Document:

<PAGE>
                                                                   EXHIBIT 10.29

   FOURTH AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT AND FIRST
                        AMENDMENT TO SECURITY AGREEMENT

         THIS FOURTH AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT
AND FIRST AMENDMENT TO SECURITY AGREEMENT (this "Fourth Amendment") is dated as
of May 24, 2002 among AVONDALE MILLS, INC. (the "Borrower"), the BANKS listed on
the signature pages hereof (collectively, the "Banks"), and WACHOVIA BANK,
NATIONAL ASSOCIATION as Agent (the "Agent");

                                   WITNESSETH:

         WHEREAS, the Borrower, the Agent and the Banks executed and delivered
that certain Second Amended and Restated Credit Agreement, dated as of September
28, 2000, as amended by First Amendment to Second Amended and Restated Credit
Agreement dated as of August 30, 2001, Second Amendment to Second Amended and
Restated Credit Agreement dated as of February 6, 2002 and Third Amendment to
Second Amended and Restated Credit Agreement dated as of March 1, 2002 (as so
amended, the "Credit Agreement");

         WHEREAS, the Borrower has requested and the Agent and the Banks have
agreed to certain amendments to the Credit Agreement and the Security Agreement
described therein, subject to the terms and conditions hereof;

         NOW, THEREFORE, for and in consideration of the above premises and
other good and valuable consideration, the receipt and sufficiency of which
hereby is acknowledged by the parties hereto, the Borrower, the Agent and the
Banks hereby covenant and agree as follows:

         1.       Definitions. Unless otherwise specifically defined herein,
each term used herein which is defined in the Credit Agreement shall have the
meaning assigned to such term in the Credit Agreement. Each reference to
"hereof", "hereunder", "herein" and "hereby" and each other similar reference
and each reference to "this Agreement" and each other similar reference
contained in the Credit Agreement shall from and after the date hereof refer to
the Credit Agreement as amended hereby.

         2.       Amendment to Section 1.01. Section 1.01 of the Credit
Agreement hereby is amended by deleting the definition of "Permitted
Encumbrances and adding the definitions of "Approved Equipment Financing",
"Fourth Amendment Effective Date", and "Permitted Encumbrances" set forth below.

<PAGE>

                  "Approved Equipment Financing" means the incurrence by the
         Borrower of Debt for borrowed money: (i) in an aggregate amount not in
         excess of $25,000,000; (ii) pursuant to a credit or loan agreement and
         security agreement that contains terms and conditions that are
         reasonably satisfactory to the Agent, including, without limitation,
         (x) an interest rate per annum no higher than 4% above the equipment
         lender's cost of funds for the relevant period during which the
         interest rate is in effect, (y) a principal amortization no more rapid
         than 5 year level principal payments and (z) financial covenants no
         more restrictive than those contained in this Agreement; (iii) that is
         secured by a Lien only on Equipment Collateral (as defined in the
         Security Agreement), and including any such Equipment Collateral and
         related attachments to the extent constituting fixtures, so long as, to
         the extent of any such fixtures to be affixed to any premises as to
         which the Agent has a Mortgage, such fixtures reasonably can be removed
         without doing irreparable damage to the premises) and no other assets
         of the Borrower or any of its Subsidiaries, which may be a first
         priority Lien, provided that the Agent and the equipment lender
         providing such financing have entered into an intercreditor agreement
         containing customary terms and conditions that are reasonably
         satisfactory to the Agent, including, without limitation (x) the
         subordination of the Lien of the Agent in the Equipment Collateral and
         (y) the agreement of the equipment financier to repair (or cause the
         repair of) any damage to and restore the premises in the event it
         removes any such Equipment Collateral (including attachments and
         fixtures) from any premises on which the Agent has a Mortgage and
         appropriate notice and cure rights; and (iv) provided that 100% of the
         Net Cash Proceeds of which are paid to the Agent for application to the
         Revolver Loans pursuant to Section 2.08(b)(i) and 2.08(c).

                  "Fourth Amendment Effective Date" means May 24, 2002.

                  "Permitted Encumbrances" means, (i) as to the Collateral
         described in the Security Agreement and the AMGF Security Agreement,
         the encumbrances expressly permitted by the Security Agreement
         (including the Approved Equipment Financing) or the AMGF Security
         Agreement, as the case may be, and (ii) as to each Plant and the AMGF
         Plant (including the Approved Equipment Financing), 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.

         3.       Amendment of Section 2.05(a). Section 2.05(a) of the Credit
Agreement hereby is deleted, and the following is substituted therefor:

                  (a)      "Applicable Margin" means, from and after the Fourth
         Amendment Effective Date (including for Loans outstanding on such
         date): (i) for any Term Loan which is a Base Rate Loan, 1.75%; (ii) for
         any Term Loan which is a Euro-Dollar Loan, 3.75%; (iii) (A) until the
         first Performance Pricing Determination Date, for any Revolver Loan
         which is a Base Rate Loan, 1.75%, and for any Revolver Loan which is a
         Euro-Dollar Loan, 3.75%, and (B) thereafter, for any Revolver Loan
         which is a Base Rate Loan and for any Revolver Loan which is a
         Euro-Dollar Loan, 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 for such type of Loan, depending on the
         level of the Total Debt to Cash Flow Ratio as of the end of such Fiscal
         Quarter or Fiscal Year, as determined pursuant hereto; provided,
         however, that (i) so long as any Term Loans remain outstanding, and
         (ii) at any time (whether or not any Term Loans remain outstanding) the
         maximum Total Debt to Cash Flow Ratio permitted by Section 5.06 is
         equal to or greater than 4.50 to 1.00, the Applicable Margin for
         Revolver Loans shall not go below Level 4 below (but the Borrower may
         voluntarily agree at any time when no Term Loans remain outstanding to
         reduce the maximum Total Debt to Cash Flow Ratio permitted by Section
         5.06 below 4.50 to 1.0, and in such event this proviso shall no longer
         be effective).

                                       2
<PAGE>

<TABLE>
<CAPTION>
         ----------------  ------------  -------------  ------------  -------------  ------------  ------------  -----------
                             LEVEL 1       LEVEL 2        LEVEL 3       LEVEL 4        LEVEL 5       LEVEL 6      LEVEL 7
         ----------------  ------------  -------------  ------------  -------------  ------------  ------------  -----------
         <S>               <C>           <C>            <C>           <C>            <C>           <C>           <C>
          Total Debt to     <3.00:1.0     >3.00:1.0     > 3.50:1.0    > 4.00:1.0      >4.50:1.0     >4.75:1.0     > 5.0:1.0
            Cash Flow                     -   but       -   but       -    but        -  but        -  but        -
                                          <3.50:1.0      <4.00:1.0     <4.50:1.0      <4.75:1.0     <5.00:1.0
         ----------------  ------------  -------------  ------------  -------------  ------------  ------------  -----------
            Base Rate         0.00%         0.00%          0.00%         0.50%          0.75%         1.25%        1.75%
           Applicable
             Margin
         ----------------  ------------  -------------  ------------  -------------  ------------  ------------  -----------
           Euro-Dollar        1.75%         2.125%        2.375%         2.625%        2.875%         3.25%        3.75%
           Applicable
             Margin
         ----------------  ------------  -------------  ------------  -------------  ------------  ------------  -----------
</TABLE>

                  In determining interest for purposes of this Section 2.05 and
         fees pursuant to Section 2.06(a) (except for the period from the Fourth
         Amendment Effective Date until the first Performance Pricing
         Determination Date), 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 2002 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.

