (i) an Acquiring Person, (ii) an Affiliate or Associate of an Acquiring
Person, or (iii) a representative or nominee of an Acquiring Person, or any
Affiliate or Associate thereof, and that either (A) is a Director of the Company
as of the date of this Agreement or (B) subsequently becomes a Director of the
Company and whose election or nomination for election as a Director of the
Company is approved or recommended by a vote of a majority of the Directors of
the Company, which majority includes a majority of the Continuing Directors that
are then Directors of the Company, but excluding for this clause (B) any
Director whose initial assumption of office occurs as a result of an actual or
threatened election contest (within the meaning of Rule 14a-11 of the Exchange
Act) with respect to the election or removal of Directors of the Company or
other actual or threatened solicitation of proxies or consents by or on behalf
of a Person other than the Directors of the Company.

         (i)      "Distribution Date" means the earlier of: (i) the Close of
Business on the tenth calendar day following the Share Acquisition Date, or (ii)
the Close of Business on the tenth Business Day (or, unless the Distribution
Date shall have previously occurred, such later date as may be specified by the
Directors of the Company) after the commencement of a tender or exchange offer
by any Person (other than the Company or any Related Person), if upon the
consummation thereof such Person would be the Beneficial Owner of 15% or more of
the then-outstanding Common Shares.

         (j)      "Exchange Act" means the Securities Exchange Act of 1934, as
amended.

         (k)      "Expiration Date" means the earliest of (i) the Close of
Business on the Final Expiration Date, (ii) the time at which the Rights are
redeemed as provided in Section 23, and (iii) the time at which all exercisable
Rights are exchanged as provided in Section 24.

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         (l)      "Final Expiration Date" means the tenth anniversary of the
Record Date.

         (m)      "Flip-in Event" means any event described in clauses (A), (B)
or (C) of Section 11(a)(ii).

         (n)      "Flip-over Event" means any event described in clauses (i),
(ii) or (iii) of Section 13(a).

         (o)      "Issuer" has the meaning set forth in Section 13(b).

         (p)      "Nasdaq" means The NASDAQ Stock Market.

         (q)      "Person" means any individual, firm, corporation or other
legal entity, and includes any successor (by merger or otherwise) of such
entity.

         (r)      "Preferred Shares" means shares of Series A Junior
Participating Preferred Stock, par value $0.01 per share, of the Company having
the rights and preferences set forth in the form of Certificate of Designation
of Series A Junior Participating Preferred Stock attached as Exhibit A.

         (s)      "Purchase Price" means initially $45.00 per one one-hundredth
of a Preferred Share, subject to adjustment from time to time as provided in
this Agreement.

         (t)      "Record Date" has the meaning set forth in the Recitals to
this Agreement.

         (u)      "Redemption Price" means $.01 per Right, subject to adjustment
by resolution of the Directors of the Company to reflect any stock split, stock
dividend or similar transaction occurring after the Record Date.

         (v)      "Related Person" means (i) any Subsidiary of the Company or
(ii) any employee benefit or stock ownership plan of the Company or of any
Subsidiary of the Company or any entity holding Common Shares for or pursuant to
the terms of any such plan.

         (w)      "Right" has the meaning set forth in the Recitals to this
Agreement.

         (x)      "Right Certificates" means certificates evidencing the Rights,
in substantially the form attached as Exhibit B.

         (y)      "Rights Agent" means EquiServe Trust Company, N.A. unless and
until a successor Rights Agent has become such pursuant to the terms of this
Agreement, and thereafter, "Rights Agent" means such successor Rights Agent.

         (z)      "Securities Act" means the Securities Act of 1933, as amended.

         (aa)     "Share Acquisition Date" means the first date of public
announcement by the Company (by press release, filing made with the Securities
and Exchange Commission or otherwise) that an Acquiring Person has become such.

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         (bb)     "Subsidiary" when used with reference to any Person means any
corporation or other legal entity of which a majority of the voting power of the
voting equity securities or equity interests is owned, directly or indirectly,
by such Person; provided, however, that for purposes of Section 13(b),
"Subsidiary" when used with reference to any Person means any corporation or
other legal entity of which at least 20% of the voting power of the voting
equity securities or equity interests is owned, directly or indirectly, by such
Person.

         (cc)     "Trading Day" means any day on which the principal national
securities exchange on which the Common Shares are listed or admitted to trading
is open for the transaction of business or, if the Common Shares are not listed
or admitted to trading on any national securities exchange, a Business Day.

         (dd)     "Triggering Event" means any Flip-in Event or Flip-over Event.

         2.       Appointment of Rights Agent. The Company hereby appoints the
Rights Agent to act as agent for the Company and the holders of the Rights (who,
in accordance with Section 3, will also be, prior to the Distribution Date, the
holders of the Common Shares) in accordance with the terms and conditions
hereof, and the Rights Agent hereby accepts such appointment and hereby
certifies that it complies with the requirements of the New York Stock Exchange
governing transfer agents and registrars. The Company may from time to time act
as Co-Rights Agent or appoint such Co-Rights Agents as it may deem necessary or
desirable, upon ten (10) days' prior written notice to the Rights Agent. The
Rights Agent shall have no duty to supervise, and in no event be liable for, the
acts or omissions of any such co-Rights Agent. Any actions which may be taken by
the Rights Agent pursuant to the terms of this Agreement may be taken by any
such Co-Rights Agent. To the extent that any Co-Rights Agent takes any action
pursuant to this Agreement, such Co-Rights Agent will be entitled to all of the
rights and protections of, and subject to all of the applicable duties and
obligations imposed upon, the Rights Agent pursuant to the terms of this
Agreement.

         3.       Issue of Right Certificates. (a) Until the Distribution Date,
(i) the Rights will be evidenced by the certificates representing Common Shares
registered in the names of the record holders thereof (which certificates
representing Common Shares will also be deemed to be Right Certificates), (ii)
the Rights will be transferable only in connection with the transfer of the
underlying Common Shares, and (iii) the surrender for transfer of any
certificates evidencing Common Shares in respect of which Rights have been
issued will also constitute the transfer of the Rights associated with the
Common Shares evidenced by such certificates. On or as promptly as practicable
after the Record Date, the Company will send by first class, postage prepaid
mail, to each record holder of Common Shares as of the Close of Business on the
Record Date, at the address of such holder shown on the records of the Company
as of such date, a copy of a Summary of Rights to Purchase Preferred Stock in
substantially the form attached as Exhibit C.

         (b)      Rights will be issued by the Company in respect of all Common
Shares (other than Common Shares issued upon the exercise or exchange of any
Right) issued or delivered by the Company (whether originally issued or
delivered from the Company's treasury) after the Record Date but prior to the
earlier of the Distribution Date and the Expiration Date. Certificates
evidencing such Common Shares will have stamped on, impressed on, printed on,
written on, or otherwise affixed to them the following legend or such similar
legend as the Company may deem appropriate

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and as is not inconsistent with the provisions of this Agreement, or as may be
required to comply with any applicable law or with any rule or regulation made
pursuant thereto or with any rule or regulation of any stock exchange or
transaction reporting system on which the Common Shares may from time to time be
listed or quoted, or to conform to usage:

         This Certificate also evidences and entitles the holder hereof to
         certain Rights as set forth in a Rights Agreement between T/R Systems,
         Inc. and EquiServe Trust Company, N.A., dated as of November 9, 2000
         (the "Rights Agreement"), the terms of which are hereby incorporated
         herein by reference and a copy of which is on file at the principal
         executive offices of T/R Systems, Inc. The Rights are not exercisable
         prior to the occurrence of certain events specified in the Rights
         Agreement. Under certain circumstances, as set forth in the Rights
         Agreement, such Rights may be redeemed, may be exchanged, may expire,
         may be amended, or may be evidenced by separate certificates and no
         longer be evidenced by this Certificate. T/R Systems, Inc. will mail to
         the holder of this Certificate a copy of the Rights Agreement, as in
         effect on the date of mailing, without charge promptly after receipt of
         a written request therefor. Under certain circumstances as set forth in
         the Rights Agreement, Rights that are or were beneficially owned by an
         Acquiring Person or any Affiliate or Associate of an Acquiring Person
         (as such terms are defined in the Rights Agreement) may become null and
         void.

         (c)      Any Right Certificate issued pursuant to this Section 3 that
represents Rights beneficially owned by an Acquiring Person or any Associate or
Affiliate thereof and any Right Certificate issued at any time upon the transfer
of any Rights to an Acquiring Person or any Associate or Affiliate thereof or to
any nominee of such Acquiring Person, Associate or Affiliate and any Right
Certificate issued pursuant to Section 6 or 11 hereof upon transfer, exchange,
replacement or adjustment of any other Right Certificate referred to in this
sentence, shall be subject to and contain the following legend or such similar
legend as the Company may deem appropriate and as is not inconsistent with the
provisions of this Agreement, or as may be required to comply with any
applicable law or with any rule or regulation made pursuant thereto or with any
rule or regulation of any stock exchange on which the Rights may from time to
time be listed, or to conform to usage:

         The Rights represented by this Right Certificate are or were
         beneficially owned by a Person who was an Acquiring Person or an
         Affiliate or an Associate of an Acquiring Person (as such terms are
         defined in the Rights Agreement). This Right Certificate and the Rights
         represented hereby may become null and void in the circumstances
         specified in Section 11(a)(ii) or Section 13 of the Rights Agreement.

         (d)      As promptly as practicable after the Distribution Date, the
Company will prepare and execute, the Rights Agent will countersign and the
Company will send or cause to be sent (and the Rights Agent will, if requested,
send), by first class, insured, postage prepaid mail, to each record holder of
Common Shares as of the Close of Business on the Distribution Date, at the
address of such holder shown on the records of the Company, a Right Certificate
evidencing one Right for each Common Share so held, subject to adjustment as
provided herein. As of and after the Distribution Date, the Rights will be
evidenced solely by such Right Certificates.

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         (e)      In the event that the Company purchases or otherwise acquires
any Common Shares after the Record Date but prior to the Distribution Date, any
Rights associated with such Common Shares will be deemed canceled and retired so
that the Company will not be entitled to exercise any Rights associated with the
Common Shares so purchased or acquired.

         4.       Form of Right Certificates. The Right Certificates (and the
form of election to purchase and the form of assignment to be printed on the
reverse thereof) will be substantially in the form attached as Exhibit B with
such changes and marks of identification or designation, and such legends,
summaries or endorsements printed thereon, as the Company may deem appropriate
and as are not inconsistent with the provisions of this Agreement, or as may be
required to comply with any applicable law or with any rule or regulation made
pursuant thereto or with any rule or regulation of any stock exchange or
transaction reporting system on which the Rights may from time to time be listed
or quoted, or to conform to usage. Subject to the provisions of Section 22, the
Right Certificates, whenever issued, on their face will entitle the holders
thereof to purchase such number of one one-hundredths of a Preferred Share as
are set forth therein at the Purchase Price set forth therein, but the Purchase
Price, the number and kind of securities issuable upon exercise of each Right
and the number of Rights outstanding will be subject to adjustment as provided
herein.

         5.       Countersignature and Registration. (a) The Right Certificates
will be executed on behalf of the Company by its Chairman, its President or any
Vice President, either manually or by facsimile signature, and will have affixed
thereto the Company's seal or a facsimile thereof which will be attested by the
Secretary or an Assistant Secretary of the Company, either manually or by
facsimile signature. The Right Certificates will be manually countersigned by
the Rights Agent and will not be valid for any purpose unless so countersigned.
In case any officer of the Company who signed any of the Right Certificates
ceases to be such officer of the Company before countersignature by the Rights
Agent and issuance and delivery by the Company, such Right Certificates,
nevertheless, may be countersigned by the Rights Agent, and issued and delivered
by the Company with the same force and effect as though the person who signed
such Right Certificates had not ceased to be such officer of the Company; and
any Right Certificate may be signed on behalf of the Company by any person who,
at the actual date of the execution of such Right Certificate, is a proper
officer of the Company to sign such Right Certificate, although at the date of
the execution of this Rights Agreement any such person was not such officer.

         (b)      Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at the principal office of the Rights Agent designated for
such purpose and at such other offices as may be required to comply with any
applicable law or with any rule or regulation made pursuant thereto or with any
rule or regulation of any stock exchange or any transaction reporting system on
which the Rights may from time to time be listed or quoted, books for
registration and transfer of the Right Certificates issued hereunder. Such books
will show the names and addresses of the respective holders of the Right
Certificates, the number of Rights evidenced on its face by each of the Right
Certificates and the date of each of the Right Certificates.

         6.       Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates. (a)
Subject to the provisions of Sections 7(d) and 14, at any time after the Close
of Business on the Distribution Date and prior to the Expiration Date, any Right
Certificate or Right Certificates representing exercisable Rights may be
transferred, split up,

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<PAGE>   11

combined or exchanged for another Right Certificate or Right Certificates,
entitling the registered holder to purchase a like number of one one-hundredths
of a Preferred Share (or other securities, as the case may be) as the Right
Certificate or Right Certificates surrendered then entitled such holder (or
former holder in the case of a transfer) to purchase. Any registered holder
desiring to transfer, split up, combine or exchange any such Right Certificate
or Rights Certificates must make such request in a writing delivered to the
Rights Agent and must surrender the Right Certificate or Right Certificates to
be transferred, split up, combined or exchanged at the principal office of the
Rights Agent designated for such purpose. Thereupon or as promptly as
practicable thereafter, subject to the provisions of Sections 7(d) and 14, the
Company will prepare, execute and deliver to the Rights Agent, and the Rights
Agent will countersign and deliver, a Right Certificate or Right Certificates,
as the case may be, as so requested. The Company may require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer, split up, combination or exchange of Right
Certificates.

         (b)      Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Right Certificate and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, if requested by the Company,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Company will prepare, execute and
deliver a new Right Certificate of like tenor to the Rights Agent and the Rights
Agent will countersign and deliver such new Right Certificate to the registered
holder in lieu of the Right Certificate so lost, stolen, destroyed or mutilated.

         7.       Exercise of Rights; Purchase Price; Expiration Date of Rights.
(a)The registered holder of any Right Certificate may exercise the Rights
evidenced thereby (except as otherwise provided herein) in whole or in part at
any time after the Distribution Date and prior to the Expiration Date, upon
surrender of the Right Certificate, with the form of election to purchase on the
reverse side thereof duly executed, to the Rights Agent at the office or offices
of the Rights Agent designated for such purpose, together with payment in cash,
in lawful money of the United States of America by certified check or bank draft
payable to the order of the Company, equal to the sum of (i) the exercise price
for the total number of securities as to which such surrendered Rights are
exercised and (ii) an amount equal to any applicable transfer tax required to be
paid by the holder of such Right Certificate in accordance with the provisions
of Section 9(d).

         (b)      Upon receipt of a Right Certificate representing exercisable
Rights with the form of election to purchase duly executed, accompanied by
payment as described above, the Rights Agent will promptly (i) requisition from
any transfer agent of the Preferred Shares (or make available, if the Rights
Agent is the transfer agent) certificates representing the number of one
one-hundredths of a Preferred Share to be purchased (and the Company hereby
irrevocably authorizes and directs its transfer agent to comply with all such
requests), or, if the Company elects to deposit Preferred Shares issuable upon
exercise of the Rights hereunder with a depositary agent, requisition from the
depositary agent depositary receipts representing such number of one
one-hundredths of a Preferred Share as are to be purchased (and the Company
hereby irrevocably authorizes and directs such depositary agent to comply with
all such requests), (ii) after receipt of such certificates (or depositary
receipts, as the case may be), cause the same to be delivered to or upon the
order of the registered holder of such Right Certificate, registered in such
name or names as may be designated by such

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holder, (iii) when appropriate, requisition from the Company or any transfer
agent therefor (or make available, if the Rights Agent is the transfer agent)
certificates representing the number of equivalent common shares to be issued in
lieu of the issuance of Common Shares in accordance with the provisions of
Section 11(a)(iii), (iv) when appropriate, after receipt of such certificates,
cause the same to be delivered to or upon the order of the registered holder of
such Right Certificate, registered in such name or names as may be designated by
such holder, (v) when appropriate, requisition from the Company the amount of
cash to be paid in lieu of the issuance of fractional shares in accordance with
the provisions of Section 14 or in lieu of the issuance of Common Shares in
accordance with the provisions of Section 11(a)(iii), (vi) when appropriate,
after receipt, deliver such cash to or upon the order of the registered holder
of such Right Certificate, and (vii) when appropriate, deliver any due bill or
other instrument provided to the Rights Agent by the Company for delivery to the
registered holder of such Right Certificate as provided by Section 11(l).

         (c)      In case the registered holder of any Right Certificate
exercises less than all the Rights evidenced thereby, the Company will prepare,
execute and deliver a new Right Certificate evidencing Rights equivalent to the
Rights remaining unexercised and the Rights Agent will countersign and deliver
such new Right Certificate to the registered holder of such Right Certificate or
to his duly authorized assigns, subject to the provisions of Section 14.

         (d)      Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company will be obligated to undertake any
action with respect to any purported transfer, split up, combination or exchange
of any Right Certificate pursuant to Section 6 or exercise of a Right
Certificate as set forth in this Section 7 unless the registered holder of such
Right Certificate has (i) completed and signed the certificate following the
form of assignment or the form of election to purchase, as applicable, set forth
on the reverse side of the Right Certificate surrendered for such transfer,
split up, combination, exchange or exercise and (ii) provided such additional
evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or
Affiliates or Associates thereof as the Company may reasonably request.

         8.       Cancellation and Destruction of Right Certificates. All Right
Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange will, if surrendered to the Company or to any of its
stock transfer agents, be delivered to the Rights Agent for cancellation or in
canceled form, or, if surrendered to the Rights Agent, will be canceled by it,
and no Right Certificates will be issued in lieu thereof except as expressly
permitted by the provisions of this Agreement. The Company will deliver to the
Rights Agent for cancellation and retirement, and the Rights Agent will so
cancel and retire, any other Right Certificate purchased or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent will deliver
all canceled Right Certificates to the Company, or will, at the written request
of the Company, destroy such canceled Right Certificates, and in such case will
deliver a certificate of destruction thereof to the Company.

         9.       Company Covenants Concerning Securities and Rights. The
Company covenants and agrees that:

                  (a)      It will cause to be reserved and kept available out
         of its authorized and unissued Preferred Shares or any Preferred Shares
         held in its treasury, a number of Preferred

                                        9
<PAGE>   13

         Shares that will be sufficient to permit the exercise in full of all
         outstanding Rights in accordance with Section 7.

                  (b)      So long as the Preferred Shares (and, following the
         occurrence of a Triggering Event, Common Shares and/or other
         securities) issuable upon the exercise of the Rights may be listed on a
         national securities exchange, or quoted on Nasdaq, it will endeavor to
         cause, from and after such time as the Rights become exercisable, all
         securities reserved for issuance upon the exercise of Rights to be
         listed on such exchange, or quoted on Nasdaq, upon official notice of
         issuance upon such exercise.

                  (c)      It will take all such action as may be necessary to
         ensure that all Preferred Shares (and, following the occurrence of a
         Triggering Event, Common Shares and/or other securities) delivered upon
         exercise of Rights, at the time of delivery of the certificates for
         such securities, will be (subject to payment of the Purchase Price)
         duly authorized, validly issued, fully paid and nonassessable
         securities.

                  (d)      It will pay when due and payable any and all federal
         and state transfer taxes and charges that may be payable in respect of
         the issuance or delivery of the Right Certificates and of any
         certificates representing securities issued upon the exercise of
         Rights; provided, however, that the Company will not be required to pay
         any transfer tax or charge which may be payable in respect of any
         transfer or delivery of Right Certificates to a person other than, or
         the issuance or delivery of certificates or depositary receipts
         representing securities issued upon the exercise of Rights in a name
         other than that of, the registered holder of the Right Certificate
         evidencing Rights surrendered for exercise, or to issue or deliver any
         certificates or depositary receipts representing securities issued upon
         the exercise of any Rights until any such tax or charge has been paid
         (any such tax or charge being payable by the holder of such Right
         Certificate at the time of surrender) or until it has been established
         to the Company's reasonable satisfaction that no such tax is due.

                  (e)     It will use its best efforts (i) to file on an
         appropriate form, as soon as practicable following the later of the
         Share Acquisition Date and the Distribution Date, a registration
         statement under the Securities Act with respect to the securities
         issuable upon exercise of the Rights, (ii) to cause such registration
         statement to become effective as soon as practicable after such filing,
         and (iii) to cause such registration statement to remain effective
         (with a prospectus at all times meeting the requirements of the
         Securities Act) until the earlier of (A) the date as of which the
         Rights are no longer exercisable for such securities and (B) the
         Expiration Date. The Company will also take such action as may be
         appropriate under, or to ensure compliance with, the securities or
         "blue sky" laws of the various states in connection with the
         exercisability of the Rights. The Company may temporarily suspend, for
         a period of time after the date set forth in clause (i) of the first
         sentence of this Section 9(e), the exercisability of the Rights in
         order to prepare and file such registration statement and to permit it
         to become effective. Upon any such suspension, the Company will issue a
         public announcement stating that the exercisability of the Rights has
         been temporarily suspended, as well as a public announcement at such
         time as the suspension is no longer in effect. In addition, if the
         Company determines that a registration statement should be filed under
         the Securities Act or any state securities laws following the
         Distribution Date, the

                                       10
<PAGE>   14

         Company may temporarily suspend the exercisability of the Rights in
         each relevant jurisdiction until such time as a registration statement
         has been declared effective and, upon any such suspension, the Company
         will issue a public announcement stating that the exercisability of the
         Rights has been temporarily suspended, as well as a public announcement
         at such time as the suspension is no longer in effect. Notwithstanding
         anything in this Agreement to the contrary, the Rights will not be
         exercisable in any jurisdiction if the requisite registration or
         qualification in such jurisdiction has not been effected or the
         exercise of the Rights is not permitted under applicable law.

                  (f)     Notwithstanding anything in this Agreement to the
         contrary, after the later of the Share Acquisition Date and the
         Distribution Date it will not take (or permit any Subsidiary to take)
         any action if at the time such action is taken it is reasonably
         foreseeable that such action will eliminate or otherwise diminish the
         benefits intended to be afforded by the Rights.

                  (g)     In the event that the Company is obligated to issue
         other securities of the Company and/or pay cash pursuant to Section 11,
         13, 14 or 24 it will make all arrangements necessary so that such other
         securities and/or cash are available for distribution by the Rights
         Agent, if and when appropriate.

         10.      Record Date. Each Person in whose name any certificate
representing Preferred Shares (or Common Shares and/or other securities, as the
case may be) is issued upon the exercise of Rights will for all purposes be
deemed to have become the holder of record of the Preferred Shares (or Common
Shares and/or other securities, as the case may be) represented thereby on, and
such certificate will be dated, the date upon which the Right Certificate
evidencing such Rights was duly surrendered and payment of the Purchase Price
(and all applicable transfer taxes) was made; provided, however, that if the
date of such surrender and payment is a date upon which the transfer books of
the Company for the Preferred Shares (or Common Shares and/or other securities,
as the case may be) are closed, such Person will be deemed to have become the
record holder of such securities on, and such certificate will be dated, the
next succeeding Business Day on which the transfer books of the Company for the
Preferred Shares (or Common Shares and/or other securities, as the case may be)
are open. Prior to the exercise of the Rights evidenced thereby, the holder of a
Right Certificate will not be entitled to any rights of a holder of any security
for which the Rights are or may become exercisable, including, without
limitation, the right to vote, to receive dividends or other distributions, or
to exercise any preemptive rights, and will not be entitled to receive any
notice of any proceedings of the Company, except as provided herein.

         11.      Adjustment of Purchase Price, Number and Kind of Securities or
Number of Rights. The Purchase Price, the number and kind of securities issuable
upon exercise of each Right and the number of Rights outstanding are subject to
adjustment from time to time as provided in this Section 11.

         (a)      (i) In the event that the Company at any time after the Record
         Date (A) declares a dividend on the Preferred Shares payable in
         Preferred Shares, (B) subdivides the outstanding Preferred Shares, (C)
         combines the outstanding Preferred Shares into a smaller number of
         Preferred Shares, or (D) issues any shares of its capital stock in a
         reclassification

                                       11
<PAGE>   15
         of the Preferred Shares (including any such reclassification in
         connection with a consolidation or merger in which the Company is the
         continuing or surviving corporation), except as otherwise provided in
         this Section 11(a), the Purchase Price in effect at the time of the
         record date for such dividend or of the effective date of such
         subdivision, combination or reclassification and/or the number and/or
         kind of shares of capital stock issuable on such date upon exercise of
         a Right, will be proportionately adjusted so that the holder of any
         Right exercised after such time is entitled to receive upon payment of
         the Purchase Price then in effect the aggregate number and kind of
         shares of capital stock which, if such Right had been exercised
         immediately prior to such date and at a time when the transfer books of
         the Company for the Preferred Shares were open, the holder of such
         Right would have owned upon such exercise (and, in the case of a
         reclassification, would have retained after giving effect to such
         reclassification) and would have been entitled to receive by virtue of
         such dividend, subdivision, combination or reclassification; provided,
         however, that in no event shall the consideration to be paid upon the
         exercise of one Right be less than the aggregate par value of the
         shares of capital stock issuable upon exercise of one Right. If an
         event occurs which would require an adjustment under both this Section
         11(a)(i) and Section 11(a)(ii) or Section 13, the adjustment provided
         for in this Section 11(a)(i) will be in addition to, and will be made
         prior to, any adjustment required pursuant to Section 11(a)(ii) or
         Section 13.

                  (ii)   Subject to the provisions of Section 24, if:

              (A)  any Person becomes an Acquiring Person; or

              (B) any Acquiring Person or any Affiliate or Associate of any
         Acquiring Person, directly or indirectly, (1) merges into the Company
         or otherwise combines with the Company and the Company is the
         continuing or surviving corporation of such merger or combination
         (other than in a transaction subject to Section 13), (2) merges or
         otherwise combines with any Subsidiary of the Company, (3) in one or
         more transactions (otherwise than in connection with the exercise,
         exchange or conversion of securities exercisable or exchangeable for or
         convertible into shares of any class of capital stock of the Company or
         any of its Subsidiaries) transfers cash, securities or any other
         property to the Company or any of its Subsidiaries in exchange (in
         whole or in part) for shares of any class of capital stock of the
         Company or any of its Subsidiaries or for securities exercisable or
         exchangeable for or convertible into shares of any class of capital
         stock of the Company or any of its Subsidiaries, or otherwise obtains
         from the Company or any of its Subsidiaries, with or without
         consideration, any additional shares of any class of capital stock of
         the Company or any of its Subsidiaries or securities exercisable or
         exchangeable for or convertible into shares of any class of capital
         stock of the Company or any of its Subsidiaries (otherwise than as part
         of a pro rata distribution to all holders of shares of any class of
         capital stock of the Company, or any of its Subsidiaries), (4) sells,
         purchases, leases, exchanges, mortgages, pledges, transfers or
         otherwise disposes (in one or more transactions) to, from, with or of,
         as the case may be, the Company or any of its Subsidiaries (otherwise
         than in a transaction subject to Section 13), any property, including
         securities, on terms and conditions less favorable to the Company than
         the Company would be able to obtain in an arm's-length transaction with
         an unaffiliated third party, (5) receives any compensation from the
         Company or any of its

                                       12

<PAGE>   16

         Subsidiaries other than compensation as a director or a regular
         full-time employee, in either case at rates consistent with the
         Company's (or its Subsidiaries') past practices, or (6) receives the
         benefit, directly or indirectly (except proportionately as a
         stockholder), of any loans, advances, guarantees, pledges or other
         financial assistance or any tax credits or other tax advantage provided
         by the Company or any of its Subsidiaries; or

                     (C) during such time as there is an Acquiring Person, there
         is any reclassification of securities of the Company (including any
         reverse stock split), or any recapitalization of the Company, or any
         merger or consolidation of the Company with any of its Subsidiaries, or
         any other transaction or series of transactions involving the Company
         or any of its Subsidiaries (whether or not with or into or otherwise
         involving an Acquiring Person), other than a transaction subject to
         Section 13, which has the effect, directly or indirectly, of increasing
         by more than 1% the proportionate share of the outstanding shares of
         any class of equity securities of the Company or any of its
         Subsidiaries, or of securities exercisable or exchangeable for or
         convertible into equity securities of the Company or any of its
         Subsidiaries, of which an Acquiring Person, or any Affiliate or
         Associate of any Acquiring Person, is the Beneficial Owner;

         then, and in each such case, from and after the latest of the
         Distribution Date, the Share Acquisition Date and the date of the
         occurrence of such Flip-in Event, proper provision will be made so that
         each holder of a Right, except as provided below, will thereafter have
         the right to receive, upon exercise thereof in accordance with the
         terms of this Agreement at an exercise price per Right equal to the
         product of the then-current Purchase Price multiplied by the number of
         one one-hundredths of a Preferred Share for which a Right was
         exercisable immediately prior to the date of the occurrence of such
         Flip-in Event (or, if any other Flip-in Event shall have previously
         occurred, the product of the then-current Purchase Price multiplied by
         the number of one one-hundredths of a Preferred Share for which a Right
         was exercisable immediately prior to the date of the first occurrence
         of a Flip-in Event), in lieu of Preferred Shares, such number of Common
         Shares as equals the result obtained by (x) multiplying the
         then-current Purchase Price by the number of one one-hundredths of a
         Preferred Share for which a Right was exercisable immediately prior to
         the date of the occurrence of such Flip-in Event (or, if any other
         Flip-in Event shall have previously occurred, multiplying the
         then-current Purchase Price by the number of one one-hundredths of a
         Preferred Share for which a Right was exercisable immediately prior to
         the date of the first occurrence of a Flip-in Event), and dividing that
         product by (y) 50% of the current per share market price of the Common
         Shares (determined pursuant to Section 11(d)) on the date of the
         occurrence of such Flip-in Event. Notwithstanding anything in this
         Agreement to the contrary, from and after the first occurrence of a
         Flip-in Event, any Rights that are Beneficially Owned by (A) any
         Acquiring Person (or any Affiliate or Associate of any Acquiring
         Person), (B) a transferee of any Acquiring Person (or any such
         Affiliate or Associate) who becomes a transferee after the occurrence
         of a Flip-in Event, or (C) a transferee of any Acquiring Person (or any
         such Affiliate or Associate) who became a transferee prior to or
         concurrently with the occurrence of a Flip-in Event pursuant to either
         (1) a transfer from an Acquiring Person to holders of its equity
         securities or to any Person with whom it has any continuing agreement,
         arrangement or understanding regarding the transferred Rights or (2) a
         transfer which the Directors of the Company have determined is

                                       13
<PAGE>   17
         part of a plan, arrangement or understanding which has the purpose or
         effect of avoiding the provisions of this Section 11(a)(ii), and
         subsequent transferees of any of such Persons, will be void without any
         further action and any holder of such Rights will thereafter have no
         rights whatsoever with respect to such Rights under any provision of
         this Agreement. The Company will use all reasonable efforts to ensure
         that the provisions of this Section 11(a)(ii) are complied with, but
         will have no liability to any holder of Right Certificates or any other
         Person as a result of its failure to make any determinations with
         respect to an Acquiring Person or its Affiliates, Associates or
         transferees hereunder. Upon the occurrence of a Flip-in Event, no Right
         Certificate that represents Rights that are or have become void
         pursuant to the provisions of this Section 11(a)(ii) will thereafter be
         issued pursuant to Section 3 or Section 6, and any Right Certificate
         delivered to the Rights Agent that represents Rights that are or have
         become void pursuant to the provisions of this Section 11(a)(ii) will
         be canceled. Upon the occurrence of a Flip-over Event, any Rights that
         shall not have been previously exercised pursuant to this Section
         11(a)(ii) shall thereafter be exercisable only pursuant to Section 13
         and not pursuant to this Section 11(a)(ii).

                  (iii) Upon the occurrence of a Flip-in Event, if there are
         not sufficient Common Shares authorized but unissued or issued but not
         outstanding to permit the issuance of all the Common Shares issuable in
         accordance with Section 11(a)(ii) upon the exercise of a Right, the
         Directors of the Company will use their best efforts promptly to
         authorize and, subject to the provisions of Section 9(e), make
         available for issuance additional Common Shares or other equity
         securities of the Company having equivalent voting rights and an
         equivalent value (as determined in good faith by the Directors of the
         Company) to the Common Shares (for purposes of this Section 11(a)(iii),
         "equivalent common shares"). In the event that equivalent common shares
         are so authorized, upon the exercise of a Right in accordance with the
         provisions of Section 7, the registered holder will be entitled to
         receive (A) Common Shares, to the extent any are available, and (B) a
         number of equivalent common shares, which the Directors of the Company
         has determined in good faith to have a value equivalent to the excess
         of (x) the aggregate current per share market value on the date of the
         occurrence of the most recent Flip-in Event of all the Common Shares
         issuable in accordance with Section 11(a)(ii) upon the exercise of a
         Right (the "Exercise Value") over (y) the aggregate current per share
         market value on the date of the occurrence of the most recent Flip-in
         Event of any Common Shares available for issuance upon the exercise of
         such Right; provided, however, that if at any time after 90 calendar
         days after the latest of the Share Acquisition Date, the Distribution
         Date and the date of the occurrence of the most recent Flip-in Event,
         there are not sufficient Common Shares and/or equivalent common shares
         available for issuance upon the exercise of a Right, then the Company
         will be obligated to deliver, upon the surrender of such Right and
         without requiring payment of the Purchase Price, Common Shares (to the
         extent available), equivalent common shares (to the extent available)
         and then cash (to the extent permitted by applicable law and any
         agreements or instruments to which the Company is a party in effect
         immediately prior to the Share Acquisition Date), which securities and
         cash have an aggregate value equal to the excess of (1) the Exercise
         Value over (2) the product of the then-current Purchase Price
         multiplied by the number of one one-hundredths of a Preferred Share for
         which a Right was exercisable immediately prior to the date of the
         occurrence of the most recent Flip-in Event (or, if any other Flip-in
         Event shall have previously occurred, the product of the then-current
         Purchase Price multiplied by the

                                       14
<PAGE>   18
         number of one one-hundredths of a Preferred Share for which a Right
         would have been exercisable immediately prior to the date of the
         occurrence of such Flip-in Event if no other Flip-in Event had
         previously occurred). To the extent that any legal or contractual
         restrictions prevent the Company from paying the full amount of cash
         payable in accordance with the foregoing sentence, the Company will pay
         to holders of the Rights as to which such payments are being made all
         amounts which are not then restricted on a pro rata basis and will
         continue to make payments on a pro rata basis as promptly as funds
         become available until the full amount due to each such Rights holder
         has been paid.

         (b)      In the event that the Company fixes a record date for the
issuance of rights, options or warrants to all holders of Preferred Shares
entitling them (for a period expiring within 45 calendar days after such record
date) to subscribe for or purchase Preferred Shares (or securities having
equivalent rights, privileges and preferences as the Preferred Shares (for
purposes of this Section 11(b), "equivalent preferred shares")) or securities
convertible into Preferred Shares or equivalent preferred shares at a price per
Preferred Share or equivalent preferred share (or having a conversion price per
share, if a security convertible into Preferred Shares or equivalent preferred
shares) less than the current per share market price of the Preferred Shares
(determined pursuant to Section 11(d)) on such record date, the Purchase Price
to be in effect after such record date will be determined by multiplying the
Purchase Price in effect immediately prior to such record date by a fraction,
the numerator of which is the number of Preferred Shares outstanding on such
record date plus the number of Preferred Shares which the aggregate offering
price of the total number of Preferred Shares and/or equivalent preferred shares
so to be offered (and/or the aggregate initial conversion price of the
convertible securities so to be offered) would purchase at such current per
share market price and the denominator of which is the number of Preferred
Shares outstanding on such record date plus the number of additional Preferred
Shares and/or equivalent preferred shares to be offered for subscription or
purchase (or into which the convertible securities so to be offered are
initially convertible); provided, however, that in no event shall the
consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock issuable upon exercise of one
Right. In case such subscription price may be paid in a consideration part or
all of which is in a form other than cash, the value of such consideration will
be as determined in good faith by the Directors of the Company, whose
determination will be described in a statement filed with the Rights Agent.
Preferred Shares owned by or held for the account of the Company will not be
deemed outstanding for the purpose of any such computation. Such adjustment will
be made successively whenever such a record date is fixed, and in the event that
such rights, options or warrants are not so issued, the Purchase Price will be
adjusted to be the Purchase Price which would then be in effect if such record
date had not been fixed.

         (c)      In the event that the Company fixes a record date for the
making of a distribution to all holders of Preferred Shares (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of
indebtedness, cash (other than a regular periodic cash dividend), assets, stock
(other than a dividend payable in Preferred Shares) or subscription rights,
options or warrants (excluding those referred to in Section 11(b)), the Purchase
Price to be in effect after such record date will be determined by multiplying
the Purchase Price in effect immediately prior to such record date by a
fraction, the numerator of which is the current per share market price of the
Preferred Shares (as determined pursuant to Section 11(d)) on such record date
or, if earlier, the date on which Preferred

                                       15

<PAGE>   19
Shares begin to trade on an ex-dividend or when issued basis for such
distribution, less the fair market value (as determined in good faith by the
Directors of the Company, whose determination will be described in a statement
filed with the Rights Agent) of the portion of the evidences of indebtedness,
cash, assets or stock so to be distributed or of such subscription rights,
options or warrants applicable to one Preferred Share, and the denominator of
which is such current per share market price of the Preferred Shares; provided,
however, that in no event shall the consideration to be paid upon the exercise
of one Right be less than the aggregate par value of the shares of capital stock
issuable upon exercise of one Right. Such adjustments will be made successively
whenever such a record date is fixed; and in the event that such distribution is
not so made, the Purchase Price will again be adjusted to be the Purchase Price
which would then be in effect if such record date had not been fixed.

         (d)      (i)  For the purpose of any computation hereunder, the
         "current per share market price" of Common Shares on any date will be
         deemed to be the average of the daily closing prices per share of such
         Common Shares for the 30 consecutive Trading Days immediately prior to
         such date; provided, however, that in the event that the current per
         share market price of the Common Shares is determined during a period
         following the announcement by the issuer of such Common Shares of (A) a
         dividend or distribution on such Common Shares payable in such Common
         Shares or securities convertible into such Common Shares (other than
         the Rights) or (B) any subdivision, combination or reclassification of
         such Common Shares, and prior to the expiration of 30 Trading Days
         after the ex-dividend date for such dividend or distribution, or the
         record date for such subdivision, combination or reclassification,
         then, and in each such case, the current per share market price will be
         appropriately adjusted to take into account ex-dividend trading or to
         reflect the current per share market price per Common Share equivalent.
         The closing price for each day will be the last sale price, regular
         way, or, in case no such sale takes place on such day, the average of
         the closing bid and asked prices, regular way, in either case as
         reported in the principal consolidated transaction reporting system
         with respect to securities listed or admitted to trading on the New
         York Stock Exchange or, if the Common Shares are not listed or admitted
         to trading on the New York Stock Exchange, as reported in the principal
         consolidated transaction reporting system with respect to securities
         listed on the principal national securities exchange on which the
         Common Shares are listed or admitted to trading or, if the Common
         Shares are not listed or admitted to trading on any national securities
         exchange, the last quoted price or, if not so quoted, the average of
         the high bid and low asked prices in the over-the-counter market, as
         reported by Nasdaq or such other system then in use, or, if on any such
         date the Common Shares are not quoted by any such organization, the
         average of the closing bid and asked prices as furnished by a
         professional market maker making a market in the Common Shares selected
         by the Directors of the Company. If the Common Shares are not publicly
         held or not so listed or traded, or are not the subject of available
         bid and asked quotes, "current per share market price" will mean the
         fair value per share as determined in good faith by the Directors of
         the Company, whose determination will be described in a statement filed
         with the Rights Agent.

                  (ii) For the purpose of any computation hereunder, the
         "current per share market price" of the Preferred Shares will be
         determined in the same manner as set forth above for Common Shares in
         Section 11(d)(i), other than the last sentence thereof. If the current
         per

                                       16
<PAGE>   20
         share market price of the Preferred Shares cannot be determined in the
         manner provided above, the "current per share market price" of the
         Preferred Shares will be conclusively deemed to be an amount equal to
         the current per share market price of the Common Shares multiplied by
         one hundred (as such number may be appropriately adjusted to reflect
         events such as stock splits, stock dividends, recapitalizations or
         similar transactions relating to the Common Shares occurring after the
         date of this Agreement). If neither the Common Shares nor the Preferred
         Shares are publicly held or so listed or traded, or the subject of
         available bid and asked quotes, "current per share market price" of the
         Preferred Shares will mean the fair value per share as determined in
         good faith by the Directors of the Company, whose determination will be
         described in a statement filed with the Rights Agent. For all purposes
         of this Agreement, the current per share market price of one
         one-hundredth of a Preferred Share will be equal to the current per
         share market price of one Preferred Share divided by one hundred.

         (e)      Except as set forth below, no adjustment in the Purchase Price
will be required unless such adjustment would require an increase or decrease of
at least 1% in such price; provided, however, that any adjustments which by
reason of this Section 11(e) are not required to be made will be carried forward
and taken into account in any subsequent adjustment. All calculations under this
Section 11 will be made to the nearest cent or to the nearest one one-millionth
of a Preferred Share or one ten-thousandth of a Common Share or other security,
as the case may be. Notwithstanding the first sentence of this Section 11(e),
any adjustment required by this Section 11 will be made no later than the
earlier of (i) three years from the date of the transaction which requires such
adjustment and (ii) the Expiration Date.

         (f)      If as a result of an adjustment made pursuant to Section
11(a), the holder of any Right thereafter exercised becomes entitled to receive
any securities of the Company other than Preferred Shares, thereafter the number
and/or kind of such other securities so receivable upon exercise of any Right
(and/or the Purchase Price in respect thereof) will be subject to adjustment
from time to time in a manner and on terms as nearly equivalent as practicable
to the provisions with respect to the Preferred Shares (and the Purchase Price
in respect thereof) contained in this Section 11, and the provisions of Sections
7, 9, 10, 13 and 14 with respect to the Preferred Shares (and the Purchase Price
in respect thereof) will apply on like terms to any such other securities (and
the Purchase Price in respect thereof).

         (g)      All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder will evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-hundredths of a
Preferred Share issuable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.

         (h)      Unless the Company has exercised its election as provided in
Section 11(i), upon each adjustment of the Purchase Price pursuant to Section
11(b) or Section 11(c), each Right outstanding immediately prior to the making
of such adjustment will thereafter evidence the right to purchase, at the
adjusted Purchase Price, that number of one one-hundredths of a Preferred Share
(calculated to the nearest one one-millionth of a Preferred Share) obtained by
(i) multiplying (x) the number of one one-hundredths of a Preferred Share
issuable upon exercise of a Right immediately prior to such adjustment of the
Purchase Price by (y) the Purchase Price in effect immediately prior to such

                                       17
<PAGE>   21
adjustment of the Purchase Price and (ii) dividing the product so obtained by
the Purchase Price in effect immediately after such adjustment of the Purchase
Price.

         (i)      The Company may elect, on or after the date of any adjustment
of the Purchase Price, to adjust the number of Rights in substitution for any
adjustment in the number of one one-hundredths of a Preferred Share issuable
upon the exercise of a Right. Each of the Rights outstanding after such
adjustment of the number of Rights will be exercisable for the number of one
one-hundredths of a Preferred Share for which a Right was exercisable
immediately prior to such adjustment. Each Right held of record prior to such
adjustment of the number of Rights will become that number of Rights (calculated
to the nearest one ten-thousandth) obtained by dividing the Purchase Price in
effect immediately prior to adjustment of the Purchase Price by the Purchase
Price in effect immediately after adjustment of the Purchase Price. The Company
will make a public announcement of its election to adjust the number of Rights,
indicating the record date for the adjustment, and, if known at the time, the
amount of the adjustment to be made. Such record date may be the date on which
the Purchase Price is adjusted or any day thereafter, but, if the Right
Certificates have been issued, will be at least 10 calendar days later than the
date of the public announcement. If Right Certificates have been issued, upon
each adjustment of the number of Rights pursuant to this Section 11(i), the
Company will, as promptly as practicable, cause to be distributed to holders of
record of Right Certificates on such record date Right Certificates evidencing,
subject to the provisions of Section 14, the additional Rights to which such
holders are entitled as a result of such adjustment, or, at the option of the
Company, will cause to be distributed to such holders of record in substitution
and replacement for the Right Certificates held by such holders prior to the
date of adjustment, and upon surrender thereof if required by the Company, new
Right Certificates evidencing all the Rights to which such holders are entitled
after such adjustment. Right Certificates so to be distributed will be issued,
executed, and countersigned in the manner provided for herein (and may bear, at
the option of the Company, the adjusted Purchase Price) and will be registered
in the names of the holders of record of Right Certificates on the record date
specified in the public announcement.

         (j)      Without respect to any adjustment or change in the Purchase
Price and/or the number and/or kind of securities issuable upon the exercise of
the Rights, the Right Certificates theretofore and thereafter issued may
continue to express the Purchase Price and the number and kind of securities
which were expressed in the initial Right Certificate issued hereunder.

         (k)      Before taking any action that would cause an adjustment
reducing the Purchase Price below one one-hundredth of the then par value, if
any, of the Preferred Shares or below the then par value, if any, of any other
securities of the Company issuable upon exercise of the Rights, the Company will
take any corporate action which may, in the opinion of its counsel, be necessary
in order that the Company may validly and legally issue fully paid and
nonassessable Preferred Shares or such other securities, as the case may be, at
such adjusted Purchase Price.

         (l)      In any case in which this Section 11 otherwise requires that
an adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuance to the holder of any Right exercised after such record date
the number of Preferred Shares or other securities of the Company, if any,
issuable upon such exercise over and above the number of Preferred Shares or
other securities of the

                                       18
<PAGE>   22
Company, if any, issuable upon such exercise on the basis of the Purchase Price
in effect prior to such adjustment; provided, however, that the Company delivers
to such holder a due bill or other appropriate instrument evidencing such
holder's right to receive such additional Preferred Shares or other securities
upon the occurrence of the event requiring such adjustment.

         (m)      Notwithstanding anything in this Agreement to the contrary,
the Company will be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that in its good faith judgment the Directors of the Company
determine to be advisable in order that any (i) consolidation or subdivision of
the Preferred Shares, (ii) issuance wholly for cash of Preferred Shares at less
than the current per share market price therefor, (iii) issuance wholly for cash
of Preferred Shares or securities which by their terms are convertible into or
exchangeable for Preferred Shares, (iv) stock dividends, or (v) issuance of
rights, options or warrants referred to in this Section 11, hereafter made by
the Company to holders of its Preferred Shares is not taxable to such
stockholders.

         (n)      Notwithstanding anything in this Agreement to the contrary, in
the event that the Company at any time after the Record Date prior to the
Distribution Date (i) pays a dividend on the outstanding Common Shares payable
in Common Shares, (ii) subdivides the outstanding Common Shares, (iii) combines
the outstanding Common Shares into a smaller number of shares, or (iv) issues
any shares of its capital stock in a reclassification of the outstanding Common
Shares (including any such reclassification in connection with a consolidation
or merger in which the Company is the continuing or surviving corporation), the
number of Rights associated with each Common Share then outstanding, or issued
or delivered thereafter but prior to the Distribution Date, will be
proportionately adjusted so that the number of Rights thereafter associated with
each Common Share following any such event equals the result obtained by
multiplying the number of Rights associated with each Common Share immediately
prior to such event by a fraction the numerator of which is the total number of
Common Shares outstanding immediately prior to the occurrence of the event and
the denominator of which is the total number of Common Shares outstanding
immediately following the occurrence of such event. The adjustments provided for
in this Section 11(n) will be made successively whenever such a dividend is paid
or such a subdivision, combination or reclassification is effected.

         12.      Certificate of Adjusted Purchase Price or Number of
Securities. Whenever an adjustment is made as provided in Section 11 or Section
13, the Company will promptly (a) prepare a certificate setting forth such
adjustment and a brief statement of the facts accounting for such adjustment,
(b) file with the Rights Agent and with each transfer agent for the Preferred
Shares and the Common Shares a copy of such certificate, and (c) if such
adjustment is made after the Distribution Date, mail a brief summary of such
adjustment to each holder of a Right Certificate in accordance with Section 26.

         13.      Consolidation, Merger or Sale or Transfer of Assets or Earning
Power. (a) In the event that:

                  (i) at any time after a Person has become an Acquiring
         Person, the Company consolidates with, or merges with or into, any
         other Person and the Company is not the continuing or surviving
         corporation of such consolidation or merger; or

                                       19
<PAGE>   23

                  (ii) at any time after a Person has become an Acquiring
         Person, any Person consolidates with the Company, or merges with or
         into the Company, and the Company is the continuing or surviving
         corporation of such merger or consolidation and, in connection with
         such merger or consolidation, all or part of the Common Shares is
         changed into or exchanged for stock or other securities of any other
         Person or cash or any other property; or

                  (iii) at any time after a Person has become an Acquiring
         Person, the Company, directly or indirectly, sells or otherwise
         transfers (or one or more of its Subsidiaries sells or otherwise
         transfers), in one or more transactions, assets or earning power
         (including without limitation securities creating any obligation on the
         part of the Company and/or any of its Subsidiaries) representing in the
         aggregate more than 50% of the assets or earning power of the Company
         and its Subsidiaries (taken as a whole) to any Person or Persons other
         than the Company or one or more of its wholly owned Subsidiaries;

then, and in each such case, proper provision will be made so that from and
after the latest of the Share Acquisition Date, the Distribution Date and the
date of the occurrence of such Flip-over Event (A) each holder of a Right
thereafter has the right to receive, upon the exercise thereof in accordance
with the terms of this Agreement at an exercise price per Right equal to the
product of the then-current Purchase Price multiplied by the number of one
one-hundredths of a Preferred Share for which a Right was exercisable
immediately prior to the Share Acquisition Date, such number of duly authorized,
validly issued, fully paid, nonassessable and freely tradeable Common Shares of
the Issuer, free and clear of any liens, encumbrances and other adverse claims
and not subject to any rights of call or first refusal, as equals the result
obtained by (x) multiplying the then-current Purchase Price by the number of one
one-hundredths of a Preferred Share for which a Right is exercisable immediately
prior to the Share Acquisition Date and dividing that product by (y) 50% of the
current per share market price of the Common Shares of the Issuer (determined
pursuant to Section 11(d)), on the date of the occurrence of such Flip-over
Event; (B) the Issuer will thereafter be liable for, and will assume, by virtue
of the occurrence of such Flip-over Event, all the obligations and duties of the
Company pursuant to this Agreement; (C) the term "Company" will thereafter be
deemed to refer to the Issuer; and (D) the Issuer will take such steps
(including without limitation the reservation of a sufficient number of its
Common Shares to permit the exercise of all outstanding Rights) in connection
with such consummation as may be necessary to assure that the provisions hereof
are thereafter applicable, as nearly as reasonably may be possible, in relation
to its Common Shares thereafter deliverable upon the exercise of the Rights.

         (b) For purposes of this Section 13, "Issuer" means (i) in the case of
any Flip-over Event described in Sections 13(a)(i) or (ii) above, the Person
that is the continuing, surviving, resulting or acquiring Person (including the
Company as the continuing or surviving corporation of a transaction described in
Section 13(a)(ii) above), and (ii) in the case of any Flip-over Event described
in Section 13(a)(iii) above, the Person that is the party receiving the greatest
portion of the assets or earning power (including without limitation securities
creating any obligation on the part of the Company and/or any of its
Subsidiaries) transferred pursuant to such transaction or transactions;
provided, however, that, in any such case, (A) if (1) no class of equity
security of such Person is, at the time of such merger, consolidation or
transaction and has been continuously over the preceding 12-month period,
registered pursuant to Section 12 of the Exchange Act, and (2) such Person is a
Subsidiary, directly or indirectly, of another Person, a class of equity
security of which is and has been so

                                       20
<PAGE>   24
registered, the term "Issuer" means such other Person; and (B) in case such
Person is a Subsidiary, directly or indirectly, of more than one Person, a class
of equity security of two or more of which are and have been so registered, the
term "Issuer" means whichever of such Persons is the issuer of the equity
security having the greatest aggregate market value. Notwithstanding the
foregoing, if the Issuer in any of the Flip-over Events listed above is not a
corporation or other legal entity having outstanding equity securities, then,
and in each such case, (x) if the Issuer is directly or indirectly wholly owned
by a corporation or other legal entity having outstanding equity securities,
then all references to Common Shares of the Issuer will be deemed to be
references to the Common Shares of the corporation or other legal entity having
outstanding equity securities which ultimately controls the Issuer, and (y) if
there is no such corporation or other legal entity having outstanding equity
securities, (I) proper provision will be made so that the Issuer creates or
otherwise makes available for purposes of the exercise of the Rights in
accordance with the terms of this Agreement, a kind or kinds of security or
securities having a fair market value at least equal to the economic value of
the Common Shares which each holder of a Right would have been entitled to
receive if the Issuer had been a corporation or other legal entity having
outstanding equity securities; and (II) all other provisions of this Agreement
will apply to the issuer of such securities as if such securities were Common
Shares.

         (c)      The Company will not consummate any Flip-over Event if, (i) at
the time of or immediately after such Flip-over Event, there are or would be any
rights, warrants, instruments or securities outstanding or any agreements or
arrangements in effect which would eliminate or substantially diminish the
benefits intended to be afforded by the Rights, (ii) prior to, simultaneously
with or immediately after such Flip-over Event, the stockholders of the Person
who constitutes, or would constitute, the Issuer for purposes of Section 13(a)
shall have received a distribution of Rights previously owned by such Person or
any of its Affiliates or Associates, or (iii) the form or nature of the
organization of the Issuer would preclude or limit the exercisability of the
Rights. In addition, the Company will not consummate any Flip-over Event unless
the Issuer has a sufficient number of authorized Common Shares (or other
securities as contemplated in Section 13(b) above) which have not been issued or
reserved for issuance to permit the exercise in full of the Rights in accordance
with this Section 13 and unless prior to such consummation the Company and the
Issuer have executed and delivered to the Rights Agent a supplemental agreement
providing for the terms set forth in subsections (a) and (b) of this Section 13
and further providing that as promptly as practicable after the consummation of
any Flip-over Event, the Issuer will:

                     (A) prepare and file a registration statement under the
         Securities Act with respect to the Rights and the securities issuable
         upon exercise of the Rights on an appropriate form, and use its best
         efforts to cause such registration statement to (1) become effective as
         soon as practicable after such filing and (2) remain effective (with a
         prospectus at all times meeting the requirements of the Securities Act)
         until the Expiration Date;

                     (B) take all such action as may be appropriate under, or to
         ensure compliance with, the securities or "blue sky" laws of the
         various states in connection with the exercisability of the Rights; and

                                       21
<PAGE>   25
                  (C)      deliver to holders of the Rights historical financial
         statements for the Issuer and each of its Affiliates which comply in
         all respects with the requirements for registration on Form 10 under
         the Exchange Act.

         (d)      The provisions of this Section 13 will similarly apply to
successive mergers or consolidations or sales or other transfers. In the event
that a Flip-over Event occurs at any time after the occurrence of a Flip-in
Event, except for Rights that have become void pursuant to Section 11(a)(ii),
Rights that shall not have been previously exercised will cease to be
exercisable in the manner provided in Section 11(a)(ii) and will thereafter be
exercisable in the manner provided in Section 13(a).

         14.      Fractional Rights and Fractional Securities. (a) The Company
will not be required to issue fractions of Rights or to distribute Right
Certificates which evidence fractional Rights. In lieu of such fractional
Rights, the Company will pay as promptly as practicable to the registered
holders of the Right Certificates with regard to which such fractional Rights
otherwise would be issuable, an amount in cash equal to the same fraction of the
current market value of one Right. For the purposes of this Section 14(a), the
current market value of one Right is the closing price of the Rights for the
Trading Day immediately prior to the date on which such fractional Rights
otherwise would have been issuable. The closing price for any day is the last
sale price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Rights are not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the Rights are listed or admitted to trading or, if the Rights are not
listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by Nasdaq or such other
system then in use, or, if on any such date the Rights are not quoted by any
such organization, the average of the closing bid and asked prices as furnished
by a professional market maker making a market in the Rights selected by the
Directors of the Company. If the Rights are not publicly held or are not so
listed or traded, or are not the subject of available bid and asked quotes, the
current market value of one Right will mean the fair value thereof as determined
in good faith by the Directors of the Company, whose determination will be
described in a statement filed with the Rights Agent.

         (b)      The Company will not be required to issue fractions of
Preferred Shares (other than fractions which are integral multiples of one
one-hundredth of a Preferred Share) upon exercise of the Rights or to distribute
certificates which evidence fractional Preferred Shares (other than fractions
which are integral multiples of one one-hundredth of a Preferred Share).
Fractions of Preferred Shares in integral multiples of one one-hundredth of a
Preferred Share may, at the election of the Company, be evidenced by depositary
receipts pursuant to an appropriate agreement between the Company and a
depositary selected by it, provided that such agreement provides that the
holders of such depositary receipts have all the rights, privileges and
preferences to which they are entitled as beneficial owners of the Preferred
Shares represented by such depositary receipts. In lieu of fractional Preferred
Shares that are not integral multiples of one one-hundredth of a Preferred
Share, the Company may pay to any Person to whom or which such fractional
Preferred Shares would

                                       22
<PAGE>   26

otherwise be issuable an amount in cash equal to the same fraction of the
current market value of one Preferred Share. For purposes of this Section 14(b),
the current market value of one Preferred Share is the closing price of the
Preferred Shares (as determined in the same manner as set forth for Common
Shares in the second sentence of Section 11(d)(i)) for the Trading Day
immediately prior to the date of such exercise; provided, however, that if the
closing price of the Preferred Shares cannot be so determined, the closing price
of the Preferred Shares for such Trading Day will be conclusively deemed to be
an amount equal to the closing price of the Common Shares (determined pursuant
to the second sentence of Section 11(d)(i)) for such Trading Day multiplied by
one hundred (as such number may be appropriately adjusted to reflect events such
as stock splits, stock dividends, recapitalizations or similar transactions
relating to the Common Shares occurring after the date of this Agreement);
provided further, however, that if neither the Common Shares nor the Preferred
Shares are publicly held or listed or admitted to trading on any national
securities exchange, or the subject of available bid and asked quotes, the
current market value of one Preferred Share will mean the fair value thereof as
determined in good faith by the Directors of the Company, whose determination
will be described in a statement filed with the Rights Agent.

         (c)      Following the occurrence of a Triggering Event, the Company
will not be required to issue fractions of Common Shares or other securities
issuable upon exercise or exchange of the Rights or to distribute certificates
which evidence any such fractional securities. In lieu of issuing any such
fractional securities, the Company may pay to any Person to whom or which such
fractional securities would otherwise be issuable an amount in cash equal to the
same fraction of the current market value of one such security. For purposes of
this Section 14(c), the current market value of one Common Share or other
security issuable upon the exercise or exchange of Rights is the closing price
thereof (as determined in the same manner as set forth for Common Shares in the
second sentence of Section 11(d)(i)) for the Trading Day immediately prior to
the date of such exercise or exchange; provided, however, that if neither the
Common Shares nor any such other securities are publicly held or listed or
admitted to trading on any national securities exchange, or the subject of
available bid and asked quotes, the current market value of one Common Share or
such other security will mean the fair value thereof as determined in good faith
by the Directors of the Company, whose determination will mean the fair value
thereof as will be described in a statement filed with the Rights Agent.

         15.      Rights of Action. All rights of action in respect of this
Agreement, excepting the rights of action given to the Rights Agent under
Section 18, are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Shares); and any registered holder of any Right Certificate (or, prior to
the Distribution Date, of the Common Shares), without the consent of the Rights
Agent or of the holder of any other Right Certificate (or, prior to the
Distribution Date, of the holder of any Common Shares), may in his own behalf
and for his own benefit enforce, and may institute and maintain any suit, action
or proceeding against the Company to enforce, or otherwise act in respect of,
his right to exercise the Rights evidenced by such Right Certificate in the
manner provided in such Right Certificate and in this Agreement. Without
limiting the foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holders of Rights would not have an adequate
remedy at law for any breach of this Agreement and will be entitled to specific
performance of the obligations under this Agreement, and injunctive relief
against actual or threatened violations of the obligations of any Person subject
to this Agreement.

                                       23
<PAGE>   27

         16.      Agreement of Rights Holders. Every holder of a Right by
accepting the same consents and agrees with the Company and the Rights Agent and
with every other holder of a Right that:

                  (a)      Prior to the Distribution Date, the Rights are
         transferable only in connection with the transfer of the Common Shares;

                  (b)      After the Distribution Date, the Right Certificates
         are transferable only on the registry books of the Rights Agent if
         surrendered at the principal office of the Rights Agent designated for
         such purpose, duly endorsed or accompanied by a proper instrument of
         transfer;

                  (c)      The Company and the Rights Agent may deem and treat
         the person in whose name the Right Certificate (or, prior to the
         Distribution Date, the associated Common Share certificate) is
         registered as the absolute owner thereof and of the Rights evidenced
         thereby (notwithstanding any notations of ownership or writing on the
         Right Certificate or the associated Common Share certificate made by
         anyone other than the Company or the Rights Agent) for all purposes
         whatsoever, and neither the Company nor the Rights Agent will be
         affected by any notice to the contrary;

                  (d)      Such holder expressly waives any right to receive any
         fractional Rights and any fractional securities upon exercise or
         exchange of a Right, except as otherwise provided in Section 14.

                  (e)      Notwithstanding anything in this Agreement to the
         contrary, neither the Company nor the Rights Agent will have any
         liability to any holder of a Right or other Person as a result of its
         inability to perform any of its obligations under this Agreement by
         reason of any preliminary or permanent injunction or other order,
         decree or ruling issued by a court of competent jurisdiction or by a
         governmental, regulatory or administrative agency or commission, or any
         statute, rule, regulation or executive order promulgated or enacted by
         any governmental authority, prohibiting or otherwise restraining
         performance of such obligation; provided, however, that the Company
         will use its best efforts to have any such order, decree or ruling
         lifted or otherwise overturned as soon as possible.

         17.      Right Certificate Holder Not Deemed a Stockholder. No holder,
as such, of any Right Certificate will be entitled to vote, receive dividends,
or be deemed for any purpose the holder of Preferred Shares or any other
securities of the Company which may at any time be issuable upon the exercise of
the Rights represented thereby, nor will anything contained herein or in any
Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of Directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 25), or to receive dividends or
subscription rights, or otherwise, until the Right or Rights evidenced by such
Right Certificate shall have been exercised in accordance with the provisions of
this Agreement or exchanged pursuant to the provisions of Section 24.

                                       24
<PAGE>   28

         18.      Concerning the Rights Agent. (a) The Company will pay to the
Rights Agent reasonable compensation for all services rendered by it hereunder
and, from time to time, on demand of the Rights Agent, its reasonable expenses
and counsel fees and other disbursements incurred in the administration and
execution of this Agreement and the exercise and performance of its duties
hereunder. The Company will also indemnify the Rights Agent for, and hold it
harmless against, any loss, liability, suit, action, proceeding or expense,
incurred without gross negligence, bad faith, or willful misconduct on the part
of the Rights Agent, for anything done or omitted to be done by the Rights Agent
in connection with the acceptance and administration of this Agreement,
including the costs and expenses of defending against any claim of liability
arising therefrom, directly or indirectly.

         (b)      The Rights Agent will be protected and will incur no liability
for or in respect of any action taken, suffered, or omitted by it in connection
with its administration of this Agreement in reliance upon any Right Certificate
or certificate evidencing Preferred Shares or Common Shares or other securities
of the Company, instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, consent, certificate,
statement or other paper or document believed by it to be genuine and to be
signed, executed, and, where necessary, verified or acknowledged, by the proper
Person or Persons.

         19.      Merger or Consolidation or Change of Name of Rights Agent. (a)
Any corporation into which the Rights Agent or any successor Rights Agent may be
merged or with which it may be consolidated, or any corporation resulting from
any merger or consolidation to which the Rights Agent or any successor Rights
Agent is a party, or any corporation succeeding to the corporate trust business
of the Rights Agent or any successor Rights Agent, will be the successor to the
Rights Agent under this Agreement without the execution or filing of any paper
or any further act on the part of any of the parties hereto, provided that such
corporation would be eligible for appointment as a successor Rights Agent under
the provisions of Section 21. If at the time such successor Rights Agent
succeeds to the agency created by this Agreement any of the Right Certificates
shall have been countersigned but not delivered, any such successor Rights Agent
may adopt the countersignature of the predecessor Rights Agent and deliver such
Right Certificates so countersigned; and if at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor Rights
Agent or in the name of the successor Rights Agent; and in all such cases such
Right Certificates will have the full force provided in the Right Certificates
and in this Agreement.

         (b)      If at any time the name of the Rights Agent changes and at
such time any of the Right Certificates have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Right Certificates so countersigned; and if at that time any of the
Right Certificates have not been countersigned, the Rights Agent may countersign
such Right Certificates either in its prior name or in its changed name; and in
all such cases such Right Certificates will have the full force provided in the
Right Certificates and in this Agreement.

         20.      Duties of Rights Agent. The Rights Agent undertakes the duties
and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Right Certificates,
by their acceptance thereof, will be bound:

                                       25
<PAGE>   29

                  (a)      The Rights Agent may consult with legal counsel (who
         may be legal counsel for the Company), and the opinion of such counsel
         will be full and complete authorization and protection to the Rights
         Agent as to any action taken or omitted by it in good faith and in
         accordance with such opinion.

                  (b)      Whenever in the performance of its duties under this
         Agreement the Rights Agent deems it necessary or desirable that any
         fact or matter be proved or established by the Company prior to taking
         or suffering any action hereunder, such fact or matter (unless other
         evidence in respect thereof be herein specifically prescribed) may be
         deemed to be conclusively proved and established by a certificate
         signed by any one of the Chairman, the President, any Vice President,
         the Secretary or the Treasurer of the Company and delivered to the
         Rights Agent, and such certificate will be full authorization to the
         Rights Agent for any action taken or suffered in good faith by it under
         the provisions of this Agreement in reliance upon such certificate.

                  (c)      The Rights Agent will be liable hereunder only for
         its own gross negligence, bad faith or willful misconduct.

                  (d)      The Rights Agent will not be liable for or by reason
         of any of the statements of fact or recitals contained in this
         Agreement or in the Right Certificates (except its countersignature
         thereof) or be required to verify the same, but all such statements and
         recitals are and will be deemed to have been made by the Company only.

                  (e)      The Rights Agent will not be under any responsibility
         in respect of the validity of this Agreement or the execution and
         delivery hereof (except the due execution and delivery hereof by the
         Rights Agent) or in respect of the validity or execution of any Right
         Certificate (except its countersignature thereof); nor will it be
         responsible for any breach by the Company of any covenant contained in
         this Agreement or in any Right Certificate; nor will it be responsible
         for any adjustment required under the provisions of Sections 11 or 13
         (including any adjustment which results in Rights becoming void) or
         responsible for the manner, method or amount of any such adjustment or
         the ascertaining of the existence of facts that would require any such
         adjustment (except with respect to the exercise of Rights evidenced by
         Right Certificates after actual notice of any such adjustment); nor
         will it by any act hereunder be deemed to make any representation or
         warranty as to the authorization or reservation of any shares of stock
         or other securities to be issued pursuant to this Agreement or any
         Right Certificate or as to whether any shares of stock or other
         securities will, when issued, be duly authorized, validly issued, fully
         paid and nonassessable.

                  (f)      The Company will perform, execute, acknowledge and
         deliver or cause to be performed, executed, acknowledged and delivered
         all such further and other acts, instruments and assurances as may
         reasonably be required by the Rights Agent for the carrying out or
         performing by the Rights Agent of the provisions of this Agreement.

                  (g)      The Rights Agent is hereby authorized and directed to
         accept instructions with respect to the performance of its duties
         hereunder from any one of the Chairman, the President, any Vice
         President, the Secretary or the Treasurer of the Company, and to apply

                                       26
<PAGE>   30

         to such officers for advice or instructions in connection with its
         duties, and it will not be liable for any action taken or suffered to
         be taken by it in good faith in accordance with instructions of any
         such officer.

                  (h)      The Rights Agent and any stockholder, director,
         officer or employee of the Rights Agent may buy, sell or deal in any of
         the Rights or other securities of the Company or become pecuniarily
         interested in any transaction in which the Company may be interested,
         or contract with or lend money to the Company or otherwise act as fully
         and freely as though it were not Rights Agent under this Agreement.
         Nothing herein will preclude the Rights Agent from acting in any other
         capacity for the Company or for any other Person.

                  (i)      The Rights Agent may execute and exercise any of the
         rights or powers hereby vested in it or perform any duty hereunder
         either itself or by or through its attorneys or agents, and the Rights
         Agent will not be answerable or accountable for any act, default,
         neglect or misconduct of any such attorneys or agents or for any loss
         to the Company resulting from any such act, default, neglect or
         misconduct, provided reasonable care was exercised in the selection and
         continued employment thereof. The Rights Agent will not be under any
         duty or responsibility to ensure compliance with any applicable federal
         or state securities laws in connection with the issuance, transfer or
         exchange of Right Certificates.

                  (j)      If, with respect to any Right Certificate surrendered
         to the Rights Agent for exercise, transfer, split up, combination or
         exchange, either (i) the certificate attached to the form of assignment
         or form of election to purchase, as the case may be, has either not
         been completed or indicates an affirmative response to clause 1 or 2
         thereof, or (ii) any other actual or suspected irregularity exists, the
         Rights Agent will not take any further action with respect to such
         requested exercise, transfer, split up, combination or exchange without
         first consulting with the Company, and will thereafter take further
         action with respect thereto only in accordance with the Company's
         written instructions.

         21.      Change of Rights Agent. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon 30 calendar days' notice in writing mailed to the Company and to each
transfer agent of the Preferred Shares or the Common Shares by registered or
certified mail, and to the holders of the Right Certificates by first class
mail. The Company may remove the Rights Agent or any successor Rights Agent upon
30 calendar days' notice in writing, mailed to the Rights Agent or successor
Rights Agent, as the case may be, and to each transfer agent of the Preferred
Shares and the Common Shares by registered or certified mail, and to the holders
of the Right Certificates by first class mail. If the Rights Agent resigns or is
removed or otherwise becomes incapable of acting, the Company will appoint a
successor to the Rights Agent. If the Company fails to make such appointment
within a period of 30 calendar days after giving notice of such removal or after
it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Rights Agent or by the holder of a Right Certificate
(who will, with such notice, submit his Right Certificate for inspection by the
Company), then the registered holder of any Right Certificate may apply to any
court of competent jurisdiction for the appointment of a new Rights Agent. Any
successor Rights Agent, whether appointed by the Company or by such a court,
will be a corporation or other legal entity organized and doing business under
the laws of the United States or of the State of New York (or of any other state
of the United

                                       27
<PAGE>   31

States so long as such corporation is authorized to do business as a banking
institution in the State of New York), in good standing, having a principal
office in the State of New York, which is authorized under such laws to exercise
corporate trust or stock transfer powers and is subject to supervision or
examination by federal or state authority and which has at the time of its
appointment as Rights Agent a combined capital and surplus of at least $50
million. After appointment, the successor Rights Agent will be vested with the
same powers, rights, duties and responsibilities as if it had been originally
named as Rights Agent without further act or deed; but the predecessor Rights
Agent will deliver and transfer to the successor Rights Agent any property at
the time held by it hereunder, and execute and deliver any further assurance,
conveyance, act or deed necessary for the purpose. Not later than the effective
date of any such appointment, the Company will file notice thereof in writing
with the predecessor Rights Agent and each transfer agent of the Preferred
Shares or the Common Shares, and mail a notice thereof in writing to the
registered holders of the Right Certificates. Failure to give any notice
provided for in this Section 21, however, or any defect therein, will not affect
the legality or validity of the resignation or removal of the Rights Agent or
the appointment of the successor Rights Agent, as the case may be.

         22.      Issuance of New Right Certificates. Notwithstanding any of the
provisions of this Agreement or of the Rights to the contrary, the Company may,
at its option, issue new Right Certificates evidencing Rights in such form as
may be approved by its Directors to reflect any adjustment or change in the
Purchase Price per share and the number or kind of securities issuable upon
exercise of the Rights made in accordance with the provisions of this Agreement.
In addition, in connection with the issuance or sale by the Company of Common
Shares following the Distribution Date and prior to the Expiration Date, the
Company (a) will, with respect to Common Shares so issued or sold pursuant to
the exercise, exchange or conversion of securities (other than Rights) issued
prior to the Distribution Date which are exercisable or exchangeable for, or
convertible into Common Shares, and (b) may, in any other case, if deemed
necessary, appropriate or desirable by the Directors of the Company, issue Right
Certificates representing an equivalent number of Rights as would have been
issued in respect of such Common Shares if they had been issued or sold prior to
the Distribution Date, as appropriately adjusted as provided herein as if they
had been so issued or sold; provided, however, that (i) no such Right
Certificate will be issued if, and to the extent that, in its good faith
judgment the Directors of the Company determine that the issuance of such Right
Certificate could have a material adverse tax consequence to the Company or to
the Person to whom or which such Right Certificate otherwise would be issued and
(ii) no such Right Certificate will be issued if, and to the extent that,
appropriate adjustment otherwise has been made in lieu of the issuance thereof.

         23.      Redemption. (a) Prior to the Expiration Date, the Directors of
the Company may, at their option, redeem all but not less than all of the
then-outstanding Rights at the Redemption Price at any time prior to the Close
of Business on the later of (i) the Distribution Date and (ii) the Share
Acquisition Date (such period, the "Redemption Period"); provided, however,
that, notwithstanding any provision in this Agreement to the contrary, the
Directors of the Company may not authorize the redemption of the Rights or a
change in the Redemption Period simultaneously with or for a period of one
calendar year following the occurrence of either of the events set forth in
clause (A) or (B) below unless there are Continuing Directors in office at the
time of such authorization and a majority of the Continuing Directors concur in
such authorization: (A) any Person becomes an Acquiring Person or (B) a change
(resulting from a proxy or consent solicitation or from a vote or

                                       28
<PAGE>   32

written consent(s)) in a majority of the directors of the Company in office at
the commencement of such solicitation, or prior to such vote or consent(s), if
any Person who is a participant in such solicitation, vote or consent(s) has
stated (or if a majority of the Directors in office at the commencement of such
solicitation or prior to such vote or consent(s) has determined in good faith)
that such Person (or any of its Affiliates or Associates) intends to take, or
may consider taking, any action which would result in such Person becoming an
Acquiring Person or which would cause the occurrence of a Triggering Event. Any
redemption pursuant to the preceding sentence of this Section 23(a) will be
effective immediately upon the action of the Directors of the Company ordering
the same, unless such action of the Directors of the Company expressly provides
that such redemption will be effective at a subsequent time or upon the
occurrence or nonoccurrence of one or more specified events (in which case such
redemption will be effective in accordance with the provisions of such action of
the Directors of the Company).

         (b)      Immediately upon the effectiveness of the redemption of the
Rights as provided in Section 23(a), and without any further action and without
any notice, the right to exercise the Rights will terminate and the only right
thereafter of the holders of Rights will be to receive the Redemption Price,
without interest thereon. Promptly after the effectiveness of the redemption of
the Rights as provided in Section 23(a), the Company will publicly announce such
redemption and, within 10 calendar days thereafter, will give notice of such
redemption to the holders of the then-outstanding Rights by mailing such notice
to all such holders at their last addresses as they appear upon the registry
books of the Company; provided, however, that the failure to give, or any defect
in, any such notice will not affect the validity of the redemption of the
Rights. Any notice that is mailed in the manner herein provided will be deemed
given, whether or not the holder receives the notice. The notice of redemption
mailed to the holders of Rights will state the method by which the payment of
the Redemption Price will be made. The Company may, at its option, pay the
Redemption Price in cash, Common Shares (based upon the current per share market
price of the Common Shares (determined pursuant to Section 11(d)) at the time of
redemption), or any other form of consideration deemed appropriate by the
Directors of the Company (based upon the fair market value of such other
consideration, determined by the Directors of the Company in good faith) or any
combination thereof. The Company may, at its option, combine the payment of the
Redemption Price with any other payment being made concurrently to holders of
Common Shares and, to the extent that any such other payment is discretionary,
may reduce the amount thereof on account of the concurrent payment of the
Redemption Price. If legal or contractual restrictions prevent the Company from
paying the Redemption Price (in the form of consideration deemed appropriate by
the Directors) at the time of redemption, the Company will pay the Redemption
Price, without interest, promptly after such time as the Company ceases to be so
prevented from paying the Redemption Price.

         24.      Exchange. (a) The Directors of the Company may, at their
option, at any time after the later of the Share Acquisition Date and the
Distribution Date, exchange all or part of the then-outstanding and exercisable
Rights (which will not include Rights that have become void pursuant to the
provisions of Section 11(a)(ii)) for Common Shares at an exchange ratio of one
Common Share per Right, appropriately adjusted to reflect any stock split, stock
dividend or similar transaction occurring after the Record Date (such exchange
ratio being hereinafter referred to as the "Exchange Ratio"). Any such exchange
will be effective immediately upon the action of the Directors of the Company
ordering the same, unless such action of the Directors of the Company expressly
provides that such exchange will be effective at a subsequent time or upon the
occurrence

                                       29
<PAGE>   33

or nonoccurrence of one or more specified events (in which case such exchange
will be effective in accordance with the provisions of such action of the
Directors of the Company). Notwithstanding the foregoing, (i) the Directors of
the Company will not be empowered to effect such exchange at any time after any
Person (other than the Company or any Related Person), who or which, together
with all Affiliates and Associates of such Person, becomes the Beneficial Owner
of 50% or more of the then-outstanding Common Shares and (ii) the Directors may
not authorize any such exchange simultaneously with or for a period of one
calendar year following either of the events set forth in clauses (A) or (B) of
the proviso to Section 23 unless there are Continuing Directors in office at the
time of such authorization and a majority of such Continuing Directors concur in
such authorization.

         (b)      Immediately upon the effectiveness of the exchange of any
Rights as provided in Section 24(a), and without any further action and without
any notice, the right to exercise such Rights will terminate and the only right
with respect to such Rights thereafter of the holder of such Rights will be to
receive that number of Common Shares equal to the number of such Rights held by
such holder multiplied by the Exchange Ratio. Promptly after the effectiveness
of the exchange of any Rights as provided in Section 24(a), the Company will
publicly announce such exchange and, within 10 calendar days thereafter, will
give notice of such exchange to all of the holders of such Rights at their last
addresses as they appear upon the registry books of the Rights Agent; provided,
however, that the failure to give, or any defect in, such notice will not affect
the validity of such exchange. Any notice that is mailed in the manner herein
provided will be deemed given, whether or not the holder receives the notice.
Each such notice of exchange will state the method by which the exchange of the
Common Shares for Rights will be effected and, in the event of any partial
exchange, the number of Rights which will be exchanged. Any partial exchange
will be effected pro rata based on the number of Rights (other than Rights which
have become void pursuant to the provisions of Section 11(a)(ii)) held by each
holder of Rights.

         (c)      In any exchange pursuant to this Section 24, the Company, at
its option, may substitute for any Common Share exchangeable for a Right (i)
equivalent common shares (as such term is used in Section 11(a)(iii)), (ii)
cash, (iii) debt securities of the Company, (iv) other assets, or (v) any
combination of the foregoing, in any event having an aggregate value, as
determined in good faith by the Directors of the Company (whose determination
will be described in a statement filed with the Rights Agent), equal to the
current market value of one Common Share (determined pursuant to Section 11(d))
on the Trading Day immediately preceding the date of the effectiveness of the
exchange pursuant to this Section 24.

         25.      Notice of Certain Events. (a) If, after the Distribution Date,
the Company proposes (i) to pay any dividend payable in stock of any class to
the holders of Preferred Shares or to make any other distribution to the holders
of Preferred Shares (other than a regular periodic cash dividend), (ii) to offer
to the holders of Preferred Shares rights, options or warrants to subscribe for
or to purchase any additional Preferred Shares or shares of stock of any class
or any other securities, rights or options, (iii) to effect any reclassification
of its Preferred Shares (other than a reclassification involving only the
subdivision of outstanding Preferred Shares), (iv) to effect any consolidation
or merger into or with, or to effect any sale or other transfer (or to permit
one or more of its Subsidiaries to effect any sale or other transfer), in one or
more transactions, of assets or earning power (including, without limitation,
securities creating any obligation on the part of the Company and/or any of its
Subsidiaries) representing more than 50% of the assets and earning power of the

                                       30
<PAGE>   34

Company and its Subsidiaries, taken as a whole, to any other Person or Persons
other than the Company or one or more of its wholly owned Subsidiaries, (v) to
effect the liquidation, dissolution or winding up of the Company, or (vi) to
declare or pay any dividend on the Common Shares payable in Common Shares or to
effect a subdivision, combination or reclassification of the Common Shares then,
in each such case, the Company will give to each holder of a Right Certificate,
to the extent feasible and in accordance with Section 26, a notice of such
proposed action, which specifies the record date for the purposes of such stock
dividend, distribution or offering of rights, options or warrants, or the date
on which such reclassification, consolidation, merger, sale, transfer,
liquidation, dissolution or winding up is to take place and the date of
participation therein by the holders of the Common Shares and/or Preferred
Shares, if any such date is to be fixed, and such notice will be so given, in
the case of any action covered by clause (i) or (ii) above, at least 10 calendar
days prior to the record date for determining holders of the Preferred Shares
for purposes of such action, and, in the case of any such other action, at least
10 calendar days prior to the date of the taking of such proposed action or the
date of participation therein by the holders of the Common Shares and/or
Preferred Shares, whichever is the earlier.

         (b)      In case any Triggering Event occurs, then, in any such case,
the Company will as soon as practicable thereafter give to the Rights Agent and
each holder of a Right Certificate, in accordance with Section 26, a notice of
the occurrence of such event, which specifies the event and the consequences of
the event to holders of Rights.

         26.      Notices. (a) Notices or demands authorized by this Agreement
to be given or made by the Rights Agent or by the holder of any Right
Certificate to or on the Company will be sufficiently given or made if sent by
first class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:

                           T/R Systems, Inc.
                           1300 Oakbrook Drive
                           Norcross, Georgia  30093
                           Attention:  Chief Executive Officer

         (b)      Subject to the provisions of Section 21 hereof, any notice or
demand authorized by this Agreement to be given or made by the Company or by the
holder of any Right Certificate to or on the Rights Agent will be sufficiently
given or made if sent by first-class mail, postage prepaid, addressed (until
another address is filed in writing with the Company) as follows:

                           EquiServe Trust Company, N.A.
                           150 Royall Street
                           Canton, Massachusetts  02021
                           Attention: Client Administration

         (c)      Notices or demands authorized by this Agreement to be given or
made by the Company or the Rights Agent to the holder of any Right Certificate
(or, if prior the Distribution Date, to the holder of any certificate evidencing
Common Shares) will be sufficiently given or made if sent by first class mail,
postage prepaid, addressed to such holder at the address of such holder as shown
on the registry books of the Company.

                                       31
<PAGE>   35

         27.      Supplements and Amendments. Prior to the time at which the
Rights cease to be redeemable pursuant to Section 23, and subject to the last
sentence of this Section 27, the Company may in its sole and absolute
discretion, and the Rights Agent will if the Company so directs, supplement or
amend any provision of this Agreement in any respect without the approval of any
holders of Rights or Common Shares. From and after the time at which the Rights
cease to be redeemable pursuant to Section 23, and subject to the last sentence
of this Section 27, the Company may, and the Rights Agent will if the Company so
directs, supplement or amend this Agreement without the approval of any holders
of Rights or Common Shares in order (i) to cure any ambiguity, (ii) to correct
or supplement any provision contained herein which may be defective or
inconsistent with any other provisions herein, (iii) to shorten or lengthen any
time period hereunder, or (iv) to supplement or amend the provisions hereunder
in any manner which the Company may deem desirable; provided that no such
supplement or amendment shall adversely affect the interests of the holders of
Rights as such (other than an Acquiring Person or an Affiliate or Associate of
an Acquiring Person), and no such supplement or amendment shall cause the Rights
again to become redeemable or cause this Agreement again to become
supplementable or amendable otherwise than in accordance with the provisions of
this sentence. Without limiting the generality or effect of the foregoing, this
Agreement may be supplemented or amended to provide for such voting powers for
the Rights and such procedures for the exercise thereof, if any, as the
Directors of the Company may determine to be appropriate. Upon the delivery of a
certificate from an officer of the Company which states that the proposed
supplement or amendment is in compliance with the terms of this Section 27, the
Rights Agent will execute such supplement or amendment; provided, however, that
the failure or refusal of the Rights Agent to execute such supplement or
amendment will not affect the validity of any supplement or amendment adopted by
the Directors of the Company, any of which will be effective in accordance with
the terms thereof. Notwithstanding anything in this Agreement to the contrary,
(a) no supplement or amendment may be made that decreases the stated Redemption
Price to an amount less than $.01 per Right and (b) the Directors may not
authorize any such supplement or amendment simultaneously with or for a period
of one calendar year following the occurrence of either of the events set forth
in clause (A) or (B) of the proviso to Section 23 unless there are Continuing
Directors in office at the time of such authorization and a majority of such
Continuing Directors concur in such authorization.

         28.      Successors; Certain Covenants. All the covenants and
provisions of this Agreement by or for the benefit of the Company or the Rights
Agent will be binding on and inure to the benefit of their respective successors
and assigns hereunder.

         29.      Benefits of This Agreement. Nothing in this Agreement will be
construed to give to any Person other than the Company, the Rights Agent, and
the registered holders of the Right Certificates (and, prior to the Distribution
Date, the Common Shares) any legal or equitable right, remedy or claim under
this Agreement. This Agreement will be for the sole and exclusive benefit of the
Company, the Rights Agent, and the registered holders of the Right Certificates
(or prior to the Distribution Date, the Common Shares).

         30.      Governing Law. This Agreement, each Right and each Right
Certificate issued hereunder will be deemed to be a contract made under the
internal substantive laws of the State of Georgia and for all purposes will be
governed by and construed in accordance with the internal

                                       32
<PAGE>   36

substantive laws of such State applicable to contracts to be made and performed
entirely within such State.

         31.      Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement will remain in full
force and effect and will in no way be affected, impaired or invalidated;
provided, however, that nothing contained in this Section 31 will affect the
ability of the Company under the provisions of Section 27 to supplement or amend
this Agreement to replace such invalid, void or unenforceable term, provision,
covenant or restriction with a legal, valid and enforceable term, provision,
covenant or restriction.

         32.      Descriptive Headings, Etc. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and will not
control or affect the meaning or construction of any of the provisions hereof.
Unless otherwise expressly provided, references herein to Articles, Sections and
Exhibits are to Articles, Sections and Exhibits of or to this Agreement.

         33.      Determinations and Actions by the Directors. For all purposes
of this Agreement, any calculation of the number of Common Shares outstanding at
any particular time, including for purposes of determining the particular
percentage of such outstanding Common Shares of which any Person is the
Beneficial Owner, will be made in accordance with the last sentence of Rule
13d-3(d)(1)(i) of the General Rules and Regulations under the Exchange Act. The
Directors of the Company will have the exclusive power and authority to
administer this Agreement and to exercise all rights and powers specifically
granted to the Directors of the Company or to the Company, or as may be
necessary or advisable in the administration of this Agreement, including
without limitation the right and power to (i) interpret the provisions of this
Agreement and (ii) make all determinations deemed necessary or advisable for the
administration of this Agreement (including any determination as to whether
particular Rights shall have become void). All such actions, calculations,
interpretations and determinations (including, for purposes of clause (y) below,
any omission with respect to any of the foregoing) which are done or made by the
Directors of the Company in good faith will (x) be final, conclusive and binding
on the Company, the Rights Agent, the holders of the Rights and all other
parties and (y) not subject the Directors of the Company to any liability to any
Person, including without limitation the Rights Agent and the holders of the
Rights.

         34.      Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts will for all purposes be deemed to be
an original, and all such counterparts will together constitute but one and the
same instrument.

                         [SIGNATURES ON FOLLOWING PAGE]

                                       33
<PAGE>   37

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.

                               T/R SYSTEMS, INC.

                           By: /s/ Lyle W. Newkirk
                               ------------------------------------------------
                                 Name:  Lyle W. Newkirk
                                 Title: Senior Vice President, Chief Financial
                                        Officer, Secretary and Treasurer

                               EQUISERVE TRUST COMPANY, N.A.

                           By: /s/ Michael J. Connor
                               ------------------------------------------------
                                 Name:  Michael J. Connor
                                 Title: Director. Client Admin

                              34
<PAGE>   38

                                   SCHEDULE I

                                   AGREEMENTS

1.       Second Amended and Restated Registration Rights Agreement, dated March
         31, 1997, among the Company and the shareholders named therein, as
         amended by First Amendment to Stock Purchase Agreement, Second Amended
         and Restated Shareholders' Agreement and Second Amended and Restated
         Registration Rights Agreement, dated June 20, 1997, among the Company
         and the shareholders named therein.

2.       Registration Rights Agreement, dated June 29, 1998, among the Company
         and the shareholders named therein.

3.       1999 Registration Rights Agreement, dated September 10, 1999, by and
         among the Company and the shareholders named therein.

<PAGE>   39

                                                                       EXHIBIT A

              CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS OF
                  SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
                                       OF

                                T/R SYSTEMS, INC.

                       PURSUANT TO SECTION 14-2-602 OF THE
                        GEORGIA BUSINESS CORPORATION CODE

         T/R Systems, Inc., a corporation organized and existing under the
Georgia Business Corporation Code (the "Company"), in accordance with the
provisions of Section 14-2-602 thereof, DOES HEREBY CERTIFY:

         That pursuant to the authority vested in the Board of Directors by the
Second Amended and Restated Articles of Incorporation of the Company, the said
Board of Directors of the Company on November 9, 2000 adopted the following
resolution providing for the issuance of a series of Preferred Stock:

         RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Company in accordance with the provisions of its Second Amended
and Restated Articles of Incorporation, a series of Preferred Stock, par value
$0.01 per share (the "Preferred Stock"), of the Company be, and is hereby,
created, and that the designation and amount thereof and the powers,
designations, preferences and relative, participating, optional and other
special rights of the shares of such series, and the qualifications, limitations
or restrictions thereof are as follows:

         1.       Designation and Amount. The shares of such series will be
designated as Series A Junior Participating Preferred Stock (the "Series A
Preferred Stock") and the number of shares constituting the Series A Preferred
is eight hundred eighty thousand (880,000). Such number of shares may be
increased or decreased by resolution of the Board; provided, however, that no
decrease will reduce the number of shares of Series A Preferred Stock to a
number less than the number of shares then outstanding plus the number of shares
reserved for issuance upon the exercise of outstanding options, rights or
warrants or upon the conversion of any outstanding securities issued by the
Company convertible into Series A Preferred Stock.

         2.       Dividends and Distributions.

                  (a)      Subject to the rights of the holders of any shares of
any series of Preferred Stock ranking prior to the Series A Preferred Stock with
respect to dividends, the holders of shares of Series A Preferred Stock, in
preference to the holders of Common Stock, par value $0.01 per share (the
"Common Stock"), of the Company, and of any other junior stock, will be entitled
to receive, when, as and if declared by the Board out of funds legally available
for the purpose, dividends payable in cash (except as otherwise provided below)
on such dates as are from time to time

                                       A-1
<PAGE>   40

established for the payment of dividends on the Common Stock (each such date
being referred to herein as a "Dividend Payment Date"), commencing on the first
Dividend Payment Date after the first issuance of a share or fraction of a share
of Series A Preferred Stock (the "First Dividend Payment Date"), in an amount
per share (rounded to the nearest cent) equal to the greater of (i) $1.00 or
(ii) subject to the provision for adjustment hereinafter set forth, one hundred
times the aggregate per share amount of all cash dividends, and one hundred
times the aggregate per share amount (payable in kind) of all non-cash
dividends, other than a dividend payable in shares of Common Stock or a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock since the immediately preceding
Dividend Payment Date or, with respect to the First Dividend Payment Date, since
the first issuance of any share or fraction of a share of Series A Preferred
Stock. In the event that the Company at any time (i) declares a dividend on the
outstanding shares of Common Stock payable in shares of Common Stock, (ii)
subdivides the outstanding shares of Common Stock, (iii) combines the
outstanding shares of Common Stock into a smaller number of shares, or (iv)
issues any shares of its capital stock in a reclassification of the outstanding
shares of Common Stock (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing or surviving
corporation), then, in each such case and regardless of whether any shares of
Series A Preferred Stock are then issued or outstanding, the amount to which
holders of shares of Series A Preferred Stock would otherwise be entitled
immediately prior to such event under clause (ii) of the preceding sentence will
be adjusted by multiplying such amount by a fraction, the numerator of which is
the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.

                  (b)      The Company will declare a dividend on the Series A
Preferred Stock as provided in the immediately preceding paragraph immediately
after it declares a dividend on the Common Stock (other than a dividend payable
in shares of Common Stock). Each such dividend on the Series A Preferred Stock
will be payable immediately prior to the time at which the related dividend on
the Common Stock is payable.

                  (c)      Dividends will accrue on outstanding shares of Series
A Preferred Stock from the Dividend Payment Date next preceding the date of
issue of such shares, unless (i) the date of issue of such shares is prior to
the record date for the First Dividend Payment Date, in which case dividends on
such shares will accrue from the date of the first issuance of a share of Series
A Preferred Stock or (ii) the date of issue is a Dividend Payment Date or is a
date after the record date for the determination of holders of shares of Series
A Preferred Stock entitled to receive a dividend and before such Dividend
Payment Date, in either of which events such dividends will accrue from such
Dividend Payment Date. Accrued but unpaid dividends will cumulate from the
applicable Dividend Payment Date but will not bear interest. Dividends paid on
the shares of Series A Preferred Stock in an amount less than the total amount
of such dividends at the time accrued and payable on such shares will be
allocated pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board may fix a record date for the determination of holders of
shares of Series A Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date will be not more than 60
calendar days prior to the date fixed for the payment thereof.

                                       A-2
<PAGE>   41

         3.       Voting Rights. The holders of shares of Series A Preferred
Stock shall have the following voting rights:

                  (a)      Subject to the provision for adjustment hereinafter
set forth, each share of Series A Preferred Stock will entitle the holder
thereof to one hundred votes on all matters submitted to a vote of the
shareholders of the Company. In the event the Company at any time (i) declares a
dividend on the outstanding shares of Common Stock payable in shares of Common
Stock, (ii) subdivides the outstanding shares of Common Stock, (iii) combines
the outstanding shares of Common Stock into a smaller number of shares, or (iv)
issues any shares of its capital stock in a reclassification of the outstanding
shares of Common Stock (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing or surviving
corporation), then, in each such case and regardless of whether any shares of
Series A Preferred Stock are then issued or outstanding, the number of votes per
share to which holders of shares of Series A Preferred Stock would otherwise be
entitled immediately prior to such event will be adjusted by multiplying such
number by a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.

                  (b)      Except as otherwise provided herein, in any other
Preferred Stock Designation creating a series of Preferred Stock or any similar
stock, or by law, the holders of shares of Series A Preferred Stock and the
holders of shares of Common Stock and any other capital stock of the Company
having general voting rights will vote together as one class on all matters
submitted to a vote of shareholders of the Company.

                  (c)      Except as set forth in the Second Amended and
Restated Certificate of Incorporation or herein, or as otherwise provided by
law, holders of shares of Series A Preferred Stock will have no voting rights.

         4.       Certain Restrictions.

                  (a)      Whenever dividends or other dividends or
distributions payable on the Series A Preferred Stock are in arrears, thereafter
and until all accrued and unpaid dividends and distributions, whether or not
declared, on shares of Series A Preferred Stock outstanding have been paid in
full, the Company will not:

                           (i)      Declare or pay dividends, or make any other
                  distributions, on any shares of stock ranking junior (either
                  as to dividends or upon liquidation, dissolution or winding
                  up) to the shares of Series A Preferred Stock;

                           (ii)     Declare or pay dividends, or make any other
                  distributions, on any shares of stock ranking on a parity
                  (either as to dividends or upon liquidation, dissolution or
                  winding up) with the shares of Series A Preferred Stock,
                  except dividends paid ratably on the shares of Series A
                  Preferred Stock and all such parity stock on which dividends
                  are payable or in arrears in proportion to the total amounts
                  to which the holders of all such shares are then entitled;

                                       A-3
<PAGE>   42

                           (iii)    Redeem, purchase or otherwise acquire for
                  consideration shares of any stock ranking junior (either as to
                  dividends or upon liquidation, dissolution or winding up) to
                  the shares of Series A Preferred Stock; provided, however,
                  that the Company may at any time redeem, purchase or otherwise
                  acquire shares of any such junior stock in exchange for shares
                  of any stock of the Company ranking junior (either as to
                  dividends or upon dissolution, liquidation or winding up) to
                  the shares of Series A Preferred Stock; or

                           (iv)     Redeem, purchase or otherwise acquire for
                  consideration any shares of Series A Preferred Stock, or any
                  shares of stock ranking on a parity with the shares of Series
                  A Preferred Stock, except in accordance with a purchase offer
                  made in writing or by publication (as determined by the Board)
                  to all holders of such shares upon such terms as the Board,
                  after consideration of the respective annual dividend rates
                  and other relative rights and preferences of the respective
                  series and classes, may determine in good faith will result in
                  fair and equitable treatment among the respective series or
                  classes.