         4.       Amendment of Section 2.06(a). Section 2.06(a) of the Credit
Agreement hereby is deleted, and the following is substituted therefor:

                  (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 Fourth Amendment Effective 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 July 1, 2002,
         for the quarterly period ending immediately prior to such date (except
         that the payment on July 1, 2002 shall be for the period from the
         Fourth Amendment Effective Date through October 1, 2002 and the
         Borrower also shall pay on such date the commitment fee payable under
         the Credit Agreement for the period from April 1, 2002 through the
         Fourth Amendment Effective Date at the rate provided in the Credit
         Agreement as in effect prior to the Fourth Amendment Effective Date).
         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, 0.625%, 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 level of the Total Debt to Cash Flow Ratio
         as of the end of such Fiscal Quarter or Fiscal Year, as determined
         pursuant hereto; provided, however, that (i) so long as any Term Loans
         remain outstanding, and (ii) at any time (whether or not any Term Loans
         remain outstanding) the maximum Total Debt to Cash Flow Ratio permitted
         by Section 5.06 is equal to or greater than 4.50 to 1.00, the
         commitment fee shall not go below Level 4 below (but the Borrower may
         voluntarily agree at any time when no Term Loans remain outstanding to
         reduce the maximum Total Debt to Cash Flow Ratio permitted by Section
         5.06 below 4.50 to 1.0, and in such event this proviso shall no longer
         be effective).

                                       3
<PAGE>

<TABLE>
<CAPTION>
       ------------------  ------------  -------------  ------------  -------------  ------------  ------------  -----------
                             LEVEL 1       LEVEL 2        LEVEL 3       LEVEL 4        LEVEL 5       LEVEL 6      LEVEL 7
       ------------------  ------------  -------------  ------------  -------------  ------------  ------------  -----------
       <S>                 <C>           <C>            <C>           <C>            <C>           <C>           <C>
         Total Debt to     < 3.00:1.0     > 3.00:1.0     >3:50:1.0    > 4.00:1.0      >4.50:1.0     >4.75:1.0     > 5.0:1.0
           Cash Flow                      -  but         -  but       -   but         -   but       -   but       -
                                          <3.50:1.0      <4.00:1.0    <4.50:1.0       <4.75:1.0     <5.00:1.0
       ------------------  ------------  -------------  ------------  -------------  ------------  ------------  -----------

       ------------------  ------------  -------------  ------------  -------------  ------------  ------------  -----------
        Commitment Fee       0.325%         0.375%         0.50%         0.50%          0.50%         0.50%        0.625%
       ------------------  ------------  -------------  ------------  -------------  ------------  ------------  -----------
</TABLE>

         5.       Amendment to Section 2.08(b). Section 2.08 of the Credit
Agreement hereby is deleted, and the following is substituted therefor:

                  Section 2.08 Certain Mandatory Prepayments; 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 Borrower shall make mandatory prepayments from
         the sources and in the amounts set forth below:

                           (i)      100% of the Net Cash Proceeds (rounded to
         the nearest $500,000) of (1) any Approved Equipment Financing and (2)
         any other Asset Disposition 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 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 such prepayment shall be applied to reduce the
         Term Loans of the several Banks and the Revolver Loans of the several
         Banks ratably; provided, however, as to any such prepayment from the
         Net Cash Proceeds of an Approved Equipment Financing, such prepayments
         shall be applied only to the Revolver Loans of the several Banks. Each
         such prepayment on the Revolver Loans pursuant to Section 2.08(b) and
         this paragraph (c) 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 prepayment pursuant to Section 2.08(b) or
         mandatory reduction pursuant to this paragraph (c).

         6.       Amendment to Section 5.01(k). Section 5.0(k) of the Credit
Agreement hereby is deleted, and the following is substituted therefor:

                  (k)      so long as the sum of the Aggregate Commitments less
         the Working Capital Obligations is less than $20,000,000, and until the
         earlier of (1) August 30, 2002 and (2) the date the Borrower has

                                       4
<PAGE>

         furnished to the Banks Compliance Certificates pursuant to Section
         5.01(c) for 2 consecutive Fiscal Quarters showing a Total Debt to Cash
         Flow Ratio calculated pursuant to Section 5.06 of less than 3.75, a 13
         week rolling cash flow forecast, which shall be furnished every other
         Friday, commencing August 31, 2001; and

         7.       Amendment to Section 5.03. Section 5.03 of the Credit
Agreement hereby is deleted, and the following is substituted therefor:

                  Section 5.03 Fixed Charge Coverage Ratio. The Fixed Charge
         Coverage Ratio, calculated at the end of each Fiscal Quarter, shall not
         be less than the ratio set forth below for such Fiscal Quarter:

<TABLE>
<CAPTION>
            ------------------------------------------- ------------------------
            FISCAL QUARTER ENDING                       RATIO
            ------------------------------------------- ------------------------
            <S>                                         <C>
            March 1, 2002                               1.80:1.00
            ------------------------------------------- ------------------------
            May 31, 2002                                1.90:1.00
            ------------------------------------------- ------------------------
            August 30, 2002                             2.10:1.00
            ------------------------------------------- ------------------------
            November 29, 2002                           2.25:1.00
            ------------------------------------------- ------------------------
            February 28, 2003                           2.40:1.00
            ------------------------------------------- ------------------------
             All Fiscal Quarters and thereafter         if Approved Equipment
                                                        Financing has occurred,
                                                        2.40:100; otherwise,
                                                        2.75:1.00
            ------------------------------------------- ------------------------
</TABLE>

         8.       Amendment to Section 5.06. Section 5.06 of the Credit
Agreement hereby is deleted, and the following is substituted therefor:

                  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 the ratio set forth below for such Fiscal Quarter:

<TABLE>
<CAPTION>
           ------------------------------------------- -------------------------
           FISCAL QUARTER ENDING                       RATIO
           ------------------------------------------- -------------------------
           <S>                                         <C>
           March 1, 2002                               5.75:1.00
           ------------------------------------------- -------------------------
           May 31, 2002                                5.75:1.00
           ------------------------------------------- -------------------------
           August 30, 2002                             5.25:1.00
           ------------------------------------------- -------------------------
           November 29, 2002                           4.50:1.00
           ------------------------------------------- -------------------------
           February 28, 2003                           4.00:1.00
           ------------------------------------------- -------------------------
           All Fiscal Quarters thereafter              3.75:1.00
           ------------------------------------------- -------------------------
</TABLE>