                  (b)      The Company will not permit any majority-owned
subsidiary of the Company to purchase or otherwise acquire for consideration any
shares of stock of the Company unless the Company could, under paragraph (a) of
this Article IV, purchase or otherwise acquire such shares at such time and in
such manner.

         5.       Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Company in any manner whatsoever shall be
retired and canceled promptly after the acquisition thereof. All such shares
shall upon their cancellation become authorized but unissued shares of Preferred
Stock and may be reissued as part of a new series of Preferred Stock to be
created by resolution or resolutions of the Board of Directors, subject to the
conditions and restrictions on issuance set forth herein.

         6.       Liquidation, Dissolution or Winding Up. Upon any liquidation,
dissolution or winding up of the Company, no distribution will be made (a) to
the holders of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the shares of Series A Preferred
Stock unless, prior thereto, the holders of shares of Series A Preferred Stock
have received $100 per share, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment; provided, however, that the holders of shares of Series A
Preferred Stock will be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to one
hundred times the aggregate amount to be distributed per share to holders of
shares of Common Stock or (b) to the holders of shares of stock ranking on a
parity (either as to dividends or upon liquidation, dissolution or winding up)
with the shares of Series A Preferred Stock, except distributions made ratably
on the shares of Series A Preferred Stock and all such parity stock in
proportion to the total amounts to which the holders of all such shares are
entitled upon such liquidation, dissolution or winding up. In the event the
Company at any time (i) declares a dividend on the outstanding shares of Common
Stock payable in shares of Common Stock, (ii) subdivides the outstanding shares
of Common Stock, (iii) combines the outstanding shares of Common Stock into a
smaller number of shares, or (iv) issues any shares of its capital stock in a
reclassification of the outstanding shares of Common Stock

                                       A-4
<PAGE>   43

(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing or surviving corporation), then,
in each such case and regardless of whether any shares of Series A Preferred
Stock are then issued or outstanding, the aggregate amount to which each holder
of shares of Series A Preferred Stock would otherwise be entitled immediately
prior to such event under the proviso in clause (a) of the preceding sentence
will be adjusted by multiplying such amount by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.

         7.       Consolidation, Merger etc. In the event that the Company
enters into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then, in each such case, each share
of Series A Preferred Stock will at the same time be similarly exchanged for or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to one hundred times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Company at any time (a) declares a dividend on the outstanding
shares of Common Stock payable in shares of Common Stock, (b) subdivides the
outstanding shares of Common Stock, (c) combines the outstanding shares of
Common Stock in a smaller number of shares, or (d) issues any shares of its
capital stock in a reclassification of the outstanding shares of Common Stock
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing or surviving corporation), then,
in each such case and regardless of whether any shares of Series A Preferred
Stock are then issued or outstanding, the amount set forth in the preceding
sentence with respect to the exchange or change of shares of Series A Preferred
Stock will be adjusted by multiplying such amount by a fraction, the numerator
of which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.

         8.       No Redemption. The shares of Series A Preferred Stock are not
redeemable.

         9.       Rank. The Series A Preferred Stock shall rank junior with
respect to payment of dividends and on liquidation to all other series of the
Company's Preferred Stock outstanding on the date hereof and to all such other
series that specifically provide that they shall rank senior to the Series A
Preferred Stock.

         10.      Amendment. The Second Amended and Restated Articles of
Incorporation of the Company shall not be amended in any manner that would
materially alter or change the powers, preferences or special rights of the
Series A Preferred Stock so as to affect them adversely without the affirmative
vote of the holders of two-thirds of the outstanding shares of Series A
Preferred Stock, voting together as a single class.

         The foregoing amendment to the Second Amended and Restated Articles of
Incorporation of the Company was authorized by the Board of Directors of the
Company, pursuant to the authority vested in it by the Second Amended and
Restated Articles of Incorporation of the Company and

                                       A-5
<PAGE>   44

Section 14-2-602 of the Georgia Business Corporation Code, by the Board on the 9
day of November, 2000.

         IN WITNESS WHEREOF, we have executed and subscribed this Certificate,
and do affirm the foregoing as true under the penalties of perjury, this 9th day
of November, 2000.

--------------------------------------
Michael E. Kohlsdorf
Chief Executive Officer and President

ATTEST:

--------------------------------------
Lyle W. Newkirk
Senior Vice President, Chief Financial
Officer, Secretary and Treasurer

                                       A-6
<PAGE>   45

                                                                       EXHIBIT B

                            FORM OF RIGHT CERTIFICATE

Certificate No. R-_______                                      __________ Rights

NOT EXERCISABLE AFTER NOVEMBER 27, 2010 (SUBJECT TO POSSIBLE EXTENSION AT THE
OPTION OF THE COMPANY) OR EARLIER IF REDEEMED, EXCHANGED OR AMENDED. THE RIGHTS
ARE SUBJECT TO REDEMPTION, EXCHANGE AND AMENDMENT AT THE OPTION OF THE COMPANY,
ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES
SPECIFIED IN THE RIGHTS AGREEMENT, RIGHTS THAT ARE OR WERE BENEFICIALLY OWNED BY
AN ACQUIRING PERSON OR AN AFFILIATE OR AN ASSOCIATE OF AN ACQUIRING PERSON (AS
SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) OR A TRANSFEREE THEREOF MAY
BECOME NULL AND VOID.

                                Right Certificate

                                T/R SYSTEMS, INC.

         This certifies that _______________, or registered assigns, is the
registered owner of the number of Rights set forth above, each of which entitles
the owner thereof, subject to the terms, provisions, and conditions of the
Rights Agreement, dated as of November 9, 2000 (the "Rights Agreement"), between
T/R Systems, Inc., a Georgia corporation (the "Company"), and EquiServe Trust
Company, N.A. (the "Rights Agent"), to purchase from the Company at any time
after the Distribution Date (as such term is defined in the Rights Agreement)
and prior to 5:00 P.M. (Eastern time) on the Expiration Date (as such term is
defined in the Rights Agreement) at the principal office or offices of the
Rights Agent designated for such purpose, one one-hundredth of a fully paid
nonassessable share of Series A Junior Participating Preferred Stock, par value
$0.01 per share (the "Preferred Shares"), of the Company, at a purchase price of
$45.00 per one one-hundredth of a Preferred Share (the "Purchase Price"), upon
presentation and surrender of this Right Certificate with the Form of Election
to Purchase and related Certificate duly executed. If this Right Certificate is
exercised in part, the holder will be entitled to receive upon surrender hereof
another Right Certificate or Right Certificates for the number of whole Rights
not exercised. The number of Rights evidenced by this Right Certificate (and the
number of one one-hundredths of a Preferred Share which may be purchased upon
exercise thereof) set forth above, and the Purchase Price set forth above, are
the number and Purchase Price as of the date of the Rights Agreement, based on
the Preferred Shares as constituted at such date.

                                       B-1
<PAGE>   46

         As provided in the Rights Agreement, the Purchase Price and/or the
number and/or kind of securities issuable upon the exercise of the Rights
evidenced by this Right Certificate are subject to adjustment upon the
occurrence of certain events.

         This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities of the Rights Agent,
the Company and the holders of the Right Certificates, which limitations of
rights include the temporary suspension of the exercisability of the Rights
under the circumstances specified in the Rights Agreement. Copies of the Rights
Agreement are on file at the above-mentioned office of the Rights Agent and can
be obtained from the Company without charge upon written request therefor. Terms
used herein with initial capital letters and not defined herein are used herein
with the meanings ascribed thereto in the Rights Agreement.

         Pursuant to the Rights Agreement, from and after the occurrence of a
Flip-in Event, any Rights that are Beneficially Owned by (i) any Acquiring
Person (or any Affiliate or Associate of any Acquiring Person), (ii) a
transferee of any Acquiring Person (or any such Affiliate or Associate) who
becomes a transferee after the occurrence of a Flip-in Event, or (iii) a
transferee of any Acquiring Person (or any such Affiliate or Associate) who
became a transferee prior to or concurrently with the Flip-in Event pursuant to
either (a) a transfer from an Acquiring Person to holders of its equity
securities or to any Person with whom it has any continuing agreement,
arrangement or understanding regarding the transferred Rights or (b) a transfer
which the Directors of the Company have determined is part of a plan,
arrangement or understanding which has the purpose or effect of avoiding certain
provisions of the Rights Agreement, and subsequent transferees of any of such
Persons, will be void without any further action and any holder of such Rights
will thereafter have no rights whatsoever with respect to such Rights under any
provision of the Rights Agreement. From and after the occurrence of a Flip-in
Event, no Right Certificate will be issued that represents Rights that are or
have become void pursuant to the provisions of the Rights Agreement, and any
Right Certificate delivered to the Rights Agent that represents Rights that are
or have become void pursuant to the provisions of the Rights Agreement will be
canceled.

         This Right Certificate, with or without other Right Certificates, may
be transferred, split up, combined or exchanged for another Right Certificate or
Right Certificates entitling the holder to purchase a like number of one
one-hundredths of a Preferred Share (or other securities, as the case may be) as
the Right Certificate or Right Certificates surrendered entitled such holder (or
former holder in the case of a transfer) to purchase, upon presentation and
surrender hereof at the principal office of the Rights Agent designated for such
purpose, with the Form of Assignment (if appropriate) and the related
Certificate duly executed.

         Subject to the provisions of the Rights Agreement, the Rights evidenced
by this Certificate may be redeemed by the Company at its option at a redemption
price of $.01 per Right or may be exchanged in whole or in part. The Rights
Agreement may be supplemented and amended by the Company, as provided therein.

                                       B-2
<PAGE>   47

         The Company is not required to issue fractions of Preferred Shares
(other than fractions which are integral multiples of one one-hundredth of a
Preferred Share, which may, at the option of the Company, be evidenced by
depositary receipts) or other securities issuable upon the exercise of any Right
or Rights evidenced hereby. In lieu of issuing such fractional Preferred Shares
or other securities, the Company may make a cash payment, as provided in the
Rights Agreement.

         No holder of this Right Certificate, as such, will be entitled to vote
or receive dividends or be deemed for any purpose the holder of the Preferred
Shares or of any other securities of the Company which may at any time be
issuable upon the exercise of the Right or Rights represented hereby, nor will
anything contained herein or in the Rights Agreement be construed to confer upon
the holder hereof, as such, any of the rights of a stockholder of the Company or
any right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in the Rights Agreement), or to receive
dividends or subscription rights, or otherwise, until the Right or Rights
evidenced by this Right Certificate have been exercised in accordance with the
provisions of the Rights Agreement.

         This Right Certificate will not be valid or obligatory for any purpose
until it has been countersigned by the Rights Agent.

         WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal. Dated as of ________, ____.

[SEAL]

ATTEST:                                  T/R SYSTEMS, INC.

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

Countersigned:
EquiServe Trust Company, N.A.

By:
   -----------------------------
        Authorized Signature

                                       B-3
<PAGE>   48

                    Form of Reverse Side of Right Certificate

                               FORM OF ASSIGNMENT

                (To be executed by the registered holder if such
                holder desires to transfer the Right Certificate)

         FOR VALUE RECEIVED, _______________ hereby sells, assigns and transfers

unto ___________________________________________________________________________
                  (Please print name and address of transferee)

________________________________________________________________________________
this Right Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint ___________________ Attorney, to
transfer the within Right Certificate on the books of the within-named Company,
with full power of substitution.

Dated:               ,
      ---------------  -------

                                             -----------------------------------
                                             Signature

Signature Guaranteed:

                                       B-4
<PAGE>   49

                                   CERTIFICATE

         The undersigned hereby certifies by checking the appropriate boxes
that:

         (1)      the Rights evidenced by this Right Certificate [ ] are [ ] are
not being sold, assigned, transferred, split up, combined or exchanged by or on
behalf of a Person who is or was an Acquiring Person or an Affiliate or
Associate of any such Person (as such terms are defined in the Rights
Agreement);

         (2)      after due inquiry and to the best knowledge of the
undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Right
Certificate from any Person who is, was or became an Acquiring Person or an
Affiliate or Associate of an Acquiring Person.

Dated:            ,
      ------------  ------

                                             -----------------------------------
                                             Signature

                                       B-5
<PAGE>   50

                          FORM OF ELECTION TO PURCHASE

                      (To be executed if holder desires to
                         exercise the Right Certificate)

To T/R Systems, Inc.:

         The undersigned hereby irrevocably elects to exercise __________ Rights
represented by this Right Certificate to purchase the one one-hundredths of a
Preferred Share or other securities issuable upon the exercise of such Rights
and requests that certificates for such securities be issued in the name of and
delivered to:

Please insert social security
or other identifying number:____________________________________________________

________________________________________________________________________________
                         (Please print name and address)

________________________________________________________________________________
If such number of Rights is not all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
will be registered in the name of and delivered to:

Please insert social security
or other identifying number: ___________________________________________________

________________________________________________________________________________
                         (Please print name and address)

Dated:            ,
      ------------  ------

                                             -----------------------------------
                                             Signature

Signature Guaranteed:
                     ---------------------------------

                                       B-6
<PAGE>   51

                                   CERTIFICATE

         The undersigned hereby certifies by checking the appropriate boxes
that:

         (1)      the Rights evidenced by this Right Certificate [ ] are [ ] are
not being exercised by or on behalf of a Person who is or was an Acquiring
Person or an Affiliate or Associate of any such Person (as such terms are
defined pursuant to the Rights Agreement);

         (2)      after due inquiry and to the best knowledge of the
undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Right
Certificate from any Person who is, was, or became an Acquiring Person or an
Affiliate or Associate of an Acquiring Person.

Dated:            ,
      ------------  -------

                                             -----------------------------------
                                             Signature

                                     NOTICE

         SIGNATURES ON THE FOREGOING FORM OF ASSIGNMENT AND FORM OF ELECTION TO
PURCHASE AND IN THE RELATED CERTIFICATES MUST CORRESPOND TO THE NAME AS WRITTEN
UPON THE FACE OF THIS RIGHT CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATSOEVER.

         SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED MEDALLION SIGNATURE PROGRAM) PURSUANT TO RULE 17AD-15
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

                                       B-7
<PAGE>   52

                                                                       EXHIBIT C

                  SUMMARY OF RIGHTS TO PURCHASE PREFERRED STOCK

         The Directors of T/R Systems, Inc. (the "Company") have declared a
dividend distribution of one right (a "Right") for each outstanding share of
Common Stock, par value $0.01 per share (the "Common Shares"), of the Company.
The distribution is payable on November 27, 2000 (the "Record Date") to the
stockholders of record as of the close of business on the Record Date. Each
Right entitles the registered holder thereof to purchase from the Company one
one-hundredth of a share of Series A Junior Participating Preferred Stock, par
value $0.01 per share (the "Preferred Shares"), of the Company at a price (the
"Purchase Price") of $45.00 per one one-hundredth of a Preferred Share, subject
to adjustment. The description and terms of the Rights are set forth in a Rights
Agreement, dated as of November 9, 2000 (the "Rights Agreement"), between the
Company and EquiServe Trust Company, N.A., as Rights Agent (the "Rights Agent").

         Under the Rights Agreement, the Rights will be evidenced by the
certificates evidencing Common Shares until the earlier (the "Distribution
Date") of: (i) the close of business on the tenth calendar day following the
first date (the "Share Acquisition Date") of public announcement that a person
or entity (other than the Company, a subsidiary or employee benefit or stock
ownership plan of the Company or any of its affiliates or associates), together
with its affiliates and associates, has acquired beneficial ownership of 15% or
more of the outstanding Common Shares (any such person or entity being
hereinafter called an "Acquiring Person") or (ii) the close of business on the
tenth business day (or such later date as may be specified by the Directors)
following the commencement of a tender offer or exchange offer by a person or
entity (other than the Company, a subsidiary or employee benefit or stock
ownership plan of the Company or any of its affiliates or associates), the
consummation of which would result in beneficial ownership by such person of 15%
or more of the outstanding Common Shares.

         The Rights Agreement provides that, until the Distribution Date, the
Rights may be transferred with and only with the Common Shares. Until the
Distribution Date (or earlier redemption, exchange or expiration of the Rights),
any certificate evidencing Common Shares of the Company issued upon transfer or
new issuance of the Common Shares will contain a notation incorporating the
Rights Agreement by reference. Until the Distribution Date (or earlier
redemption, exchange or expiration of the Rights), the surrender for transfer of
any certificates evidencing Common Shares will also constitute the transfer of
the Rights associated with such certificates. As soon as practicable following
the Distribution Date, separate certificates evidencing the Rights ("Right
Certificates") will be mailed to holders of record of Common Shares as of the
close of business on the Distribution Date and such separate Right Certificates
alone will evidence the Rights. No Right is exercisable at any time prior to the
Distribution Date. The Rights will expire on the tenth anniversary of the Record
Date (the "Final Expiration Date") unless earlier redeemed, exchanged or amended
by the Company as described below. Until a Right is exercised, the holder
thereof, as such, will have no rights as a stockholder of the Company, including
the right to vote or to receive dividends.

         The Purchase Price payable, and the number of the Preferred Shares or
other securities issuable, upon exercise of the Rights will be subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of,

                                       C-1
<PAGE>   53

the Preferred Shares, (ii) upon the grant to holders of Preferred Shares of
certain rights or warrants to subscribe for or purchase the Preferred Shares at
a price, or securities convertible into the Preferred Shares with a conversion
price, less than the then-current market price of the Preferred Shares, or (iii)
upon the distribution to holders of the Preferred Shares of evidences of
indebtedness, cash (excluding regular periodic cash dividends), assets, stock
(excluding dividends payable in the Preferred Shares) or subscription rights or
warrants (other than those referred to above). The number of outstanding Rights
and the number of one one-hundredths of the Preferred Shares issuable upon
exercise of each Right will be subject to adjustment in the event of a stock
dividend on the Common Shares payable in Common Shares or a subdivision,
combination or reclassification of Common Shares occurring, in any such case,
prior to the Distribution Date.

         The Preferred Shares issuable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled, in connection with the
declaration of a dividend on the Common Shares, to a preferential dividend
payment equal to the greater of (i) $1.00 per share and (ii) an amount equal to
100 times the related dividend declared per Common Share. Subject to customary
anti-dilution provisions, in the event of liquidation, the holders of Preferred
Shares will be entitled to a preferential liquidation payment equal to the
greater of (a) $100 per share and (b) an amount equal to 100 times the
liquidation payment made per Common Share. Because of the nature of the
Preferred Shares' dividend, voting and liquidation rights, the value of the one
one-hundredth interest in a Preferred Share purchasable upon exercise of a Right
should approximate the value of one Common Share.

         Rights will be exercisable to purchase Preferred Shares only after the
Distribution Date occurs and prior to the occurrence of a Flip-in Event as
described below. A Distribution Date resulting from the commencement of a tender
offer or exchange offer described in clause (ii) of the second paragraph of this
summary could precede the occurrence of a Flip-in Event and thus result in the
Rights being exercisable to purchase Preferred Shares. A Distribution Date
resulting from any occurrence described in clause (i) of the second paragraph of
this summary would necessarily follow the occurrence of a Flip-in Event and thus
result in the Rights being exercisable to purchase Common Shares or other
securities as described below.

         Under the Rights Agreement, in the event (a "Flip-in Event") that (i)
any person or entity, together with its affiliates and associates, becomes an
Acquiring Person (ii) any Acquiring Person or any affiliate or associate thereof
merges into or combines with the Company and the Company is the surviving
corporation, (iii) any Acquiring Person or any affiliate or associate thereof
effects certain other transactions with the Company, or (iv) during such time as
there is an Acquiring Person the Company effects certain transactions, in each
case as described in the Rights Agreement, then, in each such case, proper
provision will be made so that from and after the latest of the Share
Acquisition Date, the Distribution Date and the date of the occurrence of such
Flip-in Event each holder of a Right, other than Rights that are or were owned
beneficially by an Acquiring Person (which, from and after the date of a Flip-in
Event, will be void), will have the right to receive, upon exercise thereof at
the then-current exercise price of the Right, that number of Common Shares (or,
under certain circumstances, an economically equivalent security or securities
of the Company) that at the time of such Flip-in Event have a market value of
two times the exercise price of the Right.

                                       C-2
<PAGE>   54

         In the event (a "Flip-over Event") that, at any time after a person has
become an Acquiring Person, (i) the Company merges with or into any person and
the Company is not the surviving corporation, (ii) any person merges with or
into the Company and the Company is the surviving corporation, but all or part
of the Common Shares are changed or exchanged for stock or other securities of
any other person or cash or any other property, or (iii) 50% or more of the
Company's assets or earning power, including securities creating obligations of
the Company, are sold, in each case as described in the Rights Agreement, then,
and in each such case, proper provision will be made so that from and after the
latest of the Share Acquisition Date, the Distribution Date and the date of the
occurrence of such Flip-over Event, each holder of a Right, other than Rights
which have become void, will thereafter have the right to receive, upon the
exercise thereof at the then-current exercise price of the Right, that number of
shares of common stock (or, under certain circumstances, an economically
equivalent security or securities) of such other person that at the time of such
Flip-over Event have a market value of two times the exercise price of the
Right.

         From and after the later of the Share Acquisition Date and the
Distribution Date, Rights (other than any Rights that have become void) will be
exercisable as described above, upon payment of the aggregate exercise price in
cash. In addition, at any time after the later of the Share Acquisition Date and
the Distribution Date and prior to the acquisition by any person or group of
affiliated or associated persons of 50% or more of the outstanding Common
Shares, the Company may exchange the Rights (other than any rights that have
become void), in whole or in part, at an exchange ratio of one Common Share per
Right (subject to adjustment).

         With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment in the Purchase
Price of at least 1%. The Company will not be required to issue fractional
Preferred Shares (other than fractions that are integral multiples of one
one-hundredth of a Preferred Share, which may, at the option of the Company, be
evidenced by depositary receipts) or fractional Common Shares or other
securities issuable upon the exercise of Rights. In lieu of issuing such
securities, the Company may make a cash payment, as provided in the Rights
Agreement.

         The Company may, at its option, redeem the Rights in whole, but not in
part, at a price of $0.01 per Right, subject to adjustment (the "Redemption
Price"), at any time prior to the close of business on the later of the
Distribution Date and the Share Acquisition Date. Immediately upon any
redemption of the Rights, the right to exercise the Rights will terminate and
the only right of the holders of Rights will be to receive the Redemption Price.
Notwithstanding the foregoing, a majority of the continuing directors (defined
to include incumbent Directors of the Company and their successors that are
nominated for election by a majority of the incumbent Directors, but
specifically excluding representatives of Acquiring Persons) must concur with
the redemption of any of the Rights on or for a period of one calendar year
following the date (i) a person becomes an Acquiring Person or (ii) a majority
of the Directors are replaced due to the actions of any person or persons who
may become an Acquiring Person or who may cause a Flip-in Event or Flip-over
Event.

         The Rights Agreement may be amended by the Company without the approval
of any holders of Rights Certificates, including amendments that increase or
decrease the Purchase Price, that add other events requiring adjustment to the
Purchase Price payable and the number of the Preferred Shares or other
securities issuable upon the exercise of the Rights or that modify procedures
relating

                                       C-3
<PAGE>   55

to the redemption of the Rights, except that no amendment may be made that
decreases the stated Redemption Price to an amount less than $0.01 per Right.
Notwithstanding the foregoing, a majority of the continuing directors must
concur with any amendment of the Rights Agreement on or for a period of one
calendar year following the date (i) a person becomes an Acquiring Person or
(ii) a majority of the Directors are replaced due to the actions of any person
or persons who may become an Acquiring Person or who may cause a Flip-in Event
or a Flip-over Event.

         The Directors will have the exclusive power and authority to administer
the Rights Agreement and to exercise all rights and powers specifically granted
to the Directors or to the Company therein, or as may be necessary or advisable
in the administration of the Rights Agreement, including without limitation the
right and power to interpret the provisions of the Rights Agreement and to make
all determinations deemed necessary or advisable for the administration of the
Rights Agreement (including any determination to redeem or not redeem the Rights
or to amend or not amend the Rights Agreement). All such actions, calculations,
interpretations and determinations (including any omission with respect to any
of the foregoing) which are done or made by the Directors in good faith will be
final, conclusive and binding on the Company, the Rights Agent, the holders of
the Rights and all other parties and will not subject the Directors to any
liability to any person, including without limitation the Rights Agent and the
holders of the Rights.

         A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an exhibit to a Registration Statement on Form 8-A. A
copy of the Rights Agreement is available free of charge from the Company.

         This summary description of the Rights is as of the Record Date, does
not purport to be complete and is qualified in its entirety by reference to the
Rights Agreement, which is incorporated herein by this reference.

                                       C-4<PAGE>   1

                                                                     EXHIBIT 4.9

                  SECOND AMENDED AND RESTATED CREDIT AGREEMENT

                                      among

                              AVONDALE MILLS, INC.

                             The Banks Listed Herein

                                       and

                              WACHOVIA BANK, N.A.,
                                    as Agent

                         Dated as of September 28, 2000

<PAGE>   2

                                TABLE OF CONTENTS

                                CREDIT AGREEMENT

<TABLE>
<CAPTION>
                                                                                                                Page
                                                                                                                ----
<S>                                                                                                             <C>
ARTICLE I DEFINITIONS.............................................................................................1
   Section 1.01   Definitions.....................................................................................1
   Section 1.02   Accounting Terms and Determinations............................................................24
   Section 1.03   References.....................................................................................25
   Section 1.04   Use of Defined Terms...........................................................................25
   Section 1.05   Terminology....................................................................................25

ARTICLE II THE CREDITS...........................................................................................25
   Section 2.01   Commitments to Lend............................................................................25
   Section 2.02   Method of Borrowing............................................................................27
   Section 2.03   Notes..........................................................................................28
   Section 2.04   Maturity of Loans..............................................................................29
   Section 2.05   Interest Rates.................................................................................29
   Section 2.06   Fees...........................................................................................31
   Section 2.07   Optional Termination or Reduction of Commitments...............................................32
   Section 2.08   Mandatory Reduction and Termination of Commitments.............................................32
   Section 2.09   Optional Prepayments...........................................................................33
   Section 2.10   Mandatory Prepayments..........................................................................33
   Section 2.11   General Provisions as to Payments..............................................................33
   Section 2.12   Computation of Interest and Fees...............................................................35
   Section 2.13   Letter of Credit Provisions....................................................................36

ARTICLE III CONDITIONS TO BORROWINGS.............................................................................41
   Section 3.01   Conditions to First Borrowing and Effectiveness of this Agreement..............................41
   Section 3.02   Conditions to All Borrowings...................................................................45

ARTICLE IV REPRESENTATIONS AND WARRANTIES........................................................................46
   Section 4.01   Corporate Existence and Power..................................................................46
   Section 4.02   Corporate and Governmental Authorization; No Contravention.....................................46
   Section 4.03   Binding Effect.................................................................................46
   Section 4.04   Financial Information..........................................................................46
   Section 4.05   No Litigation..................................................................................47
   Section 4.06   Compliance with ERISA..........................................................................47
   Section 4.07   Compliance with Laws; Payment of Taxes.........................................................48
   Section 4.08   Subsidiaries...................................................................................48
   Section 4.09   Investment Company Act.........................................................................48
   Section 4.10   Public Utility Holding Company Act.............................................................48
   Section 4.11   Ownership of Property; Liens...................................................................48
   Section 4.12   No Default.....................................................................................48
   Section 4.13   Full Disclosure................................................................................49
</TABLE>

                                      i

<PAGE>   3

<TABLE>
<S>                                                                                                              <C>
   Section 4.14   Environmental Matters..........................................................................49
   Section 4.15   Capital Stock..................................................................................49
   Section 4.16   Margin Stock...................................................................................50
   Section 4.17   Insolvency.....................................................................................50

ARTICLE V COVENANTS..............................................................................................50
   Section 5.01   Information....................................................................................50
   Section 5.02   Inspection of Property, Books and Records......................................................53
   Section 5.03   Fixed Charge Coverage Ratio....................................................................53
   Section 5.04   Intentionally Omitted..........................................................................53
   Section 5.05   Senior Debt to Capitalization Ratio............................................................53
   Section 5.06   Total Debt to Cash Flow Ratio..................................................................53
   Section 5.07   Restricted Payments............................................................................53
   Section 5.08   Intentionally Omitted..........................................................................53
   Section 5.09   Loans or Advances..............................................................................54
   Section 5.10   Investments....................................................................................54
   Section 5.11   Negative Pledge................................................................................55
   Section 5.12   Maintenance of Existence.......................................................................56
   Section 5.13   Dissolution....................................................................................56
   Section 5.14   Consolidations, Mergers and Sales of Assets....................................................56
   Section 5.15   Use of Proceeds................................................................................56
   Section 5.16   Compliance with Laws; Payment of Taxes.........................................................56
   Section 5.17   Insurance......................................................................................57
   Section 5.18   Change in Fiscal Year..........................................................................57
   Section 5.19   Maintenance of Property........................................................................57
   Section 5.20   Environmental Notices..........................................................................57
   Section 5.21   Environmental Matters..........................................................................57
   Section 5.22   Environmental Release..........................................................................57
   Section 5.23   Additional Consolidated Senior Debt; Debt of Receivables Subsidiary............................58
   Section 5.24   Transactions with Affiliates...................................................................58
   Section 5.25   Collateral.....................................................................................58
   Section 5.26   Subordinated Debt..............................................................................60

ARTICLE VI DEFAULTS..............................................................................................60
   Section 6.01   Events of Default..............................................................................60
   Section 6.02   Notice of Default..............................................................................63

ARTICLE VII THE AGENT............................................................................................63
   Section 7.01   Appointment; Powers and Immunities.............................................................63
   Section 7.02   Reliance by Agent..............................................................................64
   Section 7.03   Defaults.......................................................................................64
   Section 7.04   Rights of Agent as a Bank......................................................................64
   Section 7.05   Indemnification................................................................................64
   Section 7.06   CONSEQUENTIAL DAMAGES..........................................................................65
   Section 7.07   Payee of Note Treated as Owner.................................................................65
   Section 7.08   Nonreliance on Agent and Other Banks...........................................................65
   Section 7.09   Failure to Act.................................................................................66
</TABLE>

                                       ii

<PAGE>   4

<TABLE>
<S>                                                                                                              <C>
   Section 7.10   Resignation or Removal of Agent................................................................66

ARTICLE VIII CHANGE IN CIRCUMSTANCES; COMPENSATION...............................................................66
   Section 8.01   Basis for Determining Interest Rate Inadequate or Unfair.......................................66
   Section 8.02   Illegality.....................................................................................67
   Section 8.03   Increased Cost and Reduced Return..............................................................67
   Section 8.04   Base Rate Loans or Other Fixed Rate Loans Substituted for Affected Fixed Rate Loans............69
   Section 8.05   Compensation...................................................................................69

ARTICLE IX MISCELLANEOUS.........................................................................................69
   Section 9.01   Notices........................................................................................69
   Section 9.02   No Waivers.....................................................................................70
   Section 9.03   Expenses; Documentary Taxes....................................................................70
   Section 9.04   Indemnification................................................................................70
   Section 9.05   Setoff; Sharing of Setoffs.....................................................................70
   Section 9.06   Amendments and Waivers.........................................................................71
   Section 9.07   No Margin Stock Collateral.....................................................................72
   Section 9.08   Successors and Assigns.........................................................................72
   Section 9.09   Confidentiality................................................................................75
   Section 9.10   Representation by Banks........................................................................75
   Section 9.11   Obligations Several............................................................................75
   Section 9.12   Georgia Law....................................................................................75
   Section 9.13   Severability...................................................................................75
   Section 9.14   Interest.......................................................................................76
   Section 9.15   Interpretation.................................................................................76
   Section 9.16   Waiver of Jury Trial; Consent to Jurisdiction..................................................76
   Section 9.17   Counterparts...................................................................................76
   Section 9.18   Release of Receivables Program Assets..........................................................76

EXHIBIT A-1                Form of Revolver Loan Note

EXHIBIT A-2                Form of Swing Loan Note

EXHIBIT B-1                Form of Opinion of Georgia Counsel for the Borrower and the Parent

EXHIBIT B-2                Form of Local Counsel Opinion as to Mortgage

EXHIBIT C                  Form of Opinion of Special Counsel for the Agent

EXHIBIT D                  Form of Assignment and Acceptance

EXHIBIT E                  Form of Notice of Borrowing

EXHIBIT F                  Form of Compliance Certificate

EXHIBIT G                  Form of Closing Certificate

EXHIBIT H                  Form of Mortgage
</TABLE>

                                      iii
<PAGE>   5

<TABLE>
<S>                        <C>
EXHIBIT I                  Form of Amended and Restated Parent Guaranty

EXHIBIT J                  Form of Amended and Restated Security Agreement

EXHIBIT K                  Form of Amended and Restated SunTrust Intercreditor Agreement

EXHIBIT L                  Form of Amended and Restated Stock Pledge Agreement

EXHIBIT M                  Form of Receivables Intercreditor Agreement

EXHIBIT N                  Form of Borrower Pledge Agreement

EXHIBIT O                  Limited Guaranty Agreement

EXHIBIT P                  Security Agreement (Avondale Mills Graniteville Fabrics, Inc.)

EXHIBIT Q                  Mortgage and Assignment of Leases, Rents and Profits

EXHIBIT R                  Form of Notice of Letter of Credit

Schedule 4.04              Intangible Assets in Existence Prior to the Original Closing Date

Schedule 4.05              Litigation

Schedule 4.08              Subsidiaries

Schedule 4.14              Environmental Matters

Schedule 5.11              Existing Liens

Schedule 5.17              Description of Insurance

Schedule 5.25              Plants
</TABLE>

                                       iv

<PAGE>   6

                  SECOND AMENDED AND RESTATED CREDIT AGREEMENT

                  SECOND AMENDED AND RESTATED CREDIT AGREEMENT dated as of
September 28, 2000 among AVONDALE MILLS, INC., the BANKS listed on the signature
pages hereof, and WACHOVIA BANK, N.A. (formerly Wachovia Bank of Georgia, N.A.),
as Agent.

                  The Borrower has requested amendments to the Original Credit
Agreement in order, among other things, to extend the Termination Date to
January 30, 2004 and provide for an expanded letter of credit facility, and the
Banks are willing to provide such financing pursuant to the terms and conditions
set forth in this Agreement, which is an amendment and restatement of, and which
replaces, the Original Credit Agreement.

                  The parties hereto agree as follows:

                                   ARTICLE I

                                   DEFINITIONS

                  Section 1.01      Definitions. The terms as defined in this
Section 1.01 shall, for all purposes of this Agreement and any amendment hereto
(except as herein otherwise expressly provided or unless the context otherwise
requires), have the meanings set forth herein:

                  "Accounts Receivable Collateral" has the meaning set forth in
the Security Agreement.

                  "Adjusted London Interbank Offered Rate" has the meaning set
forth in Section 2.05(c).

                  "Affiliate" of any Person means (i) any Person that directly,
or indirectly through one or more intermediaries, controls such Person (a
"Controlling Person"), (ii) any other Person which is controlled by or is under
common control with such Person, or (iii) any other Person of which such Person
owns, directly or indirectly, 20% or more of the common stock or equivalent
equity interests. As used herein, the term "control" means possession, directly
or indirectly, of the power to direct or cause the direction of the management
or policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.

                  "Agent" means Wachovia Bank, N.A. (formerly Wachovia Bank of
Georgia, N.A.), a national banking association organized under the laws of the
United States of America, in its capacity as administrative and syndication
agent for the Banks hereunder, and its successors and permitted assigns in such
capacity.

                  "Agent's Letter Agreement" means the letter agreement dated as
of August 31, 2000 between the Borrower and the Agent, and any amendments and
modifications thereto.

                  "Aggregate Commitment" means the sum of all the Commitments.

<PAGE>   7

                  "Aggregate Unused Commitment" means the sum of all the Unused
Commitments.

                  "Agreement" means this Second Amended and Restated Credit
Agreement (which amends, restates and replaces the Original Credit Agreement),
together with all amendments and supplements hereto.

                  "AMGF" means Avondale Mills Graniteville Fabrics, Inc., a
Delaware corporation which is a Wholly Owned Subsidiary and which formerly was
known as Camp Helen Co.

                  "AMGF Distribution Facility Lease" means the Lease Agreement
dated May 16, 1997, between Graniteville, L.L.C., as "Lessor", and AMGF, as
"Lessee", pursuant to which the "Lessor" will construct a 254,774 square foot
distribution facility on premises located on Bettis Academy Road, Sage Mill
Industrial Park, Aiken County, South Carolina, and AMGF will lease such
distribution facility for a term of 10 years, commencing November 15, 1997, for
a monthly base rent of $58,385 on a "triple net" basis.

                  "AMGF Documents" means the AMGF Guaranty, the AMGF Mortgage
and the AMGF Security Agreement, or any one, or more, or all of them, as the
context shall require.

                  "AMGF/Graniteville Transaction" means the transaction which
includes the following related events: (i) the transfer by the Borrower, as an
additional equity capital contribution, of the Graniteville Indigo Dyeing
Facility (having a book value of approximately $6,300,000) to AMGF; (ii) the
loan by the Borrower to AMGF of up to $40,000,000 (or such amount in excess
thereof as to which the consent of the Required Banks has been obtained) to
construct and equip a weave room addition to the Graniteville Indigo Dyeing
Facility and to equip the facility leased under the AMGF Distribution Facility
Lease; (iii) the release by the Agent of the Graniteville Indigo and Dyeing
Facility from the Mortgage and the Security Agreement; and (iv) the execution
and delivery by AMGF of the AMGF Documents pursuant to the Second Amendment, as
described in Section 5.25(e).

                  "AMGF Guaranty" means the Limited Guaranty Agreement dated as
of the date of the Second Amendment, substantially in the form of Exhibit O,
executed by AMGF in favor of the Agent, for the benefit of the Banks,
unconditionally Guaranteeing the payment of all of the Obligations, but pursuant
to which the liability of AMGF is limited as provided in Section 15 thereof.

                  "AMGF Mortgage" means the Mortgage and Assignment of Leases,
Rents and Profits executed by AMGF dated as of the date of the Second Amendment,
substantially in the form of Exhibit P, conveying a first priority security
title to and Lien on the real property and improvements at the AMGF Plant to the
Agent, for the benefit of the Banks, subject only to the Permitted Encumbrances
applicable thereto, as security for the obligations of AMGF pursuant to the AMGF
Guaranty, together with all amendments and supplements thereto.

                  "AMGF Plant" means the Graniteville Indigo Dyeing Facility and
all equipment now or hereafter located thereon or used in connection therewith,
including, without limitation,

                                     2

<PAGE>   8

all property added in connection with the construction of a weave room addition
pursuant to the AMGF/Graniteville Transaction, and all replacements thereof and
substitutions therefor.

                  "AMGF Security Agreement" means the Security Agreement
executed by AMGF dated as of the date of the Second Amendment, substantially in
the form of Exhibit Q, granting to the Agent, for the benefit of the Banks, a
first priority security interest in all accounts, inventory, general
intangibles, documents and equipment of AMGF, including without limitation, the
personal property at the AMGF Plant and at the facility leased under the AMGF
Distribution Facility Lease, together with all proceeds of all of the foregoing,
subject only to the Permitted Encumbrances, together with all amendments and
supplements thereto.

                  "Anniversary Date" means the last day of each 12 month period,
commencing on the Closing Date.

                  "Applicable Margin" has the meaning set forth in Section
2.05(a).

                  "Assignee" has the meaning set forth in Section 9.08(c).

                  "Assignment and Acceptance" means an Assignment and Acceptance
executed in accordance with Section 9.08(c) in the form attached hereto as
Exhibit D.

                  "Authority" has the meaning set forth in Section 8.02.

                  "Bank" means each bank listed on the signature pages hereof as
having a Commitment, and its successors and assigns.

                  "Base Rate" means for any Base Rate Loan for any day, the rate
per annum equal to the higher as of such day of (i) the Prime Rate, and (ii)
one-half of one percent above the Federal Funds Rate. For purposes of
determining the Base Rate for any day, changes in the Prime Rate shall be
effective on the date of each such change.

                  "Base Rate Loan" means a Loan which bears or is to bear
interest at a rate based upon the Base Rate.

                  "Bill and Hold" means an arrangement in which the Borrower or
its Subsidiary, at the request of one of its customers contained in a written
purchase order and/or similar writing, invoices the customer for goods but
retains possession of such goods for a period of time; provided, that all of the
following requirements are satisfied:

                  (a)      title to, and the risk of loss of, the goods is
         transferred to the customer, and the Borrower's or Subsidiary's
         inventory records are marked to indicate that title has passed;

                  (b)      the Borrower's or Subsidiary's records are adequate
         to enable the Borrower or Subsidiary or a third-party to identify the
         goods subject to such arrangement as separate from the Borrower's or
         Subsidiary's own inventory at any time; and

                                       3
<PAGE>   9

                  (c)      the related invoice is payable on the normal due date
         for similar Receivables of the Borrower or Subsidiary that do not arise
         from a Bill and Hold arrangement.

                  "Borrower" means Avondale Mills, Inc., an Alabama corporation,
and its successors and its permitted assigns.

                  "Borrower Pledge Agreement" means a Stock Pledge Agreement, in
substantially the form of Exhibit N, executed pursuant to the Original Credit
Agreement by the Borrower in favor of the Agent , for the benefit of the Banks,
pledging all of the Receivables Subsidiary Pledged Stock to secure the payment
of all of the Obligations, pursuant to the provisions of Section 9.18.

                  "Borrowing" means a borrowing hereunder consisting of Revolver
Loans or Swing Loans. A Borrowing is a "Domestic Borrowing" if such Loans are
Domestic Loans or a "Euro-Dollar Borrowing" if such Loans are Euro-Dollar Loans.
A Domestic Borrowing is a "Set Rate Borrowing" if such Domestic Loans are Set
Rate Loans or a "Base Rate Borrowing" if such Domestic Loans are Base Rate
Loans.

                  "Capital Expenditures" means for any period the sum of all
capital expenditures incurred during such period by the Parent and its
Consolidated Subsidiaries, as determined in accordance with GAAP, but in any
event including expenditures for assets acquired under Capitalized Leases.

                  "Capital Stock" means any nonredeemable capital stock of the
Parent or any Consolidated Subsidiary (to the extent issued to a Person other
than the Parent), whether common or preferred.

                  "Capitalized Lease" means any lease which is required to be
capitalized on a consolidated balance sheet of the lessee and its subsidiaries
in accordance with GAAP.

                  "Capitalized Rentals" of any Person means as of the date of
any determination thereof the amount at which the aggregate Rentals due and to
become due under all Capitalized Leases under which such Person is a lessee
would be reflected as a liability on a consolidated balance sheet of such Person
in accordance with GAAP.

                  "CERCLA" means the Comprehensive Environmental Response
Compensation and Liability Act, 42 U.S.C.ss. 9601 et. seq. and its implementing
regulations and amendments.

                  "CERCLIS" means the Comprehensive Environmental Response
Compensation and Liability Inventory System established pursuant to CERCLA.

                  "Change of Law" shall have the meaning set forth in Section
8.02.

                  "Closing Certificate" has the meaning set forth in Section
3.01(b)(ii).

                  "Closing Date" means September 28, 2000.

                                       4
<PAGE>   10

                  "Code" means the Internal Revenue Code of 1986, as amended, or
any successor Federal tax code.

                  "Collateral" means (i) the personal property in which the
Agent is granted a security interest pursuant to the Security Agreement and the
AMGF Security Agreement, respectively, (ii) the Plants and the AMGF Plant
conveyed to the Agent pursuant to the Operative Mortgages, and (iii) the Pledged
Stock pledged to the Agent pursuant to the Pledge Agreement; provided, however,
that all references to Collateral shall exclude the Receivables Program Assets,
but shall include the Receivables Subsidiary Pledged Stock and the Purchase
Money Note.

                  "Commitment" means, with respect to each Bank, the amount set
forth opposite the name of such Bank on the signature pages hereof, as such
amount may be reduced from time to time pursuant to Sections 2.07 and 2.08.

                  "Compliance Certificate" has the meaning set forth in Section
5.01(c).

                  "Consolidated Adjusted Tangible Net Worth" means, at any time,
Stockholders' Equity, less the sum of the value, as set forth or reflected on
the most recent consolidated balance sheet of the Parent and its Consolidated
Subsidiaries, prepared in accordance with GAAP, of any of the following, but
only to the extent created, incurred or arising on or after the Original Closing
Date (except as specified in clause (A) below):

                  (A) Any surplus resulting from any write-up of assets
subsequent to August 25, 1995, other than in connection with the acquisition of
the Graniteville Assets;

                  (B) All assets which would be treated as intangible assets for
balance sheet presentation purposes under GAAP, including without limitation
goodwill (whether representing the excess of cost over book value of assets
acquired, or otherwise), trademarks, tradenames, copyrights, patents and
technologies, and unamortized debt discount and expense, other than capitalized
transaction costs incurred in connection with the acquisition of the
Graniteville Assets; and

                  (C) To the extent not included in (B) of this definition, any
amount at which shares of Capital Stock of the Parent appear as an asset on the
balance sheet of the Parent and its Consolidated Subsidiaries.

                  "Consolidated Cash Flow" means for any period, for the Parent
and its Consolidated Subsidiaries, determined on a consolidated basis in
accordance with GAAP, and calculated for the Fiscal Quarter just ended and the
immediately preceding 3 Fiscal Quarters, Consolidated Net Income, plus (i) Net
Interest Expense (including interest on the Subordinated Debt), plus (ii) income
taxes, plus (iii) depreciation, plus (iv) amortization, plus or minus, as the
case may be, (v) LIFO Adjustments and plus (vi) the amount of any non-cash
write-offs of obsolete or surplus equipment, spare parts or real property, up to
but not in excess of $10,000,000 during any period of 4 consecutive Fiscal
Quarters.

                  "Consolidated Net Income" means, for any period, the Net
Income of the Parent and its Consolidated Subsidiaries determined on a
consolidated basis, but excluding (i)

                                       5
<PAGE>   11

extraordinary items and (ii) any equity interests of the Parent or any
Subsidiary in the unremitted earnings of any Person that is not a Subsidiary.
For purposes of clause (i), extraordinary items shall include termination and
severance payments to employees, and costs and expenses incurred or accrued in
connection with the closing of facilities, relating to or as a result of the
acquisition of the Graniteville Assets, but, as to cash items, only to the
extent of such cash items which are paid or incurred prior to the end of the
first Fiscal Quarter of the 1997 Fiscal Year and in an aggregate amount not
exceeding $5,000,000.

                  "Consolidated Senior Debt" means Consolidated Total Funded
Debt, excluding, however, the Subordinated Debt.

                  "Consolidated Subsidiary" means at any date any Subsidiary or
other entity the accounts of which, in accordance with GAAP, would be
consolidated with those of the Parent in its consolidated financial statements
as of such date.

                  "Consolidated Total Capitalization" shall mean as of the date
of any determination thereof, the sum of (a) Consolidated Adjusted Tangible Net
Worth and (b) Consolidated Total Funded Debt.

                  "Consolidated Total Funded Debt" means at any date the Funded
Debt of the Parent and its Consolidated Subsidiaries, determined on a
consolidated basis as of such date.

                  "Controlled Group" means all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with the Parent, are treated as a single employer
under Section 414 of the Code.

                  "Coosa Bonds" means the $7,500,000 Industrial Development
Board of Coosa County Tax-Exempt Adjustable Mode Industrial Development Revenue
Bonds (Avondale Mills, Inc. Project) Series 2000 issued pursuant to the Coosa
Bonds Indenture, in connection with the acquisition by the Coosa Bonds Issuer
and the leasing by the Coosa Bonds Issuer to the Borrower, as lessee, of the
project in Coosa County, Alabama, more particularly described in the Coosa Bonds
Indenture.

                  "Coosa Bonds Indenture" means the Indenture of Trust by and
between the Industrial Development Board of Coosa County and The Bank of New
York, as Trustee, dated as of April 1, 2000, as amended or supplemented from
time to time pursuant thereto.

                  "Coosa Bonds Issuer" has the meaning set forth for the term
"Issuer" in the Coosa Bonds Indenture.

                  "Coosa Bonds Letter of Credit" means the standby Letter of
Credit issued by the Agent to The Bank of New York, as Trustee under the Coosa
Bonds Indenture, described in and issued to enhance the Coosa Bonds pursuant to
the Coosa Bonds Reimbursement Agreement, in the amount of the sum of (i) the
Coosa Bonds Letter of Credit - Principal Component (in the initial amount of
$7,500,000), plus (ii) the Coosa Bonds Letter of Credit - Interest Component (in
the initial amount of $282,500), which Coosa Bonds Letter of Credit is subject
to:

                                       6
<PAGE>   12

                  (1)      automatic extensions of the Coosa Bonds Letter of
                           Credit Expiration Date for additional one month
                           periods, unless a Coosa Bonds Notice of Non-Extension
                           is received by the parties entitled thereto as
                           provided in Section 2.2(b) of the Coosa Bonds
                           Reimbursement Agreement, in which case the Coosa
                           Bonds Letter of Credit Expiration Date is the fifth
                           date of the thirteenth calendar month following the
                           calendar month during which such Coosa Bonds Notice
                           of Non-Extension is so received;

                  (2)      cancellation or replacement by another letter of
                           credit pursuant to Section 2.2(c) of the Coosa Bonds
                           Reimbursement Agreement;

                  (3)      reduction by the amount of any principal of the Coosa
                           Bonds drawn thereunder, including by the amount of
                           any Coosa Bonds Tender Drawing, subject to
                           reinstatement to the Coosa Bonds Letter of Credit -
                           Principal Component as to the amount of any Coosa
                           Bonds Tender Drawing upon receipt by the Coosa Bonds
                           Trustee of notice from the Agent that the Coosa Bonds
                           Tender Advance applicable thereto has been repaid;

                  (4)      reduction by the amount of any interest of the Coosa
                           Bonds drawn thereunder, subject to automatic
                           reinstatement to the Coosa Bonds Letter of Credit -
                           Interest Component 10 calendar days after such
                           interest drawing, unless the Agent has notified the
                           Coosa Bonds Trustee that the Agent has not been
                           reimbursed therefor or that an Event of Default has
                           occurred and is continuing pursuant to Section 2.3 of
                           the Coosa Bonds Reimbursement Agreement; and

                  (5)      reduction by the amount of any Coosa Bonds redeemed,
                           defeased or cancelled, as specified in a notice from
                           the Coosa Bonds Trustee to the Agent pursuant to
                           Section 3.8(b) of the Coosa Bonds Indenture.

                  "Coosa Bonds Letter of Credit Expiration Date" means October
5, 2001, or such later date to which the Coosa Bonds Letter of Credit Expiration
Date has been extended as contemplated in clause (1) of the definition of Coosa
Bonds Letter of Credit.

                  "Coosa Bonds Letter of Credit Fee" means the letter of credit
fee calculated and payable quarterly in advance pursuant to Section 2.4(a) of
the Coosa Bonds Reimbursement Agreement, at a rate equal to the Applicable
Margin for Euro-Dollar Loans in effect from time to time hereunder.

                  "Coosa Bonds Letter of Credit - Interest Component" means an
interest component equal to 113 days' interest on the Coosa Bonds, computed as
though the Coosa Bonds bore interest at the rate of 12% per annum,
notwithstanding the actual rate borne by the Coosa Bonds from time to time,
based on a 360-day year for the actual number of days elapsed.

                  "Coosa Bonds Letter of Credit Obligations" means, at any
particular time, without duplication, the sum of (a) the Coosa Bonds
Reimbursement Obligations at such time, (b) the aggregate maximum amount
available for drawing under the Coosa Bonds Letter of Credit at such time and
(c) the amount of any Coosa Bonds Reinstatement Reserve at such time.

                                       7
<PAGE>   13

                  "Coosa Bonds Letter of Credit - Principal Component" means the
aggregate principal amount of the Coosa Bonds.

                  "Coosa Bonds Letter of Credit Related Documents" means the
"Related Documents", as defined in the Coosa Bonds Reimbursement Agreement.

                  "Coosa Bonds Notice of Non-Extension" has the meaning set
forth for the term "Notice of Non-Extension" in the Coosa Bonds Reimbursement
Agreement.

                  "Coosa Bonds Reimbursement Agreement" means the Reimbursement
and Security Agreement dated as OF April 1, 2000 between the Agent, as the
issuer, and the Borrower, as the account party, in substantially the form of
Annex 1 attached hereto and made a part hereof, as amended or supplemented from
time to time as permitted hereby and thereby.

                  "Coosa Bonds Reimbursement Note" has the meaning set forth for
the term "Reimbursement Note" in the Coosa Bonds Reimbursement Agreement.

                  "Coosa Bonds Reimbursement Obligations" means the
reimbursement or repayment obligations of the Borrower to the Agent pursuant to
Section 2.5 of the Coosa Bonds Reimbursement Agreement.

                  "Coosa Bonds Reinstatement Reserve" means, with respect to the
Coosa Bonds Letter of Credit, at any time the amount which has been drawn under
the Coosa Bonds Letter of Credit (i) for payment of interest on the Coosa Bonds
which is subject to being but has not yet been reinstated to the Coosa Bonds
Letter of Credit - Interest Component pursuant to Paragraph 5 of the Coosa Bonds
Letter of Credit and Section 2.3 of the Coosa Bonds Reimbursement Agreement and
(ii) for payment of principal on the Coosa Bonds which is subject to being but
has not yet been reinstated to the Coosa Bonds Letter of Credit - Principal
Component pursuant to Paragraph 6 of the Coosa Bonds Letter of Credit and
Section 2.3 of the Coosa Bonds Reimbursement Agreement.

                  "Coosa Bonds Tender Advance" has the meaning set forth for the
term "Tender Advance" in the Coosa Bonds Reimbursement Agreement.

                  "Coosa Bonds Tender Drawing" has the meaning set forth for the
term "Tender Drawing" in the Coosa Bonds Reimbursement Agreement.

                  "Coosa Bonds Trustee" means The Bank of New York, or any
successor thereof, in its capacity as trustee under the Coosa Bonds Indenture.

                  "Current Maturities of Long Term Debt" means all payments in
respect of Long Term Debt (other than the Working Capital Obligations) that are
required to be made within one year from the date of determination, whether or
not the obligation to make such payments would constitute a current liability of
the obligor under GAAP.

                  "Debt" of any Person means at any date, without duplication,
(i) all obligations of such Person for borrowed money, (ii) all obligations of
such Person evidenced by bonds, debentures, notes or other similar instruments,
(iii) all obligations of such Person to pay the

                                       8
<PAGE>   14

deferred purchase price of property or services, except trade accounts payable
arising in the ordinary course of business, (iv) all obligations of such Person
as lessee under Capitalized Leases, (v) all obligations of such Person to
reimburse any bank or other Person in respect of amounts payable under a
banker's acceptance, (vi) all Redeemable Preferred Stock of such Person (in the
event such Person is a corporation), (vii) all obligations of such Person to
reimburse any bank or other Person in respect of amounts paid or to be paid
under a letter of credit or similar instrument, (viii) all Debt of others
secured by a Lien on any asset of such Person, whether or not such Debt is
assumed by such Person, (ix) all Debt of others Guaranteed by such Person and
(x) all principal amounts outstanding and owed to parties other than the
Borrower or any Subsidiary under the items described in clause (a) of the
definition of Receivables Program Obligations; provided, however, that the AMGF
Distribution Facility Lease shall not constitute Debt for any purpose under this
Agreement.

                  "Default" means any condition or event which constitutes an
Event of Default or which with the giving of notice or lapse of time or both
would, unless cured or waived, become an Event of Default.

                  "Default Rate" means, with respect to any Loan, on any day,
the sum of (i) 2% plus (ii) the interest rate (including the Applicable Margin)
then in effect for such Loan; provided, however, that for any Fixed Rate Loan
the rate under this clause (ii) shall not be less than the rate for Base Rate
Loans after the end of the Interest Period applicable thereto.

                  "Dividends" means any dividend or other distribution paid in
respect of any Capital Stock and Redeemable Preferred Stock (other than
dividends paid or payable in the form of additional Capital Stock or Redeemable
Preferred Stock).

                  "Dollars" or "$" means dollars in lawful currency of the
United States of America.

                  "Domestic Business Day" means any day except a Saturday,
Sunday or other day on which commercial banks in Georgia are authorized by law
to close.

                  "Domestic Loans" means Set Rate Loans or Base Rate Loans or
both, as the context shall require.

                  "Employee Restricted Stock" means the 179,026 shares of Class
A common stock of the Parent held by certain officers of the Parent and/or the
Borrower and subject to the terms of certain stock transfer and repurchase
agreements with such officers.

                  "Environmental Authority" means any foreign, federal, state,
local or regional government that exercises any form of jurisdiction or
authority under any Environmental Requirement.

                  "Environmental Authorizations" means all licenses, permits,
orders, approvals, notices, registrations or other legal prerequisites for
conducting the business of the Borrower or any Subsidiary required by any
Environmental Requirement.

                  "Environmental Judgments and Orders" means all judgments,
decrees or orders arising from or reasonably related to any Environmental
Requirements, whether or not entered

                                       9
<PAGE>   15

upon consent, or written agreements with an Environmental Authority or other
entity arising from or reasonably related to any Environmental Requirement,
whether or not incorporated in a judgment, decree or order.

                  "Environmental Liabilities" means any liabilities, whether
accrued, contingent or otherwise, arising from or reasonably related to any
Environmental Requirements.

                  "Environmental Notices" means written notice from any
Environmental Authority or by any other person or entity, of possible or alleged
noncompliance with or liability under any Environmental Requirement, including
without limitation any complaints, citations, written demands or requests from
any Environmental Authority or from any other person or entity for correction of
any violation of any Environmental Requirement or any investigations concerning
any violation of any Environmental Requirement.

                  "Environmental Proceedings" means any judicial or
administrative proceedings arising from or reasonably related to any
Environmental Requirement.

                  "Environmental Releases" means releases as defined in CERCLA
or under any applicable state or local environmental law or regulation.

                  "Environmental Requirements" means any legal requirement
relating to health, safety or the environment and applicable to the Parent, any
Subsidiary or the Properties, including but not limited to any such requirement
under CERCLA or similar state legislation and all federal, state and local laws,
ordinances, regulations, orders, writs and decrees.

                  "ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, or any successor law. Any reference to any
provision of ERISA shall also be deemed to be a reference to any successor
provision or provisions thereof.

                  "Euro-Dollar Business Day" means any Domestic Business Day on
which dealings in Dollar deposits are carried out in the London interbank
market.

                  "Euro-Dollar Loan" means a Loan to be made as a Euro-Dollar
Loan pursuant to the applicable Notice of Borrowing.

                  "Euro-Dollar Reserve Percentage" has the meaning set forth in
Section 2.05(c).

                  "Event of Default" has the meaning set forth in Section 6.01.

                  "Excluded Receivables Assets" has the meaning set forth in the
Receivables Intercreditor Agreement.

                  "Federal Funds Rate" means, for any day, the rate per annum
(rounded upward, if necessary, to the next higher 1/100th of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Domestic
Business Day next succeeding such day, provided that (i) if the day for which
such rate is to be determined is not a Domestic Business Day, the Federal Funds
Rate for such day

                                       10
<PAGE>   16

shall be such rate on such transactions on the next preceding Domestic Business
Day as so published on the next succeeding Domestic Business Day, and (ii) if
such rate is not so published for any day, the Federal Funds Rate for such day
shall be the average rate charged to the Agent on such day on such transactions,
as determined by the Agent.

                  "Fiscal Quarter" means any fiscal quarter of the Parent.

                  "Fiscal Year" means any fiscal year of the Parent. Any
reference to Fiscal Year together with a specific year (e.g. "1996 Fiscal Year")
refers to the Fiscal Year ending on the last Friday of August in such specific
year.

                  "Fixed Charge Coverage Ratio" means, on a consolidated basis
for the Parent and its Consolidated Subsidiaries, the ratio of (i) Consolidated
Cash Flow, less Dividends paid, for the Fiscal Quarter just ended and the
immediately preceding 3 Fiscal Quarters, to (ii) the sum of Net Interest Expense
for the Fiscal Quarter just ended and the immediately preceding 3 Fiscal
Quarters and Current Maturities of Long Term Debt, calculated at the end of the
Fiscal Quarter just ended.

                  "Fixed Rate Borrowing" means a Set Rate Borrowing or a
Euro-Dollar Borrowing, or both, as the context shall require.

                  "Fixed Rate Loans" means Set Rate Loans or Euro-Dollar Loans,
or both, as the context shall require.

                  "Funded Debt" of any Person shall mean all Debt of such Person
of the types described in clauses (i) through (vi), inclusive, and clause (x) of
the definition of Debt, regardless of the maturity thereof.

                  "GAAP" means generally accepted accounting principles applied
on a basis consistent with those which, in accordance with Section 1.02, are to
be used in making the calculations for purposes of determining compliance with
the terms of this Agreement.

                  "Graniteville Assets" means the assets acquired by the
Borrower from Graniteville Company pursuant to the Graniteville Asset Purchase
Agreement, which included all of the "Assets", but exclude all of the "Excluded
Assets", as those terms were defined therein.

                  "Graniteville Asset Purchase Agreement" means the Asset
Purchase Agreement dated March 31, 1996, as amended or supplemented from time to
time prior to the Original Closing Date, by and among the Borrower, as
Purchaser, the Parent, Graniteville Company, a South Carolina corporation, as
Seller, and Triarc Companies, Inc., a Delaware corporation.

                  "Graniteville Indigo Dyeing Facility" means the approximately
130,000 square foot indigo dyeing facility of the Borrower located in
Graniteville, South Carolina, the real property on which it is located and all
personal property located thereon or used in connection therewith.

                  "Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt or other
obligation of any other Person

                                       11
<PAGE>   17

and, without limiting the generality of the foregoing, any obligation, direct or
indirect, contingent or otherwise, of such Person (i) to secure, purchase or pay
(or advance or supply funds for the purchase or payment of) such Debt or other
obligation (whether arising by virtue of partnership arrangements, by agreement
to keep-well, to purchase assets, goods, securities or services, to provide
collateral security, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for the purpose of assuring in any
other manner the obligee of such Debt or other obligation of the payment thereof
or to protect such obligee against loss in respect thereof (in whole or in
part), provided that the term Guarantee shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.

                  "Hazardous Materials" includes, without limitation, (a) solid
or hazardous waste, as defined in the Resource Conservation and Recovery Act of
1980, 42 U.S.C. ss. 6901 et seq. and its implementing regulations and
amendments, or in any comparable state or local law or regulation, (b)
"hazardous substance", "pollutant", or "contaminant" as defined in CERCLA, or in
any applicable state or local law or regulation, (c) gasoline, or any other
petroleum product or by-product, including, crude oil or any fraction thereof,
or (d) pesticides, as defined in the Federal Insecticide, Fungicide, and
Rodenticide Act of 1975, or in any comparable state or local law or regulation,
as each such Act, statute or regulation may be amended from time to time.

                  "Interest Period" means: (1) with respect to each Euro-Dollar
Borrowing, the period commencing on the date of such Borrowing and ending on the
numerically corresponding day in the first, second, third or sixth month
thereafter, as the Borrower may elect in the applicable Notice of Borrowing;
provided that:

                  (a)      any Interest Period (subject to paragraph (c) below)
         which would otherwise end on a day which is not a Euro-Dollar Business
         Day shall be extended to the next succeeding Euro-Dollar Business Day
         unless such Euro-Dollar Business Day falls in another calendar month,
         in which case such Interest Period shall end on the next preceding
         Euro-Dollar Business Day;

                  (b)      any Interest Period which begins on the last
         Euro-Dollar Business Day of a calendar month (or on a day for which
         there is no numerically corresponding day in the appropriate subsequent
         calendar month) shall, subject to paragraph (c) below, end on the last
         Euro-Dollar Business Day of the appropriate subsequent calendar month;
         and

                  (c)      no Interest Period may be selected which begins
         before the Termination Date and would otherwise end after the
         Termination Date.

(2) with respect to each Set Rate Borrowing, any period not exceeding 30 days
mutually agreeable to the Borrower and the Agent which ends on or prior to the
Termination Date.

                  "Interest Rate Protection Agreement" means an interest rate
hedging or protection agreement entered into by and between the Borrower and a
Bank or other financial institution, together with all exhibits, schedules,
extensions, renewals, amendments, substitutions and replacements thereto and
thereof.

                                       12
<PAGE>   18

                  "Investment" means any investment in any Person, whether by
means of purchase or acquisition of obligations, securities or a substantial
part of the assets of such Person, capital contribution to such Person, loan or
advance to such Person, making of a time deposit with such Person, Guarantee or
assumption of any obligation of such Person or otherwise.

                  "Knowledge" means, with reference to any Person, the knowledge
of such Person after due inquiry.

                  "Lending Office" means, as to each Bank, its office located at
its address set forth on the signature pages hereof (or identified on the
signature pages hereof as its Lending Office or such other office as such Bank
may hereafter designate as its Lending Office) by notice to the Borrower and the
Agent.

                  "Letter of Credit" means, individually or collectively, as the
context shall require, the Coosa Bonds Letter of Credit and any Other Letter of
Credit.

                  "Letter of Credit Obligations" means, individually or
collectively, as the context shall require, the Coosa Bonds Letter of Credit
Obligations and any Other Letter of Credit Obligations.

                  "Letter of Credit Reimbursement Obligations" means,
individually or collectively, as the context shall require, the Coosa Bonds
Letter of Credit Reimbursement Obligations and any Other Letter of Credit
Reimbursement Obligations.

                  "Lien" means, with respect to any asset, any mortgage, deed to
secure debt, deed of trust, lien, pledge, charge, security interest, security
title, preferential arrangement which has the practical effect of constituting a
security interest or encumbrance, or encumbrance or servitude of any kind in
respect of such asset to secure or assure payment of a Debt or a Guarantee,
whether by consensual agreement or by operation of statute or other law, or by
any agreement, contingent or otherwise, to provide any of the foregoing. For the
purposes of this Agreement, the Borrower or any Subsidiary shall be deemed to
own subject to a Lien any asset which it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement relating to such asset; provided,
however, that the property leased by AMGF pursuant to the AMGF Distribution
Facility Lease shall not, solely by virtue of the AMGF Distribution Facility
Lease, constitute property of AMGF subject to a Lien for any purpose under this
Agreement.

                  "LIFO Adjustments" means adjustments to cost of goods sold
attributable to adjusting the carrying value of inventory under the last-in,
first-out method of accounting.

                  "Loan" means a Domestic Loan or a Euro-Dollar Loan or a Swing
Loan and "Loans" means Domestic Loans or Euro-Dollar Loans or Swing Loans, or
any or all of them, as the context shall require.

                  "Loan Documents" means this Agreement, the Notes, the Security
Agreement, the Mortgages, the Coosa Bonds Reimbursement Agreement, the Coosa
Bonds Reimbursement Note, each Other Letter of Credit Application Agreement, any
other document evidencing, relating to or securing the Loans (including, without
limitation, the Borrower Pledge Agreement,

                                       13
<PAGE>   19

when executed and delivered pursuant to Section 9.18), the Letters of Credit,
the Coosa Bonds Reimbursement Agreement, the Coosa Bonds Reimbursement Note,
each Other Letter of Credit Application Agreement, and any other document or
instrument delivered from time to time in connection with this Agreement, the
Notes, the Loans, the Letters of Credit, the Coosa Bonds Reimbursement
Agreement, the Coosa Bonds Reimbursement Note, each Other Letter of Credit
Application Agreement, as such documents and instruments may be amended or
supplemented from time to time.

                  "London Interbank Offered Rate" has the meaning set forth in
Section 2.05(c).

                  "Long Term Debt" means at any date any Consolidated Total
Funded Debt which matures (or the maturity of which may at the option of the
Parent or any Consolidated Subsidiary be extended such that it matures) more
than one year after such date.

                  "Margin Stock" means "margin stock" as defined in Regulations
T, U or X.

                  "Material Adverse Effect" means, with respect to any event,
act, condition or occurrence of whatever nature (including any adverse
determination in any litigation, arbitration, or governmental investigation or
proceeding), whether singly or in conjunction with any other event or events,
act or acts, condition or conditions, occurrence or occurrences, whether or not
related, a material adverse change in, or a material adverse effect upon, any of
(a) the financial condition, operations or properties of the Parent and its
Consolidated Subsidiaries taken as a whole, (b) the rights and remedies of the
Agent or the Banks under the Principal Documents or the Parent Documents, or the
ability of the Borrower to perform its obligations under the Principal Documents
to which it is a party or the Parent to perform its obligations under the Parent
Documents, as applicable, or (c) the legality, validity or enforceability of the
Parent Documents or any Principal Document.

                  "Material Subsidiary" means any Subsidiary which has, on the
date of determination, assets with a book value of $500,000 or more or which has
gross revenues in any year of $1,000,000 or more.

                  "Mortgage" means any one, or more, or all, as the context
shall require, of the 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 of the Borrower
substantially in the form of Exhibit H, conveying a first priority (except for
the SunTrust Collateral Plants, which shall be second priority) security title
to and Lien on the Plant or Plants described therein (or, with respect to the
Bon Air and Walton Plants, in the Borrower's leasehold interests therein and
option to acquire fee title thereto) to the Agent, for the benefit of the Banks,
subject only to the Permitted Encumbrances applicable thereto, as security for
payment of the Obligations, together with all amendments and supplements
thereto.

                  "MPPAA" means the Multiemployer Pension Plan Amendments Act of
1980, amending Title IV of ERISA.

                  "Multiemployer Plan" shall have the meaning set forth in
Section 4001(a)(3) of ERISA.

                                       14
<PAGE>   20

                  "Net Cash Proceeds" shall mean, in each case as set forth in a
statement in reasonable detail delivered to the Agent, with respect to the
disposition of assets (including pursuant to the Receivables Securitization
Program) by the Parent or any of its Subsidiaries (other than the Receivables
Subsidiary), the excess, if any, of (i) the cash received in connection with
such disposition over (ii) the sum of (A) the principal amount of any Debt
(other than the Obligations) which is secured by such asset and which is
required to be repaid in connection with the disposition thereof, plus (B) the
reasonable out-of-pocket expenses incurred by the Parent or such Subsidiary, as
the case may be, in connection with such disposition, plus (C) provision for
taxes, including income taxes, attributable to the disposition of such asset.

                  "Net Income" means, as applied to any Person for any period,
the aggregate amount of net income of such Person, after taxes, for such period,
as determined in accordance with GAAP.

                  "Net Interest Expense" means, for any period, interest expense
(including capitalized interest, to the extent capitalized interest exceeds
$50,000 in any Fiscal Year, including interest, yield, discount or similar
amounts paid under the Receivables Securitization Program) in respect of Debt,
less interest income.

                  "Notes" means the Revolver Loan Notes, the Swing Loan Note,
the Coosa Bonds Reimbursement Note, or any one, or more, or all of them, as the
context shall require, together with all amendments, consolidations,
modifications, renewals, and supplements thereto.

                  "Notice of Borrowing" has the meaning set forth in Section
2.02.

                  "Obligations" means all indebtedness, liabilities and
obligations of the Borrower (i) to the Agent and the Banks incurred or arising
from time to time under this Agreement and each of the Principal Documents,
including principal, interest, fees, costs and indemnification amounts, and any
extensions or renewals thereof in whole or in part, (ii) to the Agent incurred
or arising from time to time under the Coosa Bonds Reimbursement Agreement, the
Coosa Bonds Reimbursement Note, or any Other Letter of Credit Application
Agreement, including all of the Reimbursement Obligations, and any extensions or
renewals thereof in whole or in part, (iii) to any Bank or Affiliate thereof
under any Interest Rate Protection Agreement with any such Bank, limited,
however, as to this clause (iii), to a maximum aggregate principal amount of
$10,000,000 (prorated among all Interest Rate Protection Agreements, if there
are more than one, based on the actual (as distinguished from notional)
liability thereunder) and (iv) as to Wachovia, arising out of (including
reimbursement obligations) any commercial or standby letter of credit (other
than the Letters of Credit) issued by it for the account of the Borrower,
limited, however, as to this clause (iv), to a maximum aggregate amount
outstanding at any time of $5,000,000.

                  "Operative Mortgages" means each Mortgage and/or AMGF Mortgage
which the Agent has filed for record in the appropriate filing office pursuant
to the provisions of Section 5.25.

                  "Original Credit Agreement" means the Amended and Restated
Credit Agreement dated as of April 29, 1996 (which amended and restated the
Credit Agreement dated March 29, 1994, as amended prior to April 29, 1996), as
amended by First Amendment to Credit

                                       15
<PAGE>   21

Agreement dated as of March 20, 1997, Second Amendment to Credit Agreement dated
as of August 29, 1997, Third Amendment to Credit Agreement dated as of August
27, 1999 and Fourth Amendment to Credit Agreement dated as of April 1, 2000, by
and among the Borrower, Wachovia Bank, N.A. (formerly Wachovia Bank of Georgia,
N.A.), as Agent and as a Bank, Bank One, N.A. (formerly The First National Bank
of Chicago), as Documentation Agent and as a Bank, Bank of America, N.A.
(formerly NationsBank, N.A.), Regions Bank (formerly First Alabama Bank) and
First Union National Bank (formerly First Union National Bank of Georgia).

                  "Original Closing Date" means April 29, 1996.

                  "Other Letter of Credit" means any Letter of Credit issued
pursuant to Section 2.13, other than the Coosa Bonds Letter of Credit.

                  "Other Letter of Credit Application Agreement" means, with
respect to any Other Letter of Credit, such form of application therefor
(whether in a single or several documents) as the Agent may employ in the
ordinary course of business for its own account, whether or not providing for
collateral security, with such modifications thereto as may by agreed upon by
the Agent and the Borrower and are not materially adverse to the interests of
the Banks; provided, however, that in the event of any conflict between the
terms of any Other Letter of Credit Application Agreement and this Agreement,
the terms of this Agreement shall control.

                  "Other Letter of Credit Obligations" means , at any particular
time, the sum, without duplication, of (a) the Other Letter of Credit
Reimbursement Obligations at such time, and (b) the aggregate maximum amount
available for drawing under the Other Letters of Credit at such time (including
under Other Letters of Credit the issuance of which has been authorized by the
Agent but which have not yet been issued).

                  "Other Letter of Credit Reimbursement Obligations" means the
reimbursement or repayment obligations of the Borrower to the Agent pursuant to
Section 2.13 with respect to any Other Letter of Credit.

                  "Parent" means Avondale Incorporated, a Georgia corporation,
and its successors and permitted assigns.

                  "Parent Documents" means the Parent Guaranty and the Pledge
Agreement, or either of them, as the context shall require.

                  "Parent Guaranty" means the Amended and Restated Guaranty
Agreement dated as of even date herewith, substantially in the form of Exhibit
I, executed by the Parent in favor of the Agent, for the benefit of the Banks,
unconditionally Guaranteeing the payment of all of the Obligations.

                  "Participant" has the meaning set forth in Section 9.08(b).

                  "PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.

                                       16
<PAGE>   22

                  "Performance Pricing Determination Date" has the meaning set
forth in Section 2.05(a).

                  "Permitted Encumbrances" means, (i) as to the Collateral
described in the Security Agreement, the AMGF Security Agreement and the Coosa
Bonds Reimbursement Agreement, the encumbrances expressly permitted by the
Security Agreement, the AMGF Security Agreement, or the Coosa Bonds
Reimbursement Agreement, as the case may be, and (ii) as to each Plant and the
AMGF Plant, the encumbrances expressly permitted by the Mortgage and the AMGF
Mortgage with respect to such Plant or the AMGF Plant, as the case may be.

                  "Person" means an individual, a corporation, a limited
liability company, a partnership, an unincorporated association, a trust or any
other entity or organization, including, but not limited to, a government or
political subdivision or an agency or instrumentality thereof.

                  "Plan" means at any time an employee pension benefit plan
which is covered by Title IV of ERISA or subject to the minimum funding
standards under Section 412 of the Code and is either (i) maintained by a member
of the Controlled Group for employees of any member of the Controlled Group or
(ii) maintained pursuant to a collective bargaining agreement or any other
arrangement under which more than one employer makes contributions and to which
a member of the Controlled Group is then making or accruing an obligation to
make contributions or has within the preceding 5 plan years made contributions.

                  "Plants" means any one, or more, or all, as the context shall
require, of the Plants described in Schedule 5.25, as it may be supplemented
from time to time pursuant to Section 5.25, including as to each such Plant the
Property on which it is located and the buildings, fixtures and other
improvements located thereon.

                  "Pledge Agreement" means the Amended and Restated Stock Pledge
Agreement executed pursuant to the Original Credit Agreement, substantially in
the form of Exhibit L, executed by the Parent in favor of the Agent, for the
benefit of the Banks, pledging the Pledged Stock to secure the payment of all of
the Obligations.

                  "Pledged Stock" means the capital stock in the Borrower owned
by the Parent and described in and pledged pursuant to the Pledge Agreement.

                  "Prime Rate" refers to that interest rate so denominated and
set by Wachovia from time to time as an interest rate basis for borrowings. The
Prime Rate is but one of several interest rate bases used by Wachovia. Wachovia
lends at interest rates above and below the Prime Rate.

                  "Principal Documents" means this Agreement, the Notes, the
Coosa Bonds Reimbursement Agreement, the Coosa Bonds Reimbursement Note, each
Other Letter of Credit Application Agreement, the Security Agreement, the
Operative Mortgages and the Borrower Pledge Agreement.

                  "Properties" means all real property owned, leased or
otherwise used or occupied by the Borrower or any Subsidiary, wherever located.

                                       17
<PAGE>   23

                  "Purchase Money Note" means a promissory note evidencing the
obligation of the Receivables Subsidiary to pay to the Borrower or any of its
Subsidiaries the purchase price for Receivables in connection with the
Receivables Securitization Program, which note shall be repaid from cash
available to the Receivables Subsidiary, other than cash required to be held as
reserves pursuant to Receivables Documents, amounts paid in respect of interest,
principal and other amounts owing under Receivables Documents and amounts paid
in connection with the purchase of additional Receivables.

                  "Real Property Documentation" shall mean the instruments,
documents and agreements executed and/or delivered by Borrower or AMGF to the
Agent (if applicable) pursuant to Section 5.25 in connection with each Operative
Mortgage in order to convey to the Agent (or a trustee for the benefit of the
Agent with respect to property in North Carolina) for the benefit of the Banks a
first priority (except for the SunTrust Collateral Plants, which shall be second
priority) security interest in, lien on and security title (subject to Permitted
Encumbrances) to the right, title and interest of Borrower in the Plant or
Plants described therein or in the AMGF Plant, as the case may be, and other
rights ancillary thereto, all in form and substance reasonably satisfactory to
the Agent, after consultation with the Borrower or AMGF, as the case may be. The
Real Property Documentation may include, without limitation, the following as to
each Plant or AMGF Plant and the Property on which it is located:

                  (i)      an owner's/lessee's affidavit for each parcel or
                           tract of such Property;

                  (ii)     mortgagee title insurance binders and policies for
                           each tract or parcel of such Property;

                  (iii)    such consents, acknowledgments, intercreditor or
                           attornment and subordination agreements as the Agent
                           may require from any Third Parties with respect to
                           any portion of such Property;

                  (iv)     a current survey of each parcel or tract of such
                           Property;

                  (v)      a certificate as to the insurance required by the
                           related Mortgage or AMGF Mortgage, to the extent not
                           furnished pursuant to Section 5.17;

                  (vi)     a report of a licensed engineer detailing an
                           environmental inspection of such Property;

                  (vii)    an indemnification agreement regarding hazardous
                           materials for such Property;

                  (viii)   an appraisal of such Property, prepared by an
                           appraiser satisfactory to the Agent and engaged by
                           and on behalf of the Agent and the Banks;

                  (ix)     any revenue ruling or similar assurance from the
                           department or revenue or taxation requested by the
                           Agent with respect to any stamp, intangible or other
                           taxes payable in connection with the filing for
                           record of any of the Mortgages or the AMGF Mortgage,
                           as the case may be; and

                                       18
<PAGE>   24

                  (x)      with respect to the AMGF Plant, a sewer easement
                           satisfactory to the Agent pertaining to the adjacent
                           land owned by the Borrower.

                  "Receivables" means all rights of the Borrower or its
Subsidiary to payment, whether constituting an account, chattel paper,
instrument, general intangible or otherwise, arising from the sale of goods or
services (including rights under Bill and Hold arrangements) by the Borrower or
its Subsidiary (and including the right to payment of any interest or finance
charges and other obligations with respect thereto).

                  "Receivables Documents" means (x) a receivables purchase
agreement, pooling and servicing agreement, credit agreement, agreements to
acquire undivided interests or other agreement to transfer, or create a security
interest in, Receivables Program Assets, in each case as amended, modified,
supplemented or restated and in effect from time to time entered into by the
Borrower and/or its Subsidiaries (including the Receivables Subsidiary), and (y)
each other instrument, agreement and other document entered into by the Borrower
or its Subsidiaries (including the Receivables Subsidiary) relating to the
transactions contemplated by the items referred to in clause (x) above, in each
case as amended, modified, supplemented or restated and in effect from time to
time.

                  "Receivables Intercreditor Agreement" means the Intercreditor
Agreement executed pursuant to the Original Credit Agreement, substantially in
the form of Exhibit M, between the Agent and the trustee under the Receivables
Securitization Program or, in respect of any Replacement Program (as defined in
Section 2.08(b)), any other intercreditor agreement between the trustee and the
Agent, in each case as amended from time to time.

                  "Receivables Program Assets" means (a) all Receivables which
are described as being transferred by the Borrower or its Subsidiaries
(including the Receivables Subsidiary) pursuant to the Receivables Documents;
provided, however, that the term "Receivables" shall not include any Excluded
Receivables Assets, (b) all Receivables Related Assets, and (c) all collections
(including recoveries) and other proceeds of the assets described in the
foregoing clauses (a) and (b).

                  "Receivables Program Obligations" means (a) notes, trust
certificates, undivided interests, partnership interests or other interests
representing the right to be paid a specified principal amount from the
Receivables Program Assets, and (b) related obligations of the Borrower and/or
its Subsidiaries (including, without limitation, rights in respect of interest
or yield, breach of warranty claims and expense reimbursement and indemnity
provisions) and other Standard Securitization Undertakings.

                  "Receivables Related Assets" means (i) any rights arising
under the documentation governing or relating to Receivables (including rights
in respect of liens securing such Receivables and other credit support in
respect of such Receivables), (ii) any proceeds of such Receivables and any
lockboxes or accounts in which such proceeds are deposited, (iii) spread
accounts and other similar accounts (and any amount on deposit therein)
established in connection with the Receivables Securitization Program, (iv) any
warranty, indemnity, dilution and other intercompany claim arising out of
Receivables Documents and (v) all other property included in the definition of
"Specified Assets" contained in the Receivables Intercreditor

                                       19
<PAGE>   25

Agreement; provided, however, that the term "Receivables Related Assets" shall
not include any Excluded Receivables Assets.

                  "Receivables Securitization Program" means any transaction or
series of transactions that may be entered into by the Borrower and its
Subsidiaries pursuant to which the Borrower and/or its Subsidiaries may sell,
convey or otherwise transfer to the Receivables Subsidiary and (in the case of a
transfer by the Receivables Subsidiary) any other Person, or may grant a
security interest in, any Receivables Program Assets (whether now existing or
arising in the future); provided that:

                  (a)      no portion of the indebtedness or any other
obligations (contingent or otherwise) of a Receivables Subsidiary or Special
Purpose Vehicle (i) is guaranteed by the Borrower or its Subsidiaries (other
than the Receivables Subsidiary and excluding guarantees of obligations pursuant
to Standard Securitization Undertakings), (ii) is recourse to or obligates the
Borrower or its Subsidiaries (other than the Receivables Subsidiary) for payment
other than pursuant to Standard Securitization Undertakings or (iii) subjects
any property or asset of the Borrower or its Subsidiaries (other than the
Receivables Subsidiary), directly or indirectly, contingently or otherwise, to
the satisfaction of obligations incurred in such transactions, other than
pursuant to Standard Securitization Undertakings,

                  (b)      the Borrower and its Subsidiaries (other than the
Receivables Subsidiary) do not have any obligation to maintain or preserve the
financial condition of a Receivables Subsidiary or a Special Purpose Vehicle or
cause such entity to achieve certain levels of operating results, and

                  (c)      the scheduled maturity of any Receivables Program
Obligations of the type described in clause (a) of the definition of
"Receivables Program Obligations" is no earlier than November 15, 2002.

                  "Receivables Subsidiary" means a special purpose corporation
that is a Wholly Owned Subsidiary of the Borrower, created for the sole purpose
of, and whose only business shall be, acquisition of the Receivables Program
Assets pursuant to the Receivables Securitization Program and those activities
incidental to the Receivables Securitization Program.

                  "Receivables Subsidiary Pledged Stock" means the capital stock
in the Receivables Subsidiary owned by the Borrower and described in and pledged
pursuant to the Borrower Pledge Agreement.

                  "Redeemable Preferred Stock" of any Person means any preferred
stock issued by such Person which is either (i) mandatorily redeemable (by
sinking fund or similar payments or otherwise) or (ii) redeemable at the option
of the holder thereof.

                  "Refunding Loan" means a new Loan made on the day on which an
outstanding Loan is maturing or a Base Rate Borrowing is being converted to a
Fixed Rate Borrowing, if and to the extent that the proceeds thereof are used
entirely for the purpose of paying such maturing Loan or Loan being converted,
excluding any difference between the amount of such maturing Loan or Loan being
converted and any greater amount being borrowed on such day and actually

                                       20
<PAGE>   26

either being made available to the Borrower pursuant to Section 2.02(c) or
remitted to the Agent as provided in Section 2.11, in each case as contemplated
in Section 2.02(d).

                  "Regulation D" means Regulation D of the Board of Governors of
the Federal Reserve System, as in effect from time to time, together with all
official rulings and interpretations issued thereunder.

                  "Regulation T" means Regulation T of the Board of Governors of
the Federal Reserve System, as in effect from time to time, together with all
official rulings and interpretations issued thereunder.

                  "Regulation U" means Regulation U of the Board of Governors of
the Federal Reserve System, as in effect from time to time, together with all
official rulings and interpretations issued thereunder.

                  "Regulation X" means Regulation X of the Board of Governors of
the Federal Reserve System, as in effect from time to time, together with all
official rulings and interpretations issued thereunder.

                  "Reimbursement Obligations" means, individually or
collectively, as the context shall require, the Coosa Bonds Reimbursement
Obligations and any Other Letter of Credit Reimbursement Obligations.

                  "Register" has the meaning set forth in Section 9.08(c).

                  "Related Fund" means, with respect to any Bank that is a fund
that invests in lender loans, any other fund that invests in lender loans and is
advised or managed by the same investment advisor as such Bank.

                  "Reported Net Income" means, for any period, the Net Income of
the Parent and its Consolidated Subsidiaries determined on a consolidated basis.

                  "Required Banks" means at any time Banks having at least 66
2/3% of the aggregate amount of the Commitments or, if the Commitments are no
longer in effect, Banks holding at least 66 2/3% of the aggregate outstanding
principal amount of the Revolver Loan Notes.

                  "Restricted Payment" means (i) any Dividends paid by the
Parent and (ii) any payment on account of the purchase, redemption, retirement
or acquisition of (a) any Capital Stock (except shares acquired upon the
conversion thereof into other shares of Capital Stock) or (b) any option,
warrant or other right to acquire shares of Capital Stock, other than (i) up to
$5,000,000 in payments with respect to the Employee Restricted Stock and (ii)
any payments made in respect of shares of Capital Stock of the Parent owned by
G. Stephen Felker pursuant to an existing repurchase arrangement, to the extent
such payments are made from the proceeds of insurance on his life.

                  "Restricted Payment Calculation Period" means, with respect to
any Restricted Payment proposed to be made pursuant to Section 5.07, the period
beginning August 26, 2000

                                       21
<PAGE>   27

through the end of the most recent Fiscal Quarter ending at least 45 days prior
to the date of such proposed Restricted Payment.

                  "Revolver Collateral Plants" means all Plants other than the
SunTrust Collateral Plants.

                  "Revolver Loan" means a Loan made at the same time by the
Banks pursuant to Article II, which may be a Base Rate Loan or a Euro-Dollar
Loan, subject to the provisions of Article II.

                  "Revolver Loan Notes" means promissory notes of the Borrower,
substantially in the form of Exhibit A-1, evidencing the obligation of the
Borrower to repay the Revolver Loans, together with all amendments,
consolidations, modifications, renewals, and supplements thereto.

                  "Rolling Stock" means all tractors, trailers and other motor
vehicles of the Debtor, title to which is registered under the Alabama
Certificate of Title and Antitheft Act (Ala. Code 32-8-1, et seq.), which term
does not include any motor vehicles listed on Exhibit B to the Security
Agreement.

                  "Second Amendment" means the Second Amendment to Credit
Agreement dated as of August 29, 1997 executed by the Borrower, the Agent and
the Banks, amending the Original Credit Agreement.

                  "Security Agreement" means the Amended and Restated Security
Agreement executed pursuant to the Original Credit Agreement, substantially in
the form of Exhibit J, granting to the Agent, for the benefit of the Banks, a
first priority (except as to the equipment located at the SunTrust Collateral
Plants, which shall be second priority) security interest in the personal
property described therein, subject only to the Permitted Encumbrances, together
with all amendments and supplements thereto.

                  "Senior Debt to Capitalization Ratio" means the ratio of
Consolidated Senior Debt to Consolidated Total Capitalization, calculated at the
end of each Fiscal Quarter.

                  "Set Rate" means a fixed rate per annum, for a specified
principal amount of the Swing Loans and for a specified Interest Period, set and
established from time to time by the Borrower and Wachovia pursuant to Section
2.01(b)(ii).

                  "Set Rate Loan" means a Loan to be made as a Set Rate Loan
pursuant to Section 2.01(b)(ii).

                  "Set Rate Request" has the meaning set forth in Section
2.01(b)(ii).

                  "Special Purpose Vehicle" means a trust, partnership or other
special purpose Person established by the Borrower to implement the Receivables
Securitization Program.

                  "Standard Securitization Undertakings" means representations,
warranties, covenants and indemnities entered into by the Borrower or its
Subsidiaries (other than the

                                       22
<PAGE>   28

Receivables Subsidiary) that are reasonably customary in accounts receivable
securitization transactions, as determined in good faith by the Agent.

                  "Stockholders' Equity" means, at any time, the shareholders'
equity of the Parent and its Consolidated Subsidiaries, as set forth or
reflected on the most recent consolidated balance sheet of the Parent and its
Consolidated Subsidiaries prepared in accordance with GAAP, but excluding any
Redeemable Preferred Stock of the Parent or any of its Consolidated
Subsidiaries. Shareholders' equity generally would include, but not be limited
to (i) the par or stated value of all outstanding Capital Stock, (ii) capital
surplus, (iii) retained earnings, and (iv) various deductions such as (A)
purchases of treasury stock, (B) valuation allowances, (C) receivables due from
an employee stock ownership plan, (D) employee stock ownership plan debt
guarantees, and (E) translation adjustments for foreign currency transactions.

                  "Subordinated Debt" means (i) the 10.25% Subordinated Notes
and (ii) any other Debt, the payment of which has been expressly subordinated to
payment of the Obligations pursuant and subject to documents containing terms
and conditions reasonably satisfactory to the Agent and which has a maturity no
earlier than February 28, 2004.

                  "Subsidiary" means any corporation or other entity (other than
a Special Purpose Vehicle) of which securities or other ownership interests
having ordinary voting power to elect a majority of the board of directors or
other persons performing similar functions are at the time directly or
indirectly owned by the Parent.

                  "SunTrust Collateral Plants" means the Plants so designated on
Schedule 5.25.

                  "SunTrust Intercreditor Agreement" means the Amended and
Restated Intercreditor Agreement executed pursuant to the Original Credit
Agreement, substantially in the form of Exhibit K, between SunTrust Bank,
Atlanta (formerly Trust Company Bank), the Agent and the Borrower, together with
any amendments and supplements thereto.

                  "Swing Loan" means a Loan made by Wachovia pursuant to Section
2.01(b), which may be a Base Rate Loan or a Set Rate Loan, subject to the
provisions of Section 2.01(b)(ii).

                  "Swing Loan Note" means the promissory note of the Borrower,
substantially in the form of Exhibit A-2, evidencing the obligation of the
Borrower to repay the Swing Loans, together with all amendments, consolidations,
modifications, renewals, and supplements thereto.

                  "10.25% Subordinated Notes" means the Senior Subordinated
Notes due 2006, issued by the Borrower on the Original Closing Date, as amended,
modified, renewed or supplemented from time to time, subject to the provisions
of Section 5.26.

                  "Termination Date" means January 30, 2004.

                  "Third Parties" means all mortgagees, lessees, sublessees,
tenants, licensees and other users of the Properties, excluding those users of
the Properties in the ordinary course of the Borrower's business and on a
temporary basis.

                                       23
<PAGE>   29

                  "Total Debt to Cash Flow Ratio" means the ratio of
Consolidated Total Funded Debt to Consolidated Cash Flow, calculated at the end
of each Fiscal Quarter.

                  "Transferor Certificate" means, (i) with respect to the
Receivables Securitization Program closed on the Original Closing Date, the
"Transferor Certificate" described in Section 4.1 of the Avondale Receivables
Master Trust Pooling and Servicing Agreement dated on or about the Original
Closing Date among the Receivables Subsidiary, the Borrower and Manufacturers
and Traders Trust Company, as trustee, and (ii) as to any other Receivables
Securitization Program, any similar instrument evidencing the interest of the
Receivables Subsidiary in respect of the Receivables transferred in the
Receivables Securitization Program.

                  "Transferee" has the meaning set forth in Section 9.08(d).

                  "Unused Commitment" means at any date, with respect to any
Bank, an amount equal to its Commitment less the aggregate outstanding principal
amount of its Loans, other than, with respect to Wachovia, the Swing Loan, and
less the amount of its share of risk in the Letter of Credit Obligations.

                  "Wachovia" means Wachovia Bank, N.A (formerly Wachovia Bank of
Georgia, N.A.), a national banking association, and its successors.

                  "Wholly Owned Subsidiary" means any Subsidiary all of the
shares of capital stock or other ownership interests of which (except directors'
qualifying shares) are at the time directly or indirectly owned by the Parent.

                  "Working Capital Obligations" means the aggregate principal
amount of Revolver Loans and Swing Loans plus the amount of the Letter of Credit
Obligations outstanding at any time.

                  Section 1.02      Accounting Terms and Determinations. Unless
otherwise specified herein, all terms of an accounting character used herein
shall be interpreted, all accounting determinations hereunder shall be made, and
all financial statements required to be delivered hereunder shall be prepared,
in accordance with GAAP, applied on a basis consistent (except for changes
concurred in by the Parent's independent public accountants or otherwise
required by a change in GAAP) with the most recent audited consolidated
financial statements of the Parent and its Consolidated Subsidiaries delivered
to the Banks unless with respect to any such change concurred in by the Parent's
independent public accountants or required by GAAP, in determining compliance
with any of the provisions of this Agreement or any of the other Loan Documents:
(i) the Borrower shall have objected to determining such compliance on such
basis at the time of delivery of such financial statements, or (ii) the Required
Banks shall so object in writing within 30 days after the delivery of such
financial statements, in either of which events such calculations shall be made
on a basis consistent with those used in the preparation of the latest financial
statements as to which such objection shall not have been made (which, if
objection is made in respect of the first financial statements delivered under
Section 5.01 hereof, shall mean the financial statements referred to in Section
4.04).

                                       24
<PAGE>   30

                  Section 1.03      References. Unless otherwise indicated,
references in this Agreement to "Articles", "Exhibits", "Schedules", "Sections"
and other subdivisions are references to articles, exhibits, schedules, sections
and other subdivisions hereof.

                  Section 1.04      Use of Defined Terms. All terms defined in
this Agreement shall have the same defined meanings when used in any of the
other Loan Documents, unless otherwise defined therein or unless the context
shall require otherwise.

                  Section 1.05      Terminology. All personal pronouns used in
this Agreement, whether used in the masculine, feminine or neuter gender, shall
include all other genders; the singular shall include the plural, and the plural
shall include the singular. Titles of Articles and Sections in this Agreement
are for convenience only, and neither limit nor amplify the provisions of this
Agreement.

                                   ARTICLE II

                                   THE CREDITS

                  Section 2.01      Commitments to Lend.

                  (a)      Revolver Loans. Each Bank severally agrees, on the
terms and conditions set forth herein, to make Revolver Loans to the Borrower
from time to time before the Termination Date; provided that, immediately after
each such Revolver Loan is made, (i) the aggregate outstanding principal amount
of Revolver Loans made by such Bank shall not exceed the amount of its
Commitment, and (ii) the Working Capital Obligations shall not exceed the
Aggregate Commitment. Revolver Loans may be Base Rate Loans or Euro-Dollar
Loans. Each Revolver Loan Borrowing under this Section 2.01(a) shall be in an
aggregate principal amount of $5,000,000 or any larger multiple of $500,000
(except that any such Borrowing may be in the amount of the Aggregate Unused
Commitments) and shall be made from the several Banks ratably in proportion to
their respective Commitments. Within the foregoing limits, the Borrower may
borrow under this Section 2.01(a), repay or, to the extent permitted by Section
2.09, prepay Revolver Loans and reborrow under this Section 2.01(a) at any time
before the Termination Date.

                  (b)      Swing Loans.

                           (i)      In addition to the foregoing, Wachovia shall
         from time to time, upon the request of the Borrower, if the applicable
         conditions precedent in Article III have been satisfied, make Swing
         Loans to the Borrower in an aggregate principal amount at any time
         outstanding not exceeding $12,500,000; provided that, immediately after
         such Swing Loan is made, the Working Capital Obligations shall not
         exceed the Aggregate Commitment. Each Swing Loan Borrowing which is a
         Base Rate Borrowing under this Section 2.01(b)(i) shall be in an
         aggregate principal amount of $100,000 or any larger multiple of
         $25,000. Within the foregoing limits, the Borrower may borrow under
         this Section 2.01(b), prepay and reborrow under this Section 2.01(b) at
         any time before the Termination Date. Swing Loans shall be included in
         the calculation of "Working Capital Obligations" hereunder, but shall
         not be considered a utilization of the Commitment of

                                       25
<PAGE>   31

         Wachovia or any other Bank hereunder. All Swing Loans shall be made as
         Base Rate Loans, except that Swing Loans may be made as Set Rate Loans
         subject and pursuant to the provisions of clause (ii) below. At any
         time, upon the request of Wachovia, each Bank other than Wachovia
         shall, on the third Domestic Business Day after such request is made,
         purchase a participating interest in Swing Loans (including those that
         are Base Rate Loans and those that are Set Rate Loans) in an amount
         equal to its ratable share (based upon its respective Commitment) of
         such Swing Loans. On such third Domestic Business Day, each Bank will
         immediately transfer to Wachovia, in immediately available funds, the
         amount of its participation. Whenever, at any time after Wachovia has
         received from any such Bank its participating interest in a Swing Loan,
         the Agent receives any payment on account thereof, the Agent will
         distribute to such Bank its participating interest in such amount
         (appropriately adjusted, in the case of interest payments, to reflect
         the period of time during which such Bank's participating interest was
         outstanding and funded); provided, however, that in the event that such
         payment received by the Agent is required to be returned, such Bank
         will return to the Agent any portion thereof previously distributed by
         the Agent to it. Each Bank's obligation to purchase such participating
         interests shall be absolute and unconditional and shall not be affected
         by any circumstance, including, without limitation: (i) any set-off,
         counterclaim, recoupment, defense or other right which such Bank or any
         other Person may have against Wachovia requesting such purchase or any
         other Person for any reason whatsoever; (ii) the occurrence or
         continuance of a Default or an Event of Default or the termination of
         the Commitments; (iii) any adverse change in the condition (financial
         or otherwise) of the Borrower, the Parent or any other Person; (iv) any
         breach of this Agreement by the Borrower or any other Bank; or (v) any
         other circumstance, happening or event whatsoever, whether or not
         similar to any of the foregoing.

                  (ii)     Swing Loans may be Set Rate Loans, if the Agent shall
         have determined that such Set Rate Loan, including the principal amount
         thereof, the Interest Period and the Set Rate applicable thereto, has
         been expressly agreed to by the Borrower and Wachovia (such agreement
         may be obtained by telephone, confirmed promptly to the Agent in
         writing) pursuant to the following procedures. Each Swing Loan
         Borrowing which is a Set Rate Borrowing under this Section 2.01(b)(ii)
         shall be in an aggregate principal amount of $1,000,000 or any larger
         multiple of $100,000. No more than 2 Set Rate Loans may be outstanding
         at any one time. If the Borrower desires a Set Rate Loan, (aa) the
         Borrower shall provide the Agent and Wachovia with notice of a request
         (a "Set Rate Request") for a quote for a Set Rate Borrowing prior to
         11:00 a.m. (Atlanta, Georgia time) 1 Domestic Business Day before the
         day of the proposed Set Rate Borrowing (which must be a Domestic
         Business Day), which Set Rate Request shall include the principal
         amount and proposed Interest Period of the relevant Set Rate Borrowing,
         (bb) prior to 2:30 p.m. (Atlanta, Georgia time) on the date on which
         Wachovia receives the Set Rate Request, Wachovia shall apprise the
         Agent and the Borrower of its rate quote (a "Set Rate Quote") via
         facsimile transmission, (cc) prior to 11:00 a.m. on the date of the
         proposed Set Rate Borrowing, the Borrower shall inform the Agent and
         Wachovia of its decision as to whether to accept a Set Rate Borrowing
         at such Set Rate (which may be done by telephone and promptly confirmed
         in writing), (dd) if the Borrower does desire a Set Rate Borrowing at
         such Set Rate, then by 1:00 p.m. (Atlanta, Georgia time) on the

                                       26
<PAGE>   32

         date of such decision, Wachovia shall make such Set Rate Borrowing,
         with interest accruing thereon at the Set Rate, available to the
         Borrower.

                  Section 2.02      Method of Borrowing. This Section 2.02 shall
apply to all Borrowings other than Set Rate Borrowings, as to which only Section
2.01(b)(ii) shall apply.

                  (a)      The Borrower shall give the Agent notice (a "Notice
of Borrowing"), which shall be substantially in the form of Exhibit E, prior to
11:00 a.m. (Atlanta, Georgia time) on the Domestic Business Day of a Base Rate
Borrowing and at least 3 Euro-Dollar Business Days before each Euro-Dollar
Borrowing, specifying:

                           (i)      the date of such Borrowing, which shall be a
Domestic Business Day in the case of a Domestic Borrowing or a Euro-Dollar
Business Day in the case of a Euro-Dollar Borrowing,

                           (ii)     the aggregate amount of such Borrowing,

                           (iii)    whether such Borrowing is to be a Swing Loan
Borrowing or a Revolver Loan Borrowing, and if the latter, whether it is to be a
Base Rate Borrowing or a Euro-Dollar Borrowing, and

                           (iv)     in the case of a Euro-Dollar Borrowing, the
duration of the Interest Period applicable thereto, subject to the provisions of
the definition of Interest Period; provided, that if an Anniversary Date is
scheduled to occur during the Interest Period so selected, and as a result
thereof (but for this proviso) the Borrower shall become obligated to prepay or
repay all or any portion of the Loans on such Anniversary Date pursuant to
Section 2.08(b), then a portion of such Euro-Dollar Borrowing which is equal to
the amount of the Loans that would otherwise be so prepaid or repaid on any such
Anniversary Date either (A) shall have applicable thereto an Interest Period or
Interest Periods, as selected by the Borrower, ending on or before the
Anniversary Date on which Loans corresponding in amount to such portion would
otherwise be prepaid or repaid, or (B) shall instead be made as a Base Rate
Borrowing.

                  (b)      Upon receipt of a Notice of Borrowing, the Agent
shall promptly notify each Bank of the contents thereof and of such Bank's
ratable share of such Borrowing (unless it is a Swing Loan Borrowing) and such
Notice of Borrowing shall not thereafter be revocable by the Borrower.

                  (c)      Not later than 11:00 a.m. (2:00 p.m. in the case of a
Base Rate Borrowing) (Atlanta, Georgia time) on the date of each Revolver Loan
Borrowing, each Bank shall (except as provided in paragraph (d) of this Section)
make available its ratable share of such Revolver Loan Borrowing, in Federal or
other funds immediately available in Atlanta, Georgia, to the Agent at its
address referred to in Section 9.01. Unless the Agent determines that any
applicable condition specified in Article III has not been satisfied, the Agent
will make the funds so received from the Banks available to the Borrower at the
Agent's aforesaid address. Unless the Agent receives notice from a Bank, at the
Agent's address referred to in or specified pursuant to Section 9.01, no later
than 4:00 p.m. (local time at such address) on the Domestic Business Day before
the date of a Revolver Loan Borrowing stating that such Bank will not make a
Loan in connection with such Revolver Loan Borrowing, the Agent shall be
entitled to assume that such

                                       27
<PAGE>   33

Bank will make a Loan in connection with such Revolver Loan Borrowing and, in
reliance on such assumption, the Agent may (but shall not be obligated to) make
available such Bank's ratable share of such Revolver Loan Borrowing to the
Borrower for the account of such Bank. If the Agent makes such Bank's ratable
share available to the Borrower and such Bank does not in fact make its ratable
share of such Revolver Loan Borrowing available on such date, the Agent shall be
entitled to recover such Bank's ratable share from such Bank or the Borrower
(and for such purpose shall be entitled to charge such amount to any account of
the Borrower maintained with the Agent), together with interest thereon for each
day during the period from the date of such Revolver Loan Borrowing until such
sum shall be paid in full at a rate per annum equal to the rate at which the
Agent determines that it obtained (or could have obtained) overnight Federal
funds to cover such amount for each such day during such period, provided that
any such payment by the Borrower of such Bank's ratable share and interest
thereon shall be without prejudice to any rights that the Borrower may have
against such Bank. If the Agent does not exercise its option to advance funds
for the account of such Bank, it shall forthwith notify the Borrower of such
decision. Unless the Agent determines that any applicable condition specified in
Article III has not been satisfied, Wachovia will make available to the Borrower
at Wachovia's Lending Office the amount of any such Borrowing which is a Swing
Loan Borrowing.

                  (d)      If any Bank makes a new Loan hereunder on a day on
which the Borrower is to repay all or any part of an outstanding Loan from such
Bank, such Bank shall apply the proceeds of its new Loan to make such repayment
as a Refunding Loan and only an amount equal to the difference (if any) between
the amount being borrowed and the amount of such Refunding Loan shall be made
available by such Bank to the Agent as provided in paragraph (c) of this
Section, or remitted by the Borrower to the Agent as provided in Section 2.11,
as the case may be.

                  (e)      Notwithstanding anything to the contrary contained in
this Agreement, no Fixed Rate Borrowing may be made if there shall have occurred
a Default or an Event of Default, which Default or Event of Default shall not
have been cured or waived.

                  (f)      In the event that a Notice of Borrowing fails to
specify whether the Loans comprising such Borrowing are to be Base Rate Loans or
Euro-Dollar Loans, such Loans shall be made as Base Rate Loans. If the Borrower
is otherwise entitled under this Agreement to repay any Loans maturing at the
end of an Interest Period applicable thereto with the proceeds of a new
Borrowing, and the Borrower fails to repay such Loans using its own moneys and
fails to give a Notice of Borrowing in connection with such new Borrowing, a new
Borrowing shall be deemed to be made on the date such Loans mature in an amount
equal to the principal amount of the Loans so maturing, and the Loans comprising
such new Borrowing shall be Base Rate Loans.

                  (g)      Notwithstanding anything to the contrary contained
herein, there shall not be more than 10 Fixed Rate Loans outstanding at any
given time.

                  Section 2.03      Notes.

                  (a)      The Revolver Loans of each Bank shall be evidenced by
a single Revolver Loan Note payable to the order of such Bank for the account of
its Lending Office in an amount equal to the original principal amount of such
Bank's Commitment. The Swing Loans shall be

                                       28
<PAGE>   34

evidenced by a single Swing Loan Note payable to the order of Wachovia in the
original principal amount of $12,500,000.

                  (b)      Upon receipt of each Bank's Revolver Loan Note
pursuant to Section 3.01, the Agent shall deliver such Note to such Bank. Each
Bank (or Wachovia, with respect to the Swing Loan Note) shall record, and prior
to any transfer of its Note shall endorse on the schedule forming a part thereof
appropriate notations to evidence the date, amount and maturity of each Loan
made by it, the date and amount of each payment of principal made by the
Borrower with respect thereto and, with respect to a Revolver Loan, whether such
Loan is a Base Rate Loan or Euro-Dollar Loan (and as to Swing Loans, whether
such Loans are Base Rate Loans or Set Rate Loans), and such schedule shall
constitute rebuttable presumptive evidence of the principal amount owing and
unpaid on such Bank's (or Wachovia's) Note; provided that the failure of any
Bank (or Wachovia) to make any such recordation or endorsement shall not affect
the obligation of the Borrower hereunder or under the Notes or the ability of
any Bank (or Wachovia) to assign its Notes. Each Bank (and Wachovia) is hereby
irrevocably authorized by the Borrower so to endorse its Notes and to attach to
and make a part of any Note a continuation of any such schedule as and when
required.

                  Section 2.04      Maturity of Loans.

                  (a)      Each Loan included in any Fixed Rate Borrowing shall
mature, and the principal amount thereof shall be due and payable, on the last
day of the Interest Period applicable to such Borrowing.

                  (b)      Notwithstanding the foregoing, the outstanding
principal amount of the Loans, if any, together with all accrued but unpaid
interest thereon, if any, shall be due and payable on the Termination Date.

                  Section 2.05      Interest Rates.

                  (a)      "Applicable Margin" means: (i) for any Base Rate
Loan, 0.00%; and (ii) for any Euro-Dollar Loan, (A) until the first Performance
Pricing Determination Date, 1.00%, and (B) thereafter, with respect to each
Performance Pricing Determination Date, the percentage determined as of the end
of the Fiscal Quarter or Fiscal Year just ended by reference to the percentage
shown in the following schedule, depending on the Total Debt to Cash Flow Ratio
as of the end of such Fiscal Quarter or Fiscal Year, as determined pursuant
hereto.

<TABLE>
<CAPTION>
              ----------------------------------------------------------------------------------
                   Total Debt to Cash Flow
                         Ratio
              ----------------------------------------------------------------------------------
                  <S>                           <C>                            <C>
                  > 3.50 to 1.0                 > 2.75 to 1.0, but             < 2.75 to 1.0
                  -                             -       < 3.50 to 1.0

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

                  1.75%                         1.375%                         1.00%
              ----------------------------------------------------------------------------------
</TABLE>

                                       29
<PAGE>   35

In determining interest for purposes of this Section 2.05 and fees pursuant to
Section 2.06(a), the Borrower and the Banks shall refer to the Borrower's most
recent consolidated quarterly and annual (as the case may be) financial
statements delivered pursuant to Section 5.01(a) or (b), as the case may be. If
such financial statements require a change in interest pursuant to this Section
2.05 or fees pursuant to Section 2.06(a), the Borrower shall deliver to the
Agent, along with such financial statements, a notice to that effect, which
notice shall set forth in reasonable detail the calculations establishing the
required change. The date which is 10 Domestic Business Days after receipt by
the Agent of such financial statements and notice, commencing with the financial
statements for the fourth Fiscal Quarter of the 2000 Fiscal Year, is the
"Performance Pricing Determination Date." Any such required change in interest
and fees shall become effective on such Performance Pricing Determination Date,
and shall be in effect until the next Performance Pricing Determination Date,
provided, however, that: (i) for Euro-Dollar Loans, changes in interest shall
only be effective for Interest Periods commencing on or after the Performance
Pricing Determination Date; and (ii) no interest or fees shall be decreased
pursuant to this Section 2.05 or Section 2.06(a) if, on the Performance Pricing
Determination Date, (A) an Event of Default is in existence, or (B) a Default is
in existence which on such date is not an Event of Default but which becomes an
Event of Default; provided, however, that if an Event of Default exists on the
Performance Pricing Determination Date, or a Default exists and subsequently
becomes an Event of Default, any such decrease shall take effect upon the cure
of any such Event of Default.

                  (b)      Each Base Rate Loan shall bear interest on the
outstanding principal amount thereof, for each day from the date such Loan is
made until it becomes due, at a rate per annum equal to the Base Rate for such
day plus the Applicable Margin. Such interest shall be payable on the first day
of each calendar month, commencing November 1, 2000. Any overdue principal of
and, to the extent permitted by applicable law, overdue interest on any Base
Rate Loan shall bear interest, payable on demand, for each day until paid at a
rate per annum equal to the Default Rate.

                  (c)      Each Euro-Dollar Loan and Set Rate Loan shall bear
interest on the outstanding principal amount thereof, for the Interest Period
applicable thereto, at a rate per annum equal to (i) as to Euro-Dollar Loans,
the sum of the Applicable Margin plus the applicable Adjusted London Interbank
Offered Rate for such Interest Period, and (ii) as to Set Rate Loans, the Set
Rate applicable thereto. Such interest shall be payable for each Interest Period
on the last day thereof and, if such Interest Period for Euro-Dollar Loans is
longer than 3 months, at intervals of 3 months after the first day thereof. Any
overdue principal of and, to the extent permitted by law, overdue interest on
any Euro-Dollar Loan shall bear interest, payable on demand, for each day until
paid at a rate per annum equal to the Default Rate.

                  The "Adjusted London Interbank Offered Rate" applicable to any
Interest Period means a rate per annum equal to the quotient obtained (rounded
upwards, if necessary, to the next higher 1/100th of 1%) by dividing (i) the
applicable London Interbank Offered Rate for such Interest Period by (ii) 1.00
minus the Euro-Dollar Reserve Percentage.

                  The "London Interbank Offered Rate" applicable to any
Euro-Dollar Loan means for the Interest Period of such Euro-Dollar Loan, the
rate per annum determined on the basis of the offered rate for deposits in
Dollars of amounts equal or comparable to the principal amount

                                       30
<PAGE>   36

of such Euro-Dollar Loan offered for a term comparable to such Interest Period,
which rates appear on the Telerate Screen Page 3750 as of 11:00 a.m., London
time, 2 Euro-Dollar Business Days prior to the first day of such Interest
Period, provided that if no such offered rates appear on such page, the "London
Interbank Offered Rate" for such Interest Period will be the arithmetic average
(rounded upward, if necessary, to the next higher 1/100th of 1%) of rates quoted
by not less than 2 major banks in New York City, selected by the Agent, at
approximately 10:00 a.m., New York City time, 2 Euro-Dollar Business Days prior
to the first day of such Interest Period, for deposits in Dollars offered to
leading European banks for a period comparable to such Interest Period in an
amount comparable to the principal amount of such Euro-Dollar Loan.

                  "Euro-Dollar Reserve Percentage" means for any day that
percentage (expressed as a decimal) which is in effect on such day, as
prescribed by the Board of Governors of the Federal Reserve System (or any
successor) for determining the maximum reserve requirement for a member bank of
the Federal Reserve System in respect of "Eurocurrency liabilities" (or in
respect of any other category of liabilities which includes deposits by
reference to which the interest rate on Euro-Dollar Loans is determined or any
category of extensions of credit or other assets which includes loans by a
non-United States office of any Bank to United States residents). The Adjusted
London Interbank Offered Rate shall be adjusted automatically on and as of the
effective date of any change in the Euro-Dollar Reserve Percentage.

                  (d)      The Agent shall determine each interest rate
applicable to the Loans hereunder. The Agent shall give prompt notice to the
Borrower and the Banks by telecopier of each rate of interest so determined, and
its determination thereof shall be conclusive in the absence of manifest error.

                  (e)      After the occurrence and during the continuance of an
Event of Default, the principal amount of the Loans (and, to the extent
permitted by applicable law, all accrued and past due interest thereon) may, at
the election of the Required Banks, bear interest at the Default Rate, effective
from and after the date such Event of Default occurred.

                  Section 2.06      Fees.

                  (a)      The Borrower shall pay to the Agent for the ratable
account of each Bank, a commitment fee, which shall accrue from and including
the Closing Date to but excluding the Termination Date and shall be payable on
each April 1, July 1, October 1 and January 1 and on the Termination Date,
commencing January 1, 2001, for the quarterly period ending immediately prior to
such date (except that the payment on January 1, 2001 shall be for the period
from the Closing Date through December 31, 2000). The commitment fee shall be
calculated on the average daily principal amount of such Bank's Unused
Commitment during such period at the rate per annum (expressed below as a
decimal) of (A) until the first Performance Pricing Determination Date, 0.225%,
and (B) thereafter, with respect to each Performance Pricing Determination Date,
the percentage determined as of the end of the Fiscal Quarter or Fiscal Year
just ended by reference to the percentage shown in the following schedule,
depending on the Total Debt to Cash Flow Ratio as of the end of such Fiscal
Quarter or Fiscal Year, as determined pursuant hereto.

                                       31
<PAGE>   37

<TABLE>
<CAPTION>
              ----------------------------------------------------------------------------------
                  Total Debt to Cash Flow
                           Ratio
              ----------------------------------------------------------------------------------
                  <S>                              <C>                          <C>
                  > 3.50 to 1.0                    > 2.75 to 1.0, but           < 2.75 to 1.0
                  -                                -    < 3.50 to 1.0
              ----------------------------------------------------------------------------------

                  0.325%                           0.275%                       0.225%
              ----------------------------------------------------------------------------------
</TABLE>

                  (b) The Borrower shall pay to the Agent, for the account and
sole benefit of the Agent, such fees and other amounts at such times as set
forth in the Agent's Letter Agreement.

                  Section 2.07      Optional Termination or Reduction of
Commitments. The Borrower may, upon at least 3 Domestic Business Days' notice to
the Agent, terminate at any time, or proportionately reduce the Unused
Commitments from time to time by an aggregate amount of at least $5,000,000 or
any larger multiple of $1,000,000. If the Commitments are terminated in their
entirety, all accrued fees (as provided under Section 2.06) shall be due and
payable on the effective date of such termination.

                  Section 2.08      Mandatory Reduction and Termination of
Commitments.

                  (a)      The Commitments shall terminate on the Termination
Date and any Loans then outstanding (together with accrued interest thereon)
shall be due and payable on such date.

                  (b)      The Aggregate Commitment shall be reduced by an
amount equal to:

                           (i)      100% of the Net Cash Proceeds (rounded to
the nearest $500,000) in excess of $5,000,000 of any individual sale of assets,
and in excess of $10,000,000 in the aggregate for all sales of assets during any
Fiscal Year, by the Parent or any of the Subsidiaries, but excluding (A) sales
of inventory in the ordinary course of business, (B) sales of equipment in the
ordinary course of business, if and to the extent of Net Cash Proceeds used
within a reasonable time to purchase equipment in replacement thereof, (C) sales
of Receivables pursuant to a Receivables Securitization Program (which shall be
subject to clause (ii) below); and

                           (ii)     100% of the Net Cash Proceeds (rounded to
the nearest $500,000) of the initial sale of Receivables to the Receivables
Subsidiary pursuant to any Receivables Securitization Program implemented after
(but not on or before) the Original Closing Date, as in existence on the date of
implementation thereof, provided, that (1) with respect to any increase
(including, but not limited to a new series) in an existing Receivables
Securitization Program or any Receivables Securitization Program which is
additional to an existing Receivables Securitization Program (each an
"Incremental Program"), the foregoing shall apply only to the extent of the
amount of the Net Cash Proceeds from the initial sale under the Incremental
Program, and (2) with respect to any Receivables Securitization Program which is
a replacement (a "Replacement Program") for another Receivables Securitization
Program (a "Replaced Program"), the foregoing shall apply only to the extent of
the amount, if any, by which the Net

                                       32
<PAGE>   38

Cash Proceeds from the initial sale under the Replacement Program exceeds the
Net Cash Proceeds from the initial sale under the Replaced Program.

                  (c)      Each reduction pursuant to Section 2.08(b) shall be
applied to reduce the Commitments of the several Banks ratably. No optional
reduction of the Aggregate Commitment pursuant to Section 2.07 shall reduce the
amount of any subsequent mandatory reduction pursuant to Section 2.08(b).

                  Section 2.09      Optional Prepayments.

                  (a)      The Borrower may, upon at least 1 Domestic Business
Days' notice to the Agent, prepay any Base Rate Borrowing in whole at any time,
or from time to time in part in amounts aggregating at least $5,000,000 and any
larger multiple of $500,000 (or $100,000 and any larger multiple of $25,000 as
to Swing Loans which are Base Rate Loans, and $1,000,000 and any larger multiple
of $100,000 as to Swing Loans which are Set Rate Loans), by paying the principal
amount to be prepaid. Each such optional prepayment shall be applied to prepay
ratably the Base Rate Loans of the several Banks (or of Wachovia, in the case of
Swing Loans) included in such Base Rate Borrowing.

                  (b)      Except as provided in Sections 2.09(a) and 8.02, the
Borrower may not prepay all or any portion of the principal amount of any Fixed
Rate Loan prior to the maturity thereof.

                  (c)      Upon receipt of a notice of prepayment pursuant to
this Section 2.09, the Agent shall promptly notify each Bank of the contents
thereof and of such Bank's ratable share of such prepayment and such notice
shall not thereafter be revocable by the Borrower.

                  Section 2.10      Mandatory Prepayments. On each date on which
the Commitments are reduced pursuant to Section 2.07 or Section 2.08, the
Borrower shall repay or prepay such principal amount of the outstanding Loans,
if any (together with interest accrued thereon), as may be necessary so that
after such payment the Working Capital Obligations do not exceed the Aggregate
Commitment as then reduced. All such prepayments shall be applied first to the
Revolver Loan Notes and then to the Swing Loan Note.

                  Section 2.11      General Provisions as to Payments.

                  (a)      The Borrower shall make each payment of principal of,
and interest on, the Loans and of fees hereunder, not later than 11:00 a.m.
(Atlanta, Georgia time) on the date when due, in Federal or other funds
immediately available, without setoff, counterclaim or other deduction, in
Atlanta, Georgia, to the Agent at its address referred to in Section 9.01. The
Agent will promptly distribute to Wachovia each such payment received by the
Agent on account of the Swing Loans, and to each Bank its ratable share of each
such payment received by the Agent for the account of the Banks.

                  (b)      Whenever any payment of principal of, or interest on,
the Domestic Loans or of fees hereunder shall be due on a day which is not a
Domestic Business Day, the date for payment thereof shall be extended to the
next succeeding Domestic Business Day. Whenever any payment of principal of or
interest on, the Euro-Dollar Loans shall be due on a day which is

                                       33
<PAGE>   39

not a Euro-Dollar Business Day, the date for payment thereof shall be extended
to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business
Day falls in another calendar month, in which case the date for payment thereof
shall be the next preceding Euro-Dollar Business Day.

                  (c)      All payments of principal, interest, fees and other
amounts to be made by the Borrower pursuant to this Agreement with respect to
any Loan or fee relating thereto shall be paid without deduction for, and free
from, any taxes, imposts, levies, deductions, or withholdings now or hereafter
imposed by any governmental authority or by any taxing authority thereof or
therein, excluding in the case of each Bank (1) any taxes imposed by the United
States or any political subdivision thereof on the effectively connected net
income of any Bank or any Bank's Lending Office or any franchise taxes imposed
by such jurisdiction, (2) taxes imposed on the net income of, or franchise taxes
imposed upon, any Bank by the jurisdiction under the laws of which such Bank is
organized or by any political subdivision thereof, (3) taxes imposed on the net
income of such Bank's Lending Office, and franchise taxes imposed on it, by the
jurisdiction of such Bank's Lending Office, or any political subdivision
thereof, (4) any taxes imposed on any Bank by Section 884(a) of the Internal
Revenue Code of 1986, as amended (and any successor statute to Section 884(a)),
and (5) any United States withholding tax payable with respect to any payments
to such Bank under the laws (including, without limitation, any treaty, ruling,
judicial or administrative determination or regulation) in effect on the
"Initial Date" (as hereinafter defined) or as a result of the Bank having
voluntarily changed the jurisdiction of its Lending Office from a jurisdiction
in which payments made to such Bank are exempt from United States withholding
tax to a jurisdiction in which such payments are not so exempt, but not
excluding any United States withholding tax payable or increased as a result of
any change in any law, treaty, ruling, judicial or administrative determination
or regulation, or interpretation thereof occurring after the Initial Date (all
such non-excluded taxes, levies, imposts, deductions, and withholdings
hereinafter referred to as "Taxes"). For purposes hereof, the term "Initial
Date" shall mean, in the case of each Bank party hereto on the date hereof, the
Closing Date, and in the case of each other Bank, the effective date of the
Assignment and Acceptance pursuant to which it became a Bank hereunder.

                  In the event that the Borrower is required by applicable law
to make any such withholding or deduction of Taxes with respect to any Loan or
fee or other amount, the Borrower shall pay such deduction or withholding to the
applicable taxing authority, shall promptly furnish to any Bank in respect of
which such deduction or withholding to the applicable taxing authority, shall
promptly furnish to any Bank in respect of which such deduction or withholding
is made all receipts and other documents evidencing such payment, and shall pay
to such Bank additional amounts as may be necessary in order that the amount
received by such Bank after the required withholding or other payment shall
equal the amount such Bank would have received had no such withholding or other
payment been made. If no withholding or deduction of Taxes are payable in
respect to any Loan or fee relating thereto, the Borrower shall furnish any
Bank, at such Bank's written request, a certificate from each applicable taxing
authority or an opinion of counsel reasonably acceptable to such Bank, in either
case stating that such payments are exempt from or not subject to withholding or
deduction of Taxes. If the Borrower fails to provide such original or certified
copy of a receipt evidencing payment of Taxes or certificate(s) or opinion of
counsel described in the preceding sentence, the Borrower hereby agrees to
compensate such Bank for, and indemnify it with respect to, the tax consequences
of the Borrower's failure to

                                       34
<PAGE>   40

provide evidence of tax payments or tax exemption; provided, however, that the
Borrower shall not be obligated to indemnify any party for penalties, additions
to tax, interest or expenses associated with the payment of Taxes if the Bank's
liability for such Taxes has arisen as a result of the fault of such Bank; and
provided, further, that the Borrower shall not be obligated to indemnify any
Bank for Taxes, penalties, additions to tax, interest or expenses incurred as a
result of such Bank having voluntarily changed its Lending Office from a
jurisdiction in which payments made to such Bank are exempt from United States
withholding tax to a jurisdiction in which such payments are not so exempt. Such
compensation or indemnification payment shall be made within 30 days from the
date such Bank makes written request therefor. Any such request shall be made
within 90 days after the date on which such payment of Taxes was made. Each such
request shall be accompanied by a copy of the statement from the taxing
authority demanding payment by such Bank of such Taxes or by a certificate from
such Bank which certificate shall set forth in reasonable detail the basis for
any additional amount payable to such party under this Section 2.11 (together
with reasonable evidence of payment of such Taxes).

                  Any Bank entitled to claim any additional amounts payable
pursuant to this Section 2.11 shall use its best efforts (consistent with its
internal policy and legal and regulatory restrictions) to change the
jurisdiction of its Lending Office if the making of such change would avoid the
need for, or reduce the amount of, any such additional amounts which may
thereafter accrue and the making of such a change would not, in the reasonable
judgment of such Bank, be otherwise materially disadvantageous to such Bank.

                  Each Bank agrees, as soon as practicable after receipt by it
of a request by the Borrower to do so, to file all appropriate forms and take
other appropriate action to obtain a certificate or other appropriate document
from the appropriate governmental authority in the jurisdiction imposing the
relevant taxes, establishing that it is entitled to receive payments of
principal and interest under this Agreement and the Notes without deduction and
free from withholding of any Taxes imposed by such jurisdiction; provided, that,
if it is unable, for any reason, to establish such exemption, or to file such
forms and, in any event, during such period of time as such request for
exemption is pending, the Borrower shall nonetheless remain obligated under the
terms of the immediately preceding paragraph.

                  In the event any Bank receives a refund of any Taxes paid by
the Borrower pursuant to this Section 2.11, it will pay to the Borrower the
amount of such refund promptly upon receipt thereof; provided, however, if at
any time thereafter it is required to return such refund, the Borrower shall
promptly repay to it the amount of such refund.

                  Without prejudice to the survival of any other agreement of
the Borrower hereunder, the agreements and obligations of the Borrower and the
Banks contained in this Section 2.11 shall be applicable with respect to any
Assignee, and any calculations required by such provisions (i) shall be made
based upon the circumstances of such Assignee, and (ii) constitute a continuing
agreement and shall survive the termination of this Agreement and the payment in
full or cancellation of the Notes.

                  Section  2.12     Computation of Interest and Fees. Interest
on Domestic Loans based on the Base Rate shall be computed on the basis of a
year of 360 days and paid for the actual number of days elapsed (including the
first day but excluding the last day). Interest on

                                       35
<PAGE>   41

Domestic Loans based on the Set Rate and interest on Euro-Dollar Loans shall be
computed on the basis of a year of 360 days and paid for the actual number of
days elapsed, calculated as to each Interest Period from and including the first
day thereof to but excluding the last day thereof. Commitment fees and any other
fees payable hereunder shall be computed on the basis of a year of 360 days and
paid for the actual number of days elapsed (including the first day but
excluding the last day).

                  Section 2.13      Letter of Credit Provisions

                  (a)      Commitment to and Issuance of Letters of Credit.

                           (i)      Commitment to Issue Letters of Credit. The
         Coosa Bonds Letter of Credit was issued pursuant to the Original Credit
         Agreement. Subject to the terms and conditions of this Agreement and of
         the applicable Other Letter of Credit Application Agreements, and in
         reliance upon the representations and warranties of the Borrower herein
         and therein set forth, the Agent shall issue for the account of the
         Borrower, one or more Other Letters of Credit denominated in Dollars,
         in accordance with this Section 2.13, from time to time during the
         period commencing on the Closing Date and ending on the Domestic
         Business Day 30 days prior to the Termination Date.

                           (ii)     Types and Amounts. All Other Letters of
         Credit shall be standby (not trade or other commercial) letters of
         credit. The Agent shall have no obligation to issue any Other Letter of
         Credit at any time:

                                    (A)      if the aggregate maximum amount
                  then available for drawing under all Letters of Credit, after
                  giving effect to the issuance of the requested Other Letter of
                  Credit, shall exceed any limit imposed by law or regulation
                  upon the Agent;

                                    (B)      if, after giving effect to the
                  issuance of the requested Other Letter of Credit, (i) the
                  aggregate Letter of Credit Obligations would exceed
                  $20,000,000, or (ii) the Working Capital Obligations would
                  exceed the Aggregate Commitment;

                                    (C)      which has an expiration date (i)
                  later than 13 months after the issuance date (but which may be
                  subject to an automatic renewal feature satisfactory to the
                  Agent); or (ii) after the Termination Date.

                           (iii)    Other Conditions. In addition to being
         subject to the satisfaction of the conditions contained in clause (ii)
         above and in Article III, the obligation of the Agent to issue any
         Other Letter of Credit is subject to the satisfaction in full of the
         following conditions:

                                    (A)      the Borrower shall have delivered
                  to the Agent at such times and in such manner as the Agent may
                  prescribe, an Other Letter of Credit Application Agreement and
                  such other documents and materials as may reasonably be
                  required pursuant to the terms thereof all reasonably
                  satisfactory in

                                       36
<PAGE>   42

                  form and substance to the Agent and the terms of the proposed
                  Other Letter of Credit shall be reasonably satisfactory in
                  form and substance to the Agent;

                                    (B)      as of the date of issuance no
                  order, judgment or decree of any court, arbitrator or
                  Authority shall purport by its terms to enjoin or restrain the
                  Agent from issuing the Other Letter of Credit and no law, rule
                  or regulation applicable to the Agent and no request or
                  directive (whether or not having the force of law) from any
                  Authority with jurisdiction over the Agent shall prohibit or
                  request that the Agent refrain from the issuance of letters of
                  credit generally or the issuance of that Other Letter of
                  Credit; and

                                    (C)      the Unused Commitment shall not be
                  less than the amount of the requested Other Letter of Credit.

                           (iv)     Issuance of Other Letters of Credit.

                                    (A)      Request for Issuance. At least 2
                  Domestic Business Days before the effective date for any Other
                  Letter of Credit, the Borrower shall give the Agent a written
                  notice containing the original signature of an authorized
                  officer or employee of the Borrower. Such notice shall be
                  irrevocable and shall specify the original face amount of the
                  Other Letter of Credit requested (which original face amount
                  shall not be less than $1,000,000), the effective date (which
                  day shall be a Domestic Business Day) of issuance of such
                  requested Other Letter of Credit, the date on which such
                  requested Other Letter of Credit is to expire, the amount of
                  then outstanding Letter of Credit Obligations, the purpose for
                  which such Other Letter of Credit is to be issued, whether
                  such Other Letter of Credit may be drawn in single or partial
                  draws and the person for whose benefit the requested Other
                  Letter of Credit is to be issued.

                                    (B)      Issuance; Notice of Issuance. If
                  the original face amount of the requested Other Letter of
                  Credit is less than or equal to the Unused Commitment at such
                  time and the other applicable conditions set forth in this
                  Agreement are satisfied, the Agent shall issue the requested
                  Other Letter of Credit. The Agent shall give each Bank written
                  or telex notice in substantially the form of Exhibit R, or
                  telephonic notice confirmed promptly thereafter in writing, of
                  the issuance of an Other Letter of Credit and shall deliver to
                  each Bank in connection with such notice a copy of the Other
                  Letter of Credit issued by the Agent.

                                    (C)      No Extension or Amendment. The
                  Agent shall not extend or amend any Other Letter of Credit if
                  the issuance of a new Other Letter of Credit having the same
                  terms as such Other Letter of Credit as so amended or extended
                  would be prohibited by clause (iii) of paragraph (a) of this
                  Section 2.13.

         (b)      Payment of Reimbursement Obligations by Revolver Loans. Upon a
draw under any Letter of Credit (other than a Coosa Bonds Tender Drawing), the
Reimbursement Obligations arising therefrom shall be immediately payable in full
by the Borrower, together

                                       37
<PAGE>   43

with interest until paid as provided in Section 2.6(b) of the Coosa Bonds
Reimbursement Agreement or, with respect to any Other Letter of Credit, at the
same rate as Base Rate Loans determined pursuant to Section 2.05 hereof,
provided that unless the Agent is immediately reimbursed by the Borrower or has
previously submitted a Set Rate Loan Request or Notice of Borrowing as
contemplated in the immediately succeeding sentence, the Borrower irrevocably
authorizes the Agent to treat such draw as a Notice of Borrowing and to cause
Revolver Loans (or a Swing Loan, if the amount of such draw, when added to the
amount of Swing Loans then outstanding, would not exceed the maximum amount of
Swing Loans) to be made to pay such Reimbursement Obligations, without regard to
(i) requirements for funding of specified multiple amounts in Section 2.01 or
2.02 or (ii) satisfaction or non-satisfaction of the conditions set forth in
Section 3.02. Such Revolver Loans shall be made as Base Rate Loans, unless the
Borrower has actually submitted a Notice of Borrowing therefor within the time
permitted by and pursuant to Section 2.01(a) or 2.02, as applicable or unless a
Set Rate Request has been submitted for a Swing Loan at the Set Rate pursuant to
Section 2.01(b)(ii) and a Set Rate has been established pursuant thereto. The
Agent shall notify the Banks of any such Revolver Loans and each Bank's share
thereof and each of the Banks shall make available its ratable share thereof
pursuant to Section 2.02(c). The amount of any Swing Loans or Revolver Loans
made pursuant hereto shall be applied by the Agent to repay such Reimbursement
Obligations. Coosa Bonds Tender Advances shall be evidenced by the Coosa Bonds
Reimbursement Note and shall be paid and prepaid as provided in Section 2.6 of
the Coosa Bonds Reimbursement Agreement.

                  (c)      Duties of the Agent. Any action taken or omitted to
be taken by the Agent in connection with any Letter of Credit, if taken or
omitted in the absence of willful misconduct or gross negligence, shall not put
the Agent under any resulting liability to any Bank. In determining whether to
pay under any drawing under any Letter of Credit, the Agent shall have no
obligation relative to the Banks other than to confirm that any documents
required to have been delivered under such Letter of Credit appear to comply on
their face with the requirements of such Letter of Credit.

                  (d)      Purchase of Participations. Immediately upon issuance
by the Agent of any Letter of Credit in accordance with this Agreement and the
Coosa Bonds Reimbursement Agreement, if applicable, each Bank shall be deemed to
have irrevocably and unconditionally purchased and received from the Agent,
without recourse or warranty, an undivided interest and participation, to the
extent of such Bank's ratable share of the Aggregate Commitment, in such Letter
of Credit.

                  (e)      Sharing of Letter of Credit Payments. If for any
reason the Agent has not been reimbursed the amount of any Reimbursement
Obligation as required by paragraph (b) above and no Swing Loans or Revolver
Loans can be made with respect thereto pursuant to such paragraph, the Agent
shall promptly notify each Bank of such fact and each Bank shall make available
to the Agent its ratable share thereof in same day funds on the date of such
notice, if the Agent gives such notice prior to 2:00 P.M. (Atlanta, Georgia
time) on a Domestic Business Day, or on the next Domestic Business Day if such
notice is given after such time.

                  (f)      Sharing of Coosa Bonds Reimbursement Note Payments.
Whenever the Agent receives any payment under the Coosa Bonds Reimbursement
Note, including any interest thereon, the Agent shall promptly notify each Bank
thereof and shall distribute to each

                                       38
<PAGE>   44

Bank its ratable share of the amount of such payment in Dollars and in same day
funds, provided that such payment was received by the Agent by 2:00 P.M
(Atlanta, Georgia, time) on any Domestic Business Day, or on the next Domestic
Business Day, if such payment was received after such time.

                  (g)      Obligations Irrevocable. The obligations of the Banks
to make Revolver Loans for payment of Reimbursement Obligations arising with
respect to a Letter of Credit, and of the Borrower to repay such Revolver Loans,
shall be irrevocable, not subject to any qualification or exception whatsoever
and shall be made in accordance with, but not subject to, the terms and
conditions of this Agreement under all circumstances (assuming that the Agent
has issued such Letter of Credit in accordance with the provisions hereof and of
the Coosa Bonds Reimbursement Agreement, if applicable), including, without
limitation, any of the following circumstances:

                           (i)      any lack of validity or enforceability of
this Agreement or any of the other Principal Documents or the Coosa Bonds
Indenture or the Lease (as defined in the Coosa Bonds Indenture);

                           (ii)     the existence of any claim, set-off, defense
or other right which the Borrower may have at any time against the Coosa Bonds
Trustee as beneficiary named in the Coosa Bonds Letter of Credit or any
beneficiary of any Other Letter of Credit or any transferee of any Letter of
Credit (or any Person for whom any such transferee may be acting) or against the
Coosa Bonds Issuer or any other Person under any of the Coosa Bonds Letter of
Credit Related Documents, or against the Agent, any Bank or any other Person,
whether in connection with any of the Principal Documents or Coosa Bonds Letter
of Credit Related Documents or the transactions contemplated herein or therein
or any unrelated transactions;

                           (iii)    any draft, certificate or any other document
presented under any Letter of Credit proves to be forged, fraudulent or invalid
in any respect or any statement therein being untrue or inaccurate in any
respect;

                           (iv)     the surrender or impairment of any security
for the performance or observance of any of the terms of any of the Principal
Documents or the Coosa Bonds Letter of Credit Related Documents;

                           (v)      payment by the Agent under any Letter of
Credit against presentation of any draft or certificate that is insufficient or
otherwise does not comply with the terms of such Letter of Credit, except
payment resulting from the gross negligence or willful misconduct of the Agent;
or

                           (vi)     any other circumstances or happenings
whatsoever, whether or not similar to any of the foregoing, except circumstances
or happenings resulting from the gross negligence or willful misconduct of the
Agent.

                  (h)      Recovery or Avoidance of Payments. In the event any
payment by or on behalf of the Borrower received by the Agent with respect to
any Letter of Credit (including on account of any Revolver Loans made to pay the
resulting Reimbursement Obligations and on account of the Coosa Bonds
Reimbursement Note, if applicable) and distributed by the Agent to

                                       39
<PAGE>   45

the Banks on account of their participations in such Letter of Credit is
thereafter set aside, avoided or recovered from the Agent in connection with any
receivership, liquidation or bankruptcy proceeding, each Bank that received such
distribution shall, upon demand by such Agent, contribute such Bank's ratable
share of the amount set aside, avoided or recovered together with interest at
the rate required to be paid by the Agent upon the amount required to be repaid
by it.

                  (i)      Issuance Fee and Letter of Credit Fee. The Borrower
shall pay to the Agent with respect to each Letter of Credit (i) annually, on
the date of issuance of such Letter of Credit and on each anniversary thereof,
for its own account, a fronting fee in an amount equal to the product of (x) the
maximum aggregate amount available to be drawn under the terms of such Letter of
Credit on or after such date, multiplied by (y) one-eighth of one percent
(1/8%), multiplied by (z) a percentage equal to the ratable share of the
Aggregate Commitments held by Banks other than the Agent (in its capacity as a
Bank), (ii) as and when payable under the Coosa Bonds Reimbursement Agreement,
for the ratable account of the Banks, the Coosa Bonds Letter of Credit Fee and
(iii) the date of issuance of each Other Letter of Credit, and quarterly
thereafter (or at some other interval agreed upon by the Borrower and the
Agent), a letter of credit fee for each Other Letter of Credit, for the ratable
account of the Banks, in each case in an amount equal to the Applicable Margin
for Euro-Dollar Loans (expressed as a percentage) times the maximum aggregate
amount available to be drawn under the terms of such Other Letter of Credit.
Promptly upon receipt of any Letter of Credit Fee, the Agent shall distribute to
each Bank its ratable share thereof.

                  (j)      Agent Charges. The Borrower shall pay to the Agent,
solely for its own account, the charges assessed by the Agent in connection with
(i) the issuance and payment of the Coosa Bonds Letter of Credit, which charges
shall be those set forth in the Coosa Bonds Reimbursement Agreement, (ii) the
issuance and payment of the Other Letter of Credit, which charges shall be those
set forth in the relevant Other Letter of Credit Application Agreement and (iii)
the amendment or cancellation of any Letter of Credit, which charges shall be
those typically charged by the Agent to its customers generally having credit
and other characteristics similar to the Borrower, as determined in good faith
by the Agent.

                  (k)      Indemnification. In addition to amounts payable as
elsewhere provided in this Section 2.13, the indemnification provisions
contained in Section 10.2 of the Coosa Bonds Reimbursement Agreement for the
benefit of the Agent and the Banks are incorporated by reference herein.

                  (l)      Assumption of Risk by Borrower. As between the
Borrower, the Agent and the Bank, the Borrower assumes all risks of the acts and
omissions of, or misuse of any Letter of Credit by, the Coosa Bonds Trustee as
beneficiary of the Coosa Bonds Letter of Credit or by the beneficiary of any
Other Letter of Credit. In furtherance and not in limitation of the foregoing,
the Agent and the Banks shall not be responsible for (i) the validity, accuracy,
genuineness or legal effect of any document submitted by any party in connection
with the application for and issuance of any Letter of Credit, even if it should
in fact prove to be in any or all respects invalid, inaccurate, fraudulent or
forged, (ii) the validity of any instrument transferring or assigning or
purporting to transfer or assign any Letter of Credit or the rights or benefits
thereunder or proceeds thereof, in whole or in part, which may prove to be
invalid or

                                       40
<PAGE>   46

ineffective for any reason, (iii) failure of the Coosa Bonds Trustee as
beneficiary of the Coosa Bonds Letter of Credit or of the beneficiary of any
Other Letter of Credit to comply duly with conditions required in order to draw
upon such Letter of Credit, (iv) errors, omissions, interruptions or delays in
transmission or delivery of any messages, by mail, cable, telegraph, telex or
otherwise, whether or not they be in cipher, for errors in interpretation of
technical terms, (vi) any loss or delay in the transmission or otherwise of any
document required in order to make a drawing under any Letter of Credit or of
the proceeds thereof, (vii) the misapplication by the Coosa Bonds Trustee as
beneficiary of the Coosa Bonds Letter of Credit or by any beneficiary of any
Other Letter of Credit of the proceeds of any drawing under such Letter of
Credit; and (viii) any consequences arising from causes beyond the control of
the Agent and the Banks.

                  (m)      Exoneration. In furtherance and extension and not in
limitation of the specific provisions hereinabove set forth, any action taken or
omitted by the Agent under or in connection with the Letters of Credit or any
related certificates if taken or omitted in good faith and with reasonable care,
shall not put the Agent or any Bank under any resulting liability to the
Borrower or relieve the Borrower of any of its obligations hereunder to any such
Person.

                  (n)      No Amendment of Coosa Bonds Reimbursement Agreement.
The Agent agrees with the Banks that it will not amend any material provision of
or waive any Event of Default under the Coosa Bonds Reimbursement Agreement
without the prior written consent of the Required Banks (or all Banks, if
required by Section 9.06(a) of the Credit Agreement).

                  (o)      Coosa Bonds Notice of Non-Extension. The Agent agrees
with the Banks that, if pursuant to the automatic renewal provisions of the
Coosa Bonds Letter of Credit, the Coosa Bonds Letter of Credit Expiration Date
would otherwise extend beyond the Termination Date, it will timely issue a Coosa
Bonds Non-Extension Notice so that the Coosa Bonds Letter of Credit Expiration
Date will occur on or before the Termination Date.

                                  ARTICLE III

                            CONDITIONS TO BORROWINGS

                  Section 3.01      Conditions to First Borrowing and
Effectiveness of this Agreement.

                  (a)      Conditions to First Borrowing. The obligation of each
Bank to make a Loan on the occasion of the first Borrowing under the Original
Credit Agreement (or any amendment thereof, as applicable) was satisfied by the
satisfaction of each of the conditions set forth in Section 3.02 on the date of
such first Borrowing (or amendment) and receipt by the Agent of the documents
described below in this paragraph (a):

                           (i)      from each of the parties to the Original
Agreement of either (1) a duly executed counterpart of the Original Credit
Agreement signed by such party or (2) a facsimile transmission of a duly
executed signature page of this Agreement (with the original thereof to be sent
by overnight courier to the counsel for the Agent), and a duly executed

                                       41
<PAGE>   47

Consent and Reaffirmation of Guarantors as attached hereto following the
signatures of the parties hereto, duly executed by the Guarantors;

                           (ii)     a duly executed Revolver Loan Note under the
Original Credit Agreement for the account of each Bank (which was in the amount
of each Bank's Commitment at the time of the Original Credit Agreement), and a
duly executed Swing Loan Note under the Original Credit Agreement (which was in
the amount of $5,000,000) for the account of Wachovia, in each case complying
with the provisions of Section 2.03;

                           (iii)    a duly executed Parent Guaranty, a duly
executed Pledge Agreement, a duly executed Security Agreement, duly executed
Mortgages (in such number of counterparts as the Agent may request), and duly
executed UCC-1 financing statements pertaining to the Security Agreement and the
Mortgages and UCC-2 Notices pertaining to the real property located in Georgia;

                           (iv)     a duly executed SunTrust Intercreditor
Agreement, and instruments, in appropriate recordable form, duly executed by
SunTrust Bank, Atlanta;

                           (v)      such releases and termination statements as
the Agent may request from The CIT Group/Commercial Services, Inc., Wachovia
Bank of South Carolina, N.A. and First Union National Bank of Georgia as to the
Graniteville Assets and payment in full of all amounts payable to such lenders
and termination of the loan and security documents with them;

                           (vi)     lien and title searches satisfactory to the
Agent (1) pertaining to the Collateral described in the Security Agreement
(including, without limitation, the personal property portions of the
Graniteville Assets), indicating that, upon execution and delivery of this
Agreement and the Security Agreement, the filing of releases and termination
statements referred to in paragraph (e) above and of the UCC-1 financing
statements pertaining to such Collateral in the appropriate filing offices, and
the satisfaction of all other conditions in this Section 3.01, the Agent will
have a first priority (except as to the equipment located at the SunTrust
Collateral Plants, which shall be second priority) security interest in such
Collateral, except for the Permitted Encumbrances and (2) pertaining to the real
property portions of the Graniteville Assets, showing that there are no
encumbrances on such property other than Permitted Encumbrances;

                           (vii)    receipt by the Borrower of not less than
$39,000,000 in cash proceeds from the issuance of additional Capital Stock of
the Parent;

                           (viii)   an opinion letter (1) of King & Spalding,
counsel for the Borrower and the Parent, dated as of the Original Closing Date,
substantially in the form of Exhibit B-1, (2) of Bradley Arant Rose & White LLP,
Alabama counsel to the Borrower, addressing certain matters referred to in the
opinion of King & Spalding, and (3) of local counsel to the Agent in the States
of Alabama, North Carolina and South Carolina dated as of the Original Closing
Date, substantially in the form of Exhibit B-2 regarding the Mortgage as to any
Plant located in the state in which such counsel is located;

                           (ix)     an opinion of Jones, Day, Reavis & Pogue,
special counsel for the Agent, dated as of the Original Closing Date,
substantially in the form of Exhibit C;

                                       42
<PAGE>   48

                           (x)      a certificate substantially in the form of
Exhibit G), dated as of the Original Closing Date, signed by a principal
financial officer of the Borrower, to the effect that (1) no Default had
occurred and was continuing on the date of the first Borrowing and (2) the
representations and warranties of the Borrower contained in Article IV were true
on and as of the date of the first Borrowing under the Original Credit
Agreement;

                           (xi)     all documents which the Agent reasonably
requested relating to the existence of the Borrower and the Parent,
respectively, the corporate authority for and the validity of the Original
Credit Agreement and the other Loan Documents and the Parent Documents, and any
other matters relevant thereto, all in form and substance satisfactory to the
Agent, including, without limitation, a certificate of incumbency of the
Borrower and the Parent, respectively, signed by the Secretary or an Assistant
Secretary of the Borrower and the Parent, respectively, certifying as to the
names, true signatures and incumbency of the officer or officers of the Borrower
or the Parent, as applicable, authorized to execute and deliver the Loan
Documents or the Parent Documents, and certified copies of the following items
as to each of the Borrower and the Parent: (1) its Certificate of Incorporation,
(2) its Bylaws, (3) a certificate of the Secretary of State of the State of
Alabama (as to the Borrower) and Georgia (as to the Parent) as to its good
standing as an Alabama or Georgia corporation, respectively, together with a
certificate of good standing or valid existence from the Secretaries of State of
the States of North Carolina, South Carolina and Georgia as to the good standing
of the Borrower as a foreign corporation qualified to do business in such States
and (4) the action taken by its Board of Directors authorizing the execution,
delivery and performance of the Original Credit Agreement and the other Loan
Documents, or the Parent Documents, as applicable;

                           (xii)    a Notice of Borrowing;

                           (xiii)   receipt of the fees of the Agent pursuant to
Section 2.06(b) of the Original Credit Agreement;

                           (xiv)    receipt of a certified copy of the executed
Graniteville Asset Purchase Agreement, including any amendments or supplements
prior to the Original Closing Date with such different or additional material
terms or conditions were reasonably satisfactory to the Agent;

                           (xv)     closing of the purchase of the Graniteville
Assets pursuant to the Graniteville Asset Purchase Agreement and the Agent's
reasonable satisfaction with all material aspects of such purchase and the
Graniteville Assets acquired and liabilities assumed in connection therewith;

                           (xvi)    receipt of opinion letters (or reliance
letters with respect thereto) from counsel for Graniteville Company pertaining
to the closing of the purchase of the Graniteville Assets pursuant to the
Graniteville Asset Purchase Agreement and matters related thereto;

                           (xvii)   receipt of the audited balance sheet of the
Graniteville Assets as of January 2, 1994, January 1, 1995 and December 31, 1995
and any unaudited interim statements that were available for subsequent periods,
and audited statements of income, stockholders

                                       43
<PAGE>   49

equity and cash flows with respect to the Graniteville Assets for the 10 month
period ended January 2, 1994 and the Fiscal years ended January 1, 1995 and
December 31, 1995 and any unaudited interim statements which were available for
subsequent periods;

                           (xviii)  receipt of financial information reasonably
satisfactory to the Agent as to the Receivables to be transferred to the
Receivables Subsidiary pursuant to the Receivables Securitization Program to be
closed on the Original Closing Date.

                  (b)      Conditions to Effectiveness of this Agreement. The
effectiveness of this Agreement is subject to the satisfaction of the conditions
set forth below in this paragraph (b) (as to the items described in clauses (i),
(v) and (vi), in sufficient number of counterparts for delivery of a counterpart
to each Bank and retention of one counterpart by the Agent).

                           (i)      from each of the parties hereto of either
(i) a duly executed counterpart of this Agreement signed by such party or (ii) a
facsimile transmission of a duly executed signature page of this Agreement (with
the original thereof to be sent by overnight courier to the counsel for the
Agent).

                           (ii)     a certificate (the "Closing Certificate")
substantially in the form of Exhibit G), dated as of the Closing Date, signed by
a principal financial officer of the Borrower, to the effect that (1) no Default
has occurred and is continuing on the Closing Date and (2) the representations
and warranties of the Borrower contained in Article IV are true on and as of the
Closing Date;

                           (iii)    all documents which the Agent may reasonably
request relating to the existence of the Borrower, the Parent and Avondale Mills
Graniteville Fabrics, Inc., respectively, the corporate authority for and the
validity of this Agreement and the other Loan Documents or the Consent and
Reaffirmation of Guarantors, as applicable, and any other matters relevant
hereto, all in form and substance satisfactory to the Agent, including, without
limitation, a certificate of incumbency of the Borrower, the Parent and Avondale
Mills Graniteville Fabrics, Inc., respectively, signed by the Secretary or an
Assistant Secretary of the Borrower, the Parent and Avondale Mills Graniteville
Fabrics, Inc., respectively, certifying as to the names, true signatures and
incumbency of the officer or officers of the Borrower, the Parent or Avondale
Mills Graniteville Fabrics, Inc., as applicable, authorized to execute and
deliver the Loan Documents, or the Consent and Reaffirmation of Guarantors, as
applicable, and certified copies of the following items as to each of the
Borrower, the Parent and Avondale Mills Graniteville Fabrics, Inc.: (1) any
amendments to its Certificate of Incorporation or its Bylaws since the Original
Closing Date (or as to Avondale Mills Graniteville Fabrics, Inc., since it
became a Guarantor), (2) a certificate of the Secretary of State of the State of
Alabama (as to the Borrower), Georgia (as to the Parent) and Delaware (as to
Avondale Mills Graniteville Fabrics, Inc.) as to its good standing as an
Alabama, Georgia or Delaware corporation, respectively, together with a
certificate of good standing or valid existence from the Secretaries of State of
the States of North Carolina, South Carolina and Georgia as to the good standing
of the Borrower as a foreign corporation qualified to do business in such
States, and of South Carolina as to the good standing of Avondale Mills
Graniteville Fabrics, Inc. as a foreign corporation qualified to do business in
such State and (3) the action taken by its Board of Directors authorizing the

                                       44
<PAGE>   50

execution, delivery and performance of this Agreement and the other Loan
Documents, or the Consent and Reaffirmation of Guarantors, as applicable;

                           (iv)     execution and delivery of any amendments to
the Principal Documents as may reasonably be requested by the Agent;

                           (v)      an opinion letter (1) of King & Spalding,
counsel for the Borrower and the Guarantors, dated as of the Closing Date,
substantially in the form of Exhibit B-1, but updated and addressing only this
Agreement and the replacement Notes and covering such additional matters
relating to the transactions contemplated hereby as the Agent may reasonably
request and (2) of Bradley Arant Rose & White LLP, Alabama counsel to the
Borrower, addressing certain matters referred to in the opinion of King &
Spalding;

                           (vi)     an opinion of Jones, Day, Reavis & Pogue,
special counsel for the Agent, dated as of the Closing Date, substantially in
the form of Exhibit C, but updated and addressing only this Agreement and the
replacement Notes, and covering such additional matters relating to the
transactions contemplated hereby as the Agent may reasonably request;

                           (vii)    a duly executed replacement Revolver Loan
Note for the account of each Bank and a duly executed replacement Swing Loan
Note;

                           (viii)   receipt by the Agent, for the ratable
account of the Banks, of an upfront fee in an amount equal to 0.10% of the
Aggregate Commitment as of the Closing Date;

                           (ix)     payment of the fees payable on the Closing
Date to the Agent or Wachovia Securities, Inc. pursuant to the Agent's Letter
Agreement; and

                           (x)      payment of all outstanding principal and
accrued and unpaid interest under the Original Credit Agreement.

                  Section 3.02      Conditions to All Borrowings. The obligation
of the Agent to issue a Letter of Credit and of each Bank to make a Loan on the
occasion of each Borrowing, other than a Borrowing which consists solely of a
Refunding Loan and other than as provided in Section 2.13 with respect to
Borrowings to repay Reimbursement Obligations, is subject to the satisfaction of
the following conditions:

                  (a)      receipt by the Agent of a Notice of Borrowing or a
Set Rate Request;

                  (b)      the fact that, immediately before and after such
Borrowing, no Default shall have occurred and be continuing;

                  (c)      the fact that the representations and warranties of
the Borrower contained in Article IV of this Agreement shall be true on and as
of the date of such Borrowing, except for events which have been disclosed in
writing to the Banks and which are described in any of Sections 4.04, 4.06(a),
4.07 (except the first sentence), 4.14(b) and (c) or 4.15; and

                                       45
<PAGE>   51

                  (d)      the fact that, immediately after such Borrowing, the
Working Capital Obligations will not exceed the amount of the Aggregate
Commitment and, with respect to any Letter of Credit, the other conditions set
forth in Section 2.13 have been satisfied.

Each Borrowing hereunder, other than a Borrowing which consists solely of a
Refunding Loan, shall be deemed to be a representation and warranty by the
Borrower on the date of such Borrowing as to the truth and accuracy of the facts
specified in paragraphs (b), (c) and (d) of this Section.

                                   ARTICLE IV

                         REPRESENTATIONS AND WARRANTIES

                  The Borrower and (by execution and delivery of the Parent
Guaranty) the Parent represent and warrant that:

                  Section 4.01      Corporate Existence and Power. Each of the
Parent and the Borrower is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation, is duly
qualified to transact business in every jurisdiction where, by the nature of its
business, such qualification is necessary, and has all corporate powers and all
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted, except for failures which have not had and
would not reasonably be expected to have or cause a Material Adverse Effect.

                  Section 4.02      Corporate and Governmental Authorization; No
Contravention. The execution, delivery and performance by the Borrower of this
Agreement, the Notes, the Security Agreement, the Mortgages and the other Loan
Documents and by the Parent of the Parent Documents (i) are within the corporate
powers of the Parent and the Borrower, respectively, (ii) have been duly
authorized by all necessary corporate action, (iii) require no action by or in
respect of or filing with, any governmental body, agency or official, (iv) do
not contravene, or constitute a default under, any provision of applicable law
or regulation or of the certificate of incorporation or by-laws of the Borrower
or the Parent of any material agreement, judgment, injunction, order, decree or
other instrument binding upon the Parent, the Borrower or any of the
Subsidiaries, and (v) do not result in the creation or imposition of any Lien on
any asset of the Parent, the Borrower or any of the Subsidiaries, except in
favor of the Agent.

                  Section 4.03      Binding Effect. This Agreement constitutes a
valid and binding agreement of the Borrower enforceable in accordance with its
terms, and the Notes, the Security Agreement, the Mortgages and the other Loan
Documents, and the Parent Documents, when executed and delivered in accordance
with this Agreement, will constitute valid and binding obligations of the
Borrower and the Parent, as applicable, enforceable in accordance with their
respective terms, provided that the enforceability hereof and thereof is subject
in each case to general principles of equity and to bankruptcy, insolvency and
similar laws affecting the enforcement of creditors' rights generally.

                  Section 4.04      Financial Information.

                                       46
<PAGE>   52

                  (a)      The consolidated balance sheet of the Parent and its
Consolidated Subsidiaries as of August 27, 1999 and the related consolidated
statements of income, shareholders' equity and cash flows for the Fiscal Year
then ended, reported on by Arthur Andersen LLP, copies of which have been
delivered to each of the Banks, and the unaudited consolidated financial
statements (with consolidating schedule) of the Parent for the interim period
ended May 26, 2000, copies of which have been delivered to each of the Banks,
fairly present in all material respects, in conformity with GAAP (except for
customary exceptions for unaudited statements in accordance with the Parent's
practices existing on the Closing Date), the consolidated financial position of
the Parent and its Consolidated Subsidiaries as of such dates and their
consolidated results of operations and cash flows for such periods stated.

                  (b)      Since August 27, 1999 there has been no event, act,
condition or occurrence having or which reasonably could be expected to have or
cause a Material Adverse Effect, except for matters disclosed in the financial
statements for the interim period ended May 26, 2000.

                  (c)      Schedule 4.04 contains a list of all intangibles of
the Parent and its Consolidated Subsidiaries which were recorded on the
financial statements for the interim period ended February 23, 1996 of the types
described in clauses (A) through (C), inclusive, of the definition of
Consolidated Adjusted Tangible Net Worth which were in existence on the day
before the Original Closing Date.

                  Section 4.05      No Litigation. Except as described on
Schedule 4.05 or Schedule 4.14, there is no action, suit or proceeding pending,
or to the Knowledge of the officers of the Parent or the Borrower, overtly
threatened, against or affecting the Parent or the Borrower or any of the
Subsidiaries or with respect to which any of them may become subject as a result
of the acquisition of the Graniteville Assets, before any court or arbitrator or
any governmental body, agency or official which has not previously been
disclosed pursuant to Section 5.01(i) and which has or would reasonably be
expected to have or cause a Material Adverse Effect or which in any manner draws
into question the validity of or which has impaired or would reasonably be
expected to impair the ability of the Borrower to perform its obligations under,
this Agreement, the Notes, the Security Agreement, the Mortgages or any of the
other Loan Documents or of the Parent to perform its obligations under the
Parent Documents.

                  Section 4.06      Compliance with ERISA.

                  (a)      The Borrower (i) terminated its only Plan on or about
October 31, 1986 pursuant to the termination procedures under Section 4041 of
ERISA and received all necessary approvals for such termination; (ii) has
distributed all vested benefits under such Plan, and the assets of such Plan so
distributed exceeded the amount of such vested benefits; and (iii) is not
required pursuant to the terms of any applicable collective bargaining agreement
to pay or accrue any contributions with respect to any plan which is a
Multiemployer Plan and there has been no complete or partial withdrawal by the
Borrower from any such Multiemployer Plan as provided by MPPAA.

                  (b)      No non-exempt "prohibited transaction" within the
meaning of Section 4975 of the Internal Revenue Code or Section 406 of ERISA has
occurred with respect to any

                                       47
<PAGE>   53

"employee benefit plan," as defined in Section 3 of ERISA, maintained by the
Borrower and which has had or would reasonably be expected to have or cause a
Material Adverse Effect.

                  Section 4.07      Compliance with Laws; Payment of Taxes. The
Parent, the Borrower and the Material Subsidiaries are in compliance with all
applicable laws, regulations and similar requirements of governmental
authorities, except where such compliance is being contested in good faith
through appropriate proceedings or where failure to comply would not have or
reasonably be expected to have or cause a Material Adverse Effect. There have
been filed on behalf of the Parent, the Borrower and the Material Subsidiaries
all Federal, state and local income, excise, property and other tax returns
which to the Knowledge of its officers are required to be filed by them and all
taxes due pursuant to such returns or pursuant to any assessment received by or
on behalf of the Parent, the Borrower or any Material Subsidiary have been paid,
except for taxes which are being contested in good faith through appropriate
proceedings and for which reasonable reserves have been established in
accordance with GAAP. The charges, accruals and reserves on the books of the
Parent, the Borrower and the Material Subsidiaries in respect of taxes or other
governmental charges are, in the opinion of the Parent and Borrower, adequate.
United States income tax returns of the Parent, the Borrower and the Material
Subsidiaries have been closed through the 1994 Fiscal Year.

                  Section 4.08      Subsidiaries. Each of the Material
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation, is duly qualified
to transact business in every jurisdiction where, by the nature of its business,
such qualification is necessary, and has all corporate powers and all
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted, except where failure of any of the foregoing
would not have or reasonably be expected to have or cause a Material Adverse
Effect. The Parent has no Subsidiaries except for the Borrower and those
Subsidiaries listed on Schedule 4.08, as such schedule is supplemented from time
to time, which accurately sets forth each such Subsidiary's complete name and
jurisdiction of incorporation.

                  Section 4.09      Investment Company Act. Neither the Parent,
the Borrower nor any of the Material Subsidiaries is an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.

                  Section 4.10      Public Utility Holding Company Act. Neither
the Parent, the Borrower nor any of the Material Subsidiaries is a "holding
company", or a "subsidiary company" of a "holding company", or an "affiliate" of
a "holding company" or of a "subsidiary company" of a "holding company", as such
terms are defined in the Public Utility Holding Company Act of 1935, as amended.

                  Section 4.11      Ownership of Property; Liens. Each of the
Parent, the Borrower and the Material Subsidiaries has title to its properties
sufficient for the conduct of its business, and none of such property is subject
to any Lien except as permitted in Section 5.11.

                  Section 4.12      No Default. Neither the Parent, the Borrower
nor any of the Material Subsidiaries is, to the Knowledge of their respective
officers, in default under or with respect to any agreement, instrument or
undertaking to which it is a party or by which it or any of

                                       48
<PAGE>   54

its property is bound which has had or reasonably would be expected to have or
cause a Material Adverse Effect. No Default or Event of Default has occurred and
is continuing, except as previously disclosed pursuant to Section 5.01(e).

                  Section 4.13      Full Disclosure. All information heretofore
furnished by the Parent and the Borrower to the Agent or any Bank for purposes
of or in connection with this Agreement or any transaction contemplated hereby
is, and all such information hereafter furnished by the Parent and the Borrower
to the Agent or any Bank will be, to the Knowledge of their respective officers,
true, accurate and complete in every material respect or based on reasonable
estimates on the date as of which such information is stated or certified. The
Parent and the Borrower have disclosed to the Banks in writing any and all facts
which have had or would reasonably be expected to have or cause a Material
Adverse Effect.

                  Section 4.14      Environmental Matters.

                  (a)      Except as set forth on Schedule 4.14, or disclosed
pursuant to Section 5.01(j), to the Knowledge of their respective officers and
Plant managers, (i) neither the Parent, the Borrower nor any Material Subsidiary
is subject, or may become subject as a result of the acquisition of the
Graniteville Assets, to any Environmental Liability which has had or would
reasonably be expected to have or cause a Material Adverse Effect and neither
the Parent, the Borrower nor any Material Subsidiary has been designated as a
potentially responsible party under CERCLA or under any state statute similar to
CERCLA, and (ii) none of the Properties has been identified on any current or
proposed (A) National Priorities List under 40 C.F.R. ss. 300, (B) CERCLIS list
or (C) any list arising from a state statute similar to CERCLA.

                  (b)      To the Knowledge of their respective officers and
Plant managers of the Borrower, no Hazardous Materials have been or are being
used, produced, manufactured, processed, treated, recycled, generated, stored,
disposed of, managed or otherwise handled at, or shipped or transported to or
from the Properties or are otherwise present at, on, in or under the Properties
or the Graniteville Assets, or, at or from any adjacent site or facility (except
for Hazardous Materials, such as cleaning solvents, pesticides and other
materials used or otherwise handled in the ordinary course of business in
material compliance with all applicable Environmental Requirements) that would
reasonably be expected to lead to any material Environmental Liabilities.

                  (c)      To the Knowledge of their respective officers and
Plant managers, the Parent, Borrower, and each of the Material Subsidiaries and
their respective Affiliates, has procured all Environmental Authorizations
necessary for the conduct of its business (after giving effect to the
acquisition of the Graniteville Assets), and is in material compliance with all
Environmental Requirements in connection with the operation of the Properties
and their respective businesses (after giving effect to the acquisition of the
Graniteville Assets), except where failure to so procure or comply would not
reasonably be expected to lead to any material Environmental Liabilities.

                  Section 4.15      Capital Stock. All Capital Stock,
debentures, bonds, notes and all other securities of the Parent, the Borrower
and the Material Subsidiaries presently issued and outstanding are validly and
properly issued in all material respects in accordance with all

                                       49
<PAGE>   55

applicable laws, including, but not limited to, the "Blue Sky" laws of all
applicable states and the federal securities laws. The issued shares of capital
stock of the Wholly Owned Subsidiaries are owned by the Parent free and clear of
any Lien or adverse claim. At least a majority of the issued shares of capital
stock of each of the Parent's other Subsidiaries (other than Wholly Owned
Subsidiaries) is owned by the Parent free and clear of any Lien or adverse
claim, except any which are permitted under Section 5.11.

                  Section 4.16      Margin Stock. Neither the Parent, the
Borrower nor any of the Subsidiaries is engaged principally, or as one of its
important activities, in the business of purchasing or carrying any Margin
Stock, and no part of the proceeds of any Loan will be used to purchase or carry
any Margin Stock or to extend credit to others for the purpose of purchasing or
carrying any Margin Stock, or be used for any purpose which violates, or which
is inconsistent with, the provisions of Regulation X.

                  Section 4.17      Insolvency. After giving effect to the
execution and delivery of the Loan Documents and the Parent Documents and the
making of the Loans under this Agreement, neither the Parent nor the Borrower
will be "insolvent," within the meaning of such term as used in O.C.G.A. ss.
18-2-22 or as defined in ss. 101 of Title 11 of the United States Code or
Section 2 of the Uniform Fraudulent Transfer Act, or any other applicable state
law pertaining to fraudulent transfers, as each may be amended from time to
time, or be unable to pay its debts generally as such debts become due, or have
an unreasonably small capital to engage in any business or transaction, whether
current or contemplated.

                                   ARTICLE V

                                   COVENANTS

                  Each of the Borrower and (by execution and delivery of the
Parent Guaranty) the Parent agrees that, so long as any Bank has any Commitment
hereunder or any amount payable hereunder or under any Note remains unpaid:

                  Section 5.01      Information. The Parent and the Borrower
will deliver to each of the Banks:

                  (a)      (i)      as soon as available and in any event within
90 days after the end of each Fiscal Year, a consolidated balance sheet of the
Parent and the Consolidated Subsidiaries as of the end of such Fiscal Year and
the related consolidated statements of income, shareholders' equity and cash
flows for such Fiscal Year, setting forth in each case in comparative form the
figures for the previous Fiscal Year, all certified by Arthur Andersen LLP or
other independent public accountants of nationally recognized standing, with
such certification to be free of exceptions and qualifications not acceptable to
the Required Banks, together with unaudited consolidating statements for: (A)
each Material Subsidiary (other than the Borrower), except for any Material
Subsidiary as to which there has been no change in excess of $100,000 in its
assets, liabilities or shareholders' equity since the immediately preceding
Fiscal Quarter; and (B) the Parent during any period in which: (1) the Borrower
is not the sole direct Subsidiary of the Parent; (2) the Parent has assets
(other than the stock of the Borrower) having a book value in excess of
$1,000,000; or (3) the Parent has direct Debt (other

                                       50
<PAGE>   56

than in connection with (x) the "SunTrust L/C's," as defined in the SunTrust
Intercreditor Agreement, (y) Guarantees of Debt of the Borrower or a Subsidiary
of the Borrower and (z) Debt to a Subsidiary) in excess of $1,000,000; and

                           (ii)     at the written request of the Required
Banks, as soon as practicable, and in any event within 90 days after the end of
each Fiscal Year in which either (a) the assets of the Borrower and its
consolidated Subsidiaries comprise less than 90% of the consolidated assets of
the Parent and the Consolidated Subsidiaries as of the end of such Fiscal Year,
or (b) the consolidated revenues of the Borrower and its consolidated
Subsidiaries comprise less than 90% of the consolidated revenues of the Parent
and the Consolidated Subsidiaries, furnish to the Agent the annual consolidated
audit report of the Borrower and its consolidated Subsidiaries, including a
balance sheet, income statement and statement of cash flow, together with the
certification of the above-described accounting firm, with such certification to
be free of exceptions and qualifications not acceptable to the Required Banks,
prepared in accordance with the standards set forth above with respect to the
audit report of the Parent; and

                  (b)      as soon as available and in any event within 45 days
after the end of each of the first 3 Fiscal Quarters of each Fiscal Year, a
consolidated balance sheet of the Parent and the Consolidated Subsidiaries as of
the end of such Fiscal Quarter and the related statement of income and statement
of cash flows for such Fiscal Quarter and for the portion of the Fiscal Year
ended at the end of such Fiscal Quarter, setting forth in each case in
comparative form the figures for the corresponding portion of the previous
Fiscal Year, all certified (subject to normal year-end adjustments) as to
fairness of presentation, GAAP and consistency by the chief financial officer or
the chief accounting officer of the Borrower, together with unaudited
consolidating statements for: (i) each Material Subsidiary (other than the
Borrower), except for any Material Subsidiary as to which there has been no
change in excess of $100,000 in its assets, liabilities or shareholders' equity
since the immediately preceding Fiscal Quarter; and (ii) the Parent during any
period in which: (A) the Borrower is not the sole direct Subsidiary of the
Parent; (B) the Parent has assets (other than the stock of the Borrower) having
a book value in excess of $1,000,000; or (C) the Parent has direct Debt in
excess of $1,000,000 (other than Debt of the type excluded in Section
5.01(a)(i)(B)(3));

                  (c)      simultaneously with the delivery of each set of
financial statements referred to in paragraphs (a) and (b) above, a certificate,
substantially in the form of Exhibit F (a "Compliance Certificate"), of the
chief financial officer or the chief accounting officer (i) of the Parent,
setting forth in reasonable detail the calculations required to establish
whether there was compliance with the requirements of Sections 5.03, 5.05
through 5.07, inclusive, and 5.09 through 5.11, inclusive, on the date of such
financial statements, (ii) of the Borrower, stating whether, to the Knowledge of
such officer, any Default exists on the date of such certificate and, if any
Default then exists, setting forth the details thereof and the action which the
Borrower is taking or proposes to take with respect thereto, (iii) identifying
by name each Consolidated Subsidiary, and (iv) identifying by name any Material
Subsidiary (other than the Borrower) as to which there has been a change in
excess of $100,000 in its assets, liabilities or shareholders' equity since the
immediately preceding Fiscal Quarter;

                                       51
<PAGE>   57

                  (d)      simultaneously with the delivery of each set of
annual financial statements referred to in paragraphs (a) and (b) above, a
statement of the firm of independent public accountants which reported on such
statements to the effect that nothing has come to their attention to cause them
to believe that any Default existed on the date of such financial statements
under any of Sections 5.03, 5.05 through 5.07, inclusive, and 5.09;

                  (e)      within 5 Domestic Business Days after any officer of
the Parent or the Borrower becomes aware of the occurrence of any Default, a
certificate of the chief financial officer or the chief accounting officer of
the Parent or the Borrower setting forth the details thereof and the action
which the Parent or the Borrower is taking or proposes to take with respect
thereto;

                  (f)      promptly upon the mailing thereof to the shareholders
of the Parent generally, copies of all financial statements, reports and proxy
statements so mailed;

                  (g)      promptly upon the filing thereof, copies of all
registration statements (other than the exhibits thereto and any registration
statements on Form S-8 or its equivalent) and annual, quarterly or monthly
reports which the Parent or the Borrower shall have filed with the Securities
and Exchange Commission;

                  (h)      from and after the adoption of any Plan, if and when
any member of the Controlled Group (i) gives or is required to give notice to
the PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with
respect to any Plan which might constitute grounds for a termination of such
Plan under Title IV of ERISA, or knows that the plan administrator of any Plan
has given or is required to give notice of any such reportable event, a copy of
the notice of such reportable event given or required to be given to the PBGC;
(ii) receives notice of complete or partial withdrawal liability under Title IV
of ERISA, a copy of such notice; or (iii) receives notice from the PBGC under
Title IV of ERISA of an intent to terminate or appoint a trustee to administer
any Plan, a copy of such notice;

                  (i)      within 5 Domestic Business Days after any officer of
the Parent or the Borrower becomes aware of any action, suit or proceeding
pending or overtly threatened, against or affecting the Parent or the Borrower
or any of the Subsidiaries or with respect to which any of them may become
subject as a result of the acquisition of the Graniteville Assets, before any
court or arbitrator or any governmental body, agency or official which has or
would reasonably be expected to have or cause a Material Adverse Effect or which
in any manner draws into question the validity of or which has impaired or would
reasonably be expected to impair the ability of the Borrower to perform its
obligations under, this Agreement, the Notes, the Security Agreement, the
Mortgages or any of the other Loan Documents or of the Parent to perform its
obligations under the Parent Documents, a certificate of the chief financial
officer or the chief accounting officer of the Parent or the Borrower setting
forth the details thereof and the action which the Parent or the Borrower is
taking or proposes to take with respect thereto;

                  (j)      within 5 Domestic Business Days after any officer of
the Parent or the Borrower becomes aware (1) of any Environmental Liability to
which the Parent, the Borrower or any Material Subsidiary is subject, or may
become subject as a result of the acquisition of the Graniteville Assets, which
has had or would reasonably be expected to have or cause a Material

                                       52
<PAGE>   58

Adverse Effect, or that the Parent, the Borrower or any Material Subsidiary has
been designated as a potentially responsible party under CERCLA or under any
state statute similar to CERCLA, a certificate of the chief financial officer or
the chief accounting officer of the Parent or the Borrower setting forth the
details thereof and the action which the Parent or the Borrower is taking or
proposes to take with respect thereto; and

                  (k)      from time to time such additional information
regarding the financial position or business of the Parent, the Borrower and the
Subsidiaries as the Agent, at the request of any Bank, may reasonably request.

                  Section 5.02      Inspection of Property, Books and Records.
The Parent and the Borrower will (i) keep, and cause each Subsidiary to keep,
proper books of record and account in which full, true and correct entries to
permit preparation of financial statements in conformity with GAAP shall be made
of all dealings and transactions in relation to its business and activities; and
(ii) permit, and cause each Subsidiary to permit, representatives of any Bank
upon reasonable prior notice given by or through the Agent to visit and conduct
reasonable inspections of any of their respective properties, to examine and
make abstracts from any of their respective books and records and to discuss
their respective affairs, finances and accounts with their respective officers,
and, in coordination with such officers, employees and independent public
accountants. Each of the Parent and the Borrower agrees to cooperate and assist
in such visits and inspections, in each case at such reasonable times and as
often as may reasonably be desired.

                  Section 5.03      Fixed Charge Coverage Ratio. The Fixed
Charge Coverage Ratio, calculated at the end of each Fiscal Quarter, shall be
greater than: (i) 2.75 to 1.0 from the end of the 2000 Fiscal Year through the
end of the fourth Fiscal Quarter of the 2002 Fiscal Year and (ii) 3.00 to 1.0
thereafter.

                  Section 5.04      Intentionally Omitted

                  Section 5.05      Senior Debt to Capitalization Ratio. The
Senior Debt to Capitalization Ratio, calculated at the end of each Fiscal
Quarter, shall be less than 0.50 to 1.0.

                  Section 5.06      Total Debt to Cash Flow Ratio. The Total
Debt to Cash Flow Ratio, calculated at the end of each Fiscal Quarter, shall be
less than 3.75 to 1.0.

                  Section 5.07      Restricted Payments. The Parent and the
Borrower will not make any Restricted Payment, except, so long as no Default
shall have occurred and be continuing, a Restricted Payment may be made if at
the time of such Restricted Payment and after giving effect thereto, the
aggregate amount of such Restricted Payment and all other Restricted Payments
since the beginning of the Restricted Payment Calculation Period would not
exceed the sum of (x) $20,000,000, plus (y) 50% of Consolidated Net Income
during the Restricted Payment Calculation Period (treated as one accounting
period) (or, in case such Consolidated Net Income shall be a deficit, minus 100%
of such deficit).

                  Section 5.08      Intentionally Omitted

                                       53
<PAGE>   59
         Section 5.09 Loans or Advances. Neither the Parent, the Borrower nor
any of the Material Subsidiaries shall make loans or advances to any Person
except, so long as no Event of Default is in existence:

                  (A)(i)   loans or advances to employees not exceeding
$2,000,000 in the aggregate principal amount outstanding at any time, in each
case made in the ordinary course of business and consistent with practices
existing on August 25, 1995; (ii) deposits required by government agencies or
public utilities; and (iii) loans or advances to Wholly Owned Subsidiaries
(other than from the Parent to the Borrower or as provided in Section 5.09(B) or
(C)) not exceeding $1,000,000 in the aggregate outstanding; provided that after
giving effect to the making of any loans, advances or deposits permitted by this
Section 5.09(A), the aggregate of all loans and advances permitted in this
Section 5.09(A) does not exceed $4,000,000;

                  (B)      loans or advances from the Parent to the Borrower or
from the Borrower to the Parent, or from the Borrower to AMGF (i) pursuant to
the AMGF/Graniteville Transaction and within the limits contained in the
definition thereof and (ii) otherwise to fund the ongoing working capital needs
and capital expenditures of AMGF in the ordinary course of business;

                  (C)      loans or advances to the Receivables Subsidiary
evidenced by a Purchase Money Note; and

                  (D)      other loans or advances (not including any loans and
advances of the types described in clauses (A), (B) or (C) above) in an
aggregate amount, together with Investments permitted by clause (viii) of
Section 5.10, not exceeding the sum of $15,000,000, plus 10% of positive
Consolidated Adjusted Tangible Net Worth as of the date of measurement.

         Section 5.10 Investments. Neither the Parent, the Borrower nor any of
the Consolidated Subsidiaries shall make Investments in any Person except as
permitted by Section 5.09 and except Investments in (i) direct obligations of
the United States Government maturing within one year, (ii) certificates of
deposit issued by a commercial bank whose credit is satisfactory to the Agent,
(iii) commercial paper rated A1 or the equivalent thereof by Standard & Poor's
Corporation or P1 or the equivalent thereof by Moody's Investors Service, Inc.
and in either case maturing within 6 months after the date of acquisition, (iv)
tender bonds the payment of the principal of and interest on which is fully
supported by a letter of credit issued by a United States bank whose long-term
certificates of deposit are rated at least AA or the equivalent thereof by
Standard & Poor's Corporation and Aa or the equivalent thereof by Moody's
Investors Service, Inc., (v) Investments by Borrower in the Receivables
Subsidiary and obligations consisting of Standard Securitization Undertakings,
(vi) Investments by the Receivables Subsidiary in a Special Purpose Vehicle and
obligations consisting of Standard Securitization Undertakings, (vii) loans and
advances permitted by Section 5.09, and Investments by the Borrower in AMGF (x)
pursuant to the AMGF/Graniteville Transaction and within the limits contained in
the definition thereof and (y) otherwise to fund the ongoing working capital
needs and capital expenditures of AMGF in the ordinary course of business and
(viii) other Investments in an aggregate amount on and after the Closing Date,
together with Investments permitted by clause (D) of Section 5.09, not exceeding
the sum of $15,000,000, plus 10% of positive Consolidated Adjusted Tangible Net
Worth as of the date of measurement.

                                       54
<PAGE>   60

         Section 5.11 Negative Pledge. Neither the Parent, the Borrower nor any
Consolidated Subsidiary will create, assume or suffer to exist any Lien on any
asset now owned or hereafter acquired by it, except: (i) as to the Collateral,
Liens securing the Obligations and the Permitted Encumbrances, and (ii) as to
other assets:

         (a)      Liens existing on the date of this Agreement securing Debt
outstanding on the Original Closing Date and described on Schedule 5.11;

         (b)      any Lien existing on any asset of any Person at the time such
Person becomes a Consolidated Subsidiary and not created in contemplation of
such event;

         (c)      any Lien on any asset securing Debt incurred or assumed for
the purpose of financing all or any part of the cost of acquiring or
constructing such asset (including all Liens granted pursuant to the Coosa Bonds
Letter of Credit Related Documents), provided that such Lien attaches to such
asset concurrently with or within 18 months after the acquisition or completion
of construction thereof;

         (d)      any Lien on any asset of any Person existing at the time such
Person is merged or consolidated with or into the Borrower or a Consolidated
Subsidiary and not created in contemplation of such event;

         (e)      any Lien existing on any asset prior to the acquisition
thereof by the Borrower or a Consolidated Subsidiary and not created in
contemplation of such acquisition;

         (f)      Liens securing Debt owing by any Subsidiary to the Borrower;

         (g)      any Lien arising out of the refinancing, extension, renewal or
refunding of any Debt secured by any Lien permitted by any of the foregoing
paragraphs of this Section, provided that (i) such Debt is not secured by any
additional assets, and (ii) the amount of such Debt secured by any such Lien is
not increased;

         (h)      Liens incidental to the conduct of its business or the
ownership of its assets which (i) do not secure Debt and (ii) do not in the
aggregate materially detract from the value of its assets or materially impair
the use thereof in the operation of its business;

         (i)      any Lien on Margin Stock;

         (j)      Liens on Receivables Program Assets pursuant to a Receivables
Securitization Program; and

         (k)      Liens (other than on the Transferor Certificate) not otherwise
permitted by the foregoing paragraphs of this Section securing Debt (other than
indebtedness represented by the Notes) in an aggregate principal amount at any
time outstanding not to exceed $3,000,000;

Provided Liens permitted by the foregoing paragraphs (b) through (e) inclusive,
and (i) shall at no time secure Debt in an aggregate amount greater than
$4,000,000.

                                       55
<PAGE>   61

         Section 5.12 Maintenance of Existence. The Parent and the Borrower
shall, and shall cause each Material Subsidiary to, maintain its existence and
carry on its business in substantially the same manner and in substantially the
same fields as such business is now carried on and maintained, except as
permitted by Section 5.14.

         Section 5.13 Dissolution. Neither the Parent, the Borrower nor any of
the Material Subsidiaries shall suffer or permit dissolution or liquidation
either in whole or in part or redeem or retire any shares of its own stock or
that of any Subsidiary, except as permitted by Section 5.07 or through merger or
reorganization to the extent permitted by Section 5.14.

         Section 5.14 Consolidations, Mergers and Sales of Assets. The Parent
and the Borrower will not, nor will it permit any Subsidiary to, consolidate or
merge with or into, or sell, lease or otherwise transfer all or any substantial
part of its assets to, any other Person (including in a sale and leaseback
transaction, but excluding sales of inventory in the ordinary course of
business), or discontinue or eliminate any business line or segment, provided
that (a) the Borrower may merge with another Person if (i) such Person was
organized under the laws of the United States of America or one of its states,
(ii) the Borrower is the corporation surviving such merger and (iii) immediately
after giving effect to such merger, no Default shall have occurred and be
continuing, (b) Subsidiaries other than the Borrower may merge with one another,
or with and into the Parent, with the Parent being the surviving corporation,
and (c) the foregoing limitation on the sale, lease or other transfer of assets
and on the discontinuation or elimination of a business line or segment shall
not prohibit, (1) any transfers of Receivables Program Assets pursuant to a
Receivables Securitization Program prior to termination of such program, the
transfer of the Graniteville Indigo Dyeing Facility to AMGF pursuant to the
AMGF/Graniteville Transaction, or the transfer of raw materials, supplies,
inventory and similar production-related items between the Borrower and AMGF in
the ordinary course of business, or (2) during any Fiscal Year, any other
transfer of assets (other than the Transferor Certificate, which may not be
transferred) for 100% cash consideration or the discontinuance or elimination of
a business line or segment (in a single transaction or in a series of related
transactions) unless the aggregate assets to be so transferred or utilized in a
business line or segment to be so discontinued, when combined with all other
assets transferred, and all other assets utilized in all other business lines or
segments discontinued, during such Fiscal Year exceeds $5,000,000, but in any
event subject to the provisions of Section 2.08(b)(i).

         Section 5.15 Use of Proceeds. The proceeds of the Loans will be used
(i) to refinance existing revolving credit and other Debt outstanding, (ii) for
working capital and (iii) for general business purposes of the Parent, the
Borrower or any Subsidiaries. No portion of the proceeds of the Loans will be
used by the Borrower or any Subsidiary (A) in connection with, whether directly
or indirectly, any tender offer for, or other acquisition of, stock of any
corporation with a view towards obtaining control of such other corporation,
except in a negotiated transaction, (B) directly or indirectly, for the purpose,
whether immediate, incidental or ultimate, of purchasing or carrying any Margin
Stock, or (C) for any purpose in violation of any applicable law or regulation.

         Section 5.16 Compliance with Laws; Payment of Taxes. The Parent and
the Borrower will, and will cause each Subsidiary and each member of the
Controlled Group to, comply with applicable laws (including but not limited to,
from and after the adoption of a Plan,

                                       56
<PAGE>   62

ERISA), regulations and similar requirements of governmental authorities
(including but not limited to PBGC), except where the necessity of such
compliance is being contested in good faith through appropriate proceedings, or
has not had and would not reasonably be expected to have or cause of Material
Adverse Effect. The Parent and the Borrower will, and will cause each Subsidiary
to, pay promptly when due all taxes, assessments, governmental charges, claims
for labor, supplies, rent and other obligations which, if unpaid, would become a
lien against the property of the Parent, the Borrower or any Subsidiary, except
liabilities being contested in good faith and against which, if required, the
Borrower will set up reserves in accordance with GAAP.

         Section 5.17 Insurance. The Parent and the Borrower will maintain, and
will cause each Material Subsidiary to maintain (either in the name of the
Parent or the Borrower or in such Subsidiary's own name), with financially sound
and reputable insurance companies, insurance on all its property, or self
insurance, in each case consistent with practices existing on the Original
Closing Date, all as described on Schedule 5.17.

         Section 5.18 Change in Fiscal Year. The Parent and the Borrower will
not, and will not permit any Material Subsidiary to, change its Fiscal Year
without the consent of the Required Banks.

         Section 5.19 Maintenance of Property. The Parent and the Borrower
shall, and shall cause each Material Subsidiary to, maintain all of its
properties and assets in good condition, repair and working order, ordinary wear
and tear excepted and subject to prudent business practices.

         Section 5.20 Environmental Notices. The Parent and the Borrower shall
furnish to the Agent prompt written notice of all material Environmental
Liabilities, pending, threatened or anticipated Environmental Proceedings,
Environmental Notices, Environmental Judgments and Orders, and, to the Knowledge
of their respective officers and Plant managers, Environmental Releases at, on,
in, under or in any way affecting the Properties or any adjacent property, and
all facts, events, or conditions, that would reasonably be anticipated to lead
to any material Environmental Liabilities.

         Section 5.21 Environmental Matters. The Parent and the Borrower and
its Subsidiaries will not knowingly, and will not knowingly permit any Third
Party to, use, produce, manufacture, process, treat, recycle, generate, store,
dispose of, manage at, or otherwise handle, or ship or transport to or from the
Properties any Hazardous Materials (except for Hazardous Materials such as
cleaning solvents, pesticides and other similar materials used or otherwise
handled in the ordinary course of business in material compliance with all
applicable Environmental Requirements) that would reasonably be expected to lead
to any material Environmental Liabilities.

         Section 5.22 Environmental Release. Each of the Parent and the
Borrower agrees that upon the occurrence of any material Environmental Release
known to any of their respective officers or Plant managers at or on any of the
Properties it will act immediately to investigate the extent of, and to take
appropriate remedial action with respect to such Environmental Release, whether
or not ordered or otherwise directed to do so by any Environmental Authority.

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<PAGE>   63

         Section 5.23 Additional Consolidated Senior Debt; Debt of Receivables
Subsidiary. Neither the Parent nor the Borrower shall incur or permit to exist,
or permit any Consolidated Subsidiary other than the Receivables Subsidiary to
incur or permit to exist, any Consolidated Senior Debt not in existence on the
Original Closing Date, and extensions, renewals, refinancings or refundings
thereof (provided that the amount of such Consolidated Senior Debt is not
increased), other than (i) the Obligations; (ii) Debt permitted to be secured by
Liens permitted by Section 5.11; (iii) Debt of the types described in clause
(vii) of the definition of Debt which is incurred in the ordinary course of
business in connection with the sale or purchase of goods or to assure
performance of an obligation to a utility or a governmental entity or a worker's
compensation obligation; (iv) Receivables Program Obligations; (v) Debt
permitted by Section 5.09; and (vi) other Debt in an aggregate amount
outstanding at any time not exceeding $4,000,000. Nothing in the foregoing shall
prohibit the Borrower from incurring obligations incurred in connection with
Interest Rate Protection Agreements. The Borrower shall not permit the
Receivables Subsidiary to incur any Debt or other liabilities other than in
connection with the Receivables Securitization Program.