                                       5
<PAGE>

         9.       Amendment to Section 5.08. Section 5.08 of the Credit
Agreement hereby is deleted, and the following is substituted therefor:

                  Section 5.08 Senior Debt to Cash Flow Ratio. The Senior Debt
         to Cash Flow Ratio, calculated at the end of each Fiscal Quarter, shall
         be less than the ratio set forth below for such Fiscal Quarter:

<TABLE>
<CAPTION>
          ------------------------------------------- --------------------------
          FISCAL QUARTER ENDING                       RATIO
          ------------------------------------------- --------------------------
          <S>                                         <C>
          March 1, 2002                               3.50:1.00
          ------------------------------------------- --------------------------
          May 31, 2002                                3.25:1.00
          ------------------------------------------- --------------------------
          August 30, 2002                             2.75:1.00
          ------------------------------------------- --------------------------
          November 29, 2002 and thereafter            2.50:1.00
          ------------------------------------------- --------------------------
</TABLE>

         10.      Replacement of Exhibit F. Exhibit F to the Credit Agreement
(form of Compliance Certificate) hereby is deleted and Exhibit F attached hereto
is substituted therefor.

         11.      Amendment to the Security Agreement. Section 1 of the Security
Agreement hereby is amended by deleting the definition of "Permitted Liens" and
substituting the following therefor:

                   "Permitted Liens" means (i) the liens on the Equipment
         Collateral in connection with an Approved Equipment Financing (as to
         which the Lien of the Agent shall be subordinate) and (ii) the liens
         and encumbrances pertaining to portions of the Collateral described on
         Exhibit "C" attached hereto and by this reference made a part hereof.

         12.      Restatement of Representations and Warranties. The Borrower
hereby restates and renews each and every representation and warranty heretofore
made by it in the Credit Agreement and the other Loan Documents as fully as if
made on the date hereof and with specific reference to this Fourth Amendment and
all other Loan Documents executed and/or delivered in connection herewith,
except where such representations and warranties expressly refer to a different
date and 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.

         13.      Effect of Amendment. Except as set forth expressly
hereinabove, all terms of the Credit Agreement and the other Loan Documents
shall be and remain in full force and effect, and shall constitute the legal,
valid, binding and enforceable obligations of the Borrower. The amendments
contained herein shall be deemed to have prospective application only, unless
otherwise specifically stated herein.

         14.      Ratification. The Borrower hereby restates, ratifies and
reaffirms each and every term, covenant and condition set forth in the Credit
Agreement and the other Loan Documents, as amended hereby, effective as of the
date hereof.

         15.      Counterparts. This Fourth Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which counterparts, taken together, shall constitute but one and the
same instrument.

                                       6
<PAGE>

         16.      Section References. Section titles and references used in this
Fourth Amendment shall be without substantive meaning or content of any kind
whatsoever and are not a part of the agreements among the parties hereto
evidenced hereby.

         17.      No Default. To induce the Agent and the Banks to enter into
this Fourth Amendment and to continue to make advances pursuant to the Credit
Agreement, the Borrower hereby acknowledges and agrees that, as of the date
hereof, and after giving effect to the terms hereof, there exists (i) no Default
or Event of Default and (ii) no right of offset, defense, counterclaim, claim or
objection in favor of the Borrower arising out of or with respect to any of the
Loans or other obligations of the Borrower owed to the Banks under the Credit
Agreement.

         18.      Further Assurances. The Borrower agrees to take such further
actions as the Agent shall reasonably request in connection herewith to evidence
the amendments herein contained.

         19.      Governing Law. This Fourth Amendment shall be governed by and
construed and interpreted in accordance with, the laws of the State of Georgia.

         20.      Conditions Precedent. This Fourth Amendment shall become
effective only upon (i) execution and delivery to counsel for the Agent of 5
counterpart signature pages (or 1 faxed signature page, with the 5 originals
transmitted by overnight courier) of this Fourth Amendment by the Borrower, the
Agent and the Required Banks; (ii) execution and delivery to counsel for the
Agent of 5 counterparts (or 1 faxed signature page, with the 5 originals
transmitted by overnight courier) of the Consent and Reaffirmation of Guarantors
at the end hereof by each of the Parent and AMGF; and (iii) payment to the Agent
(x) for the ratable account of the Banks, of an amendment fee in an amount equal
to 0.25% of the Commitments, and (y) for its own account, the fees and expenses
payable pursuant to the letter agreement between the Agent, Wachovia Securities,
as arranger, and the Borrower dated May 6, 2002.

                       [SIGNATURES COMMENCE ON NEXT PAGE]

                                       7
<PAGE>

         IN WITNESS WHEREOF, each of the Borrower, the Agent and the Required
Banks has caused this Fourth Amendment 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:

                                       8
<PAGE>

                                         WACHOVIA BANK, NATIONAL ASSOCIATION,
                                         as Agent and as a Bank    (SEAL)

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

                                       9
<PAGE>

                                         BANK OF AMERICA, N.A., as a
                                         Bank             (SEAL)

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

                                       10
<PAGE>

                                         REGIONS BANK, as a Bank
                                              (SEAL)

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

                                       11
<PAGE>

                                         BRANCH BANKING AND TRUST COMPANY, as
                                         a Bank                           (SEAL)

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

                                       12
<PAGE>

                     CONSENT AND REAFFIRMATION OF GUARANTORS

         Each of the undersigned (i) acknowledges receipt of the foregoing
Fourth Amendment to Second Amended and Restated Credit Agreement and First
Amendment to Security Agreement (the "Fourth Amendment"), (ii) consents to the
execution and delivery of the Fourth Amendment by the parties thereto and (iii)
reaffirms all of its obligations and covenants under (1), as to the Parent, the
Amended and Restated Guaranty Agreement dated as of April 29, 1996 executed by
it, and (2) as to AMGF, the Limited Guaranty Agreement dated as of August 29,
1997 executed by it, and agrees that none of such obligations and covenants
shall be affected by the execution and delivery of the Fourth Amendment. This
Consent and Reaffirmation may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which
counterparts, taken together, shall constitute but one and the same instrument.

AVONDALE INCORPORATED                 AVONDALE MILLS GRANITEVILLE
                                      FABRICS, INC.