         Section 5.24 Transactions with Affiliates. Neither the Borrower nor
any of its Subsidiaries shall enter into, or be a party to, any transaction with
any Affiliate of the Borrower or such Subsidiary (which Affiliate is not the
Borrower, the Parent or a Subsidiary and in any event excluding the Receivables
Securitization Program), except as permitted by law and in the ordinary course
of business and pursuant to reasonable terms which are no less favorable to
Borrower, the Parent or such Subsidiary than would be obtained in a comparable
arm's length transaction with a Person which is not an Affiliate. Upon request
of the Agent, the Borrower shall fully disclose the terms of any such
transaction.

         Section 5.25  Collateral.

         (a)      All manufacturing plants of the Borrower are listed on
Schedule 5.25, which shows, as to each Plant: (i) the City, Town or other local
jurisdiction, and County and State of its location; (ii) whether the Property on
which such Plant is located is owned or leased by the Borrower, and if leased,
the name and address of the owner; (iii) all Liens on the Property on which such
Plant is located; and (iv) the name, address and type of interest of any Third
Party whose consent is required in connection with the execution, delivery,
recording and performance of a Mortgage as to such Plant or related Property,
and whether such consent has been obtained. If the Borrower opens any additional
manufacturing plants, it shall promptly furnish to the Agent and the Banks a
supplement to Schedule 5.25 including such additional plant and a Mortgage and
appropriate UCC-1 financing statements requested by the Agent with respect
thereto.

         (b)      It is the intent of the parties hereto that the Obligations
shall be secured by the Collateral (including the Rolling Stock, if notice is
given by the Agent pursuant to the provisions of Section 4.7 of the Security
Agreement), subject to the provisions of Section 9.18 regarding the release of
the Receivables Program Assets. At the Original Closing Date, the Borrower and
the Parent, as applicable, executed and delivered to the Agent (i) the Security
Agreement and UCC-1 financing statements relating to the personal property
included in the Graniteville Assets, (ii) the Pledge Agreement, (iii) the
Mortgages (undated) and UCC-1 financing statements relating to the fixtures
located at the premises described therein and (iv) the Borrower Pledge
Agreement, the Receivables Subsidiary Pledged Stock and the Purchase Money

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<PAGE>   64

Note, and the Agent has released the Receivables Program Assets pursuant to such
Section 9.18. However, the Mortgages and the UCC-1 financing statements related
thereto described in clause (iii) above shall be held by the Agent and not filed
for record except subject and pursuant to the provisions of this Section 5.25.
The Agent may date and file for record any of the Mortgages as to one, or more,
or all of the relevant Plants under the following circumstances applicable
thereto (such circumstances applicable to any Plant being the "Triggering
Circumstances" as to such Plant and the related Mortgage): (1) as to any of the
SunTrust Collateral Plants, at any time (and from time to time as to individual
Plants), at the direction of 100% of the Banks, and (2) as to the Revolver
Collateral Plants, at any time (and from time to time as to individual Plants)
after the occurrence of an Event of Default, at the direction of the Required
Banks, provided, however, with respect to this clause (2), that if any such
Event of Default giving rise to a Triggering Circumstance (the "Triggering Event
of Default") is waived by the Required Banks, then the foregoing right shall
terminate as to such Triggering Event of Default (but not as to any subsequent
Event of Default) if, for a period of 3 consecutive Fiscal Quarters after the
date of such waiver (the "Compliance Measurement Period"), the Borrower shall
have been continuously in compliance with both (A) the covenants contained in
Sections 5.03 through 5.06, inclusive, as in effect on the Original Closing Date
(without giving effect to any amendments to such covenants after the Original
Closing Date), and (B) all other provisions of this Agreement as in effect on
the date the Triggering Event of Default occurred, but such right shall
terminate only to the extent not already exercised during the Compliance
Measurement Period and shall not affect any Mortgages which have become
Operative Mortgages during the Compliance Measurement Period. At the request of
the Agent, made not more often than once in any Fiscal Year, the Borrower shall
reexecute any one, or more, or all of the Mortgages described in clause (iii)
above.

         (c)      At any time following the occurrence of the Triggering
Circumstances applicable to any Plant, the Borrower will, from time to time as
to individual Plants, at the request of the Agent and, (i) as to any of the
Revolver Collateral Plants, at the expense of the Borrower, deliver to the Agent
at the earliest practicable time all of the Real Property Documentation relating
to such Plant, (ii) as to all Plants, cooperate in all respects with the
obtaining of Real Property Documentation with respect thereto and the filing for
record of the related Mortgage and UCC-1 financing statement and (iii) as to the
Revolver Collateral Plants, pay all recording fees and costs and stamp,
intangible or other taxes payable in connection with the filing for record
thereof (collectively, the "Recording Expenses").

         (d)      The Borrower hereby irrevocably appoints the Agent as the
Borrower's attorney-in-fact, following the applicable Triggering Circumstances,
with full authority in the place and stead of the Borrower and in the name of
the Borrower or otherwise, from time to time in the Agent's discretion, to take
any action which the Agent may deem reasonably necessary or advisable to
accomplish the purposes of this Section 5.25, including, without limitation, to
(i) date any undated Mortgage, (ii) insert in the appropriate place the
outstanding principal balance in any Mortgage pertaining to any Plant located in
North Carolina, (iii) select and insert the name and address of the Trustee in
any Mortgage pertaining to any Plant located in North Carolina, and (iv)
execute, deliver and record in the appropriate filing office any instrument
(including, without limitation the relevant Mortgage and UCC-1 financing
statement), and to pay the related Recording Expenses.

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<PAGE>   65

         (e)      As a condition to the effectiveness of the Second Amendment,
AMGF was required to execute and deliver to the Agent the AMGF Documents. For
all purposes under paragraphs (b) through (d), inclusive, of Section 5.25 (other
than the requirement for execution and delivery on the Original Closing Date),
and the rights of the Agent and the Banks thereunder: (i) the AMGF Security
Agreement shall be subject to the same terms and provisions thereof as apply to
the Security Agreement, as if it were the Security Agreement; (ii) the AMGF
Mortgage shall be subject to the same terms and provisions thereof as apply to
the Mortgages, as if it were a Mortgage; and (iii) the AMGF Plant shall be
subject to the same terms and provisions thereof as apply to the Plants, as if
it were a Plant (and for such purposes shall be treated as if it were a Revolver
Collateral Plant).

         Section 5.26 Subordinated Debt. So long as any Obligations remain
outstanding and the Commitments have not been terminated, the Borrower will not:
(i) make any prepayments (whether optional or mandatory) of principal of or
other amounts under the 10.25% Subordinated Notes or any other obligations
constituting Subordinated Debt, or purchase or make any deposits for the
defeasance of the 10.25% Subordinated Notes or any other obligations
constituting Subordinated Debt; or (ii) amend or modify any of the documents
pertaining to the Subordinated Debt to (1) shorten the maturity thereof, (2)
raise the interest rate, fees or other amounts payable with respect thereto, (3)
change any of the subordination provisions thereof or (4) make any of the
covenants contained therein more restrictive. The Agent shall furnish to the
Banks, promptly after receipt by the Agent, copies of any drafts received by it
of (A) any proposed amendments to the documents pertaining to the 10.25%
Subordinated Notes and (B) documents pertaining to any Subordinated Debt
proposed to be issued after the Closing Date.

                                   ARTICLE VI

                                    DEFAULTS

         Section 6.01 Events of Default. If one or more of the following events
("Events of Default") shall have occurred and be continuing:

         (a)      the Borrower shall fail to pay when due any principal of any
Loan or Reimbursement Obligation or shall fail to pay any interest on any Loan
or Reimbursement Obligation within 5 Domestic Business Days after such interest
shall become due, or shall fail to pay any fee or other amount payable hereunder
within 5 Domestic Business Days after the later of (i) the date such fee or
other amount becomes due or (ii) the date the Borrower receives a statement
therefor; or

         (b)      the Borrower or the Parent shall fail to observe or perform
any covenant contained in Sections 5.02(ii), 5.03, 5.05 to 5.07, inclusive,
Sections 5.11 or 5.18;

         (c)      (i) an Event of Default shall occur under the Coosa Bonds
Reimbursement Agreement or the Lease Agreement (as defined in the Coosa Bonds
Reimbursement Agreement), or (ii) the Borrower, the Parent or AMGF shall fail to
observe or perform any covenant or agreement contained in this Agreement (other
than those covered by paragraph (a) or (b) above) or any Principal Document or
the Parent Documents (other than as provided in clause (i) of this paragraph
(c)) and such failure shall not have been cured within 30 days after the earlier
to occur

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<PAGE>   66
of (x) written notice thereof has been given to the Borrower by the Agent at the
request of any Bank or (y) an officer of the Borrower otherwise becomes aware of
any such failure; or

         (d)      any representation, warranty, certification or statement made
by the Borrower or the Parent in Article IV of this Agreement or by AMGF in the
AMGF Documents or in any certificate, financial statement or other document
delivered pursuant to this Agreement or the AMGF Documents shall prove to have
been incorrect or misleading in any material respect when made (or deemed made);
or

         (e)      the Borrower or any Material Subsidiary shall fail to make any
payment in respect of Debt outstanding (other than the Notes) in an amount in
excess of $2,000,000 when due or within any applicable grace period; or

         (f)      (i) any event or condition (other than one described in clause
(ii) below) shall occur which results in the acceleration of the maturity of
Debt outstanding of the Parent, the Borrower or any Material Subsidiary
(including, without limitation, any required mandatory prepayment or "put" of
such Debt to the Parent, the Borrower or any Material Subsidiary) or enables
(or, with the giving of notice or lapse of time or both, would enable) the
holders of such Debt or any Person acting on such holders' behalf to accelerate
the maturity thereof (including, without limitation, any required mandatory
prepayment or "put" of such Debt to the Parent, the Borrower or any Material
Subsidiary, if in any of the foregoing events the amount of Debt involved is in
excess of $2,000,000; or (ii) the occurrence of a "SunTrust L/C Default," as
defined in the SunTrust Intercreditor Agreement) or an event of default under
any lease, indenture or other document relating to the industrial development
revenue bonds secured thereby; or

         (g)      the Parent, the Borrower or any Material Subsidiary shall
commence a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, or shall consent
to any such relief or to the appointment of or taking possession by any such
official in an involuntary case or other proceeding commenced against it, or
shall make a general assignment for the benefit of creditors, or shall fail
generally to pay its debts as they become due, or shall take any corporate
action to authorize any of the foregoing; or

         (h)      an involuntary case or other proceeding shall be commenced
against the Parent, the Borrower or any Material Subsidiary seeking liquidation,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, and such
involuntary case or other proceeding shall remain undismissed and unstayed for a
period of 60 days; or an order for relief shall be entered against the Parent,
the Borrower or any Material Subsidiary under the federal bankruptcy laws as now
or hereafter in effect; or

         (i)      the Parent, the Borrower or any member of the Controlled Group
shall fail to pay when due any material amount which it shall have become liable
to pay to the PBGC or to

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<PAGE>   67

a Plan under Title IV of ERISA; or notice of intent to terminate a Plan or Plans
shall be filed under Title IV of ERISA by the Borrower, any member of the
Controlled Group, any plan administrator or any combination of the foregoing; or
the PBGC shall institute proceedings under Title IV of ERISA to terminate or to
cause a trustee to be appointed to administer any such Plan or Plans or a
proceeding shall be instituted by a fiduciary of any such Plan or Plans to
enforce Section 515 or 4219(c)(5) of ERISA and such proceeding shall not have
been dismissed within 30 days thereafter; or a condition shall exist by reason
of which the PBGC would be entitled to obtain a decree adjudicating that any
such Plan or Plans must be terminated; provided, in each case, that the effect
of any of the foregoing would reasonably be expected to result in an unfunded
liability in excess of $2,000,000; or

         (j)      one or more judgments or orders for the payment of money in an
aggregate amount in excess of $1,000,000 (exclusive of amounts covered by
insurance) shall be rendered against the Parent, the Borrower or any Material
Subsidiary and such judgment or order shall continue unsatisfied and unstayed
for a period of 30 days; or

         (k)      a federal tax lien for an amount in excess of $2,000,000 shall
be filed against the Borrower or any Subsidiary under Section 6323 of the Code
or a lien of the PBGC shall be filed against the Borrower or any Subsidiary
under Section 4068 of ERISA and in either case such lien shall remain
undischarged for a period of 25 days after the date of filing; or

         (l)      G. Stephen Felker or his estate shall cease to maintain voting
control over more than 50% of the Capital Stock of the Parent, or the Borrower
shall cease to be a Wholly Owned Subsidiary; or

         (m)      the occurrence of any event, act, occurrence, or condition
which the Required Banks reasonably determine either has or is likely to have or
cause a Material Adverse Effect;

         (n)      (i) the Security Agreement, the Pledge Agreement, any
Operative Mortgage, the Parent Guaranty, any of the AMGF Documents or the
Borrower Pledge Agreement, shall cease, for any reason, to be in full force and
effect or any party thereto (other than the Agent or the Banks) shall so assert
in writing; or (ii) the Security Agreement, the Pledge Agreement, any Operative
Mortgage, the AMGF Security Agreement or the Borrower Pledge Agreement shall
cease to be effective to grant a Lien on the Collateral described therein with
the priority purported to be created thereby;

Then, and in every such event, the Agent shall: (i) if requested by the Required
Banks, by notice to the Borrower terminate the Commitments and they shall
thereupon terminate; (ii) if requested by the Required Banks, (x) send a notice
to the Coosa Bonds Trustee pursuant to Section 6.1(f) of the Coosa Bonds
Indenture that an Event of Default has occurred hereunder and a written request
that the Coosa Bonds be accelerated and/or (y) by notice to the Borrower declare
the Revolver Loan Notes (together with accrued interest thereon) to be, and the
Notes (including the Swing Loan Note) shall thereupon become, immediately due
and payable without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by the Borrower together with interest at the
Default Rate accruing on the principal amount thereof from and after the date of
such Event of Default; provided that if any Event of Default specified in
paragraph

                                       62
<PAGE>   68

(g) or (h) above occurs with respect to the Borrower, without any notice to the
Borrower or any other act by the Agent or the Banks, the Commitments shall
thereupon terminate and the Notes (together with accrued interest thereon) shall
become immediately due and payable without presentment, demand, protest or other
notice of any kind, all of which are hereby waived by the Borrower together with
interest thereon at the Default Rate accruing on the principal amount thereof
from and after the date of such Event of Default; (iii) file for record any
Mortgages and related UCC-1 financing statement on any of the Revolver
Collateral Plants pursuant to Section 5.25 (which shall not constitute a waiver
of or otherwise restrict any other right, power or remedy under any of the
Principal Documents or at law or in equity); or (iv) exercise any rights, powers
or remedies under the Coosa Bonds Reimbursement Agreement, any Other Letter of
Credit Application Agreement, the Security Agreement or any Operative Mortgage,
the Pledge Agreement and the Borrower Pledge Agreement. In addition to the
foregoing, if an Event of Default shall have occurred and be continuing, the
Borrower shall be obligated to deposit with the Agent cash collateral in an
amount equal to 100% of the Letter of Credit Obligations. Notwithstanding the
foregoing, the Agent shall have available to it all other remedies at law or
equity, and shall exercise any one or all of them at the request of the Required
Banks.

         Section 6.02 Notice of Default. The Agent shall give notice to the
Borrower of any Default under Section 6.01(c) promptly upon being requested to
do so by any Bank and shall thereupon notify all the Banks thereof.

                                  ARTICLE VII

                                   THE AGENT

         Section 7.01 Appointment; Powers and Immunities. Each Bank hereby
irrevocably appoints and authorizes the Agent to act as its agent hereunder and
under the other Loan Documents, and as collateral agent under the Mortgage and
with respect to any Interest Rate Protection Agreement to which such Bank is a
party, with such powers as are specifically delegated to the Agent by the terms
hereof and thereof, together with such other powers as are reasonably incidental
thereto. The Agent: (a) shall have no duties or responsibilities except as
expressly set forth in this Agreement and the other Loan Documents, and shall
not by reason of this Agreement or any other Loan Document be a trustee for any
Bank; (b) shall not be responsible to the Banks for any recitals, statements,
representations or warranties contained in this Agreement or any other Loan
Document, or in any certificate or other document referred to or provided for
in, or received by any Bank under, this Agreement or any other Loan Document, or
for the validity, effectiveness, genuineness, enforceability or sufficiency of
this Agreement or any other Loan Document or any other document referred to or
provided for herein or therein or for any failure by the Borrower to perform any
of its obligations hereunder or thereunder; (c) shall not be required to
initiate or conduct any litigation or collection proceedings hereunder or under
any other Loan Document except to the extent requested by the Required Banks,
and then only on terms and conditions satisfactory to the Agent, and (d) shall
not be responsible for any action taken or omitted to be taken by it hereunder
or under any other Loan Document or any other document or instrument referred to
or provided for herein or therein or in connection herewith or therewith, except
for its own gross negligence or wilful misconduct. The Agent may employ agents
and attorneys-in-fact and shall not be responsible for the negligence or
misconduct of any such agents or attorneys-in-fact selected by it with
reasonable care. The

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<PAGE>   69

provisions of this Article VII are solely for the benefit of the Agent and the
Banks, and the Borrower shall not have any rights as a third party beneficiary
of any of the provisions hereof. In performing its functions and duties under
this Agreement and under the other Loan Documents, the Agent shall act solely as
agent of the Banks and does not assume and shall not be deemed to have assumed
any obligation towards or relationship of agency or trust with or for the
Borrower. The duties of the Agent shall be ministerial and administrative in
nature, and the Agent shall not have by reason of this Agreement or any other
Loan Document a fiduciary relationship in respect of any Bank.

         Section 7.02 Reliance by Agent. The Agent shall be entitled to rely
upon any certification, notice or other communication (including any thereof by
telephone, telefax, telegram or cable) believed by it to be genuine and correct
and to have been signed or sent by or on behalf of the proper Person or Persons,
and upon advice and statements of legal counsel, independent accountants or
other experts selected by the Agent. As to any matters not expressly provided
for by this Agreement or any other Loan Document, the Agent shall in all cases
be fully protected in acting, or in refraining from acting, hereunder and
thereunder in accordance with instructions signed by the Required Banks, and
such instructions of the Required Banks in any action taken or failure to act
pursuant thereto shall be binding on all of the Banks.

         Section 7.03 Defaults. The Agent shall not be deemed to have knowledge
of the occurrence of a Default or an Event of Default (other than the nonpayment
of principal of or interest on the Loans) unless the Agent has received notice
from a Bank or the Borrower specifying such Default or Event of Default and
stating that such notice is a "Notice of Default". In the event that the Agent
receives such a notice of the occurrence of a Default or an Event of Default,
the Agent shall give prompt notice thereof to the Banks. The Agent shall give
each Bank prompt notice of each nonpayment of principal of or interest on the
Loans whether or not it has received any notice of the occurrence of such
nonpayment. The Agent shall (subject to Section 9.06) take such action hereunder
with respect to such Default or Event of Default as shall be directed by the
Required Banks, provided that, unless and until the Agent shall have received
such directions, the Agent may (but shall not be obligated to) take such action,
or refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable in the best interests of the Banks.

         Section 7.04 Rights of Agent as a Bank. With respect to the Loans made
by it, Wachovia, in its capacity as a Bank hereunder shall have the same rights
and powers hereunder as any other Bank and may exercise the same as though it
were not acting as the Agent, and the term "Bank" or "Banks" shall, unless the
context otherwise indicates, include Wachovia, in its individual capacity. The
Agent may (without having to account therefor to any Bank) accept deposits from,
lend money to and generally engage in any kind of banking, trust or other
business with the Borrower (and any of its Affiliates) as if it were not acting
as the Agent, and the Agent may accept fees and other consideration from the
Borrower (in addition to any agency fees and arrangement fees heretofore agreed
to between the Borrower and the Agent) for services in connection with this
Agreement or any other Loan Document or otherwise without having to account for
the same to the Banks.

         Section 7.05 Indemnification. Each Bank severally agrees to indemnify
the Agent, to the extent the Agent shall not have been reimbursed by the
Borrower, ratably in

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accordance with its Commitment, for any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses
(including, without limitation, counsel fees and disbursements) or disbursements
of any kind and nature whatsoever which may be imposed on, incurred by or
asserted against the Agent in any way relating to or arising out of this
Agreement or any other Loan Document or any other documents contemplated by or
referred to herein or therein or the transactions contemplated hereby or thereby
(excluding, unless an Event of Default has occurred and is continuing, the
normal administrative costs and expenses incident to the performance of its
agency duties hereunder) or the enforcement of any of the terms hereof or
thereof or any such other documents; provided, however that no Bank shall be
liable for any of the foregoing to the extent they arise from the gross
negligence or wilful misconduct of the Agent. If any indemnity furnished to the
Agent for any purpose shall, in the opinion of the Agent, be insufficient or
become impaired, the Agent may call for additional indemnity and cease, or not
commence, to do the acts indemnified against until such additional indemnity is
furnished.

         Section 7.06 CONSEQUENTIAL DAMAGES. THE AGENT SHALL NOT BE RESPONSIBLE
OR LIABLE TO ANY BANK, THE BORROWER OR ANY OTHER PERSON OR ENTITY FOR ANY
PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF
THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY.

         Section 7.07 Payee of Note Treated as Owner. The Agent may deem and
treat each Person in whose name a Loan is registered as the owner thereof as the
owner thereof for all purposes hereof unless and until a written notice of the
assignment or transfer thereof shall have been filed with the Agent and the
provisions of Section 9.08(c) have been satisfied. Any requests, authority or
consent of any Person who at the time of making such request or giving such
authority or consent is the holder of any Note shall be conclusive and binding
on any subsequent holder, transferee or assignee of that Note or of any Note or
Notes issued in exchange therefor or replacement thereof.

         Section 7.08 Nonreliance on Agent and Other Banks. Each Bank agrees
that it has, independently and without reliance on the Agent or any other Bank,
and based on such documents and information as it has deemed appropriate, made
its own credit analysis of the Borrower and decision to enter into this
Agreement and that it will, independently and without reliance upon the Agent or
any other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own analysis and decisions in
taking or not taking action under this Agreement or any of the other Loan
Documents. The Agent shall not be required to keep itself informed as to the
performance or observance by the Borrower of this Agreement or any of the other
Loan Documents or any other document referred to or provided for herein or
therein or to inspect the properties or books of the Borrower or any other
Person. Except for notices, reports and other documents and information
expressly required to be furnished to the Banks by the Agent hereunder or under
the other Loan Documents, the Agent shall not have any duty or responsibility to
provide any Bank with any credit or other information concerning the affairs,
financial condition or business of the Borrower or any other Person (or any of
their Affiliates) which may come into the possession of the Agent.

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         Section 7.09 Failure to Act. Except for action expressly required of
the Agent hereunder or under the other Loan Documents, the Agent shall in all
cases be fully justified in failing or refusing to act hereunder and thereunder
unless it shall receive further assurances to its satisfaction by the Banks of
their indemnification obligations under Section 7.05 against any and all
liability and expense which may be incurred by the Agent by reason of taking,
continuing to take, or failing to take any such action.

         Section 7.10 Resignation or Removal of Agent. Subject to the
appointment and acceptance of a successor Agent as provided below, the Agent may
resign at any time by giving notice thereof to the Banks and the Borrower and
the Agent may be removed at any time with or without cause by the Required
Banks. Upon any such resignation or removal, the Required Banks shall have the
right to appoint a successor Agent, provided that the Borrower shall have the
right to consent to any such successor Agent which is not a Bank, which consent
shall not be unreasonably withheld or delayed. If no successor Agent shall have
been so appointed by the Required Banks and shall have accepted such appointment
within 30 days after the retiring Agent's notice of resignation or the Required
Banks' removal of the retiring Agent, then the retiring Agent may, on behalf of
the Banks, appoint a successor Agent. Any successor Agent shall be a bank which
has a combined capital and surplus of at least $500,000,000. Upon the acceptance
of any appointment as Agent hereunder by a successor Agent, such successor Agent
shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Agent, and the retiring Agent shall be
discharged from its duties and obligations hereunder. After any retiring Agent's
resignation or removal hereunder as Agent, the provisions of this Article VII
shall continue in effect for its benefit in respect of any actions taken or
omitted to be taken by it while it was acting as the Agent hereunder.

                                  ARTICLE VIII

                      CHANGE IN CIRCUMSTANCES; COMPENSATION

         Section 8.01 Basis for Determining Interest Rate Inadequate or Unfair.
If on or prior to the first day of any Interest Period:

         (a)      the Agent determines that deposits in Dollars (in the
applicable amounts) are not being offered in the relevant market for such
Interest Period, or

         (b)      the Required Banks advise the Agent that the London Interbank
Offered Rate as determined by the Agent will not adequately and fairly reflect
the cost to such Banks of funding Euro-Dollar Loans for such Interest Period,

the Agent shall forthwith give notice thereof to the Borrower and the Banks,
whereupon until the Agent notifies the Borrower that the circumstances giving
rise to such suspension no longer exist, the obligations of the Banks to make
Euro-Dollar Loans shall be suspended. Unless the Borrower notifies the Agent at
least 2 Domestic Business Days before the date of any Borrowing of Euro-Dollar
Loans for which a Notice of Borrowing has previously been given that it elects
not to borrow on such date, such Borrowing shall instead be made as a Base Rate
Borrowing.

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         Section 8.02 Illegality. If, after the date hereof, the adoption of
any applicable law, rule or regulation, or any change therein, or any change in
the interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof (any such agency being referred to as an "Authority" and
any such event being referred to as a "Change of Law"), or compliance by any
Bank (or its Lending Office) with any request or directive issued after the date
hereof (whether or not having the force of law) of any Authority shall make it
unlawful or impossible for any Bank (or its Lending Office) to make, maintain or
fund its Euro-Dollar Loans and such Bank shall so notify the Agent, the Agent
shall forthwith give notice thereof to the other Banks and the Borrower,
whereupon until such Bank notifies the Borrower and the Agent that the
circumstances giving rise to such suspension no longer exist, the obligation of
such Bank to make Euro-Dollar Loans shall be suspended. Before giving any notice
to the Agent pursuant to this Section, such Bank shall designate a different
Lending Office if such designation will avoid the need for giving such notice
and will not, in the judgment of such Bank, be otherwise materially
disadvantageous to such Bank. If such Bank shall determine that it may not
lawfully continue to maintain and fund any of its outstanding Euro-Dollar Loans
to maturity and shall so specify in such notice, the Borrower shall immediately
prepay in full the then outstanding principal amount of each Euro-Dollar Loan of
such Bank, together with accrued interest thereon. Concurrently with prepaying
each such Euro-Dollar Loan, the Borrower shall borrow a Base Rate Loan in an
equal principal amount from such Bank (on which interest and principal shall be
payable contemporaneously with the related Euro-Dollar Loans of the other
Banks), and such Bank shall make such a Base Rate Loan.

         Section 8.03 Increased Cost and Reduced Return

         (a)      If after the date hereof, a Change of Law or compliance by any
Bank (or its Lending Office) with any request or directive issued after the date
hereof (whether or not having the force of law) of any Authority:

                  (i)      shall impose, modify or deem applicable any reserve,
special deposit or similar requirement (including, without limitation, any such
requirement imposed by the Board of Governors of the Federal Reserve System, but
excluding, with respect to any Euro-Dollar Loan, any such requirement included
in an applicable Euro-Dollar Reserve Percentage) against letters of credit (or
risk participations therein) or assets of, deposits with or for the account of,
or credit extended by, any Bank (or its Lending Office); or

                  (ii)     shall impose on any Bank (or its Lending Office) or
on the London interbank market any other condition affecting its Euro-Dollar
Loans, its Notes, its obligation to make Euro-Dollar Loans or its obligation to
maintain the Letter of Credit or its risk participation therein;

and the result of any of the foregoing is to increase the cost to such Bank (or
its Lending Office) of making or maintaining any Fixed Rate Loan or maintaining
the Letter of Credit or its risk participation therein, or to reduce the amount
of any sum received or receivable by such Bank (or its Lending Office) under
this Agreement or under its Notes with respect thereto, by an amount deemed by
such Bank to be material, then, within 15 days after demand by such Bank (with a
copy to the Agent), the Borrower shall pay to such Bank such additional amount
or amounts as

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<PAGE>   73

will compensate such Bank for such increased cost or reduction; provided, that
the Borrower shall have no liability hereunder for amounts which were incurred
or accrued prior to a date which is more than 180 days before the Borrower's
receipt of the notice pertaining thereto given pursuant to paragraph (c) below.

         (b)      If any Bank shall have determined that after the date hereof
the adoption of any applicable law, rule or regulation regarding capital
adequacy, or any change therein, or any change in the interpretation or
administration thereof, or compliance by any Bank (or its Lending Office) with
any request or directive issued after the date hereof regarding capital adequacy
(whether or not having the force of law) of any Authority, has or would have the
effect of reducing the rate of return on such Bank's capital as a consequence of
its obligations hereunder to a level below that which such Bank could have
achieved but for such adoption, change or compliance (taking into consideration
such Bank's policies with respect to capital adequacy) by an amount deemed by
such Bank to be material, then from time to time, within 15 days after demand by
such Bank, the Borrower shall pay to such Bank such additional amount or amounts
as will compensate such Bank for such reduction; provided, that the Borrower
shall have no liability hereunder for amounts which were incurred or accrued
prior to a date which is more than 180 days before the Borrower's receipt of the
notice given pursuant to paragraph (c) below.

         (c)      Each Bank will promptly notify the Borrower and the Agent of
any event of which it has knowledge, occurring after the date hereof, which will
entitle such Bank to compensation pursuant to this Section and will designate a
different Lending Office if such designation will avoid the need for, or reduce
the amount of, such compensation and will not, in the judgment of such Bank, be
otherwise materially disadvantageous to such Bank. A certificate of any Bank
claiming compensation under this Section and setting forth the additional amount
or amounts to be paid to it hereunder, containing in reasonable detail the
calculations therefor, shall be conclusive in the absence of manifest error. In
determining such amount, such Bank may use any reasonable averaging and
attribution methods generally employed in determining compensation of such type
with respect to its other borrowers.

         (d)      Notwithstanding the foregoing, in the event the Borrower is
required to pay any Bank amounts pursuant to Section 2.11(c) or to this Section
8.03 and the designation of a different Lending Office pursuant to Section
2.11(c) or Section 8.03(c) will not avoid the need for compensation to such Bank
(an "Affected Bank"), the Borrower may give notice to such Affected Bank (with
copies to the Agent) that it wishes to seek one or more assignees (which may be
one or more of the Banks) to assume the Commitment of such Affected Bank and to
purchase its outstanding Loans and Notes; provided, that if there is more than
one Affected Bank which has requested substantially and proportionally equal
compensation hereunder, the Borrower shall elect to seek an assignee to assume
the Commitments of all such Affected Banks. Each Affected Bank agrees to sell
its Commitment, Loans, Notes and interest in this Agreement in accordance with
Section 9.08(c) to any such assignee for an amount equal to the sum of the
outstanding unpaid principal of and accrued interest on such Loans and Notes,
plus all other fees and amounts (including, without limitation, any compensation
claimed by such Affected Banks under Section 2.11(c) or this Section 8.03 due
such Affected Bank hereunder calculated, in each case, to the date such Loans,
Notes and interest are purchased. Upon such sale or prepayment,

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<PAGE>   74

each such Affected Bank shall have no further commitment or other obligation to
the Borrowers hereunder or under any Note.

         (e)      Subject to Section 9.08(e), the provisions of this Section
8.03 shall be applicable with respect to any Transferee, and any calculations
required by such provisions shall be made based upon the circumstances of such
Transferee.

         Section 8.04 Base Rate Loans or Other Fixed Rate Loans Substituted for
Affected Fixed Rate Loans. If (i) the obligation of any Bank to make or maintain
any type of Fixed Rate Loans has been suspended pursuant to Section 8.02 or (ii)
any Bank has demanded compensation under Section 8.03, and the Borrower shall,
by at least 5 Euro-Dollar Business Days' prior notice to such Bank through the
Agent, have elected that the provisions of this Section shall apply to such
Bank, then, unless and until such Bank notifies the Borrower that the
circumstances giving rise to such suspension or demand for compensation no
longer apply:

         (a)      all Loans which would otherwise be made by such Bank as Set
Rate Loans or Euro-Dollar Loans, as the case may be, shall, subject to the terms
and conditions relating thereto, be made instead either (A) as Base Rate Loans,
or (B) if such demand for compensation relates to Set Rate Loans, but not
Euro-Dollar Loans, as Euro-Dollar Loans, as the Borrower may elect in the notice
to such Bank through the Agent referred to hereinabove (in all cases interest
and principal on such Loans shall be payable contemporaneously with the related
Fixed Rate Loans of the other Banks), and

         (b)      after each of its Set Rate Loans or Euro-Dollar Loans, as the
case may be, has been repaid, all payments of principal which would otherwise be
applied to repay such Fixed Rate Loans shall be applied to repay its Base Rate
Loans instead.

         Section 8.05 Compensation. Upon the request of any Bank, delivered to
the Borrower and the Agent, the Borrower shall pay to such Bank such amount or
amounts as shall compensate such Bank for any loss, cost or expense incurred by
such Bank, as determined by it in good faith, using reasonable allocation and
attribution methods, as a result of:

         (a)      any payment or prepayment (pursuant to Section 2.09, 2.10,
6.01, 8.02 or otherwise) of a Fixed Rate Loan on a date other than the last day
of an Interest Period for such Fixed Rate Loan; or

         (b)      any failure by the Borrower to borrow a Fixed Rate Loan on the
date for the Fixed Rate Borrowing of which such Fixed Rate Loan is a part
specified in the applicable Notice of Borrowing delivered pursuant to Section
2.02 or failure to borrow a Set Rate Borrowing pursuant to Section 2.01.

                                   ARTICLE IX

                                  MISCELLANEOUS

         Section 9.01 Notices. All notices, requests and other communications
to any party hereunder shall be in writing (including bank wire, telecopier or
similar writing) and shall be given to such party at its address or telecopier
number set forth on the signature pages hereof

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<PAGE>   75

or such other address or telecopier number as such party may hereafter specify
for the purpose by notice to each other party. Each such notice, request or
other communication shall be effective (i) if given by telecopier, when such
telecopy is transmitted to the telecopier number specified in this Section and
the appropriate confirmation is received, (ii) if given by mail, 3 Domestic
Business Days after such communication is deposited in the mails with first
class postage prepaid, addressed as aforesaid or (iii) if given by any other
means, when delivered at the address specified in this Section; provided that
notices to the Agent under Article II or Article VIII shall not be effective
until received.

         Section 9.02 No Waivers. No failure or delay by the Agent or any Bank
in exercising any right, power or privilege hereunder or under any Note or other
Loan Document shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies provided by law.

         Section 9.03 Expenses; Documentary Taxes. The Borrower shall pay (i)
all out-of-pocket expenses of the Agent, including reasonable fees and
disbursements actually incurred of special counsel for the Agent, in connection
with the preparation of this Agreement and the other Loan Documents, any waiver
or consent hereunder or thereunder or any amendment hereof or thereof or any
Default or alleged Default hereunder or thereunder and (ii) if a Default occurs,
all reasonable out-of-pocket expenses actually incurred by the Agent and the
Banks, including reasonable fees and disbursements actually incurred of counsel,
in connection with such Default and collection and other enforcement proceedings
resulting therefrom, including reasonable out-of-pocket expenses actually
incurred in enforcing this Agreement and the other Loan Documents. The Borrower
shall indemnify the Agent and each Bank against any transfer taxes, documentary
taxes, assessments or charges made by any Authority by reason of the execution
and delivery of this Agreement or the other Loan Documents, except with respect
to the SunTrust Collateral Plants.

         Section 9.04 Indemnification. The Borrower shall indemnify the Agent
and the Banks and each affiliate thereof and their respective directors,
officers, employees and agents from, and hold each of them harmless against, any
and all losses, liabilities, claims or damages to which any of them may become
subject, insofar as such losses, liabilities, claims or damages arise out of or
result from any actual or proposed use by the Borrower of the proceeds of any
extension of credit by any Bank hereunder or breach by the Borrower of this
Agreement or any other Loan Document or from any investigation, litigation or
other proceeding (including, without limitation, any threatened investigation or
proceeding) relating to the foregoing, and the Borrower shall reimburse the
Agent and each Bank, and each affiliate thereof and their respective directors,
officers, employees and agents, upon demand for any reasonable expenses
(including, without limitation, reasonable legal fees) actually incurred in
connection with any such investigation or proceeding; but excluding any such
losses, liabilities, claims, damages or expenses incurred by reason of the gross
negligence or willful misconduct of the Person to be indemnified.

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         Section 9.05 Setoff; Sharing of Setoffs.

         (a)      The Borrower agrees that the Agent and each Bank, and Wachovia
as to the Swing Loan Note, shall have a lien for all indebtedness and
obligations owing to them from the Borrower upon, except to the extent any such
property is Receivables Program Assets, all deposits or deposit accounts, of any
kind, or any interest in any deposits or deposit accounts thereof, now or
hereafter pledged, mortgaged, transferred or assigned to the Agent or any such
Bank or otherwise in the possession or control of the Agent or any such Bank for
any purpose for the account or benefit of the Borrower and including any balance
of any deposit account or of any credit of the Borrower with the Agent or any
such Bank, whether now existing or hereafter established hereby authorizing the
Agent and each Bank at any time or times with or without prior notice to apply
such balances or any part thereof to such of the indebtedness and obligations
owing by the Borrower to the Lenders and/or the Agent then past due and in such
amounts as they may elect, and whether or not the collateral, if any, or the
responsibility of other Persons primarily, secondarily or otherwise liable may
be deemed adequate. For the purposes of this paragraph, all remittances and
property shall be deemed to be in the possession of the Agent or any such Bank
as soon as the same may be put in transit to it by mail or carrier or by other
bailee.

         (b)      Each Bank agrees that if it shall, by exercising any right of
setoff or counterclaim or otherwise, receive payment of a proportion of the
aggregate amount of principal and interest owing with respect to the Revolver
Loan Note held by it which is greater than the proportion received by any other
Bank in respect of the aggregate amount of all principal and interest owing with
respect to the Revolver Loan Note held by such other Bank, the Bank receiving
such proportionately greater payment shall purchase such participations in the
Revolver Loan Notes held by the other Banks owing to such other Banks, and such
other adjustments shall be made, as may be required so that all such payments of
principal and interest with respect to the Revolver Loan Notes held by the Banks
owing to such other Banks shall be shared by the Banks pro rata; provided that
(i) nothing in this Section shall impair the right of any Bank to exercise any
right of setoff or counterclaim it may have and to apply the amount subject to
such exercise to the payment of indebtedness of the Borrower other than its
indebtedness under the Revolver Loan Notes, and (ii) if all or any portion of
such payment received by the purchasing Bank is thereafter recovered from such
purchasing Bank, such purchase from each other Bank shall be rescinded and such
other Bank shall repay to the purchasing Bank the purchase price of such
participation to the extent of such recovery together with an amount equal to
such other Bank's ratable share (according to the proportion of (x) the amount
of such other Bank's required repayment to (y) the total amount so recovered
from the purchasing Bank) of any interest or other amount paid or payable by the
purchasing Bank in respect of the total amount so recovered. The Borrower
agrees, to the fullest extent it may effectively do so under applicable law,
that any holder of a participation in a Note, whether or not acquired pursuant
to the foregoing arrangements, may exercise rights of setoff or counterclaim and
other rights with respect to such participation as fully as if such holder of a
participation were a direct creditor of the Borrower in the amount of such
participation.

         Section 9.06 Amendments and Waivers.

         (a)      Any provision of this Agreement, the Notes or any other Loan
Documents may be amended or waived if, but only if, such amendment or waiver is
in writing and is signed by the Borrower and the Required Banks (and, if the
rights or duties of the Agent are affected

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<PAGE>   77

thereby, by the Agent); provided that, no such amendment or waiver shall, unless
signed by all Banks, (i) change the Commitment of any Bank or subject any Bank
to any additional obligation, (ii) change the principal of or rate of interest
on any Loan or any fees hereunder, (iii) change the Termination Date or the date
fixed for any payment of principal of or interest on any Loan or any fees
hereunder, (iv) change the amount of principal, interest or fees due on any date
fixed for the payment thereof, (v) change the percentage of the Commitments or
of the aggregate unpaid principal amount of the Notes, or the percentage of
Banks, which shall be required for the Banks or any of them to take any action
under this Section or any other provision of this Agreement, (vi) change the
manner of application of any payments made under this Agreement or the Notes,
(vii) release or substitute all or any substantial part of the Collateral,
except for the release of the Receivables Program Assets pursuant to Section
9.18, (viii) release any Guarantee given to support payment of the Loans (ix)
change the percentage of Banks required to give the direction to the Agent
pursuant to clause (i) of the last sentence of Section 5.25(b) or (x) amend this
Section 9.06(a).

         (b)      The Borrower will not solicit, request or negotiate for or
with respect to any proposed waiver or amendment of any of the provisions of
this Agreement unless each Bank shall be informed thereof by the Borrower and
shall be afforded an opportunity of considering the same and shall be supplied
by the Borrower with sufficient information to enable it to make an informed
decision with respect thereto. Executed or true and correct copies of any waiver
or consent effected pursuant to the provisions of this Agreement shall be
delivered to each Bank forthwith following the date on which the same shall have
been executed and delivered by the requisite percentage of Banks. The Borrower
will not, directly or indirectly, pay or cause to be paid any remuneration,
whether by way of supplemental or additional interest, fee or otherwise, to any
Bank (in its capacity as such) as consideration for or as an inducement to the
entering into by such Bank of any waiver or amendment of any of the terms and
provisions of this Agreement unless such remuneration is concurrently paid, on
the same terms, ratably to all such Banks.

         Section 9.07 No Margin Stock Collateral. Each of the Banks represents
to the Agent and each of the other Banks that it in good faith is not, directly
or indirectly (by negative pledge or otherwise), relying upon any Margin Stock
as collateral in the extension or maintenance of the credit provided for in this
Agreement.

         Section 9.08 Successors and Assigns.

         (a)      The provisions of this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns; provided that the Borrower may not assign or otherwise transfer any of
its rights under this Agreement.

         (b)      Any Bank may at any time sell to one or more Persons (each a
"Participant") participating interests in any Loan owing to such Bank, any Note
held by such Bank, any Commitment or other obligation hereunder or any other
interest of such Bank hereunder. In the event of any such sale by a Bank of a
participating interest to a Participant, such Bank's obligations under this
Agreement shall remain unchanged, such Bank shall remain solely responsible for
the performance thereof, such Bank shall remain the holder of any such Note for
all purposes under this Agreement, and the Borrower and the Agent shall continue
to deal solely and directly with such Bank in connection with such Bank's rights
and obligations

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under this Agreement. In no event shall a Bank that sells a participation be
obligated to the Participant to take or refrain from taking any action hereunder
except that such Bank may agree that it will not (except as provided below),
without the consent of the Participant, agree to (i) the change of any date
fixed for the payment of principal of or interest on the related loan or loans,
(ii) the change of the amount of any principal, interest or fees due on any date
fixed for the payment thereof with respect to the related loan or loans, (iii)
the change of the principal of the related loan or loans, (iv) any change in the
rate at which either interest is payable thereon or (if the Participant is
entitled to any part thereof) fee is payable hereunder from the rate at which
the Participant is entitled to receive interest or fee (as the case may be) in
respect of such participation, (v) the release or substitution of all or any
substantial part of the Collateral, except the release of the Receivables
Program Assets pursuant to Section 9.18, or (vi) the release of the Parent
Documents. Each Bank selling a participating interest in any Loan, Note,
Commitment or other interest under this Agreement shall, within 10 Domestic
Business Days of such sale, provide the Borrower and the Agent with written
notification stating that such sale has occurred and identifying the Participant
and the interest purchased by such Participant. The Borrower agrees that each
Participant shall be entitled to the benefits of Article VIII with respect to
its participation in Loans outstanding from time to time, subject to the
provisions of Section 9.08(e).

         (c)      Any Bank may at any time assign to one or more banks or
financial institutions (each an "Assignee") all, or a proportionate part of all,
of its rights and obligations under this Agreement, the Notes and the other Loan
Documents (including, without limitation, the obligations and agreements
contained in Section 5 of the Receivables Intercreditor Agreement), and such
Assignee shall assume all such rights and obligations, pursuant to an Assignment
and Acceptance, executed by such Assignee, such transferor Bank and the Agent
(and in the case of an Assignee that is not then a Bank, unless an Event of
Default is in existence, by the Borrower); provided that (i) no interest may be
sold by a Bank to an Assignee which is not then a Bank or Affiliate thereof
pursuant to this paragraph (c) unless the Assignee has combined capital and
surplus of not less than $100,000,000 and shall agree to assume ratably
equivalent portions of the transferor Bank's Commitment, (ii) the amount of the
Commitment of the assigning Bank subject to such assignment (determined as of
the effective date of the assignment) shall be equal to or greater than
$10,000,000; and (iii) the Agent and, except during the existence of an Event of
Default, the Borrower, has consented thereto, which consents shall not be
unreasonably withheld or delayed. Upon (A) execution of the Assignment and
Acceptance by such transferor Bank, such Assignee, the Agent and (if applicable)
the Borrower, (B) delivery of an executed copy of the Assignment and Acceptance
to the Borrower and the Agent, (C) payment by such Assignee to such transferor
Bank of an amount equal to the purchase price agreed between such transferor
Bank and such Assignee, (D) payment to the Agent of a processing and recordation
fee of $1,000, if the Assignee is a Bank or Affiliate thereof or Related Fund
thereof, and $3,500, in any other case, and (E) recordation of such assignment
on the Register, as defined and provided below, such Assignee shall for all
purposes be a Bank party to this Agreement and shall have all the rights and
obligations of a Bank under this Agreement to the same extent as if it were an
original party hereto with a Commitment as set forth in such instrument of
assumption, and the transferor Bank shall be released from its obligations
hereunder to a corresponding extent, and no further consent or action by the
Borrower, the Banks or the Agent shall be required. The Borrower hereby
designates the Agent to serve as the Borrower's agent, solely for purposes of
this Section 9.08(c), to maintain a register (the "Register") on which it will
record the Commitments from time to time of each of the

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Banks, the Loans made by each of the Banks and each repayment in respect of the
principal amount of the Loans of each Bank. Failure to make any such
recordation, or any error in such recordation shall not affect the Borrower's
obligations in respect of such Loans. With respect to any Banks, the transfer of
any Commitment of such Banks and the rights to the principal of, and interest
on, any Loan shall not be effective until such transfer is recorded on the
Register maintained by the Agent with respect to ownership of such Commitment
and Loans and prior to such recordation all amounts owing to the transferor with
respect to such Commitment and Loans shall remain owing to the transferor. The
registration of assignment or transfer of all or part of any Commitment and
Loans shall be recorded by the Agent on the Register only upon the acceptance by
the Agent of a properly executed and delivered Assignment and Acceptance
pursuant to this Section 9.08(c). Coincident with the delivery of such an
Assignment and Acceptance to the Agent for acceptance and registration of
assignment or transfer of all or part of a Commitment and/or Loan, or as soon
thereafter as practicable, the assigning or transferor Bank shall surrender the
Note evidencing such Commitment and/or Loan, and thereupon one or more new Notes
in the aggregate principal amount so assigned shall be issued to the new Bank
and, if applicable, a new Note shall be issued to the assigning or transferor
Bank in the remaining aggregate principal amount of its Commitment and/or Loan
not so assigned. The Borrower agrees to indemnify the Agent from and against any
and all losses, claims, damages and liabilities of whatsoever nature which may
be imposed on, asserted against or incurred by the Agent in performing its
duties under this Section 9.08(c); but excluding any such losses, claims,
damages and liabilities incurred by reason of the gross negligence or willful
misconduct of the Agent. Each Bank agrees to indemnify the Borrower and the
Agent from and against any and all losses, claims, damages and liabilities of
whatsoever nature which may be imposed on, asserted against or incurred by the
Borrower or the Agent solely by reason of the inaccuracy of any information
which is furnished by such Bank concerning such Bank or its Lending Office or
the amount assigned pursuant to an Assignment and Acceptance Agreement.

         (d)      Subject to the provisions of Section 9.09, the Borrower
authorizes each Bank to disclose to any Participant or Assignee (each a
"Transferee") and any prospective Transferee any and all financial information
in such Bank's possession concerning the Borrower which has been delivered to
such Bank by the Borrower pursuant to this Agreement or which has been delivered
to such Bank by the Borrower in connection with such Bank's credit evaluation
prior to entering into this Agreement.

         (e)      No Transferee shall be entitled to receive any greater payment
under Section 8.03 than the transferor Bank would have been entitled to receive
with respect to the rights transferred, unless such transfer is made with the
Borrower's prior written consent or by reason of the provisions of Section 8.02
or 8.03 requiring such Bank to designate a different Lending Office under
certain circumstances or at a time when the circumstances giving rise to such
greater payment did not exist.

         (f)      Anything in this Section 9.08 to the contrary notwithstanding,
any Bank may assign and pledge all or any portion of the Loans and/or
obligations owing to it to any Federal Reserve Bank or the United States
Treasury as collateral security pursuant to Regulation A of the Board of
Governors of the Federal Reserve System and any Operating Circular issued by
such Federal Reserve Bank, provided that any payment in respect of such assigned
Loans and/or obligations made by the Borrower to the assigning and/or pledging
Bank in accordance

                                       74
<PAGE>   80

with the terms of this Agreement shall satisfy the Borrower's obligations
hereunder in respect of such assigned Loans and/or obligations to the extent of
such payment. No such assignment shall release the assigning and/or pledging
Bank from its obligations hereunder.

         Section 9.09 Confidentiality. Each Bank agrees to exercise reasonable
efforts to keep any information delivered or made available by the Borrower to
it confidential from anyone other than persons employed or retained by such Bank
who are or are expected to become engaged in evaluating, approving, structuring
or administering the Loans; provided, however that nothing herein shall prevent
any Bank from disclosing such information (i) to any other Bank, (ii) upon the
order of any court or administrative agency, (iii) upon the request or demand of
any regulatory agency or authority having jurisdiction over such Bank, (iv)
which has been publicly disclosed by or on behalf of the Borrower, (v) to the
extent reasonably required in connection with any litigation to which the Agent,
any Bank or their respective Affiliates may be a party, (vi) to the extent
reasonably required in connection with the exercise of any remedy hereunder,
(vii) to such Bank's legal counsel and independent auditors and (viii) to any
actual or proposed Participant, Assignee or other Transferee of all or part of
its rights hereunder which has agreed in writing to be bound by the provisions
of this Section 9.09; provided, that, should disclosure of any such confidential
information be required by virtue of either clause (ii) or (iii) of the
immediately preceding sentence, any relevant Bank shall promptly notify the
Borrower of same so as to allow the Borrower to seek a protective order or to
take any other appropriate action; provided, further, that, no Bank shall be
required to delay compliance with any directive to disclose any such information
so as to allow the Borrower to effect any such action.

         Section 9.10 Representation by Banks. Each Bank hereby represents that
it is a commercial lender or financial institution which makes Loans in the
ordinary course of its business or a Related Fund and that it will make its
Loans hereunder for its own account in the ordinary course of such business;
provided, however that, subject to Section 9.08, the disposition of the Note or
Notes held by that Bank shall at all times be within its exclusive control.

         Section 9.11 Obligations Several. The obligations of each Bank
hereunder are several, and no Bank shall be responsible for the obligations or
commitment of any other Bank hereunder. Nothing contained in this Agreement and
no action taken by the Banks pursuant hereto shall be deemed to constitute the
Banks to be a partnership, an association, a joint venture or any other kind of
entity. The amounts payable at any time hereunder to each Bank shall be a
separate and independent debt, and each Bank shall be entitled to protect and
enforce its rights arising out of this Agreement or any other Loan Document and
it shall not be necessary for any other Bank to be joined as an additional party
in any proceeding for such purpose.

         Section 9.12 Georgia Law. This Agreement and each Note shall be
construed in accordance with and governed by the law of the State of Georgia.

         Section 9.13 Severability. In case any one or more of the provisions
contained in this Agreement, the Notes or any of the other Loan Documents should
be invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein and therein shall
not in any way be affected or impaired thereby and shall be enforced to the
greatest extent permitted by law.

                                       75
<PAGE>   81

                  Section 9.14      Interest. In no event shall the amount of
interest due or payable hereunder or under the Notes exceed the maximum rate of
interest allowed by applicable law, and in the event any such payment is
inadvertently made to any Bank by the Borrower or inadvertently received by any
Bank, then such excess sum shall be credited as a payment of principal, unless
the Borrower shall notify such Bank in writing that it elects to have such
excess sum returned forthwith. It is the express intent hereof that the Borrower
not pay and the Banks not receive, directly or indirectly in any manner
whatsoever, interest in excess of that which may legally be paid by the Borrower
under applicable law.

                  Section 9.15      Interpretation. No provision of this
Agreement or any of the other Loan Documents shall be construed against or
interpreted to the disadvantage of any party hereto by any court or other
governmental or judicial authority by reason of such party having or being
deemed to have structured or dictated such provision.

                  Section 9.16      Waiver of Jury Trial; Consent to
Jurisdiction. THE BORROWER (A) AND EACH OF THE BANKS AND THE AGENT IRREVOCABLY
WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
THIS AGREEMENT, ANY OF THE OTHER LOAN DOCUMENTS, OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY, (B) SUBMITS TO THE NONEXCLUSIVE PERSONAL
JURISDICTION IN THE STATE OF GEORGIA, THE COURTS THEREOF AND THE UNITED STATES
DISTRICT COURTS SITTING THEREIN, FOR THE ENFORCEMENT OF THIS AGREEMENT, THE
NOTES AND THE OTHER LOAN DOCUMENTS, (C) WAIVES ANY AND ALL PERSONAL RIGHTS UNDER
THE LAW OF ANY JURISDICTION TO OBJECT ON ANY BASIS (INCLUDING, WITHOUT
LIMITATION, INCONVENIENCE OF FORUM) TO JURISDICTION OR VENUE WITHIN THE STATE OF
GEORGIA FOR THE PURPOSE OF LITIGATION TO ENFORCE THIS AGREEMENT, THE NOTES OR
THE OTHER LOAN DOCUMENTS, AND (D) AGREES THAT SERVICE OF PROCESS MAY BE MADE
UPON IT IN THE MANNER PRESCRIBED IN SECTION 9.01 FOR THE GIVING OF NOTICE TO THE
BORROWER. NOTHING HEREIN CONTAINED, HOWEVER, SHALL PREVENT THE AGENT FROM
BRINGING ANY ACTION OR EXERCISING ANY RIGHTS AGAINST ANY SECURITY AND AGAINST
THE BORROWER PERSONALLY, AND AGAINST ANY ASSETS OF THE BORROWER, WITHIN ANY
OTHER STATE OR JURISDICTION.

                  Section 9.17      Counterparts. This Agreement may be signed
in any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.

                  Section 9.18      Release of Receivables Program Assets.
Contemporaneously with the closing of the Receivables Securitization Program,
upon the written request of the Borrower, the Agent executed and delivered the
Receivables Intercreditor Agreement (which released the security interest in
Receivables Program Assets) and such other instruments as the Borrower or the
Trustee under the Receivables Program Documents reasonably requested, releasing
and terminating the security interest in the Receivables Program Assets of the
Agent pursuant to the Security Agreement and the UCC-1 financing statements
related thereto, and the Borrower executed and delivered the Borrower Pledge
Agreement; and delivered in pledge to the Agent, for the ratable benefit of the
Banks, all of the Receivables Subsidiary Pledged Stock and the

                                       76
<PAGE>   82

Purchase Money Note, to secure payment of the Obligations. Each of the Banks
hereby (a) authorizes the Agent to execute, deliver and perform the Receivables
Intercreditor Agreement and (b) agrees to be bound by the terms and provisions
thereof, including, without limitation, the provisions of Section 5 thereof. The
Borrower agrees that, so long as any Obligations or Commitments remain
outstanding, it will not exercise its right to continue to make sales of
Receivables under (i) the Purchase Agreement (as defined in the Receivables
Intercreditor Agreement) at a time when sales otherwise would automatically
terminate under Section 8.2 thereof, or (ii) under any comparable agreement
under any other Receivables Securitization Program under comparable
circumstances.

                       [SIGNATURES COMMENCE ON NEXT PAGE]

                                       77
<PAGE>   83

                  IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, under seal, by their respective authorized
officers as of the day and year first above written.

                                      AVONDALE MILLS, INC.                (SEAL)

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

                                       78
<PAGE>   84

<TABLE>
<CAPTION>
COMMITMENTS                           WACHOVIA BANK, N.A.,
                                      As Agent and as a Bank              (SEAL)
<S>                                   <C>                                 <C>
$45,000,000
</TABLE>

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

                                      Lending Office
                                      Wachovia Bank, N.A.
                                      191 Peachtree Street, N.E.
                                      Atlanta, Georgia 30303-1757
                                      Attention: Leveraged Finance
                                      Telecopier number: 404-332-6920
                                      Confirmation number: 404-332-6094

                                       79
<PAGE>   85

<TABLE>
<S>                                   <C>                                 <C>
$30,000,000                           BANK OF AMERICA, N.A.               (SEAL)
</TABLE>

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

                                      Lending Office
                                      Bank of America, N.A.
                                      NC1-007-17-12
                                      100 N. Tryon Street, 17th Floor
                                      Charlotte, North Carolina  28255
                                      Attention: Deirdre B. Doyle
                                      Telecopier number: 704-386-1270
                                      Confirmation number: 704-386-0783

                                       80
<PAGE>   86

<TABLE>
<S>                                   <C>                                 <C>
$30,000,000                           FIRST UNION NATIONAL BANK           (SEAL)
</TABLE>

                                      By:
                                          --------------------------------------
                                          Title:
                                      Lending Office
                                      First Union National Bank
                                      201 South College Street
                                      NC0760, 6TH Floor
                                      Charlotte, North Carolina 28288-0760
                                      Attention: Roger Pelz
                                      Telecopier number: 704-374-4793
                                      Confirmation number: 704-374-6060

                                       81
<PAGE>   87

<TABLE>
<S>                                   <C>                                 <C>
$20,000,000                           REGIONS BANK                        (SEAL)
</TABLE>

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

                                      Lending Office
                                      Regions Bank
                                      417 N. 20th Street
                                      Birmingham, Alabama 35203
                                      Attention: Mark Howze
                                      Telecopier number: 205-326-7739
                                      Confirmation number: 205-326-7193

TOTAL COMMITMENTS:

$125,000,000

                                       82
<PAGE>   88

                     CONSENT AND REAFFIRMATION OF GUARANTORS

                  The undersigned (i) acknowledges receipt of the foregoing
Second Amended and Restated Credit Agreement (the "Amended Credit Agreement"),
(ii) consents to the execution and delivery of the Amended Credit Agreement by
the parties thereto and (iii) reaffirms all of its obligations and covenants
under (as applicable) the Amended and Restated Parent Guaranty dated as of April
29, 1996 executed by Avondale Incorporated, and the Limited Guaranty Agreement
dated as of August 29, 1997 executed by Avondale Mills Graniteville Fabrics,
Inc., and agrees that none of such obligations and covenants shall be affected
by the execution and delivery of the Amended Credit Agreement.

AVONDALE INCORPORATED                    AVONDALE MILLS GRANITEVILLE
                                         FABRICS, INC.

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

                                       83
<PAGE>   89

EXHIBIT A-1

                               REVOLVER LOAN NOTE

                                Atlanta, Georgia
                               September 28, 2000

                  For value received, AVONDALE MILLS, INC., an Alabama
corporation (the "Borrower"), promises to pay to the order of
_________________________________________, a ____________________ (the "Bank"),
for the account of its Lending Office, the principal sum of
___________________________________ and No/100 Dollars ($______), or such lesser
amount as shall equal the unpaid principal amount of each Revolver Loan made by
the Bank to the Borrower pursuant to the Credit Agreement referred to below, on
the dates and in the amounts provided in the Credit Agreement. The Borrower
promises to pay interest on the unpaid principal amount of this Note on the
dates and at the rate or rates provided for in the Credit Agreement. Interest on
any overdue principal of and, to the extent permitted by law, overdue interest
on the principal amount hereof shall bear interest at the Default Rate, as
provided for in the Credit Agreement. All such payments of principal and
interest shall be made in lawful money of the United States in Federal or other
immediately available funds at the office of Wachovia Bank, N.A., 191 Peachtree
Street, N.E., Atlanta, Georgia 30303-1757, or such other address as may be
specified from time to time pursuant to the Credit Agreement.

                  All Loans made by the Bank, the respective maturities thereof,
the interest rates from time to time applicable thereto, and all repayments of
the principal thereof shall be recorded by the Bank and, prior to any transfer
hereof, endorsed by the Bank on the schedule attached hereto, or on a
continuation of such schedule attached to and made a part hereof; provided that
the failure of the Bank to make any such recordation or endorsement shall not
affect the obligations of the Borrower hereunder or under the Credit Agreement.

                  This Revolver Loan Note is one of the Revolver Loan Notes
referred to in the Second Amended and Restated Credit Agreement dated as of even
date herewith among the Borrower, the Banks listed on the signature pages
thereof, and Wachovia Bank, N.A., as Agent (as the same may be amended and
modified from time to time, the "Credit Agreement"). Terms defined in the Credit
Agreement are used herein with the same meanings. Reference is made to the
Credit Agreement for provisions for the optional and mandatory prepayment and
the repayment hereof and the acceleration of the maturity hereof.

                  IN WITNESS WHEREOF, the Borrower has caused this Revolver Loan
Note to be duly executed, under seal, by its duly authorized officer as of the
day and year first above written.

                                     AVONDALE MILLS, INC.                 (SEAL)

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

                                       84
<PAGE>   90

                           Revolver Loan Note (cont'd)

                         LOANS AND PAYMENTS OF PRINCIPAL

<TABLE>
<CAPTION>
          Base Rate or      Amount        Amount of
          Euro-Dollar       of            Principal         Maturity    Notation
Date      Loan              Loan          Repaid            Date        Made By
<S>       <C>               <C>           <C>               <C>         <C>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

--------------------------------------------------------------------------------
</TABLE>

                                       85
<PAGE>   91

                                                                     EXHIBIT A-2

                                 SWING LOAN NOTE

                                Atlanta, Georgia
                               September 28, 2000

                  For value received, AVONDALE MILLS, INC., an Alabama
corporation (the "Borrower"), promises to pay to the order of WACHOVIA BANK,
N.A., a national banking association (the "Bank"), for the account of its
Lending Office, the principal sum of Twelve Million, Five Hundred Thousand and
No/100 Dollars ($12,500,000), or such lesser amount as shall equal the unpaid
principal amount of each Swing Loan made by the Bank to the Borrower pursuant to
the Credit Agreement referred to below, on the dates and in the amounts provided
in the Credit Agreement. The Borrower promises to pay interest on the unpaid
principal amount of this Swing Loan Note at the rate provided for Base Rate
Loans on the dates provided for in the Credit Agreement. Interest on any overdue
principal of and, to the extent permitted by law, overdue interest on the
principal amount hereof shall bear interest at the Default Rate, as provided for
in the Credit Agreement. All such payments of principal and interest shall be
made in lawful money of the United States in Federal or other immediately
available funds at the office of Wachovia Bank, N.A., 191 Peachtree Street,
N.E., Atlanta, Georgia 30303-1757, or such other address as may be specified
from time to time pursuant to the Credit Agreement.

                  All Swing Loans made by the Bank, the respective maturities
thereof, and all repayments of the principal thereof shall be recorded by the
Bank and, prior to any transfer hereof, endorsed by the Bank on the schedule
attached hereto, or on a continuation of such schedule attached to and made a
part hereof; provided that the failure of the Bank to make any such recordation
or endorsement shall not affect the obligations of the Borrower hereunder or
under the Credit Agreement.

                  This Swing Loan Note is the Swing Loan Note referred to in the
Second Amended and Restated Credit Agreement dated as of even date herewith
among the Borrower, the Banks listed on the signature pages thereof, and
Wachovia Bank, N.A., as Agent (as the same may be amended and modified from time
to time, the "Credit Agreement"). Terms defined in the Credit Agreement are used
herein with the same meanings. Reference is made to the Credit Agreement for
provisions for the optional and mandatory prepayment and the repayment hereof
and the acceleration of the maturity hereof.

                                       86
<PAGE>   92

                  IN WITNESS WHEREOF, the Borrower has caused this Swing Loan
Note to be duly executed, under seal, by its duly authorized officer as of the
day and year first above written.

                                       AVONDALE MILLS, INC.               (SEAL)

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

                                       87
<PAGE>   93

                            Swing Loan Note (cont'd)

                         LOANS AND PAYMENTS OF PRINCIPAL

<TABLE>
<CAPTION>
          Amount of    Base Rate or      Principal                      Notation
Date      Loan         Set Rate Loan     Repaid         Maturity        Made By
<S>       <C>          <C>               <C>            <C>             <C>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

--------------------------------------------------------------------------------
</TABLE>

                                       88
<PAGE>   94

                                                                     EXHIBIT B-1

                                   OPINION OF
                            COUNSEL FOR THE BORROWER

              [TO BE UPDATED, ADDRESSED TO WACHOVIA BANK, N.A. AND
              REVISED TO DELETE REFERENCES TO DOCUMENTATION AGENT
                AND ADDRESS ONLY THE SECOND AMENDED AND RESTATED
                     CREDIT AGREEMENT AND REPLACEMENT NOTES]

                                 April 29, 1996

To the Banks and the Agent
Referred to Below
c/o Wachovia Bank of Georgia, N.A.,
as Agent
191 Peachtree Street, N.E.
Atlanta, Georgia 30303-1757

         Re:      Amended and Restated Credit Agreement dated as of April 29,
                  1996, Among Avondale Mills, Inc., the Banks listed on the
                  signature pages thereof, Wachovia Bank of Georgia, H.A., as
                  Agent for such Banks and The First National Bank of Chicago,
                  as Documentation Agent (the "Credit Agreement")

         We have acted as Georgia counsel for Avondale Mills, Inc., an Alabama
corporation (the "Borrower"), in connection with the above-referenced Credit
Agreement. Capitalized terms used in this opinion letter and not otherwise
defined herein shall have the respective meanings assigned to such terms in the
Credit Agreement. We have also acted as Georgia counsel for the Parent, Avondale
Incorporated, a Georgia corporation, in connection with the Parent Guaranty and
Pledge Agreement.

         In connection with the opinions expressed in this letter, we have
examined each of the following documents dated as of April 29, 1996, as executed
by the Borrower and the Parent, as the case may be (collectively, the
"Transaction Documents"):

                  (1)      the Credit Agreement;

                  (2)      the Notes;

                  (3)      the Security Agreement;

                  (4)      the Mortgage;

                  (5)      the Borrower Pledge Agreement;

                  (6)      the Parent Guaranty; and

                                       89
<PAGE>   95

                  (7)      the Pledge Agreement.

The Transaction Documents described in items (1) through (5) above are herein
sometimes collectively referred to as the "Borrower Transaction Documents"; the
Transaction Documents described in items (6) and (7) above are herein sometimes
collectively referred to as the "Parent Transaction Documents."

         We have also reviewed such other documents and given consideration to
such matters of law and fact as we have deemed appropriate, in our professional
judgment, to render the opinions expressed in this letter. The documents so
reviewed have included the originals or copies, certified or otherwise
identified to our satisfaction, of certain corporate records and documents of
the Borrower and the Parent, the certificates delivered on behalf of the
Borrower and the Parent to you on this date pursuant to the requirements of the
Transaction Documents, and the certificate delivered on behalf of the Borrower
and the Parent to us on this date (the "Officer's Certificate"), and we have
relied on the accuracy and completeness of all factual matters set forth in such
corporate records, documents, and certificates, as well as the representations
and warranties as to factual matters set forth in the Transaction Documents. In
rendering the opinions set forth in paragraphs 1 and 2 below with respect to the
current status of the Borrower and the Parent in the specified jurisdictions, we
have relied solely on the certificates issued with respect to the Borrower or
the Parent, as the case may be, by the Secretary of State of the respective
jurisdictions, copies of which have been delivered to you, and we have assumed
that all such certificates were properly given and remain accurate as of the
date of this letter.

         For purposes of the opinions expressed herein, we have assumed (i) the
genuineness of all signatures (other than signatures on behalf of the Borrower
and the Parent) on all documents submitted to us as originals, (ii) the
authenticity of all documents submitted to us as originals and the conformity to
original documents of all documents submitted to us as copies, (iii) the absence
of duress, fraud, or mutual mistake of material facts on the part of the parties
to the Transaction Documents, (iv) that the Borrower has rights in or title to
the Collateral described in the Security Agreement and the Mortgage [and the
Borrower Pledge Agreement and is the sole legal and beneficial owner of the
Receivables Subsidiary Pledged Stock], and (v) that the Parent is the sole legal
and beneficial owner of the Pledged Stock.

         We have further assumed that (i) the Agent and the Banks have all
requisite power and authority to enter into and perform their respective
obligations under the Transaction Documents, (ii) the Credit Agreement, the
Security Agreement and the Pledge Agreement have been duly authorized, executed
and delivered by the Banks and the Agent, respectively, and constitute their
legal, valid and binding obligations, and (iii) to the extent applicable law
requires that the Banks or the Agent act in accordance with applicable duties of
good faith or fair dealing, in a commercially reasonable manner, or otherwise in
compliance with applicable legal requirements in exercising their respective
rights and remedies under the Transaction Documents, the Banks and the Agent
will fully comply with such legal requirements, notwithstanding any provisions
of the Transaction Documents that purport to grant the Banks or the Agent the
right to act or fail to act in a manner contrary to such legal requirements, or
based on its sole judgment or in its sole discretion or provisions of similar
import. We have also assumed that under no circumstances, whether by reason of
prepayment, acceleration or otherwise, will the rate of interest payable by the
Borrower or the Parent, including without limitation, expenses of the Banks or
the Agent

                                       90
<PAGE>   96

chargeable to the Borrower or the Parent, and other fees and charges for the use
of money, whether or not denominated as interest, exceed five percent (5%) per
month.

         We have further assumed, with your permission, the accuracy of each of
the matters set forth below, and we have made no independent inquiry or
investigation with respect thereto:

         (1)      That the Borrower is a corporation duly incorporated and
validly existing under the laws of the State of Alabama;

         (2)      That the Borrower has the corporate power and authority to
carry on its business as now conducted and to execute, deliver and perform its
obligations under the Borrower Transaction Documents;

         (3)      That the Borrower has taken all necessary corporate and
shareholder action to authorize the execution and delivery of, and performance
of its obligations under, the Borrower Transaction Documents; and

         (4)      That the execution, delivery and performance by the Borrower
of the Borrower Transaction Documents (i) require no approval, authorization,
consent, adjudication or order of any governmental authority of the State of
Alabama which has not been obtained, (ii) do not violate any provision of
applicable law or regulation of the State of Alabama, or of any judgment,
injunction, order, or decree issued by any judicial or administrative authority
of the State of Alabama which is binding on the Borrower, and (iii) do not
contravene or constitute a default under the articles of incorporation or
by-laws of the Borrower.

With respect to the matters described in paragraphs (1) through (4) above, we
understand that you have received the opinion of Bradley, Arant, Rose & White
dated April 29, 1996 (the "Bradley, Arant Opinion"). We know of no reason why
you and we would not be entitled to rely on the Bradley, Arant Opinion in
connection with the transactions contemplated by the Borrower Transaction
Documents.

         Whenever any opinion or confirmation of fact set forth in this letter
is qualified by the words "to our knowledge", "known to us" or other words of
similar meaning, such words mean the current actual knowledge of lawyers in the
Primary Lawyer Group (defined below) of factual matters such lawyers recognize
as being relevant to the opinion or confirmation so qualified. "Primary Lawyer
Group" means the lawyer who signs this opinion letter on behalf of this firm
and, solely as to information relevant to an opinion or confirmation issue
addressed herein, each lawyer in this firm who is primarily responsible for
providing the response concerning the particular issue. Except as may be
expressly described herein, we have not undertaken any investigation to
determine the existence or absence of facts and no inference as to our knowledge
of the existence or absence of facts should be drawn from our serving as counsel
for the Borrower or the Parent on other matters.

         The opinions expressed herein are limited to the laws of the State of
Georgia and applicable United States federal law, and we express no opinion as
to the laws of any other jurisdiction or the effect any such laws may have on
the matters set forth herein.

                                       91
<PAGE>   97

         Based on the foregoing, it is our opinion that:

1.       The Borrower is a corporation in corporate good standing under the laws
of the State of Alabama, and is in corporate good standing as a foreign
corporation qualified to do business in the States of Georgia, South Carolina,
and North Carolina.

2.       The Parent is a corporation duly incorporated, validly existing and in
corporate good standing under the laws of Georgia, and has all corporate power
required to carry on its business as now conducted.

3.       The execution, delivery and performance by the Borrower of the Borrower
Transaction Documents (i) require no approval, authorization, consent,
adjudication or order of any governmental authority of the State of Georgia or
of the United States of America which has not been obtained, (ii) do not violate
any law or regulation of the State of Georgia or the United States of America
binding on the Borrower that would (A) either prohibit performance by the
Borrower under the Borrower Transaction Documents or subject the Borrower to a
fine, penalty, or other similar sanction, and (B) which a lawyer, using
customary professional diligence, would reasonably recognize as applicable to
the Borrower and the transactions contemplated by the Borrower Transaction
Documents, (iii) insofar as is known to us, do not violate any order, writ,
judgment, injunction, decree or award binding on the Borrower or its properties,
(iv) will not breach or cause a default under any of the "material agreements"
identified as such in the Officer's Certificate, and (v) insofar as is known to
us, except as provided in the Borrower Transaction Documents, will not result in
the creation or imposition of any Lien on any assets of the Borrower or any of
its Subsidiaries.

4.       The execution, delivery and performance by the Parent of the Parent
Transaction Documents (i) are within the Parent's corporate powers, (ii) have
been duly authorized by all necessary corporate action, (iii) require no
approval, authorization, consent, adjudication or order of any governmental
authority of the State of Georgia or of the United States of America, which has
not been obtained, (iv) do not contravene any provision of the articles of
incorporation or by-laws of the Parent, (v) do not violate any law or regulation
of the State of Georgia or of the United States of America binding on the Parent
which (A) either prohibit performance by the Parent under the Parent Guaranty or
subject the Parent to a fine, penalty or other similar sanction, and (B) which a
lawyer, using customary professional diligence, would reasonably recognize as
applicable to the Parent in the transactions contemplated by the Parent
Guaranty, (vi) insofar as is known to us, do not violate any order, writ,
judgment, injunction, decree or award binding on the Parent or its properties,
(vii) will not breach or constitute a default under any of the "material
agreements" identified as such in the Officer's Certificate, and (viii) insofar
as is known to us, do not result in the creation or imposition of any Lien on
any assets of the Parent or any of its Subsidiaries.

5.       Each of the Transaction Documents has been duly executed and delivered
(in the case of the Mortgage, subject to the provisions of Section 5.25 of the
Credit Agreement) on behalf of the Borrower or the Parent, as the case may be.

6.       Each of the Transaction Documents other than the Mortgage constitutes,
and if on the date hereof the Mortgage had been duly and properly completed,
delivered, recorded (including

                                       92
<PAGE>   98

payment of any applicable filing fees and intangibles recording taxes), and
indexed in the real estate records of the Offices of the Clerks of the Superior
Courts of Walton and Tift Counties, Georgia (the "Georgia Filing Offices"), the
Mortgage would constitute, the valid and binding obligation of the Borrower or
the Parent, as the case may be, enforceable against it in accordance with its
terms, except:

                  (a)      As enforceability thereof may be limited by the
         effect of (i) bankruptcy, insolvency, reorganization, moratorium and
         other similar laws affecting the rights and remedies of creditors
         (including, without limitation, matters of contract rejection,
         fraudulent conveyances and obligations, turn-over, preference,
         equitable subordination, automatic stay, and substantive consolidation
         under federal bankruptcy laws, as well as state laws regarding
         fraudulent transfers, obligations, and conveyances, and state
         receivership laws), and (ii) general principles of equity, whether
         applied by a court of law or equity (including, without limitation,
         principles governing the availability of specific performance,
         injunctive relief or other traditional equitable remedies, principles
         affording traditional equitable defenses such as waiver, laches and
         estoppel, and legal standards requiring reasonableness or materiality
         of breach for exercise of remedies or providing for defenses based on
         impracticability or impossibility of performance or on obstruction or
         failure to perform or otherwise act in accordance with an agreement by
         a party thereto other than the Borrower or the Parent);

                  (b)      That no opinion is expressed with respect to the
         validity, binding effect, or enforceability of:

                           (i)      those provisions of the Transaction
                  Documents requiring indemnification for, or providing
                  exculpation, release, or exemption from liability for, any
                  action or inaction by any other person or entity, to the
                  extent such action or inaction involves negligence or willful
                  misconduct on the part of any such person or entity or to the
                  extent otherwise contrary to public policy;

                           (ii)     those provisions of the Transaction
                  Documents providing for payment of interest on unpaid
                  interest, or imposing increased interest rates or late payment
                  charges upon delinquency in payment or other default or
                  providing for liquidated damages or for premiums on
                  prepayment, acceleration, or termination, to the extent any
                  such provisions may be deemed to be penalties or forfeitures;

                           (iii)    those provisions of the Transaction
                  Documents that have the effect of waiving the right of jury
                  trial, statutes of limitation, marshalling of assets or
                  similar requirements, or consenting or waiving objections to
                  the jurisdiction of certain courts or the venue or forum for
                  judicial actions;

                           (iv)     those provisions of the Transaction
                  Documents providing that waivers or consents by a party may
                  not be given effect unless in writing or in compliance with
                  particular requirements, or that a party's course of dealing,
                  course of performance, or the like or failure or delay in
                  taking action may not constitute a waiver of related rights or
                  provisions, or that one or more waivers

                                       93
<PAGE>   99

                  may not under certain circumstances constitute a waiver of
                  other matters of the same kind;

                           (v)      those provisions of the Transaction
                  Documents providing that a party has the right to pursue
                  multiple remedies without regard to other remedies elected or
                  that all remedies are cumulative;

                           (vi)     those provisions of the Transaction
                  Documents purporting to require payment by the Parent or the
                  Borrower of any Bank's or Agent's attorneys' fees without
                  compliance with the applicable requirements of O .C .G.A. ss.
                  13-1-11;

                           (vii)    those provisions of the Transaction
                  Documents providing that modifications to such documents may
                  only be made in writing or that the provisions of such
                  documents are severable;

                           (viii)   those provisions of the Transaction
                  Documents purporting to permit the exercise, under certain
                  circumstances, of rights or remedies without notice or without
                  providing opportunity to cure failures to perform;

                           (ix)     those provisions of the Transaction
                  Documents purporting to grant rights of setoff otherwise than
                  in accordance with applicable law;

                           (x)      those provisions of the Transaction
                  Documents purporting to require a waiver of defenses, setoffs,
                  or counterclaims against the Banks or the Agent;

                           (xi)     those provisions of the Security Agreement,
                  the Pledge Agreement, or the Mortgage with respect to the
                  Agent's or any Bank's right to collect a deficiency except
                  upon compliance with applicable law;

                           (xii)    Section 9.14 of the Credit Agreement;
                  Section 8.3 of the Security Agreement; the penultimate
                  sentence of Section 12(a) and Sections 22 and 23 of the Pledge
                  Agreement; and Sections 3.12 and 4.3 through 4.5 of the
                  Mortgage;

                           (xiii)   those provisions of the Transaction
                  Documents purporting to require the Borrower or the Parent to
                  waive various rights, claims, and defenses, or to provide
                  certain remedies in favor of the Agent or the Banks, to the
                  extent any such waivers or remedial provisions may not be
                  valid, binding or enforceable under applicable law; provided,
                  however, in our opinion, the inclusion of such waivers and
                  remedial provisions does not render any Transaction Document
                  invalid as a whole, and each Transaction Document otherwise
                  contains remedies adequate for the practical. realization of
                  the benefits intended to be provided thereby assuming
                  compliance by the Agent and the Banks with applicable legal
                  requirements and procedures of the State of Georgia; or

                           (xiv)    those provisions of the Security Agreement
                  and the Mortgage providing for the exercise of rights or
                  remedies with respect to any portion of the

                                       94

<PAGE>   100

                  "Collateral" as described in the Security Agreement, or
                  "Premises" as described in the Mortgage, located outside the
                  State of Georgia; and

                  (c)      That no opinion is expressed herein with respect to
         any of the following matters:

                           (i)      the adequacy or sufficiency of any of the
                  legal descriptions of the "Premises" as defined in the
                  Mortgage;

                           (ii)     the status of the Borrower's or the Parent's
                  title to, or rights in, any of the "Collateral" as described
                  in the Security Agreement or the Pledge Agreement [or the
                  Borrower Pledge Agreement], or any of the "Premises" as
                  described in the Mortgage, or the perfection or priority of
                  any security interest or security title in and to any of such
                  "Collateral" pursuant to the Security Agreement or such
                  "Premises" pursuant to the Mortgage;

                           (iii)    with respect to the Mortgage, the effect on
                  the opinions rendered herein of the delay of the Mortgage
                  becoming an Operative Mortgage as provided in the Credit
                  Agreement and the delay in the recordation, indexing and
                  cross-indexing thereof in the Georgia Filing Offices;

                           (iv)     whether the Mortgage secures any
                  indebtedness, obligations, or liabilities of the Borrower
                  under an Interest Rate Protection Agreement that may
                  subsequently be in effect between the Borrower and any of the
                  Banks;

                           (v)      the validity of any security interest in any
                  portion of the "Collateral" as described in the Security
                  Agreement, or the "Premises" as described in the Mortgage,
                  that is or purports to be nonassignable or nontransferable;

                           (vi)     in the case of any property that becomes
                  collateral for the Obligations after the date hereof, the
                  effect that Section 552 of the Federal Bankruptcy Code would
                  have on the extent to which property acquired by a debtor
                  after the commencement of a case under the Federal Bankruptcy
                  Code may be subject to a security agreement entered into by
                  the debtor before the commencement of such case;

                           (vii)    the enforceability against the government of
                  the United States of any assignment or security interest in
                  any portion of the Collateral described in the Security
                  Agreement constituting accounts or other claims against the
                  government of the United States subject to the Federal
                  Assignment of Claims Act; or

                           (viii)   the validity of any conveyance of security
                  title or security interest in any of the Collateral described
                  in the Security Agreement or the Premises described in the
                  Mortgage to the extent that such matters are now or hereafter
                  governed by or subject to the law of any jurisdiction other
                  than the State of Georgia.

                                       95
<PAGE>   101

7.       Neither the Parent nor the Borrower is an "investment company" within
the meaning of the Investment Company Act of 1940, as amended.

8.       Neither the Parent nor the Borrower is a "holding company" or a
"subsidiary company" of a "holding company" or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company" as such terms are
defined in the Public Utility Holding Company Act of 1935, as amended.

9.       Insofar as is known to us, there is no action, suit or proceeding
pending or overtly threatened against or affecting the Parent, the Borrower, or
any other Subsidiaries of the Parent before any court or arbitrator or any
governmental body, agency or official in which (i) the monetary relief sought
against any of such parties is in excess of $500,000, or (ii) in any manner
questions the validity or enforceability of the Transaction Documents, except
for those actions, suits or proceedings listed on Schedule 4.05 to the Credit
Agreement.

         This opinion letter is provided to you for your exclusive use solely in
connection with the transactions contemplated by the Credit Agreement and may
not be relied upon by any other person or for any other purpose without our
prior written consent. The opinions and confirmation of facts expressed in this
letter are strictly limited to the matters stated in this letter as of the date
hereof, and no other opinions or confirmations of fact are to be implied or
inferred. We undertake no obligation to advise you or any other person or entity
of changes of law or fact that occur after the date of this letter, whether or
not such change may affect any of the opinions expressed herein.

                                             Yours very truly,

                                             KING & SPALDING

                                       96
<PAGE>   102

                                                                     EXHIBIT B-2

[Subject to revision to comport with
law and practice in each location]

                            OPINION OF LOCAL COUNSEL
                               AS TO THE MORTGAGE

                                             [Dated as provided in
                                             Section 3.01 of the Credit
                                             Agreement]

To the Banks and the Agent
Referred to Below
c/o Wachovia Bank of Georgia, N.A.,
as Agent
191 Peachtree Street, N.E.
Atlanta, Georgia 30303-1757
Attn:

Dear Sirs:

                  We have acted as local counsel in the State of [Alabama]
[North Carolina] [South Carolina] (the "State") for Wachovia Bank of Georgia,
N.A., as Agent (the "Agent") in connection with the Amended and Restated Credit
Agreement (the "Credit Agreement") dated as of April 29, 1996, among Avondale
Mills, Inc., an Alabama corporation (the "Borrower"), the banks listed on the
signature pages thereof, the Agent and The First National Bank of Chicago, as
Documentation Agent. Terms defined in the Credit Agreement are used herein as
therein defined.

                  We have examined originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate records,
certificates of public officials and other instruments and have conducted such
other investigations of fact and law as we have deemed necessary or advisable
for purposes of this opinion. We have assumed for purposes of our opinions set
forth below that the execution and delivery of each Mortgage pertaining to a
Plant located in the State (each such Mortgage being a "State Mortgage") by the
Borrower has been duly authorized by the Borrower and that the execution and
delivery of the Credit Agreement by each Bank and by the Agent have been duly
authorized by each Bank and by the Agent.

                  Upon the basis of the foregoing, we are of the opinion that
each State Mortgage will create a valid and perfected [mortgage] [deed of trust]
Lien upon such of the "Premises" (as defined in the State Mortgage) as is
located in the State and constitutes real property under the law of the State
(the "State Real Property") in favor of the Agent for the ratable benefit of the
Banks and securing the "Secured Obligations" (as defined in the State Mortgage),
upon (i) the completion by the Agent of the acts described in clauses (i), (ii)
and (iii) of Section 5.25(d) of the

                                       97
<PAGE>   103

Credit Agreement, to the extent applicable, (ii) the proper filing, indexing and
recordation thereof in the real estate deed records (the "Real Estate Records")
maintained by and in the offices designated in Schedule A hereto and payment of
all fees, taxes and other charges payable in connection with recording the State
Mortgage, and (iii) the proper cross-indexing of the State Mortgage in the
Uniform Commercial Code filing offices designated in Schedule B hereto. The
filing of the State Mortgage in the offices designated in Schedule A and
Schedule B hereto are the only filings, recordings and registrations necessary
to perfect, publish notice of and preserve the Lien of and security interest in
the State Real Property created by the State Mortgage. The Liens created by the
State Mortgage on or in the State Real Property will validly secure the payment
of all future advances pursuant to the Credit Agreement, whether or not at the
time such advances are made an Event of Default or other event not within the
control of the Banks has relieved or may relieve the Banks from their
obligations to make such advances. The priority of the Liens created by the
State Mortgage will be the same with respect to (i) Loans made or deemed made
pursuant to the Credit Agreement and (ii) Obligations of the Borrower to any
Bank with respect to any Interest Rate Protection Agreement (up to the maximum
amount for all such Interest Rate Protection Agreements of $7,000,000) incurred
after the date hereof as with respect to any such Loans made or Obligations with
respect to such Interest Rate Protection Agreements incurred on the date hereof,
except to the extent that any priority may be affected by any Lien imposed by
law in favor of any government or governmental authority or agency.

                  We are qualified to practice in the State and do not purport
to be experts on any laws other than the laws of the United States and the State
and this opinion is rendered only with respect to such laws. We have made no
independent investigation of the laws of any other jurisdiction.

                  This opinion is delivered to you in connection with the
transaction referenced above and may only be relied upon by you, any Transferee
under the Credit Agreement, and Jones, Day, Reavis & Pogue without our prior
written consent.

                                       98
<PAGE>   104

                                                                       EXHIBIT C

                                   OPINION OF
                   JONES, DAY, REAVIS & POGUE, SPECIAL COUNSEL
                    FOR THE AGENT AND THE DOCUMENTATION AGENT

              [TO BE UPDATED, ADDRESSED TO WACHOVIA BANK, N.A. AND
              REVISED TO DELETE REFERENCES TO DOCUMENTATION AGENT
                AND ADDRESS ONLY THE SECOND AMENDED AND RESTATED
                    CREDIT AGREEMENT AND REPLACEMENT NOTES]

                                                  [Dated as provided in
                                                  Section 3.01 of the Credit
                                                  Agreement]

To the Banks and the Agent
Referred to Below
c/o Wachovia Bank of Georgia, N.A.,
as Agent
191 Peachtree Street, N.E.
Atlanta, Georgia 30303-1757
Attn:

Dear Sirs:

                  We have participated in the preparation of the Amended and
Restated Credit Agreement (the "Credit Agreement") dated as of April 29, 1996,
among Avondale Mills, Inc., an Alabama corporation (the "Borrower"), the banks
listed on the signature pages thereof (the "Banks"), Wachovia Bank of Georgia,
N.A., as Agent (the "Agent") and The First National Bank of Chicago, as
Documentation Agent (the "Documentation Agent"), and have acted as special
counsel for the Agent for the purpose of rendering this opinion pursuant to
Section 3.01(d) of the Credit Agreement. Terms defined in the Credit Agreement
are used herein as therein defined.

                  This opinion letter is limited by, and is in accordance with,
the January 1, 1992 edition of the Interpretive Standards applicable to Legal
Opinions to Third Parties in Corporate Transactions adopted by the Legal Opinion
Committee of the Corporate and Banking Law Section of the State Bar of Georgia
which Interpretive Standards are incorporated herein by this reference.

                  We have examined originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate records,
certificates of public officials and other instruments and have conducted such
other investigations of fact and law as we have deemed necessary or advisable
for purposes of this opinion.

                                       99
<PAGE>   105

                  Upon the basis of the foregoing, and assuming the due
authorization, execution and delivery of the Credit Agreement, the Security
Agreement and each of the Notes by or on behalf of the Borrower, we are of the
opinion that each of the Credit Agreement and the Security Agreement constitutes
a valid and binding agreement of the Borrower and each Note constitutes valid
and binding obligations of the Borrower, in each case enforceable in accordance
with its terms.

                  We express no opinion as to the effect of the compliance or
noncompliance of the Agent or any of the Banks with any state or federal laws or
regulations applicable to the Agent or any of the Banks by reason of the legal
or regulatory status or the nature of the business of the Agent or any of the
Banks.

                  This opinion is delivered to you in connection with the
transaction referenced above and may only be relied upon by you and any
Transferee under the Credit Agreement without our prior written consent.

                                             Very truly yours,

                                      100
<PAGE>   106

                                                                       EXHIBIT D

                            ASSIGNMENT AND ACCEPTANCE
                      Dated ____________________, 200__

                  Reference is made to the Second Amended and Restated Credit
Agreement dated as of September 28, 2000 (together with all amendments and
modifications thereto, the "Credit Agreement") among Avondale Mills, Inc., an
Alabama corporation (the "Borrower"), the Banks (as defined in the Credit
Agreement), and Wachovia Bank, N.A., as Agent (the "Agent"). Terms defined in
the Credit Agreement are used herein with the same meaning.

                  ____________________________________________________ (the
"Assignor") and _____________________________________________________ (the
"Assignee") agree as follows:

                  1.       The Assignor hereby sells and assigns to the
Assignee, without recourse to the Assignor, and the Assignee hereby purchases
and assumes from the Assignor, a __% interest in and to all of the Assignor's
rights and obligations under the Credit Agreement as of the Effective Date (as
defined below) (including, without limitation, a __% interest (which on the
Effective Date hereof is $__________) in the Assignor's Commitment and a _____
interest (which on the Effective Date hereof is $__________) in the Loans owing
to the Assignor and a __% interest in the Note[s] held by the Assignor (which
on the Effective Date hereof is $__________).

                  2.       The Assignor (i) makes no representation or warranty
and assumes no responsibility with respect to any statements, warranties or
representations made in or in connection with the Credit Agreement or the
execution, legality, validity, enforceability, genuineness, sufficiency or value
of the Credit Agreement or any other instrument or document furnished pursuant
thereto, other than that it is the legal and beneficial owner of the interest
being assigned by it hereunder, that such interest is free and clear of any
adverse claim and that as of the date hereof its Commitment (without giving
effect to assignments thereof which have not yet become effective) is
$__________ and the aggregate outstanding principal amount of Loans owing to it
(without giving effect to assignments thereof which have not yet become
effective) is $__________; (ii) makes no representation or warranty and assumes
no responsibility with respect to the financial condition of the Borrower or the
performance or observance by the Borrower of any of its obligations under the
Credit Agreement or any other instrument or document furnished pursuant thereto;
and (iii) attaches the Note[s] referred to in paragraph 1 above and requests
that the Agent exchange such Note[s] for [a new Note dated __________, ____ in
the principal amount of $__________ payable to the order of the Assignee] [new
Notes as follows: a Note dated __________, ____ in the principal amount of
$__________ payable to the order of the Assignor and a Note dated __________,
____ in the principal amount of $__________ payable to the order of the
Assignee].

                  3.       The Assignee (i) confirms that it has received a copy
of the Credit Agreement, together with copies of the financial statements
referred to in Section 4.04(a) thereof (or any more recent financial statements
of the Borrower delivered pursuant to Section 5.01(a) or (b) thereof) and such
other documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into this Assignment and Acceptance; (ii)
agrees that it

                                      101
<PAGE>   107
will, independently and without reliance upon the Agent, the Assignor or any
other Bank and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under the Credit Agreement; (iii) confirms that it is a bank
or financial institution; (iv) appoints and authorizes the Agent to take such
action as agent on its behalf and to exercise such powers under the Credit
Agreement as are delegated to the Agent by the terms thereof, together with such
powers as are reasonably incidental thereto; (v) agrees that it will perform in
accordance with their terms all of the obligations which by the terms of the
Credit Agreement are required to be performed by it as a Bank and agrees to be
bound by all of the terms and provisions of the Credit Agreement (including,
without limitation, the provisions of Section 9.18) and the Receivables
Intercreditor Agreement (including, without limitation, the obligations and
agreements contained in Section 5 thereof); (vi) specifies as its Lending Office
(and address for notices) the office set forth beneath its name on the signature
pages hereof, (vii) represents and warrants that the execution, delivery and
performance of this Assignment and Acceptance are within its corporate powers
and have been duly authorized by all necessary corporate action, (viii) attaches
the forms prescribed by the Internal Revenue Service of the United States
certifying as to the Assignee's status for purposes of confirming exemption from
United States withholding taxes with respect to all payments to be made to the
Assignee under the Credit Agreement and the Notes or such other documents as are
necessary to indicate that no such payments are subject to such taxes, and (ix)
represents and warrants that, as of the Effective Date, the Assignee is not
entitled to any compensation pursuant to Section 8.03 or entitled to any
suspension of its obligations to make Euro-Dollar Loans pursuant to Section
8.02.

                  4.       The Effective Date for this Assignment and Acceptance
shall be ______, 200_ (the "Effective Date"). Following the execution of this
Assignment and Acceptance, it will be delivered to the Agent for execution and
acceptance by the Agent and to the Borrower for execution by the Borrower.

                  5.       Upon such execution and acceptance by the Agent [and
execution by the Borrower if the Assignee is not a Bank prior to the Effective
Date], from and after the Effective Date, (i) the Assignee shall be a party to
the Credit Agreement and, to the extent rights and obligations have been
transferred to it by this Assignment and Acceptance, have the rights and
obligations of a Bank thereunder and (ii) the Assignor shall, to the extent its
rights and obligations have been transferred to the Assignee by this Assignment
and Acceptance, relinquish its rights (other than under Sections 8.03, 9.03 and
9.04 of the Credit Agreement) and be released from its obligations under the
Credit Agreement.

                  6.       Upon such execution and acceptance by the Agent [and
execution by the Borrower if the Assignee is not a Bank prior to the Effective
Date], from and after the Effective Date, the Agent shall make all payments in
respect of the interest assigned hereby to the Assignee. The Assignor and
Assignee shall make all appropriate adjustments in payments for periods prior to
such acceptance by the Agent directly between themselves.

                  7.       This Assignment and Acceptance shall be governed by,
and construed in accordance with, the laws of the State of Georgia.

                                      102
<PAGE>   108

                                      [NAME OF ASSIGNOR]

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

                                      [NAME OF ASSIGNEE]

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

                                      Lending Office:
                                      [Address]

                                      WACHOVIA BANK, N.A.,
                                      As Agent

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

                                      AVONDALE MILLS, INC.

                                      If the Assignee is not a Bank or Affiliate
                                      thereof prior to the Effective Date and no
                                      Event of Default is in existence.

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

                                      103

<PAGE>   109
                                                                      EXHIBIT E

                              NOTICE OF BORROWING

                    ______________________________, 2000___

Wachovia Bank, N.A., as Agent
191 Peachtree Street, N.W.
Atlanta, Georgia  30303-1757
Attention:  Leveraged Finance

         Re:      Second Amended and Restated Credit Agreement (as amended and
                  modified from time to time, the "Credit Agreement") dated as
                  of September 28, 2000 by and among Avondale Mills, Inc., the
                  Banks from time to time parties thereto, and Wachovia Bank,
                  N.A., as Agent.

Gentlemen:

         Unless otherwise defined herein, capitalized terms used herein shall
have the meanings attributable thereto in the Credit Agreement.

         This Notice of Borrowing is delivered to you pursuant to Section 2.02
of the Credit Agreement.

         The Borrower hereby requests a [Euro-Dollar Borrowing] [Base Rate
Borrowing] [Swing Loan Borrowing] in the aggregate principal amount of
$_________ to be made on __________, 200_, and for interest to accrue thereon at
the rate established by the Credit Agreement for [Euro-Dollar Loans] [Base Rate
Loans].(1) [The duration of the Interest Period with respect thereto shall be]
[1 month] [2 months] [3 months] [6 months].

         The Borrower has caused this Notice of Borrowing to be executed and
delivered by its duly authorized officer this ___ day of ________ , 200__ .

                                                AVONDALE MILLS, INC.

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

---------------
(1) Swing Loans must be Base Rate Loans.

                                      104
<PAGE>   110

                                                                      EXHIBIT F

                             COMPLIANCE CERTIFICATE

         Reference is made to the Second Amended and Restated Credit Agreement
dated as of September 28, 2000 (as amended and supplemented and in effect from
time to time, the "Credit Agreement") among Avondale Mills, Inc., the Banks
from time to time parties thereto, and Wachovia Bank, N.A., as Agent.
Capitalized terms used herein shall have the meanings ascribed thereto in the
Credit Agreement.

         Pursuant to Section 5.01(c) of the Credit Agreement, (i)
____________________, the duly authorized ____________________ of Avondale
Incorporated, hereby certifies to the Agent and the Banks that the information
contained in the Compliance Check List attached hereto is true, accurate and
complete as of _______________, ______, and (ii) ____________________, the duly
authorized ____________________ of Avondale Mills, Inc. hereby (A) certifies to
the Agent and the Banks that to the Knowledge of such officer, no Default is in
existence on and as of the date hereof and (B) restates and reaffirms that to
the Knowledge of such officer, the representations and warranties contained in
Article IV of the Credit Agreement are true on and as of the date hereof as
though restated on and as of this date, except for events which have been
disclosed in writing to the Banks and which are described in any of Sections
4.04, 4.06(a), 4.07 (except the first sentence), 4.14(b) and (c) or 4.15.

         Dated: ____________, 200__.

                                      AVONDALE INCORPORATED

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

                                      AVONDALE MILLS, INC.

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

                                      105
<PAGE>   111

                             COMPLIANCE CHECK LIST

                             Avondale Incorporated

                                _______________

                             _______________, _____

1.       Fixed Charge Coverage Ratio (Section 5.03)

         The Fixed Charge Coverage Ratio, calculated at the end of each Fiscal
         Quarter, shall be greater than: (i) 2.75 to 1.0 from the end of the
         2000 Fiscal Year through the end of the fourth Fiscal Quarter of the
         2002 Fiscal Year and (ii) 3.00 to 1.0 thereafter.

<TABLE>

         <S>                                                                      <C>
         (a)      Consolidated Net Income - Schedule 1                            $__________

         (b)      Net Interest Expense - Schedule 1                               $__________

         (c)      income taxes - Schedule 1                                       $__________

         (d)      depreciation - Schedule 1                                       $__________

         (e)      amortization - Schedule 1                                       $__________

         (f)      Dividends - Schedule 1                                          $__________

         (g)      LIFO Adjustments -Schedule 1                                    $__________

         (h)      non-cash write-offs of obsolete or surplus equipment,           $__________
                  spare parts or real property Schedule 1(2)

         (i)      sum of (a) plus (b) plus (c) plus (d) plus (e) less (f),        $__________
                  less or plus (g), as applicable, plus (h)

         (j)      Current Maturities of Long Term Debt - Schedule 1               $__________

         (k)      Net Interest Expense                                            $__________

         (l)      sum of (j) plus (k)                                             $__________

         Ratio of (i) to (l)                                                       __________

         Requirement                                                               >[2.75 to 1.0]

                                                                                   >[3.00 to 1.0]
</TABLE>
---------------

(2)      Not to exceed $10,000,000 during any period of 4 consecutive Fiscal
         Quarters

                                      106
<PAGE>   112

                             COMPLIANCE CHECK LIST

                             Avondale Incorporated

                                _______________

                             _______________, _____

2.       Senior Debt to Capitalization Ratio (Section 5.05)

         The Senior Debt to Capitalization Ratio, calculated at the end of each
         Fiscal Quarter, shall be less than 0.50 to 1.0.

<TABLE>
         <S>                                                                      <C>
         (a)      Consolidated Senior Debt - Schedule 2                           $__________

         (b)      Consolidated Adjusted Tangible Net Worth - Schedule 3           $__________

         (c)      Subordinated Debt                                               $__________

         (d)      Sum of (a) plus (b) plus (c)                                    $__________

         Ratio of (a) to (d)                                                       ___________

         Requirement                                                               <0.50 to 1.0
</TABLE>

3.       Total Debt to Cash Flow Ratio (Section 5.06)

         The Total Debt to Cash Flow Ratio, calculated at the end of each
         Fiscal Quarter, shall be less than 3.75 to 1.0.

<TABLE>
         <S>                                                                      <C>
         (a)      Consolidated Total Funded Debt - Schedule 2                     $__________

         (b)      Consolidated Net Income - Schedule 1                            $__________

         (c)      Net Interest Expense - Schedule 1                               $__________

         (d)      income taxes - Schedule 1                                       $__________

         (e)      Depreciation - Schedule 1                                       $__________

         (f)      Amortization - Schedule 1                                       $__________

         (g)      LIFO Adjustments - Schedule 1                                   $__________
</TABLE>

                                      107
<PAGE>   113

                             COMPLIANCE CHECK LIST

                             Avondale Incorporated

                                _______________

                             _______________, _____

<TABLE>
         <S>                                                                       <C>
         (h)      non-cash write-offs of obsolete or surplus equipment, spare     $__________
                  parts or real property Schedule 1(3)

         (i)      sum of (b) plus (c) plus (d) plus (e) plus (f) less or plus     $__________
                  (g), as applicable, plus (h)

         Ratio of (a) to (i)                                                       ___________

         Requirement                                                               <3.75 to 1.0
</TABLE>

4.       Restricted Payments (Section 5.07)

         The Parent and the Borrower will not make any Restricted Payment,
         except, so long as no Default shall have occurred and be continuing, a
         Restricted Payment may be made if at the time of such Restricted
         Payment and after giving effect thereto, the aggregate amount of such
         Restricted Payment and all other Restricted Payments since the
         beginning of the Restricted Payment Calculation Period would not
         exceed the sum of (x) $20,000,000, plus (y) 50% of Consolidated Net
         Income during the Restricted Payment Calculation Period (treated as
         one accounting period) (or, in case such Consolidated Net Income shall
         be a deficit, minus 100% of such deficit).

<TABLE>
         <S>                                                                           <C>
         (a)           Cumulative Consolidated Net Income during Restricted Payment    $__________
                       Calculation Period

         (b)           50% of (a)                                                      $__________

         (c)           Sum of (b) and $20,000,000                                      $__________

         (d)           Aggregate Restricted Payments made during Restricted Payment    $__________
                       Calculation Period

         Limitation (d) may not exceed (c)
</TABLE>

---------------
(3)      Not to exceed $10,000,000 during any period of 4 consecutive Fiscal
         Quarters

                                      108
<PAGE>   114

                             COMPLIANCE CHECK LIST

                             Avondale Incorporated

                               _________________

                            ________________, _____

5.       Loans and Advances (Section 5.09)

         Neither the Parent, the Borrower nor any of the Material Subsidiaries
         shall make loans or advances to any Person except, so long as no Event
         of Default is in existence:

                  (A)(i) loans or advances to employees not exceeding
         $2,000,000 in the aggregate principal amount outstanding at any time,
         in each case made in the ordinary course of business and consistent
         with practices existing on August 25, 1995; (ii) deposits required by
         government agencies or public utilities; and (iii) loans or advances
         to Wholly Owned Subsidiaries (other than from the Parent to the
         Borrower or as provided in Section 5.09(C)) not exceeding $1,000,000
         in the aggregate outstanding; provided that after giving effect to the
         making of any loans, advances or deposits permitted by this Section
         5.09(A), the aggregate of all loans and advances permitted in this
         Section 5.09(A) does not exceed $4,000,000;

                  (B) loans or advances from the Parent to the Borrower or from
         the Borrower to the Parent, or from the Borrower to AMGF (i) pursuant
         to the AMGF/Graniteville Transaction and within the limits contained
         in the definition thereof and (ii) otherwise to fund the ongoing
         working capital needs and capital expenditures of AMGF in the ordinary
         course of business;

                  (C) loans or advances to the Receivables Subsidiary evidenced
         by a Purchase Money Note; and

                  (D) other loans or advances (not including any loans and
         advances of the types described in clauses (A), (B) or (C) above) in
         an aggregate amount, together with Investments permitted by clause
         (viii) of Section 5.10, not exceeding the sum of $15,000,000, plus 10%
         of positive Consolidated Adjusted Tangible Net Worth as of the date of
         measurement.

         Calculations with respect to Section 5.09(A):

<TABLE>
         <S>                                                                      <C>
         (a)      loans and advances to employees                                 $_________

                  Limitation                                                      $2,000,000

         (b)      deposits required by government agencies or public utilities    $_________
</TABLE>

                                      109
<PAGE>   115

                             COMPLIANCE CHECK LIST

                             Avondale Incorporated

                                _______________

                             _______________, _____

<TABLE>

         <S>                                                                      <C>
         (c)      loans or advances to Wholly Owned Subsidiaries (other than      $_________
                  stated exceptions))

                  Limitation                                                      $1,000,000

         (d)      sum of (a) plus (b) plus (c)                                    $_________

                  Limitation                                                      $4,000,000

         Calculations with respect to Section 5.09(D):

         (e)      loans and advances not permitted by clauses (A), (B) or (C)     $__________

         (f)      sum of (a) and amount in paragraph 7(a)                         $__________

         (g)      Consolidated Adjusted Tangible Net Worth - Schedule 3           $__________

         (g)      10% of (g)                                                      $__________

         (h)      Sum of (h) and $15,000,000                                      $__________

                  Limitation--(f) may not exceed (i)
</TABLE>

6.       Investments (Section 5.10)

         Neither the Parent, the Borrower nor any of the Consolidated
         Subsidiaries shall make Investments in any Person except as permitted
         by Section 5.09 and except Investments in (i) direct obligations of
         the United States Government maturing within one year, (ii)
         certificates of deposit issued by a commercial bank whose credit is
         satisfactory to the Agent, (iii) commercial paper rated A1 or the
         equivalent thereof by Standard & Poor's Corporation or P1 or the
         equivalent thereof by Moody's Investors Service, Inc. and in either
         case maturing within 6 months after the date of acquisition, (iv)
         tender bonds the payment of the principal of and interest on which is
         fully supported by a letter of credit issued by a United States bank
         whose long-term certificates of deposit are rated at least AA or the
         equivalent thereof by Standard & Poor's Corporation and Aa or the
         equivalent thereof by Moody's Investors Service, Inc., (v) Investments
         by Borrower in the Receivables Subsidiary and obligations consisting
         of Standard Securitization Undertakings, (vi) Investments by the
         Receivables Subsidiary in a Special Purpose

                                      110
<PAGE>   116

                             COMPLIANCE CHECK LIST

                             Avondale Incorporated

                                _______________

                             _______________, _____

         Vehicle and obligations consisting of Standard Securitization
         Undertakings, (vii) loans and advances permitted by Section 5.09, and
         Investments by the Borrower in AMGF (x) pursuant to the
         AMGF/Graniteville Transaction and within the limits contained in the
         definition thereof and (y) otherwise to fund the ongoing working
         capital needs and capital expenditures of AMGF in the ordinary course
         of business, and (viii) other Investments in an aggregate amount on
         and after the Closing Date, together with Investments permitted by
         clause (D) of Section 5.09, not exceeding the sum of $15,000,000, plus
         10% of positive Consolidated Adjusted Tangible Net Worth as of the
         date of measurement.

<TABLE>
         <S>                                                                      <C>
         (a)      Other Investments (not permitted by clauses (i) through (vii)   $__________

         (b)      Sum of (a) and Paragraph 6(e)                                   $__________

         (c)      Consolidated Adjusted Tangible Net Worth - Schedule 3           $__________

         (d)      10% of (c)                                                      $__________

         (e)      sum of (d) and $15,000,000                                      $__________

                  Limitation--(b) may not exceed (e)
</TABLE>

7.       Negative Pledge (Section 5.11)

<TABLE>
         <S>                                                                      <C>
         Amount of Debt secured by Liens not permitted by                         $__________
         Sections 5.11(b)  through 5.11(e), inclusive, and (i) Schedule - 4

         Limitation                                                               $3,000,000

         Amount of Debt secured by all Liens (Schedule 4 and Schedule
         5.11 to Credit Agreement)                                                $__________

         Limitation                                                               $4,000,000
</TABLE>

                                      111
<PAGE>   117

                             COMPLIANCE CHECK LIST

                             Avondale Incorporated

                                _______________

                             _______________, _____

8.       List of Consolidated Subsidiaries (Section 5.01(c)(iii)

         _______________________________

         _______________________________

         _______________________________

9.       List of Material Subsidiaries (other than the Borrower), if any, as to
         which there has been a change in excess of $100,000 in the assets,
         liabilities or shareholders' equity thereof since the immediately
         preceding Fiscal Quarter.

         _______________________________

         _______________________________

         _______________________________

                                      112
<PAGE>   118

                             COMPLIANCE CHECK LIST

                             Avondale Incorporated

                                _______________

                             _______________, _____

                                                                   Schedule - 1

Consolidated Net Income for:

_____ quarter 200___                        $__________
_____ quarter 200___                        $__________
_____ quarter 200___                        $__________
_____ quarter 200___                        $__________

         Total                              $__________

Net Interest Expense for:

_____ quarter 200___                        $__________
_____ quarter 200___                        $__________
_____ quarter 200___                        $__________
_____ quarter 200___                        $__________

         Total                              $__________

Income Taxes for:

_____ quarter 200___                        $__________
_____ quarter 200___                        $__________
_____ quarter 200___                        $__________
_____ quarter 200___                        $__________

         Total                              $__________

Depreciation for:

_____ quarter 200___                        $__________
_____ quarter 200___                        $__________
_____ quarter 200___                        $__________
_____ quarter 200___                        $__________

         Total                              $__________

                                      113
<PAGE>   119

                             COMPLIANCE CHECK LIST

                             Avondale Incorporated

                                _______________

                             _______________, _____

Amortization for:

_____ quarter 200___                        $__________
_____ quarter 200___                        $__________
_____ quarter 200___                        $__________
_____ quarter 200___                        $__________

         Total                              $__________

LIFO adjustments for:

_____ quarter 200___                        $__________
_____ quarter 200___                        $__________
_____ quarter 200___                        $__________
_____ quarter 200___                        $__________

         Total                              $__________

Dividends for:

_____ quarter 200___                        $__________
_____ quarter 200___                        $__________
_____ quarter 200___                        $__________
_____ quarter 200___                        $__________

Non-cash write-offs of obsolete or
surplus equipment, spare parts or
real property for:

_____ quarter 200___                        $__________
_____ quarter 200___                        $__________
_____ quarter 200___                        $__________
_____ quarter 200___                        $__________

Current Maturities of Long Term Debt for:

_____ quarter 200___                        $__________

         Total                              $__________

                                      114
<PAGE>   120

                             COMPLIANCE CHECK LIST

                             Avondale Incorporated

                                _______________

                             _______________, _____

                                                                   Schedule - 2

Consolidated Senior Debt and Consolidated Total Funded Debt

<TABLE>
<CAPTION>
                                           INTEREST
                                             RATE                     MATURITY                  TOTAL
                                           --------                   --------                  -----
Secured
-------
<S>                                      <C>                          <C>                     <C>
_________________________________        $__________

_________________________________        $__________

_________________________________        $__________

_________________________________        $__________

     Total Secured                                                                            $__________
Unsecured (including Capitalized Leases)

_________________________________        $__________

_________________________________        $__________

_________________________________        $__________

_________________________________        $__________

     Total Unsecured                                                                          $__________

Redeemable Preferred Stock               $__________
     Total                                                                                    $__________

Receivable Securitization Program                                                             $__________

Other Consolidated Senior Debt

_________________________________        $__________

_________________________________        $__________

_________________________________        $__________

Total Consolidated Senior Debt                                                                $__________

Plus Subordinated Debt                                                                        $__________

Total Consolidated Total Funded Debt                                                          $__________
</TABLE>

                                      115
<PAGE>   121

                             COMPLIANCE CHECK LIST

                             Avondale Incorporated

                                _______________

                             _______________, _____

                                                                   Schedule - 3

                    Consolidated Adjusted Tangible Net Worth

<TABLE>
         <S>                                                                             <C>
         (a)      Stockholders' Equity                                                   $__________

         (b)      surplus from write-up of assets subsequent to August 25, 1995(4)       $__________

         (c)      intangible assets(5)                                                   $__________

         (d)      Capital Stock shown as assets(6)                                       $__________
                  Consolidated Adjusted Tangible Net Worth (sum of (a) less (b) less
                  (c) less (d))                                                          $__________
</TABLE>

---------------
(4) Exclude any write-up in connection with the acquisition of the Graniteville
    Assets

(5) Include only to the extent created, incurred or arising on or after the
    Original Closing Date, and exclude capitalized transaction costs incurred
    in connection with the acquisition of the Graniteville Assets

(6) Include only to the extent created, incurred or arising on or after the
    Original Closing Date

                                      116
<PAGE>   122

                             COMPLIANCE CHECK LIST

                             Avondale Incorporated

                                _______________

                             _______________, _____

                                                                   Schedule - 4

                      Liens Securing Debt In The Principal
                      Amount of $50,000 or More which are
                 Not shown on Schedule 5.11 to Credit Agreement
<TABLE>
<CAPTION>
                                                                            Relevant Provision
                                                                            of Section 5.11
Description of Lien                   Amount of Debt Secured                Permitting Same
<S>                                   <C>                                   <C>
1.  _____________                     $_______                              __________
2.  _____________                     $_______                              __________
3.  _____________                     $_______                              __________
4.  _____________                     $_______                              __________
5.  _____________                     $_______                              __________
6.  _____________                     $_______                              __________
7.  _____________                     $_______                              __________
8.  _____________                     $_______                              __________
9.  _____________                     $_______                              __________
</TABLE>

                                      117
<PAGE>   123

                                                                      EXHIBIT G

                              AVONDALE MILLS, INC.

                              CLOSING CERTIFICATE

         Reference is made to the Second Amended and Restated Credit Agreement
(the "Credit Agreement") dated as of September 28, 2000, among Avondale Mills,
Inc., the Banks listed therein, and Wachovia Bank, N.A., as Agent. Capitalized
terms used herein have the meanings ascribed thereto in the Credit Agreement.

         Pursuant to Section 3.01(b)(ii) of the Credit Agreement,__________ ,
the duly authorized of Avondale Mills, Inc. hereby certifies to the Agent and
the Banks that (i) to the Knowledge of the undersigned, no Default has occurred
and is continuing as of the date hereof, and (ii) the representations and
warranties contained in Article IV of the Credit Agreement are true on and as
of the date hereof.

         Certified as of this 28th day of September, 2000.

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

                                      118
<PAGE>   124

                                                                      Exhibit H

This Instrument Prepared By
and When Recorded Return to:

Jones, Day, Reavis & Pogue
3500 One Peachtree Center
303 Peachtree Street, N.E.
Atlanta, Georgia  30308-3242
By:  Christopher L. Carson

                      MASTER MORTGAGE,LEASEHOLD MORTGAGE,
                      DEED OF TRUST, DEED TO SECURE DEBT,
                         LEASEHOLD DEED TO SECURE DEBT,
                  UNIFORM COMMERCIAL CODE SECURITY AGREEMENT,
                                      and
                    ASSIGNMENT OF LEASES, RENTS AND PROFITS
                                     among
                             AVONDALE MILLS, INC.,
                            as Borrower and grantor
                        WACHOVIA BANK OF GEORGIA, N.A.,
                                       as
                            Agent for certain banks
                                      and
                              ________________, as
               Trustee and grantee for the benefit of the Agent,
             as beneficiary for itself and the other Banks ratably,
                  with respect to the North Carolina Premises

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

------------
COLLATERAL IS OR INCLUDES FIXTURES.

THIS INSTRUMENT IS ALSO TO BE INDEXED IN THE INDEX OF FINANCING STATEMENTS AS A
FIXTURE FILING IN ACCORDANCE WITH THE UNIFORM COMMERCIAL CODE, INCLUDING
SECTIONS 9-313 AND 9-402, AS ADOPTED IN ALABAMA, NORTH CAROLINA, SOUTH CAROLINA
AND GEORGIA.

THE NAMES OF THE DEBTOR AND THE SECURED PARTY, THE MAILING ADDRESS OF THE
SECURED PARTY FROM WHICH INFORMATION CONCERNING THE SECURITY INTEREST MAY BE
OBTAINED, THE MAILING ADDRESS OF THE DEBTOR AND A STATEMENT INDICATING THE
TYPES, OR DESCRIBING THE ITEMS, OF COLLATERAL, ARE AS DESCRIBED IN SUBSECTION
3.7.3 HEREOF.

THIS INSTRUMENT SECURES ANY CONTRACTUAL FUTURE ADVANCES HEREUNDER THAT MAY BE
MADE BY THE BANKS, AS DEFINED HEREIN, TO

                                      119
<PAGE>   125

BORROWER OR ANY CONTRACTUAL FUTURE OBLIGATIONS OF BORROWER TO THE "BANKS" AT
ANY TIME AND FROM TIME TO TIME DURING THE TERM HEREOF, NOT TO EXCEED, FOR
PURPOSES OF THE NORTH CAROLINA PREMISES AND THE SOUTH CAROLINA PREMISES ONLY,
FIFTEEN (15) YEARS (AS TO THE NORTH CAROLINA PREMISES) AND TEN (10) YEARS (AS
TO THE SOUTH CAROLINA PREMISES) IMMEDIATELY FOLLOWING THE DATE HEREOF, IN EACH
CASE IN AN AMOUNT NOT TO EXCEED AT ANY ONE TIME OUTSTANDING $225,000,000, PLUS
INTEREST, COSTS OF COLLECTION (INCLUDING, BUT NOT LIMITED TO REASONABLE ACTUAL
ATTORNEYS FEES, WHETHER OR NOT LITIGATION IS COMMENCED) AND SUMS ADVANCED TO
PROTECT THE SECURITY OF THIS INSTRUMENT.

NOTE:    INTEREST OR DISCOUNT MAY BE DEFERRED, ACCRUED OR CAPITALIZED
         BUT ONLY AT THE OPTION OF THE BANKS.

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

-------------
The amount of present obligations secured hereby is $____________, and the
maximum amount of present and future obligations is $225,000,000.

*FOR NORTH CAROLINA PURPOSES, THIS INSTRUMENT SHALL CONSTITUTE A DEED OF TRUST,
SECURITY AGREEMENT AND ASSIGNMENT OF LEASES, RENTS AND PROFITS AND SHALL BE
INDEXED IN THE NAME OF AVONDALE MILLS, INC., AS GRANTOR, ________________, AS
TRUSTEE, AND WACHOVIA BANK OF GEORGIA, N.A. AS BENEFICIARY.

                                      120
<PAGE>   126

         THIS MASTER MORTGAGE, LEASEHOLD MORTGAGE, DEED OF TRUST, DEED TO SECURE
DEBT, LEASEHOLD DEED TO SECURE DEBT, UNIFORM COMMERCIAL CODE SECURITY AGREEMENT
AND ASSIGNMENT OF LEASES, RENTS AND PROFITS, including the cover sheet and table
of contents, made as of the __ day of _________ , 199_ by and between AVONDALE
MILLS, INC., as party of the first part; and WACHOVIA BANK OF GEORGIA, N.A., as
Agent for certain Banks (as hereafter defined), as party of the second part and
__________________ as party of the third part.

                          W I T N E S S E T H   T H A T:

         WHEREAS, on April 29, 1996 party of the first part, party of the
second part and Banks entered into a certain Amended and Restated Credit
Agreement regarding certain obligations of the party of the first part owed to
Agent and Banks; and

         WHEREAS, to secure the repayment of such money and the performance of
certain obligations, party of the first part desires to convey, grant and
assign liens, security titles, security interests and collateral assignments in
certain property;

         NOW THEREFORE, for and in consideration of the sum of Ten and No/100
Dollars ($10.00), the mutual agreements contained herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and to secure the indebtedness hereinafter described, the parties
agree as follows:

                                   ARTICLE I.
                                  DEFINITIONS

         For the purpose of this Instrument, the following defined terms have
the meanings set forth in this Article I:

                  "Agent" means Wachovia Bank of Georgia, N.A., in its capacity
as agent for certain Banks as described in the Credit Agreement (hereinafter
defined), and its permitted successors and assigns.

                  "Alabama Lease" means that certain Lease Agreement, dated as
of April 1, 1992, by and between the Alabama Lessor and Borrower, as amended or
modified from time to time.

                  "Alabama Lessor" means The Industrial Development Board of the
Town of Bon Air.

                  "Alabama Tracts" means, individually and collectively, as the
context shall require, Borrower's leasehold estate created by the Alabama Lease
in that certain tract or parcel of land located in Bon Air, Talladega County,
Alabama and those certain other tracts or parcels of land located in Coosa
County, St. Clair County and Tallapoosa County, Alabama owned by Borrower in
fee simple, all of which tracts are more particularly described on Exhibit "A"
attached hereto and by this reference made a part hereof as the "Alabama
Tracts".

                                      121
<PAGE>   127

                  "Bank" or "Banks" means Wachovia Bank of Georgia, N.A., a
national banking association, acting as Agent hereunder and each Bank and its
permitted successors and assigns as defined in the Credit Agreement.

                  "Borrower" means Avondale Mills, Inc., an Alabama corporation,
and its permitted successors and assigns.

                  "Credit Agreement" means the Amended and Restated Credit
Agreement dated April 29, 1996, by and between Borrower, Agent, The First
National Bank of Chicago, as Documentation Agent, and Banks, together with any
and all renewals, substitutions, modifications, amendments, consolidations and
extensions of the Credit Agreement.

                  "Default Condition" means any condition or event which
constitutes an Event of Default or which with the giving of notice or lapse of
time or both would, unless cured or waived, become an Event of Default.

                  "Easements and Appurtenances" means and include all
easements, rights-of-way, strips and gores of land, vaults, streets, ways,
alleys, passages, sewer rights, waters, water courses, water rights and powers,
minerals, flowers, shrubs, crops, trees, timber and other emblements now or
hereafter located on the Land or under or above the same or any part or parcel
thereof, and all estates, rights, titles, interests, privileges, liberties,
tenements, hereditaments and appurtenances, reversion and reversions, remainder
and remainders, whatsoever, in any way belonging, relating or appertaining to
the Premises or any part thereof, or which hereafter shall in any way belong,
relate or be appurtenant thereto, whether now owned or hereafter acquired by
Borrower.

                  "Event of Default" has the meaning set forth in Section 4.1
hereof.

                  "Fixtures" means any and all items included in Plant,
Equipment and Personal Property which constitute fixtures under the law of the
state in which the Premises of which they constitute a part are located and any
and all other items of personal property which are physically attached to Land
or buildings thereon and any and all replacements and substitutions of any of
the foregoing.

                  "Georgia Lease" means that certain Lease Agreement dated June
1, 1992 between the Georgia Lessor and Borrower recorded in Deed Book 411, page
42, Walton County, Georgia Records, as amended or modified from time to time.

                  "Georgia Lessor" means the Development Authority of Walton
County.

                  "Georgia Tracts" means, individually and collectively, as the
context shall require, Borrower's leasehold estate created by the Georgia Lease
in that certain tract or parcel of land located in Walton County, Georgia, and
those certain other tracts or parcels of land located in Tift County and
Richmond County, Georgia owned by Borrower in fee simple, all of which tracts
are more particularly described on Exhibit "A" attached hereto and by this
reference made a part hereof as the "Georgia Tracts."

                                      122
<PAGE>   128

                  "Instrument" means this Master Mortgage, Deed of Trust, Deed
to Secure Debt, Uniform Commercial Code Security Agreement and Assignment of
Leases, Rents and Profits, together with any and all renewals, substitutions,
modifications, amendments, consolidations and extensions of this Instrument.

                  "Intercreditor Agreement" means the Amended and Restated
Intercreditor Agreement dated April 29, 1996 between Borrower, Agent and
SunTrust Bank, Atlanta, as amended or supplemented from time to time,
pertaining to the SunTrust Collateral Plants.

                  "Land" means, individually and collectively, as the context
shall require, the Georgia Tracts, the Alabama Tracts, the North Carolina
Tracts and the South Carolina Tracts.

                  "Leases and Rents" means and include all leases, subleases,
tenant contracts and rental agreements pertaining to the Premises whether now
or hereafter existing and including, without limitation, all income, rents,
issues, profits and revenues of the Premises at any time and from time to time
now or hereafter accruing (including, without limitation, all payments under
leases or tenancies, proceeds of insurance (including, without limitation,
business interruption insurance), condemnation payments with respect to such
income, rents, issues, profits and revenues, tenant security deposits, whether
held by Borrower or in a trust account, payments to Borrower in connection with
any sale of any Premises to a tenant or customer pursuant to the provisions of
any lease and escrow funds), and all the estate, right, title, interest,
property, possession, claim and demand whatsoever at law, as well as in equity,
of Borrower of, in and to the same whether now or hereafter existing.

                  "Notes" means, individually and collectively, as the context
shall require, the Revolver Loan Notes or the Swing Loan Note (as defined in
the Credit Agreement) dated April 29, 1996, made by Borrower and payable to the
order of a Bank, with the final payment being due April 28, 2001 (unless
extended by the Banks in their sole and absolute discretion), together with any
and all renewals, modifications, amendments, replacements and extensions
thereof.

                  "North Carolina Tracts" means, individually and collectively,
as the contract shall require, those certain tracts or parcels of land located
in Lee County and Yancey County, North Carolina being more particularly
described on Exhibit "A" attached hereto and by this reference made a part
hereof as the "North Carolina Tracts."

                  "Permitted Encumbrances" means, as to each of the Premises,
those matters identified as to such Premises on Exhibit "B", attached hereto
and by this reference made a part hereof and, subject to the provisions of
Section 5.11 of the Credit Agreement, outstanding security interests in Plant,
Equipment and Personal Property.

                  "Plant, Equipment and Personal Property" means and include
all buildings, structures and improvements of every nature whatsoever now or
hereafter situated on the Land now or hereafter owned by Borrower or in which
Borrower now or hereafter has rights (to the extent of such rights), and all
gas and electric fixtures, radiators, heaters, engines and machinery, boilers,
ranges, elevators and motors, plumbing and heating fixtures, carpeting and
other floor coverings, fire extinguishers and any other safety equipment
required by governmental

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regulation or law, washers, dryers, water heaters, mirrors, mantels, air
conditioning apparatus, refrigerating plants, refrigerators, cooking apparatus
and appurtenances, window screens, awning and storm sashes now or hereafter
owned by Borrower, which are or shall be attached to said buildings, structures
or improvements and all other furnishings, furniture, fixtures, machinery,
equipment, appliances, racks, forklifts, building supplies and materials, books
and records, chattels, contract rights, and personal property (excluding any
Receivables Program Assets) of every kind and nature whatsoever now or
hereafter owned by Borrower or in which Borrower now or hereafter has rights
(to the extent of such rights) and now or hereafter located in, on or about, or
used or intended to be used with or in connection with the use, operation or
enjoyment of the Premises, including all extensions, additions, improvements,
betterments, after-acquired property, renewals, replacements and substitutions,
or proceeds from a sale of any of the foregoing; and all the right, title and
interest of Borrower now or hereafter in any such furnishings, furniture,
fixtures, machinery, equipment, appliances and personal property subject to or
covered by any prior or superior security agreement, conditional sales
contract, chattel mortgage or similar lien or claim, together with the benefit
of any deposits or payments now or hereafter made by Borrower or on behalf of
Borrower; and all personal property constituting proceeds hereafter acquired
with cash proceeds of any of the Plant, Equipment and Personal Property
described hereinabove; all of which are hereby declared and shall be deemed to
be fixtures (except for the purpose of the definition of "Fixtures" above), and
accessions to the Land and a part of the Premises as between the parties hereto
and all persons claiming by, through or under them, and which shall be deemed
to be a portion of the security for the Secured Obligations; provided, that the
foregoing shall not include any equipment described in Exhibit "B" to the
"Security Agreement," as defined in the Credit Agreement. The location of the
Plant, Equipment and Personal Property is also the location of the Land.

                  "Premises" means and includes, collectively, the related
Land, the Plant, Equipment and Personal Property, the Easements and
Appurtenances and the Leases and Rents. Whenever the word "Premises" is
preceded by the name of a state or city, for example, "Georgia Premises", such
reference shall be deemed to mean and include that portion of the Premises
located in the identified state or city.

                  "Required Banks" has the meaning set forth in the Credit
Agreement.

                  "Secured Obligations" means and includes the following
collectively:

                  (a)      Any and all indebtedness, obligations and
                           liabilities of Borrower to Agent and/or Banks now
                           existing pursuant to, or hereafter arising out of,
                           or otherwise relating to the any of the Transaction
                           Documents, including, without limitation, all
                           "Obligations", as that term is defined in the Credit
                           Agreement and including, to the extent provided in
                           such definition, indebtedness, obligation and
                           liabilities under "Interest Rate Protection
                           Agreements," as defined in the Credit Agreement,
                           with any of the Banks.

                  (b)      Any and all indebtedness, obligations and
                           liabilities of Borrower to Agent and/or Banks now
                           existing or hereafter arising, in either instance,
                           under, by virtue of or pursuant to this Instrument.

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                  (c)      Any and all advances hereafter made by Agent and/or
                           Banks at any time to protect or preserve the
                           Premises or the lien hereof on the Premises, or for
                           taxes, assessments, insurance premiums or other
                           advances authorized under the terms of this
                           Instrument (whether or not the original Borrower
                           remains the owner of the Premises at the time of any
                           of such advances).

                  (d)      Any and all other present and future indebtedness
                           (i) now owing or (ii) which may at any time and from
                           time to time hereafter be owing by Borrower to Agent
                           and/or Banks arising, in either instance, out of or
                           otherwise relating to the Credit Agreement or the
                           other Transaction Documents, now existing or
                           hereafter coming into existence, however and
                           whenever incurred or evidenced, whether express or
                           implied, direct or indirect, absolute or contingent,
                           or due or to become due, joint, several, joint and
                           several, if arising from, by virtue of, evidenced by
                           or pursuant to any of the Transaction Documents and
                           all renewals, substitutions, modifications,
                           amendments, consolidations and extensions and
                           restatements thereof.

                  "South Carolina Tracts" means, individually and collectively,
as the context shall require, those certain tracts or parcels of land located
in Oconee County, Aiken County and Edgefield County, South Carolina being more
particularly described on Exhibit "A" attached hereto and by this reference
made a part hereof as the "South Carolina Tracts."

                  "Tract" or "Tracts" means, individually and collectively, as
the context shall require, any one or all of the Georgia Tracts, the Alabama
Tracts, the North Carolina Tracts and the South Carolina Tracts.

                  "Transaction Documents" means the Credit Agreement, the
Notes, this Instrument, the other "Loan Documents" (as defined in the Credit
Agreement) and any other instrument, document or other writing executed on or
after the date hereof on behalf of Borrower evidencing, securing or otherwise
relating to any of the Secured Obligations.

                  "SunTrust Collateral Plants" means the Premises identified as
the "SunTrust Collateral Plants" on Exhibit "A" attached hereto and by this
reference made a part hereof. The SunTrust Collateral Plants are located in
Walton County, Georgia, Lee County, North Carolina and the Town of Walhalla,
South Carolina.

                  "Trustee" means ____________, a resident of ____________
County, North Carolina with respect to the North Carolina Premises, together
with any successor Trustee appointed pursuant to the provisions of this
Instrument.

                                  ARTICLE II.
                                GRANTING CLAUSES

                  2.1      Granting Clause. In order to secure the full and
prompt payment when due, whether by acceleration or otherwise, and full and
prompt performance, of the Secured Obligations in such order of priority as
Agent may elect, Borrower hereby mortgages, grants,

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conveys and warrants the Premises (i) as to the North Carolina Premises, to the
Trustee, for the benefit of the Agent, as beneficiary, for itself and the other
Banks ratably, and (ii) as to all other Premises, to the Agent, for the ratable
benefit of the Banks, and grants (i) as to the North Carolina Premises, to the
Trustee, for the benefit of the Agent, as beneficiary, for itself and the other
Banks ratably, and (ii) as to all other Premises, to the Agent, for the ratable
benefit of the Banks, a security interest in the Premises as more particularly
set forth in this Article:

                           2.1.1    Alabama Premises.  Borrower hereby does
grant, bargain, sell, assign and convey unto Agent for the ratable benefit of
the Banks, the successors, successors-in-title and assigns of Agent, for the
benefit of the Banks, the Alabama Tracts and all rights with respect thereto
(including, without limitation, any purchase or extension options Borrower may
have under the Alabama Lease including under Section 5.6 thereof), together
with the Plant, Equipment and Personal Property, the Easements and
Appurtenances, and the Leases and Rents pertaining to the Alabama Tract, to
have and to hold forever.

                           2.1.2    Georgia Premises.  Borrower hereby does
grant, bargain, sell, assign and convey unto Agent, the successors,
successors-in-title and assigns of Agent, for the benefit of the Banks, the
Georgia Tracts and all rights with respect thereto, (including, without
limitation, any purchase or extension options Borrower may have under the
Georgia Lease including under Section 5.6 thereof), together with the Plant,
Equipment and Personal Property, the Easements and Appurtenances and the Leases
and Rents pertaining to each such tract, to have and to hold in fee simple
forever. With respect to the Georgia Tracts, this Instrument is intended to
operate and is to be construed as a deed passing title to those tracts to Agent
and not as a mortgage and is made under those provisions of the existing laws
of the State of Georgia relating to deeds to secure debt.

                           2.1.3    North Carolina Premises.  Borrower as
grantor hereby does irrevocably grant, bargain, sell, assign and convey unto
Trustee in trust with power of sale under and subject to the terms hereof, for
the benefit of the Agent, as beneficiary for itself and the other Banks
ratably, the North Carolina Tracts, together with the Plant, Equipment and
Personal Property, the Easements and Appurtenances, and the Leases and Rents
pertaining to the North Carolina Tracts, to have and hold forever.

                           2.1.4    South Carolina Premises.  Borrower hereby
does grant, bargain, sell, alien, remise, release, assign, convey, transfer,
mortgage, hypothecate, pledge, deliver, set over, warrant and confirm into
Agent, for the benefit of the Banks and their successors or assigns, all right,
title and interest of Borrower in and to the South Carolina Tracts, together
with the Plant, Equipment and Personal Property, the Easements and
Appurtenances, and the Leases and Rents pertaining to the South Carolina
Tracts, to have and hold forever.

                  2.2      Warranty of Title. Borrower does warrant and will
forever defend the title to the Premises against the claims of all persons
whomsoever, except as to the Permitted Encumbrances. Borrower represents and
warrants that it is lawfully seized of the Land in fee simple absolute (except
for the Tracts which are leased pursuant to the Alabama Lease and the Georgia
Lease), that Borrower has good right and is lawfully authorized to sell, convey
or

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encumber the Premises and that the Premises are free and clear of all
encumbrances except liens for real property taxes not yet due and payable and
Permitted Encumbrances.

                  2.3      Defeasance. Should the Secured Obligations secured by
this Instrument be paid and satisfied according to the tenor and effect thereof
when the same shall become due and payable and the obligations of the Banks
under the Credit Agreement be terminated in writing, then this Instrument and
the conveyance effected and the liens and security interests granted hereby
shall be released and terminated and shall be cancelled and surrendered. Upon
payment and satisfaction of the Secured Obligations in full and the termination
of the obligations of the Banks and the Agent under the Credit Agreement, Agent
shall execute, in recordable form, and deliver to Borrower such instruments as
are required to release and terminate of record this Instrument.

                  2.4      Future Disbursements. This Instrument secures, among
other obligations, all present and future loan disbursements made by Agent
and/or Banks to Borrower which are included in the Secured Obligations. The
Notes evidence a revolving credit facility under the Credit Agreement and there
may be advances, repayment and disbursements or readvances of principal from
time to time. It is expressly agreed that the outstanding principal balance
under the Notes may, from time to time, be reduced to a zero balance without
such repayment operating to extinguish and release the lien, security title and
security interest created by this Instrument. This Instrument shall remain in
full force and effect as to any subsequent future advances made after such zero
balance without loss of priority until the Secured Obligations are paid in full
and satisfied and all agreements between Borrower and Banks for further
advances have been terminated. Borrower waives the operation of any applicable
statute, law or regulation having a contrary effect. For purposes of North
Carolina law, the amount of present obligations secured hereby is
$____________. For purposes of the North Carolina Premises and the South
Carolina Premises only, the aggregate outstanding principal amount of such loan
disbursements secured by this Instrument shall not exceed ___,000,000 and
No/100 Dollars ($___,000,000); provided, however, that said maximum amount may
be increased as aforesaid and by such additional sums and amounts as may be
advanced by Agent and/or Banks pursuant to the provisions of this Instrument
for the protection and preservation of the Premises, interest, attorneys' fees
and court costs.

                                  ARTICLE III.
                             COVENANTS OF BORROWER

                  3.1      Payment of Indebtedness. Borrower will pay the
Secured Obligations according to the tenor thereof and all other sums now or
hereafter secured hereby promptly as the same shall become due.

                  3.2      Taxes, Liens and Other Charges.

                           3.2.1    In the event of the passage of any state,
federal, municipal or other governmental law, order, rule or regulation,
subsequent to the date hereof, in any manner changing or modifying the laws now
in force governing the taxation of debts secured by mortgages, deeds of trust
or deeds to secure debt (not including tax on interest or fee income

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associated with such debt) or the manner of collecting taxes so as to adversely
affect Agent or the Banks, Borrower will, subject to Subsection 3.2.5, promptly
pay any such additional tax, except to the extent this Instrument relates to
any of the SunTrust Collateral Plants.

                           3.2.2    Borrower will, subject to Subsection 3.2.5,
pay, before the same become delinquent, all taxes, liens, assessments and
charges of every character including all utility charges, whether public or
private, already levied or assessed or that may hereafter be levied or assessed
upon or against the Premises; and upon demand will furnish Agent receipted
bills evidencing such payment.

                           3.2.3    Borrower will not, subject to Subsection
3.2.5, suffer any mechanic's, materialman's, laborer's, statutory or other lien
to be created and to remain outstanding upon all or any part of the Premises,
except for inchoate liens securing obligations not for borrowed money which are
not yet due and payable and except for the Permitted Encumbrances.

                           3.2.4    Borrower, to the full extent permitted by
applicable law, shall, subject to Subsection 3.2.5, indemnify and hold Agent
and Banks harmless from, or shall reimburse Agent and Banks for, any and all
intangible tax, documentary stamp tax, mortgage tax, note tax or other like or
similar tax (excluding income, franchise or capital taxes imposed on the income
of Agent or Banks) imposed with respect to this Instrument or under any power
of sale herein granted, any of the other Transaction Documents, or the Secured
Obligations, and from any interest, charges or penalties assessed with respect
thereto, except to the extent any of the foregoing relate to any of the
SunTrust Collateral Plants.

                           3.2.5    The Borrower shall have the right to contest
by appropriate proceedings any taxes, liens, assessments or other charges
described in Subsections 3.2.1 through 3.2.4, inclusive, provided that it has
established adequate reserves therefor.

                  3.3      Insurance.

                           3.3.1    So long as any portion of the Secured
Obligations remains unpaid, Borrower, at its expense, shall procure and
maintain for the benefit of Agent and Banks, insurance policies issued by such
insurance companies, and in such amounts as are required by Section 5.17 of the
Credit Agreement. All insurance required by this Subsection 3.3.1 which protect
against physical damage to the Plant, Equipment and Personal Property shall
contain a standard mortgagee clause (without contribution) in favor of Agent
and Banks, shall not be terminable without thirty (30) days' prior written
notice to Agent, and shall be evidenced by original policies or certified
copies of policies deposited with Agent, to be held by Agent until the Secured
Obligations shall have been fully paid and discharged. All other insurance
policies, such as general liability policies, required by the terms of this
Instrument shall be evidenced by certificates delivered to Agent and in case of
cancellation, shall provide for thirty (30) days' prior written notice to
Agent.

                           3.3.2    Following the occurrence and during the
continuance of an Event of Default, Agent is hereby authorized and empowered,
at its option, to adjust or compromise

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<PAGE>   134

any loss under any insurance policies maintained pursuant to this Section 3.3,
and to collect and receive the proceeds from any such policy or policies, and
each insurance company is hereby authorized and directed to make payment for
all such losses directly to Agent, for the ratable benefit of the Banks,
instead of to Borrower and Agent jointly. In the event any insurance company
fails to disburse directly and solely to Agent but disburses instead either
solely to Borrower or to Borrower and Agent jointly, Borrower agrees
immediately to endorse and transfer such proceeds to Agent. Upon the failure of
Borrower to endorse and transfer such proceeds as aforesaid, Agent may execute
such endorsements or transfers for and in the name of Borrower and Borrower
hereby irrevocably appoints Agent as Borrower's agent and attorney-in-fact so
to do. After deducting from said insurance proceeds all of its expenses
incurred in the collection and administration of such sums, including
attorneys' fees, Agent may apply the net proceeds or any part thereof, at its
option, (i) to the payment of the Secured Obligations, whether or not due and
in whatever order the Required Banks elect, (ii) to the repair and/or
restoration of the Premises or (iii) for any other purposes or objects for
which Agent is entitled to advance funds under this Instrument; all without
affecting the lien of this Instrument. Agent shall not be held responsible for
any failure to collect any insurance proceeds due under the terms of any policy
regardless of the cause of such failure absent gross negligence or willful
misconduct. Reference is made to Subsection 3.5.3.

                           3.3.3    Not less than thirty (30) days prior to the
expiration date of each policy maintained pursuant to this Section 3.3,
evidence of a renewal or replacement thereof satisfactory to Agent shall be
delivered to Agent. At the request of Agent, Borrower shall deliver to Agent
receipts evidencing the payment for all such insurance policies and renewals or
replacements. In the event of the foreclosure of this Instrument or any other
transfer of title to any of the Premises in extinguishment, in whole or in
part, of the Secured Obligations, all right, title and interest of Borrower in
and to all insurance policies then in force with respect to such Premises shall
pass to the purchaser or grantee.

                           3.3.4    Any provision of this Instrument to the
contrary notwithstanding, this Section 3.3 and Section 3.4 and the rights and
obligations of Borrower and Agent hereunder with respect to insurance and
condemnation are in all respects subject to and subordinate to the Alabama
Lease, the Georgia Lease and any security agreements, mortgages, deeds of trust
or deeds to secure debt prior or superior to this Instrument and the rights of
the lessors thereunder or parties secured thereby relating to the collection
and disposition of insurance and condemnation proceeds.

                  3.4      Condemnation. Following the occurrence and during the
continuance of an Event of Default, if all or any material portion of the
Premises shall be damaged or taken through condemnation (the term
"condemnation" when used in this Instrument shall include any damage or taking
by any governmental or quasi-governmental authority and any transfer by private
sale in lieu thereof), either temporarily or permanently, then the Secured
Obligations shall, at the option of the Required Banks, become immediately due
and payable, and Agent, for the ratable benefit of the Banks, shall be entitled
to receive all compensation, awards and other payments or relief thereof. In
such event, Agent is hereby authorized, at its option, to commence, appear in
and prosecute, in its own or in Borrower's name, any action or proceeding
relating to any condemnation, and to settle or compromise any claim in
connection therewith,

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and all such compensation, awards, damages, claims, rights of action and
proceeds and the right thereto are hereby assigned by Borrower to Agent, for
the ratable benefit of the Banks. After deducting from said condemnation
proceeds all of its expenses incurred in the collection and administration of
such sums, including attorney's fees, Agent may apply the net proceeds or any
part thereof, at the option of the Required Banks, (a) to the payment of the
Secured Obligations, whether or not due and in whatever order the Required
Banks elect, (b) to the repair and/or restoration of the Premises, or (c) for
any other purposes or objects for which Agent is entitled to advance funds
under this Instrument, all without affecting the lien of this Instrument; and
any balance of such moneys then remaining shall be paid to Borrower. Borrower
agrees to execute such further assignment of any compensation, awards, damages,
claims, rights of action and proceeds as Agent may require. If, prior to the
receipt by Agent of such award or proceeds, the Premises shall have been sold
on foreclosure of this Instrument, Agent, for the ratable benefit of the Bank,
shall have the right to receive such award or proceeds to the extent of any
unpaid Secured Obligations following such sale, with interest thereon at the
"Default Rate" (as defined in the Credit Agreement), whether or not a
deficiency judgment on this Instrument shall have been sought or recovered, and
to the extent of reasonable actual counsel fees, costs and disbursements
incurred by Agent in connection with the collection of such award or proceeds.
Reference is made to Subsections 3.3.4 and 3.5.3.

                  3.5      Care of Premises.

                           3.5.1    Borrower will keep the buildings, parking
areas, roads and walkways, recreational facilities, landscaping and all other
improvements of any kind now or hereafter erected on the Land or any part
thereof in good condition and repair, and in substantial compliance with all
applicable laws, except to the extent failure would not have a material adverse
effect on the usefulness or value of the Premises, and will not commit or
suffer any waste and will not do or suffer to be done anything (other than that
which is inherent in the ordinary course of Borrower's business operations)
which will unreasonably increase the risk of fire or other hazard to the
Premises or any part thereof.

                           3.5.2    Borrower will not remove or demolish nor
materially alter the structural character of any improvement located on the
Land without the written consent of the Agent (at the direction of the Required
Banks) except to the extent failure would not have a material adverse effect on
the usefulness or value of the Premises.

                           3.5.3    If the Premises or any part thereof is
materially damaged by fire or any other cause, or any material portion thereof
is taken by condemnation, Borrower will give immediate written notice thereof
to Agent. Borrower shall either (i) repair or restore such property to the
extent reasonably practical, and may use the proceeds of any insurance or
condemnation award for such purpose, with any amounts thereof not so used to be
paid to the Agent for application to the Secured Obligations, or (ii) treat
such event as a sale of assets for purposes of Sections 2.08(b) and 5.14 of the
Credit Agreement. The provisions of this Subsection 3.5.3 are subject to the
provisions of Subsection 3.3.2 (as to insurance) and Section 3.4 (as to
condemnation) upon the occurrence and during the continuance of an Event of
Default.

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                  3.6      Leases, Contracts, Etc.

                           3.6.1    As additional collateral and further
security for the Secured Obligations, Borrower does hereby assign as a present
and absolute assignment (to the extent assignable pursuant to the terms
thereof) to Agent, for the benefit of Banks, all of Borrower's right, title and
interest now existing or hereafter arising in and to any and all Leases and
Rents, franchise agreements, management contracts, construction contracts, and
other contracts (not included in the definition of Leases and Rents), licenses
and permits now or hereafter affecting the Premises, or any part thereof,
(reserving only to Borrower the right to collect currently due and payable
income, rents, issues, profits, charges and revenues from the Premises until
such time, if any, as an Event of Default shall exist and be continuing). The
foregoing is intended to be a present and absolute assignment and not merely
the passing of a security interest. Borrower agrees to execute and deliver to
Agent, such additional instruments, in form and substance reasonably
satisfactory to Agent, as may hereafter be reasonably requested by Agent
further to evidence and confirm said assignment; provided, however, that
acceptance of any such assignment shall not be construed as a consent by Agent
to any lease, tenant contract, rental agreement, franchise agreement,
management contract, construction contract, or other contract, license or
permit, or to impose upon Agent, any obligation with respect thereto.

                           3.6.2    Borrower shall furnish to Agent, within
twenty (20) days after a receipt of a request by Agent to do so, such
information as Agent or any Bank from time to time may reasonably request
concerning the leases, tenant contracts and rental agreements.

                  3.7      Security Agreement.

                           3.7.1    PARTS OF THE PREMISES ARE, OR ARE TO BECOME,
FIXTURES ON THE LAND.  Insofar as the Plant, Equipment and Personal Property
and the Leases and Rents are concerned, this Instrument is hereby made and
declared to be a security agreement, and a security interest is hereby granted
by Borrower to Agent, for the ratable benefit of Banks, encumbering each and
every item of Plant, Equipment and Personal Property and of Leases and Rents in
compliance with the provisions of the applicable Uniform Commercial Code. A
financing statement or statements reciting this Instrument to be a security
agreement, affecting all of said personal property aforementioned, shall be
executed by Borrower and Agent and appropriately filed. The remedies for any
violation of the covenants, terms and conditions of the security agreement
herein contained shall be (i) as prescribed herein, or (ii) as prescribed by
general law, or (iii) as prescribed by the specific statutory consequences now
or hereafter enacted and specified in the applicable Uniform Commercial Code,
all at Agent's sole election. Borrower and Agent agree that the filing of such
financing statement(s) in the records normally having to do with personal
property shall never be construed as in anywise derogating from or impairing
this declaration and hereby stated intention of Borrower and Agent that
everything used in connection with the production of income from the Premises
and/or adapted for use therein and which is described or reflected in this
Instrument as part of the Plant, Equipment or Personal Property, is, and at all
times and for all purposes and in all proceedings both legal or equitable shall
be, regarded as part of the real estate irrespective of whether (a) any such
item is physically attached to the improvements, (b) serial numbers are used
for the better identification of certain items capable of being thus identified
in a recital contained herein, or (c) any such item

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is referred to or reflected in any such financing statement(s) so filed at any
time. Similarly, the mention in any such financing statement(s) of the rights
in and to (aa) the proceeds of any fire and/or hazard insurance policy, or (bb)
any award in eminent domain proceedings for a taking or for loss of value, or
(cc) Borrower's interest as lessor in any present or future lease or rights to
income growing out of the use and/or occupancy of the Premises, whether
pursuant to lease or otherwise, shall never be construed as in anywise altering
any of the rights of Agent, Banks or Borrower as determined by this instrument
or impugning the priority of Agent's lien granted hereby or by any other
recorded document, but such mention in such financing statement(s) is declared
to be for the protection of Agent and Banks in the event any court shall at any
time hold with respect to the foregoing (aa), (bb) or (cc), that notice of
Agent's priority of interest to be effective against a particular class of
persons, must be filed in the Uniform Commercial Code records.

                           3.7.2    Borrower warrants that (i) Borrower's (that
is, "Debtor's") name, identity or corporate structure and residence or
principal place of business are as set forth in Subsection 3.7.3 hereof; (ii)
Borrower (that is, "Debtor") has been using or operating under said name,
identity or corporate structure without change for the time period set forth in
Subsection 3.7.3 hereof; (iii) that Borrower is duly qualified to do business
in each state in which the Land is located; and (iv) the location of the Plant,
Equipment and Personal Property is upon the Land, except as permitted in the
Security Agreement. Borrower covenants and agrees that: (i) Borrower will
furnish Agent with notice of any change in the matters addressed by clauses (i)
or (iii) of this Subsection 3.7.2 within thirty (30) days of the effective date
of any such change; (ii) Borrower will promptly execute any financing
statements or other instruments deemed necessary by Agent to prevent any filed
financing statement from becoming misleading or losing its perfected status;
and (iii) and that Borrower will remain qualified to do business in each state
in which the Land is located.

                           3.7.3    Upon execution by Agent (where local
practice requires the same), this Instrument shall constitute a financing
statement filed as a fixture filing under the Uniform Commercial Code in the
real estate records of the county or city in which the Premises is located with
respect to all fixtures which are a part of the Premises and with respect to
any goods or other personal property that may now be or hereafter become a
fixture. The information contained in this Subsection 3.7.3 is provided in
order that this Instrument shall comply with the requirements of the applicable
Uniform Commercial Code for instruments to be filed as financing statements, to
perfect the security interests with respect to fixtures. The names of the
"Debtor" and the "Secured Party", the identity or corporate structure and
residence or principal place of business of "Debtor", and the time period for
which "Debtor" has been using or operating under said name and identity or
corporate structure without change, are as set forth in Exhibit "C", attached
hereto and by this reference made a part hereof; the mailing address of the
"Secured Party" from which information concerning the security interest may be
obtained, and the mailing address of Borrower (that is, "Debtor"), are as set
forth in Section 5.5 of this Instrument; and a statement indicating the types,
or describing the items, of collateral is set forth hereinabove.

                           3.7.4    Conflict with Security Agreement.  To the
extent any of the provisions of this Instrument pertaining to Plant, Equipment
and Personal Property are in conflict

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with any provisions of the Security Agreement, the conflicting provisions of
the Security Agreement shall govern and control over the conflicting provisions
of this Instrument.

                  3.8      Further Assurances; After Acquired Property. At any
time, and from time to time, upon reasonable request by Agent, Borrower will
make, execute and deliver or cause to be made, executed and delivered, to Agent
and, where appropriate, cause to be recorded and/or filed and from time to time
thereafter to be re-recorded and/or refiled at such time and in such offices
and places as shall be deemed desirable by Agent, any and all such other and
further mortgages, deeds of trust, security agreements, financing statements,
continuation statements, instruments of further assurance, certificates and
other documents as may, in the opinion of Agent reasonably exercised, be
necessary or desirable in order to effectuate, complete, or perfect, or to
continue and preserve (a) the obligation of Borrower under the Secured
Obligations and under this Instrument and (b) the lien and security interests
granted by this Instrument as a first and prior lien (except for the Permitted
Encumbrances) upon and in and to all of the Premises, whether now owned or
hereafter acquired by Borrower, as well as any certificates, petitions or other
instruments reasonably requested by the Agent for allocation of stamp,
intangible, recording or similar tax liability relating to the filing of this
Instrument for record as to multiple Premises. Upon any failure by Borrower so
to do, Agent may make, execute, record, file, re-record and/or refile any and
all such mortgages, security agreements, deeds of trust, financing statements,
continuation statements, instruments, certificates and documents for and in the
name of Borrower and Borrower hereby irrevocably appoints Agent the agent and
attorney-in-fact of Borrower so to do. The lien of this Instrument and the
security interest created hereby will automatically attach, without further
act, to after-acquired personal property attached to, or located on, the Land
and/or used in connection with the operation of the Premises or any part
thereof.

                  3.9      Expenses. Borrower will pay or reimburse Agent and
Banks, upon demand therefor, for all reasonable actual attorneys' fees, costs
and expenses incurred by Agent or any Bank in any suit, action, legal
proceeding or dispute of any kind in which Agent and/or Banks are made a party
or appear as party plaintiff or defendant, affecting the Secured Obligations
secured hereby, this Instrument or the interest created herein, or the
Premises, including, but not limited to, the exercise of the power of sale
contained in this Instrument or the foreclosure of this Instrument, any
condemnation action involving the Premises or any action to protect the
security hereof; and any such amounts paid by Agent or any Bank shall be
included in the Secured Obligations secured by the lien of this Instrument.
Notwithstanding the foregoing, neither Agent nor any Bank shall be entitled to
recover any such expenses in any such suit by Agent or such Bank against
Borrower if such suit results in a judicial determination in favor of Borrower
with respect to the subject matter thereof or results in a determination of
liability against Agent or such Bank based on an act of gross negligence or
willful misconduct.

                  3.10     Subrogation. Agent shall be subrogated to all right,
title, equity liens and claims of all persons, firms or corporations to whom
Borrower has paid or pays, or to whom monies are paid, from the proceeds of the
Secured Obligations in the settlement of claims, liens or charges or for the
benefit of Borrower.

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                  3.11     Limit of Validity. If from any circumstances
whatsoever fulfillment of any provision of this Instrument, the Notes or any of
the other Transaction Documents (as defined in the Credit Agreement) at the
time performance of such provision shall be due, shall involve transcending the
limit of validity presently prescribed by any applicable usury statute or any
other applicable law, with regard to obligations of like character and amount,
then ipso facto the obligation to be fulfilled shall be reduced to the limit of
such validity, so that in no event shall any exaction be possible under this
Instrument that is in excess of the current limit of such validity, but such
obligation shall be fulfilled to the limit of such validity.

                  3.12     Junior Encumbrances.  Borrower shall not further
mortgage, encumber or pledge all or any part of the Premises or of Borrower's
interest in the Premises or any part thereof, except for Permitted
Encumbrances.

                  3.13     Ground Lease.

                           3.13.1   Borrower shall duly and punctually perform
all terms, covenants, conditions and agreements imposed on the tenant (or
lessee) or the Premises or any part thereof by the Alabama Lease and the
Georgia Lease, and will do all other things necessary to preserve and keep
unimpaired the rights of Borrower under the Alabama Lease and the Georgia
Lease.

                           3.13.2   Borrower represents that the Alabama Lease
and the Georgia Lease are in full force and effect and there is no existing
default or event of default under the Alabama Lease or the Georgia Lease or in
the performance of any of the terms, covenants, conditions, or warranties
thereof on the part of tenant (or lessee) to be kept, performed and observed.

                           3.13.3   Borrower represents that it has heretofore
furnished Agent true and complete copies of the Alabama Lease and the Georgia
Lease and all amendments relating thereto, and all consents of third parties
required by the Alabama Lease and the Georgia Lease, or any other document or
instrument relating thereto, for the execution and delivery of this Instrument,
including the consents of the Alabama Lessor and the Georgia Lessor, if
required by the Alabama Lease and the Georgia Lease.

                           3.13.4   Borrower shall within three (3) days
following receipt by Borrower of any written notice from the landlord (or
lessor) under the Alabama Lease or the Georgia Lease, furnish a copy of such
notice to Agent. With respect to any default on the part of the Alabama Lessor
or the Georgia Lessor under the Alabama Lease or the Georgia Lease, as
applicable, and of the occurrence of any event which, with or without any
notice or lapse of time or both, would constitute a default on the part of the
Alabama Lessor or the Georgia Lessor under the Alabama Lease or the Georgia
Lease, as applicable, Borrower will (i) forward to Agent any written notice
thereof by Borrower to the Alabama Lessor or the Georgia Lessor, as applicable,
simultaneously with the delivery thereof to the Alabama Lessor or the Georgia
Lessor, as applicable, and (ii) promptly notify Agent of any other such
occurrence or condition of which Borrower has actual knowledge.

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                  3.13.5 Borrower shall not, without the express written
consent of and joinder by the Agent (at the direction of the Required Banks),
amend or modify in any material respect, supplement, surrender, terminate,
cancel or assign the Alabama Lease or the Georgia Lease or any option to renew
or extend the term thereof. Borrower hereby assigns to the Agent for the
benefit of the Banks all rights which Borrower may have now or in the future to
amend or modify in any material respect, supplement, surrender, terminate,
cancel or assign the Alabama Lease or the Georgia Lease. Any such amendment or
modification in any material respect, supplement, surrender, termination,
cancellation or assignment of the Alabama Lease or the Georgia Lease made,
suffered to be made or consented to by Borrower without the Agent's prior
written consent shall be void and of no force and effect.

                  3.13.6 So long as any Event of Default exists hereunder,
Borrower hereby authorizes Agent, and hereby appoints Agent its
attorney-in-fact (which appointment is coupled with an interest), to name any
arbitrators or appraisers which Borrower, as tenant (or lessee) under the
Alabama Lease or the Georgia Lease, has the right to appoint by virtue of the
Alabama Lease or the Georgia Lease.

                  3.13.7 Without limiting the generality of any other provision
of this Instrument, Borrower covenants and agrees (i) that the lien of this
Instrument shall automatically and without further action by Borrower, Agent or
the Lenders, extend and attach to any further or greater estate in and to the
Alabama Tract subject to the Alabama Lease or the Georgia Tract subject to the
Georgia Lease hereafter acquired by Borrower, in addition to remaining a lien
on the leasehold estate, (ii) that the acquisition by Borrower of any further
and greater estate in and to the Alabama Tract subject to the Alabama Lease or
the Georgia Tract subject to the Georgia Lease, shall not, without the express
written consent of and joinder by the Agent (acting at the direction of the
Required Banks), result in a merger of the leasehold estate under the Alabama
Lease or the Georgia Lease, as applicable, into such further and greater
estate, and (iii) that, in the event of acquisition of any such further or
greater estate, Borrower will execute and deliver to Agent for the benefit of
the Banks such supplemental mortgages, spreader agreements and other documents
as the Agent shall reasonably require in order to effectuate the foregoing.
Where the lien of this Instrument has been extended to cover any interest of
Borrower in the fee estate, in the event of any foreclosure sale under this
Mortgage, Agent will have the right to sell the leasehold estate and the fee
interest of Borrower separately or together at the election of the Required
Banks.

                  3.13.8 If, and to the extent, that compliance with any term,
provision, covenant or agreement contained in this Instrument would constitute
a breach of any term, provision, covenant or agreement contained in the Alabama
Lease or the Georgia Lease giving the landlord (or lessor) thereunder the right
to declare a default or event of default thereunder, then, but only to such
extent, compliance with such term, provision, covenant or agreement contained
in this Instrument shall not be required.

                  3.13.9 In the event of any failure by Borrower to perform any
covenant on the part of the tenant (or lessee) to be performed under the
Alabama Lease or the Georgia Lease after the giving of any applicable notice to
do so from the Agent or from the

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landlord (or lessor) under the Alabama Lease or the Georgia Lease, as
applicable, or upon receipt by Agent from the landlord (or lessor) under the
Alabama Lease or the Georgia Lease of any written notice of the occurrence of
any default or event of default by the tenant (or lessee) thereof, Agent may
take any action reasonably deemed by Agent to be necessary or advisable to
prevent or to cure such default or event of default, regardless of whether the
existence of such default or event of default or the nature thereof be
questioned or denied by Borrower or by any party on behalf of Borrower.
Borrower hereby expressly grants to Agent, and agrees that Agent shall have the
absolute and immediate right to enter into and upon the Premises or any part
thereof to such extent and as often as Agent reasonably deems necessary or
desirable in order to cure any such default or event of default by the tenant
(or lessee) under the Alabama Lease or the Georgia Lease. Any and all costs and
expenses (including but not limited to legal fees and disbursements) incurred
by Agent in connection with any such actions will be immediately due and
payable by Borrower on demand and will bear interest at the "Default Rate" (as
defined in the Credit Agreement) from the time of advancement by Agent until
repaid.

                  3.13.10 Borrower will not subordinate or consent to the
subordination to the Alabama Lease or the Georgia Lease to any mortgage,
security deed, deed of trust, lease or other interest on or in the landlord's
(or lessor's) interest in all or any part of the Alabama Tract subject to the
Alabama Lease or the Georgia Tract subject to the Georgia Lease, unless in each
case, the written joinder and consent of the Agent (acting at the direction of
the Required Banks shall have been first had and obtained).

                  3.13.11 Upon the Agent's written request, Borrower will
submit satisfactory evidence of payment of all of Borrower's monetary
obligations under the Alabama Lease and the Georgia Lease (including but not
limited to ground rent, taxes, assessments, insurance premiums and operating
expenses).

                  3.13.12 Agent will have the right to appear in and
participate in all proceedings, including any arbitration proceedings, which
could effect Agent's security or the provisions of the Alabama Lease or the
Georgia Lease or that which relates to the Tracts subject thereto. Borrower
agrees to pay promptly upon demand all reasonable costs and expenses of the
Agent (including, but not limited to, reasonable legal fees and disbursements)
actually incurred in any such proceedings.

                                  ARTICLEL IV.
                              DEFAULT AND REMEDIES

         4.1      Events of Default. The terms "Default", "Event of Default" or
"Events of Default", wherever used in this Instrument, mean any Event of
Default as defined in the Credit Agreement.

         4.2      Acceleration of Maturity. If an Event of Default shall have
occurred and be continuing and shall not have been expressly waived in writing
by Agent, then the Secured Obligations secured hereby shall, by written notice
as provided in the Credit Agreement, immediately become due and payable without
further notice or demand, time being of the essence of this Instrument and the
rate of interest with respect thereto shall be as provided in

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Section 2.05 of the Credit Agreement; and no omission on the part of Agent to
exercise such option when entitled to do so shall be construed as a waiver of
such right.

         4.3      Agent's Right to Enter and Take Possession, Operate and Apply
Revenues.

                  4.3.1 If an Event of Default shall have occurred and be
continuing and shall not have been expressly waived in writing by Agent, then,
subject to the provisions of Section 5.16, Borrower, upon demand of Agent,
shall forthwith surrender to Agent the actual possession of the Premises and
if, and to the extent, permitted by law, Agent itself, or by such officers or
agents as it may appoint, may enter and take possession of all the Premises
without the appointment of a receiver, or an application therefor, and may
exclude Borrower and its agents and employees wholly therefrom, and may have
access to the books, papers and accounts of Borrower. Borrower waives the
posting of any bond in the event Agent elects to take possession.

                  4.3.2 If Borrower shall for any reason fail to surrender or
deliver the Premises or any part thereof after such demand by Agent, Agent may
obtain a judgment or decree conferring upon Agent the right to immediate
possession or requiring Borrower to deliver immediate possession of the
Premises to Agent, to the entry of which judgment or decree Borrower hereby
specifically consents. Borrower will pay to Agent, upon demand, all reasonable
actual expenses of obtaining such judgment or decree, including reasonable
actual compensation to Agent, its attorneys and agents; and all such expenses
and compensation shall, until paid, be secured by the lien of this Instrument.

                  4.3.3 Upon every such entering upon or taking of possession,
Agent may hold, store, use, operate, manage and control the Premises and
conduct the business thereof, and, from time to time (i) make all necessary and
proper maintenance, repairs, renewals, replacements, additions, betterments and
improvements thereto and thereon and purchase or otherwise acquire additional
fixtures, personalty and other property; (ii) insure or keep the Premises
insured; (iii) manage and operate the Premises and exercise all the rights and
powers of Borrower to the same extent as Borrower could in its own name or
otherwise with respect to the same; and (iv) enter into any and all agreements
with respect to the exercise by others of any of the powers herein granted
Agent, all as Agent from time to time may determine to be in its best interest.
Agent may collect and receive all the rents, issues, profits and revenues from
the Premises, including those past due as well as those accruing thereafter,
and, after deducting (aa) all reasonable actual expenses of taking, holding,
managing and operating the Premises (including reasonable actual compensation
for the services of all persons employed for such purposes); (bb) the cost of
all such maintenance, repairs, renewals, replacements, additions, betterments,
improvements, purchases and acquisitions; (cc) the cost of such insurance; (dd)
such taxes, assessments and other similar charges as Agent may at its option
pay; (ee) other proper charges upon the Premises or any part thereof; and (ff)
the reasonable actual compensation, expenses and disbursements of the attorneys
and agents of Agent, Agent shall apply the remainder of the moneys and proceeds
so received by Agent, first to the payment of accrued interest; second, to the
payment and satisfaction of the Secured Obligations currently due (whether by
acceleration or otherwise); and third, to the Borrower.

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                  4.3.4 Whenever all that is due (whether by acceleration or
otherwise) upon such Secured Obligations and under any of the terms, covenants,
conditions and agreements of this Instrument, shall have been paid and all
Events of Default made good, Agent shall surrender possession of the Premises
to Borrower, its successors or assigns. The same right of taking possession,
however, shall exist if any subsequent Event of Default shall occur.

         4.4      Performance by Agent of Defaults by Borrower. If Borrower
shall default in the payment, performance or observance of any term, covenant
or condition of this Instrument, Agent may, at its option and after using best
efforts to notify Borrower, pay, perform or observe the same, and all payments
made or costs or expenses incurred by Agent in connection therewith, shall be
secured hereby and shall be, without demand, immediately repaid by Borrower to
Agent with interest thereon at a rate per annum equal to the "Default Rate" (as
defined in the Credit Agreement) calculated on the basis set forth in the
Credit Agreement. Agent shall be the sole judge of the necessity for any such
actions and of the amounts to be paid, but shall exercise such judgment
reasonably and in good faith. Agent is hereby empowered to enter and to
authorize others to enter upon the Premises or any part thereof for the purpose
of performing or observing any such defaulted term, covenant or condition
without thereby becoming liable to Borrower or any person in possession holding
under Borrower except for gross negligence or willful misconduct.

         4.5      Receiver. If an Event of Default shall have occurred and be
continuing and shall not have been expressly waived by Agent, then, subject to
the provisions of Section 5.16, Agent, upon application to a court of competent
jurisdiction, shall be entitled (except as to the South Carolina Premises) as a
matter of strict right without notice and without regard to the occupancy or
value of any security for the Secured Obligations secured hereby or the
adequacy or inadequacy of such security and without the requirement of any bond
or the solvency of any party bound for its payment and satisfaction, to the
appointment of a receiver to take possession of and to operate the Premises and
to collect and apply the rents, issues, profits and revenues thereof. As to the
South Carolina Premises, Agent may apply to a court of competent jurisdiction
pursuant to S.C. Code Ann. 15-65-10, et seq., as amended from time to time for
the appointment of a receiver to take possession of and to operate the South
Carolina Premises and to collect and apply the rents, issues, profits and
revenues thereof. As to the South Carolina Premises, Agent agrees to notify
Borrower of its application for the appointment of a receiver at least four (4)
days prior to such appointment, unless the court to which such application is
made prescribes a shorter time. The receiver shall have all of the rights and
powers permitted under the laws of the state wherein the Land is situated.
Borrower will pay to Agent upon demand all expenses, including receiver's fees,
reasonable actual attorneys' fees, costs and agent's compensation, incurred
pursuant to the provisions of this Section 4.5; and all such reasonable actual
expenses shall be secured by this Instrument.

         4.6      Enforcement. If an Event of Default shall have occurred and
be continuing and shall not have been expressly waived by Agent, concerning
enforcement by judicial foreclosure or exercise of private power of sale, Agent
shall have the following options, subject to the provisions of Section 5.16:

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                  4.6.1 With respect to the Alabama Premises, this subsection
shall apply. Agent, its agents or its attorneys, at its option, may sell the
Alabama Premises or any part of the Alabama Premises (including, without
limitation, all of the rights of Borrower under the Alabama Lease) before the
entrance of the courthouse in the county or counties where the Alabama Premises
is located, at public outcry for cash or credit, after first giving notice of
the time, place and terms of said sale by publication once a week for three (3)
successive weeks prior to said sale in the newspaper customarily used for such
notices published in said county and state in which the Alabama Premises is
located; and upon receipt of the purchase money, Agent, its agents or its
attorneys, or any person conducting said sale for it, is authorized to execute
to the purchaser at said sale a deed to the property so purchased in the name
of Borrower, and such purchaser shall not be held to inquire as to the
application of the proceeds of such sale. At said foreclosure sale, the Alabama
Premises may be offered for sale and sold as a whole or in part as Agent may
elect. The presence of any portion of the property constituting the Alabama
Premises at the place of sale is expressly waived. Prior to any such sale, the
Agent may, in its sole discretion, elect to exercise all rights of the Borrower
under the Alabama Lease, and notify the Alabama Lessor of its intent to do so,
whereupon the Alabama Lessor hereby is authorized and directed by the Borrower
to accept performance from the Agent.

                  4.6.2 With respect to the Georgia Premises, this subsection
shall apply. Agent, at its option, may sell the Georgia Premises or any part of
the Georgia Premises at public sale or sales before the door of the courthouse
of the county or counties in which the Georgia Premises or any part of the
Georgia Premises is situated, to the highest bidder for cash, in order to pay
the Secured Obligations secured hereby and accrued interest thereon and
insurance premiums, liens, assessments, taxes and charges, including utility
charges, if any, with accrued interest thereon, and all expenses of the sale
and of all proceedings in connection therewith, including reasonable actual
attorney's fees, if incurred, after advertising the time, place and terms of
sale once a week for four (4) weeks immediately preceding such sale (but
without regard to the number of days) in a newspaper in which Sheriff's sales
are advertised in said county or counties. At any such public sale, Agent may
execute and deliver to the purchaser a conveyance of the Georgia Premises or
any part of the Georgia Premises, with full warranties of title and to this
end, Borrower hereby constitutes and appoints Agent the agent and
attorney-in-fact of Borrower to make such sale and conveyance, and thereby to
divest Borrower of all right, title or equity that Borrower may have in and to
the Georgia Premises and to vest the same in the purchaser or purchasers at
such sale or sales, and all the acts and doings of said agent and
attorney-in-fact are hereby ratified and confirmed and any recitals in said
conveyance or conveyances as to facts essential to a valid sale shall be
binding upon Borrower. Prior to any such sale, the Agent may, in its sole
discretion, elect to exercise all rights of the Borrower under the Georgia
Lease, and notify the Georgia Lessor of its intent to do so, whereupon the
Georgia Lessor hereby is authorized and directed by the Borrower to accept
performance from the Agent.

                  4.6.3 With respect to the North Carolina Premises, this
subsection shall apply. Should Agent elect to foreclose by exercise of the
power of sale herein contained, Agent shall notify Trustee and shall deposit
with Trustee copies of this Instrument, the Notes and such receipts and
evidence of expenditures made and secured hereby as Trustee may require.

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                  Upon application of Agent, it shall be lawful for and the
duty of Trustee, and Trustee hereby is authorized and empowered to expose to
sale and to sell the North Carolina Premises (either as a whole or in separate
parcels and in such order as the Trustee shall determine) at public auction for
cash, after having first complied with all applicable requirements of North
Carolina law with respect to the exercise of powers of sale contained in deeds
of trust and upon such sale, Trustee shall convey title to the purchaser in fee
simple. After retaining from the proceeds all expenses incurred by Trustee,
including, without limitation, a Trustee's commission not exceeding five
percent of the bid and reasonable actual attorneys' fees for legal services
actually performed, Trustee shall apply the residue of the proceeds first to
the payment of all sums expended by Agent under the terms of this Instrument;
second, to the payment of the Secured Obligations and interest thereof secured
hereby; and the balance, if any, shall be paid to Borrower. Borrower agrees
that in the event of sale hereunder, Lender shall have the right to bid.
Trustee may require the successful bidder at any sale to deposit immediately
with Trustee cash or certified check in an amount not to exceed ten percent
(10%) of the bid, provided notice of such requirement is contained in the
advertisement of the sale. The bid may be rejected if the deposit is not
immediately made and thereupon the next highest bidder may be declared to be
the purchaser. Such deposit shall be refunded in case a resale is had;
otherwise, it shall be applied to the purchase price. If the Plant, Equipment
and Personal Property is sold hereunder, it need not be at the place of sale;
the published notice, however, shall state the time and place where such Plant,
Equipment and Personal Property may be inspected prior to sale. If a
foreclosure proceeding is commenced by the Trustee but not completed, the
Trustee's fee will be 2% of the fair market value of the North Carolina
Premises involved in such foreclosure if the termination occurs prior to the
first public auction sale and not more than 3% of the fair market value of the
North Carolina Premises involved in such foreclosure if the termination occurs
after the first public auction sale.

                  4.6.4 With respect to the South Carolina Premises, this
subsection shall apply. Agent, at its option, may (a) commence proceedings to
collect sums due hereunder, foreclose this Instrument and sell the real
property portion of the South Carolina Premises: At the foreclosure, Agent or
any Bank shall be entitled to bid and to purchase the real property portion of
the South Carolina Premises and shall be entitled to apply the Secured
Obligations, or any portion thereof, in payment for the real property portion
of the South Carolina Premises; (b) collect and receive all the rents, issues,
profits and revenues from the South Carolina Premises, including those past due
as well as those accruing thereafter; (c) with respect to the personalty that
is located on the South Carolina Premises, exercise all rights, remedies and
powers available to secured parties under the Uniform Commercial Code in force
in the State of South Carolina; and (d) exercise any other rights or remedies
provided in this Instrument or by law, all of which rights and remedies may be
exercised by Agent independently, simultaneously or consecutively in any order
without being deemed to have waived any right or remedy previously or not yet
exercised.

                  Borrower agrees that, to the extent permitted by law, legal
process in connection with the foreclosure of the debt secured hereby may be
made by written notice to Agent pursuant to Section 5.5. To the extent
permitted by law, such process shall be deemed to be personally served on
Borrower as of the date of actual receipt thereof by the U.S. Mail. Such method
of service of process shall be in addition to all other methods permitted by
law.

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                  4.6.5 Agent may, in addition to and not in abrogation of the
rights covered under this Section 4.6, either with or without entry or taking
possession as herein provided or otherwise, proceed by a suit or suits in law
or in equity or by any other appropriate proceeding or remedy granted or
conferred by applicable statutes (i) to enforce payment of the Secured
Obligations or the performance of any term, covenant, condition or agreement of
this Instrument or any other right, and (ii) to pursue any other remedy
available to it, all as Agent shall determine most effectual for such purposes.

         4.7      Purchase by Agent or any Bank. Upon any foreclosure sale,
either judicially or by private power of sale, Agent, for the benefit of the
Banks ratably, or, to the extent permitted by applicable law, any Bank may bid
for and purchase the Premises and shall be entitled to apply all or any part of
the Secured Obligations as a credit to the purchase price.

         4.8      Application of Proceeds of Sale. Except as in hereinabove
expressly set forth, in the event of a foreclosure sale of the Premises, either
judicially or by private power of sale, the proceeds of said sale shall be
applied, unless applicable statutes shall specify otherwise, first, to the
expenses of such sale and of all proceedings in connection therewith and the
reasonable actual expenses of foreclosing this Instrument, including reasonable
actual attorneys' and trustee's fees, then to payment of the Secured
Obligations in such order as the Required Banks shall elect, and finally the
remainder, if any, shall be paid as required by law, or in the absence of any
provision therefor in the law, shall be paid to the parties entitled thereto;
provided, however that as to such remainder, Agent shall not be bound by any
inheritance, devise, conveyance, assignment or lien of or upon Borrower's
equity, without actual notice thereof prior to distribution.

         4.9      Borrower as Tenant Holding Over. In the event of any such
foreclosure sale by Agent or Trustee, as the case may be, Borrower shall be
deemed a tenant holding over and shall forthwith deliver possession to the
purchaser or purchasers at such sale or be summarily dispossessed according to
provisions of law applicable to tenants holding over.

         4.10     Waiver of Appraisement, Valuation, Stay, Extension and
Redemption Laws. Borrower agrees to the full extent permitted by law, that in
case of a Default on the part of Borrower hereunder, neither Borrower nor
anyone claiming through or under it shall or will set up, claim or seek to take
advantage of any appraisement, valuation, stay, extension, homestead,
exemption, redemption or moratorium laws, statutory or otherwise now or
hereafter in force, in order to prevent or hinder the enforcement or
foreclosure of this Instrument, or the absolute sale of the Premises, or the
final and absolute putting into possession thereof, immediately after such
sale, of the purchasers thereat, and Borrower, for itself and all who may at
any time claim through or under it, hereby waives to the full extent that it
may lawfully so do, the benefit of all such laws, and any and all right to have
the assets comprised in the security intended to be created hereby marshalled
upon any foreclosure of the lien hereof, provided, however, that nothing herein
shall constitute a waiver of Official Code of Georgia Annotated Section
44-14-161 or 45 O.S. 1981 ss. 18 or any other provision requiring a valuation
of property sold at a foreclosure sale as a condition to the granting of a
deficiency judgment.

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         4.11     Leases. Agent, at its option, is authorized to foreclose or
direct the Trustee to foreclose this Instrument subject to the rights of any
tenants of the Premises, and the failure to make any such tenants parties to
any such foreclosure proceedings and to foreclose their rights will not be, nor
be asserted to be by Borrower, a defense to any proceedings instituted by Agent
to collect the Secured Obligations secured hereby.

         4.12     Discontinuance of Proceedings and Restoration of the Parties.
In case Agent shall have proceeded, or shall have instructed the Trustee to
proceed, to enforce any right, power or remedy under this Instrument by
foreclosure, entry or otherwise, and such proceedings shall have been
discontinued or abandoned for any reason, then and in every such case Borrower
and Agent shall be restored to their former positions and rights hereunder, and
all rights, powers and remedies of Agent and the Trustee shall continue as if
no such proceeding had been taken.

         4.13     Remedies Cumulative. No right, power or remedy conferred upon
or reserved to Agent by this Instrument is intended to be exclusive of any
other right, power or remedy or exclusive of any other right, power or remedy
conferred by statute, but each and every such right, power and remedy shall be
cumulative and concurrent and shall be in addition to any other right, power
and remedy given hereunder or now or hereafter existing at law or in equity or
by statute.

         4.14     Waiver.

                  4.14.1 No delay or omission of Agent to exercise any right,
power or remedy accruing upon any default or Event of Default shall exhaust or
impair any such right, power or remedy or shall be construed to be a waiver of
any such default, or acquiescence therein; and every right, power and remedy
given by this Instrument to Agent or the Trustee may be exercised from time to
time and as often as may be deemed expedient by Agent. No consent or waiver,
expressed or implied, by Agent or Banks to or of any breach or default by
Borrower in the performance of the obligations hereunder or any Event of
Default shall be deemed or construed to be a consent or waiver to or of any
other breach or default in the performance of the same or any other obligations
of Borrower hereunder or any Event of Default. Failure on the part of Agent or
Banks to complain of any act or failure to act or to declare an Event of
Default, irrespective of how long such failure continues, shall not constitute
a waiver by Agent or Banks of their rights hereunder or impair any rights,
powers or remedies consequent on any breach or default by Borrower. Agent or
Banks may, at any time, or from time to time, renew or extend this Instrument,
or alter or modify the same in any way, or waive any of the terms, covenants or
conditions hereof in whole or in part, and may release any portion of the
Premises or any other security, and grant such extensions and indulgences in
relation to the Secured Obligations as Agent may determine without the consent
of any junior lienor or encumbrancer and without any obligation to give notice
of any kind thereto and without in any manner affecting the priority of the
lien hereof on any part of the Premises.

                  4.14.2 If Agent or Banks, as applicable, (i) grant
forbearance or an extension of time for the payment or satisfaction of the
Secured Obligations; (ii) take other or additional security for the payment of
the Secured Obligations; (iii) waive or do not exercise any right granted
herein or in any of the Secured Obligations; (iv) release any part of the
Premises

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<PAGE>   148

from the lien of this Instrument or otherwise changes any of the terms,
covenants, conditions or agreements of any of the Secured Obligations; (v)
consent to the filing of any map, plat or replat affecting the Premises; (vi)
consent to the granting of any easement or other right affecting the Premises;
or (vii) make or consent to any agreement subordinating the lien hereof, any
such act or omission shall not release, discharge, modify, change or affect the
original liability under any of the Secured Obligations or any other obligation
of Borrower or any subsequent purchaser of the Premises or any part thereof, or
any maker, co-signer, endorser, surety or guarantor; nor shall any such act or
omission preclude Agent from exercising any right, power or privilege herein
granted or intended to be granted in the event of any default then made or of
any subsequent default; nor, except as otherwise expressly provided in an
instrument or instruments executed by Agent (and the Banks, if required) shall
the lien of this Instrument be altered thereby. In the event of the sale or
transfer by operation of law or otherwise of all or any part of the Premises,
Agent, without notice, is hereby authorized and empowered to deal with any such
vendee or transferee with reference to the Premises or the Secured Obligations,
or with reference to any of the terms, covenants, conditions or agreements
hereof, as fully and to the same extent as it might deal with the original
parties hereto and without in any way releasing or discharging any liabilities,
obligations or undertakings.

         4.15     Suits to Protect the Premises. Agent shall have power to
institute and maintain such suits and proceedings as it may reasonably deem
expedient (a) to prevent any impairment of the Premises by any acts which may
be unlawful or any violation of this Instrument, (b) to preserve or protect its
interest and those of the Trustee, as applicable, in the Premises and in the
rents, issues, profits and revenues arising therefrom, and (c) to restrain the
enforcement of or compliance with any legislation or other governmental
enactment, rule or order that Agent, in its reasonable judgment, believes to be
unconstitutional or otherwise invalid, if, and only to the extent, the
enforcement of or compliance with such enactment, rule or order would impair
the security hereunder or be prejudicial to the interest of Agent, hereunder or
under the other Transaction Documents.

         4.16     Agent May File Proofs of Claim. In the case of any
receivership, insolvency, bankruptcy, reorganization, arrangement, adjustment,
composition or other proceedings affecting Borrower, its creditors or its
property, Agent, to the extent permitted by law, shall be entitled to file such
proofs of claim and other documents as may be necessary or advisable in order
to have the claims of Agent allowed in such proceedings for the entire amount
due and payable by Borrower under this Instrument at the date of the
institution of such proceedings and for any additional amount which may become
due and payable by Borrower hereunder after such date.

         4.17     Multiple Sales. To the extent permitted by law, in any
judicial proceedings to foreclose this Instrument or nonjudicial exercise of
power of sale or any other private or public sale, the Premises, at the option
of Agent or the Trustee, as applicable, may be sold in whole or in part and in
the event of such multiple sales, the Secured Obligations shall not be merged
into any foreclosure sale or foreclosure judgment so long as there shall remain
outstanding any amount secured by this Instrument. Such a foreclosure judgment
in any state in which the Land is located shall not operate, in and of itself,
as a release of the other property hereby secured or a waiver of Agent's right
to elect any other remedy available to it hereunder.

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<PAGE>   149

                                   ARTICLE V.
                            MISCELLANEOUS PROVISIONS

         5.1      Successors and Assigns. This Instrument shall inure to the
benefit of and be binding upon Borrower, Agent and Trustee or their respective
legal representatives, permitted successors and assigns. Whenever a reference
is made in this Instrument to Borrower, Agent or Trustee such reference shall
be deemed to include a reference to the legal representatives, permitted
successors and assigns of Borrower, Agent or Trustee.

         5.2      Terminology. All personal pronouns used in this Instrument
whether used in the masculine, feminine or neuter gender, shall include all
other genders; the singular shall include the plural, and vice versa. Titles
and Articles are for convenience only and neither limit nor amplify the
provisions of this Instrument itself, and all references herein to Articles,
Sections or Subsections shall refer to the corresponding Articles, Sections or
Subsections of this Instrument unless specific reference is made to such
Articles, Sections or Subsections of another document or instrument.

         5.3      Severability. If any provision of this Instrument or the
application thereof to any person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Instrument and the
application of such provisions to other persons or circumstances shall not be
affected thereby and shall be enforced to the greatest extent permitted by law.

         5.4      Applicable Law. This Instrument and the obligations created
and secured hereby shall be interpreted, construed and enforced according to
the laws of the State of Georgia; except that, only for purposes of determining
(i) matters pertaining to real property, including the sufficiency of the
conveyance, warranties of title, perfection and the effect of non-perfection
and the foreclosure proceedings and remedies available to Agent and Trustee,
and (ii) perfection and the effect of non-perfection of personal property, the
provisions of the Instrument shall be construed in accordance with the law of
the state in which the Tract in question is located.

         5.5      Notices. All notices, requests and demands to or upon the
respective parties hereto, and all responses thereto, shall be in writing and
shall be deemed to have been properly given or served when personally delivered
or deposited in the mail, certified mail, return receipt requested, postage
prepaid, or delivered to a nationally recognized overnight courier service,
with all delivery charges paid or provided for, addressed to the addresses set
forth below. All notices, requests and demands, and all responses thereto,
shall be effective upon receipt thereof. Rejection or other refusal to accept
or the inability to deliver because of changed address of which no notice was
given shall be deemed to be receipt of the notice, demand or request sent. By
giving at least 30 days written notice hereof, Borrower, Agent or Trustee shall
have the right from time to time and at any time during the term of this
Agreement to change their respective addresses and each shall have the right to
specify as its address any other address within the continental United States
of America. For the purpose of this Agreement, the following addresses apply:

                                      144
<PAGE>   150

                  Borrower:

                           Avondale Mills, Inc.
                           506 South Broad Street
                           Monroe, Georgia  30655
                           Attn:  Chairman and Chief Executive Officer

                  Agent:

                           Wachovia Bank of Georgia, N.A.
                           191 Peachtree Street
                           Atlanta, Georgia  30303-1757
                           Attention: Commercial Group - GA212

                  Trustee:

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

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

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

         5.6      Replacement of Documents. Upon receipt of evidence reasonably
satisfactory to Borrower or Agent of the loss, theft, destruction or mutilation
of any of the Transaction Documents and, in the case of any such loss, theft or
destruction, upon delivery of an indemnity agreement reasonably satisfactory to
Borrower or Agent or, in the case of any such mutilation, upon surrender and
cancellation of the appropriate document, the other party or parties will
execute and deliver, in lieu thereof, a replacement document or instrument
supplied by Borrower or Agent, identical in form and substance and dated as of
the date of the document being replaced and upon such execution and delivery of
such replacement document all references in this Instrument to the document
being replaced shall be deemed to refer to such replacement document.

         5.7      Time of the Essence. Time is of the essence with respect to
each and every covenant, agreement and obligation of Borrower under each of the
Transaction Documents and any and all other instruments now or hereafter
evidencing, securing or otherwise relating to the Secured Obligations.

         5.8      Counterparts. This Instrument may be executed in any number
of counterparts, each of which is deemed to be an original document, all of
which taken together shall constitute one and the same Instrument.

         5.9      No Obligation to Marshal Assets. Notice is hereby given that
no holder of any mortgage, deed of trust, deed to secure debt, lien, security
interest or other encumbrance affecting all or any portion of the Premises,
which is inferior to the lien, security interest and security title of the
Instrument shall have the right or privilege to require Agent to marshal
assets.

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<PAGE>   151

         5.10     Consent of Agent. Agent, by its acceptance of this
Instrument, agrees to be bound by the terms and conditions of this Instrument.

         5.11     Appointment of Successor Trustee. Agent shall at any time
have the irrevocable right to remove Trustee with respect to the North Carolina
Premises herein named without notice or cause and to appoint a successor
thereto by an instrument in writing, duly acknowledged, in such form as to
entitle such written instrument to be recorded in North Carolina, and in the
event of the death or resignation of Trustee with respect to the North Carolina
Premises named herein, Agent shall have the right to appoint a successor
thereto by such written instrument, and any Trustee with respect to the North
Carolina Premises so appointed shall be vested with the title to the North
Carolina premises and shall possess all the powers, duties and obligations
herein conferred on Trustee with respect to the North Carolina Premises in the
same manner and to the same extent as though such were named herein as Trustee
with respect to the North Carolina Premises.

         5.12     Trustee's Powers. At any time, or from time to time, without
liability therefor and without notice, upon written request of Agent and
presentation of copies of this instrument and the Notes secured hereby for
endorsement, and without affecting the personal liability of any person for
payment of the Secured Obligations or the effect of this Instrument upon the
remainder of said Premises, Trustee shall (i) reconvey any part of said
Premises, (ii) consent in writing to the making of any map or plat thereof,
(iii) join in granting any easement therein, or (iv) joint in any extension
agreement or any agreement subordinating the lien or charge hereof. The Trustee
shall not be liable for any error of judgment or act done by the Trustee, or be
otherwise responsible or accountable under any circumstances whatsoever. The
Trustee shall not be personally liable in case of entry by him/it or anyone
acting by virtue of the powers herein granted him/it upon the Premises for
debts contracted or liability or damages incurred in the management or
operation of the Premises. The Trustee shall have the right to rely on any
instrument, document or signature authorizing or supporting any action taken or
proposed to be genuine. The Trustee shall be entitled to reimbursement for
expenses incurred by him/it in the performance of his/its duties hereunder. The
Borrower will on demand reimburse the Trustee for and save and hold him/it
harmless from and against any and all loss, cost, liability, damage and expense
whatsoever incurred by him/it in the performance of his/its duties. Prior to
undertaking any action hereunder which shall obligate the Trustee to incur any
obligation or expense, the Trustee shall first be entitled to be indemnified to
his/its reasonable satisfaction against all such costs and expense.

         5.13     Agent's Powers. Without affecting the liability of any other
person liable for the payment of any obligation herein mentioned, and without
affecting the lien or charge of this Instrument upon any portion of the
Premises not then or theretofore released as security for the full amount of
all unpaid obligations, Agent (and the Banks) may, from time to time and
without notice (i) release any person so liable, (ii) extend the maturity or
alter any of the terms of any such obligation, (iii) grant other indulgences,
(iv) cause to be released or reconveyed at any time at Agent's option, any
parcel, portion or all of the Premises, (v) take or release any other or
additional security for any obligation herein mentioned, or (vi) make
compositions or other arrangements with debtors in relation thereto.

                                      146
<PAGE>   152

         5.14     Acceptance by Trustee. Trustee accepts this Trust when this
Instrument, duly executed and acknowledged, is made of public record as
provided by law.