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

                                       13
<PAGE>

                                                                       EXHIBIT F

                             COMPLIANCE CERTIFICATE

                  Reference is made to the Second Amended and Restated Credit
         Agreement dated as of September 28, 2000, as amended by First Amendment
         to Second Amended and Restated Credit Agreement dated as of August 30,
         2001, Second Amendment to Second Amended and Restated Credit Agreement
         dated as of February 6, 2002 and Third Amendment to Second Amended and
         Restated Credit Agreement dated as of March 1, 2002 and Fourth
         Amendment to Second Amended and Restated Credit Agreement dated as of
         May 24, 2002 (as so amended, and as thereafter 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, National Association, 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:

                                       14
<PAGE>

1.       Fixed Charge Coverage Ratio (Section 5.03)

                  The Fixed Charge Coverage Ratio, calculated at the end of each
         Fiscal Quarter, shall not be less than the ratio set forth below for
         such Fiscal Quarter:

<TABLE>
<CAPTION>
           ------------------------------------------- -------------------------
           FISCAL QUARTER ENDING                       RATIO
           ------------------------------------------- -------------------------
           <S>                                         <C>
           March 1, 2002                               1.80:1.00
           ------------------------------------------- -------------------------
           May 31, 2002                                1.90:1.00
           ------------------------------------------- -------------------------
           August 30, 2002                             2.10:1.00
           ------------------------------------------- -------------------------
           November 29, 2002                           2.25:1.00
           ------------------------------------------- -------------------------
           February 28, 2003                           2.40:1.00
           ------------------------------------------- -------------------------
            All Fiscal Quarters and thereafter         if Approved Equipment
                                                       Financing has occurred,
                                                       2.40:100; otherwise,
                                                       2.75:1.00
           ------------------------------------------- -------------------------
</TABLE>

<TABLE>
<S>                   <C>                                                             <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 11                         ----------

        (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                                                                    >[1.80 to 1.0]
                                                                                       -
                                                                                       >[1.90 to 1.0]
                                                                                       -
                                                                                       >[2.10 to 1.0]
                                                                                       -
                                                                                       >[2.25 to 1.0]
                                                                                       -
                                                                                       >[2.40 to 1.0]
                                                                                       -
                                                                                       >[2.75 to 1.0]
                                                                                       -
</TABLE>

---------------
(1)      Not to exceed $10,000,000 during any period of 4 consecutive Fiscal
         Quarters

                                       15
<PAGE>

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>                                                             <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)

                  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 the ratio set forth below for such Fiscal Quarter:

<TABLE>
<CAPTION>
                ------------------------------------------- --------------------
                FISCAL QUARTER ENDING                       RATIO
                ------------------------------------------- --------------------
                <S>                                         <C>
                March 1, 2002                               5.75:1.00
                ------------------------------------------- --------------------
                May 31, 2002                                5.75:1.00
                ------------------------------------------- --------------------
                August 30, 2002                             5.25:1.00
                ------------------------------------------- --------------------
                November 29, 2002                           4.50:1.00
                ------------------------------------------- --------------------
                February 28, 2003                           4.00:1.00
                ------------------------------------------- --------------------
                All Fiscal Quarters thereafter              3.75:1.00
                ------------------------------------------- --------------------
</TABLE>

                                       16
<PAGE>

<TABLE>
         <S>          <C>                                                             <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                                   $
                                                                                       ----------

        (h)           non-cash write-offs of obsolete or surplus equipment, spare     $
                      parts or real property Schedule 1(2)
                                                                                       ----------

        (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                                                                   <[5.75 to 1.0]
                                                                                      <[5.25 to 1.0]
                                                                                      <[4.50 to 1.0]
                                                                                      <[4.00 to 1.0]
                                                                                      <[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: (A) 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); and (B) the Aggregate Commitment
         exceeds the Working Capital Obligations by at least $10,000,000.

<TABLE>
         <S>          <C>                                                             <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)(3)          ----------
</TABLE>

--------------
(2)      Not to exceed $10,000,000 during any period of 4 consecutive Fiscal
         Quarters

(3)      In addition, after giving effect to a Restricted Payment, the Aggregate
         Commitment must exceed the Working Capital Obligations by at least
         $10,000,000

                                       17
<PAGE>

5.       Senior Debt to Cash Flow Ratio (Section 5.08)

                  The Senior Debt to Cash Flow Ratio, calculated at the end of
         each Fiscal Quarter, shall be less than the ratio set forth below for
         such Fiscal Quarter

<TABLE>
<CAPTION>
                ------------------------------------------- --------------------
                FISCAL QUARTER ENDING                       RATIO
                ------------------------------------------- --------------------
                <S>                                         <C>
                March 1, 2002                               3.50:1.00
                ------------------------------------------- --------------------
                May 31, 2002                                3.25:1.00
                ------------------------------------------- --------------------
                August 30, 2002                             2.75:1.00
                ------------------------------------------- --------------------
                November 29, 2002 and thereafter            2.50:1.00
                ------------------------------------------- --------------------
</TABLE>

<TABLE>
        <S>           <C>                                                             <C>
        (a)           Consolidated Senior 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                                   $
                                                                                       ----------

        (h)           non-cash write-offs of obsolete or surplus equipment, spare     $
                      parts or real property Schedule 1(4)                             ----------

        (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                                                                   <[3.50 to 1.0]
                                                                                      <[3.25 to 1.0]
                                                                                      <[2.75 to 1.0]
                                                                                      <[2.50 to 1.0]
</TABLE>

-----------------------
(4)      Not to exceed $10,000,000 during any period of 4 consecutive Fiscal
         Quarters

                                       18
<PAGE>

6.       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>                                                             <C>
        (a)           loans and advances to employees                                 $
                                                                                       ---------

                      Limitation                                                      $2,000,000

        (b)           deposits required by government agencies or public utilities    $
                                                                                       ---------

        (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
</TABLE>

                                       19
<PAGE>

        Calculations with respect to Section 5.09(D):

<TABLE>
         <S>          <C>                                                             <C>
        (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>

7.       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 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>                                                             <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           $
                                                                                       ----------
                      Schedule 3

        (d)           10% of (c)                                                      $
                                                                                       ----------

        (e)           sum of (d) and $15,000,000                                      $
                                                                                       ----------

                      Limitation--(b) may not exceed (e)
</TABLE>

                                       20
<PAGE>

8.       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>

9.       List of Consolidated Subsidiaries (Section 5.01(c)(iii)

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

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

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

10.      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.

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

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

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

                                       21
<PAGE>

                                                                    Schedule - 1

Consolidated Net Income for:

<TABLE>
<S>                                         <C>
      quarter 200                           $
-----            ---                         ----------
      quarter 200                           $
-----            ---                         ----------
      quarter 200                           $
-----            ---                         ----------
      quarter 200                           $
-----            ---                         ----------

         Total                              $
                                             ----------
</TABLE>

Net Interest Expense for:

<TABLE>
<S>                                         <C>
      quarter 200                           $
-----            ---                         ----------
      quarter 200                           $
-----            ---                         ----------
      quarter 200                           $
-----            ---                         ----------
      quarter 200                           $
-----            ---                         ----------

         Total                              $
                                             ----------
</TABLE>

Income Taxes for:

<TABLE>
<S>                                         <C>
      quarter 200                           $
-----            ---                         ----------
      quarter 200                           $
-----            ---                         ----------
      quarter 200                           $
-----            ---                         ----------
      quarter 200                           $
-----            ---                         ----------

         Total                              $
                                             ----------
</TABLE>

Depreciation for:

<TABLE>
<S>                                         <C>
      quarter 200                           $
-----            ---                         ----------
      quarter 200                           $
-----            ---                         ----------
      quarter 200                           $
-----            ---                         ----------
      quarter 200                           $
-----            ---                         ----------

         Total                              $
                                             ----------
</TABLE>

Amortization for:

<TABLE>
<S>                                         <C>
      quarter 200                           $
-----            ---                         ----------
      quarter 200                           $
-----            ---                         ----------
      quarter 200                           $
-----            ---                         ----------
      quarter 200                           $
-----            ---                         ----------

         Total                              $
                                             ----------
</TABLE>

                                       22
<PAGE>

LIFO adjustments for:

<TABLE>
<S>                                         <C>
      quarter 200                           $
-----            ---                         ----------
      quarter 200                           $
-----            ---                         ----------
      quarter 200                           $
-----            ---                         ----------
      quarter 200                           $
-----            ---                         ----------

         Total                              $
                                             ----------
</TABLE>

Dividends for:

<TABLE>
<S>                                         <C>
      quarter 200                           $
-----            ---                         ----------
      quarter 200                           $
-----            ---                         ----------
      quarter 200                           $
-----            ---                         ----------
      quarter 200                           $
-----            ---                         ----------
</TABLE>

Non-cash write-offs of obsolete or
surplus equipment, spare parts or
real property for:

<TABLE>
<S>                                         <C>
      quarter 200                           $
-----            ---                         ----------
      quarter 200                           $
-----            ---                         ----------
      quarter 200                           $
-----            ---                         ----------
      quarter 200                           $
-----            ---                         ----------
</TABLE>

Current Maturities of Long Term Debt for:

<TABLE>
<S>                                         <C>
      quarter 200                           $
-----            ---                         ----------

         Total                              $
                                             ----------
</TABLE>

                                       23
<PAGE>

                                                                    Schedule - 2

Consolidated Senior Debt and Consolidated Total Funded Debt

<TABLE>
<CAPTION>
                                         INTEREST
                                         RATE                       MATURITY                  TOTAL
                                         ----                       --------                  -----
<S>                                      <C>                        <C>                      <C>
Secured
-------
                                         $
---------------------------------         ----------

                                         $
---------------------------------         ----------

                                         $
---------------------------------         ----------

                                         $
---------------------------------         ----------

     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>

                                       24
<PAGE>

                                                                    Schedule - 3

                    Consolidated Adjusted Tangible Net Worth

<TABLE>
<S>     <C>                                                                    <C>
  (a)   Stockholders' Equity                                                   $
                                                                                ----------

  (b)   surplus from write-up of assets subsequent to August 25, 1995(5)       $
                                                                                ----------

  (c)   intangible assets(6)                                                   $
                                                                                ----------

  (d)   Capital Stock shown as assets(7)                                       $
        Consolidated Adjusted Tangible Net Worth (sum of (a) less (b) less      ----------
        (c) less (d))                                                          $
                                                                                ----------
</TABLE>

----------------------
(5)      Exclude any write-up 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, and exclude capitalized transaction costs
         incurred in connection with the acquisition of the Graniteville Assets

(7)      Include only to the extent created, incurred or arising on or after the
         Original Closing Date

                                       25
<PAGE>

                                                                    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>

                                       26<PAGE>
                                                                     EXHIBIT 4.5

NEITHER THIS DEBENTURE NOR THE COMMON STOCK INTO WHICH IT IS CONVERTIBLE HAS
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED, ASSIGNED OR
TRANSFERRED EXCEPT (i) PURSUANT TO A REGISTRATION STATEMENT UNDER THE SECURITIES
ACT THAT HAS BECOME EFFECTIVE AND IS CURRENT WITH RESPECT TO THESE SECURITIES,
OR (ii) PURSUANT TO A SPECIFIC EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT BUT ONLY UPON A HOLDER HEREOF FIRST HAVING OBTAINED THE WRITTEN OPINION OF
COUNSEL TO THE COMPANY, OR OTHER COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY,
THAT THE PROPOSED DISPOSITION IS CONSISTENT WITH ALL APPLICABLE PROVISIONS OF
THE SECURITIES ACT AS WELL AS ANY APPLICABLE "BLUE SKY" OR SIMILAR SECURITIES
LAWS.

                            TERREMARK WORLDWIDE, INC.

         13.125% SUBORDINATED CONVERTIBLE DEBENTURE DUE AUGUST 30, 2004

         This SUBORDINATED CONVERTIBLE DEBENTURE (the "Debenture"), is made and
entered into as of the later of the dates set forth on the execution page below,
by and between Terremark Worldwide, Inc., a Delaware corporation (the "Company")
and the investor or investors as set forth on the execution page below, or their
registered assigns as recorded in the Company's books (the "Investor").

                                    RECITALS:

         A.       The Company desires to obtain financing for its capital needs
through the issue and sale of debentures convertible into shares of the
Company's common stock, par value $.001 (the "Common Stock").

         B.       The Company desires to sell and the Investor desires to buy
this Debenture.

         NOW, THEREFORE, in consideration of the above recitals and the mutual
covenants, representations, warranties and agreements set forth herein, and for
the purpose of defining the terms and provisions of this Debenture, and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto intending to be legally bound do hereby
agree as follows:

         1.       Principal And Interest. The Company will pay the principal
amount set forth on the execution page below (the "Principal") on August 30,
2004 (the "Principal Payment Date") to the Investor, or successor thereof,
registered on the books of the Company (the "Holder"), as of the close of
business on (i) the date immediately preceding the Principal Payment Date or, in
the alternative, (ii) the date immediately preceding the Principal Payment Date
that in the State of Florida is not a holiday and a day on which banks are
authorized to close (the "Principal Record Date").

<PAGE>

         The Debentures will bear interest at the rate of 13.125% per annum (the
"Interest"), which will be paid quarterly, beginning on December 31, 2001 and
thereafter on the last day of each calendar quarter until the outstanding
principal amount of this Debenture has been paid in full (individually, an
"Interest Payment Date," collectively, the "Interest Payment Dates," and the
Interest Payment Dates together with the Principal Payment Date, the "Payment
Dates") to the Holder as of the close of business on (i) the date immediately
preceding the Interest Payment Date, or, in the alternative, (ii) the date
immediately preceding the Interest Payment Date which in the State of Florida is
a Business Day (as hereafter defined) if the date specified in (i) is not a
Business Day (collectively, the "Interest Record Dates"). Interest shall be
computed on the basis of a 360-day year of twelve 30-day months. For the
purposes hereof, the term "Business Day" shall mean any day which is not a
Saturday, Sunday or day on that banks in the State of Florida are authorized or
obligated by law, executive order or governmental decree to be closed.