         5.15     No Liability or Obligation on Agent. Nothing in this
Instrument shall be construed to impose any obligation upon Agent to expend any
money or to take any other discretionary act herein permitted, and Agent shall
not have any liability or obligation for any delay or failure to take any
discretionary act in the absence of gross negligence or willful misconduct by
Agent.

         5.16     Intercreditor Agreement. Notwithstanding any term or
provision hereof to the contrary, as to the SunTrust Collateral Plants, all
rights, powers and remedies hereunder are and shall be subject in all respects
to and shall be governed by the terms and provisions of the Intercreditor
Agreement.

                                      147
<PAGE>   153

         IN WITNESS WHEREOF, Borrower has executed this instrument under seal,
as of the day and year first above written.

Signed, sealed and delivered                "BORROWER"
in the presence of:                         AVONDALE MILLS, INC.

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

-----------------------------------         Attest:
Witness                                            ----------------------------
                                                   Name:
                                                   Title:

                                                   [CORPORATE SEAL]

                                      148
<PAGE>   154

STATE OF GEORGIA  )

                  )

COUNTY OF FULTON  )

                                ACKNOWLEDGMENTS

         Before me this _____ day of ____________________ , 1996 a Notary
Public in and for Georgia and a resident of ___________________ County, Georgia
personally appeared ________________ residing in ________ County, Georgia and
_________________ residing in _____________ and known to me to be the persons
described in and who executed the foregoing Instrument as (and acknowledged to
me that they were) ______________ and ____________, respectively, of AVONDALE
MILLS, INC., an Alabama corporation, and acknowledged before me that they,
after being informed of the contents and for the purpose and consideration
therein expressed, executed the same as such officers and affixed the corporate
seal in the name of and on behalf of said corporation by authority of its board
of directors and said _____________ and ______________ acknowledged said
Instrument to be the free act and deed of said corporation.

         WITNESS my hand and official seal in the County and State aforesaid
this _______ day of ___________, ___________, County and State aforesaid.

                                         --------------------------------------
                                         Notary Public

                                         Notarization Date: ___________, 19____

                                         My Commission expires:________________

                                                       [NOTARIAL SEAL]

                                      149
<PAGE>   155

         THIS INSTRUMENT PREPARED BY CHRISTOPHER L. CARSON, ATTORNEY AT LAW, OF
JONES, DAY, REAVIS & POGUE, 3500 ONE PEACHTREE CENTER, 303 PEACHTREE STREET,
N.E., ATLANTA, GEORGIA 30308-3242

                                      150
<PAGE>   156

                       ACKNOWLEDGMENT FOR NORTH CAROLINA

STATE OF GEORGIA  )

COUNTY OF FULTON  )

         I ____________________, a Notary Public of __________ County, State of
Georgia, certify that _______________________ personally came before me this
day and acknowledged that he/she is ___________ Secretary of AVONDALE MILLS,
INC., an Alabama corporation, and that, by authority duly given and as the act
of the corporation, the foregoing instrument was signed in its name by its
__________ President, sealed with its corporate seal, and attested by
himself/herself as its _______ Secretary.

         Witness my hand and official seal, this _____ day of __________, 19__.

My commission expires:
                                            -----------------------------------
                                            Notary Public
_____________, 19__.
                                            [Official Seal]

                                      151
<PAGE>   157

                         ALABAMA FORM OF ACKNOWLEDGMENT

(STATE OF ALABAMA     )

(__________ COUNTY    )

         I, the undersigned, a Notary Public in and for said State, hereby
certify that ______________________________, whose name as
______________________________ of Avondale Mills, Inc., an Alabama corporation,
is signed to the foregoing instrument, and who is known to me, acknowledged
before me on this day that, being informed of the contents of the instrument,
he as such officer, and with full authority, executed the same voluntarily for
and as the act of said corporation.

         Given under my hand and seal, this _____ day of __________, 1996.

                                            -----------------------------------
                                            Notary Public

                                            My commission expires:
                                                                  -------------

                                      152
<PAGE>   158

STATE OF GEORGIA         )
                         )        PROBATE
COUNTY OF FULTON         )

         Before me, the undersigned notary public, personally appeared the
undersigned witness, who being duly sworn, deposed and said that s/he saw
Avondale Mills, Inc. by ______________________________, its
______________________________ sign, seal and deliver the foregoing Mortgage
and Security Agreement and Assignment of Rents and that s/he together with the
other witness whose signature appears above witnessed the execution thereof.

                                         --------------------------------------
                                                        Witness

SWORN TO and subscribed before
me this _____ day of April, 1996

                                            (SEAL)
--------------------------------------------
Notary Public for Georgia

My Commission expires:
                       ---------------------

                                      153
<PAGE>   159

STATE OF GEORGIA          )
                          )                SOUTH CAROLINA
COUNTY OF FULTON          )                PROBATE

         BEFORE ME, the undersigned notary public, personally appeared
______________________________, who being duly sworn, deposed and said that he
saw _________________________ the _______________________ of Avondale Mills,
Inc., an Alabama corporation, sign, seal and deliver the foregoing Master
Mortgage, Deed to Secure Debt, Deed of Trust, Leasehold Mortgage, Leasehold
Deed to Secure Debt, and Leasehold Deed of Trust, Uniform Commercial Code
Security Agreement and Assignment of Leases, Rents and Profits on behalf of
Avondale Mills, Inc., an Alabama corporation, and he together with
_______________________, witnessed the execution thereof.

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

SWORN TO and subscribed
before me this _____ day of
_____________________, 1996.

---------------------------------------
Notary Public

My Commission Expires:
                       -------------

[NOTARIAL SEAL]

                                      154
<PAGE>   160

                                  EXHIBIT "B"

                             PERMITTED ENCUMBRANCES

                                      155
<PAGE>   161

                                  EXHIBIT "C"

                  Description of "Debtor" and "Secured Party"

A.       Debtor:

         1.       Name and Identity or Corporate Structure:

                  AVONDALE MILLS, INC., an Alabama corporation

         2.       a.       The principal place of business and chief executive
                           office of Debtor in Alabama is located at 900
                           Avondale Avenue, Sylacauga, Alabama  35140.

                  b.       The principal place of business and chief executive
                           office of Debtor in Georgia is located at 506 S.
                           Broad, Monroe, GA  30655.

         3.       Debtor has been using or operating under said name and
                  identity or corporate structure without change for the
                  following time period:

         Not less than six years.

B.       Secured Party:             Wachovia Bank of Georgia, N.A., a national
                                    banking association, in its capacity as
                                    Agent for certain banks

                                      156
<PAGE>   162

                                                                      EXHIBIT I

                      AMENDED AND RESTATED PARENT GUARANTY

                  THIS AMENDED AND RESTATED PARENT GUARANTY (this "Guaranty")
is made as of the 29th day of April, 1996, by Avondale Incorporated, a Georgia
corporation (the "Parent") in favor of the Agent, for the ratable benefit of
the Banks, under the Credit Agreement referred to below;

                                   WITNESSETH

                  WHEREAS, Avondale Mills, Inc., an Alabama corporation (the
"Borrower") and WACHOVIA BANK OF GEORGIA, N.A., as Agent (the "Agent"), and The
First National Bank of Chicago, as Documentation Agent, and certain other Banks
from time to time party thereto have entered into a certain Amended and
Restated Credit Agreement dated as of April 29, 1996 (as it may be amended or
modified from time to time, the "Credit Agreement"), providing, subject to the
terms and conditions thereof, for extensions of credit to be made by the Banks
to the Borrower for the benefit of the Borrower and of the Parent;

                  WHEREAS, the Parent executed a Parent Guaranty dated as of
March 29, 1994, in connection with the Original Credit Agreement (the "Original
Parent Guaranty");

                  WHEREAS, it is a condition precedent to the Agent and the
Banks executing the Credit Agreement that the Parent execute and deliver this
Guaranty whereby the Parent shall guarantee the payment when due of all
principal, interest and other amounts that shall be at any time payable by the
Borrower under the Credit Agreement, the Notes and the other Principal
Documents; and

                  WHEREAS, in consideration of the financial and other support
that the Borrower has provided, and such financial and other support as the
Borrower may in the future provide, to Parent, and in order to induce the Banks
and the Agent to enter into the Credit Agreement, the Parent is willing to
guarantee the obligations of the Borrower under the Credit Agreement, the
Notes, and the other Principal Documents;

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

                  SECTION 1. Definitions.  Terms defined in the Credit
Agreement and not otherwise defined herein have, as used herein, the respective
meanings provided for therein.

                  SECTION 2. Representations, Warranties and Covenants. The
Parent incorporates herein by reference as fully as if set forth herein all of
the representations and warranties of the Parent contained in Article IV of the
Credit Agreement (which representations and warranties shall be deemed to have
been renewed by the Parent upon each Borrowing under the Credit Agreement to
the same extent and with the same effect as provided therein with

                                      157
<PAGE>   163

respect to the renewal thereof by the Borrower) and all covenants of the Parent
contained in Article V of the Credit Agreement. In the event the Parent issues
any Capital Stock after the Closing Date, the Parent will make available to the
Borrower, by loan, equity contribution or other means, an amount equal to 100%
of the Net Cash Proceeds thereof, in order that the Borrower can comply, on a
timely basis, with the provisions of Section 2.08(b)(ii) of the Credit
Agreement.

                  SECTION 3. The Guaranty. The Parent hereby unconditionally
guarantees the full and punctual payment (whether at stated maturity, upon
acceleration or otherwise) of the principal of and interest on each Note issued
by the Borrower pursuant to the Credit Agreement, and the full and punctual
payment of all other amounts payable by the Borrower under the Credit Agreement
and the other Principal Documents, including principal, interest, fees, costs
and indemnification amounts, and any extensions and renewals thereof in whole
or in part, and any other amounts constituting Obligations as defined in the
Credit Agreement (all of the foregoing obligations being referred to
collectively as the "Guaranteed Obligations"). Upon failure by the Borrower to
pay punctually any such amount, the Parent agrees that it shall forthwith on
demand pay the amount not so paid at the place and in the manner specified in
the Credit Agreement, the relevant Note or the relevant Principal Document, as
the case may be. This Guaranty is an amendment to and restatement of, and
supersedes, the Original Parent Guaranty.

                  SECTION 4. Guaranty Unconditional.  The obligations of the
Parent hereunder shall be unconditional and absolute and, without limiting the
generality of the foregoing, shall not be released, discharged or otherwise
affected by:

                           (i)      any extension, renewal, settlement,
         compromise, waiver or release in respect of any obligation of the
         Borrower under the Credit Agreement, any Note, or any other Principal
         Document, by operation of law or otherwise or any obligation of any
         other guarantor of any of the Obligations;

                           (ii)     any modification or amendment of or
         supplement to the Credit Agreement, any Note, or any other Principal
         Document;

                           (iii)    any release, nonperfection or invalidity of
         any direct or indirect security for any obligation of the Borrower
         under the Credit Agreement, any Note, any Principal Document, or any
         obligations of any other guarantor of any of the Obligations;

                           (iv)     any change in the corporate existence,
         structure or ownership of the Borrower or any other guarantor of any
         of the Guaranteed Obligations, or any insolvency, bankruptcy,
         reorganization or other similar proceeding affecting the Borrower, or
         any other guarantor of the Guaranteed Obligations, or its assets or
         any resulting release or discharge of any obligation of the Borrower,
         or any other guarantor of any of the Guaranteed Obligations;

                           (v)      the existence of any claim, setoff or other
         rights which the Parent may have at any time against the Borrower, any
         other guarantor of any of the Guaranteed Obligations, the Agent, any
         Bank or any other Person, whether in connection herewith or

                                      158
<PAGE>   164

         any unrelated transactions, provided that nothing herein shall prevent
         the assertion of any such claim by separate suit or compulsory
         counterclaim;

                           (vi)     any invalidity or unenforceability relating
         to or against the Borrower, or any other guarantor of any of the
         Guaranteed Obligations, for any reason related to the Credit
         Agreement, any other Principal Document, or any other guaranty, or any
         provision of applicable law or regulation purporting to prohibit the
         payment by the Borrower, or any other guarantor of the Guaranteed
         Obligations, of the principal of or interest on any Note or any other
         amount payable by the Borrower under the Credit Agreement, the Notes,
         or any other Principal Document; or

                           (vii)    any other act or omission to act or delay
         of any kind by the Borrower, any other guarantor of the Guaranteed
         Obligations, the Agent, any Bank or any other Person or any other
         circumstance whatsoever which might, but for the provisions of this
         paragraph, constitute a legal or equitable discharge of the
         Guarantor's obligations hereunder.

                  SECTION 5. Discharge Only Upon Payment In Full; Reinstatement
In Certain Circumstances. The Parent's obligations hereunder shall remain in
full force and effect until all Guaranteed Obligations shall have been paid in
full and the Commitments under the Credit Agreement shall have terminated or
expired. If at any time any payment of the principal of or interest on any Note
or any other amount payable by the Borrower under the Credit Agreement or any
other Principal Document is rescinded or must be otherwise restored or returned
upon the insolvency, bankruptcy or reorganization of the Borrower or otherwise,
the Parent's obligations hereunder with respect to such payment shall be
reinstated as though such payment had been due but not made at such time.

                  SECTION 6. Waiver of Notice by the Parent. The Parent
irrevocably waives acceptance hereof, presentment, demand, protest and, to the
fullest extent permitted by law, any notice not provided for herein, as well as
any requirement that at any time any action be taken by any Person against the
Borrower, any other guarantor of the Guaranteed Obligations, or any other
Person.

                  SECTION 7. Other Waivers by the Parent. The Parent hereby
expressly waives, renounces, and agrees not to assert, any right, claim or
cause of action, including, without limitation, a claim for reimbursement,
subrogation, indemnification or otherwise, against the Borrower arising out of
or by reason of this Guaranty or the obligations of the Parent hereunder,
including, without limitation, the payment or securing or purchasing of any of
the Guaranteed Obligations by the Parent. The waiver, renunciation and
agreement contained in the immediately preceding sentence is for the benefit of
the Agent and the Banks and also for the benefit of the Borrower who may assert
the benefits thereof as a third-party beneficiary, and the Parent may be
released from such waiver, renunciation and agreement only by the execution and
delivery, by the Agent, the Required Banks and the Borrower, of an instrument
expressly releasing the Parent therefrom.

                                      159
<PAGE>   165
                  SECTION 8. Stay of Acceleration. If acceleration of the time
for payment of any amount payable by the Borrower under the Credit Agreement,
any Note or any other Principal Document is stayed upon the insolvency,
bankruptcy or reorganization of the Borrower, all such amounts otherwise subject
to acceleration under the terms of the Credit Agreement, any Note or any other
Principal Document shall nonetheless be payable by the Parent hereunder
forthwith on demand by the Agent made at the request of the Required Banks.

                  SECTION 9. Notices. All notices, requests and other
communications to any party hereunder shall be given or made by telecopier or
other writing and telecopied or mailed or delivered to the intended recipient at
its address or telecopier number set forth on the signature pages hereof or such
other address or telecopy number as such party may hereafter specify for such
purpose by notice to the Agent in accordance with the provisions of Section 9.01
of the Credit Agreement. Except as otherwise provided in this Guaranty, all such
communications shall be deemed to have been duly given when transmitted by
telecopier, or personally delivered or, in the case of a mailed notice, 3
Domestic Business Days after such communication is deposited in the mails with
first class postage prepaid, in each case given or addressed as aforesaid.

                  SECTION 10. No Waivers. No failure or delay by the Agent or
any Banks in exercising any right, power or privilege hereunder shall operate as
a waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies provided in this Guaranty, the Credit
Agreement, the Notes, and the other Principal Documents shall be cumulative and
not exclusive of any rights or remedies provided by law.

                  SECTION 11. Successors and Assigns. This Guaranty is for the
benefit of the Agent and the Banks and their respective successors and assigns
and in the event of an assignment of any amounts payable under the Credit
Agreement, the Notes, or the other Principal Documents, the rights hereunder, to
the extent applicable to the indebtedness so assigned, may be transferred with
such indebtedness. This Guaranty may not be assigned by the Parent without the
prior written consent of the Agent and the Required Banks, and shall be binding
upon the Parent and its successors and permitted assigns.

                  SECTION 12. Changes in Writing. Neither this Guaranty nor any
provision hereof may be changed, waived, discharged or terminated orally, but
only in writing signed by the Parent and the Agent with the consent of the
Required Banks.

                  SECTION 13. GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER
OF JURY TRIAL. THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAW OF THE STATE OF GEORGIA. EACH OF THE PARENT AND THE AGENT HEREBY
SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR
THE NORTHERN DISTRICT OF GEORGIA AND OF ANY GEORGIA STATE COURT SITTING IN
ATLANTA, GEORGIA AND FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR
RELATING TO THIS GUARANTY OR THE TRANSACTIONS CONTEMPLATED HEREBY. THE PARENT
IRREVOCABLY WAIVES, TO THE

                                      160
<PAGE>   166

FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH ANY OF THEM MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH
A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM. EACH OF THE PARENT AND THE AGENT HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS GUARANTY OR THE TRANSACTIONS CONTEMPLATED
HEREBY.

                  SECTION 14. Taxes, etc. All payments required to be made by
the Parent hereunder shall be made without setoff or counterclaim and free and
clear of and without deduction or withholding for or on account of, any present
or future taxes, levies, imposts, duties or other charges of whatsoever nature
imposed by any government or any political or taxing authority to the same
extent and with the same effect as provided in Section 2.11(c) of the Credit
Agreement with respect to payments made by the Borrower.

                  IN WITNESS WHEREOF, the Parent has caused this Guaranty to be
duly executed by its authorized officer as of the date first above written.

                                 AVONDALE INCORPORATED

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

                                 Avondale Incorporated
                                 506 South Broad Street
                                 Monroe, Georgia 30655
                                 Attention:        Chairman and
                                                   Chief Executive Officer
                                 Telecopier number:  770-267-2543
                                 Telephone number:   770-267-2226

                                      161
<PAGE>   167

                                                                       Exhibit J

                     AMENDED AND RESTATED SECURITY AGREEMENT

         THIS AMENDED AND RESTATED SECURITY AGREEMENT (this "Agreement") is made
and entered into as of April 29, 1996 by and between AVONDALE MILLS, INC. (the
"Borrower") and WACHOVIA BANK OF GEORGIA, N.A. as agent for the Banks parties to
the "Credit Agreement" (as hereinafter defined) (the "Agent")

                              W I T N E S S E T H:
                               - - - - - - - - - -

         WHEREAS, pursuant to that certain Amended and Restated Credit
Agreement, dated as of even date herewith, among Borrower, the Agent, The First
National Bank of Chicago, as Documentation Agent, and the Banks parties thereto
(as amended or modified from time to time, the "Credit Agreement"), the Borrower
is or may hereafter become indebted to the Banks and the Agent; and

         WHEREAS, the Borrower executed and delivered a Security Agreement dated
as of March 29, 1994 (the "Original Security Agreement" pursuant to a Credit
Agreement by and among the Borrower, the Agent and the Banks party thereto (the
"Original Credit Agreement"); and

         WHEREAS, in order to secure said indebtedness and to induce the Banks
and the Agent to execute and enter into the Credit Agreement, the Borrower has
agreed to execute and deliver this Agreement, granting a security interest in,
and lien upon, the Collateral to the Agent for the benefit of the Banks, and
continuing in effect the security interest in, and lien upon, the Collateral
granted to the Agent pursuant to the Original Security Agreement; and

         WHEREAS, it is the intent of the parties that this Agreement amend,
restate and supersede the Original Security Agreement, and continue in effect
the security interests and liens granted thereto without lapse or loss of
perfection, and that all UCC-1's filed in connection with the Original Security
Agreement continue to perfect the security interests and liens in the Collateral
granted and continued in effect pursuant hereto;

         NOW, THEREFORE, for and in consideration of the above premises and
other good and valuable consideration, the receipt and sufficiency of which
hereby are acknowledged and Borrower and the Agent hereby covenant and agree as
follows:

         1.       DEFINITIONS.  Unless otherwise defined herein, capitalized
terms used herein have the meanings set forth in the Credit Agreement. In
addition, the following terms have the meanings set forth below, unless the
context requires otherwise:

                           "Accounts Receivable Collateral" means all rights of
the Borrower to payment for goods sold or leased, or to be sold or to be leased,
or for services rendered or to be rendered, howsoever evidenced or incurred,
including, without limitation, all accounts, instruments, chattel paper and
general intangibles, all returned or repossessed goods and all

                                      162
<PAGE>   168

books, records, computer tapes, programs and ledger books arising therefrom or
relating thereto, whether now owned or hereafter acquired or arising.

                           "Account Debtor" means the Person who is obligated on
any of the Accounts Receivable Collateral or otherwise is obligated as a
purchaser or lessee of any of the Inventory Collateral.

                           "Act" means the Uniform Commercial Code - Secured
Transactions of Georgia (O.C.G.A. Art. 11-9), and any act that may be
substituted therefor, as from time to time amended.

                           "Agreement" means this Agreement, together with all
exhibits, riders, supplements, addenda and additions now or hereafter attached
hereto or made a part hereof, and all amendments hereof.

                           "Collateral" means and includes all of the property
described in Paragraph 4 hereof, including all property of such type consisting
of the Graniteville Assets, but subject to the provisions of Section 11.8 as to
Receivables Program Assets.

                           "Collateral Locations" means those locations set
forth on Exhibit "A" attached hereto and by this reference made a part hereof.

                           "Credit Agreement" has the meaning set forth in the
recitals hereto.

                           "Documentary Collateral" means all chattel paper,
instruments, documents or notes (excluding any of the foregoing arising out of
the sale or lease of goods or the furnishing of services) and all payments
thereunder and instruments and other property from time to time delivered in
respect thereof or in exchange therefor, and all bills of sale, bills of lading,
warehouse receipts, and other documents of title, whether now owned or hereafter
acquired or arising.

                           "Equipment Collateral" means 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 but excluding, in any
event, (i) all fixtures, and (ii) all machinery and equipment listed on Exhibit
"B" attached hereto and by this reference made a part hereof.

                           "Intangibles Collateral" means all general
intangibles of the Borrower (excluding any general intangibles evidencing rights
of the Borrower to payment for goods sold or leased, or to be sold or leased, or
for services rendered or to be rendered), whether now existing or hereafter
acquired or arising, including, without limitation, all copyrights, royalties,
trademarks, trade names, tax refunds, rights to tax refunds, service marks,
patent and proprietary rights, blueprints, drawings, designs, trade secrets,
plans, diagrams, schematics and assembly and display materials relating thereto
and all customer lists.

                                      163
<PAGE>   169

                           "Intercreditor Agreement" means the Amended and
Restated Intercreditor Agreement dated of even date herewith between the
Borrower, the Agent and SunTrust Bank, Atlanta, as amended or supplemented from
time to time.

                           "Inventory Collateral" means all inventory of the
Borrower, or in which it has rights, whether now owned or hereafter acquired,
wherever located, including, without limitation, all goods of the Borrower held
for sale or lease or furnished or to be furnished under contracts of service,
all goods held for display or demonstration, goods on lease or consignment,
returned and repossessed goods, all raw materials, work-in-process, finished
goods and supplies used or consumed in the Borrower's business, together with
all documents, documents of title, dock warrants, dock receipts, warehouse
receipts, bills of lading or orders for the delivery of all, or any portion, of
the foregoing.

                           "Permitted Liens" means the liens and encumbrances
pertaining to portions of the Collateral described on Exhibit "C" attached
hereto and by this reference made a part hereof.

                           In addition to and cumulative with such other
definitions and descriptions as herein may be provided therefor, the terms
"equipment", "inventory", "accounts", "general intangibles", "chattel paper",
"documents of title", "goods", "consumer goods" and "instruments", if and to the
extent used herein, shall have such meanings as may be respectively ascribed to
them in the Act as in existence on date hereof.

         6.       GRANT OF SECURITY INTEREST. As a general and continuing
collateral security for payment of the Obligations and the performance by
Borrower of all of the provisions of the Loan Documents, the Borrower hereby
grants to the Agent for the ratable benefit of the Banks a security interest in
and security title to all Collateral and the Borrower makes such further
agreements with the Agent in regard thereto as hereinafter set forth.

         7.       DESCRIPTION OF COLLATERAL.

                           The following described property, wherever located,
whether now existing or hereafter acquired or arising constitutes the Collateral
(subject to the provisions of Section 11.8):

                           (a)      the Accounts Receivable Collateral;

                           (b)      the Equipment Collateral;

                           (c)      the Intangibles Collateral;

                           (d)      the Inventory Collateral;

                           (e)      the Documentary Collateral;

                           (f)      the Purchase Money Note; and

                                      164
<PAGE>   170

                           (g)      all products and proceeds of any and all of
the foregoing, including, without limitation, insurance or condemnation
proceeds, all property received wholly or partially in trade or exchange for any
of the foregoing, and all rents, revenues, issues, profits and proceeds arising
from the sale, lease, license, encumbrance, collection or any other temporary or
permanent disposition of any of the foregoing or any interest therein.

         8.       REPRESENTATIONS AND WARRANTIES.

                  8.1      The Borrower is, or, with respect to Collateral
acquired after the date hereof, will be, the owner of the Collateral free and
clear from any Lien, except for the Permitted Liens. No financing statement
covering any of the Collateral is on file in any public office other than any
evidencing Permitted Liens.

                  8.2      Location. As of the date hereof, the tangible portion
of the Collateral is situated only at one or more Collateral Locations, other
than as permitted by Section 5.6.

                  8.3      Name. The name of the Borrower is as set forth on the
signature page hereof and the Borrower has not conducted any business under any
other name during the past 6 years.

                  8.4      Right to Assign.  Borrower has the full right, power
and authority to make this assignment of the Collateral.

                  8.5      Delivery. Borrower has delivered the Purchase Money
Note and all other agreements, letters of credit, promissory notes, chattel
paper or anything else the physical possession of which is necessary in order
for Agent to perfect or preserve the priority of its Lien in the Collateral.

                  8.6      Purchaser of Collateral.  Except for the acquisition
of assets from Walton Monroe Mills, Inc., Macfield Spinning, Inc. and
Graniteville Company, during the past 6 years, Borrower has not purchased any of
the Collateral in a bulk transfer or in a transaction which was outside the
ordinary course of the business of Borrower's seller.

9.       GENERAL COVENANTS.

                  9.1      Liens.  The Borrower shall keep the Collateral free
and clear of all Liens, except for the Permitted Liens

                  9.2      Casualty. The Borrower shall promptly notify the
Agent of any material loss of or damage to the Inventory Collateral or the
Equipment Collateral or any part thereof.

                  9.3      Use of Collateral. Until there occurs an Event of
Default the Borrower may, subject to the provisions of Paragraph 6 hereof, use
the Collateral in any lawful manner not inconsistent with this Agreement or with
the terms or conditions of any policy of insurance thereon.

                                      165
<PAGE>   171

                  9.4      Disposition of Collateral. The Borrower may not sell,
lease, exchange or otherwise dispose of any of the Collateral except as
hereinafter specifically provided. Borrower may sell, lease, exchange or
otherwise dispose of any portion of the Inventory Collateral in the ordinary
course of business for cash or upon open account or on terms of payment
ordinarily extended to its customers. Upon the sale, exchange or other
disposition of the Inventory Collateral, the security interest created and
provided for herein shall continue in and attach to any proceeds thereof,
without break in continuity and without further formality or act, including,
without limitation, accounts, contract rights, shipping documents, documents of
title, bills of lading, warehouse receipts, dock warrants, dock receipts and
cash or non-cash proceeds, and in the event of any unauthorized sale, shall
continue in Inventory Collateral itself. Borrower may sell Equipment Collateral
pursuant and subject to the provisions of Sections 2.08(b)(i)(B) and 5.14 of the
Credit Agreement. In addition, Borrower may sell, exchange or otherwise dispose
of portions of the Equipment Collateral which are obsolete, worn-out or
unsuitable for continued use by Borrower if such Equipment Collateral is
replaced promptly upon its disposition with equipment constituting Equipment
Collateral having a market value equal or greater than the Equipment Collateral
so disposed of and in which Agent shall obtain and have a Lien pursuant hereto
of the same priority as in the Equipment Collateral so disposed of.

                  9.5      Insurance. The Borrower agrees that it will obtain
and maintain insurance on the Inventory Collateral and the Equipment Collateral
as required by Section 5.17 of the Credit Agreement, with loss payable to the
Agent as its interests may appear. Such insurance shall not be cancelable by the
Borrower, unless with the prior written consent of the Required Banks, or by the
Borrower's insurer, unless with at least 30 days advance written notice to the
Agent.

                  9.6      Location. The Borrower agrees not to locate the
Inventory Collateral or the Equipment Collateral (other than (i) Rolling Stock
and other goods which are covered by a certificate of title, as contemplated in
section 11-9-103(3)(a) of the Act and (ii) other goods which are mobile and
which are of a type normally used in more than one jurisdiction and are not
covered by a certificate of title, as contemplated in Section 11-9-103(3)(a) of
the Act) at any location other than a Collateral Location without providing
written notice to the Agent no later than 30 days after such relocation;
provided, however, that nothing contained herein shall be deemed to prohibit the
Borrower, without notice to or the consent of the Agent, from transferring
temporarily (for periods not to exceed 3 months in any event) Inventory
Collateral or Equipment Collateral from a Collateral Location to another
location at any time or from time to time hereafter for the limited purpose of
having work performed on such Inventory Collateral or Equipment Collateral, or
for temporary storage thereof or for shipment thereof to a Collateral Location,
if done in the ordinary course of the Borrower's business. In addition, to the
extent the Borrower should warehouse any of the Inventory Collateral at any time
hereafter at any location other than a Collateral Location, the Borrower
acknowledges and agrees that such warehousing may be conducted only by
warehousemen who have been pre-approved by the Agent and who, in any event,
shall issue non-negotiable warehouse receipts in the Agent's name to evidence
any such warehousing of goods constituting Inventory Collateral. If the Borrower
consigns any part of the Inventory Collateral, it will comply with Section 2-326
of the Uniform Commercial Code of any state where such Inventory Collateral is
located with respect thereto, by filing in the

                                      166
<PAGE>   172

appropriate public office or offices UCC-1 financing statements showing the
Borrower as consignor and the Agent as assignee of consignor, and will furnish
copies thereof to the Agent.

                  9.7      The Borrower shall deliver to the Agent within 60
days after receiving written notice from the Agent directing it to do so, the
original title certificates to all of the Rolling Stock, together with duly
executed applications in the appropriate form for new certificates of title
thereto showing thereon the Lien of the Agent pursuant to the Security
Agreement.

         10.      SPECIAL PROVISIONS REGARDING RECEIVABLES AND INVENTORY. Each
item of the Accounts Receivable Collateral arises or will arise under a contract
between the Borrower and an Account Debtor, or from the bona fide sale or
delivery of goods to or performance of services for, an Account Debtor. The
Borrower will promptly notify the Agent of all returns, repossessions and
recoveries which are reasonably expected to result in losses to the Borrower in
excess of $500,000 in any month. From and after the occurrence of any Event of
Default and during the continuation thereof, (i) the Agent may collect, realize,
sell or otherwise deal with the Accounts Receivable Collateral or any and all
sums owing or which may become due upon any items of the Inventory Collateral or
any part thereof in such manner, upon such terms and conditions and at such time
or times as may seem to it advisable and without notice to the Borrower, and
(ii) the Borrower hereby irrevocably designates and appoints the Agent its true
and lawful attorney either in the name of the Agent or the name of the Borrower
to take such actions and any other actions as the Agent may deem necessary or
desirable in order to realize upon the Inventory Collateral and the Accounts
Receivable Collateral, including, without limitation, power to endorse in the
name of Borrower, any checks, drafts, notes, or other instruments received in
payment of or on account of the Inventory Collateral or the Accounts Receivable
Collateral. The Agent shall not be liable or accountable for any failure to
collect, realize, sell or obtain payment of the Accounts Receivable Collateral
or any and all sums owing or which may become due upon any items of the
Inventory Collateral or any part thereof and shall not be bound to institute
proceedings for the purpose of collecting, realizing, or obtaining payment of
the same or for the purpose of preserving any rights of the Agent, the Borrower
or any other Person in respect of the same. From and after the occurrence of any
Event of Default and during the continuation thereof, (i) all moneys collected
or received by the Borrower in respect of the Accounts Receivable Collateral or
any and all sums owing or which may become due upon any items of the Inventory
Collateral shall be received as trustee in trust for the Agent for the ratable
benefit of the Banks and shall be forthwith paid over to the Agent for the
ratable benefit of the Banks at the Agent's request, and (ii) all moneys
collected or received by the Agent in respect of the Accounts Receivable
Collateral or any and all sums owing or which may become due upon any items of
the Inventory Collateral or other Collateral may be applied to the Obligations
in the order which the Required Banks deem best or, in the sole discretion of
the Required Banks, may be released to the Borrower, all without prejudice to
the liability of the Borrower or the Agent's right to hold and realize upon this
security.

         11.      PRESERVATION.  The Borrower will take all reasonably necessary
and appropriate measures to obtain, maintain, protect and preserve any material
Intangibles Collateral including, without limitation, registration thereof with
the appropriate state or federal governmental agency or department.

                                      167
<PAGE>   173

         12.      REMEDIES. Upon the occurrence and during the existence of any
Event of Default, the Agent for the ratable benefit of the Banks shall have all
of the rights and remedies described in Sections 8.1 through 8.5 inclusive, and
it may exercise any one, more, or all of such remedies, in its sole discretion,
without thereby waiving any of the others, subject, however, to the provisions
of Section 11.7.

                  12.1     General Remedies of a Secured Party. The Agent shall
have all the rights and remedies of a "secured party" under the Act (regardless
of whether the Act has been enacted in the jurisdiction where the rights or
remedies are asserted, including, without limitation, the right to take
possession of any of the Collateral or the proceeds thereof by such means
(without breach of the peace) and through agents or otherwise as it may elect,
the right to sell, lease, or otherwise dispose of the Collateral or any portion
thereof, the right to apply the proceeds derived therefrom to any and all of the
Obligations secured thereby in such order as the Agent may elect, and, for this
purpose, the right to sign in the name of the Borrower any transfer, conveyance,
or instrument necessary in the premises. Any such disposition of the Collateral
may be in its then condition or following any commercially reasonable
preparation or processing thereof, by public or private proceedings, by one or
more contracts, as a unit or in parcels, at any time or place and on any terms,
so long as the same are commercially reasonable.

                  12.2     Notice of Disposition. The Agent shall give the
Borrower written notice of the time and place of any public sale of the
Collateral or the time after which any other intended disposition thereof is to
be made. The requirement of sending reasonable notice shall be met if such
notice is mailed postage prepaid or otherwise given to the undersigned at its
last address as shown on the Agent's records at least 10 days before such
disposition.

                  12.3     Receiver. In addition to the foregoing, the Agent, at
the direction of the Required Banks, may appoint any person to be a receiver
(which term shall include a receiver and manager) of the Collateral, including,
without limitation, any rents and profits thereof and may remove any receiver
and appoint another in its (his) stead, and such receiver so appointed shall
have power to take possession of the Collateral and to carry on or concur in
carrying on the business of the Borrower, and to dispose of or concur in the
disposition of the Collateral or any part thereof in the manner described
hereinabove. Any such receiver shall for all purposes be deemed to be the agent
of the Borrower. The Agent may from time to time fix the remuneration of such
receiver. The Agent and the Banks in appointing or refraining from appointment
of such receiver shall not incur any liability to the receiver, the Borrower or
otherwise.

                  12.4     Assemblage. In facilitation of the foregoing, the
Agent may require that the Borrower assemble and make available all of or any
portion of the Collateral at a location reasonably designated by the Agent, all
at the expense of the Borrower.

                  12.5     Application of Proceeds. All moneys from time to time
received by the Agent from the disposition of Collateral shall be applied by the
Agent for the benefit of the Banks in the following manner: first, in discharge
of all reasonable expenses of re-taking, holding, preserving, preparing for sale
or lease, selling, leasing, and the like of the Collateral including, without
limitation, fees and expenses of any receivers and attorneys, insurance
premiums, tax payments and the like; secondly, to all outstanding fees and other
expenses owing

                                      168
<PAGE>   174

under the Credit Agreement or the other Loan Documents in such order as the
Required Banks shall elect; thirdly, ratably to accrued interest on the
Obligations; fourthly, ratably to the remaining balances of the Obligations then
outstanding; lastly, to the Borrower, any residue.

         13.      FURTHER ASSURANCES. The Borrower shall from time to time
forthwith on the Agent's reasonable request do, make and execute, and use
reasonable good faith efforts to cause to be done, made and executed, such
financing statements, certificates of title, landlord's and mortgagee's waivers,
estoppel certificates, further assignments, documents, acts, matters and things
as may be required by the Agent of or with respect to the Collateral or any part
thereof or as may be required to give effect to these presents, and the Borrower
hereby constitutes and appoints the Agent as the true and lawful attorney of the
undersigned irrevocably with full power of substitution to do, make, and execute
all such statements, assignments, documents, acts, matters, or things with the
right to use the name of the Borrower whenever and wherever it may be reasonably
deemed necessary or expedient.

         14.      DEALINGS. The Agent may grant extensions of time and other
indulgences, take and give up securities, accept compositions, grant releases
and discharges and otherwise deal with the Borrower, debtors of the Borrower,
sureties and others and with the Collateral and other securities as the Agent
may see fit without prejudice to the liability of the Borrower or the Agent's
right to hold and realize upon this security.

         15.      GENERAL.

                  15.1     Governing Laws.  This Agreement shall be governed by,
and construed in accordance with, the laws of the State of Georgia.

                  15.2     Non-Exclusivity of Remedies. No remedy for the
enforcement of the rights of the Agent hereunder shall be exclusive of or
dependent on any other such remedy but any one or more of such remedies may from
time to time be exercised independently or in combination.

                  15.3     Waiver. Each and every right granted to the Agent
under this Agreement, under any other Loan Document or allowed to the Agent by
law or in equity, shall be cumulative and may be exercised from time to time by
the Agent in its sole discretion. No failure on the part of the Agent to
exercise, and no delay in exercising, any right shall operate as a waiver
thereof, nor shall any single or partial exercise by the Agent of any right
preclude any other or future exercise thereof or the exercise of any other
right.

                  15.4     Counterparts. This Agreement may be executed in two
or more counterparts, each of which when fully executed shall be an original,
and all of said counterparts taken together shall be deemed to constitute one
and the same agreement.

                  15.5     Successors and Assigns.  This Agreement shall be
binding upon and inure to the benefit of the permitted successors and assigns of
the parties hereto.

                  15.6     Reimbursement. If any taxes, fees or other costs
shall be payable on account of the execution, issuance, delivery, or recording
of this Agreement or any financing

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statements, certificates, documents or instruments executed in connection
herewith, by reason of any existing or hereafter enacted federal, state, or
provincial statute, the Borrower will pay all such taxes, fees or other costs,
including any applicable interest and penalty, and will indemnify and hold the
Agent and the Banks harmless from and against liability in connection therewith.

                  15.7     SunTrust Intercreditor Agreement. Notwithstanding any
term or provision hereof to the contrary, as to the SunTrust Collateral Plants,
the rights, powers and remedies of the Agent hereunder are and shall be subject
to and shall be governed by the terms of the SunTrust Intercreditor Agreement.

                  15.8     Release of Receivable Program Assets. The security
interest of the Agent in the Accounts Receivable Collateral that is or becomes
Receivables Program Assets and any other Collateral that is or becomes
Receivables Program Assets, in each case other than Excluded Receivables Assets,
is subject to release under the circumstances, and subject to satisfaction of
the conditions, set forth in Section 9.18 of the Credit Agreement, and from and
after such release, the Collateral shall not include such Accounts Receivable
Collateral or such other Collateral and the provisions of this Agreement shall
be ignored and shall have no further force or effect with respect to such
Accounts Receivable Collateral or such other Collateral, except to the extent of
Excluded Receivables Assets.

                  IN WITNESS WHEREOF, the Borrower and the Agent have executed
this Agreement and affixed their respective seals thereto.

                                          AGENT:
                                          -----

                                          WACHOVIA BANK OF GEORGIA, N.A.,
                                          as Agent for the Banks          (SEAL)

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

                                          BORROWER:
                                          --------

                                          AVONDALE MILLS, INC             (SEAL)

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

                                          Attest:
                                                 -------------------------------
                                                  Title:

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<PAGE>   176

                               SECURITY AGREEMENT
                                   EXHIBIT "A"

                     SCHEDULE OF OUTSIDE INVENTORY LOCATIONS

Fabrics Division:                           See attached List

Yarn Division:                              NDS Warehouse
                                            19801 South Santa Fe Avenue
                                            Rancho Dominguez, CA 90221

                                            Hickory Throwing Co.
                                            520 20th Street, S.E.
                                            Hickory, NC 28601

                                            Yarns Etc.
                                            1005 Gault Avenue North
                                            Ft. Payne, AL 35967

Walton Fabrics Division:                    None

Cotton:                                     Central Cotton Warehouse
                                            North Norton Avenue
                                            Sylacauga, AL  35150

                                            Sycamore Cotton Warehouse
                                            Avondale Mills
                                            L & N Station
                                            Sycamore, AL 35149

Other Raw Materials:                        None

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<PAGE>   177

<TABLE>
<CAPTION>
             OUTSIDE INVENTORY LOCATIONS: AVONDALE FABRICS DIVISION

NAME                                            CITY         STATE      COUNTY
----                                            ----         -----      ------
<S>                                           <C>            <C>        <C>
THOMASTON BLEACHERY                           THOMASTON        GA       UPSON
WESTPOINT STEVENS                             OPELIKA          AL       LEE
CRANSTON PRINT WORKS                          FLETCHER         NC       HENDERSON
U.S. FINISHING                                GREENVILLE       SC       GREENVILLE
KING FINISHING                                DOVER            GA       SCREVEN
BRITTANY DYEING & PRINTING                    NEW BEDFORD      MA       BRISTOL
PRIORITY FINISHING                            FALL RIVER       MA       BRISTOL
PENN TRANSFER LTD.                            HAZELTON         PA       LUZERNE
FACE MATE                                     SOMERSWORTH      NH       STRAFFORD
NORTH CAROLINA FIN.                           SALISBURY        NC       ROWAN
RUSSELL CORPORATION                           ALEXANDER CITY   AL       TALLAPOOSA
DELTA MILLS #3                                WALLACE          SC       MARLBORO
MF&H TEXTILES                                 BUTLER           GA       TAYLOR
TEXPRINT                                      MACON            GA       BIBB
DELIA MILLS #2                                WALLACE          SC       MARLBORO
SYLACAUGA FINISHING                           SYLACAUGA        AL       TALLADEGA
GREENWOOD MILLS (SERVICE DEPT)                GREENWOOD        SC       GREENWOOD
WALTON FABRICS                                MONROE           GA       WALTON
INMAN MILLS-RAMEY PLANT                       ENOREE           SC       SPARTANBURG
OPP & MICOLAS                                 OPP              AL       CONVINGTON
GREENWOOD MILLS (HARRIS#6)                    GREENWOOD        SC       GREENWOOD
GREENWOOD MILLS (GREENWOOD#5)                 GREENWOOD        SC       GREENWOOD
INMAN MILLS-SAYBROOK PLANT                    INMAN            SC       SPARTANBURG
INMAN MILLS-MIN. SHOALS PLANT                 ENOREE           SC       SPARTANBURG
MAYFAIR MILLS                                 STARR            SC       ANDERSON
GREENWOOD MILLS (MATHEWS #3)                  GREENWOOD        SC       GREENWOOD
T.N.S. MILLS                                  SPARTANBURG      SC       SPARTANBURG
FLINT RIVER TEXTILES                          ALBANY           GA       DOUGHERTY
ARKWRIGHT MILLS                               SPARTANBURG      SC       SPARTANBURG
T.N.S. MILLS                                  GAFFNEY          SC       CHEROKEE
GREENWOOD MILLS (LINER PLANT)                 ORANGEBURG       SC       ORANGEBURG
ROOSTERHEAD WAREHOUSE                         ROME             GA       FLOYD
EASTERN DISTRIBUTION                          GREENVILLE       SC       GREENVILLE
PIEDMONT DISTR. CTR. WHSE. #7                 CHARLOTTE        NC       MECKLENBURG
A.T.S. WAREHOUSE                              CHARLESTON       SC       CHARLESTON
BUNCH WAREHOUSE                               NORTH CHARLESTON SC       CHARLESTON
INTERPORT SDS INC.                            OPELIKA          AL       LEE
</TABLE>

                                      172
<PAGE>   178

                OUTSIDE INVENTORY LOCATIONS: GRANITEVILLE COMPANY

<TABLE>
<CAPTION>
NAME                                                        CITY                  STATE     COUNTY
----                                                        ----                  ---     -----------
<S>                                                         <C>                   <C>     <C>
ELLIOTT WAREHOUSE                                           DUNCAN                SC      SPARTANBURG
PIEDMONT DISTRIBUTION CENTER                                CHARLOTTE             NC      MECKLENBURG
AMERICAN FAST PRINT                                         SPARTANBURG           SC      SPARTANBURG
U.S. FINISHING                                              GREENVILLE            SC      GREENVILLE
INMAN MILLS                                                 INMAN                 SC      SPARTANBURG
AVONDALE MILLS (WALTON MILLS)                               MONROE                GA      WALTON
JOSHUA L. BAILY                                             STARR                 SC      ANDERSON
JOSHUA L. BAILY (WAREHOUSE #93)                             EASLEY                SC      PICKENS
JACKSON MILLS                                               IVA                   SC      SPARTANBURG
CLINTON MILLS                                               CLINTON               SC      LAURENS
TNS MILLS                                                   GAFFNEY               SC      CHEROKEE
GREENWOOD MILLS (GREENWOOD #5)                              GREENWOOD             SC      GREENWOOD
AVONDALE MILLS                                              SYLACAUGA             AL      TALLADEGA
GREENWOOD MILLS (GREENWOOD #3)                              GREENWOOD             SC      GREENWOOD
GREENWOOD MILLS (DURST #8)                                  GREENWOOD             SC      GREENWOOD
INMAN MILLS (MOUNTAIN SHOALS)                               ENOREE                SC      SPARTANBURG
INMAN MILLS (RAMEY)                                         ENOREE                SC      SPARTANBURG
JACKSON MILLS                                               WELLFORD              SC      ANDERSON
INMAN MILLS (SAYBROOK)                                      INMAN                 SC      SPARTANBURG
J.P. STEVENS                                                TAYLORS               SC      GREENVILLE
SCHNEIDER MILLS                                             TAYLORSVILLE          NC      ALEXANDER
TNS MILLS                                                   SPARTANBURG           SC      SPARTANBURG
COMMERCIAL BONDED WAREHOUSE, INC.                           N. CHARLESTON         SC      CHARLESTON
SOUTH CAROLINA STATE PORTS AUTHORITY                        CHARLESTON            SC      CHARLESTON
ATLANTIC TRANSPORTATION SERVICES, INC.                      CHARLESTON            SC      CHARLESTON
MT. VERNON MILLS, INC.                                      TALLASSEE             AL      TALLAPOOSA
MILLIKEN & CO.                                              GREER                 SC      GREENVILLE/
                                                                                          SPARTANBURG
KANEMATSU USA, INC.                                         LOS ANGELS            CA      LOS ANGELES
SOUTHERN PHENIX TEXTILES, INC.                              PHENIX CITY           AL      RUSSELL
RAMTEX, INC.                                                RAMSEUR               NC      RANDOLPH
</TABLE>

                                      173
<PAGE>   179

                               SECURITY AGREEMENT
                                    EXHIBIT B
                               EXCLUDED EQUIPMENT

                           AVONDALE LIGHTWEIGHT TRUCKS
                                 AS OF 03/29/96

<TABLE>
<CAPTION>
LOCATION                                    DESCRIPTION                     BOOK VALUE
--------                                    -----------                     ----------
<S>                                 <C>                                     <C>
CORP OFFICE                         1985 CHEVROLET VAN                          0.00
                                    1991 FORD CLUB VAN                          0.00

COTTON DEPT.                        1989 CHEVROLET S-10 PU                      0.00
                                    1993 FORD AEROSTAR VAN                  4,846.50

SYCAMORE WHSE.                      1978 DODGE PU                               0.00

SUPPLY DIST. CENTER                 1995 FORD AEROSTAR VAN                  9,993.75
                                    1984 VOLVO TRUCK                            0.00

TRUCK DEPT.                         1989 CHEVROLET PU                           0.00
                                    1985 DODGE 4WD PU                           0.00

BEVELLE                             1976 CHEVROLET PU                           0.00
                                    1978 CHEVROLET                              0.00
                                    1989 CHEVROLET PU                           0.00

SYLACAUGA YARD                      1982 CHEVROLET PU                           0.00
                                    1974 CHEVROLET DUMP TRUCK                   0.00

WASTE WATER                         1977 FORD PU                                0.00
TREATMENT                           1973 FORD DUMP TRUCK                        0.00

EVA JANE                            1982 FORD PU                                0.00
                                    1984 CHEVROLET PU                           0.00
                                    1987 CHEVROLET PU                           0.00
                                    1990 FORD DUMP TRUCK                        0.00

BON AIR                             1989 CHEVROLET PU                           0.00

BURNSVILLE                          1984 CHEVROLET PU                           0.00

CATHERINE                           1981 CHEVROLET PU                           0.00
</TABLE>

                                      174
<PAGE>   180

<TABLE>
<S>                                 <C>                                    <C>
COOSA                               1988 CHEVROLET PU                           0.00

PELL CITY                           1995 CHEVROLET PU                      11,003.49

TIFTON                              1995 CHEVROLET PU                       8,629.78

WALHALLA                            1995 FORD PU                            7,575.32
                                    1974 CHEVROLET DUMP TRUCK                   0.00

SANFORD                             1989 CHEVROLET PU                           0.00

LEE                                 1989 CHEVROLET PU                           0.00

WALTON FABRICS                      1973 CHEVROLET FLATBED TRUCK                0.00
                                    1984 VOLVO TRUCK                            0.00
</TABLE>

                                      175
<PAGE>   181

                               SECURITY AGREEMENT
                              EXHIBIT "C" - PART 1

<TABLE>
<CAPTION>
SECURED PARTY                                    JURISDICTION                                     COLLATERAL
------------------------------------------------ ------------------------------------------------ --------------------------------
<S>                                              <C>                                              <C>
AVONDALE MILLS, INC.
------------------------------------------------ ------------------------------------------------ --------------------------------
Xerox Corporation                                Date Filed:  04/10/96                            Xerox Leased Equipment
                                                 File number: 96-15376
                                                 SOS Alabama
------------------------------------------------ ------------------------------------------------ --------------------------------
Val Tech Computer Systems                        Date Filed:  03/06/96                            Leased Equipment Notice Filing
(assignee Nat'l Bank of Commerce)                File number: 96-09326
                                                 SOS Alabama
------------------------------------------------ ------------------------------------------------ --------------------------------
Val Tech Computer Systems                        Date Filed:  08/09/95                            Leased Equipment
(assignee First Alabama Bank)                    File number: 95-32698
                                                 SOS Alabama
------------------------------------------------ ------------------------------------------------ --------------------------------
Val Tech Computer Systems                        Date Filed:  05/24/95                            Leased Equipment
(assignee First Alabama Bank)                    File number: 95-21606
                                                 SOS Alabama
------------------------------------------------ ------------------------------------------------ --------------------------------
Rieter Corporation                               Date Filed:  11/14/94                            Equipment
                                                 File number: 94-43091
                                                 SOS Alabama
------------------------------------------------ ------------------------------------------------ --------------------------------
Rieter Corporation                               Date Filed:  11/14/94                            Equipment
                                                 File number: 94-43090
                                                 SOS Alabama
------------------------------------------------ ------------------------------------------------ --------------------------------
Rieter Corporation                               Date Filed:  11/14/94                            Equipment
                                                 File number: 94-43089
                                                 SOS Alabama
------------------------------------------------ ------------------------------------------------ --------------------------------
Val Tech Computer Systems                        Date Filed:  06/09/94                            Leased Equipment Notice Filing
                                                 File number: 94-20960
                                                 SOS Alabama

------------------------------------------------ ------------------------------------------------ --------------------------------
AT&T Credit Corporation                          Date Filed:  05/02/94                            Leased Equipment
                                                 File number: 94-15516
                                                 SOS Alabama
------------------------------------------------ ------------------------------------------------ --------------------------------
</TABLE>

                                      176
<PAGE>   182

<TABLE>
<CAPTION>
SECURED PARTY                                    JURISDICTION                                     COLLATERAL
------------------------------------------------ ------------------------------------------------ --------------------------------
<S>                                              <C>                                              <C>
Wachovia Bank of Georgia, as Agent               Date Filed:  04/04/94                            Blanket Lien
                                                 File number: 94-11561
                                                 SOS Alabama
------------------------------------------------ ------------------------------------------------ --------------------------------
Val Tech Computer Systems                        Date Filed:  02/25/94                            Leased Equipment Notice Filing
(assignee Nat'l Bank of Commerce re-assigned     File number: 94-06560
10/11/95 to Val Tech)                            SOS Alabama
------------------------------------------------ ------------------------------------------------ --------------------------------
Pacific Atlantic Systems                         Date Filed:  12/28/93                            Leased Equipment Notice Filing
                                                 File number: 93-44875
                                                 SOS Alabama
------------------------------------------------ ------------------------------------------------ --------------------------------
Val Tech Computer Systems                        Date Filed:  12/20/93                            Leased Equipment Notice Filing
(assignee Nat'l Bank of Commerce re-assigned     File number: 93-43776
10/11/95 to Val Tech)                            SOS Alabama
------------------------------------------------ ------------------------------------------------ --------------------------------
Pacific Atlantic Systems                         Date Filed:  09/30/93                            Leased Equipment Notice Filing
                                                 File number: 93-34411
                                                 SOS Alabama
------------------------------------------------ ------------------------------------------------ --------------------------------
Xerox Corporation                                Date Filed:  04/27/93                            Xerox Leased Equipment
                                                 File number: 93-14521
                                                 SOS Alabama
------------------------------------------------ ------------------------------------------------ --------------------------------
Xerox Corporation                                Date Filed:  04/27/93                            Xerox Leased Equipment
                                                 File number: 93-14511
                                                 SOS Alabama
------------------------------------------------ ------------------------------------------------ --------------------------------
Bell Atlantic Systems Leasing                    Date Filed:  01/25/93                            Leased Equipment Notice Filing
(assignee: COS Computer Systems)                 File number: 93-02601
                                                 SOS Alabama
------------------------------------------------ ------------------------------------------------ --------------------------------
SouthTrust Bank of Alabama                       Date Filed:  01/14/93                            Leased Equipment, Insurance,
                                                 File number: 93-01620                            Proceeds
                                                 SOS Alabama
------------------------------------------------ ------------------------------------------------ --------------------------------
Trust Company Bank                               Date Filed:  04/30/92                            IRB Project and Equipment
(co-debtor: Industrial Dev. Board Town on Bon    File number: 92-15816
Air)                                             SOS Alabama
------------------------------------------------ ------------------------------------------------ --------------------------------
</TABLE>

                                      177
<PAGE>   183

<TABLE>
<CAPTION>
SECURED PARTY                                    JURISDICTION                                     COLLATERAL
------------------------------------------------ ------------------------------------------------ --------------------------------
<S>                                              <C>                                              <C>
SouthTrust Bank of Alabama                       Date Filed:  02/10/92                            Equipment, Insurance, Proceeds
                                                 File number: 92-04907
                                                 SOS Alabama
------------------------------------------------ ------------------------------------------------ --------------------------------
Mayer Electric Supply Co., Inc.                  Date Filed:  04/18/91                            Consignment of inventory to a
                                                 File number: 91-14211                            Systems Contracting Agreement
                                                 SOS Alabama
------------------------------------------------ ------------------------------------------------ --------------------------------
CIT Group/Equipment Financing, Inc.              Date Filed:  01/27/88                            12 - Volvo Sleeper Tractors
                                                 Continued:  08/04/92
                                                 File number: A270067
                                                 SOS Alabama
------------------------------------------------ ------------------------------------------------ --------------------------------
CIT Group/Equipment Financing, Inc.              Date Filed:  08/17/87                            1 - Volvo Sleeper Tractor
                                                 Continued:  04/02/92
                                                 File number: A253773
                                                 SOS Alabama
------------------------------------------------ ------------------------------------------------ --------------------------------
Rieter Corporation                               Date Filed:  02/16/95                            Rieter Drawframe
                                                 File number: 2046
                                                 Coosa County, Alabama
------------------------------------------------ ------------------------------------------------ --------------------------------
Wachovia Bank of Georgia, as Agent               Date Filed:  04/07/94                            Blanket Lien
                                                 File number: 94-069505
                                                 SOS California
------------------------------------------------ ------------------------------------------------ --------------------------------
Wachovia Bank of Georgia, as Agent               Date Filed:  04/05/94                            Blanket Lien
                                                 File number: 1052193
                                                 SOS Connecticut
------------------------------------------------ ------------------------------------------------ --------------------------------
Wachovia Bank of Georgia, as Agent               Date Filed:  04/04/95                            Blanket Lien
                                                 File number: 33817
                                                 Floyd County
------------------------------------------------ ------------------------------------------------ --------------------------------
Wachovia Bank of Georgia, as Agent               Date Filed:  04/04/95                            Blanket Lien
                                                 File number: 30395
                                                 Walton County
------------------------------------------------ ------------------------------------------------ --------------------------------
Wachovia Bank of Georgia, as Agent               Date Filed:  04/04/95                            Blanket Lien
                                                 File number: 225684
                                                 SOS Massachusetts
------------------------------------------------ ------------------------------------------------ --------------------------------
</TABLE>

                                      178
<PAGE>   184

<TABLE>
<CAPTION>
SECURED PARTY                                    JURISDICTION                                     COLLATERAL
------------------------------------------------ ------------------------------------------------ --------------------------------
<S>                                              <C>                                              <C>
Wachovia Bank of Georgia, as Trustee             Date Filed:  10/03/95                            Property/items secured by
                                                 File number: 1269123                             UCC-1 #0588793, filed 07/19/89
                                                 SOS North Carolina                               which has expired
------------------------------------------------ ------------------------------------------------ --------------------------------
Rieter Corporation                               Date Filed:  02/16/95                            Rieter Drawframe
                                                 File number: 1162256
                                                 SOS North Carolina
------------------------------------------------ ------------------------------------------------ --------------------------------
Rieter Corporation                               Date Filed:  02/16/95                            Rieter Drawframe
                                                 File number: 1162255
                                                 SOS North Carolina
------------------------------------------------ ------------------------------------------------ --------------------------------
Rieter Corporation                               Date Filed:  02/16/95                            Rieter Drawframe
                                                 File number: 1162254
                                                 SOS North Carolina
------------------------------------------------ ------------------------------------------------ --------------------------------
Wachovia Bank of Georgia, as Agent               Date Filed:  04/05/94                            Blanket Lien
                                                 File number: 1093872
                                                 SOS North Carolina
------------------------------------------------ ------------------------------------------------ --------------------------------
Trust Company Bank of Georgia                    Date Filed:  12/04/92                            IRB Project and Equipment
                                                 File number: 0947502
                                                 SOS North Carolina
------------------------------------------------ ------------------------------------------------ --------------------------------
Trust Company Bank of Georgia                    Date Filed:  12/03/92                            IRB Project and Equipment
                                                 File number: 0947094
                                                 SOS North Carolina
------------------------------------------------ ------------------------------------------------ --------------------------------
Staunton Norris, as Deed of Trust Trustee and    Date Filed:  07/08/88                            IRB Project and Equipment
Trust Company Bank and First Nat'l Bank of       Continued:  06/30/93
Atlanta, as Indentured Trustee                   File number: 0470504
                                                 Continued:  0011832
                                                 SOS North Carolina
------------------------------------------------ ------------------------------------------------ --------------------------------
Staunton Norris, as Deed of Trust Trustee and    Date Filed:  07/19/89                            IRB Project and Equipment
Trust Company Bank and First Nat'l Bank of       File number: 0588793
Atlanta, as Indentured Trustee                   SOS North Carolina
------------------------------------------------ ------------------------------------------------ --------------------------------
Rieter Corporation                               Date Filed:  11/18/94                            Rieter Drawframe
                                                 File number: 94-1512
                                                 Lee County, North Carolina
------------------------------------------------ ------------------------------------------------ --------------------------------
</TABLE>

                                      179
<PAGE>   185

<TABLE>
<CAPTION>
SECURED PARTY                                    JURISDICTION                                     COLLATERAL
------------------------------------------------ ------------------------------------------------ --------------------------------
<S>                                              <C>                                              <C>
Rieter Corporation                               Date Filed:  11/18/94                            Rieter Drawframe
                                                 File number: 94-1511
                                                 Lee County, North Carolina
------------------------------------------------ ------------------------------------------------ --------------------------------
Trust Company Bank / Wachovia Bank of Georgia,   Date Filed:  12/02/92                            IRB Project and Equipment
NA                                               File number: 92-1601
                                                 Lee County, North Carolina
------------------------------------------------ ------------------------------------------------ --------------------------------
Rieter Corporation                               Date Filed:  11/07/94                            Rieter Drawframe RSB 951
                                                 File number: 94-203
                                                 Yancey County, North Carolina
------------------------------------------------ ------------------------------------------------ --------------------------------
Trust Company Bank                               Date Filed:  12/04/92                            IRB Project and Equipment
                                                 File number: 92-1976
                                                 Yancey County, North Carolina
------------------------------------------------ ------------------------------------------------ --------------------------------
Staunton Norris, as Deed of Trust Trustee and    Date Filed:  07/08/88                            IRB Project and Equipment
Trust Company Bank and First Nat'l Bank of       Continued:  06/25/93
Atlanta, as Indentured Trustee                   File number: 88-288
                                                 Continued as 93-103
                                                 Yancey County, North Carolina
------------------------------------------------ ------------------------------------------------ --------------------------------
Staunton Norris, as Deed of Trust Trustee and    Date Filed:  07/13/89                            IRB Project and Equipment
Trust Company Bank and First Nat'l Bank of       File number: 89-256
Atlanta, as Indentured Trustee                   Yancey County, North Carolina
------------------------------------------------ ------------------------------------------------ --------------------------------
Wachovia Bank of Georgia                         Date Filed:  04/12/94                            Blanket Lien
                                                 File number: 1563871
                                                 SOS New Jersey
------------------------------------------------ ------------------------------------------------ --------------------------------
Wachovia Bank of Georgia                         Date Filed:  04/06/94                            Blanket Lien
                                                 File number: 23000343
                                                 SOS Pennsylvania
------------------------------------------------ ------------------------------------------------ --------------------------------
Rieter Corporation                               Date Filed:  11/10/94                            Leased Equipment
                                                 File number: 941110-
                                                 103225A
                                                 SOS South Carolina
------------------------------------------------ ------------------------------------------------ --------------------------------
</TABLE>

                                      180
<PAGE>   186

<TABLE>
<CAPTION>
SECURED PARTY                                    JURISDICTION                                     COLLATERAL
------------------------------------------------ ------------------------------------------------ --------------------------------
<S>                                              <C>                                              <C>
Wachovia Bank of Georgia                         Date Filed:  04/05/94                            Blanket Lien
                                                 File number: 940405-
                                                 132723A
                                                 SOS South Carolina
------------------------------------------------ ------------------------------------------------ --------------------------------
Trust Company Bank                               Date Filed:  12/04/92                            IRB Project and Equipment
                                                 File number: 921204-
                                                 100723A
                                                 SOS South Carolina
------------------------------------------------ ------------------------------------------------ --------------------------------
Bell Atlantic Systems Leasing                    Date Filed:  04/08/91                            Leased Equipment
                                                 File number: 91-017594
                                                 SOS South Carolina
------------------------------------------------ ------------------------------------------------ --------------------------------
Trust Company Bank                               Date Filed:  01/04/91                            IRB Project and Equipment
                                                 File number: 91-00010
                                                 Oconee County, South Carolina
------------------------------------------------ ------------------------------------------------ --------------------------------
Trust Company Bank                               Date Filed:  12/02/92                            IRB Project and Equipment
                                                 File number: 92-00694
                                                 Oconee County, South Carolina
------------------------------------------------ ------------------------------------------------ --------------------------------
Rieter Corporation                               Date Filed:  11/09/94                            Rieter Drawframe
                                                 File number: 94-00681
                                                 Oconee County, South Carolina
------------------------------------------------ ------------------------------------------------ --------------------------------
Wachovia Bank of Georgia                         Date Filed:  04/05/94                            Blanket Lien
                                                 File number: 94064691
                                                 SOS Texas
------------------------------------------------ ------------------------------------------------ --------------------------------
</TABLE>

                                      181
<PAGE>   187

<TABLE>
<CAPTION>
SECURED PARTY                                    JURISDICTION                                     COLLATERAL
------------------------------------------------ ------------------------------------------------ --------------------------------
<S>                                              <C>                                              <C>
GRANITEVILLE COMPANY
------------------------------------------------ ------------------------------------------------ --------------------------------
Schlafhorst, Inc.                                Date Filed:  02/06/92                            Equipment
                                                 File number: 92-005960
                                                 Secretary of State, SC
------------------------------------------------ ------------------------------------------------ --------------------------------
Schlafhorst, Inc.                                Date Filed:  01/14/92                            Equipment
                                                 File number: 92-002008/
                                                 92-002009
                                                 Secretary of State, SC
------------------------------------------------ ------------------------------------------------ --------------------------------
Schlafhorst, Inc.                                Date Filed:  01/14/92                            Equipment
                                                 File number: 92-002008
                                                 Secretary of State, SC
------------------------------------------------ ------------------------------------------------ --------------------------------
Olin Corporation                                 Date Filed:  02/10/94                            Leased Equipment
                                                 File number: 131059A
                                                 Secretary of State, SC
------------------------------------------------ ------------------------------------------------ --------------------------------
Olin Corporation                                 Date Filed:  12/07/93                            Leased Equipment
                                                 File number: 110634A
                                                 Secretary of State, SC
------------------------------------------------ ------------------------------------------------ --------------------------------
BellSouth Financial Services Corporation         Secretary of State, SC
Amendment: 09/28/92, #134045A
------------------------------------------------ ------------------------------------------------ --------------------------------
Pitney Bowes Credit Corporation                  Date Filed:  01/29/92                            Equipment Informational Filing
                                                 File number: 92004503/
                                                 92004504
                                                 Secretary of State, SC
------------------------------------------------ ------------------------------------------------ --------------------------------
Schlafhorst, Inc.                                Date Filed:  08/19/91                            3 - Rotor Autocoro
                                                 File number: 91-040929
                                                 Secretary of State, SC
------------------------------------------------ ------------------------------------------------ --------------------------------
Pitney Bowes Credit  Corporation                 Date Filed:  01/25/96                            Leased Equipment
                                                 File number: 122033A
                                                 Secretary of State, SC
------------------------------------------------ ------------------------------------------------ --------------------------------
</TABLE>

                                      182
<PAGE>   188

<TABLE>
<CAPTION>
SECURED PARTY                                    JURISDICTION                                     COLLATERAL
------------------------------------------------ ------------------------------------------------ --------------------------------
<S>                                              <C>                                              <C>
Primeco, Inc. d/b/a Prime Equipment              Date Filed:  09/13/94                            1 - Scissor Lift
                                                 File number: 100644A
                                                 Secretary of State, SC
------------------------------------------------ ------------------------------------------------ --------------------------------
E.I. DuPont De Nemours & Co. Separation Systems  Date Filed:  12/27/91                            Notice filing of a Service
                                                 File number: 91-061914                           Agreement
                                                 Secretary of State, SC
------------------------------------------------ ------------------------------------------------ --------------------------------
                                                 Date Filed:  01/12/93                            Office Equipment
Canon Financial Services, Inc.                   File number: 145328A
                                                 Secretary of State, SC
------------------------------------------------ ------------------------------------------------ --------------------------------
Primeco, Inc. d/b/a Prime  Equipment             Date Filed:  09/13/94                            1 - Scissor Lift
                                                 File number: 1329
                                                 Aiken County, SC
------------------------------------------------ ------------------------------------------------ --------------------------------
Schlafhorst, Inc.                                Date Filed:  02/06/92                            Rotor Autocoro(s)
                                                 File number: 192
                                                 Aiken County, SC
------------------------------------------------ ------------------------------------------------ --------------------------------
Schlafhorst, Inc.                                Date Filed:  01/15/92                            Rotor Autocoro(s)
                                                 File number: 81
                                                 Aiken County, SC
------------------------------------------------ ------------------------------------------------ --------------------------------
Schlafhorst, Inc.                                Date Filed:  01/15/92                            Rotor Autocoro(s)
                                                 File number: 80
                                                 Aiken County, SC
------------------------------------------------ ------------------------------------------------ --------------------------------
Schlafhorst, Inc.                                Date Filed:  08/20/91                            Rotor Autocoro(s)
                                                 File number: 1335
                                                 Aiken County, SC
------------------------------------------------ ------------------------------------------------ --------------------------------
First United Leasing Corporation                 Date Filed:  01/22/93                            1/Panafax Facsimile
                                                 File number: 014679
                                                 SOS New York
------------------------------------------------ ------------------------------------------------ --------------------------------
Pitney Bowes                                     Date Filed:                                      Equipment Lease
                                                 File number: 960412-
                                                 131615A
                                                 SOS South Carolina
------------------------------------------------ ------------------------------------------------ --------------------------------
WALTON MONROE MILLS, INC.
------------------------------------------------ ------------------------------------------------ --------------------------------
</TABLE>

                                      183
<PAGE>   189

<TABLE>
<CAPTION>
SECURED PARTY                                    JURISDICTION                                     COLLATERAL
------------------------------------------------ ------------------------------------------------ --------------------------------
<S>                                              <C>                                              <C>
Trust Company Bank                               Date Filed:  06/15/92                            IRB Project and Equipment
                                                 File number: 28353
                                                 Walton County, Georgia
------------------------------------------------ ------------------------------------------------ --------------------------------
Trust Company Bank                               Date Filed:  01/28/93                            Partial Release - 5 Saurer
                                                 File number: 28353                               Shutterless Weaving Machines,
                                                 Walton County, Georgia                           Type 400
------------------------------------------------ ------------------------------------------------ --------------------------------
NCC Leasing                                      Date Filed:  07/25/91                            NCR electronic data processing
                                                 File number: 27498                               equipment
                                                 Walton County, Georgia
------------------------------------------------ ------------------------------------------------ --------------------------------
The CIT Group/Commercial Services, Inc.          N/A                                              $260,000 cash deposit to
                                                                                                  secure certain reimbursement
                                                                                                  and indemnity obligations
------------------------------------------------ ------------------------------------------------ --------------------------------
NCC Leasing                                      Date Filed:  09/12/91                            14 Terminal Green
                                                 File number: 27605                               1010/keyboards
                                                 Walton County, Georgia
------------------------------------------------ ------------------------------------------------ --------------------------------
</TABLE>

                                      184
<PAGE>   190

                                                                      Exhibit K

                               SECURITY AGREEMENT

                               EXHIBIT C - PART 2

                    EXISTING ENCUMBRANCES IN CONNECTION WITH

                      INDUSTRIAL REVENUE BOND INDEBTEDNESS

<TABLE>
<CAPTION>
                                                                      Original Principal Amount
IRB Transaction                                                          Outstanding on Bonds
---------------                                                       -------------------------
<S>                                                                   <C>
1.       The Yancey County Industrial                                         $10,000,000
         Facilities and Pollution Control
         Financing Authority Refunding
         Revenue Bonds (Avondale Mills,
         Inc. Project), Series 1988.
</TABLE>

         Applicable Documents:

         a.       Deed of Trust and Security Agreement, dated as of July 1,
                  1988, from Avondale Mills, Inc. to Staunton Norris, as deed of
                  trust trustee, for the benefit of The First National Bank of
                  Atlanta, as trustee, and Trust Company Bank, as amended by
                  that First Amendment to Deed of Trust and Security Agreement,
                  to be dated on or about March 29, 1994.

         b.       Indenture of Trust, dated as of July 1, 1988, between The
                  Yancey County Industrial Facilities and Pollution Control
                  Financing Authority and The First National Bank of Atlanta, as
                  trustee.

         c.       Loan Agreement, dated as of July 1, 1988, between Avondale
                  Mills, Inc. and The Yancey County Industrial Facilities and
                  Pollution Control Financing Authority and related Promissory
                  Note.

         d.       Letter of Credit Agreement, dated as of July 1, 1988, between
                  Trust Company Bank and Avondale Mills, Inc., as amended
                  through the date hereof.

         e.       Security Agreement, dated as of December 2, 1992, from
                  Avondale Mills, Inc. to Trust Company Bank.

<TABLE>
<S>      <C>                                                                            <C>
2.       The Lee County Industrial Facilities                                           $5,000,000
         and Pollution Control Financing
         Authority Refunding Revenue Bonds
         (Avondale Mills, Inc. Project), Series 1989.
</TABLE>

                                      185
<PAGE>   191

         Applicable Documents:

         a.       Indenture of Trust, dated as of June 1, 1989, between The Lee
                  County Industrial Facilities and Pollution Control Financing
                  Authority and The First National Bank of Atlanta, as trustee.

         b.       Loan Agreement, dated as of June 1, 1989, between The Lee
                  County Industrial Facilities and Pollution Control Financing
                  Authority and Avondale Mills, Inc. and related Promissory
                  Note.

         c.       Second Deed of Trust and Security Agreement, dated as of June
                  1, 1989, from Avondale Mills, Inc. to Staunton Norris, as deed
                  of trust trustee, for the benefit of The First National Bank
                  of Atlanta, as trustee, and Trust Company Bank.

         d.       Letter of Credit Agreement, dated as of June 1, 1989, between
                  Trust Company Bank and Avondale Mills, Inc., as amended
                  through the date hereof.

         e.       Deed of Trust and Security Agreement, dated as of December 2,
                  1992, from Avondale Mills, Inc. to Richard Love, as deed of
                  trust trustee, for the benefit of Wachovia Bank of Georgia,
                  N.A., as trustee, and Trust Company Bank, as amended by that
                  First Amendment to Deed of Trust and Security Agreement, to be
                  dated on or about March 29, 1994.

<TABLE>
<S>      <C>                                                                    <C>
3.       Development Authority of Walton County                                 $4,000,000
         Industrial Development Revenue Bonds                                   (Series 1992A)
         (Walton Monroe Mills, Inc. Project),                                   and
         Series 1992A and Series 1992B                                          $2,000,000
                                                                                (Series 1992B)
</TABLE>

         Applicable Documents:

         a.       Indenture of Trust, dated as of June 1, 1992, between
                  Development Authority of Walton County and Trust Company Bank,
                  as trustee.

         b.       Lease Agreement, dated as of June 1, 1992, between Development
                  Authority of Walton County and Walton Monroe Mills, Inc.

         c.       Security Deed and Security Agreement, dated as of June 1,
                  1992, among Development Authority of Walton County and Walton
                  Monroe Mills, Inc., as grantors, and Trust Company Bank, as
                  grantee, as amended by that First Amendment to Security Deed
                  and Security Agreement, to be dated on or about March 29,
                  1994.

         d.       Guaranty Agreement, dated as of June 1, 1992, from Walton
                  Monroe Mills, Inc. to Trust Company Bank, as trustee.

                                      186
<PAGE>   192

         e.       Letter of Credit Agreement, dated as of June 1, 1992, between
                  Trust Company Bank and Walton Monroe Mills, Inc., as amended
                  through the date hereof.

                                      187
<PAGE>   193

                                    EXHIBIT M
                  Amended and Restated Intercreditor Agreement

         THIS AMENDED AND RESTATED INTERCREDITOR AGREEMENT, made as of the 29th
day of April, 1996, by, between, and among WACHOVIA BANK OF GEORGIA, N.A. as
agent for itself and the Banks referred to below, whose address is 191 Peachtree
Street, N.E., Atlanta, Georgia 30303-1757 (in such capacity, together with any
successors and assigns in such capacity, the "Agent"), SUNTRUST BANK, ATLANTA,
whose address is 25 Park Place, Atlanta, Georgia 30303 ("SunTrust"), and
AVONDALE MILLS, INC., whose address is at 506 South Broad Street, Monroe,
Georgia 30655 (the "Borrower");

                               W I T N E S S E T H

         WHEREAS, the Borrower executed and delivered a Security Agreement dated
as of March 29, 1994 (the "Original Security Agreement" pursuant to a Credit
Agreement by and among the Borrower, the Agent and the Banks party thereto (the
"Original Credit Agreement"); and

         WHEREAS, pursuant to that certain Amended and Restated Credit Agreement
dated of even date herewith, by and among the Borrower, certain lenders parties
thereto (collectively, the "Banks"), the Agent, as agent for the Banks, and The
First National Bank of Chicago, as Documentation Agent (as amended or modified
from time to time, the "Credit Agreement"), the Original Credit Agreement has
been amended and restated, and the Banks have made or will make loans to the
Borrower;

         WHEREAS, in order to secure said indebtedness and to induce the Banks
and the Agent to execute and enter into the Credit Agreement, the Borrower has
executed and delivered an Amended and Restated Security Agreement, amending and
restating the Original Security Agreement, granting a security interest in, and
lien upon, certain personal property of the Borrower to the Agent for the
benefit of the Banks, including the Graniteville Assets, as defined in the
Credit Agreement, and continuing in effect the security interest in, and lien
upon, such personal property granted to the Agent pursuant to the Original
Security Agreement, including, without limitation, and subject to the security
interest and lien granted to SunTrust pursuant to the SunTrust Mortgages (as
hereinafter defined) the machinery and equipment of the Borrower located at
those certain plants of the Borrower located at Walton County, Georgia and
Burnsville, North Carolina and at the Lee Plant in Lee County, North Carolina
(collectively, the "SunTrust Plants") (such machinery and equipment being
hereinafter referred to as the "SunTrust Equipment");

         WHEREAS, pursuant to the Credit Agreement, the Borrower has also
executed and delivered to the Agent multiple counterparts of an undated Master
Mortgage, Deed of Trust, Deed to Secure Debt, Uniform Commercial Code Security
Agreement and Assignment of Leases, Rents and Profits together with certain
UCC-1 financing statements (collectively, the "Escrowed Additional Collateral
Documents") pursuant to which, if and when recorded pursuant to the Credit
Agreement, the Borrower has granted to the Agent for the ratable benefit of the

                                      188
<PAGE>   194

Banks perfected mortgage liens on, or security title to, all of Borrower's
plants, including, without limitation, subject to the mortgage liens or security
titles granted to SunTrust pursuant to the SunTrust Mortgages, the SunTrust
Plants;

         WHEREAS, pursuant to the agreements described on Schedule I hereto
(collectively, as amended or modified from time to time, the "SunTrust
Agreements"), SunTrust has issued various letters of credit for the account of
Borrower to support industrial development bonds and workers' compensation
self-insurance arrangements in several states (collectively, together with any
renewals or replacements of, or new, letters of credit to support workers'
compensation self-insurance arrangements, the "SunTrust L/Cs");

         WHEREAS, pursuant to the mortgages described on Schedule II hereto
(collectively, as amended or modified from time to time, the "SunTrust
Mortgages"), Borrower granted to SunTrust mortgage liens on, or security title
to, the SunTrust Plants and a security interest in, or lien upon, the SunTrust
Equipment to secure the SunTrust Secured Debt (as hereinafter defined); and

         WHEREAS, the Banks are willing to make loans to Borrower pursuant to
the terms of the Credit Agreement only on the condition precedent that the
respective rights, security titles, liens and security interests of the Agent
and SunTrust in and to the SunTrust Plants and the SunTrust Equipment be clearly
set forth and the parties hereto enter into this Agreement;

         NOW, THEREFORE, in consideration of the premises and the making of
loans and/or the extension of credit by Banks to Borrower, it is hereby agreed
by, between, and among the Agent, SunTrust and the Borrower as follows:

         1.       Consent of SunTrust; Acknowledgment of Agent. SunTrust hereby
consents to (a) the security interest in and lien upon the SunTrust Equipment
granted to the Agent for the ratable benefit of the Banks pursuant to the
Security Agreement, and (b) the execution, delivery and completion and
recordation of the Escrowed Additional Collateral Documents, provided, that, as
to any of the SunTrust Plants, each and every one of the Banks shall have
directed the Agent to so complete and record the Escrowed Additional Collateral
Documents pertaining thereto. The Agent hereby acknowledges and agrees that (a),
the security interest in and lien upon the SunTrust Equipment granted to the
Agent for the ratable benefit of the Banks pursuant to the Security Agreement
and the lien upon, and security title to, the SunTrust Plants granted to the
Agent for the ratable benefit of the Banks upon the completion and recordation
of the Escrowed Additional Collateral Documents shall be in each instance
subordinate and inferior to the security interest, lien or security title
therein or thereto in favor of SunTrust to the extent of the SunTrust Secured
Debt, as defined below, and (b) the Agent will not complete and record the
Escrowed Additional Collateral Documents as to any of the SunTrust Plants except
at the direction of each and every one of the Banks.

         2.       Limit of SunTrust Debt. SunTrust hereby agrees that the amount
of indebtedness owing from the Borrower secured by the SunTrust Equipment and
the SunTrust Plants shall not exceed a maximum amount which may be drawn upon
the SunTrust L/Cs of $22,000,000, together with interest thereon, fees, costs
and indemnification amounts with respect thereto, and

                                      189
<PAGE>   195

all expenses of SunTrust incurred by SunTrust in protecting and preserving the
SunTrust Equipment or the SunTrust Plants or in endeavoring to collect any of
the foregoing, including reasonable attorneys fees and expenses actually
incurred (collectively, the "SunTrust Secured Debt"). Any other indebtedness
owing from Borrower to SunTrust shall not constitute SunTrust Secured Debt for
purposes hereof.

         3.       Notice and Cure Rights. SunTrust hereby agrees to give the
Agent prompt notice of any event of default (a "SunTrust L/C Default") under the
SunTrust Agreements, the SunTrust Mortgages or any other agreements evidencing,
securing or relating to the SunTrust Secured Debt (collectively, the "SunTrust
Documents"); provided that failure of SunTrust to deliver such notice shall not
affect the subordination terms or any other terms of this Agreement. SunTrust
further agrees to accept any cure of such SunTrust L/C Default by the Agent or
the Banks provided such cure is completed within 30 days of the receipt by the
Agent of notice thereof. The Agent agrees to use commercially reasonable efforts
to notify SunTrust of the filing for record of any Escrowed Additional
Collateral Documents pertaining to any of the SunTrust Plants, but failure to
give such notice shall not affect the validity or enforceability thereof.

         4.       Foreclosure. In the event, following notice of a SunTrust L/C
Default and the expiration of the cure period therefor as set forth in the
immediately preceding Section 3, SunTrust exercises its right to foreclosure,
sale under power, repossession or any other similar right, power or remedy (any
of the foregoing being referred to herein as a "Foreclosure Remedy") under any
of the SunTrust Documents and realizes a surplus over and above the amount of
the SunTrust Secured Debt, SunTrust will pay such surplus to the Agent for the
ratable benefit of the Banks; provided, that the Agent and the Banks acknowledge
and agree that SunTrust has no obligation to produce any such surplus. The
Borrower hereby irrevocably directs SunTrust to make such payment (if any) to
the Agent, regardless of whether any of the Escrowed Additional Collateral
Documents have been recorded. The Agent agrees that the Agent will not interfere
with the exercise by SunTrust of any Foreclosure Remedy and will not, without
the prior consent of SunTrust (unless the Agent or the Banks have exercised the
purchase option pursuant to Section 5 below) seek to exercise any Foreclosure
Remedy under the Security Agreement or the Escrowed Additional Collateral
Documents or any other documents in connection therewith as to the SunTrust
Equipment or the SunTrust Plants, so long as any SunTrust L/C's remain
outstanding and any SunTrust Secured Debt remains unpaid.

         5.       Purchase Option. SunTrust agrees that at any time following
the occurrence of either an event of default under the Credit Agreement or a
SunTrust L/C Default, the Agent (at the direction of each and every one of the
Banks) and the Banks shall have the right, but not the obligation, on 30 days
prior written notice to SunTrust to purchase SunTrust's secured position with
respect to the SunTrust L/C's by SunTrust's arranging for the Agent to issue
letters of credit in replacement of, or substitution for, the SunTrust L/C's,
causing the SunTrust Documents to be amended to refer to such replacement
letters of credit, if necessary, and assigning such SunTrust Documents to the
Agent for the ratable benefit of the Banks.

         6.       Bankruptcy. In the event a "petition" as defined in 11 U.S.C.
ss.101(31) is filed by or against the Borrower commencing a case under Title 11,
U.S.C., nothing contained in this Agreement shall be construed or applied to
limit or otherwise affect the rights of the Agent or the

                                      190
<PAGE>   196

Banks to assert or prove any indebtedness owing to any of them, to vote or
assert rights in connection therewith (subject to the provisions of Section 4)
or to receive, collect and retain any dividends, distributions or payments
received in connection with any such case or any proceeding therein in
satisfaction of such indebtedness or claim.

         7.       Consent; Defense by Borrower. The Borrower hereby consents and
agrees to the terms of this Agreement. If either the Agent or SunTrust should
commence or participate in any action or proceeding against Borrower contrary to
this Agreement, the Borrower may interpose as a defense or dilatory plea the
making of this Agreement, and the Agent or SunTrust, as applicable, may
intervene and interpose such defense or plea in the Agent's or SunTrust's, as
applicable, name or in the name of the Borrower.

         8.       Certain Waivers and Notices. The Agent, the Banks and SunTrust
may grant extensions of time of payment or performance to, and make compromises
and settlements with, Borrower and all other persons, without notice to or the
consent of the Agent, the Banks and/or SunTrust, as applicable and without
affecting the agreements of the Agent, SunTrust and Borrower hereunder.

         9.       Priorities; No Third Party Beneficiary. The priorities of the
security titles, liens and security interests established, altered, or specified
herein are applicable, irrespective of the time or order of attachment or
perfection thereof, the method of perfection, the time or order of filing of
financing statements or taking of possession, or the giving of or failure to
give notice of the acquisition or expected acquisition of purchase money or
other security titles, liens and security interests. The agreements made herein
are solely for the purpose of establishing the relative priorities of the Agent
and SunTrust and shall not inure to the benefit of any other person or entity,
except the successors and assigns of the Agent and SunTrust, and except as set
forth in Section 7 hereof.

         10.      Notices. All notices hereunder shall be effective upon receipt
and shall be in writing and sent by either certified mail, return receipt
requested, mailgram, telegram, or telex, to the addresses as set forth above,
but to the attention of the following: (a) the Agent, Attention: Commercial
Group, or (b) SunTrust, Attention: Raymond King, or (c) Borrower, Attention:
Chairman and Chief Financial Officer; or to such other address or person as any
of the parties hereto may designate in writing to the other parties. Notice
shall be deemed received when presented for delivery to the United States
Postage Service or the transmitting utility.

         11.      Governing Law; Termination; Successors and Assigns. This
Agreement shall be governed by and construed in accordance with the laws of the
State of Georgia applicable to contracts made and to be performed in such state,
and shall not be modified, amended, or terminated orally. This Agreement may not
be terminated by SunTrust so long as any "Obligations" (as defined in the Credit
Agreement) remain unpaid, or by the Agent, so long as any SunTrust L/C's remain
outstanding or any SunTrust Secured Debt is outstanding and unpaid. Nothing
herein contained shall obligate the Agent, the Banks or SunTrust to grant credit
to or continue their respective financing arrangements with the Borrower. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors, designees, and assigns, including, without
limitation, any successor agent under the Credit

                                      191
<PAGE>   197

Agreement. All terms used herein which are defined in the Georgia Uniform
Commercial Code - Secured Transactions shall have the meanings therein stated,
unless the context otherwise requires.

         12.      No Assignment of SunTrust Secured Debt. SunTrust may not
assign or transfer to others any of its interests in and to the SunTrust Secured
Debt, or any interest in the SunTrust Equipment or the SunTrust Plants, unless
such assignment or transfer is made expressly subject to this Agreement and with
prior written notice to the Agent and the Borrower.

         13.      Amendments of SunTrust Documents, Recordation. SunTrust and
the Borrower hereby agree to execute and file for record such additional
counterparts of this Agreement and such amendments to the SunTrust Documents as
the Agent shall reasonably determine to be necessary or desirable to give effect
to the provisions of this Agreement.

         IN WITNESS WHEREOF, the Agent, SunTrust and Borrower have duly
executed, or caused to be duly executed, this Agreement under seal as of the day
and year first written above.

Signed, sealed and                          AGENT
delivered in the
presence of:                                WACHOVIA BANK OF
                                            GEORGIA, N.A. as Agent for the Banks

                                            By:
----------------------------                   ---------------------------------
Witness                                        Title:

----------------------------                Attest:
Witness                                            -----------------------------
                                                   Name:
                                                   Title:

                                            [BANK SEAL]

Signed, sealed and                          SUNTRUST
delivered in the
presence of:                                SUNTRUST BANK, ATLANTA

                                            By:
----------------------------                   ---------------------------------
Witness                                        Title:

                                            Attest:
----------------------------                       -----------------------------
Witness                                            Name:
                                                   Title:

                                      192
<PAGE>   198

                                            [BANK SEAL]

Signed, sealed and                          BORROWER
delivered in the
presence of:                                AVONDALE MILLS, INC.

                                            By:
----------------------------                   ---------------------------------
Witness                                        Title:

                                            Attest:
----------------------------                       -----------------------------
Witness                                            Name:
                                                   Title:

                                            [CORPORATE SEAL]

                                      193

<PAGE>   199
                          ACKNOWLEDGEMENT OF GUARANTOR

         Avondale Incorporated hereby acknowledges that it has guaranteed to
the Agent and the Banks the obligations of Borrower under the Credit Agreement
and consents to all of the terms and provisions of the foregoing Agreement and
agrees that nothing contained in such Agreement shall be construed or applied
to limit or otherwise affect the interest of the Agent or the Banks under such
guaranty or its right to enforce the same.

Signed, sealed and                            GUARANTOR
delivered in the
presence of:                                  AVONDALE INCORPORATED

                                              By:
----------------------------------               ------------------------------
Witness                                          Title:

                                              Attest:
----------------------------------                   --------------------------
Witness                                              Name:
                                                     Title:

                                      194
<PAGE>   200

STATE OF GEORGIA  )
                  )
COUNTY OF FULTON  )

                                ACKNOWLEDGMENTS

         Before me this ____ day of ______________, 1996 a Notary Public in and
for Georgia and a resident of ______________________ County, Georgia personally
appeared ________________ residing in ________ County, Georgia and
_________________ residing in _____________ and known to me to be the persons
described in and who executed the foregoing Instrument as (and acknowledged to
me that they were) ______________ and ____________, respectively, of WACHOVIA
BANK OF GEORGIA, a national banking association, and acknowledged before me that
they, after being informed of the contents and for the purpose and consideration
therein expressed, executed the same as such officers and affixed the bank seal
in the name of and on behalf of said bank by authority of its board of directors
and said _____________ and ______________ acknowledged said Instrument to be the
free act and deed of said bank.

         WITNESS my hand and official seal in the County and State aforesaid
this _____ day of ________________, ______, County and State aforesaid.

                                         --------------------------------------
                                         Notary Public

                                         Notarization Date:              , 19
                                                           --------------    --

                                         My Commission expires:
                                                               ----------------

                                         [NOTARIAL SEAL]

STATE OF GEORGIA  )

                  )

COUNTY OF FULTON  )

                                      195
<PAGE>   201

                                ACKNOWLEDGMENTS

         Before me this ______ day of _________________ , 1996 a Notary Public
in and for Georgia and a resident of _________________ County, Georgia
personally appeared ________________ residing in ________ County, Georgia and
_________________ residing in _____________ and known to me to be the persons
described in and who executed the foregoing Instrument as (and acknowledged to
me that they were) ______________ and ____________, respectively, of SUNTRUST
BANK, ATLANTA, a Georgia bank, and acknowledged before me that they, after
being informed of the contents and for the purpose and consideration therein
expressed, executed the same as such officers and affixed the bank seal in the
name of and on behalf of said bank by authority of its board of directors and
said _____________ and ______________ acknowledged said Instrument to be the
free act and deed of said bank.

         WITNESS my hand and official seal in the County and State aforesaid
this ______ day of _________________ , ______, County and State aforesaid.

                                         --------------------------------------
                                         Notary Public

                                         Notarization Date:              , 19
                                                           --------------    --

                                         My Commission expires:
                                                               ----------------

                                         [NOTARIAL SEAL]

                                      196
<PAGE>   202

                                ACKNOWLEDGMENTS

         Before me this _____ day of _________________ , 1996 a Notary Public
in and for Georgia and a resident of ___________________ County, Georgia
personally appeared ________________ residing in ________ County, Georgia and
_________________ residing in _____________ and known to me to be the persons
described in and who executed the foregoing Instrument as (and acknowledged to
me that they were) ______________ and ____________, respectively, of AVONDALE
MILLS, INC., an Alabama corporation, and acknowledged before me that they,
after being informed of the contents and for the purpose and consideration
therein expressed, executed the same as such officers and affixed the corporate
seal in the name of and on behalf of said corporation by authority of its board
of directors and said _____________ and ______________ acknowledged said
Instrument to be the free act and deed of said corporation.

         WITNESS my hand and official seal in the County and State aforesaid
this ____ day of ___________________, ______, County and State aforesaid.

                                         --------------------------------------
                                         Notary Public

                                         Notarization Date:              , 19
                                                           --------------    --

                                         My Commission expires:
                                                               ----------------

                                         [NOTARIAL SEAL]

         THIS INSTRUMENT PREPARED BY CHRISTOPHER L. CARSON, ATTORNEY AT LAW, OF
JONES, DAY, REAVIS & POGUE, 3500 ONE PEACHTREE CENTER, 303 PEACHTREE STREET,
N.E., ATLANTA, GEORGIA 30308-3242

                                      197
<PAGE>   203

                       ACKNOWLEDGMENT FOR NORTH CAROLINA

STATE OF GEORGIA  )

COUNTY OF FULTON  )

         I ____________________, a Notary Public of __________ County, State of
Georgia, certify that _______________________ personally came before me this
day and acknowledged that he/she is ___________ Secretary of WACHOVIA BANK OF
GEORGIA, N.A., a national banking association, and that, by authority duly
given and as the act of the bank, the foregoing instrument was signed in its
name by its __________ President, sealed with its corporate seal, and attested
by himself/herself as its _______ Secretary.

         Witness my hand and official seal, this _____ day of __________, 19__.

My commission expires:
                                              ---------------------------------
                                              Notary Public
              , 19   .
-------------     --                          [Official Seal]

                                      198
<PAGE>   204

                       ACKNOWLEDGMENT FOR NORTH CAROLINA

STATE OF GEORGIA  )

COUNTY OF FULTON  )

         I ____________________, a Notary Public of __________ County, State of
Georgia, certify that _______________________ personally came before me this
day and acknowledged that he/she is ___________ Secretary of SUNTRUST BANK,
ATLANTA, a Georgia bank, and that, by authority duly given and as the act of
the bank, the foregoing instrument was signed in its name by its __________
President, sealed with its corporate seal, and attested by himself/herself as
its _______ Secretary.

         Witness my hand and official seal, this _____ day of __________, 19__.

My commission expires:
                                              ---------------------------------
                                              Notary Public
              , 19   .
-------------     --                          [Official Seal]

                                      199
<PAGE>   205

                       ACKNOWLEDGMENT FOR NORTH CAROLINA

STATE OF GEORGIA  )

COUNTY OF FULTON  )

         I ____________________, a Notary Public of __________ County, State of
Georgia, certify that _______________________ personally came before me this
day and acknowledged that he/she is ___________ Secretary of AVONDALE MILLS,
INC., an Alabama corporation, and that, by authority duly given and as the act
of the corporation, the foregoing instrument was signed in its name by its
__________ President, sealed with its corporate seal, and attested by
himself/herself as its _______ Secretary.

         Witness my hand and official seal, this _____ day of __________, 19__.

My commission expires:
                                              ---------------------------------
                                              Notary Public
              , 19   .
-------------     --                          [Official Seal]

                                      200
<PAGE>   206

                         ALABAMA FORM OF ACKNOWLEDGMENT

(STATE OF ALABAMA    )

(__________ COUNTY   )

         I, the undersigned, a Notary Public in and for said State, hereby
certify that _________________________, whose name as ________________________
of WACHOVIA BANK OF GEORGIA, a national banking association, is signed to the
foregoing instrument, and who is known to me, acknowledged before me on this
day that, being informed of the contents of the instrument, he as such officer,
and with full authority, executed the same voluntarily for and as the act of
said bank.

         Given under my hand and seal, this _____ day of __________, 1996.