         2.       Method of Payment. The Company will pay Principal and Interest
(i) in money of the United States that at the time of payment is legal tender
for payment of public and private debts or (ii) by its check payable in such
money mailed to the Holder's registered address as reflected in the Company's
books. If the Payment Dates are other than Business Days, payment may be made on
the next succeeding day that is a Business Day and no interest shall accrue for
the intervening period.

         3.       Conversion.

                  (a)      The Holder shall have the right, from time to time at
any time prior to the payment of the outstanding principal of this Debenture, or
redemption of this Debenture, to convert the entire unpaid principal amount of
this Debenture together with accrued but unpaid interest (or any portion of such
amounts that is $50,000 or an integral multiple thereof), into that number of
fully paid and non-assessable shares of Common Stock equal to the aggregate
principal amount of (and accrued but unpaid interest on) this Debenture being
converted, as of the Date of Conversion (as defined below), divided by the
Conversion Price set forth below. Upon any such conversion, the Company shall
pay to the Holder all accrued and unpaid interest on the principal amount of
this Debenture so converted to the extent such interest is not converted.

                  (b)      In order to convert this Debenture, the accrued but
unpaid interest hereon or a portion thereof, into shares of Common Stock, the
Holder must telecopy or otherwise deliver prior to 5:00 p.m., Eastern Time, on
any Business Day, a copy of the fully executed notice of conversion in the form
attached hereto as Exhibit A (the "Notice of Conversion") to the Company at its
principal office, which notice shall specify the amount to be converted on the
date the Notice of Conversion is delivered to the Company (the "Date of
Conversion") together with a copy of the Schedule of Conversion in the form
attached hereto as Exhibit B, duly completed as appropriate. No fractional
shares of Common Stock shall be issued upon conversion. In lieu of any
fractional share to which the Holder would otherwise be entitled, the Company
shall pay cash to such Holder based on the closing price of the Common Stock on
the last trading day prior to the Date of Conversion.

                  (c)      The Company shall issue and deliver, within 15
Business Days after delivery to the Company of the Notice of Conversion to the
Holder or to the nominee of such

                                       2
<PAGE>

Holder, at the address of the Holder on the books of the Company or as otherwise
directed by such Holder, a certificate or certificates for the number of shares
of Common Stock to that the Holder shall be entitled as aforesaid. The person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock as of the Date of Conversion.

                  (d)      The Company shall at all times reserve and keep
available out of its authorized but unissued shares of Common Stock such number
of shares of Common Stock as shall from time to time be sufficient to effect the
conversion of the principal amount of this Debenture and all interest that would
accrue thereon through the Principal Payment Date; and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect such conversion, the Company will take such corporate action as may be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose.

                  (e)      Following any conversion, the principal amount of
this Debenture shall be reduced by an amount equal to the portion so converted.
Appropriate adjustments shall be made on the records of the Company.

                  (f)      The conversion price per share of Common Stock shall
be equal to 125% of the average Market Price of the Common Stock for the thirty
trading days preceding the date of the closing (the "Conversion Price") with
respect to this Debenture and is agreed to be the amount set forth on the
signature page of this Debenture, subject to adjustment from time to time,
pursuant to the provisions set forth below. For the purposes of this Section
3(f), "Market Price" shall mean (i) if the shares of Common Stock are listed or
admitted for trading on a national securities exchange, the last reported sales
price regular way, or, in the case no such reported sale takes place on such day
or days, the average of the reported closing bid and asked prices regular way,
in either case on the principal national securities exchange on which the shares
of the Common Stock are listed or admitted for trading, or (ii) if the shares of
Common Stock are not listed or admitted for trading on a national securities
exchange (A) the last transaction price for the Common Stock on The Nasdaq Stock
Market ("Nasdaq") or, in the case no such reported transaction takes place on
such day or days, the average of the reported closing bid and asked prices
thereof quoted on Nasdaq, or (B) if the shares of Common Stock are not quoted on
Nasdaq, the average of the closing bid and asked prices of the Common Stock as
quoted on the Over-The-Counter Bulletin Board maintained by the National
Association of Securities Dealers, Inc. (the "Bulletin Board"), or (C) if the
shares of Common Stock are not quoted on Nasdaq or on the Bulletin Board, the
average of the closing bid and asked prices of the Common Stock in the
over-the-counter market, as reported by The National Quotation Bureau, Inc., or
an equivalent generally accepted reporting service, or (iii) if on any such
trading day or days the shares of Common Stock are not quoted by any such
organization, the fair market value of the shares of Common Stock on such day or
days, as determined in good faith by the Board of Directors of the Company.

                  In case (i) the outstanding shares of the Common Stock shall
be subdivided into a greater number of shares, (ii) a dividend or other
distribution in Common Stock shall be paid in respect of Common Stock, (iii) the
outstanding shares of Common Stock shall be combined into a smaller number of
shares thereof, or (iv) any shares of the Company's capital stock are issued

                                       3
<PAGE>

by reclassification of the Common Stock (including any reclassification upon a
consolidation or merger in which the Company is the continuing corporation), the
Conversion Price in effect immediately prior to such subdivision, combination or
reclassification or at the record date of such dividend or distribution shall,
simultaneously with the effectiveness of such subdivision, combination or
reclassification or immediately after the record date of such dividend or
distribution, be proportionately adjusted to equal the product obtained by
multiplying the Conversion Price by a fraction, the numerator of which is the
number of outstanding shares of Common Stock (on a fully diluted basis) prior to
such combination, subdivision, reclassification or dividend, and the denominator
of which is that number of outstanding shares of Common Stock (on a fully
diluted basis) after giving effect to such combination, subdivision,
reclassification or dividend.

                  For purposes of this Debenture, "on a fully diluted basis"
means that all outstanding options or rights to subscribe for shares of Common
Stock and all securities convertible into or exchangeable for shares of Common
Stock (such options, rights and securities are collectively referred to herein
as "Convertible Securities") and all options or rights to acquire Convertible
Securities have been exercised, converted or exchanged.

                  (g)      If, prior to the conversion of the entire principal
amount of this Debenture, there shall be any merger, consolidation, exchange of
shares, recapitalization, reorganization, sale of all or substantially all of
the Company's assets, or other similar event, as a result of which shares of
Common Stock of the Company shall be changed into the same or a different number
of shares of the same or another class or classes of stock or securities of the
Company or another entity, or other property, then the Holder shall thereafter
have the right to purchase and receive upon conversion of this Debenture (or the
conversion of the accrued and unpaid interest hereon), upon the basis and upon
the terms and conditions specified herein and in lieu of the shares of Common
Stock immediately theretofore issuable upon conversion, such shares of stock,
securities and/or other property as may be issued or payable with respect to or
in exchange for the number of shares of Common Stock immediately theretofore
purchasable and receivable upon the conversion of this Debenture held by such
Holder had such merger, consolidation, exchange of shares, recapitalization,
sale of all or substantially all of the assets or reorganization not taken
place, and in any such case appropriate provisions shall be made with respect to
the rights and interests of the Holder to the end that the provisions hereof
(including, without limitation, provisions for adjustment of the Conversion
Price and of the number of shares issuable upon conversion) shall thereafter be
applicable, as nearly as may be practicable in relation to any shares of stock
or securities thereafter deliverable upon the exercise hereof.