                                         --------------------------------------
                                         Notary Public

                                         My Commission expires:
                                                               ----------------

                                      201
<PAGE>   207

                         ALABAMA FORM OF ACKNOWLEDGMENT

(STATE OF ALABAMA     )

(__________ COUNTY    )

         I, the undersigned, a Notary Public in and for said State, hereby
certify that ______________________________, whose name as
______________________________ of SUNTRUST BANK, ATLANTA, a Georgia bank, is
signed to the foregoing instrument, and who is known to me, acknowledged before
me on this day that, being informed of the contents of the instrument, he as
such officer, and with full authority, executed the same voluntarily for and as
the act of said bank.

         Given under my hand and seal, this _____ day of __________, 1996.

                                         --------------------------------------
                                         Notary Public

                                         My Commission expires:
                                                               ----------------

                                      202
<PAGE>   208

                         ALABAMA FORM OF ACKNOWLEDGMENT

(STATE OF ALABAMA     )

(__________ COUNTY    )

         I, the undersigned, a Notary Public in and for said State, hereby
certify that ______________________________, whose name as
______________________________ of Avondale Mills, Inc., an Alabama corporation,
is signed to the foregoing instrument, and who is known to me, acknowledged
before me on this day that, being informed of the contents of the instrument,
he as such officer, and with full authority, executed the same voluntarily for
and as the act of said corporation.

         Given under my hand and seal, this _____ day of __________, 1996.

                                         --------------------------------------
                                         Notary Public

                                         My Commission expires:
                                                               ----------------

                                      203
<PAGE>   209

STATE OF GEORGIA        )       SOUTH CAROLINA
                        )       PROBATE
COUNTY OF FULTON        )

                  Before me, the undersigned notary public, personally appeared
the undersigned witness, who being duly sworn, deposed and said that s/he saw
WACHOVIA BANK OF GEORGIA, N.A., by ____________________________ its
_____________________________ sign, seal and deliver the foregoing Amended and
Restated Intercreditor Agreement and that s/he together with the other witness
whose signature appears above witnessed the execution thereof.

                                         --------------------------------------
                                            Witness

SWORN TO and subscribed before

me this _____ day of April, 1996

--------------------------------   (SEAL)
Notary Public for Georgia

My Commission expires:
                       -------------------

                                      204
<PAGE>   210

STATE OF GEORGIA        )       SOUTH CAROLINA
                        )       PROBATE
COUNTY OF FULTON        )

         Before me, the undersigned notary public, personally appeared the
undersigned witness, who being duly sworn, deposed and said that s/he saw
SUNTRUST BANK, ATLANTA, by ______________________________ its
______________________________ sign, seal and deliver the foregoing Amended and
Restated Intercreditor Agreement and that s/he together with the other witness
whose signature appears above witnessed the execution thereof.

                                         --------------------------------------
                                            Witness

SWORN TO and subscribed before
me this _____ day of April, 1996

--------------------------------   (SEAL)
Notary Public for Georgia

My Commission expires:
                       -------------------

                                      205
<PAGE>   211

STATE OF GEORGIA        )       SOUTH CAROLINA
                        )       PROBATE
COUNTY OF FULTON        )

         Before me, the undersigned notary public, personally appeared the
undersigned witness, who being duly sworn, deposed and said that s/he saw
Avondale Mills, Inc. by ______________________________ its
______________________________ sign, seal and deliver the foregoing Amended and
Restated Intercreditor Agreement and that s/he together with the other witness
whose signature appears above witnessed the execution thereof.

                                         --------------------------------------
                                            Witness

SWORN TO and subscribed before
me this _____ day of April, 1996

--------------------------------   (SEAL)
Notary Public for Georgia

My Commission expires:

                                      206
<PAGE>   212

STATE OF GEORGIA        )       SOUTH CAROLINA
                        )       PROBATE
COUNTY OF FULTON        )

         BEFORE ME, the undersigned notary public, personally appeared
______________________________, who being duly sworn, deposed and said that he
saw _________________________ the _______________________ of Avondale Mills,
Inc., an Alabama corporation, sign, seal and deliver the foregoing Amended and
Restated Intercreditor Agreement on behalf of Avondale Mills, Inc., an Alabama
corporation, and he together with _______________________, witnessed the
execution thereof.

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

SWORN TO and subscribed before
me this _____ day of
_______________________, 1996

--------------------------------
Notary Public

My Commission expires:

[NOTARIAL SEAL]

                                      207
<PAGE>   213

STATE OF GEORGIA        )       SOUTH CAROLINA
                        )       PROBATE
COUNTY OF FULTON        )

         BEFORE ME, the undersigned notary public, personally appeared
______________________________, who being duly sworn, deposed and said that he
saw _________________________ the _______________________ of Wachovia Bank of
Georgia, N.A., a national banking association, sign, seal and deliver the
foregoing Amended and Restated Intercreditor Agreement on behalf of Wachovia
Bank of Georgia, N.A., a national banking association, and he together with
_______________________, witnessed the execution thereof.

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

SWORN TO and subscribed before
me this _____ day of
___________________, 1996

--------------------------------
Notary Public

My Commission expires:

[NOTARIAL SEAL]

                                      208
<PAGE>   214

STATE OF GEORGIA        )       SOUTH CAROLINA
                        )       PROBATE
COUNTY OF FULTON        )

         BEFORE ME, the undersigned notary public, personally appeared
______________________________, who being duly sworn, deposed and said that he
saw _________________________ the _______________________ of SunTrust Bank,
Atlanta, a Georgia bank, sign, seal and deliver the foregoing Amended and
Restated Intercreditor Agreement on behalf of SunTrust Bank, Atlanta, a Georgia
bank, and he together with _______________________, witnessed the execution
thereof.

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

SWORN TO and subscribed before
me this _____ day of
________________________, 1996

--------------------------------
Notary Public

My Commission expires:

[NOTARIAL SEAL]

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<PAGE>   215

                                   SCHEDULE I

                              SUNTRUST AGREEMENTS

LEE COUNTY, NORTH CAROLINA (LEE PLANT)

         Letter of Credit Agreement Dated as of June 1, 1989, as amended, By
         and Between Avondale Mills, Inc. and Trust Company Bank relating to
         $5,000,000 The Lee County Industrial Facilities and Pollution Control
         Financing Authority Refunding Revenue Bonds (Avondale Mills, Inc.
         Project), Series 1989

WALTON COUNTY, GEORGIA

         Letter of Credit Agreement Dated as of June 1, 1992, as amended, By
         and Between Walton Monroe Mills, Inc. and Trust Company Bank relating
         to $4,000,000 Development Authority of Walton County Industrial
         Development Revenue Bonds (Walton Monroe Mills, Inc. Project), Series
         1992A and $2,000,000 Development Authority of Walton County Industrial
         Development Revenue Bonds (Walton Monroe Mills, Inc. Project), Series
         1992B

YANCEY COUNTY, NORTH CAROLINA

         Letter of Credit Agreement Dated as of July 1, 1988, as amended, By
         and Between Avondale Mills, Inc. and Trust Company Bank relating to
         $10,000,000 The Yancey County Industrial Facilities and Pollution
         Control Financing Authority Refunding Revenue Bonds (Avondale Mills,
         Inc. Project), Series 1988

WALHALLA, SOUTH CAROLINA

         Letter of Credit Agreement Dated as of December 1, 1990, as amended,
         By and Between Avondale Mills, Inc. and Trust Company Bank relating to
         $5,000,000 City of Walhalla, South Carolina Refunding Revenue Bonds
         (Avondale Mills, Inc. Project), Series 1990

BON AIR, ALABAMA

         Letter of Credit Agreement Dated as of April 1, 1992, as amended, By
         and Between Avondale Mills, Inc. and Trust Company Bank relating to
         $3,000,000 The Industrial Development Board of the Town of Bon Air
         Refunding Revenue Bonds (Avondale Mills, Inc. Project), Series 1992

WORKERS COMPENSATION LETTERS OF CREDIT

(a)      Application and Agreement for Irrevocable Standby Letter of Credit
dated November 18, 1987 in the face amount of $200,000

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(b)      Application and Agreement for Irrevocable Standby Letter of Credit
dated December 7, 1988 in the face amount of $500,000

(c)      Application and Agreement for Irrevocable Standby Letter of Credit
dated October 20, 1992 in the face amount of $250,000

(d)      Application and Agreement for Irrevocable Standby Letter of Credit
dated August 12, 1993 in the face amount of $250,000

                                      211
<PAGE>   217

                                  SCHEDULE II

                               SUNTRUST MORTGAGES

LEE COUNTY, NORTH CAROLINA (LEE PLANT)

         Deed of Trust and Security Agreement from Avondale Mills, Inc., to
         Richard Love, as deed of trust trustee for the benefit of Wachovia
         Bank of Georgia, National Association, as Bond Trustee, and Trust
         Company Bank Dated as of December 2, 1992

WALTON COUNTY, GEORGIA

         Security Deed and Security Agreement dated as of June 1, 1992 from
         Development Authority of Walton County (the "Issuer") and Walton
         Monroe Mills, Inc. (the "Company"; the Issuer and the Company herein
         together called the "Grantors") to Trust Company Bank

YANCEY COUNTY, NORTH CAROLINA

(a)      Deed of Trust and Security Agreement from Avondale Mills, Inc., to
Staunton Norris, as deed of trust trustee for the benefit of First National
Bank of Atlanta, as Bond Trustee, and Trust Company Bank Dated as of July 1,
1988

(b)      Security Agreement from Avondale Mills to Trust Company Bank Dated as
of December 2, 1992

                                      212
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                                                                      EXHIBIT L

                  AMENDED AND RESTATED STOCK PLEDGE AGREEMENT

                  THIS AMENDED AND RESTATED STOCK PLEDGE AGREEMENT (this
"Agreement"), is made and entered into as of April 29, 1996, by and between
Wachovia Bank of Georgia, N.A., a national banking association, as agent for
the Banks parties to the "Credit Agreement" (as hereinafter defined)(the
"Agent"), and Avondale Incorporated, a Georgia corporation ("Pledgor");

                                  WITNESSETH:

         WHEREAS, the Pledgor executed and delivered a Stock Pledge Agreement
dated as of March 29, 1994 (the "Original Pledge Agreement" pursuant to a
Credit Agreement of even date therewith by and among the Borrower, the Agent
and the Banks party thereto (the "Original Credit Agreement"); and

         WHEREAS, pursuant to that certain Amended and Restated Credit
Agreement, dated as of even date herewith, among Borrower, the Agent, The First
National Bank of Chicago, as Documentation Agent, and the Banks parties thereto
(as amended or modified from time to time, the "Credit Agreement"), the
Original Credit Agreement has been amended and restated, and the Banks have
made or will make loans to the Borrower; and

         WHEREAS, the obligations of the Banks to extend financial
accommodations under the Credit Agreement is conditioned on, among other
things, the execution and delivery by Pledgor of the Parent Guaranty (as
defined in the Credit Agreement) and this Agreement in order to secure said
indebtedness and to induce the Banks and the Agent to execute and enter into
the Credit Agreement, the Borrower has agreed to execute and deliver this
Agreement, granting a security interest in, and lien upon, the Pledged Stock to
the Agent for the benefit of the Banks, and continuing in effect the security
interest in, and lien upon, the Pledged Stock granted to the Agent pursuant to
the Original Pledge Agreement; and

         WHEREAS, pursuant to the Parent Guaranty, Pledgor has guaranteed
payment of all of the Obligations; and

         WHEREAS, to induce the Banks to extend or to continue to extend
financial accommodations to the Borrower, Pledgor has agreed to enter into this
Agreement; and

         WHEREAS, Pledgor is the sole owner of 100% of the Capital Stock of the
Borrower and will be benefitted by such financial accommodations by the Banks
to the Borrower;

         WHEREAS, it is the intent of the parties that this Agreement amend,
restate and supersede the Original Pledge Agreement, and continue in effect the
security interests and liens granted thereto without lapse or loss of
perfection;

                                      213
<PAGE>   219

         NOW, THEREFORE, for the sum of $10 in hand paid and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and to induce the Banks to extend financial accommodations from
time to time to the Borrower, Pledgor and the Agent hereby agree as follows:

         1.       Defined Terms.  Capitalized terms contained herein but not
defined herein shall have the meanings given them in the Credit Agreement.

         2.       Pledge of Collateral. Pledgor does hereby pledge,
hypothecate, assign, transfer, set over, deliver and grant a security interest
in and to the Agent in all that Capital Stock of Avondale Mills, Inc. set forth
and described on Exhibit "A" attached hereto and by reference made part hereof
(which stock is simultaneously herewith being delivered to the Agent,
accompanied by blank stock powers signed by Pledgor), together with any and all
other securities, cash or other property at any time and from time to time
receivable or otherwise distributed in respect of or in exchange for any or all
of such pledged stock, and together with the proceeds thereof (hereinafter said
property being collectively referred to as the "Collateral"), all as security
for the payment of all of the Obligations in existence from time to time.

         3.       Holding of Collateral and Rights. Pledgor acknowledges and
agrees that the Agent shall hold the Collateral, together with all right,
title, interest, powers, privileges and preferences pertaining or incidental
thereto forever, subject, however, to the provisions of Sections 8 and 14
hereof and to the return of the Collateral (or such portion thereof as may be
existing from time to time hereafter after giving effect to the terms hereof)
by the Agent to Pledgor pursuant to Section 4 hereof or upon the final and
indefeasible payment in full of all the Obligations and termination in writing
of any and all credit commitments with respect thereto.

         4.       Intentionally Omitted.

         5.       Representations and Warranties; Certain Covenants. The Parent
incorporates herein by reference as fully as if set forth herein all of the
representations and warranties of the Parent contained in Article IV of the
Credit Agreement (which representations and warranties shall be deemed to have
been renewed by Pledgor upon each Borrowing under the Credit Agreement to the
same extent and with the same effect as provided therein with respect to the
renewal thereof by the Borrower) and all covenants of Pledgor contained in
Article V of the Credit Agreement. In addition, Pledgor hereby represents and
warrants (which representations and warranties likewise shall be deemed to have
been renewed by Pledgor upon each Borrowing under the Credit Agreement) that:
(i) Pledgor has the complete and unconditional authority to pledge the
Collateral; (ii) Pledgor holds the Collateral free and clear of any and all
liens, charges, encumbrances and security interests thereon (other than in
favor of the Agent) and has good right, title and legal authority to pledge the
Collateral in the manner contemplated herein; (iii) all stock now owned or
hereafter owned by Pledgor and constituting or which will constitute Collateral
hereunder is, or will be on date of pledge thereof, validly issued, fully paid
and non-assessable; and (iv) no authorization, approval, or other action by,
and no notice to or filing with, any governmental authority or regulatory body
is required either (1) for the pledge by Pledgor of the Collateral pursuant to
this Agreement or for the execution, delivery or performance of this Agreement
by Pledgor or (2) for the exercise by Agent of the voting or other

                                      214
<PAGE>   220

rights provided for in this Agreement or the remedies in respect of the
Collateral pursuant to this Agreement (except as may be required in connection
with the exercise of such rights or remedies by laws affecting the voting,
offering and sale of securities generally).

         6.       Delivery of Additional Securities; Further Assurances.
Pledgor further covenants with the Agent that Pledgor will cause any additional
securities or other property issued to or received by Pledgor with respect to
any of the Collateral (except as provided in Section 8 below), whether for
value paid by Pledgor or otherwise, and including stock dividends, to be
deposited forthwith with the Agent and be pledged hereunder, in each case
accompanied by blank stock powers or other proper instruments of assignment
duly executed by Pledgor in such form as may be reasonably required by the
Agent. Pledgor agrees that at any time and from time to time, at the expense of
Pledgor, Pledgor will promptly execute and deliver all further instruments and
documents, and take all further action that the Agent may reasonably request,
in other to perfect and protect the security interest granted or purported to
be granted hereby or to enable the Agent to exercise and enforce its rights,
powers and remedies hereunder with respect to any Collateral.

         7.       Name in Which Collateral Held. Pledgor further acknowledges
and agrees that the Agent may hold any of the Collateral in its own name,
endorsed or assigned in blank or in the name of any nominee or nominees, and
that the Agent may deliver any or all of the Collateral to the issuer or
issuers thereof for the purpose of making denominational exchanges or
registrations of transfer or for such other purposes in furtherance of this
Agreement as the Agent may deem advisable.

         8.       Voting Rights; Dividends, Etc.  (a)  So long as no Event of
Default shall have occurred and be continuing and the Agent has not, subject to
the provisions of Section 14 hereof, delivered a notice to Pledgor of the
Agent's intention to exercise voting and other consensual rights pursuant to
this Section 8:

                           (i)      Pledgor shall be entitled to exercise any
and all voting and other consensual rights pertaining to the Collateral or any
part thereof for any purpose not prohibited by the terms of this Agreement, the
Parent Guaranty, the Credit Agreement or any other Loan Documents; provided,
however, that the Pledgor shall give the Agent at least 5 Domestic Business
Days' prior written notice of the manner in which it intends to exercise any
right if such action would have a material adverse effect on the value of the
Collateral, and following request therefor by the Agent, Pledgor shall not
exercise or refrain from exercising any such right; and

                           (ii)     the Agent shall execute and deliver (or
cause to be executed and delivered) to Pledgor all such proxies and other
instruments as Pledgor may reasonably request for the purpose of enabling
Pledgor to exercise the voting and other rights which it is entitled to
exercise pursuant to clause (i) above.

                           (iii)    Pledgor shall be entitled to receive and
retain any nonliquidating cash dividends, interest or any other distribution of
property paid, payable or otherwise distributed in cash in respect of the
Collateral.

                                      215
<PAGE>   221

                  (b)      Subject to the provisions of Section 14 hereof, upon
the occurrence and during the continuance of an Event of Default, and with
respect to clause (i) below, the delivery of a notice to Pledgor of the Agent's
intention to exercise voting and other consensual rights pursuant thereto:

                           (i)      All rights of Pledgor to exercise the
voting and other consensual rights which it would otherwise be entitled to
exercise pursuant to Section 8(a) shall cease, and all such rights shall
thereupon become vested in the Agent who shall thereupon have the sole right to
exercise such voting and other consensual rights; provided, however, Pledgor
shall continue to have the rights to exercise such voting and other consensual
rights notwithstanding the occurrence and continuance of an Event of Default
until the Agent, subject to the provisions of Section 14 hereof, delivers a
notice to Pledgor of the Agent's intention to exercise such voting and other
consensual rights.

                           (ii)     All rights of Pledgor to receive cash
dividends, interest, proceeds or other distributions in cash from the
Collateral, which it would otherwise be authorized to receive and retain
pursuant to Section 8(a) shall cease and all rights to dividends, interest,
proceeds and other distributions shall thereupon be vested in the Agent, who
shall thereupon have the sole right to receive and hold as Collateral such
interest or other distributions. All dividends, interest, proceeds and other
distributions which are received by Pledgor contrary to these provisions shall
be received in trust for the benefit of the Agent, shall be segregated from
other property or funds of Pledgor and shall be forthwith delivered to the
Agent as Collateral in the same form as so received (with any necessary
endorsement).

         9.       Agent Appointed Attorney-in-Fact. Pledgor hereby irrevocably
appoints the Agent as Pledgor's attorney-in-fact, with full authority in the
place and stead of Pledgor and in the name of Pledgor or otherwise, from time
to time in the Agent's discretion, after the occurrence and during the
continuance of an Event of Default, and subject to the provisions of Section 14
hereof, where applicable, to take any action and to execute any instrument
which the Agent may deem reasonably necessary or advisable to accomplish the
purposes of this Agreement, including, without limitation, to receive, endorse
and collect all instruments made payable to Pledgor representing any dividend,
principal and/or interest payment or other distribution in respect of the
Collateral or any part thereof and to give full discharge for the same, when
and to the extent permitted by this Agreement.

         10.      The Agent May Perform. If Pledgor fails to perform any
agreement contained herein, the Agent may take reasonable action to perform, or
cause performance of, such agreement, and the reasonable expenses of the Agent
incurred in connection therewith shall be payable by Pledgor under Section 13;
provided, that, the Agent shall exercise commercially reasonable efforts to
notify Pledgor prior to taking any such action (although the failure to so
notify Agent shall not limit the Agent's rights hereunder).

         11.      Reasonable Care. The Agent shall be deemed to have exercised
reasonable care in the custody and preservation of the Collateral in its
possession if the Collateral is accorded treatment substantially equal to that
which the Agent accords the Agent's own property, it being understood that the
Agent shall not have responsibility for (i) ascertaining or taking action with

                                      216
<PAGE>   222

respect to calls, conversions, exchanges, maturities, tenders or other matters
relative to any Collateral, whether or not the Agent has or is deemed to have
knowledge of such matters, unless reasonably requested to do so by Pledgor, or
(ii) taking any necessary steps to preserve rights against any parties with
respect to any Collateral.

         12.      Events of Default. The following shall constitute "Events of
Default" hereunder:

                  (a)      Should Pledgor assign, attempt to encumber, subject
to further pledge or security interest, sell, transfer or otherwise dispose of
any of the Collateral without the prior written consent of the Agent;

                  (b)      If an "Event of Default" occurs under any of the
Credit Agreement, the other Loan Documents or the Parent Guaranty; or

                  (c)      If any representations or warranties made herein by
Pledgor shall be untrue in any material respect when made or furnished.

         13.      Remedies. If any Event of Default shall have occurred and be
continuing:

                  (a)      Subject to the provisions of Section 14 hereof, the
Agent may exercise (in compliance with all applicable securities laws) in
respect of the Collateral, in addition to other rights and remedies provided
for herein or otherwise available to them, all the rights and remedies of a
secured party on default under the Uniform Commercial Code in effect in the
State of Georgia at that time, and the Agent may also, without notice except as
specified below, sell (in compliance with all applicable securities laws) the
Collateral or any part thereof in one or more parcels at public or private
sale, at any exchange, over the counter or at any of the Agent's offices or
elsewhere, for cash, on credit or for future delivery, and at such price or
prices and upon such other terms as the Agent may deem commercially reasonable
or otherwise in such manner as necessary to comply with applicable federal and
state securities laws. The Agent shall be authorized at any such sale (if it
deems it advisable to do so) to restrict the prospective bidders or purchasers
to persons who will represent and agree that they are purchasing the Collateral
for their own account for investment and not with a view to the distribution or
sale thereof, and upon consummation of any such sale the Agent shall have the
right to assign, transfer and deliver to the purchaser or purchasers at any
such sale and such purchasers shall hold the property sold absolutely, free
from any claim or right on the part of Pledgor, and Pledgor hereby waives (to
the extent permitted by law) all rights of redemption, stay and/or appraisal
which it now has or may at any time in the future have under any rule of law or
statute now existing or hereafter enacted. Subject to the provisions of Section
14 hereof, the Agent shall give Pledgor at least 10 days' notice of the time
and place of any public sale or the time after which any private sale is to be
made , which Pledgor agrees shall constitute reasonable notification. At any
such sale, the Agent may bid (which bid may be, in whole or in part, in the
form of cancellation of Obligations) for and purchase the whole or any part of
the Collateral. The Agent shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. The Agent may adjourn any
public or private sale from time to time by announcement at the time and place
fixed therefor, and such sale may, without further notice, be made at the time
and place to which it was so adjourned. If sale of all or any part of the
Collateral is made on credit or for future delivery,

                                      217
<PAGE>   223

the Collateral so sold may be retained by the Agent until the sale price is
paid by the purchaser or purchasers thereof, but the Agent shall not incur any
liability in case any such purchaser or purchasers shall fail to take up and
pay for the Collateral so sold and, in case of any such failure, such
Collateral may be sold again upon like notice. Pledgor agrees that any sale of
the Collateral conducted by the Agent in accordance with the foregoing
provisions of this Section 13 shall be deemed to be a commercially reasonable
sale under O.C.G.A. ss. 11-9-504 of the Georgia Uniform Commercial Code. As an
alternative to exercising the power of sale herein conferred upon them, the
Agent may proceed by a suit or suits at law or in equity to foreclose the
security interest granted under this Agreement and to sell the Collateral, or
any portion thereof, pursuant to a judgment or decree of a court or courts of
competent jurisdiction.

                  (b)      Any cash held by the Agent as Collateral and all
cash proceeds received by the Agent in respect of any sale of, collection from,
or other realization upon or any part of the Collateral following the
occurrence of an Event of Default shall be applied by the Agent for the benefit
of the Banks in the following manner: first, in discharge of all expenses
incurred by the Agent which Pledgor is obligated to reimburse the Agent
pursuant to Section 15 hereof; secondly, to all outstanding fees and other
expenses owing under the Credit Agreement or the other Loan Documents in such
order as the Required Banks shall elect; thirdly, to accrued and unpaid
interest on the Obligations in such order as the Required Banks may elect; and
lastly, to the principal balances of any such Obligations then outstanding in
such order as the Required Banks may elect.

                  (c)      Any surplus of such cash or cash proceeds held by
the Agent and remaining after payment in full of all the Obligations shall be
paid over to Pledgor or to whomsoever may be lawfully entitled to receive such
surplus.

         14.      Standstill as to Certain Remedies. Notwithstanding any other
provision in this Agreement to the contrary, the right of the Agent with
respect to voting and other consensual rights pursuant to Section 8(b) hereof
and with respect to sale of the Collateral pursuant to Section 13(a) hereof
shall not vest and may not be exercised for a period of 90 days after whichever
of the following is applicable (the "Standstill Period"):

         (i) with respect to an Event of Default under Section 6.01(b) of the
Credit Agreement arising out of a breach of any of Sections 5.03 through 5.06,
inclusive, of the Credit Agreement, the earlier to occur of (x) written notice
thereof has been given to the Pledgor by the Agent, or (y) an officer of the
Pledgor otherwise becomes aware of any such breach, or (z) the date which is 30
days after the end of the Fiscal Quarter in which such breach occurs;

         (ii) with respect to any Event of Default under Section 6.01(m) of the
Credit Agreement, written notice thereof has been given to the Pledgor by the
Agent; and

         (iii) with respect to any other Event of Default, the date of
occurrence of such Event of Default,

in each case, unless a "Standstill Termination Event" occurs during the
Standstill Period, in which case such rights may be exercised by the Agent
immediately or at any time thereafter, so

                                      218
<PAGE>   224

long as such Event of Default continues. The term "Standstill Termination
Event" means the occurrence of any of the following events:

         (a)      An Event of Default under Section 5.02(ii) of the Credit
Agreement;

         (b)      The Consolidated Cash Flow of the Pledgor and its
Consolidated Subsidiaries, determined on a consolidated basis in accordance
with GAAP, calculated for the fiscal month of the Pledgor just ended and the
immediately preceding 11 fiscal months of the Pledgor, is less than
$55,000,000;

         (c)      The Fixed Charge Coverage Ratio, calculated at the end of
each fiscal month of the Pledgor, is greater than 1.25 to 1.0;

         (d)      The Borrower or the Pledgor shall create any Lien securing
Debt in excess of $1,000,000 on any of the Collateral or any Plant which is not
permitted by Section 5.11 of the Credit Agreement;

         (e)      An Event of Default under Section 5.14 of the Credit
Agreement, but if such Event of Default relates to a sale of assets, only if
the amount thereof exceeds the amount permitted by Section 5.14 by $2,000,000;

         (f)      The Borrower or the Pledgor shall incur any Debt of the types
described in clauses (i) or (ii) of the definition of Debt in the Credit
Agreement, or Debt of others of such type Guaranteed by the Borrower or the
Pledgor, in excess of $4,000,000, which is not permitted by Section 5.23 of the
Credit Agreement, or the Receivables Subsidiary shall incur any Debt or other
liabilities other than in connection with the Receivables Securitization
Program;

         (g)      The Pledgor or any Subsidiary which is not a Wholly-Owned
Subsidiary shall make any Restricted Payments in any Fiscal Year in an amount
in excess of $2,000,000 over the maximum amount permitted by Section 5.07 of
the Credit Agreement;

         (h)      An Event of Default occurs under Section 5.26 of the Credit
Agreement;

         (i)      The Borrower shall fail to pay within 5 days of the date when
due (other than by reason of acceleration of maturity pursuant to Section 6.01
of the Credit Agreement) any principal of any Loan, or shall fail to pay any
interest on any Loan within 10 Domestic Business Days after such interest shall
become due, or, if the Event of Default which commences the Standstill Period
arose from a failure to pay principal (other than by reason of acceleration of
maturity pursuant to Section 6.01 of the Credit Agreement) of or interest on
the Loans, such failure continues after the date such Event of Default occurred
for 5 days, with respect to a principal payment failure, or 5 Domestic Business
Days, with respect to an interest payment failure;

         (j)      An Event of Default occurs under any of Sections 6.01(g), (h)
or (l) of the Credit Agreement; or

                                      219
<PAGE>   225
          (k) The Pledgor fails to comply with the provisions of the last
sentence of this Section 14.

So long as the Event of Default which commenced the Standstill Period continues,
the Pledgor will furnish to the Agent, as soon as available and in any event,
within 21 days after the end of each fiscal month of the Pledgor, commencing
with the fiscal month in which such Event of Default occurs, the financial
statements required to be furnished by Section 5.01(b) of the Credit Agreement,
but on a monthly basis, for each fiscal month of the Parent and the portion of
the Fiscal Year ended at the end of such fiscal month, together with a statement
of the chief financial officer or the chief accounting officer of the Pledgor,
setting forth in reasonable detail the calculations required to establish
whether a Standstill Termination Event has occurred under paragraph (b) or (c)
above.

         15. Expenses. Pledgor will, upon demand, pay to the Agent the amount of
any and all reasonable expenses, including the reasonable fees and expenses of
its counsel, actually incurred, and of any experts and agents, and including any
taxes or fees incurred on account of the execution, issuance, delivery or
recording of this Agreement or other documents executed in connection herewith
which the Agent may incur in connection with (i) the sale of, collection from,
or other realization upon, any of the Collateral, or (ii) the exercise or
enforcement of any of the rights of the Agent hereunder, or (iii) the failure by
Pledgor to perform or observe any of the provisions hereof.

         16. Security Interest Absolute. All rights of the Agent hereunder, the
security interest granted to the Agent hereunder, and all obligations of Pledgor
hereunder, shall be absolute and unconditional irrespective of any of the
following, and Pledgor expressly consents to the occurrence of any of such
events and waives, in its capacity as Pledgor, to the extent permitted by law,
any defense arising therefrom:

                     (i)   any lack of validity or enforceability of any of the
Loan Documents or any other agreement or instrument relating thereto;

                     (ii)  any change in the time, manner or place of payment
of, or in any other term of, all or any of the Obligations, or any other
amendment or waiver of or any consent to any departure from any of the Loan
Documents;

                     (iii) any exchange, release or non-perfection of any other
collateral, or any release or amendment or waiver of or consent to or departure
from any of the Loan Documents, including, without limitation, the Security
Agreement and any Operative Mortgages or any other guaranty for all or any of
the Obligations; or

                     (iv)  any other circumstance which might otherwise
constitute a defense available to, or a discharge of, Pledgor in respect of the
Obligations or in respect of this Agreement.

         17. Amendments, Etc. No amendment or waiver of any provision of this
Agreement nor consent to any departure by Pledgor herefrom shall in any event be
effective unless the same

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<PAGE>   226

shall be in writing and signed by the Agent and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given.

         18. No Waiver; Cumulative Remedies. No failure on the part of the Agent
to exercise, and no delay in exercising, any right, power or remedy hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right, power or remedy by the Agent preclude any other or further
exercise thereof or the exercise of any other right, power or remedy. All
remedies hereunder are cumulative and are not exclusive of any other remedies
provided by law.

         19. Severability. If any provision of this Agreement or the application
thereof to any party hereto or circumstances shall be invalid or unenforceable
to any extent, the remainder of this Agreement and the application of such
provisions to any other party thereto or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.

         20. Notices. All notices, requests and other communications to any
party hereunder shall be in writing (including bank wire, telecopier or similar
writing) and shall be given to such party at its address or telecopier number
set forth on the signature pages or at such other address or telecopier number
as such party may hereafter specify for the purpose by notice to each other
party. Each such notice, request or other communication shall be effective (i)
if given by telecopier, when such telecopy is transmitted to the telecopier
number specified in this Section and the appropriate confirmation is received,
(ii) if given by mail, 3 Domestic Business Days after such communication is
deposited in the mail, with first class postage prepaid, addressed as aforesaid
or (iii) if given by any other means, when delivered at the address specified in
this Section 20.

         21. Time is of the Essence. Time is of the essence in this Agreement.

         22. Interpretation. No provision of this Agreement shall be construed
against or interpreted to the disadvantage of any party hereto by any court or
other governmental or judicial authority by reason of such party having or being
deemed to have structured or dictated such provision.

         23. The Agent Not Joint Venturer. Neither this Agreement nor any
agreements, instruments, documents or transactions contemplated hereby shall in
any respect be interpreted, deemed or construed as making the Agent a partner or
joint venturer with Pledgor or as creating any similar relationship or entity,
and Pledgor agrees that it will not make any contrary assertion, contention,
claim or counterclaim in any action, suit or other legal proceeding involving
the Agent and Pledgor.

         24. Jurisdiction. Pledgor agrees that any legal action or proceeding
with respect to this Agreement may be brought in the courts of the State of
Georgia or the United States of America for the Northern District of Georgia,
Atlanta Division, all as the Agent may elect. By execution of this Agreement,
Pledgor hereby submits to each such jurisdiction, hereby expressly waiving
whatever rights may correspond to it by reason of its present or future
domicile. Nothing herein shall affect the right of the Agent to commence legal
proceedings or otherwise

                                      221
<PAGE>   227

proceed against Pledgor in any other jurisdiction or to serve process in any
manner permitted or required by law.

         25. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia and shall inure to the benefit
of and be binding upon the successors and assigns of the parties hereto.

         26. Counterparts. This Agreement may be executed in two or more
counterparts, each of which when fully executed shall be an original, and all of
said counterparts taken together shall be deemed to constitute one and the same
agreement.

                         [Signatures on Following Page]

                                      222
<PAGE>   228

         IN WITNESS WHEREOF, Pledgor has caused this Agreement to be duly
executed under seal as of the date first above written.

                                 "PLEDGOR"

                                 AVONDALE INCORPORATED                 (SEAL)

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

                                 Avondale Incorporated
                                 506 South Broad Street
                                 Monroe, Georgia 30655
                                 Attention: Chairman and Chief Executive Officer
                                 Telecopier number: 770-267-2543
                                 Telephone number:  770-267-2226

ACCEPTED AND AGREED:

WACHOVIA BANK OF GEORGIA, N.A.,
in its capacity as Agent

By:
   ------------------------------
   Title:
Wachovia Bank of Georgia, N.A.
191 Peachtree Street, N.E.
Atlanta, Georgia 30303-1757
Attention:  Commercial Group
Telecopier number:  404-332-6220
Telephone number:  404-332-6094

                                      223
<PAGE>   229

                        Exhibit A to Amended and Restated
                             Stock Pledge Agreement

            DESCRIPTION OF THE CAPITAL STOCK OF AVONDALE MILLS, INC.

    1,000 Shares, $1.00 Par Value Common Stock Evidenced by Certificate No. 1

                                      224
<PAGE>   230

                                    Exhibit M

                             INTERCREDITOR AGREEMENT

         This INTERCREDITOR AGREEMENT, dated as of April 29 1996 (this
"Agreement"), is executed and delivered by WACHOVIA BANK OF GEORGIA, N.A., as
agent under the Security Agreement referred to hereinbelow (in such capacity,
together with its successors in such capacity, the "Agent"), and MANUFACTURERS
AND TRADERS TRUST COMPANY as trustee under the Pooling and Servicing Agreement
referred to hereinbelow (in such capacity, the "Trustee").

                                   BACKGROUND

         A.       Avondale Mills, Inc. (the "Company") and the Agent, are
parties to that certain Amended and Restated Security Agreement dated as of
April 29, 1996 (as amended, modified, supplemented or restated and in effect
from time to time, the "Security Agreement") for the benefit of certain
creditors of the Company party to the credit agreement referred to therein (as
amended, modified, supplemented or restated and in effect from time to time, the
"Credit Agreement").

         B.       The Company is entering into that certain Receivables Purchase
Agreement (as amended, modified, supplemented or restated and in effect from
time to time, the "Purchase Agreement"), dated as of April 29, 1996, by and
between the Company and Avondale Receivables Company (the "Receivables
Subsidiary"), pursuant to which the Company will sell or contribute to the
Receivables Subsidiary substantially all domestic Receivables that it now owns
and from time to time hereafter will own, and the Company may from time to time
enter into one or more Contribution Agreements (each, a "Contribution
Agreement") with the Receivables Subsidiary, pursuant to which the Company will
contribute to the Receivables Subsidiary some or all of its Receivables.

         C.       Contemporaneously with the sale or contribution of Receivables
to the Receivables Subsidiary pursuant to the Purchase Agreement and any
Contribution Agreement, the Receivables Subsidiary will transfer the Receivables
and the other Specified Assets (as defined below) to the Trustee pursuant to
that certain Pooling and Servicing Agreement (as amended, supplemented, modified
or restated and in effect from time to time, the "Pooling and Servicing
Agreement") dated as of April 29, 1996 among the Receivables Subsidiary, the
Company, as initial Servicer, and the Trustee.

         D.       Contemporaneously with the execution and delivery of the
Purchase Agreement and the Pooling and Servicing Agreement, and from time to
time thereafter, securities ("Certificates") and undivided interests ("Purchased
Interests") representing beneficial interests in, or obligations secured by,
such Specified Assets will be issued. Certain of the Certificates and Purchased
Interests may be sold by the Receivables Subsidiary to investors ("Investors")
and/or pledged to secure loans or other extensions of credit made to the
Receivables Subsidiary by lenders (the "Lenders"), all as further provided by
the Transaction Documents (as defined below).

                                      225

<PAGE>   231

         E.       To induce the Receivables Subsidiary and the Trustee to enter
into the Transaction Documents, to induce any Lenders to extend credit
thereunder and to induce any Investors to purchase Certificates, the requisite
parties to the Credit Agreement have authorized the Agent to execute and deliver
this Agreement.

         F.       The execution and delivery of this Agreement is a condition
precedent to the effectiveness of the Purchase Agreement, the Pooling and
Servicing Agreement and the other Transaction Documents.

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

         1.       Definitions. (a) Capitalized terms not defined herein that are
defined in Appendix A to the Pooling and Servicing Agreement shall for the
purposes of this Agreement (including the recitals hereof) have the meanings
ascribed to such terms in such Appendix A.

         (b)      In addition, the following terms shall have the meanings
specified below:

                  "Bank Collateral" means all property and interests in property
         (other than Specified Assets) now or hereafter acquired by the Company
         in or upon which a security interest, lien or mortgage is granted by
         the Company to the Agent under the Security Agreement or any other
         collateral document executed in connection with the Credit Agreement,
         including the "Excluded Receivables Assets", as defined below.

                  "Excluded Receivables Assets" means: (i) "Inventory
         Collateral" (as that term is defined in the Security Agreement referred
         to in the Credit Agreement), other than returned goods, if any,
         relating to the sale that gave rise to any Receivables which are
         included in the Specified Assets ("Specified Returned Goods)"; (ii)
         Excluded Receivables; and (iii) any Receivables or other proceeds of
         Inventory Collateral created or arising (x) after a Bankruptcy Event in
         which the Company is the debtor (other than proceeds of Specified
         Returned Goods), (y) after termination of purchases under the Purchase
         Agreement or (z) from the sale or other disposition of any of the
         Inventory Collateral (other than Specified Returned Goods) by the
         Agent, as a secured party under the UCC.

                  "Specified Assets" means the Purchased Receivables, the
         Contributed Receivables and the Related Assets, as more fully described
         in Sections 1.1 and 1.9 of the Purchase Agreement; provided, however,
         that, notwithstanding anything to the contrary in the Purchase
         Agreement, Appendix A to the Pooling and Servicing Agreement or any
         other Transaction Documents, the term "Specified Assets" shall not
         include any of the Excluded Receivables Assets, which shall constitute
         Bank Collateral.

         2.       Authorization. The Agent confirms that the terms of the Credit
Agreement (i) authorize the Agent to execute, deliver and perform this
Agreement, and (ii) provide for all of the parties to the Credit Agreement to be
bound by this Agreement.

                                      226

<PAGE>   232

         3.       Release of Specified Assets. The Agent hereby releases all
liens and security interests of any kind whatsoever which the Agent (or any
trustee or agent acting on its behalf) holds in Specified Assets, to the extent
that such Specified Assets would otherwise constitute Bank Collateral. It is
understood and agreed that the Agent shall have no rights to or in any proceeds
of the Bank Collateral that constitute Specified Assets, except to the extent
such proceeds constitute Excluded Receivables Assets. The Agent agrees, upon the
reasonable request of the Trustee, to execute and deliver to the Trustee such
UCC partial release statements and other documents and instruments, and do such
other acts and things, as the Trustee may reasonably request in order to
evidence the release provided for in this Section 3; provided, however, that
failure to execute and deliver any such partial release statements, documents or
instruments, or to do such acts and things, shall not affect or impair the
release provided for in this Section 3.

         4.       Separation of Collateral. (a) The Trustee hereby agrees
promptly to return to the Company funds or other property other than Specified
Assets (or proceeds thereof, other than proceeds constituting Excluded
Receivables Assets) which constitute Bank Collateral (or proceeds thereof);
provided, that the Company or the Agent shall have identified such Bank
Collateral or proceeds in writing to the Trustee or an Authorized Officer of the
Trustee otherwise has actual knowledge of the identity of such Bank Collateral
or proceeds; and provided further that if the Agent shall so request in a
written notice to the Trustee, the Trustee shall return such funds and property
to the Agent instead of to the Company. For purposes of maintaining the
perfection of the Agent's lien thereon, the Agent hereby appoints the Trustee as
its agent in respect of such funds or other property.

         (b)      The Agent hereby agrees to promptly return to the Trustee any
funds or other property which constitute Specified Assets (or proceeds thereof),
provided, that the Trustee shall have identified such Specified Assets or
proceeds in writing to the Agent or an officer of the Agent otherwise has actual
knowledge of the identity of such Specified Assets or proceeds. For purposes of
maintaining the perfection of the Trustee's interests therein, the Trustee
hereby appoints the Agent as its agent with respect to such Specified Assets and
proceeds.

         (c)      All payments made by an Obligor that is obligated to make
payment with respect to both Specified Assets and other Receivables shall be
applied against the Receivables, if any, that are designated by such Obligor. In
the absence of such designation, such payment shall be applied against the
oldest outstanding Receivables owed by such Obligor.

         (d)      Unless the Trustee and Agent agree otherwise in writing,
neither the Trustee nor the Agent shall send any notice to an Obligor directing
it to remit payments in respect of any Receivable to any account other than the
Lockbox Accounts or the Concentration Accounts.

         (e)      In the event that any of the Specified Assets (or proceeds
thereof, other than proceeds constituting Excluded Receivables Assets) become
commingled with any Bank Collateral (or proceeds thereof), then the Agent and
the Trustee shall, in good faith, cooperate with each other to separate the
Specified Assets (and proceeds thereof) from such Bank Collateral (and proceeds
thereof); provided, however, that in the case of any assets, if such separation
is not possible, the parties hereto agree to share the proceeds of such property

                                      227

<PAGE>   233

proportionately according to the interests of the Agent and the Trustee therein;
provided, further, that each party shall bear its own out-of-pocket costs and
expenses incurred to effect such separation and/or sharing (including without
limitation fees and expenses of auditors and attorneys) to the extent that such
costs and expenses are not reimbursed or otherwise borne by the Company (it
being understood that nothing in this Agreement shall limit the obligation of
the Company to make such reimbursement or bear such costs and expenses in
accordance with the terms of the Credit Agreement, the Security Agreement and
the Transaction Documents); and provided, further, that this Section 4(e) shall
not require any party to this Agreement to take any action which it believes, in
good faith, may prejudice its ability to realize the value of, or to otherwise
protect, its interests (and the interests of the parties for which it acts).

         5.       Additional Agreements with Bank Parties. The Agent agrees,
represents and warrants, on behalf of itself and the other parties to the Credit
Agreement (excluding the Company; the Agent and such other parties being herein
called the "Bank Parties") as follows:

         (a)      The Bank Parties shall not (i) challenge the transfers of
Specified Assets from the Company to the Receivables Subsidiary, whether on the
grounds that such transfers were disguised financings or fraudulent conveyances
or otherwise, so long as such transfers are carried out in all material respects
in accordance with the Transaction Documents, or (ii) assert that the Company
and the Receivables Subsidiary should be substantively consolidated.

         (b)      Notwithstanding any prior termination of this Agreement, the
Bank Parties shall not, with respect to the Receivables Subsidiary, institute or
join any other Person in instituting a proceeding of the type referred in the
definition of "Event of Bankruptcy", so long as any Certificate or Purchased
Interest or any obligation to an Investor or a Lender shall be outstanding or
there shall not have lapsed one year plus one day since the last day on any such
Certificate or Purchased Interest or obligation shall have been outstanding. The
foregoing will not limit the rights of Bank Parties to file any claim or
otherwise take any action with respect to any such insolvency proceedings that
may be instituted against the Receivables Subsidiary by a Person other than a
Bank Party.

         (c)      No Bank Party shall assign its rights or obligations under the
Credit Agreement to any other Person unless such Person shall have agreed in
writing to be bound by the terms of this Agreement as if it were a party hereto.

         (d)      Subject to any applicable restrictions in the Transaction
Documents, the Trustee may (but shall not be required to) enter into one or more
premises of the Company, whether leased or owned, at any time during reasonable
business hours, without force or process of law and without obligation to pay
rent or compensation to the Company, the Receivables Subsidiary or the Bank
Parties and may use any equipment (including data processing equipment) located
thereon relating to Records and may have access and use of such Records and any
other property (including software) to which such access and use are granted
under the Transaction Documents, in each case provided that such uses are for
the purposes of enforcing the Trustee's rights with respect to the Specified
Assets.

                                      228

<PAGE>   234

         6. Additional Agreements of Trustee. The Trustee agrees, represents and
warrants as follows:

         (a)      The Trustee shall not (i) challenge the transfers of the Bank
Collateral (other than Specified Assets) from the Company to the Agent, whether
on the grounds that such transfers were fraudulent conveyances or otherwise, so
long as such transfers are carried out in all material respects in accordance
with the Credit Agreement, the Security Agreement and related documents, or (ii)
assert that the Company and the Receivables Subsidiary should be substantively
consolidated.

         (b)      The Trustee shall not assign its rights or obligations under
the Transaction Documents to any other Person unless such Person shall have
agreed in writing to be bound by the terms of this Agreement as if it were a
party hereto.

         (c)      The Trustee does not have any security or other interest in
any portion of the Bank Collateral (including, without limitation, Receivables)
that do not constitute Specified Assets.

         (d)      The Trustee shall use commercially reasonable efforts to
notify the Agent of any termination pursuant to Section 8.1 or 8.2 of the
Purchase Agreement, but failure to give such notice shall not create any
liability on the part of the Trustee or affect its rights hereunder.

         7.       Reliance. Each of the Receivables Subsidiary, the Trustee, all
Lenders, all Investors and all Bank Parties may rely on this Agreement as if
such Person were a party hereto. This Agreement shall remain in effect until the
termination of the Trust in accordance with the terms of the Pooling Agreement.

         8.       Miscellaneous. (a) No delay upon the part of any party to this
Agreement and the exercise of any right, power or remedy shall operate as a
waiver thereof, nor shall any single or partial exercise by any such party of
any right, power or remedy preclude other or further exercise thereof, or the
exercise of any other right, power or remedy. No waiver, amendment or other
modification, or consent with respect to, any provision of this Agreement shall
be effective unless the same shall be in writing and shall be signed by the
Agent and the Trustee.

         (b)      This Agreement may be executed in any number of counterparts
and by different parties hereto on separate counterparts, each of one which so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.

         (c)      This Agreement shall be governed by and construed in
accordance with the internal laws (as opposed to conflicts of law provisions) of
the State of New York.

         (d)      This Agreement shall be binding upon and inure to the benefit
of each of the parties hereto and their respective successors and assigns.

         (e)      All notices and other communications for hereunder shall,
unless otherwise stated herein, be in writing (including telecommunications and
communications by facsimile copy) and mailed, transmitted or delivered, as to
each party hereto at its address set forth under its name on

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<PAGE>   235

the signature pages hereof or at such other address as shall be designated by
such party in a written notice to the other parties hereto. All such notices and
communications shall be effective upon receipt or (i) in the case of notice by
mail, three business days after being deposited in the mails, postage prepaid,
and (ii) in the case of notice by facsimile copy, upon the earlier to occur of
(A) completion of transmission and telephone confirmation of receipt or (B) the
recipient's close of business on the date of transmission.

         IN WITNESS WHEREOF, the Agent and the Trustee have caused this
Agreement to be executed and delivered as of the day first above written.

                                    WACHOVIA BANK OF GEORGIA, N.A.,
                                    as Agent

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

                                    Address:

                                    MANUFACTURERS AND TRADERS TRUST
                                        COMPANY, as Trustee

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

                                    Address:

ACKNOWLEDGED AND AGREED:
AVONDALE RECEIVABLES COMPANY

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

AVONDALE MILLS, INC.

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

                                      230
<PAGE>   236

                                    EXHIBIT N

                            BORROWER PLEDGE AGREEMENT

         THIS BORROWER PLEDGE AGREEMENT (this "Agreement"), is made and entered
into as of April 29, 1996, by and between Wachovia Bank of Georgia, N.A., a
national banking association, as agent for the Banks parties to the "Credit
Agreement" (as hereinafter defined)(the "Agent"), and Avondale Mills, Inc., an
Alabama corporation ("Borrower");

                              W I T N E S S E T H:

         WHEREAS, pursuant to that certain Amended and Restated Credit
Agreement, dated as of April 29, 1996 among Borrower, the Agent, The First
National Bank of Chicago, as Documentation Agent, and the Banks parties thereto
(as amended or modified from time to time, the "Credit Agreement"), the Banks
have made or will make loans to the Borrower; and

         WHEREAS, the obligations of the Banks to extend financial
accommodations under the Credit Agreement is conditioned on, among other things,
the execution and delivery by Borrower of this Agreement in order to secure all
of the Obligations of the Borrower under the Credit Agreement and to induce the
Banks and the Agent to execute and enter into the Credit Agreement, the Borrower
has agreed to execute and deliver this Agreement, granting a security interest
in, and lien upon, the Receivable Subsidiary Pledged Stock to the Agent for the
benefit of the Banks; and

         WHEREAS, to induce the Banks to extend or to continue to extend
financial accommodations to the Borrower, Borrower has agreed to enter into this
Agreement; and

         WHEREAS, Borrower is the sole owner of 100% of the Capital Stock of the
Receivables Subsidiary;

         NOW, THEREFORE, for the sum of $10 in hand paid and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and to induce the Banks to extend financial accommodations from
time to time to the Borrower, Borrower and the Agent hereby agree as follows:

         1.       Defined Terms. Capitalized terms contained herein but not
defined herein shall have the meanings given them in the Credit Agreement.

         2.       Pledge of Collateral. Borrower does hereby pledge,
hypothecate, assign, transfer, set over, deliver and grant a security interest
in and to the Agent in all that Capital Stock of Avondale Receivables Company
set forth and described on Exhibit "A" attached hereto and by reference made
part hereof (which stock is simultaneously herewith being delivered to the
Agent, accompanied by blank stock powers signed by Borrower), together with any
and all other securities, cash or other property at any time and from time to
time receivable or otherwise distributed in respect of or in exchange for any or
all of such pledged stock, and together with the proceeds thereof (hereinafter
said property being collectively referred to as the "Collateral"), all as
security for the payment of all of the Obligations in existence from time to
time.

                                      231

<PAGE>   237

         3.       Holding of Collateral and Rights. Borrower acknowledges and
agrees that the Agent shall hold the Collateral, together with all right, title,
interest, powers, privileges and preferences pertaining or incidental thereto
forever, subject, however, to the provisions of Section 7 hereof and to the
return of the Collateral (or such portion thereof as may be existing from time
to time hereafter after giving effect to the terms hereof) by the Agent to
Borrower upon the final and indefeasible payment in full of all the Obligations
and termination in writing of any and all credit commitments with respect
thereto.

         4.       Representations and Warranties; Certain Covenants. Borrower
hereby represents and warrants (which representations and warranties likewise
shall be deemed to have been renewed by Borrower upon each Borrowing under the
Credit Agreement) that: (i) Borrower has the complete and unconditional
authority to pledge the Collateral; (ii) Borrower holds the Collateral free and
clear of any and all liens, charges, encumbrances and security interests thereon
(other than in favor of the Agent) and has good right, title and legal authority
to pledge the Collateral in the manner contemplated herein; (iii) all stock now
owned or hereafter owned by Borrower and constituting or which will constitute
Collateral hereunder is, or will be on date of pledge thereof, validly issued,
fully paid and non-assessable; and (iv) no authorization, approval, or other
action by, and no notice to or filing with, any governmental authority or
regulatory body is required either (1) for the pledge by Borrower of the
Collateral pursuant to this Agreement or for the execution, delivery or
performance of this Agreement by Borrower or (2) for the exercise by Agent of
the voting or other rights provided for in this Agreement or the remedies in
respect of the Collateral pursuant to this Agreement (except as may be required
in connection with the exercise of such rights or remedies by laws affecting the
voting, offering and sale of securities generally).

         5.       Delivery of Additional Securities; Further Assurances.
Borrower further covenants with the Agent that Borrower will cause any
additional securities or other property issued to or received by Borrower with
respect to any of the Collateral (except as provided in Section 7 below),
whether for value paid by Borrower or otherwise, and including stock dividends,
to be deposited forthwith with the Agent and be pledged hereunder, in each case
accompanied by blank stock powers or other proper instruments of assignment duly
executed by Borrower in such form as may be reasonably required by the Agent.
Borrower agrees that at any time and from time to time, at the expense of
Borrower, Borrower will promptly execute and deliver all further instruments and
documents, and take all further action that the Agent may reasonably request, in
other to perfect and protect the security interest granted or purported to be
granted hereby or to enable the Agent to exercise and enforce its rights, powers
and remedies hereunder with respect to any Collateral.

         6.       Name in Which Collateral Held. Borrower further acknowledges
and agrees that the Agent may hold any of the Collateral in its own name,
endorsed or assigned in blank or in the name of any nominee or nominees, and
that the Agent may deliver any or all of the Collateral to the issuer or issuers
thereof for the purpose of making denominational exchanges or registrations of
transfer or for such other purposes in furtherance of this Agreement as the
Agent may deem advisable.

                                      232

<PAGE>   238

         7.       Voting Rights; Dividends, Etc. (a) So long as no Event of
Default shall have occurred and be continuing and the Agent has not delivered a
notice to Borrower of the Agent's intention to exercise voting and other
consensual rights pursuant to this Section 7:

                  (i)   Borrower shall be entitled to exercise any and all
voting and other consensual rights pertaining to the Collateral or any part
thereof for any purpose not prohibited by the terms of this Agreement, the
Parent Guaranty, the Credit Agreement or any other Loan Documents; provided,
however, that the Borrower shall give the Agent at least 5 Domestic Business
Days' prior written notice of the manner in which it intends to exercise any
right if such action would have a material adverse effect on the value of the
Collateral, and following request therefor by the Agent, Borrower shall not
exercise or refrain from exercising any such right; and

                  (ii)  the Agent shall execute and deliver (or cause to be
executed and delivered) to Borrower all such proxies and other instruments as
Borrower may reasonably request for the purpose of enabling Borrower to exercise
the voting and other rights which it is entitled to exercise pursuant to clause
(i) above.

                  (iii) Borrower shall be entitled to receive and retain any
nonliquidating cash dividends, interest or any other distribution of property
paid, payable or otherwise distributed in cash in respect of the Collateral.

         (b)      Upon the occurrence and during the continuance of an Event of
Default, and with respect to clause (i) below, the delivery of a notice to
Borrower of the Agent's intention to exercise voting and other consensual rights
pursuant thereto:

                  (i)  All rights of Borrower to exercise the voting and other
consensual rights which it would otherwise be entitled to exercise pursuant to
Section 7(a) shall cease, and all such rights shall thereupon become vested in
the Agent who shall thereupon have the sole right to exercise such voting and
other consensual rights; provided, however, Borrower shall continue to have the
rights to exercise such voting and other consensual rights notwithstanding the
occurrence and continuance of an Event of Default until the Agent delivers a
notice to Borrower of the Agent's intention to exercise such voting and other
consensual rights.

                  (ii) All rights of Borrower to receive cash dividends,
interest, proceeds or other distributions in cash from the Collateral, which it
would otherwise be authorized to receive and retain pursuant to Section 7(a)
shall cease and all rights to dividends, interest, proceeds and other
distributions shall thereupon be vested in the Agent, who shall thereupon have
the sole right to receive and hold as Collateral such interest or other
distributions. All dividends, interest, proceeds and other distributions which
are received by Borrower contrary to these provisions shall be received in trust
for the benefit of the Agent, shall be segregated from other property or funds
of Borrower and shall be forthwith delivered to the Agent as Collateral in the
same form as so received (with any necessary endorsement).

         8.       Agent Appointed Attorney-in-Fact. Borrower hereby irrevocably
appoints the Agent as Borrower's attorney-in-fact, with full authority in the
place and stead of Borrower and in the name of Borrower or otherwise, from time
to time in the Agent's discretion, after the

                                      233

<PAGE>   239

occurrence and during the continuance of an Event of Default, to take any action
and to execute any instrument which the Agent may deem reasonably necessary or
advisable to accomplish the purposes of this Agreement, including, without
limitation, to receive, endorse and collect all instruments made payable to
Borrower representing any dividend, principal and/or interest payment or other
distribution in respect of the Collateral or any part thereof and to give full
discharge for the same, when and to the extent permitted by this Agreement.

         9.       The Agent May Perform. If Borrower fails to perform any
agreement contained herein, the Agent may take reasonable action to perform, or
cause performance of, such agreement, and the reasonable expenses of the Agent
incurred in connection therewith shall be payable by Borrower under Section 12;
provided, that, the Agent shall exercise commercially reasonable efforts to
notify Borrower prior to taking any such action (although the failure to so
notify Agent shall not limit the Agent's rights hereunder).

         10.      Reasonable Care. The Agent shall be deemed to have exercised
reasonable care in the custody and preservation of the Collateral in its
possession if the Collateral is accorded treatment substantially equal to that
which the Agent accords the Agent's own property, it being understood that the
Agent shall not have responsibility for (i) ascertaining or taking action with
respect to calls, conversions, exchanges, maturities, tenders or other matters
relative to any Collateral, whether or not the Agent has or is deemed to have
knowledge of such matters, unless reasonably requested to do so by Borrower, or
(ii) taking any necessary steps to preserve rights against any parties with
respect to any Collateral.

         11.      Events of Default.  The following shall constitute "Events of
Default" hereunder:

                  (a)      Should Borrower assign, attempt to encumber, subject
to further pledge or security interest, sell, transfer or otherwise dispose of
any of the Collateral without the prior written consent of the Agent;

                  (b)      If an "Event of Default" occurs under any of the
Credit Agreement, the other Loan Documents or the Parent Guaranty; or

                  (c)      If any representations or warranties made herein by
Borrower shall be untrue in any material respect when made or furnished.

         12.      Remedies.  If any Event of Default shall have occurred and be
continuing:

                  (a)      The Agent may exercise (in compliance with all
applicable securities laws) in respect of the Collateral, in addition to other
rights and remedies provided for herein or otherwise available to them, all the
rights and remedies of a secured party on default under the Uniform Commercial
Code in effect in the State of Georgia at that time, and the Agent may also,
without notice except as specified below, sell (in compliance with all
applicable securities laws) the Collateral or any part thereof in one or more
parcels at public or private sale, at any exchange, over the counter or at any
of the Agent's offices or elsewhere, for cash, on credit or for future delivery,
and at such price or prices and upon such other terms as the Agent may deem
commercially reasonable or otherwise in such manner as necessary to comply with
applicable federal and state securities laws. The Agent shall be authorized at
any such sale (if it deems it

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<PAGE>   240

advisable to do so) to restrict the prospective bidders or purchasers to persons
who will represent and agree that they are purchasing the Collateral for their
own account for investment and not with a view to the distribution or sale
thereof, and upon consummation of any such sale the Agent shall have the right
to assign, transfer and deliver to the purchaser or purchasers at any such sale
and such purchasers shall hold the property sold absolutely, free from any claim
or right on the part of Borrower, and Borrower hereby waives (to the extent
permitted by law) all rights of redemption, stay and/or appraisal which it now
has or may at any time in the future have under any rule of law or statute now
existing or hereafter enacted. The Agent shall give Borrower at least 10 days'
notice of the time and place of any public sale or the time after which any
private sale is to be made , which Borrower agrees shall constitute reasonable
notification. At any such sale, the Agent may bid (which bid may be, in whole or
in part, in the form of cancellation of Obligations) for and purchase the whole
or any part of the Collateral. The Agent shall not be obligated to make any sale
of Collateral regardless of notice of sale having been given. The Agent may
adjourn any public or private sale from time to time by announcement at the time
and place fixed therefor, and such sale may, without further notice, be made at
the time and place to which it was so adjourned. If sale of all or any part of
the Collateral is made on credit or for future delivery, the Collateral so sold
may be retained by the Agent until the sale price is paid by the purchaser or
purchasers thereof, but the Agent shall not incur any liability in case any such
purchaser or purchasers shall fail to take up and pay for the Collateral so sold
and, in case of any such failure, such Collateral may be sold again upon like
notice. Borrower agrees that any sale of the Collateral conducted by the Agent
in accordance with the foregoing provisions of this Section 12 shall be deemed
to be a commercially reasonable sale under O.C.G.A. ss. 11-9-504 of the Georgia
Uniform Commercial Code. As an alternative to exercising the power of sale
herein conferred upon them, the Agent may proceed by a suit or suits at law or
in equity to foreclose the security interest granted under this Agreement and to
sell the Collateral, or any portion thereof, pursuant to a judgment or decree of
a court or courts of competent jurisdiction.

                  (b)      Any cash held by the Agent as Collateral and all cash
proceeds received by the Agent in respect of any sale of, collection from, or
other realization upon or any part of the Collateral following the occurrence of
an Event of Default shall be applied by the Agent for the benefit of the Banks
in the following manner: first, in discharge of all expenses incurred by the
Agent which Borrower is obligated to reimburse the Agent pursuant to Section 13
hereof; secondly, to all outstanding fees and other expenses owing under the
Credit Agreement or the other Loan Documents in such order as the Required Banks
shall elect; thirdly, to accrued and unpaid interest on the Obligations in such
order as the Required Banks may elect; and lastly, to the principal balances of
any such Obligations then outstanding in such order as the Required Banks may
elect.

                  (c)      Any surplus of such cash or cash proceeds held by the
Agent and remaining after payment in full of all the Obligations shall be paid
over to Borrower or to whomsoever may be lawfully entitled to receive such
surplus.

         13.      Expenses. Borrower will, upon demand, pay to the Agent the
amount of any and all reasonable expenses, including the reasonable fees and
expenses of its counsel, actually incurred, and of any experts and agents, and
including any taxes or fees incurred on account of

                                      235

<PAGE>   241

the execution, issuance, delivery or recording of this Agreement or other
documents executed in connection herewith which the Agent may incur in
connection with (i) the sale of, collection from, or other realization upon, any
of the Collateral, or (ii) the exercise or enforcement of any of the rights of
the Agent hereunder, or (iii) the failure by Borrower to perform or observe any
of the provisions hereof.

         14.      Security Interest Absolute. All rights of the Agent hereunder,
the security interest granted to the Agent hereunder, and all obligations of
Borrower hereunder, shall be absolute and unconditional irrespective of any of
the following, and Borrower expressly consents to the occurrence of any of such
events and waives, in its capacity as Borrower, to the extent permitted by law,
any defense arising therefrom:

                     (i)   any lack of validity or enforceability of any of the
Loan Documents or any other agreement or instrument relating thereto;

                     (ii)  any change in the time, manner or place of payment
of, or in any other term of, all or any of the Obligations, or any other
amendment or waiver of or any consent to any departure from any of the Loan
Documents;

                     (iii) any exchange, release or non-perfection of any other
collateral, or any release or amendment or waiver of or consent to or departure
from any of the Loan Documents, including, without limitation, the Security
Agreement and any Operative Mortgages or any other guaranty for all or any of
the Obligations; or

                     (iv)  any other circumstance which might otherwise
constitute a defense available to, or a discharge of, Borrower in respect of the
Obligations or in respect of this Agreement.

         15.      Amendments, Etc. No amendment or waiver of any provision of
this Agreement nor consent to any departure by Borrower herefrom shall in any
event be effective unless the same shall be in writing and signed by the Agent
and then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.

         16.      No Waiver; Cumulative Remedies. No failure on the part of the
Agent to exercise, and no delay in exercising, any right, power or remedy
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or remedy by the Agent preclude any other or
further exercise thereof or the exercise of any other right, power or remedy.
All remedies hereunder are cumulative and are not exclusive of any other
remedies provided by law.

         17.      Severability. If any provision of this Agreement or the
application thereof to any party hereto or circumstances shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the application
of such provisions to any other party thereto or circumstances shall not be
affected thereby and shall be enforced to the greatest extent permitted by law.

         18.      Notices. All notices, requests and other communications to any
party hereunder shall be in writing (including bank wire, telecopier or similar
writing) and shall be given to such

                                      236

<PAGE>   242

party at its address or telecopier number set forth on the signature pages or at
such other address or telecopier number as such party may hereafter specify for
the purpose by notice to each other party. Each such notice, request or other
communication shall be effective (i) if given by telecopier, when such telecopy
is transmitted to the telecopier number specified in this Section and the
appropriate confirmation is received, (ii) if given by mail, 3 Domestic Business
Days after such communication is deposited in the mail, with first class postage
prepaid, addressed as aforesaid or (iii) if given by any other means, when
delivered at the address specified in this Section 18.

         19.      Time is of the Essence.  Time is of the essence in this
Agreement.

         20.      Interpretation. No provision of this Agreement shall be
construed against or interpreted to the disadvantage of any party hereto by any
court or other governmental or judicial authority by reason of such party having
or being deemed to have structured or dictated such provision.

         21.      The Agent Not Joint Venturer. Neither this Agreement nor any
agreements, instruments, documents or transactions contemplated hereby shall in
any respect be interpreted, deemed or construed as making the Agent a partner or
joint venturer with Borrower or as creating any similar relationship or entity,
and Borrower agrees that it will not make any contrary assertion, contention,
claim or counterclaim in any action, suit or other legal proceeding involving
the Agent and Borrower.

         22.      Jurisdiction. Borrower agrees that any legal action or
proceeding with respect to this Agreement may be brought in the courts of the
State of Georgia or the United States of America for the Northern District of
Georgia, Atlanta Division, all as the Agent may elect. By execution of this
Agreement, Borrower hereby submits to each such jurisdiction, hereby expressly
waiving whatever rights may correspond to it by reason of its present or future
domicile. Nothing herein shall affect the right of the Agent to commence legal
proceedings or otherwise proceed against Borrower in any other jurisdiction or
to serve process in any manner permitted or required by law.

         23.      Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Georgia and shall inure to
the benefit of and be binding upon the successors and assigns of the parties
hereto.

         24.      Counterparts. This Agreement may be executed in two or more
counterparts, each of which when fully executed shall be an original, and all of
said counterparts taken together shall be deemed to constitute one and the same
agreement.

[Signatures on Following Page]

                                      237
<PAGE>   243

         IN WITNESS WHEREOF, Borrower has caused this Agreement to be duly
executed under seal as of the date first above written.

                               "Borrower"

                               AVONDALE MILLS, INC.                   (SEAL)

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

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

ACCEPTED AND AGREED:

WACHOVIA BANK OF GEORGIA, N.A.,
in its capacity as Agent

By:
   ------------------------------
   Title:
Wachovia Bank of Georgia, N.A.
191 Peachtree Street, N.E.
Atlanta, Georgia 30303-1757
Attention:  Commercial Group
Telecopier number: 404-332-6220
Telephone number:  404-332-6094

                                      238
<PAGE>   244

                                    Exhibit A
                          To Borrower Pledge Agreement

                       Description of the Capital Stock of
                          Avondale Receivables Company

     500 Shares, $0.01 Par Value Common Stock Evidenced by Certificate No. 1

                                      239
<PAGE>   245

                                                                   Schedule 4.04

             INTANGIBLE ASSETS IN EXISTENCE PRIOR TO AUGUST 29, 1996

<TABLE>
<CAPTION>
                                                                Balance
                                                              at 02/23/96
                                                             -------------
<S>                                                          <C>
Loan Commitment Fee on Revolver                              $1,081,579.93

Goodwill - Macfield Spinning Acquisition                         63,978.62

Bond Issue Costs - Bon Air                                       28,524.81

Bond Issue Costs - Walton                                        95,776.47
                                                             -------------

TOTAL                                                        $1,269,859.83
                                                             =============
</TABLE>

                                      240

<PAGE>   246

                                  Schedule 4.05

                    CERTAIN PENDING AND THREATENED LITIGATION

                              AVONDALE MILLS, INC.

1.       Sullivan et al. v. Russell Corporation et al. Plaintiffs, property
         owners in the Raintree Subdivision on Lake Martin, sued Avondale Mills,
         Russell Corporation and Alabama Power Company for property damage and
         mental anguish resulting from alleged discharges from the Alexander
         City plants operated by Russell Corporation and Avondale Mills,
         respectively. On November 17, 1998, a Jefferson County jury returned
         verdicts for property damage and punitive damages totaling $52,553,200
         against Avondale Mills, Russell Corporation and Alabama Power Company.
         The jury returned two separate, inconsistent verdicts, in one of which
         the amounts awarded against the respective defendants were specified
         (30% against Avondale Mills) and in the other, the award was in the
         aggregate only. This case is now on appeal to the Supreme Court of
         Alabama. Oral argument was held in January 2000, and on August 4, 2000,
         the Alabama Supreme Court issued a 6-3 opinion reversing and ordering a
         judgment to be entered in favor of the defendants because of
         plaintiffs' failure of proof. Plaintiffs filed an Application for
         Rehearing on August 18, 2000, and Avondale Mills filed its response on
         September 1, 2000.

         Christian v. Russell Corporation et al. This case was filed on February
         23, 1999, by former property owners in the Raintree Subdivision on Lake
         Martin seeking damages for personal injury and diminished property
         value. This case has been stayed by the trial court pending resolution
         of the Sullivan appeal, and only limited discovery has been taken to
         date.

         Locke v. Russell Corporation et al. This case was filed on behalf of 24
         additional Raintree Subdivision plaintiffs on January 13, 2000, and has
         been transferred to the same judge now handling the Christian case and
         consolidated for all purposes with that case. As indicated above, these
         cases have now been stayed pending resolution of the Sullivan appeal
         and no discovery has been conducted.

2.       Lemelson Medical Education and Research Foundation ("Lemelson") has
         made demands on Avondale Mills to pay royalties for a license under a
         number of patents controlled by Lemelson. Lemelson has asserted that
         Avondale Mills needs a license under a number of patents that are said
         to relate to "machine vision" and "barcode reading." These patents have
         been asserted against hundreds of companies worldwide. On April 14,
         2000, Lemelson filed complaints in federal court in Arizona alleging
         that Avondale Mills and over 400 other companies have infringed the
         foregoing patents. Lemelson has not yet specified any product or
         process of Avondale Mills that allegedly gives rise to any
         infringement. As a consequence of motions filed in an earlier case by
         other defendants, all proceedings as to the patents claimed by Lemelson
         to relate to "machine vision" and

                                      241

<PAGE>   247

         "barcode reading" are likely to be stayed, in favor of lawsuits brought
         by barcode and machine vision manufacturers that are pending in Nevada.
         In those lawsuits, these manufacturers are seeking a declaration that
         the "machine vision" and "barcode" patents of Lemelson are either
         invalid, unenforceable, or not infringed. As a result, it is likely
         that there will be no activity in the Arizona lawsuit against Avondale
         Mills in the near future.

3.       Avondale Mills and Avondale Mills Graniteville Fabrics are involved in
         various employment-related claims and proceedings.

4.       Avondale Mills and the Guarantors are subject to certain workers'
         compensation claims arising in the ordinary course of business.

5.       Avondale Mills and the Guarantors are subject from time to time to
         claims and litigation arising in the ordinary course of business and
         covered (subject to customary deductibles and self-insurance) by their
         respective insurance carriers.

6.       Environmental claims and threatened litigation as described in Schedule
         4.14.

Avondale Mills does not now expect any of the foregoing to have or cause a
Material Adverse Effect, or to draw into question the validity of or impair the
ability of Avondale Mills to perform its obligations under the Credit Agreement,
the Notes, or any of the Loan Documents, or of Avondale Incorporated or Avondale
Mills Graniteville Fabrics to perform their respective obligations under the
Loan Documents to which they are parties.

                                      242
<PAGE>   248

                                                                       Exhibit O

                           LIMITED GUARANTY AGREEMENT

                  THIS LIMITED GUARANTY AGREEMENT (this "Guaranty") is made as
of August 29, 1997, by Avondale Mills Graniteville Fabrics, Inc., a Delaware
corporation (the "Subsidiary") in favor of the Agent, for the ratable benefit of
the Banks, under the Credit Agreement referred to below;

                               W I T N E S S E T H

                  WHEREAS, Avondale Mills, Inc., an Alabama corporation (the
"Borrower") and WACHOVIA BANK, N.A., as Agent (the "Agent"), and The First
National Bank of Chicago, as Documentation Agent, and certain other Banks from
time to time party thereto have entered into a certain Amended and Restated
Credit Agreement dated as of April 29, 1996, as amended by First Amendment to
Credit Agreement dated as of March 20, 1997 and Second Amendment to Credit
Agreement dated as of August 29, 1997 (as so amended, and as it may be amended
or modified from time to time, the "Credit Agreement"), providing, subject to
the terms and conditions thereof, for extensions of credit to be made by the
Banks to the Borrower for the benefit of the Borrower and of the Subsidiary;

                  WHEREAS, it is a condition precedent to the effectiveness of
the Second Amendment to Credit Agreement referred to above, and to the
acquisition by the Subsidiary of the AMGF Plant described therein, among other
things, that the Subsidiary execute and deliver this Guaranty whereby the
Subsidiary shall guarantee the payment when due of all principal, interest and
other amounts that shall be at any time payable by the Borrower under the Credit
Agreement, the Notes and the other Principal Documents, subject to the
limitation on liability provisions contained herein; and

                  WHEREAS, in consideration of the financial and other support
that the Borrower has provided, and such financial and other support as the
Borrower may in the future provide, to Subsidiary, and in order to induce the
Banks and the Agent to enter into the Second Amendment to Credit Agreement
referred to above, the Subsidiary is willing to guarantee the obligations of the
Borrower under the Credit Agreement, the Notes, and the other Principal
Documents, subject to the limitation of liability provisions contained in
Section 15 hereof;

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

                  SECTION 1. Definitions. Terms defined in the Credit Agreement
and not otherwise defined herein have, as used herein, the respective meanings
provided for therein.

                  SECTION 2. Representations, Warranties and Covenants. The
Subsidiary hereby represents and warrants that:

                                      243

<PAGE>   249

                  (a)      The Subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, is duly qualified to transact business in every jurisdiction
where, by the nature of its business, such qualification is necessary, and has
all corporate powers and all governmental licenses, authorizations, consents and
approvals required to carry on its business as now conducted, except for
failures which have not had and would not reasonably be expected to have or
cause a Material Adverse Effect.

                  (b)      The execution, delivery and performance by the
Subsidiary of this Guaranty, the AMGF Security Agreement and the AMGF Mortgage
(i) are within the corporate powers of the Subsidiary, (ii) have been duly
authorized by all necessary corporate action, (iii) require no action by or in
respect of or filing with, any governmental body, agency or official, (iv) do
not contravene, or constitute a default under, any provision of applicable law
or regulation or of the certificate of incorporation or by-laws of the
Subsidiary or any material agreement, judgment, injunction, order, decree or
other instrument binding upon the Subsidiary, and (v) do not result in the
creation or imposition of any Lien on any asset of the Subsidiary, except in
favor of the Agent.

                  (c)      This Guaranty constitutes a valid and binding
agreement of the Subsidiary enforceable in accordance with its terms, and the
AMGF Security Agreement and the AMGF Mortgage, when executed and delivered in
accordance with the Credit Agreement, will constitute valid and binding
obligations of the Subsidiary, enforceable in accordance with their respective
terms, provided that the enforceability hereof and thereof is subject in each
case to general principles of equity and to bankruptcy, insolvency and similar
laws affecting the enforcement of creditors' rights generally.

                  SECTION 3. The Guaranty. Subject to the provisions of Section
15, the Subsidiary hereby unconditionally guarantees the full and punctual
payment (whether at stated maturity, upon acceleration or otherwise) of the
principal of and interest on each Note issued by the Borrower pursuant to the
Credit Agreement, and the full and punctual payment of all other amounts payable
by the Borrower under the Credit Agreement and the other Principal Documents,
including principal, interest, fees, costs and indemnification amounts, and any
extensions and renewals thereof in whole or in part, and any other amounts
constituting Obligations as defined in the Credit Agreement (all of the
foregoing obligations being referred to collectively as the "Guaranteed
Obligations"). Upon failure by the Borrower to pay punctually any such amount,
the Subsidiary agrees that it shall forthwith on demand pay the amount not so
paid at the place and in the manner specified in the Credit Agreement, the
relevant Note or the relevant Principal Document, as the case may be.

                  SECTION 4. Guaranty Unconditional. Subject to Section 15, the
obligations of the Subsidiary hereunder shall be unconditional and absolute and,
without limiting the generality of the foregoing, shall not be released,
discharged or otherwise affected by:

                           (i) any extension, renewal, settlement, compromise,
         waiver or release in respect of any obligation of the Borrower under
         the Credit Agreement, any Note, or any other Principal Document, by
         operation of law or otherwise or any obligation of any other guarantor
         of any of the Obligations;

                                      244
<PAGE>   250

                           (ii)     any modification or amendment of or
         supplement to the Credit Agreement, any Note, or any other Principal
         Document;

                           (iii)    any release, nonperfection or invalidity of
         any direct or indirect security for any obligation of the Borrower
         under the Credit Agreement, any Note, any Principal Document, or any
         obligations of any other guarantor of any of the Obligations;

                           (iv)     any change in the corporate existence,
         structure or ownership of the Borrower or any other guarantor of any of
         the Guaranteed Obligations, or any insolvency, bankruptcy,
         reorganization or other similar proceeding affecting the Borrower, or
         any other guarantor of the Guaranteed Obligations, or its assets or any
         resulting release or discharge of any obligation of the Borrower, or
         any other guarantor of any of the Guaranteed Obligations;

                           (v)      the existence of any claim, setoff or other
         rights which the Subsidiary may have at any time against the Borrower,
         any other guarantor of any of the Guaranteed Obligations, the Agent,
         any Bank or any other Person, whether in connection herewith or any
         unrelated transactions, provided that nothing herein shall prevent the
         assertion of any such claim by separate suit or compulsory
         counterclaim;

                           (vi)     any invalidity or unenforceability relating
         to or against the Borrower, or any other guarantor of any of the
         Guaranteed Obligations, for any reason related to the Credit Agreement,
         any other Principal Document, or any other guaranty, or any provision
         of applicable law or regulation purporting to prohibit the payment by
         the Borrower, or any other guarantor of the Guaranteed Obligations, of
         the principal of or interest on any Note or any other amount payable by
         the Borrower under the Credit Agreement, the Notes, or any other
         Principal Document; or

                           (vii)    any other act or omission to act or delay of
         any kind by the Borrower, any other guarantor of the Guaranteed
         Obligations, the Agent, any Bank or any other Person or any other
         circumstance whatsoever which might, but for the provisions of this
         paragraph, constitute a legal or equitable discharge of the Guarantor's
         obligations hereunder.

                  SECTION 5. Discharge Only Upon Payment In Full; Reinstatement
In Certain Circumstances. The Subsidiary's obligations hereunder shall remain in
full force and effect until all Guaranteed Obligations shall have been paid in
full and the Commitments under the Credit Agreement shall have terminated or
expired. If at any time any payment of the principal of or interest on any Note
or any other amount payable by the Borrower under the Credit Agreement or any
other Principal Document is rescinded or must be otherwise restored or returned
upon the insolvency, bankruptcy or reorganization of the Borrower or otherwise,
the Subsidiary's obligations hereunder with respect to such payment shall be
reinstated as though such payment had been due but not made at such time.

                  SECTION 6. Waiver of Notice by the Subsidiary. The Subsidiary
irrevocably waives acceptance hereof, presentment, demand, protest and, to the
fullest extent permitted by

                                      245
<PAGE>   251

law, any notice not provided for herein, as well as any requirement that at any
time any action be taken by any Person against the Borrower, any other guarantor
of the Guaranteed Obligations, or any other Person.

                  SECTION 7. Other Waivers by the Subsidiary. The Subsidiary
hereby expressly waives, renounces, and agrees not to assert, any right, claim
or cause of action, including, without limitation, a claim for reimbursement,
subrogation, indemnification or otherwise, against the Borrower arising out of
or by reason of this Guaranty or the obligations of the Subsidiary hereunder,
including, without limitation, the payment or securing or purchasing of any of
the Guaranteed Obligations by the Subsidiary. The waiver, renunciation and
agreement contained in the immediately preceding sentence is for the benefit of
the Agent and the Banks and also for the benefit of the Borrower who may assert
the benefits thereof as a third-party beneficiary, and the Subsidiary may be
released from such waiver, renunciation and agreement only by the execution and
delivery, by the Agent, the Required Banks and the Borrower, of an instrument
expressly releasing the Subsidiary therefrom.

                  SECTION 8. Stay of Acceleration. If acceleration of the time
for payment of any amount payable by the Borrower under the Credit Agreement,
any Note or any other Principal Document is stayed upon the insolvency,
bankruptcy or reorganization of the Borrower, all such amounts otherwise subject
to acceleration under the terms of the Credit Agreement, any Note or any other
Principal Document shall nonetheless be payable by the Subsidiary hereunder
forthwith on demand by the Agent made at the request of the Required Banks.

                  SECTION 9. Notices. All notices, requests and other
communications to any party hereunder shall be given or made by telecopier or
other writing and telecopied or mailed or delivered to the intended recipient at
its address or telecopier number set forth on the signature pages hereof or such
other address or telecopy number as such party may hereafter specify for such
purpose by notice to the Agent in accordance with the provisions of Section 9.01
of the Credit Agreement. Except as otherwise provided in this Guaranty, all such
communications shall be deemed to have been duly given when transmitted by
telecopier, or personally delivered or, in the case of a mailed notice, 3
Domestic Business Days after such communication is deposited in the mails with
first class postage prepaid, in each case given or addressed as aforesaid.

                  SECTION 10. No Waivers. No failure or delay by the Agent or
any Banks in exercising any right, power or privilege hereunder shall operate as
a waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies provided in this Guaranty, the Credit
Agreement, the Notes, and the other Principal Documents shall be cumulative and
not exclusive of any rights or remedies provided by law.

                  SECTION 11. Successors and Assigns. This Guaranty is for the
benefit of the Agent and the Banks and their respective successors and assigns
and in the event of an assignment of any amounts payable under the Credit
Agreement, the Notes, or the other Principal Documents, the rights hereunder, to
the extent applicable to the indebtedness so assigned, may be transferred with
such indebtedness. This Guaranty may not be assigned by the Subsidiary

                                      246
<PAGE>   252

without the prior written consent of the Agent and the Required Banks, and shall
be binding upon the Subsidiary and its successors and permitted assigns.

                  SECTION 12. Changes in Writing. Neither this Guaranty nor any
provision hereof may be changed, waived, discharged or terminated orally, but
only in writing signed by the Subsidiary and the Agent with the consent of the
Required Banks.

                  SECTION 13. GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER
OF JURY TRIAL. THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAW OF THE STATE OF GEORGIA. EACH OF THE SUBSIDIARY AND THE AGENT
HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT
COURT FOR THE NORTHERN DISTRICT OF GEORGIA AND OF ANY GEORGIA STATE COURT
SITTING IN ATLANTA, GEORGIA AND FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING
OUT OF OR RELATING TO THIS GUARANTY OR THE TRANSACTIONS CONTEMPLATED HEREBY. THE
SUBSIDIARY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION WHICH ANY OF THEM MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE
OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH
PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
EACH OF THE SUBSIDIARY AND THE AGENT HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT
TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS
GUARANTY OR THE TRANSACTIONS CONTEMPLATED HEREBY.

                  SECTION 14. Taxes, etc. All payments required to be made by
the Subsidiary hereunder shall be made without setoff or counterclaim and free
and clear of and without deduction or withholding for or on account of, any
present or future taxes, levies, imposts, duties or other charges of whatsoever
nature imposed by any government or any political or taxing authority to the
same extent and with the same effect as provided in Section 2.11(c) of the
Credit Agreement with respect to payments made by the Borrower.

                  SECTION 15. Limitation of Liability. Any other provision of
this Guaranty, or the AMGF Documents to the contrary notwithstanding, the Agent
and the Banks, by acceptance hereof, expressly agree that the Subsidiary shall
not have any liability hereunder for an amount in excess of the sum of: (i) the
sum of (x) the aggregate principal amount of all loans, advances and other
financial accommodations made to the Subsidiary by the Borrower, directly or
indirectly, both prior to and after the date hereof (including, without
limitation, pursuant to the AMGF/Graniteville Transaction), less (y) all amounts
repaid by the Subsidiary thereon; plus (ii) interest on the amount determined
under clause (i) from the date due until the date paid at the Default Rate; plus
(iii) all costs of collection, including reasonable attorneys fees actually
incurred; plus (iv) all protective advances and (without duplication of
paragraph (iii) all costs and expenses incurred by the Agent pursuant to the
AMGF Mortgage or the AMGF Security Agreement; plus (v) the aggregate value of
all other assets transferred from time to time on and after the date hereof by
the Borrower to the Subsidiary (including, without limitation, pursuant to the
AMGF/Graniteville Transaction).

                                      247
<PAGE>   253

                  IN WITNESS WHEREOF, the Subsidiary has caused this Guaranty to
be duly executed by its authorized officer as of the date first above written.

                           AVONDALE MILLS GRANITEVILLE FABRICS, INC.

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

                              Avondale Mills Graniteville Fabrics, Inc.

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

                              --------------------------------------------------
                              Attention:  Chairman and
                              Chief Executive Officer
                              Telecopier number: 770-267-2543
                              Telephone number: 770-267-2226

                                      248
<PAGE>   254

                                                                       Exhibit P

                               SECURITY AGREEMENT
                   (Avondale Mills Graniteville Fabrics, Inc.)

                  THIS SECURITY AGREEMENT (this "Agreement") is made and entered
into as of August 29, 1997 by and between AVONDALE MILLS GRANITEVILLE FABRICS,
INC. (the "Guarantor") and WACHOVIA BANK, N.A., as agent for the Banks parties
to the "Credit Agreement" (as hereinafter defined) (the "Agent")

                                   WITNESETH:

                  WHEREAS, pursuant to that certain Amended and Restated Credit
Agreement, dated as of April 29, 1996, as amended by First Amendment to Credit
Agreement dated as of even date herewith, among Avondale Mills, Inc., the Agent,
The First National Bank of Chicago, as Documentation Agent, and the Banks
parties thereto (as so amended, and as hereafter amended or supplemented from
time to time, the "Credit Agreement", the Guarantor has executed and delivered
the a Limited Guaranty Agreement dated as of even date herewith in favor of the
Agent, for the benefit of the Banks, unconditionally Guaranteeing the payment of
all of the Obligations, subject to the limitation of liability provisions
contained therein; and

                  WHEREAS, in order to secure the indebtedness of the Guarantor
pursuant to the AMGF Guaranty and to induce the Banks and the Agent to execute
and enter into the Second Amendment to the Credit Agreement, the Guarantor has
agreed to execute and deliver this Agreement (which is the AMGF Security
Agreement referred to in the Credit Agreement), granting a security interest in,
and lien upon, the Collateral to the Agent for the benefit of the Banks;

                  NOW, THEREFORE, for and in consideration of the above premises
and other good and valuable consideration, the receipt and sufficiency of which
hereby are acknowledged and Guarantor and the Agent hereby covenant and agree as
follows:

                  1.       DEFINITIONS. Unless otherwise defined herein,
capitalized terms used herein have the meanings set forth in the Credit
Agreement. In addition, the following terms have the meanings set forth below,
unless the context requires otherwise:

                  "Accounts Receivable Collateral" means all rights of the
Guarantor to payment for goods sold or leased, or to be sold or to be leased, or
for services rendered or to be rendered, howsoever evidenced or incurred,
including, without limitation, all accounts, instruments, chattel paper and
general intangibles, all returned or repossessed goods and all books, records,
computer tapes, programs and ledger books arising therefrom or relating thereto,
whether now owned or hereafter acquired or arising.

                                      249
<PAGE>   255

                  "Account Debtor" means the Person who is obligated on any of
the Accounts Receivable Collateral or otherwise is obligated as a purchaser or
lessee of any of the Inventory Collateral.

                  "Act" means the Uniform Commercial Code - Secured Transactions
of Georgia (O.C.G.A. Art. 11-9), and any act that may be substituted therefor,
as from time to time amended.

                  "Agreement" means this Agreement, together with all exhibits,
riders, supplements, addenda and additions now or hereafter attached hereto or
made a part hereof, and all amendments hereof.

                  "Collateral" means and includes all of the property described
in Paragraph 4 hereof.

                  "Collateral Locations" means those locations set forth on
Exhibit "A" attached hereto and by this reference made a part hereof.

                  "Credit Agreement" has the meaning set forth in the recitals
hereto.

                  "Documentary Collateral" means all chattel paper, instruments,
documents or notes of the Guarantor (excluding any of the foregoing arising out
of the sale or lease of goods or the furnishing of services) and all payments
thereunder and instruments and other property from time to time delivered in
respect thereof or in exchange therefor, and all bills of sale, bills of lading,
warehouse receipts, and other documents of title, whether now owned or hereafter
acquired or arising.

                  "Equipment Collateral" means all equipment of the Guarantor,
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 Guarantor's business but excluding, in any event, all
fixtures.

                  "Intangibles Collateral" means all general intangibles of the
Guarantor (excluding any general intangibles evidencing rights of the Guarantor
to payment for goods sold or leased, or to be sold or leased, or for services
rendered or to be rendered), whether now existing or hereafter acquired or
arising, including, without limitation, all copyrights, royalties, trademarks,
trade names, tax refunds, rights to tax refunds, service marks, patent and
proprietary rights, blueprints, drawings, designs, trade secrets, plans,
diagrams, schematics and assembly and display materials relating thereto and all
customer lists.

                  "Inventory Collateral" means all inventory of the Guarantor,
or in which it has rights, whether now owned or hereafter acquired, wherever
located, including, without limitation, all goods of the Guarantor held for sale
or lease or furnished or to be furnished under contracts of service, all goods
held for display or demonstration, goods on lease or consignment, returned and
repossessed goods, all raw materials, work-in-process, finished goods and
supplies used or consumed in the Guarantor's business, together with all
documents, documents of title,

                                      250
<PAGE>   256

dock warrants, dock receipts, warehouse receipts, bills of lading or orders for
the delivery of all, or any portion, of the foregoing.

                  "Secured Obligations" means and includes the following
collectively:

                  1.       Any and all indebtedness, obligations and liabilities
of the Guarantor to the Agent and/or the Banks now existing pursuant to, or
hereafter arising out of, or otherwise relating to the AMGF Guaranty, subject to
the limitation of liability provisions contained herein.

                  2.       Any and all indebtedness, obligations and liabilities
of the Guarantor to the Agent and/or the Banks now existing or hereafter
arising, in either instance, under, by virtue of or pursuant to this Agreement.

                  3.       Any and all advances hereafter made by the Agent
and/or the Banks at any time to protect or preserve the Collateral or the
security interest on the Collateral granted pursuant hereto, or for taxes,
assessments, insurance premiums or other advances authorized under the terms of
this Agreement (whether or not the original Guarantor remains the owner of the
Collateral at the time of any of such advances).

                  "Permitted Liens" means the liens and encumbrances pertaining
to portions of the Collateral described on Exhibit "B" attached hereto and by
this reference made a part hereof.

                  In addition to and cumulative with such other definitions and
descriptions as herein may be provided therefor, the terms "equipment",
"inventory", "accounts", "general intangibles", "chattel paper", "documents of
title", "goods", "consumer goods" and "instruments", if and to the extent used
herein, shall have such meanings as may be respectively ascribed to them in the
Act as in existence on date hereof.

                  3.       GRANT OF SECURITY INTEREST. As a general and
continuing collateral security for payment of the Guaranteed Obligations, the
Guarantor hereby grants to the Agent for the ratable benefit of the Banks a
security interest in and security title to all Collateral and the Guarantor
makes such further agreements with the Agent in regard thereto as hereinafter
set forth.

                  4.       DESCRIPTION OF COLLATERAL.

                  The following described property, wherever located, whether
now existing or hereafter acquired or arising constitutes the Collateral:

                           (a)      the Accounts Receivable Collateral;

                           (b)      the Equipment Collateral;

                           (c)      the Intangibles Collateral;

                           (d)      the Inventory Collateral;

                                      251
<PAGE>   257

                           (e)      the Documentary Collateral; and

                           (f)      all products and proceeds of any and all of
         the foregoing, including, without limitation, insurance or condemnation
         proceeds, all property received wholly or partially in trade or
         exchange for any of the foregoing, and all rents, revenues, issues,
         profits and proceeds arising from the sale, lease, license,
         encumbrance, collection or any other temporary or permanent disposition
         of any of the foregoing or any interest therein.

                  5.       REPRESENTATIONS AND WARRANTIES.

                           5.1      The Guarantor is, or, with respect to
Collateral acquired after the date hereof, will be, the owner of the Collateral
free and clear from any Lien, except for the Permitted Liens. No financing
statement covering any of the Collateral is on file in any public office other
than any evidencing Permitted Liens.

                           5.2      Location. As of the date hereof, the
tangible portion of the Collateral is situated only at one or more Collateral
Locations, other than as permitted by Section 5.6.

                           5.3      Name. The name of the Guarantor is as set
forth on the signature page hereof and the Guarantor has not conducted any
business under any other name, other than its former name, "Camp Helen Company",
during the past 6 years.

                           5.4      Right to Assign. Guarantor has the full
right, power and authority to make this assignment of the Collateral.

                           5.5      Delivery. Guarantor has delivered all
agreements, letters of credit, promissory notes, chattel paper or anything else
the physical possession of which is necessary in order for Agent to perfect or
preserve the priority of its Lien in the Collateral.

                           5.6      Purchaser of Collateral. Except for the
acquisition of assets from the Borrower, during the past 6 years, Guarantor has
not purchased any of the Collateral in a bulk transfer or in a transaction which
was outside the ordinary course of the business of Guarantor's seller.

                  6.       GENERAL COVENANTS.

                           6.1      Liens. The Guarantor shall keep the
Collateral free and clear of all Liens, except for the Permitted Liens.

                           6.2      Casualty. The Guarantor shall promptly
notify the Agent of any material loss of or damage to the Inventory Collateral
or the Equipment Collateral or any part thereof.

                           6.3      Use of Collateral. Until there occurs an
Event of Default the Guarantor may, subject to the provisions of Paragraph 6
hereof, use the Collateral in any lawful

                                      252
<PAGE>   258

manner not inconsistent with this Agreement or with the terms or conditions of
any policy of insurance thereon.

                           6.4      Disposition of Collateral. The Guarantor may
not sell, lease, exchange or otherwise dispose of any of the Collateral except
as hereinafter specifically provided. Guarantor may sell, lease, exchange or
otherwise dispose of any portion of the Inventory Collateral in the ordinary
course of business for cash or upon open account or on terms of payment
ordinarily extended to its customers. Upon the sale, exchange or other
disposition of the Inventory Collateral, the security interest created and
provided for herein shall continue in and attach to any proceeds thereof,
without break in continuity and without further formality or act, including,
without limitation, accounts, contract rights, shipping documents, documents of
title, bills of lading, warehouse receipts, dock warrants, dock receipts and
cash or non-cash proceeds, and in the event of any unauthorized sale, shall
continue in Inventory Collateral itself. Guarantor may sell Equipment Collateral
pursuant and subject to the provisions of Sections 2.08(b)(i)(B) and 5.14 of the
Credit Agreement. In addition, Guarantor may sell, exchange or otherwise dispose
of portions of the Equipment Collateral which are obsolete, worn-out or
unsuitable for continued use by Guarantor if such Equipment Collateral is
replaced promptly upon its disposition with equipment constituting Equipment
Collateral having a market value equal or greater than the Equipment Collateral
so disposed of and in which Agent shall obtain and have a Lien pursuant hereto
of the same priority as in the Equipment Collateral so disposed of.