                  (h)      No adjustment of the Conversion Price shall be made
in an amount less than $.05 per share. Upon any adjustment of the Conversion
Price, then and in each case the Company shall give written notice thereof, by
first class mail, addressed to the Holder at the address of such Holder as shown
on the books of the Company, which notice shall state the Conversion Price
resulting from such adjustment, setting forth in reasonable detail the methods
of calculation and the facts upon which such calculation is based.

                  (i)      The Company will use its commercially reasonable
efforts to register and list the shares of Common Stock issued upon conversion
as more fully set forth in the Subscription Agreement pursuant to which this
Debenture was issued. Notwithstanding the

                                       4
<PAGE>

foregoing, no transfer of the Common Stock issuable upon conversion pursuant to
this Section 3 shall be permitted prior to December 31, 2002. For the purposes
of this Debenture, the term "Transfer" shall include any direct or indirect
sale, assignment, pledge, encumbrance or other granting of an interest in the
shares of Common Stock.

         4.       Paying Agent And Registrar. The Company, or a subsidiary or
affiliate thereof, shall act as authenticating agent, paying agent, and
registrar. The Company may, without notice, engage a third party to act as
authenticating agent, paying agent, or registrar.

         5.       Subscription Agreement. The Company has issued this Debenture
in connection with that certain Subscription Agreement dated as of the later of
the dates set forth on the execution page below between the Company and the
Investor (the "Subscription Agreement"). This Debenture is subject to all the
terms of the Subscription Agreement. To the extent permitted by applicable law,
in the event of any inconsistency between the terms of Subscription Agreement
and the Debenture, the terms of the Subscription Agreement shall control.

         6.       Subordination.

                  (a)      The indebtedness evidenced hereby and any and all
modifications, restatements, refinancings and renewals thereof, together with
any and all interest accrued or to accrue hereon is hereby subordinated to the
payment of the Senior Indebtedness (as hereafter defined). Upon any distribution
of any assets of the Company, whether by reason of sale, reorganization,
liquidation, dissolution, arrangement, bankruptcy, receivership, assignment for
the benefit of creditors, foreclosure or otherwise, the Senior Indebtedness
shall be entitled to receive a payment in full prior to the payment of all or
any part of the indebtedness evidenced hereby. To enable the holders of the
Senior Indebtedness to assert and enforce their rights in any such proceeding or
upon the happening of any such event, the holders of the Senior Indebtedness or
any persons whom the holders of the Senior Indebtedness may designate are hereby
irrevocably appointed attorney in fact for the undersigned with full power to
act in the place and stead of the undersigned, including the right to make,
present, file and vote such proofs of claim against the Company on account of
all or any part of the indebtedness evidenced hereby as the holders of the
Senior Indebtedness may deem advisable and to receive and collect any and all
dividends or other payments made thereon and to apply the same on account of the
Senior Indebtedness.

                  (b)      Notwithstanding the foregoing, so long as the Company
is not in default under any of its obligations of payment or performance under
the Senior Indebtedness, the Holder of this Debenture shall not be prohibited
from receiving payments of interest and payment of principal as provided herein.

                  (c)      In the event any payments are made by the Company to
the Holder of this Debenture or any amounts are received by the Holders of this
Debenture contrary to the provisions of this Debenture, the Holders of this
Debenture will promptly remit said payments or amounts to the holders of the
Senior Debt.

                  (d)      For the purposes of this Section, the term "Senior
Indebtedness" shall mean trade credit, project and equipment financing, any
financing provided by a commercial

                                       5
<PAGE>

bank and the Company's Subordinated Convertible Debentures in the original
principal amount of $25,647,700, due on December 31, 2005.

         7.       Redemption. This Debenture will be redeemable, at the
Company's option, in whole but not in part, at any time or from time to time
(the "Redemption Date") by giving not less than 15 nor more than 60 days' prior
notice mailed by first-class mail to the Holder's last address as it appears the
books of the Company, and by delivering accrued and unpaid Interest, if any,
calculated on a pro rata basis up to the Redemption Date on the Redemption Date,
plus the amount of Principal the Company wishes to redeem, in the manner
described in Section 2, Method of Payment. On and after the Redemption Date,
interest shall cease to accrue on the Principal, unless the Company defaults in
the payment of the Redemption Price. Notwithstanding the giving of notice by the
Company pursuant to this Section 7, the Holder shall have the right to convert
this Debenture by giving notice to the Company pursuant to Section 3. Such
notice must be given no later than one Business Day prior to the Redemption
Date.

         8.       Denominations; Transfer; Exchange. The Investor may register
the transfer or exchange of the Debenture by submitting to the registrar of the
Company (the "Registrar") the following completed documents: (i) the Assignment
Form attached as Exhibit C and (ii) the Letter Regarding Transfer attached as
Exhibit D. The Registrar may require the Investor, among other things, to
furnish appropriate endorsements and transfer documents and to pay any taxes and
fees required by law or permitted by the Subscription Agreement. The Registrar
need not register the transfer, or exchange the Debenture, if the Debenture is
selected for redemption.

         9.       Persons Deemed Owners. The Holder shall be treated as the
owner of the Debenture for all purposes.

         10.      Amendment; Supplement; Waiver. The Debenture may be amended or
supplemented with the consent of the Holder and any existing default or
compliance with any provision may be waived with the consent of the Holder.

         11.      Defaults And Remedies. The following events constitute "Events
of Default": (a) the Company's default, which continues for a period of at least
ten (10) days, in the payment of Principal under, or Interest on, this Debenture
when the same becomes due and payable upon redemption or otherwise; (b) the
Company's default in the performance of, or other breach of any covenant or
agreement of the Company in, the Subscription Agreement or the Debenture, and
such default or breach continues for a period of 30 consecutive days after
written notice by the holder; (c) any final judgment or order against the
Company (not covered by insurance) for the payment of money in excess of
$1,000,000 in the aggregate for all such final judgments or orders (treating any
deductibles, self-insurance or retention as not so covered) and which is not
paid or discharged, or if there shall be any period of 60 consecutive days
following the entry of a final judgment or order that causes the aggregate
amount for all such final judgments or orders outstanding and not paid or
discharged against the Company to exceed $1,000,000, and which a stay of
enforcement of such final judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect; (d) a court having jurisdiction in the
premises enters a decree or order for (i) relief in respect of the Company in an
involuntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, (ii) appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of the Company
for all or

                                       6
<PAGE>

substantially all of the property and assets of the Company or (iii) the winding
up or liquidation of the affairs of the Company and, in each case, such decree
or order shall remain unstayed and in effect for a period of 60 consecutive
days; or (e) the Company (i) commences a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
consents to the entry of an order of relief in an involuntary case under any
such law, (ii) consents to the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official of the Company or for all or substantially all of the property and
assets of the Company or (iii) effects any general assignment for the benefit of
creditors.