                           6.5      Insurance. The Guarantor agrees that it will
obtain and maintain insurance on the Inventory Collateral and the Equipment
Collateral as required by Section 5.17 of the Credit Agreement, with loss
payable to the Agent as its interests may appear. Such insurance shall not be
cancelable by the Guarantor, unless with the prior written consent of the
Required Banks, or by the Guarantor's insurer, unless with at least 30 days
advance written notice to the Agent.

                           6.6      Location. The Guarantor agrees not to locate
the Inventory Collateral or the Equipment Collateral (other than (i) Rolling
Stock and other goods which are covered by a certificate of title, as
contemplated in section 11-9-103(3)(a) of the Act and (ii) other goods which are
mobile and which are of a type normally used in more than one jurisdiction and
are not covered by a certificate of title, as contemplated in Section
11-9-103(3)(a) of the Act) at any location other than a Collateral Location
without providing written notice to the Agent no later than 30 days after such
relocation; provided, however, that nothing contained herein shall be deemed to
prohibit the Guarantor, without notice to or the consent of the Agent, from
transferring temporarily (for periods not to exceed 3 months in any event)
Inventory Collateral or Equipment Collateral from a Collateral Location to
another location at any time or from time to time hereafter for the limited
purpose of having work performed on such Inventory Collateral or Equipment
Collateral, or for temporary storage thereof or for shipment thereof to a
Collateral Location, if done in the ordinary course of the Guarantor's business.
In addition, to the extent the Guarantor should warehouse any of the Inventory
Collateral at any time hereafter at any location other than a Collateral
Location, the Guarantor acknowledges and agrees that such warehousing may be
conducted only by warehousemen who have been pre-approved by the Agent and who,
in any event, shall issue non-negotiable

                                      253
<PAGE>   259

warehouse receipts in the Agent's name to evidence any such warehousing of goods
constituting Inventory Collateral. If the Guarantor consigns any part of the
Inventory Collateral, it will comply with Section 2-326 of the Uniform
Commercial Code of any state where such Inventory Collateral is located with
respect thereto, by filing in the appropriate public office or offices UCC-1
financing statements showing the Guarantor as consignor and the Agent as
assignee of consignor, and will furnish copies thereof to the Agent.

                           6.7      The Guarantor shall deliver to the Agent
within 60 days after receiving written notice from the Agent directing it to do
so, the original title certificates to all of the Rolling Stock, together with
duly executed applications in the appropriate form for new certificates of title
thereto showing thereon the Lien of the Agent pursuant to the Security
Agreement.

                  7.       SPECIAL PROVISIONS REGARDING RECEIVABLES AND
INVENTORY. Each item of the Accounts Receivable Collateral arises or will arise
under a contract between the Guarantor and an Account Debtor, or from the bona
fide sale or delivery of goods to or performance of services for, an Account
Debtor. The Guarantor will promptly notify the Agent of all returns,
repossessions and recoveries which are reasonably expected to result in losses
to the Guarantor in excess of $500,000 in any month. From and after the
occurrence of any Event of Default and during the continuation thereof, (i) the
Agent may collect, realize, sell or otherwise deal with the Accounts Receivable
Collateral or any and all sums owing or which may become due upon any items of
the Inventory Collateral or any part thereof in such manner, upon such terms and
conditions and at such time or times as may seem to it advisable and without
notice to the Guarantor, and (ii) the Guarantor hereby irrevocably designates
and appoints the Agent its true and lawful attorney either in the name of the
Agent or the name of the Guarantor to take such actions and any other actions as
the Agent may deem necessary or desirable in order to realize upon the Inventory
Collateral and the Accounts Receivable Collateral, including, without
limitation, power to endorse in the name of Guarantor, any checks, drafts,
notes, or other instruments received in payment of or on account of the
Inventory Collateral or the Accounts Receivable Collateral. The Agent shall not
be liable or accountable for any failure to collect, realize, sell or obtain
payment of the Accounts Receivable Collateral or any and all sums owing or which
may become due upon any items of the Inventory Collateral or any part thereof
and shall not be bound to institute proceedings for the purpose of collecting,
realizing, or obtaining payment of the same or for the purpose of preserving any
rights of the Agent, the Guarantor or any other Person in respect of the same.
From and after the occurrence of any Event of Default and during the
continuation thereof, (i) all moneys collected or received by the Guarantor in
respect of the Accounts Receivable Collateral or any and all sums owing or which
may become due upon any items of the Inventory Collateral shall be received as
trustee in trust for the Agent for the ratable benefit of the Banks and shall be
forthwith paid over to the Agent for the ratable benefit of the Banks at the
Agent's request, and (ii) all moneys collected or received by the Agent in
respect of the Accounts Receivable Collateral or any and all sums owing or which
may become due upon any items of the Inventory Collateral or other Collateral
may be applied to the Obligations in the order which the Required Banks deem
best or, in the sole discretion of the Required Banks, may be released to the
Guarantor, all without prejudice to the liability of the Guarantor or the
Agent's right to hold and realize upon this security.

                                      254
<PAGE>   260

                  8.       PRESERVATION. The Guarantor will take all reasonably
necessary and appropriate measures to obtain, maintain, protect and preserve any
material Intangibles Collateral including, without limitation, registration
thereof with the appropriate state or federal governmental agency or department.

                  9.       REMEDIES. Upon the occurrence and during the
existence of any Event of Default, the Agent for the ratable benefit of the
Banks shall have all of the rights and remedies described in Sections 8.1
through 8.5 inclusive, and it may exercise any one, more, or all of such
remedies, in its sole discretion, without thereby waiving any of the others.

                           9.1      General Remedies of a Secured Party. The
Agent shall have all the rights and remedies of a "secured party" under the Act
(regardless of whether the Act has been enacted in the jurisdiction where the
rights or remedies are asserted, including, without limitation, the right to
take possession of any of the Collateral or the proceeds thereof by such means
(without breach of the peace) and through agents or otherwise as it may elect,
the right to sell, lease, or otherwise dispose of the Collateral or any portion
thereof, the right to apply the proceeds derived therefrom to any and all of the
Obligations secured thereby in such order as the Agent may elect, and, for this
purpose, the right to sign in the name of the Guarantor any transfer,
conveyance, or instrument necessary in the premises. Any such disposition of the
Collateral may be in its then condition or following any commercially reasonable
preparation or processing thereof, by public or private proceedings, by one or
more contracts, as a unit or in parcels, at any time or place and on any terms,
so long as the same are commercially reasonable.

                           9.2      Notice of Disposition. The Agent shall give
the Guarantor written notice of the time and place of any public sale of the
Collateral or the time after which any other intended disposition thereof is to
be made. The requirement of sending reasonable notice shall be met if such
notice is mailed postage prepaid or otherwise given to the undersigned at its
last address as shown on the Agent's records at least 10 days before such
disposition.

                           9.3      Receiver. In addition to the foregoing, the
Agent, at the direction of the Required Banks, may appoint any person to be a
receiver (which term shall include a receiver and manager) of the Collateral,
including, without limitation, any rents and profits thereof and may remove any
receiver and appoint another in its (his) stead, and such receiver so appointed
shall have power to take possession of the Collateral and to carry on or concur
in carrying on the business of the Guarantor, and to dispose of or concur in the
disposition of the Collateral or any part thereof in the manner described
hereinabove. Any such receiver shall for all purposes be deemed to be the agent
of the Guarantor. The Agent may from time to time fix the remuneration of such
receiver. The Agent and the Banks in appointing or refraining from appointment
of such receiver shall not incur any liability to the receiver, the Guarantor or
otherwise.

                           9.4      Assemblage. In facilitation of the
foregoing, the Agent may require that the Guarantor assemble and make available
all of or any portion of the Collateral at a location reasonably designated by
the Agent, all at the expense of the Guarantor.

                                      255
<PAGE>   261

                           9.5      Application of Proceeds. All moneys from
time to time received by the Agent from the disposition of Collateral shall be
applied by the Agent for the benefit of the Banks in the following manner:
first, in discharge of all reasonable expenses of re-taking, holding,
preserving, preparing for sale or lease, selling, leasing, and the like of the
Collateral including, without limitation, fees and expenses of any receivers and
attorneys, insurance premiums, tax payments and the like; secondly, to all
outstanding fees and other expenses owing under the Credit Agreement or the
other Loan Documents in such order as the Required Banks shall elect; thirdly,
ratably to accrued interest on the Obligations; fourthly, ratably to the
remaining balances of the Obligations then outstanding; lastly, to the
Guarantor, any residue.

                  10.      FURTHER ASSURANCES. The Guarantor shall from time to
time forthwith on the Agent's reasonable request do, make and execute, and use
reasonable good faith efforts to cause to be done, made and executed, such
financing statements, certificates of title, landlord's and mortgagee's waivers,
estoppel certificates, further assignments, documents, acts, matters and things
as may be required by the Agent of or with respect to the Collateral or any part
thereof or as may be required to give effect to these presents, and the
Guarantor hereby constitutes and appoints the Agent as the true and lawful
attorney of the undersigned irrevocably with full power of substitution to do,
make, and execute all such statements, assignments, documents, acts, matters, or
things with the right to use the name of the Guarantor whenever and wherever it
may be reasonably deemed necessary or expedient.

                  11.      DEALINGS. The Agent may grant extensions of time and
other indulgences, take and give up securities, accept compositions, grant
releases and discharges and otherwise deal with the Guarantor, debtors of the
Guarantor, sureties and others and with the Collateral and other securities as
the Agent may see fit without prejudice to the liability of the Guarantor or the
Agent's right to hold and realize upon this security.

                  12.      GENERAL.

                           12.1     Governing Laws. This Agreement shall be
governed by, and construed in accordance with, the laws of the State of Georgia.

                           12.2     Non-Exclusivity of Remedies. No remedy for
the enforcement of the rights of the Agent hereunder shall be exclusive of or
dependent on any other such remedy but any one or more of such remedies may from
time to time be exercised independently or in combination.

                           12.3     Waiver. Each and every right granted to the
Agent under this Agreement, under any other Loan Document or allowed to the
Agent by law or in equity, shall be cumulative and may be exercised from time to
time by the Agent in its sole discretion. No failure on the part of the Agent to
exercise, and no delay in exercising, any right shall operate as a waiver
thereof, nor shall any single or partial exercise by the Agent of any right
preclude any other or future exercise thereof or the exercise of any other
right.

                                      256
<PAGE>   262

                           12.4     Counterparts. This Agreement may be executed
in two or more counterparts, each of which when fully executed shall be an
original, and all of said counterparts taken together shall be deemed to
constitute one and the same agreement.

                           12.5     Successors and Assigns. This Agreement shall
be binding upon and inure to the benefit of the permitted successors and assigns
of the parties hereto.

                           12.6     Reimbursement. If any taxes, fees or other
costs shall be payable on account of the execution, issuance, delivery, or
recording of this Agreement or any financing statements, certificates, documents
or instruments executed in connection herewith, by reason of any existing or
hereafter enacted federal, state, or provincial statute, the Guarantor will pay
all such taxes, fees or other costs, including any applicable interest and
penalty, and will indemnify and hold the Agent and the Banks harmless from and
against liability in connection therewith.

                  IN WITNESS WHEREOF, the Guarantor and the Agent have executed
this Agreement and affixed their respective seals thereto.

                                      AGENT:

                                      WACHOVIA BANK, N.A.,
                                      as Agent for the Banks           (SEAL)

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

                                      Guarantor:

                                      AVONDALE MILLS GRANITEVILLE FABRICS,
                                      INC                              (SEAL)

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

                                         Attest:
                                                --------------------------------
                                                Title:

                               SECURITY AGREEMENT
                                   EXHIBIT "A"

                        SCHEDULE OF COLLATERAL LOCATIONS

                  Graniteville, Aiken County, South Carolina

                                      257
<PAGE>   263

                               SECURITY AGREEMENT
                                   EXHIBIT "B"

          [NOTE: THE ONES IN FAVOR OF SCHLAFHORST AND DUPONT HAVE BEEN
               DELETED. ARE THERE OTHERS WHICH SHOULD BE DELETED?]

<TABLE>
<CAPTION>

SECURED PARTY                             JURISDICTION                               COLLATERAL
-------------                             ------------                               ----------

<S>                                       <C>                                        <C>
Olin Corporation                          Date Filed: 02/10/94                       Leased Equipment
                                          File Number 131059A
                                          Secretary of State, SC

Olin Corporation                          Date Filed: 12/07/93                       Leased Equipment
                                          File Number: 110634A
                                          Secretary of State, SC

BellSouth Financial Services              Secretary of State, SC
Corporation Amendment: 09/28/92,
#134045A

Pitney Bowes Credit Corporation           Date Filed: 01/29/92                       Equipment Informational
                                          File number: 92004503/                     Filing
                                                       92004504
                                          Secretary of State, SC

Pitney Bowes Credit Corporation           Date Filed: 01/25/96                       Leased Equipment
                                          File number: 122033A
                                          Secretary of State, SC

Primeco, Inc. d/b/a Prime Equipment       Date Filed: 09/13/94                       1 - Scissor Lift
                                          File number: 100644A
                                          Secretary of State, SC

Canon Financial Services, Inc.            Date Filed: 01/12/93                       Office Equipment
                                          File number: 145328A
                                          Secretary of State, SC

Primeco, Inc. d/b/a Prime                 Date Filed: 09/13/94                       1 - Scissor Lift
Equipment                                 File number: 1329
                                          Aiken County, SC
</TABLE>

                                      258
<PAGE>   264

<TABLE>
<CAPTION>
SECURED PARTY                             JURISDICTION                               COLLATERAL
-------------                             ------------                               ----------

<S>                                       <C>                                        <C>
First United Leasing Corporation          Date Filed: 01/22/93                       1/Panafax Facsimile
                                          File number: 014679
                                          SOS New York

Pitney Bowes                              Date Filed:                                Equipment Lease
                                          File number: 960412-
                                                       131615A
                                          SOS South Carolina
</TABLE>

                                      259
<PAGE>   265

                                                                       EXHIBIT Q

              MORTGAGE AND ASSIGNMENT OF LEASES, RENTS AND PROFITS

This Instrument Prepared By
and When Recorded Return to:

Jones, Day, Reavis & Pogue
3500 One Peachtree Center
303 Peachtree Street, N.E.
Atlanta, Georgia 30308-3242
By: Christopher L. Carson

                                    MORTGAGE,

                   UNIFORM COMMERCIAL CODE SECURITY AGREEMENT,

                                       and

                     ASSIGNMENT OF LEASES, RENTS AND PROFITS

                                      among

                    AVONDALE MILLS GRANITEVILLE FABRICS, INC.

                                  as Mortgagor

                                       and

                              WACHOVIA BANK, N.A.,

                                       as

                             Agent for certain banks

                                      260
<PAGE>   266

         COLLATERAL IS OR INCLUDES FIXTURES.

         THIS INSTRUMENT IS ALSO TO BE INDEXED IN THE INDEX OF FINANCING
STATEMENTS AS A FIXTURE FILING IN ACCORDANCE WITH THE UNIFORM COMMERCIAL CODE,
INCLUDING SECTIONS 9-313 AND 9-402, AS ADOPTED IN SOUTH CAROLINA.

         THE NAMES OF THE DEBTOR AND THE SECURED PARTY, THE MAILING ADDRESS OF
THE SECURED PARTY FROM WHICH INFORMATION CONCERNING THE SECURITY INTEREST MAY BE
OBTAINED, THE MAILING ADDRESS OF THE DEBTOR AND A STATEMENT INDICATING THE
TYPES, OR DESCRIBING THE ITEMS, OF COLLATERAL, ARE AS DESCRIBED IN SUBSECTION
3.7.3 HEREOF.

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                PAGE
                                                                                                ----
<S>               <C>                                                                           <C>
ARTICLE I         DEFINITIONS...............................................................

ARTICLE II        GRANTING CLAUSES..........................................................

                  2.1      Granting Clause..................................................
                  2.2      Warranty of Title................................................
                  2.3      Defeasance.......................................................

ARTICLE III       COVENANTS OF BORROWER.....................................................

                  3.1      Payment of Indebtedness..........................................
                  3.2      Taxes, Liens and Other Charges...................................
                  3.3      Insurance........................................................
                  3.4      Condemnation.....................................................
                  3.5      Care of Premises.................................................
                  3.6      Leases, Contracts, Etc...........................................
                  3.7      Security Agreement...............................................
                  3.8      Further Assurances; After Acquired Property......................
                  3.9      Expenses.........................................................
                  3.10     Subrogation......................................................
                  3.11     Limit of Validity................................................
                  3.12     Junior Encumbrances..............................................

ARTICLE IV        DEFAULT AND REMEDIES......................................................

                  4.1      Events of Default................................................
                  4.2      Acceleration of Maturity.........................................
                  4.3      Agent's Right to Enter and Take Possession,
                           Operate and Apply Revenues.......................................
</TABLE>

                                      261
<PAGE>   267

<TABLE>
<S>               <C>      <C>
                  4.4      Performance by Agent of Defaults by Mortgagor....................
                  4.5      Receiver.........................................................
                  4.6      Enforcement......................................................
                  4.7      Purchase by Agent or any Bank....................................
                  4.8      Application of Proceeds of Sale..................................
                  4.9      Mortgagor as Tenant Holding Over.................................
                  4.10     Waiver of Appraisement, Valuation, Stay,
                           Extension and Redemption Laws....................................
                  4.11     Leases...........................................................
                  4.12     Discontinuance of Proceedings and Restoration
                           of the Parties...................................................
                  4.13     Remedies Cumulative..............................................
                  4.14     Waiver...........................................................
                  4.15     Suits to Protect the Premises....................................
                  4.16     Agent May File Proofs of Claim...................................
                  4.17     Multiple Sales...................................................

ARTICLE V         MISCELLANEOUS PROVISIONS..................................................

                  5.1      Successors and Assigns...........................................
                  5.2      Terminology......................................................
                  5.3      Severability.....................................................
                  5.4      Applicable Law...................................................
                  5.5      Notices..........................................................
                  5.6      Replacement of Documents.........................................
                  5.7      Time of the Essence..............................................
                  5.8      Counterparts.....................................................
                  5.9      No Obligation to Marshal Assets..................................
                  5.10     Consent of Agent.................................................
                  5.11     Agent's Powers...................................................
                  5.12     No Liability or Obligation on Agent..............................
</TABLE>

                                      262
<PAGE>   268

                  THIS MORTGAGE, UNIFORM COMMERCIAL CODE SECURITY AGREEMENT AND
ASSIGNMENT OF LEASES, RENTS AND PROFITS, including the cover sheet and table of
contents, made as of the__ day of _________, 199_ by and between AVONDALE MILLS
GRANITEVILLE FABRICS, INC. ("Mortgagor"), as party of the first part; and
WACHOVIA BANK, N.A., (f/k/a Wachovia Bank of Georgia, N.A.) as Agent for certain
Banks (as hereafter defined), as party of the second part.

                                 WITNESETH THAT:

                  WHEREAS, on April 29, 1996, Avondale Mills, Inc. ("Borrower"),
Agent, The First National Bank of Chicago, as Documentation Agent, and Banks
entered into a certain Amended and Restated Credit Agreement, as amended by
First Amendment to Credit Agreement dated as of March 20, 1997 and Second
Amendment to Credit Agreement dated of August 29, 1997 (as amended, the "Credit
Agreement") regarding certain obligations of Borrower owed to Agent and Banks;
and

                  WHEREAS, Mortgagor, as a wholly owned subsidiary of Borrower,
entered into that certain Limited Guaranty Agreement dated of even date herewith
in favor of Agent for the benefit of the Banks (the "Guaranty") to guarantee the
payment when due of all principal, interest and other amounts that shall be at
any time payable by Borrower under the Credit Agreement and other documents
relevant to therein, subject to the limitation of liability provisions contained
in the Guaranty; and

                  WHEREAS, to secure the repayment and the performance of the
obligations of Mortgagor under the Guaranty, Mortgagor desires to convey, grant
and assign liens, security titles, security interests and collateral assignments
in certain property as hereinafter more particularly described;

                  NOW THEREFORE, for and in consideration of the sum of Ten and
No/100 Dollars ($10.00), the mutual agreements contained herein and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and to secure the indebtedness hereinafter described, the parties
agree as follows:

                                    ARTICLE 1

                                   DEFINITIONS

                  For the purpose of this Instrument, the following defined
terms have the meanings set forth in this Article I:

                  "Agent" means Wachovia Bank, N.A., in its capacity as agent
for certain Banks as described in the Credit Agreement, and its permitted
successors and assigns.

                  "Bank" or "Banks" means Wachovia Bank, N.A., a national
banking association, acting as Agent hereunder and each Bank and its permitted
successors and assigns as defined in the Credit Agreement.

                                      263
<PAGE>   269

                  "Borrower" means Avondale Mills, Inc., an Alabama corporation,
and its permitted successors and assigns.

                  "Credit Agreement" means the Amended and Restated Credit
Agreement dated April 29, 1996, by and between Borrower, Agent, The First
National Bank of Chicago, as Documentation Agent, and Banks, as amended by First
Amendment to Credit Agreement dated as of March 20, 1997 and Second Amendment to
Credit Agreement dated as of even date herewith, together with any and all
renewals, substitutions, modifications, amendments, consolidations and
extensions of the Credit Agreement.

                  "Default Condition" means any condition or event which
constitutes an Event of Default or which with the giving of notice or lapse of
time or both would, unless cured or waived, become an Event of Default.

                  "Easements and Appurtenances" means and include all easements,
rights-of-way, strips and gores of land, vaults, streets, ways, alleys,
passages, sewer rights, waters, water courses, water rights and powers,
minerals, flowers, shrubs, crops, trees, timber and other emblements now or
hereafter located on the Land or under or above the same or any part or parcel
thereof, and all estates, rights, titles, interests, privileges, liberties,
tenements, hereditaments and appurtenances, reversion and reversions, remainder
and remainders, whatsoever, in any way belonging, relating or appertaining to
the Premises or any part thereof, or which hereafter shall in any way belong,
relate or be appurtenant thereto, whether now owned or hereafter acquired by
Mortgagor.

                  "Event of Default" has the meaning set forth in Section 4.1
hereof.

                  "Fixtures" means any and all items included in Plant,
Equipment and Personal Property which constitute fixtures under the law of the
state in which the Premises of which they constitute a part are located and any
and all other items of personal property which are physically attached to Land
or buildings thereon and any and all replacements and substitutions of any of
the foregoing.

                  "Guaranty" means the Limited Guaranty Agreement dated ___
July, 1997 from Mortgagor to Agent for the benefit of the Banks, as amended or
supplemented from time to time.

                  "Instrument" means this Mortgage, Uniform Commercial Code
Security Agreement and Assignment of Leases, Rents and Profits, together with
any and all renewals, substitutions, modifications, amendments, consolidations
and extensions of this Instrument.

                  "Land" means those certain tracts or parcels of land located
in Aiken County, South Carolina being more particularly described on Exhibit "A"
attached hereto and by this reference made a part hereof.

                  "Leases and Rents" means and include all leases, subleases,
tenant contracts and rental agreements pertaining to the Premises whether now or
hereafter existing and including, without limitation, all income, rents, issues,
profits and revenues of the Premises at any time and from time to time now or
hereafter accruing (including, without limitation, all payments under

                                      264
<PAGE>   270

leases or tenancies, proceeds of insurance (including, without limitation,
business interruption insurance), condemnation payments with respect to such
income, rents, issues, profits and revenues, tenant security deposits, whether
held by Mortgagor or in a trust account, payments to Mortgagor in connection
with any sale of any Premises to a tenant or customer pursuant to the provisions
of any lease and escrow funds), and all the estate, right, title, interest,
property, possession, claim and demand whatsoever at law, as well as in equity,
of Mortgagor of, in and to the same whether now or hereafter existing.

                  "Mortgagor" means Avondale Mills Graniteville Fabrics, Inc., a
Delaware corporation, and a wholly owned subsidiary of Borrower.

                  "Permitted Encumbrances" means those matters identified as to
such Premises on Exhibit "B", attached hereto and by this reference made a part
hereof and, subject to the provisions of Section 5.11 of the Credit Agreement,
outstanding security interests in Plant, Equipment and Personal Property.

                  "Plant, Equipment and Personal Property" means and include all
buildings, structures and improvements of every nature whatsoever now or
hereafter situated on the Land now or hereafter owned by Mortgagor or in which
Mortgagor now or hereafter has rights (to the extent of such rights), and all
gas and electric fixtures, radiators, heaters, engines and machinery, boilers,
ranges, elevators and motors, plumbing and heating fixtures, carpeting and other
floor coverings, fire extinguishers and any other safety equipment required by
governmental regulation or law, washers, dryers, water heaters, mirrors,
mantels, air conditioning apparatus, refrigerating plants, refrigerators,
cooking apparatus and appurtenances, window screens, awning and storm sashes now
or hereafter owned by Mortgagor, which are or shall be attached to said
buildings, structures or improvements and all other furnishings, furniture,
fixtures, machinery, equipment, appliances, racks, forklifts, building supplies
and materials, books and records, chattels, contract rights, and personal
property (excluding any Receivables Program Assets) of every kind and nature
whatsoever now or hereafter owned by Mortgagor or in which Mortgagor now or
hereafter has rights (to the extent of such rights) and now or hereafter located
in, on or about, or used or intended to be used with or in connection with the
use, operation or enjoyment of the Premises, including all extensions,
additions, improvements, betterments, after-acquired property, renewals,
replacements and substitutions, or proceeds from a sale of any of the foregoing;
and all the right, title and interest of Mortgagor now or hereafter in any such
furnishings, furniture, fixtures, machinery, equipment, appliances and personal
property subject to or covered by any prior or superior security agreement,
conditional sales contract, chattel mortgage or similar lien or claim, together
with the benefit of any deposits or payments now or hereafter made by Mortgagor
or on behalf of Mortgagor; and all personal property constituting proceeds
hereafter acquired with cash proceeds of any of the Plant, Equipment and
Personal Property described hereinabove; all of which are hereby declared and
shall be deemed to be fixtures (except for the purpose of the definition of
"Fixtures" above), and accessions to the Land and a part of the Premises as
between the parties hereto and all persons claiming by, through or under them,
and which shall be deemed to be a portion of the security for the Secured
Obligations; provided, that the foregoing shall not include any equipment
described in Exhibit "B" to the "AMGF Security Agreement," as defined in the
Credit Agreement. The location of the Plant, Equipment and Personal Property is
also the location of the Land.

                                      265
<PAGE>   271

                  "Premises" means and includes, collectively, the related Land,
the Plant, Equipment and Personal Property, the Easements and Appurtenances and
the Leases and Rents.

                  "Required Banks" has the meaning set forth in the Credit
Agreement.

                  "Secured Obligations" means and includes the following
collectively:

                  (a)      Any and all indebtedness, obligations and liabilities
of Mortgagor to Agent and/or Banks now existing pursuant to, or hereafter
arising out of, or otherwise relating to the Guaranty, subject to the limitation
of liability provisions contained therein.

                  (b)      Any and all indebtedness, obligations and liabilities
of Mortgagor to Agent and/or Banks now existing or hereafter arising, in either
instance, under, by virtue of or pursuant to this Instrument.

                  (c)      Any and all advances hereafter made by Agent and/or
Banks at any time to protect or preserve the Premises or the lien hereof on the
Premises, or for taxes, assessments, insurance premiums or other advances
authorized under the terms of this Instrument (whether or not the original
Mortgagor remains the owner of the Premises at the time of any of such
advances).

                  "Transaction Documents" means the Credit Agreement, the
Guaranty, this Instrument, the "AMGF Documents" (as defined in the Credit
Agreement) and any other instrument, document or other writing executed on or
after the date hereof on behalf of Mortgagor evidencing, securing or otherwise
relating to any of the Secured Obligations.

                                   ARTICLE II

                                GRANTING CLAUSES

                  2.1      Granting Clause. In order to secure the full and
prompt payment when due, whether by acceleration or otherwise, and full and
prompt performance, of the Secured Obligations in such order of priority as
Agent may elect, Mortgagor hereby does grant, bargain, sell, alien, remise,
release, assign, convey, transfer, mortgage, hypothecate, pledge, deliver, set
over, warrant and confirm into Agent, for the benefit of the Banks and their
successors or assigns, all right, title and interest of Mortgagor in and to the
Land, together with the Plant, Equipment and Personal Property, the Easements
and Appurtenances, and the Leases and Rents pertaining to the Land, to have and
hold forever.

                  2.2      Warranty of Title. Mortgagor does warrant and will
forever defend the title to the Premises against the claims of all persons
whomsoever, except as to the Permitted Encumbrances. Mortgagor represents and
warrants that it is lawfully seized of the Land in fee simple absolute, that
Mortgagor has good right and is lawfully authorized to sell, convey or encumber
the Premises and that the Premises are free and clear of all encumbrances except
liens for real property taxes not yet due and payable and Permitted
Encumbrances.

                                      266
<PAGE>   272

                  2.3      Defeasance. Should the Secured Obligations secured by
this Instrument be paid and satisfied or otherwise released according to the
tenor and effect thereof when the same shall become due and payable and the
obligations of the Banks under the Credit Agreement be terminated in writing,
then this Instrument and the conveyance effected and the liens and security
interests granted hereby shall be released and terminated and shall be cancelled
and surrendered. Upon payment and satisfaction of the Secured Obligations in
full and the termination of the obligations of the Banks and the Agent under the
Credit Agreement, Agent shall execute, in recordable form, and deliver to
Mortgagor such instruments as are required to release and terminate of record
this Instrument.

                                  ARTICLE III

                             COVENANTS OF BORROWER

                  3.1      Payment of Indebtedness. Mortgagor will pay the
Secured Obligations according to the tenor thereof and all other sums now or
hereafter secured hereby promptly as the same shall become due.

                  3.2      Taxes, Liens and Other Charges.

                           3.2.1    In the event of the passage of any state,
federal, municipal or other governmental law, order, rule or regulation,
subsequent to the date hereof, in any manner changing or modifying the laws now
in force governing the taxation of debts secured by mortgages, (not including
tax on interest or fee income associated with such debt) or the manner of
collecting taxes so as to adversely affect Agent or the Banks, Mortgagor will,
subject to Subsection 3.2.5, promptly pay any such additional tax.

                           3.2.2    Mortgagor will, subject to Subsection 3.2.5,
pay, before the same become delinquent, all taxes, liens, assessments and
charges of every character including all utility charges, whether public or
private, already levied or assessed or that may hereafter be levied or assessed
upon or against the Premises; and upon demand will furnish Agent receipted bills
evidencing such payment.

                           3.3.3    Mortgagor will not, subject to Subsection
3.2.5, suffer any mechanic's, materialman's, laborer's, statutory or other lien
to be created and to remain outstanding upon all or any part of the Premises,
except for inchoate liens securing obligations not for borrowed money which are
not yet due and payable and except for the Permitted Encumbrances.

                           3.3.4    Mortgagor, to the full extent permitted by
applicable law, shall, subject to Subsection 3.2.5, indemnify and hold Agent and
Banks harmless from, or shall reimburse Agent and Banks for, any and all
intangible tax, documentary stamp tax, mortgage tax, note tax or other like or
similar tax (excluding income, franchise or capital taxes imposed on the income
of Agent or Banks) imposed with respect to this Instrument or under any power of
sale herein granted, any of the other Transaction Documents, or the Secured
Obligations, and from any interest, charges or penalties assessed with respect
thereto.

                                      267
<PAGE>   273

                           3.3.5    The Mortgagor shall have the right to
contest by appropriate proceedings any taxes, liens, assessments or other
charges described in Subsections 3.2.1 through 3.2.4, inclusive, provided that
it has established adequate reserves therefor.

                  3.3      Insurance.

                           3.3.1    So long as any portion of the Secured
Obligations remains unpaid, Mortgagor, at its expense, shall procure and
maintain for the benefit of Agent and Banks, insurance policies issued by such
insurance companies, and in such amounts as are required by Section 5.17 of the
Credit Agreement. All insurance required by this Subsection 3.3.1 which protect
against physical damage to the Plant, Equipment and Personal Property shall
contain a standard mortgagee clause (without contribution) in favor of Agent and
Banks, shall not be terminable without thirty (30) days' prior written notice to
Agent, and shall be evidenced by original policies or certified copies of
policies deposited with Agent, to be held by Agent until the Secured Obligations
shall have been fully paid and discharged. All other insurance policies, such as
general liability policies, required by the terms of this Instrument shall be
evidenced by certificates delivered to Agent and in case of cancellation, shall
provide for thirty (30) days' prior written notice to Agent.

                           3.3.2    Following the occurrence and during the
continuance of an Event of Default, Agent is hereby authorized and empowered, at
its option, to adjust or compromise any loss under any insurance policies
maintained pursuant to this Section 3.3, and to collect and receive the proceeds
from any such policy or policies, and each insurance company is hereby
authorized and directed to make payment for all such losses directly to Agent,
for the ratable benefit of the Banks, instead of to Mortgagor and Agent jointly.
In the event any insurance company fails to disburse directly and solely to
Agent but disburses instead either solely to Mortgagor or to Mortgagor and Agent
jointly, Mortgagor agrees immediately to endorse and transfer such proceeds to
Agent. Upon the failure of Mortgagor to endorse and transfer such proceeds as
aforesaid, Agent may execute such endorsements or transfers for and in the name
of Mortgagor and Mortgagor hereby irrevocably appoints Agent as Mortgagor's
agent and attorney-in-fact so to do. After deducting from said insurance
proceeds all of its expenses incurred in the collection and administration of
such sums, including attorneys' fees, Agent may apply the net proceeds or any
part thereof, at its option, (i) to the payment of the Secured Obligations,
whether or not due and in whatever order the Required Banks elect, (ii) to the
repair and/or restoration of the Premises or (iii) for any other purposes or
objects for which Agent is entitled to advance funds under this Instrument; all
without affecting the lien of this Instrument. Agent shall not be held
responsible for any failure to collect any insurance proceeds due under the
terms of any policy regardless of the cause of such failure absent gross
negligence or willful misconduct. Reference is made to Subsection 3.5.3.

                           3.3.3    Not less than thirty (30) days prior to the
expiration date of each policy maintained pursuant to this Section 3.3, evidence
of a renewal or replacement thereof satisfactory to Agent shall be delivered to
Agent. At the request of Agent, Mortgagor shall deliver to Agent receipts
evidencing the payment for all such insurance policies and renewals or
replacements. In the event of the foreclosure of this Instrument or any other
transfer of title to any of the Premises in extinguishment, in whole or in part,
of the Secured Obligations, all right,

                                      268
<PAGE>   274

title and interest of Mortgagor in and to all insurance policies then in force
with respect to such Premises shall pass to the purchaser or grantee.

                           3.3.4    Any provision of this Instrument to the
contrary notwithstanding, this Section 3.3 and Section 3.4 and the rights and
obligations of Mortgagor and Agent hereunder with respect to insurance and
condemnation are in all respects subject to and subordinate to any security
agreements, mortgages, deeds of trust or deeds to secure debt prior or superior
to this Instrument and the rights of the lessors thereunder or parties secured
thereby relating to the collection and disposition of insurance and condemnation
proceeds.

                  3.4      Condemnation. Following the occurrence and during the
continuance of an Event of Default, if all or any material portion of the
Premises shall be damaged or taken through condemnation (the term "condemnation"
when used in this Instrument shall include any damage or taking by any
governmental or quasi-governmental authority and any transfer by private sale in
lieu thereof), either temporarily or permanently, then the Secured Obligations
shall, at the option of the Required Banks, become immediately due and payable,
and Agent, for the ratable benefit of the Banks, shall be entitled to receive
all compensation, awards and other payments or relief thereof. In such event,
Agent is hereby authorized, at its option, to commence, appear in and prosecute,
in its own or in Mortgagor's name, any action or proceeding relating to any
condemnation, and to settle or compromise any claim in connection therewith, and
all such compensation, awards, damages, claims, rights of action and proceeds
and the right thereto are hereby assigned by Mortgagor to Agent, for the ratable
benefit of the Banks. After deducting from said condemnation proceeds all of its
expenses incurred in the collection and administration of such sums, including
attorney's fees, Agent may apply the net proceeds or any part thereof, at the
option of the Required Banks, (a) to the payment of the Secured Obligations,
whether or not due and in whatever order the Required Banks elect, (b) to the
repair and/or restoration of the Premises, or (c) for any other purposes or
objects for which Agent is entitled to advance funds under this Instrument, all
without affecting the lien of this Instrument; and any balance of such moneys
then remaining shall be paid to Mortgagor. Mortgagor agrees to execute such
further assignment of any compensation, awards, damages, claims, rights of
action and proceeds as Agent may require. If, prior to the receipt by Agent of
such award or proceeds, the Premises shall have been sold on foreclosure of this
Instrument, Agent, for the ratable benefit of the Bank, shall have the right to
receive such award or proceeds to the extent of any unpaid Secured Obligations
following such sale, with interest thereon at the "Default Rate" (as defined in
the Credit Agreement), whether or not a deficiency judgment on this Instrument
shall have been sought or recovered, and to the extent of reasonable actual
counsel fees, costs and disbursements incurred by Agent in connection with the
collection of such award or proceeds. Reference is made to Subsections 3.3.4 and
3.5.3.

                  3.5      Care of Premises.

                           3.5.1    Mortgagor will keep the buildings, parking
areas, roads and walkways, recreational facilities, landscaping and all other
improvements of any kind now or hereafter erected on the Land or any part
thereof in good condition and repair, and in substantial compliance with all
applicable laws, except to the extent failure would not have a material adverse
effect on the usefulness or value of the Premises, and will not commit or suffer
any

                                      269
<PAGE>   275

waste and will not do or suffer to be done anything (other than that which
is inherent in the ordinary course of Mortgagor's business operations) which
will unreasonably increase the risk of fire or other hazard to the Premises or
any part thereof.

                           3.5.2    Mortgagor will not remove or demolish nor
materially alter the structural character of any improvement located on the Land
without the written consent of the Agent (at the direction of the Required
Banks) except to the extent failure would not have a material adverse effect on
the usefulness or value of the Premises.

                           3.5.3    If the Premises or any part thereof is
materially damaged by fire or any other cause, or any material portion thereof
is taken by condemnation, Mortgagor will give immediate written notice thereof
to Agent. Mortgagor shall either (i) repair or restore such property to the
extent reasonably practical, and may use the proceeds of any insurance or
condemnation award for such purpose, with any amounts thereof not so used to be
paid to the Agent for application to the Secured Obligations, or (ii) treat such
event as a sale of assets for purposes of Sections 2.08(b) and 5.14 of the
Credit Agreement. The provisions of this Subsection 3.5.3 are subject to the
provisions of Subsection 3.3.2 (as to insurance) and Section 3.4 (as to
condemnation) upon the occurrence and during the continuance of an Event of
Default.

                  3.6      Leases, Contracts, Etc.

                           3.6.1    As additional collateral and further
security for the Secured Obligations, Mortgagor does hereby assign as a present
and absolute assignment (to the extent assignable pursuant to the terms thereof)
to Agent, for the benefit of Banks, all of Mortgagor's right, title and interest
now existing or hereafter arising in and to any and all Leases and Rents,
franchise agreements, management contracts, construction contracts, and other
contracts (not included in the definition of Leases and Rents), licenses and
permits now or hereafter affecting the Premises, or any part thereof, (reserving
only to Mortgagor the right to collect currently due and payable income, rents,
issues, profits, charges and revenues from the Premises until such time, if any,
as an Event of Default shall exist and be continuing). The foregoing is intended
to be a present and absolute assignment and not merely the passing of a security
interest. Mortgagor agrees to execute and deliver to Agent, such additional
instruments, in form and substance reasonably satisfactory to Agent, as may
hereafter be reasonably requested by Agent further to evidence and confirm said
assignment; provided, however, that acceptance of any such assignment shall not
be construed as a consent by Agent to any lease, tenant contract, rental
agreement, franchise agreement, management contract, construction contract, or
other contract, license or permit, or to impose upon Agent, any obligation with
respect thereto.

                           3.6.2    Mortgagor shall furnish to Agent, within
twenty (20) days after a receipt of a request by Agent to do so, such
information as Agent or any Bank from time to time may reasonably request
concerning the leases, tenant contracts and rental agreements.

                  3.7      Security Agreement.

                           3.7.1    Parts of the Premises are, or are to Become,
Fixtures on the Land. Insofar as the Plant, Equipment and Personal Property and
the Leases and Rents are concerned,

                                      270
<PAGE>   276

this Instrument is hereby made and declared to be a security agreement, and a
security interest is hereby granted by Mortgagor to Agent, for the ratable
benefit of Banks, encumbering each and every item of Plant, Equipment and
Personal Property and of Leases and Rents in compliance with the provisions of
the Uniform Commercial Code. A financing statement or statements reciting this
Instrument to be a security agreement, affecting all of said personal property
aforementioned, shall be executed by Mortgagor and Agent and appropriately
filed. The remedies for any violation of the covenants, terms and conditions of
the security agreement herein contained shall be (i) as prescribed herein, or
(ii) as prescribed by general law, or (iii) as prescribed by the specific
statutory consequences now or hereafter enacted and specified in the Uniform
Commercial Code, all at Agent's sole election. Mortgagor and Agent agree that
the filing of such financing statement(s) in the records normally having to do
with personal property shall never be construed as in anywise derogating from or
impairing this declaration and hereby stated intention of Mortgagor and Agent
that everything used in connection with the production of income from the
Premises and/or adapted for use therein and which is described or reflected in
this Instrument as part of the Plant, Equipment or Personal Property, is, and at
all times and for all purposes and in all proceedings both legal or equitable
shall be, regarded as part of the real estate irrespective of whether (a) any
such item is physically attached to the improvements, (b) serial numbers are
used for the better identification of certain items capable of being thus
identified in a recital contained herein, or (c) any such item is referred to or
reflected in any such financing statement(s) so filed at any time. Similarly,
the mention in any such financing statement(s) of the rights in and to (aa) the
proceeds of any fire and/or hazard insurance policy, or (bb) any award in
eminent domain proceedings for a taking or for loss of value, or (cc)
Mortgagor's interest as lessor in any present or future lease or rights to
income growing out of the use and/or occupancy of the Premises, whether pursuant
to lease or otherwise, shall never be construed as in anywise altering any of
the rights of Agent, Banks or Mortgagor as determined by this instrument or
impugning the priority of Agent's lien granted hereby or by any other recorded
document, but such mention in such financing statement(s) is declared to be for
the protection of Agent and Banks in the event any court shall at any time hold
with respect to the foregoing (aa), (bb) or (cc), that notice of Agent's
priority of interest to be effective against a particular class of persons, must
be filed in the Uniform Commercial Code records.

                           3.7.2    Mortgagor warrants that (i) Mortgagor's
(that is, "Debtor's") name, identity or corporate structure and residence or
principal place of business are as set forth in Subsection 3.7.3 hereof; (ii)
Mortgagor (that is, "Debtor") has been using or operating under said name,
identity or corporate structure without change for the time period set forth in
Subsection 3.7.3 hereof; (iii) that Mortgagor is duly qualified to do business
in each state in which the Land is located; and (iv) the location of the Plant,
Equipment and Personal Property is upon the Land, except as permitted in the
Security Agreement. Mortgagor covenants and agrees that: (i) Mortgagor will
furnish Agent with notice of any change in the matters addressed by clauses (i)
or (iii) of this Subsection 3.7.2 within thirty (30) days of the effective date
of any such change; (ii) Mortgagor will promptly execute any financing
statements or other instruments deemed necessary by Agent to prevent any filed
financing statement from becoming misleading or losing its perfected status; and
(iii) and that Mortgagor will remain qualified to do business in each state in
which the Land is located.

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<PAGE>   277
                           3.7.3    Upon execution by Agent (where local
practice requires the same), this Instrument shall constitute a financing
statement filed as a fixture filing under the Uniform Commercial Code in the
real estate records of the county or city in which the Premises is located with
respect to all fixtures which are a part of the Premises and with respect to any
goods or other personal property that may now be or hereafter become a fixture.
The information contained in this Subsection 3.7.3 is provided in order that
this Instrument shall comply with the requirements of the Uniform Commercial
Code for instruments to be filed as financing statements, to perfect the
security interests with respect to fixtures. The names of the "Debtor" and the
"Secured Party", the identity or corporate structure and residence or principal
place of business of "Debtor", and the time period for which "Debtor" has been
using or operating under said name and identity or corporate structure without
change, are as set forth in Exhibit "C", attached hereto and by this reference
made a part hereof; the mailing address of the "Secured Party" from which
information concerning the security interest may be obtained, and the mailing
address of Mortgagor (that is, "Debtor"), are as set forth in Section 5.5 of
this Instrument; and a statement indicating the types, or describing the items,
of collateral is set forth hereinabove.

                           3.7.4    Conflict with Security Agreement. To the
extent any of the provisions of this Instrument pertaining to Plant, Equipment
and Personal Property are in conflict with any provisions of the Security
Agreement, the conflicting provisions of the Security Agreement shall govern and
control over the conflicting provisions of this Instrument.

                  3.8      Further Assurances; After Acquired Property. At any
time, and from time to time, upon reasonable request by Agent, Mortgagor will
make, execute and deliver or cause to be made, executed and delivered, to Agent
and, where appropriate, cause to be recorded and/or filed and from time to time
thereafter to be re-recorded and/or refiled at such time and in such offices and
places as shall be deemed desirable by Agent, any and all such other and further
mortgages, deeds of trust, security agreements, financing statements,
continuation statements, instruments of further assurance, certificates and
other documents as may, in the opinion of Agent reasonably exercised, be
necessary or desirable in order to effectuate, complete, or perfect, or to
continue and preserve (a) the obligation of Mortgagor under the Secured
Obligations and under this Instrument and (b) the lien and security interests
granted by this Instrument as a first and prior lien (except for the Permitted
Encumbrances) upon and in and to all of the Premises, whether now owned or
hereafter acquired by Mortgagor, as well as any certificates, petitions or other
instruments reasonably requested by the Agent for allocation of stamp,
intangible, recording or similar tax liability relating to the filing of this
Instrument for record as to multiple Premises. Upon any failure by Mortgagor so
to do, Agent may make, execute, record, file, re-record and/or refile any and
all such mortgages, security agreements, deeds of trust, financing statements,
continuation statements, instruments, certificates and documents for and in the
name of Mortgagor and Mortgagor hereby irrevocably appoints Agent the agent and
attorney-in-fact of Mortgagor so to do. The lien of this Instrument and the
security interest created hereby will automatically attach, without further act,
to after-acquired personal property attached to, or located on, the Land and/or
used in connection with the operation of the Premises or any part thereof.

                  3.9      Expenses. Mortgagor will pay or reimburse Agent and
Banks, upon demand therefor, for all reasonable actual attorneys' fees, costs
and expenses incurred by Agent

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or any Bank in any suit, action, legal proceeding or dispute of any kind in
which Agent and/or Banks are made a party or appear as party plaintiff or
defendant, affecting the Secured Obligations secured hereby, this Instrument or
the interest created herein, or the Premises, including, but not limited to, the
exercise of the power of sale contained in this Instrument or the foreclosure of
this Instrument, any condemnation action involving the Premises or any action to
protect the security hereof; and any such amounts paid by Agent or any Bank
shall be included in the Secured Obligations secured by the lien of this
Instrument. Notwithstanding the foregoing, neither Agent nor any Bank shall be
entitled to recover any such expenses in any such suit by Agent or such Bank
against Mortgagor if such suit results in a judicial determination in favor of
Mortgagor with respect to the subject matter thereof or results in a
determination of liability against Agent or such Bank based on an act of gross
negligence or willful misconduct.

                  3.10     Subrogation. Agent shall be subrogated to all right,
title, equity liens and claims of all persons, firms or corporations to whom
Mortgagor has paid or pays, or to whom monies are paid, from the proceeds of the
Secured Obligations in the settlement of claims, liens or charges or for the
benefit of Mortgagor.

                  3.11     Limit of Validity. If from any circumstances
whatsoever fulfillment of any provision of this Instrument, the Guaranty or any
of the other Transaction Documents (as defined in the Credit Agreement) at the
time performance of such provision shall be due, shall involve transcending the
limit of validity presently prescribed by any applicable usury statute or any
other applicable law, with regard to obligations of like character and amount,
then ipso facto the obligation to be fulfilled shall be reduced to the limit of
such validity, so that in no event shall any exaction be possible under this
Instrument that is in excess of the current limit of such validity, but such
obligation shall be fulfilled to the limit of such validity.

                  3.12     Junior Encumbrances. Mortgagor shall not further
mortgage, encumber or pledge all or any part of the Premises or of Mortgagor's
interest in the Premises or any part thereof, except for Permitted Encumbrances.

                                   ARTICLE IV

                              DEFAULT AND REMEDIES

                  4.1      Events of Default. The terms "Default", "Event of
Default" or "Events of Default", wherever used in this Instrument, mean the
failure of the Mortgagor to pay upon demand in accordance with the terms of the
Guaranty the Guaranteed Obligations (as defined in the Guaranty).

                  4.2      Acceleration of Maturity. If an Event of Default
shall have occurred and be continuing and shall not have been expressly waived
in writing by Agent, then the Secured Obligations secured hereby shall, by
written notice as provided in the Credit Agreement, immediately become due and
payable without further notice or demand, time being of the essence of this
Instrument and the rate of interest with respect thereto shall be as provided in
Section 2.05 of the Credit Agreement; and no omission on the part of Agent to
exercise such option when entitled to do so shall be construed as a waiver of
such right.

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<PAGE>   279

                  4.3      Agent's Right to Enter and Take Possession, Operate
and Apply Revenues.

                           4.3.1    If an Event of Default shall have occurred
and be continuing and shall not have been expressly waived in writing by Agent,
then, subject to the provisions of Section 5.16, Mortgagor, upon demand of
Agent, shall forthwith surrender to Agent the actual possession of the Premises
and if, and to the extent, permitted by law, Agent itself, or by such officers
or agents as it may appoint, may enter and take possession of all the Premises
without the appointment of a receiver, or an application therefor, and may
exclude Mortgagor and its agents and employees wholly therefrom, and may have
access to the books, papers and accounts of Mortgagor. Mortgagor waives the
posting of any bond in the event Agent elects to take possession.

                           4.3.2    If Mortgagor shall for any reason fail to
surrender or deliver the Premises or any part thereof after such demand by
Agent, Agent may obtain a judgment or decree conferring upon Agent the right to
immediate possession or requiring Mortgagor to deliver immediate possession of
the Premises to Agent, to the entry of which judgment or decree Mortgagor hereby
specifically consents. Mortgagor will pay to Agent, upon demand, all reasonable
actual expenses of obtaining such judgment or decree, including reasonable
actual compensation to Agent, its attorneys and agents; and all such expenses
and compensation shall, until paid, be secured by the lien of this Instrument.

                           4.3.3    Upon every such entering upon or taking of
possession, Agent may hold, store, use, operate, manage and control the Premises
and conduct the business thereof, and, from time to time (i) make all necessary
and proper maintenance, repairs, renewals, replacements, additions, betterments
and improvements thereto and thereon and purchase or otherwise acquire
additional fixtures, personalty and other property; (ii) insure or keep the
Premises insured; (iii) manage and operate the Premises and exercise all the
rights and powers of Mortgagor to the same extent as Mortgagor could in its own
name or otherwise with respect to the same; and (iv) enter into any and all
agreements with respect to the exercise by others of any of the powers herein
granted Agent, all as Agent from time to time may determine to be in its best
interest. Agent may collect and receive all the rents, issues, profits and
revenues from the Premises, including those past due as well as those accruing
thereafter, and, after deducting (aa) all reasonable actual expenses of taking,
holding, managing and operating the Premises (including reasonable actual
compensation for the services of all persons employed for such purposes); (bb)
the cost of all such maintenance, repairs, renewals, replacements, additions,
betterments, improvements, purchases and acquisitions; (cc) the cost of such
insurance; (dd) such taxes, assessments and other similar charges as Agent may
at its option pay; (ee) other proper charges upon the Premises or any part
thereof; and (ff) the reasonable actual compensation, expenses and disbursements
of the attorneys and agents of Agent, Agent shall apply the remainder of the
moneys and proceeds so received by Agent, first to the payment of accrued
interest; second, to the payment and satisfaction of the Secured Obligations
currently due (whether by acceleration or otherwise); and third, to the
Mortgagor.

                           4.3.4    Whenever all that is due (whether by
acceleration or otherwise) upon such Secured Obligations and under any of the
terms, covenants, conditions and agreements of this Instrument, shall have been
paid and all Events of Default made good, Agent

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shall surrender possession of the Premises to Mortgagor, its successors or
assigns. The same right of taking possession, however, shall exist if any
subsequent Event of Default shall occur.

                  4.4      Performance by Agent of Defaults by Mortgagor. If
Mortgagor shall default in the payment, performance or observance of any term,
covenant or condition of this Instrument, Agent may, at its option and after
using best efforts to notify Mortgagor, pay, perform or observe the same, and
all payments made or costs or expenses incurred by Agent in connection
therewith, shall be secured hereby and shall be, without demand, immediately
repaid by Mortgagor to Agent with interest thereon at a rate per annum equal to
the "Default Rate" (as defined in the Credit Agreement) calculated on the basis
set forth in the Credit Agreement. Agent shall be the sole judge of the
necessity for any such actions and of the amounts to be paid, but shall exercise
such judgment reasonably and in good faith. Agent is hereby empowered to enter
and to authorize others to enter upon the Premises or any part thereof for the
purpose of performing or observing any such defaulted term, covenant or
condition without thereby becoming liable to Mortgagor or any person in
possession holding under Mortgagor except for gross negligence or willful
misconduct.

                  4.5      Receiver. If an Event of Default shall have occurred
and be continuing and shall not have been expressly waived by Agent, then, Agent
may apply to a court of competent jurisdiction pursuant to S.C. Code Ann.
15-65-10, et seq., as amended from time to time for the appointment of a
receiver to take possession of and to operate the Premises and to collect and
apply the rents, issues, profits and revenues thereof. Agent agrees to notify
Mortgagor of its application for the appointment of a receiver at least four (4)
days prior to such appointment, unless the court to which such application is
made prescribes a shorter time. The receiver shall have all of the rights and
powers permitted under the laws of the state wherein the Land is situated.
Mortgagor will pay to Agent upon demand all expenses, including receiver's fees,
reasonable actual attorneys' fees, costs and agent's compensation, incurred
pursuant to the provisions of this Section 4.5; and all such reasonable actual
expenses shall be secured by this Instrument.

                  4.6      Enforcement. If an Event of Default shall have
occurred and be continuing and shall not have been expressly waived by Agent,
concerning enforcement by judicial foreclosure or exercise of private power of
sale, Agent, at its option, may (a) commence proceedings to collect sums due
hereunder, foreclose this Instrument and sell the real property portion of the
Premises: At the foreclosure, Agent or any Bank shall be entitled to bid and to
purchase the real property portion of the Premises and shall be entitled to
apply the Secured Obligations, or any portion thereof, in payment for the real
property portion of the Premises; (b) collect and receive all the rents, issues,
profits and revenues from the Premises, including those past due as well as
those accruing thereafter; (c) with respect to the personalty that is located on
the Premises, exercise all rights, remedies and powers available to secured
parties under the Uniform Commercial Code in force in the State of South
Carolina; and (d) exercise any other rights or remedies provided in this
Instrument or by law, all of which rights and remedies may be exercised by Agent
independently, simultaneously or consecutively in any order without being deemed
to have waived any right or remedy previously or not yet exercised. Mortgagor
agrees that, to the extent permitted by law, legal process in connection with
the foreclosure of the debt secured hereby may be made by written notice to
Agent pursuant to Section 5.5. To the extent

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permitted by law, such process shall be deemed to be personally served on
Mortgagor as of the date of actual receipt thereof by the U.S. Mail. Such method
of service of process shall be in addition to all other methods permitted by
law. Agent may, in addition to and not in abrogation of the rights covered under
this Section 4.6, either with or without entry or taking possession as herein
provided or otherwise, proceed by a suit or suits in law or in equity or by any
other appropriate proceeding or remedy granted or conferred by applicable
statutes (i) to enforce payment of the Secured Obligations or the performance of
any term, covenant, condition or agreement of this Instrument or any other
right, and (ii) to pursue any other remedy available to it, all as Agent shall
determine most effectual for such purposes.

                  4.7      Purchase by Agent or any Bank. Upon any foreclosure
sale, either judicially or by private power of sale, Agent, for the benefit of
the Banks ratably, or, to the extent permitted by applicable law, any Bank may
bid for and purchase the Premises and shall be entitled to apply all or any part
of the Secured Obligations as a credit to the purchase price.

                  4.8      Application of Proceeds of Sale. Except as in
hereinabove expressly set forth, in the event of a foreclosure sale of the
Premises, either judicially or by private power of sale, the proceeds of said
sale shall be applied, unless applicable statutes shall specify otherwise,
first, to the expenses of such sale and of all proceedings in connection
therewith and the reasonable actual expenses of foreclosing this Instrument,
including reasonable actual attorneys' fees, then to payment of the Secured
Obligations in such order as the Required Banks shall elect, and finally the
remainder, if any, shall be paid as required by law, or in the absence of any
provision therefor in the law, shall be paid to the parties entitled thereto;
provided, however that as to such remainder, Agent shall not be bound by any
inheritance, devise, conveyance, assignment or lien of or upon Mortgagor's
equity, without actual notice thereof prior to distribution.

                  4.9      Mortgagor as Tenant Holding Over. In the event of any
such foreclosure sale by Agent, Mortgagor shall be deemed a tenant holding over
and shall forthwith deliver possession to the purchaser or purchasers at such
sale or be summarily dispossessed according to provisions of law applicable to
tenants holding over.

                  4.10     Waiver of Appraisement, Valuation, Stay, Extension
and Redemption Laws. Mortgagor agrees to the full extent permitted by law, that
in case of a Default on the part of Mortgagor hereunder, neither Mortgagor nor
anyone claiming through or under it shall or will set up, claim or seek to take
advantage of any appraisement, valuation, stay, extension, homestead, exemption,
redemption or moratorium laws, statutory or otherwise now or hereafter in force,
in order to prevent or hinder the enforcement or foreclosure of this Instrument,
or the absolute sale of the Premises, or the final and absolute putting into
possession thereof, immediately after such sale, of the purchasers thereat, and
Mortgagor, for itself and all who may at any time claim through or under it,
hereby waives to the full extent that it may lawfully so do, the benefit of all
such laws, and any and all right to have the assets comprised in the security
intended to be created hereby marshalled upon any foreclosure of the lien
hereof.

                  4.11     Leases. Agent, at its option, is authorized to
foreclose this Instrument subject to the rights of any tenants of the Premises,
and the failure to make any such tenants

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<PAGE>   282

parties to any such foreclosure proceedings and to foreclose their rights will
not be, nor be asserted to be by Mortgagor, a defense to any proceedings
instituted by Agent to collect the Secured Obligations secured hereby.

                  4.12     Discontinuance of Proceedings and Restoration of the
Parties. In case Agent shall have proceeded to enforce any right, power or
remedy under this Instrument by foreclosure, entry or otherwise, and such
proceedings shall have been discontinued or abandoned for any reason, then and
in every such case Mortgagor and Agent shall be restored to their former
positions and rights hereunder, and all rights, powers and remedies of Agent
shall continue as if no such proceeding had been taken.

                  4.13     Remedies Cumulative. No right, power or remedy
conferred upon or reserved to Agent by this Instrument is intended to be
exclusive of any other right, power or remedy or exclusive of any other right,
power or remedy conferred by statute, but each and every such right, power and
remedy shall be cumulative and concurrent and shall be in addition to any other
right, power and remedy given hereunder or now or hereafter existing at law or
in equity or by statute.

                  4.14     Waiver.

                           4.14.1   No delay or omission of Agent to exercise
any right, power or remedy accruing upon any default or Event of Default shall
exhaust or impair any such right, power or remedy or shall be construed to be a
waiver of any such default, or acquiescence therein; and every right, power and
remedy given by this Instrument to Agent may be exercised from time to time and
as often as may be deemed expedient by Agent. No consent or waiver, expressed or
implied, by Agent or Banks to or of any breach or default by Mortgagor in the
performance of the obligations hereunder or any Event of Default shall be deemed
or construed to be a consent or waiver to or of any other breach or default in
the performance of the same or any other obligations of Mortgagor hereunder or
any Event of Default. Failure on the part of Agent or Banks to complain of any
act or failure to act or to declare an Event of Default, irrespective of how
long such failure continues, shall not constitute a waiver by Agent or Banks of
their rights hereunder or impair any rights, powers or remedies consequent on
any breach or default by Mortgagor. Agent or Banks may, at any time, or from
time to time, renew or extend this Instrument, or alter or modify the same in
any way, or waive any of the terms, covenants or conditions hereof in whole or
in part, and may release any portion of the Premises or any other security, and
grant such extensions and indulgences in relation to the Secured Obligations as
Agent may determine without the consent of any junior lienor or encumbrancer and
without any obligation to give notice of any kind thereto and without in any
manner affecting the priority of the lien hereof on any part of the Premises.

                           4.14.2   If Agent or Banks, as applicable, (i) grant
forbearance or an extension of time for the payment or satisfaction of the
Secured Obligations; (ii) take other or additional security for the payment of
the Secured Obligations; (iii) waive or do not exercise any right granted herein
or in any of the Secured Obligations; (iv) release any part of the Premises from
the lien of this Instrument or otherwise changes any of the terms, covenants,
conditions or agreements of any of the Secured Obligations; (v) consent to the
filing of any map, plat or replat

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affecting the Premises; (vi) consent to the granting of any easement or other
right affecting the Premises; or (vii) make or consent to any agreement
subordinating the lien hereof, any such act or omission shall not release,
discharge, modify, change or affect the original liability under any of the
Secured Obligations or any other obligation of Mortgagor or any subsequent
purchaser of the Premises or any part thereof, or any maker, co-signer,
endorser, surety or guarantor; nor shall any such act or omission preclude Agent
from exercising any right, power or privilege herein granted or intended to be
granted in the event of any default then made or of any subsequent default; nor,
except as otherwise expressly provided in an instrument or instruments executed
by Agent (and the Banks, if required) shall the lien of this Instrument be
altered thereby. In the event of the sale or transfer by operation of law or
otherwise of all or any part of the Premises, Agent, without notice, is hereby
authorized and empowered to deal with any such vendee or transferee with
reference to the Premises or the Secured Obligations, or with reference to any
of the terms, covenants, conditions or agreements hereof, as fully and to the
same extent as it might deal with the original parties hereto and without in any
way releasing or discharging any liabilities, obligations or undertakings.

                  4.15     Suits to Protect the Premises. Agent shall have power
to institute and maintain such suits and proceedings as it may reasonably deem
expedient (a) to prevent any impairment of the Premises by any acts which may be
unlawful or any violation of this Instrument, (b) to preserve or protect its
interest, in the Premises and in the rents, issues, profits and revenues arising
therefrom, and (c) to restrain the enforcement of or compliance with any
legislation or other governmental enactment, rule or order that Agent, in its
reasonable judgment, believes to be unconstitutional or otherwise invalid, if,
and only to the extent, the enforcement of or compliance with such enactment,
rule or order would impair the security hereunder or be prejudicial to the
interest of Agent, hereunder or under the other Transaction Documents.

                  4.16     Agent May File Proofs of Claim. In the case of any
receivership, insolvency, bankruptcy, reorganization, arrangement, adjustment,
composition or other proceedings affecting Mortgagor, its creditors or its
property, Agent, to the extent permitted by law, shall be entitled to file such
proofs of claim and other documents as may be necessary or advisable in order to
have the claims of Agent allowed in such proceedings for the entire amount due
and payable by Mortgagor under this Instrument at the date of the institution of
such proceedings and for any additional amount which may become due and payable
by Mortgagor hereunder after such date.

                  4.17     Multiple Sales. To the extent permitted by law, in
any judicial proceedings to foreclose this Instrument or nonjudicial exercise of
power of sale or any other private or public sale, the Premises, at the option
of Agent, may be sold in whole or in part and in the event of such multiple
sales, the Secured Obligations shall not be merged into any foreclosure sale or
foreclosure judgment so long as there shall remain outstanding any amount
secured by this Instrument. Such a foreclosure judgment in any state in which
the Land is located shall not operate, in and of itself, as a release of the
other property hereby secured or a waiver of Agent's right to elect any other
remedy available to it hereunder.

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                                    ARTICLE V

                            MISCELLANEOUS PROVISIONS

                  5.1      Successors and Assigns. This Instrument shall inure
to the benefit of and be binding upon Mortgagor and Agent or their respective
legal representatives, permitted successors and assigns. Whenever a reference is
made in this Instrument to Mortgagor or Agent such reference shall be deemed to
include a reference to the legal representatives, permitted successors and
assigns of Mortgagor or Agent.

                  5.2      Terminology. All personal pronouns used in this
Instrument whether used in the masculine, feminine or neuter gender, shall
include all other genders; the singular shall include the plural, and vice
versa. Titles and Articles are for convenience only and neither limit nor
amplify the provisions of this Instrument itself, and all references herein to
Articles, Sections or Subsections shall refer to the corresponding Articles,
Sections or Subsections of this Instrument unless specific reference is made to
such Articles, Sections or Subsections of another document or instrument.

                  5.3      Severability. If any provision of this Instrument or
the application thereof to any person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Instrument and the
application of such provisions to other persons or circumstances shall not be
affected thereby and shall be enforced to the greatest extent permitted by law.

                  5.4      Applicable Law. This Instrument and the obligations
created and secured hereby shall be interpreted, construed and enforced
according to the laws of the State of Georgia; except that, only for purposes of
determining (i) matters pertaining to real property, including the sufficiency
of the conveyance, warranties of title, perfection and the effect of
non-perfection and the foreclosure proceedings and remedies available to Agent,
and (ii) perfection and the effect of non-perfection of personal property, the
provisions of the Instrument shall be construed in accordance with the law of
the state of South Carolina.

                  5.5      Notices. All notices, requests and demands to or upon
the respective parties hereto, and all responses thereto, shall be in writing
and shall be deemed to have been properly given or served when personally
delivered or deposited in the mail, certified mail, return receipt requested,
postage prepaid, or delivered to a nationally recognized overnight courier
service, with all delivery charges paid or provided for, addressed to the
addresses set forth below. All notices, requests and demands, and all responses
thereto, shall be effective upon receipt thereof. Rejection or other refusal to
accept or the inability to deliver because of changed address of which no notice
was given shall be deemed to be receipt of the notice, demand or request sent.
By giving at least 30 days written notice hereof, Mortgagor or Agent shall have
the right from time to time and at any time during the term of this Agreement to
change their respective addresses and each shall have the right to specify as
its address any other address within the continental United States of America.
For the purpose of this Agreement, the following addresses apply:

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                  Mortgagor:

                                    Avondale Mills Graniteville Fabrics, Inc.
                                    506 South Broad Street
                                    Monroe, Georgia  30655
                                    Attn: Chairman and Chief Executive Officer

                  Agent:

                                    Wachovia Bank, N.A.
                                    191 Peachtree Street
                                    Atlanta, Georgia  30303-1757
                                    Attention: Commercial Group - GA212

                  5.6      Replacement of Documents. Upon receipt of evidence
reasonably satisfactory to Mortgagor or Agent of the loss, theft, destruction or
mutilation of any of the Transaction Documents and, in the case of any such
loss, theft or destruction, upon delivery of an indemnity agreement reasonably
satisfactory to Mortgagor or Agent or, in the case of any such mutilation, upon
surrender and cancellation of the appropriate document, the other party or
parties will execute and deliver, in lieu thereof, a replacement document or
instrument supplied by Mortgagor or Agent, identical in form and substance and
dated as of the date of the document being replaced and upon such execution and
delivery of such replacement document all references in this Instrument to the
document being replaced shall be deemed to refer to such replacement document.

                  5.7      Time of the Essence. Time is of the essence with
respect to each and every covenant, agreement and obligation of Mortgagor under
each of the Transaction Documents and any and all other instruments now or
hereafter evidencing, securing or otherwise relating to the Secured Obligations.

                  5.8      Counterparts. This Instrument may be executed in any
number of counterparts, each of which is deemed to be an original document, all
of which taken together shall constitute one and the same Instrument.

                  5.9      No Obligation to Marshal Assets. Notice is hereby
given that no holder of any mortgage, deed of trust, deed to secure debt, lien,
security interest or other encumbrance affecting all or any portion of the
Premises, which is inferior to the lien, security interest and security title of
the Instrument shall have the right or privilege to require Agent to marshal
assets.

                  5.10     Consent of Agent. Agent, by its acceptance of this
Instrument, agrees to be bound by the terms and conditions of this Instrument.

                  5.11     Agent's Powers. Without affecting the liability of
any other person liable for the payment of any obligation herein mentioned, and
without affecting the lien or charge of this Instrument upon any portion of the
Premises not then or theretofore released as security for the full amount of all
unpaid obligations, Agent (and the Banks) may, from time to time and

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without notice (i) release any person so liable, (ii) extend the maturity or
alter any of the terms of any such obligation, (iii) grant other indulgences,
(iv) cause to be released or reconveyed at any time at Agent's option, any
parcel, portion or all of the Premises, (v) take or release any other or
additional security for any obligation herein mentioned, or (vi) make
compositions or other arrangements with debtors in relation thereto.

                  5.12     No Liability or Obligation on Agent. Nothing in this
Instrument shall be construed to impose any obligation upon Agent to expend any
money or to take any other discretionary act herein permitted, and Agent shall
not have any liability or obligation for any delay or failure to take any
discretionary act in the absence of gross negligence or willful misconduct by
Agent.

                  IN WITNESS WHEREOF, Mortgagor has executed this instrument
under seal, as of the day and year first above written.

                                             "Mortgagor"

Signed, sealed and delivered                 AVONDALE MILLS GRANITEVILLE
in the presence of:                          FABRICS, INC.

                                             By:
----------------------------------              --------------------------------
Witness                                         Name;
                                                Title:

                                             Attest:
----------------------------------                  ----------------------------
Witness                                             Name;
                                                    Title:

                                                       [CORPORATE SEAL]

                                      281
<PAGE>   287

STATE OF SOUTH CAROLINA   )
                          )    SOUTH CAROLINA
COUNTY OF AIKEN           )    PROBATE

                  BEFORE ME, the undersigned notary public, personally appeared
_________________, who being duly sworn, deposed and said that he saw
________________________________, the ______________________________ of Avondale
Mills Graniteville Fabrics, Inc., a Delaware corporation, sign, seal and deliver
the foregoing Instrument on behalf of Avondale Mills Graniteville Fabrics, Inc.,
a Delaware corporation, and he together with ___________________, witnessed the
execution thereof.

                                     -------------------------------------------
                                     Witness

SWORN TO and subscribed
before me this _____ day of
_____________, 1997.

--------------------------
Notary Public

My Commission Expires:

[NOTARIAL SEAL]

                                   EXHIBIT "A"

                                    THE LAND

         Commencing from a Nail & Cap at the intersection of Whaley Pond Rd.
(S-2-780) & Bettis Academy Road (S-2-144). Thence continuing in a direction of N
0 50' 16" E for 584.37' to a #4 Rebar Set on the right of way of Bettis Academy
Rd, being known as the Point of Beginning. Thence S 76 20' 15" E for 776.98' to
a 1 1/2" open end Iron Pipe Set. Thence S 78 40'54" E for 1007.80' to a 3/4"
open end Iron Pipe Set. Thence S 13 14'31" E for 432.24' to a #4 Rebar Set.
Thence S 4 40'01" W for 563.65' to a #4 Rebar Set. Thence S 35 15'05" W for
151.22' to a #4 Rebar Set. Thence N 83 00'49" W for 102.41' to a #4 Rebar Set.
Thence N 78 12'34" W for 351.73' to a #4 Rebar Set. Thence N 9 51'29" E for
27.91' to a #4 Rebar Set. Thence N 78 32'05" W for 72.54' to a #4 Rebar Set.
Thence N 9 42'52" E for 33.29' to a #4 Rebar Set. Thence N 77 37' 57" W for
51.16' to a #4 Rebar Set. Thence S 9 35'06" W for 62.22' to a #4 Rebar Set.
Thence S 47 32'02" W for 54.39' to a #4 Rebar Set. Thence N 77 47'00" W for
84.21' to a #4 Rebar Set. Thence N 9 48'37" E for 43.87' to a #4 Rebar Set.
Thence N 78 21'46" W for 458.15' to a #4 Rebar Set. Thence S 11 35'47" W for
83.44' to a #4 Rebar Set. Thence N 78 00'24" W for 90.08' to a #4 Rebar Set.
Thence N 10 56'25" E for 96.44' to a #4 Rebar Set. Thence N 74 18'59" W for
451.61' to a #4 Rebar Set on the right of way of Bettis Academy Road. (S-2-144).
Thence N 2 24'21" W for 1169.88' along east right of way of Bettis

                                      282
<PAGE>   288

Academy Road (S-2-144) to #4 Rebar Set also known as the point of beginning.
Having a total Area of 45.27 Acres.

                                      283
<PAGE>   289

                                   EXHIBIT "B"

                             PERMITTED ENCUMBRANCES

                                      284
<PAGE>   290

                                   EXHIBIT "C"

                   Description of "Debtor" and "Secured Party"

A.       Debtor:

         1.       Name and Identity or Corporate Structure:

                  AVONDALE MILLS GRANITEVILLE FABRICS, INC., a Delaware
                  corporation

         2.       The principal place of business of Debtor in South Carolina is
                  in Graniteville, Aiken County, South Carolina, and its mailing
                  address and chief executive office is at 506 South Broad
                  Street, Monroe, Georgia 30655.

         3.       Debtor has been using or operating under said name (or its
                  former name, "Camp Helen Co.") and identity or corporate
                  structure without change for the following time period:

                  Not less than six years.

B.       Secured Party:    Wachovia Bank, N.A., a national banking association,
                           in its capacity as Agent for certain banks

                                      285
<PAGE>   291

                                                                       EXHIBIT R

                                 FORM OF NOTICE

                IN RESPECT OF ISSUANCE OF OTHER LETTERS OF CREDIT

TO:      The Banks parties to the Second Amended and Restated Credit Agreement
dated as of September 28, 2000, as amended and supplemented from time to time
(the "Credit Agreement") by and among Avondale Mills, Inc., as the Borrower, and
Wachovia Bank, N.A., as the Agent, and the Banks parties thereto.

         Pursuant to Section 2.13(a)(iv)(B) of the Credit Agreement, the Agent
hereby certifies to the Banks that it has issued the following Other Letters of
Credit pursuant to Section 2.13 of the Credit Agreement:

<TABLE>
<CAPTION>
             Face        Date of
Number       Amount      Issuance/Expiration        Beneficiary      Purpose
------       ------      -------------------        -----------      -------
<S>          <C>         <C>                        <C>              <C>

</TABLE>

         A copy of each of the Other Letters of Credit listed above has been
attached hereto.

         Unless otherwise defined herein, terms defined in the Credit Agreement
shall have the same meaning in this notice.

Date:                 , 200_.

                                                   WACHOVIA BANK, N.A.

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

Enclosures

                                      286
<PAGE>   292

                                                                   Schedule 4.08

                                  SUBSIDIARIES

<TABLE>
<CAPTION>

                                              Owner of 100%                           Jurisdiction of
Subsidiary                                    of Common Stock                         Incorporation
----------                                    ---------------                         ---------------

<S>                                           <C>                                     <C>
Avondale Mills Graniteville Fabrics, Inc.     Avondale Mills, Inc.                    Delaware

Avondale Receivables Company                  Avondale Mills, Inc.                    Delaware

Avondale Foreign Sales Corporation            Avondale Mills, Inc.                    Virgin Islands
</TABLE>

                                      287
<PAGE>   293

                                                                   Schedule 4.14

                          CERTAIN ENVIRONMENTAL MATTERS

                              AVONDALE MILLS, INC.

1.       Avondale Mills discharges wastewater from its Alexander City, Alabama
         textile manufacturing plant to the Alexander City Waste Water Treatment
         Plant pursuant to a State Indirect Discharge permit. In 1999, the U.S.
         Environmental Protection Agency notified Alexander City, Avondale
         Mills, and Russell Mills (another indirect discharger to the Wastewater
         Treatment Plant) of its intention to charge these parties with
         violating the Clean Water Act alleging that Alexander City's direct
         discharges from the Plant have violated the Plant's Clean Water Act
         permit and that the indirect dischargers' influent to the Plant
         "caused" that Plant's violations. Avondale Mills believes EPA's
         position is incorrect and is prepared to defend the compliance record
         of its Alexander City manufacturing plant. Avondale Mills had been
         involved in discussions with EPA and the other parties regarding
         resolution of this matter.

2.       In 1987, the South Carolina Department of Health and Environmental
         Control ("DHEC") notified Graniteville Company ("Graniteville") that
         DHEC had discovered certain contamination in a pond near Graniteville,
         South Carolina and that Graniteville may be one of the responsible
         parties. In 1990 and 1991, Graniteville provided reports to DHEC
         summarizing its required study and investigation of the alleged
         pollution and its sources which concluded that pond sediments should be
         left undisturbed and that other remediation alternatives either
         provided no significant benefit or themselves involved adverse effects.
         Since that time, Avondale Mills has performed sedimentation sampling
         and analysis, reporting the results to DHEC. At the present time,
         Avondale has been asked to perform no remedial work or further
         evaluative work at this site.

3.       Graniteville owned a nine acre property near Vaucluse in Aiken County,
         South Carolina which was operated jointly by Graniteville and Aiken
         County as a landfill from approximately 1950 through 1973. Pursuant to
         various site investigations performed by U.S. EPA, DHEC and
         Graniteville, DHEC asked Avondale Mills to prepare an evaluation of
         various remedial actions that might be appropriate for the site.
         Avondale Mills prepared and submitted such an evaluation, concluding
         that a simple earthen cover, specified institutional controls and
         specified periodic groundwater monitoring would be appropriate for this
         site. DHEC has not yet responded to the recommended measures.

4.       Litigation described in Item 1 of Schedule 4.05.

Avondale Mills does not now expect any of the foregoing to have or cause a
Material Adverse Effect, or to draw into question the validity of or impair the
ability of Avondale Mills to perform its obligations under the Credit Agreement,
the Notes, or any of the Loan Documents, or of Avondale Incorporated or Avondale
Mills Graniteville Fabrics to perform their respective obligations under the
Loan Documents to which they are parties.

                                      288
<PAGE>   294

                                                                   Schedule 5.11

                       Existing Liens as of April 29, 1996

<TABLE>
<CAPTION>

Secured Party                            Jurisdiction                          Collateral
-------------                            ------------                          ----------

<S>                                      <C>                                   <C>
AVONDALE MILLS, INC.

Xerox Corporation                        Date Filed: 04/10/96                  Xerox Leased Equipment
                                         File number: 96-15376
                                         SOS Alabama

Val Tech Computer Systems                Date Filed: 03/06/96                  Leased Equipment Notice
(assignee Nat'l Bank of                  File number: 96-09326                 Filing
Commerce)                                SOS Alabama

Val Tech Computer Systems                Date Filed: 08/09/95                  Leased Equipment
(assignee First Alabama                  File number: 95-32698
Bank)                                    SOS Alabama

Val Tech Computer Systems                Date Filed: 05/24/95                  Leased Equipment
(assignee First Alabama                  File number: 95-21606
Bank)                                    SOS Alabama

Rieter Corporation                       Date Filed: 11/14/94                  Equipment
                                         File number: 94-43091
                                         SOS Alabama

Rieter Corporation                       Date Filed: 11/14/94                  Equipment
                                         File number: 94-43090
                                         SOS Alabama

Rieter Corporation                       Date Filed: 11/14/94                  Equipment
                                         File number: 94-43089
                                         SOS Alabama

Val Tech Computer Systems                Date Filed: 06/09/94                  Leased Equipment Notice
                                         File number: 94-20960                 Filing
                                         SOS Alabama

AT&T Credit Corporation                  Date Filed: 05/02/94                  Leased Equipment
                                         File number: 94-15516
                                         SOS Alabama
</TABLE>

                                      289
<PAGE>   295

<TABLE>
<CAPTION>

Secured Party                            Jurisdiction                          Collateral
-------------                            ------------                          ----------

<S>                                      <C>                                   <C>
Wachovia Bank of Georgia,                Date Filed: 04/04/94                  Blanket Lien
as Agent                                 File number: 94-11561
                                         SOS Alabama

Val Tech Computer Systems                Date Filed: 02/25/94                  Leased Equipment Notice
(assignee Nat'l Bank of                  File number: 94-06560                 Filing
Commerce re-assigned                     SOS Alabama
10/11/95 to Val Tech)

Pacific Atlantic Systems                 Date Filed: 12/28/93                  Leased Equipment Notice
                                         File number: 93-44875                 Filing
                                         SOS Alabama

Val Tech Computer Systems                Date Filed: 12/20/93                  Leased Equipment Notice
(assignee Nat'l Bank of                  File number: 93-43776                 Filing
Commerce re-assigned                     SOS Alabama
10/11/95 to Val Tech)

Pacific Atlantic Systems                 Date Filed: 09/30/93                  Leased Equipment Notice
                                         File number: 93-34411                 Filing
                                         SOS Alabama

Xerox Corporation                        Date Filed: 04/27/93                  Xerox Leased Equipment
                                         File number: 93-14521
                                         SOS Alabama

Xerox Corporation                        Date Filed: 04/27/93                  Xerox Leased Equipment
                                         File number: 93-14511
                                         SOS Alabama

Bell Atlantic Systems                    Date Filed: 01/25/93                  Leased Equipment Notice Filing
Leasing                                  File number: 93-02601
                                         SOS Alabama
(assignee: COS Computer
Systems)

SouthTrust Bank of Alabama               Date Filed: 01/14/93                  Leased Equipment,
                                         File number: 93-01620                 Insurance, Proceeds
                                         SOS Alabama

Trust Company Bank                       Date Filed: 04/30/92                  IRB Project and Equipment
(co-debtor: Industrial Dev.              File number: 92-15816
Board Town on Bon Air)                   SOS Alabama
</TABLE>

                                      290
<PAGE>   296

<TABLE>
<CAPTION>

Secured Party                            Jurisdiction                          Collateral
-------------                            ------------                          ----------

<S>                                      <C>                                   <C>
SouthTrust Bank of Alabama               Date Filed: 02/10/92                  Equipment, Insurance, Proceeds
                                         File number: 92-04907
                                         SOS Alabama

Mayer Electric Supply Co.,                Date Filed: 04/18/91                 Consignment of inventory to
Inc.                                      File number: 91-14211                a Systems Contracting
                                          SOS Alabama                          Agreement

CIT Group/Equipment                      Date Filed: 01/27/88                  12 - Volvo Sleeper Tractors
Financing, Inc.                          Continued: 08/04/92
                                         File number: A270067
                                         SOS Alabama

CIT Group/Equipment                      Date Filed: 08/17/87                  1 - Volvo Sleeper Tractor
Financing, Inc.                          Continued: 04/02/92
                                         File number: A253773
                                         SOS Alabama

Rieter Corporation                       Date Filed: 02/16/95                  Rieter Drawframe
                                         File number: 2046
                                         Coosa County, Alabama

Wachovia Bank of Georgia,                Date Filed: 04/07/94                  Blanket Lien
as Agent                                 File number: 94-069505
                                         SOS California

Wachovia Bank of Georgia,                Date Filed: 04/05/94                  Blanket Lien
as Agent                                 File number: 1052193
                                         SOS Connecticut

Wachovia Bank of Georgia,                Date Filed: 04/04/95                  Blanket Lien
as Agent                                 File number: 33817
                                         Floyd County

Wachovia Bank of Georgia,                Date Filed: 04/04/95                  Blanket Lien
as Agent                                 File number: 30395
                                         Walton County

Wachovia Bank of Georgia,                Date Filed: 04/04/95                  Blanket Lien
as Agent                                 File number: 225684
                                         SOS Massachusetts
</TABLE>

                                      291
<PAGE>   297

<TABLE>
<CAPTION>

Secured Party                            Jurisdiction                          Collateral
-------------                            ------------                          ----------

<S>                                      <C>                                   <C>
Wachovia Bank of Georgia,                Date Filed: 10/03/95                  Property/items secured by
as Trustee                               File number: 1269123                  UCC-1 #0588793, filed
                                         SOS North Carolina                    07/19/89 which has expired

Rieter Corporation                       Date Filed: 02/16/95                  Rieter Drawframe
                                         File number: 1162256
                                         SOS North Carolina

Rieter Corporation                       Date Filed: 02/16/95                  Rieter Drawframe
                                         File number: 1162255
                                         SOS North Carolina

Rieter Corporation                       Date Filed: 02/16/95                  Rieter Drawframe
                                         File number: 1162254
                                         SOS North Carolina

Wachovia Bank of Georgia,                Date Filed: 04/05/94                  Blanket Lien
as Agent                                 File number: 1093872
                                         SOS North Carolina

Trust Company Bank of                    Date Filed: 12/04/92                  IRB Project and Equipment
Georgia                                  File number: 0947502
                                         SOS North Carolina

Trust Company Bank of                    Date Filed: 12/03/92                  IRB Project and Equipment
Georgia                                  File number: 0947094
                                         SOS North Carolina

Staunton Norris, as Deed of              Date Filed: 07/08/88                  IRB Project and Equipment
Trust Trustee and Trust                  Continued: 06/30/93
Company Bank and First                   File number: 0470504
Nat'l Bank of Atlanta, as                Continued: 0011832
Indentured Trustee                       SOS North Carolina

Staunton Norris, as Deed of              Date Filed: 07/19/89                  IRB Project and Equipment
Trust Trustee and Trust                  File number: 0588793
Company Bank and First                   SOS North Carolina
Nat'l Bank of Atlanta, as
Indentured Trustee

Rieter Corporation                       Date Filed: 11/18/94                  Rieter Drawframe
                                         File number: 94-1512
                                         Lee County, North Carolina
</TABLE>

                                      292
<PAGE>   298

<TABLE>
<CAPTION>

Secured Party                            Jurisdiction                          Collateral
-------------                            ------------                          ----------

<S>                                      <C>                                   <C>
Rieter Corporation                       Date Filed: 11/18/94                  Rieter Drawframe
                                         File number: 94-1511
                                         Lee County, North Carolina

Trust Company Bank /                     Date Filed: 12/02/92                  IRB Project and Equipment
Wachovia Bank of Georgia,                File number: 92-1601
NA                                       Lee County, North Carolina

Wachovia Bank of Georgia                 Date Filed: 09/26/95                  Pertaining to UCC-1 #89-256
                                         File number: 95-182                   Filed 07/13/89 which has
                                         Yancey County, North                  since expired
                                         Carolina

Rieter Corporation                       Date Filed: 11/07/94                  Rieter Drawframe RSB 951
                                         File number: 94-203
                                         Yancey County, North
                                         Carolina

Trust Company Bank                       Date Filed: 12/04/92                  IRB Project and Equipment
                                         File number: 92-1976
                                         Yancey County, North
                                         Carolina

Staunton Norris, as Deed of              Date Filed: 07/08/88                  IRB Project and Equipment
Trust Trustee and Trust                  Continued: 06/25/93
Company Bank and First                   File number: 88-288
Nat'l Bank of Atlanta, as                Continued as 93-103
Indentured Trustee                       Yancey County, North
                                         Carolina

Staunton Norris, as Deed of              Date Filed: 07/13/89                  IRB Project and Equipment
Trust Trustee and Trust                  File number: 89-256
Company Bank and First                   Yancey County, North
Nat'l Bank of Atlanta, as                Carolina
Indentured Trustee

Wachovia Bank of Georgia                 Date Filed: 04/12/94                  Blanket Lien
                                         File number: 1563871
                                         SOS New Jersey

Wachovia Bank of Georgia                 Date Filed: 04/06/94                  Blanket Lien
                                         File number: 23000343
                                         SOS Pennsylvania
</TABLE>

                                      293
<PAGE>   299

<TABLE>
<CAPTION>

Secured Party                            Jurisdiction                          Collateral
-------------                            ------------                          ----------

<S>                                      <C>                                   <C>
Rieter Corporation                       Date Filed: 11/10/94                  Leased Equipment
                                         File number: 941110-103225A
                                         SOS South Carolina

Wachovia Bank of Georgia                 Date Filed: 04/05/94                  Blanket Lien
                                         File number: 940405-
                                         132723A
                                         SOS South Carolina

Trust Company Bank                       Date Filed: 12/04/92                  IRB Project and Equipment
                                         File number: 921204-
                                         100723A
                                         SOS South Carolina

Bell Atlantic Systems                    Date Filed: 04/08/91                  Leased Equipment
Leasing                                  File number: 91-017594
                                         SOS South Carolina

Trust Company Bank                       Date Filed: 01/04/91                  IRB Project and Equipment
                                         File number: 91-00010
                                         Oconee County, South Carolina

Trust Company Bank                       Date Filed: 12/02/92                  IRB Project and Equipment
                                         File number: 92-00694
                                         Oconee County, South Carolina

Rieter Corporation                       Date Filed: 11/09/94                  Rieter Drawframe
                                         File number: 94-00681
                                         Oconee County, South Carolina

Wachovia Bank of Georgia                 Date Filed: 04/05/94                  Blanket Lien
                                         File number: 94064691
                                         SOS Texas

GRANITEVILLE
COMPANY

Schlafhorst, Inc.                        Date Filed: 02/06/92                  Equipment
                                         File number: 92-005960
                                         Secretary of State, SC
</TABLE>

                                      294
<PAGE>   300

<TABLE>
<CAPTION>

Secured Party                            Jurisdiction                          Collateral
-------------                            ------------                          ----------

<S>                                      <C>                                   <C>
Schlafhorst, Inc.                        Date Filed: 01/14/92                  Equipment
                                         File number: 92-002008/92-
                                         002009
                                         Secretary of State, SC

Schlafhorst, Inc.                        Date Filed: 01/14/92                  Equipment
                                         File number: 92-002008
                                         Secretary of State, SC

Olin Corporation                         Date Filed: 02/10/94                  Leased Equipment
                                         File number: 131059A
                                         Secretary of State, SC

Olin Corporation                         Date Filed: 12/07/93                  Leased Equipment
                                         File number: 110634A
                                         Secretary of State, SC

BellSouth Financial Services             Secretary of State, SC
Corporation Amendment:
09/28/92, #134045A

Pitney Bowes Credit                      Date Filed: 01/29/92                  Equipment Informational
Corporation                              File number:                          Filing
                                         92004503/92004504
                                         Secretary of State, SC

Schlafhorst, Inc.                        Date Filed: 08/19/91                  3 - Rotor Autocoro
                                         File number: 91-040929
                                         Secretary of State, SC

Pitney Bowes Credit                      Date Filed: 01/25/96                  Leased Equipment
Corporation                              File number: 122033A
                                         Secretary of State, SC

Primeco, Inc. d/b/a Prime                Date Filed: 09/13/94                  1 - Scissor Lift
Equipment                                File number: 100644A
                                         Secretary of State, SC

E.I. DuPont De Nemours &                 Date Filed: 12/27/91                  Notice filing of a Service
Co. Separation Systems                   File number: 91-061914                Agreement
                                         Secretary of State, SC
</TABLE>

                                      295
<PAGE>   301

<TABLE>
<CAPTION>

Secured Party                            Jurisdiction                          Collateral
-------------                            ------------                          ----------

<S>                                      <C>                                   <C>
Canon Financial Services,                Date Filed: 01/12/93                  Office Equipment
Inc.                                     File number: 145328A
                                         Secretary of State, SC

Primeco, Inc. d/b/a Prime                Date Filed: 09/13/94                  1 - Scissor Lift
Equipment                                File number: 1329
                                         Aiken County, SC

Schlafhorst, Inc.                        Date Filed: 02/06/92                  Rotor Autocoro(s)
                                         File number: 192
                                         Aiken County, SC

Schlafhorst, Inc.                        Date Filed: 01/15/92                  Rotor Autocoro(s)
                                         File number: 81
                                         Aiken County, SC

Schlafhorst, Inc.                        Date Filed: 01/15/92                  Rotor Autocoro(s)
                                         File number: 80
                                         Aiken County, SC

Schlafhorst, Inc.                        Date Filed: 08/20/91
                                         File number: 1335
                                         Aiken County, SC                      Rotor Autocoro(s)

First United Leasing                     Date Filed: 01/22/93                  1/Panafax Facsimile
Corporation                              File number: 014679
                                         SOS New York

Pitney Bowes                             Date Filed:                           Equipment Lease
                                         File number: 960412-
                                         131615A
                                         SOS South Carolina

The CIT Group/Commercial                 N/A                                   $260,000 cash deposit to
Services, Inc.,                                                                secure certain reimbursement
                                                                               and indemnity obligations

Bank of New York                         N/A                                   Foreign Accounts Receivable
(successor-in-interest to FNB                                                  per Factoring Agreement
Financial Company)
</TABLE>

                                      296
<PAGE>   302

<TABLE>
<CAPTION>

Secured Party                            Jurisdiction                          Collateral
-------------                            ------------                          ----------

<S>                                      <C>                                   <C>
WALTON MONROE
MILLS, INC.

Trust Company Bank                       Date Filed: 06/15/92                  IRB Project and Equipment
                                         File number: 28353
                                         Walton County, Georgia

Trust Company Bank                       Date Filed: 01/28/93                  Partial Release - 5 Saurer
                                         File number: 28353                    Shutterless Weaving
                                         Walton County, Georgia                Machines, Type 400

NCC Leasing                              Date Filed: 07/25/91                  NCR electronic data
                                         File number: 27498                    processing equipment
                                         Walton County, Georgia

NCC Leasing                              Date Filed: 09/12/91                  14 Terminal Green
                                         File number: 27605                    1010/keyboards
                                         Walton County, Georgia
</TABLE>

                                      297
<PAGE>   303

                                                                   Schedule 5.17

                            Description of Insurance

                       [separate schedule to be attached]

                                      298
<PAGE>   304

                                                                   Schedule 5.25

                                     PLANTS

Avondale Mills, Inc. Plants

<TABLE>
<CAPTION>
                                                                                                     (iv) Third
                                                                 Owned/                              Party
Plant Name                (i) City, State, County                Leased            (iii) Liens       Consent
----------                -----------------------                ------            ----------        --------------

<S>                       <C>                                    <C>               <C>               <C>
Revolver Collateral Plants:

Bevelle                   Alexander City, AL                     Owned                               None
                          Tallapoosa

Eva Jane                  Sylacauga, AL                          Owned                               None
                          Talladega

Sylacauga                 Sylacauga, AL                          Owned                               None
Finishing                 Talladega

Bon Air                   Bon Air, AL                            Leased*                             None
                          Talladega

Walhalla                  Walhalla, SC                           Owned                               None
                          Oconee

Catherine                 Sylacauga, AL                          Owned                               None
                          Talladega

Coosa                     Rockford, AL                           Owned                               None
                          Coosa

Pell City                 Pell City, AL                          Owned                               None
                          St. Clair

Sanford                   Sanford, NC                            Owned                               None
                          Lee

Tifton                    Tifton, GA                             Owned                               None
                          Tift

SunTrust Collateral Plants:

Lee                       Sanford, NC                            Owned             SunTrust          SunTrust
                          Lee

Burnsville                Burnsville, NC                         Owned             SunTrust          SunTrust
</TABLE>

                                      299
<PAGE>   305

<TABLE>
<CAPTION>
                                                                                                     (iv) Third
                                                                 Owned/                              Party
Plant Name                (i) City, State, County                Leased            (iii) Liens       Consent
----------                -----------------------                ------            ----------        --------------

<S>                       <C>                                    <C>               <C>               <C>
                          Yancey

Walton                    Monroe, GA                             Leased**          SunTrust          SunTrust
</TABLE>

*        Leased under Refunding Revenue Bond agreements from The Industrial
         Development Board of the Town of Bon Air

**       Leased under Industrial Development Revenue Bond agreements from The
         Development Authority of Walton County

                                      300
<PAGE>   306

Graniteville Company. Plants

<TABLE>
<CAPTION>
                                                                                                     (iv) Third
                                                                 Owned/                              Party
Plant Name                (i) City, State, County                Leased            (iii) Liens       Consent
----------                -----------------------                ------            -----------       ----------
<S>                       <C>                                    <C>               <C>               <C>
Gregg Dyeing              Graniteville, SC                       Owned                               None
and Finishing             Aiken

Hickman                   Graniteville, SC                       Owned                               None
                          Aiken

Horse Creek               Graniteville, SC                       Owned                               None
                          Aiken

Sibley                    August, GA                             Owned                               None
                          Richmond

Sibley Dyeing             Augusta, GA                            Owned                               None
and Finishing             Richmond

Swint                     Graniteville, SC                       Owned                               None
                          Aiken

Townsend                  Graniteville, SC                       Owned                               None
                          Aiken

Warren Dyeing             Graniteville, SC                       Owned                               None
                          Aiken

Warren Garment            Graniteville, SC                       Owned                               None
Processing                Aiken

Woodhead                  Graniteville, SC                       Owned                               None
                          Aiken
</TABLE>

                                      301

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00017-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00017-of-00352.parquet"}]]