         If an Event of Default occurs and is continuing, the Holder, by written
notice to the Company, may declare the outstanding Principal and the accrued
Interest, if any, on the debentures, to be immediately due and payable. If a
bankruptcy or insolvency default with respect to the Company occurs and is
continuing, the accrued Interest automatically becomes due and payable. The
Holder may not enforce either the Subscription Agreement or the Debenture,
except as provided in said documents.

         IN WITNESS WHEREOF, the undersigned has executed this Debenture in the
principal amount and on the date set forth below:

ISSUER:

TERREMARK WORLDWIDE, INC.

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

NAME AND ADDRESS OF INVESTOR:

                                                               Debenture No.
--------------------------------------                                      ----

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

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

Debenture Principal Amount $
                            ----------
Date of Issuance:          , 2001
                   --------
Conversion Price: $
                   -----------

                                       7
<PAGE>

                                    EXHIBIT A

                              NOTICE OF CONVERSION

         The undersigned irrevocably elects to convert $___________ of the
principal amount of, and accrued but unpaid interest on, the 13.125%
Subordinated Convertible Debenture due August 30, 2004 (the "Debenture") into
_________ shares of Common Stock (the "Common Stock") of Terremark Worldwide,
Inc. (the "Company") according to the conditions set forth in the Debenture as
of the date written below. If shares are to be issued in the name of a person
other than the undersigned, the undersigned will pay all transfer taxes payable
with respect thereto. No fee will be charged to the Holder for any conversion,
except for transfer taxes, if any.

         The undersigned represents and warrants that all offers and sales by
the undersigned of the shares of Common Stock issuable upon conversion shall be
made pursuant to the registration of such shares of Common Stock under the
Securities Act of 1933, as amended, or pursuant to an exemption from
registration under such Act.

Date of conversion:
                   --------------------------
Signature:
          -----------------------------------
Name:
     ----------------------------------------
Address:
        -------------------------------------

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

                                  Exhibit A-1

<PAGE>

                                    EXHIBIT B

                             SCHEDULE OF CONVERSION

         The following exchanges of a part of this Debenture for shares of
Common Stock have been made:

<TABLE>
<CAPTION>
                                               PRINCIPAL AMOUNT OF
                      AMOUNT OF DECREASE IN       THIS DEBENTURE
                       PRINCIPAL AMOUNT OF        FOLLOWING SUCH       ACCRUED BUT UNPAID
 DATE OF CONVERSION       THIS DEBENTURE            CONVERSION         INTEREST CONVERTED     SIGNATURE OF HOLDER
-------------------   ---------------------    -------------------     ------------------     --------------------
<S>                   <C>                      <C>                     <C>                    <C>
</TABLE>

                                  Schedule B-1

<PAGE>

                                    EXHIBIT C

                                 ASSIGNMENT FORM

         To assign the Debenture, fill in the form below:

         (I) or (We) assign and transfer the Debenture to:

                  (Insert Assignee's Soc. Sec. Or Tax I.D. No.)

              (Print or type assignee's name, address and zip code)

and irrevocably appoint ________________________________________________________
to transfer the Debenture on the books of the Company. The agent may substitute
another to act for him/her.

Date:
     ---------------------  Your Signature:
                                           ------------------------------------
                           (Sign exactly as your name appears on the other side
                           of the Debenture)

Signature Guarantee:
                    -----------------------------------------------------------
                    Participant in a recognized Signature Guarantee
                    Medallion Program (or other signature guarantor program
                    reasonably acceptable to the Registrar).

                                   Exhibit C-1

<PAGE>

                                    EXHIBIT D

                           LETTER REGARDING TRANSFERS

                                                          ---------------, -----

Terremark Worldwide, Inc.
2601 S. Bayshore Drive
Miami Beach, FL 33133
Attention:
           ---------------------

         Re:      Terremark Worldwide, Inc.
                  13.125% Subordinated Convertible Debenture Due August 30, 2004

Ladies and Gentlemen:

         In connection with our proposed purchase of the 13.125% Subordinated
Convertible Debenture due August 30, 2004 (the "Debenture") dated as of the
later of the dates set forth on the execution page between Terremark Worldwide,
Inc. (the "Company") and the investor named on the execution page of the
Debenture (the "Investor"), we confirm that:

         1.       We understand that any subsequent transfer of the Debenture is
subject to certain restrictions and conditions set forth in the Subscription
Agreement dated as of the later of the dates set forth on the execution page of
the Debenture between the Company and the Investor (the "Subscription
Agreement") and the undersigned agrees to be bound by, and not to resell, pledge
or otherwise transfer the Debenture except in compliance with, such restrictions
and conditions and the Securities Act of 1933, as amended (the "Securities
Act").

         2.       We understand that the offer and sale of the Debenture has not
been registered under the Securities Act, and that the Debenture may not be
offered or sold except as permitted in the following sentence. We agree, on our
own behalf and on behalf of any accounts for which we are acting as hereinafter
stated, that we will not resell or otherwise transfer the Debenture except
pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act and we further agree to provide
to any person to whom the Debenture is transferred a notice advising such
transferee that resales of the Debenture are restricted as stated herein.

         3.       We understand that, on any proposed resale of the Debenture,
we will be required to furnish to the Company, such certifications, legal
opinions and other information as the Company may reasonably require to confirm
that the proposed sale complies with the foregoing restrictions. We acknowledge
that the Company will rely upon the truth and accuracy of such information. We
further understand that the Debenture purchased by us will bear a legend to the
foregoing effect.

                                   Exhibit D-1

<PAGE>

         4.       We are either (a) an "accredited investor" as defined in Rule
501 of Regulation D under the Securities Act) and have such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of our investment in the Securities, and we and any accounts
for which we are acting are each able to bear the economic risk of our or their
investment, as the case may be; or (b) a non "US Person" as defined in
Regulation S of the Securities Act, and the offer and sale of the Debenture by
the Company has taken place, and is taking place, in an "offshore transaction"
and has not taken place, and is not taking place, within the United States of
America or its territories or possessions.

         5.       We are acquiring the Debenture purchased by us for our account
or for one or more accounts (each of which is an "accredited investor" or a non
"US Person") as to each of which we exercise sole investment discretion. We are
not acquiring the Debenture with a view toward distribution thereof in a
transaction that would violate the Securities Act or the securities laws of any
State of the United States or any other applicable jurisdiction.

         The Company is entitled to rely upon this letter and is irrevocably
authorized to produce this letter or a copy hereof to any interested party in
any administrative or legal proceeding or official inquiry with respect to the
matters covered hereby.

                                        Very truly yours,

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

                                   Exhibit D-2

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