Document:

<PAGE>

                                                                    EXHIBIT 10.1

                        RECEIVABLES PURCHASE AGREEMENT

                           Dated as of June 23, 2000

                                    between

                            DIXIE FUNDING II, INC.
                                 as Purchaser,

                                      and

                             THE DIXIE GROUP, INC.
                                 as Originator
<PAGE>

                               TABLE OF CONTENTS
                               -----------------

<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                         <C>
                             ARTICLE I DEFINITIONS

SECTION 1.1.  Certain Defined Terms                                          1
SECTION 1.2.  Accounting and UCC Terms                                       3

                 ARTICLE II AMOUNTS AND TERMS OF THE PURCHASES

SECTION 2.1.  Purchase and Contribution of Receivables                       3
SECTION 2.2.  Purchase Price                                                 4
SECTION 2.3.  Payment of Purchase Price                                      4
SECTION 2.4.  Deemed Collections                                             5
SECTION 2.5.  Adjustments                                                    5
SECTION 2.6.  Finance Charges                                                6
SECTION 2.7.  Allocations of Collections                                     6

                     ARTICLE III CONDITIONS TO PURCHASES

SECTION 3.1.  Conditions Precedent to Purchaser's Initial Purchase           6
SECTION 3.2.  Conditions Precedent to All Purchases                          7
SECTION 3.3.  Conditions Precedent to Originator's Initial Sale              8

                   ARTICLE IV REPRESENTATIONS AND WARRANTIES

SECTION 4.1.  Representations and Warranties of the Parties                  8
SECTION 4.2.  Additional Representations of the Originator                   9

                          ARTICLE V GENERAL COVENANTS

SECTION 5.1.  Affirmative Covenants of the Originator                       11
SECTION 5.2.  Negative Covenants of the Originator                          15

       ARTICLE VI ADMINISTRATION AND COLLECTION OF PURCHASED RECEIVABLES

SECTION 6.1.  Collection Procedures                                         16
SECTION 6.2.  Purchase Information                                          17
SECTION 6.3.  Compliance Statements                                         17
SECTION 6.4.  Allocations and Applications of Collections                   17
SECTION 6.5.  Termination                                                   17
SECTION 6.6.  Responsibilities of the Originator                            18

                    ARTICLE VII PURCHASE TERMINATION EVENTS

SECTION 7.1.  Purchase Termination Events                                   18
SECTION 7.2.  Remedies.                                                     19

                         ARTICLE VIII INDEMNIFICATION

SECTION 8.1.  Indemnities by the Originator                                 20

</TABLE>
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<TABLE>

                        ARTICLE IX THE ORIGINATOR NOTE

<S>            <C>                                                                  <C>
SECTION 9.1.   Originator Note                                                      21
SECTION 9.2.   Restrictions on Transfer of Originator Note                          22

                            ARTICLE X MISCELLANEOUS

SECTION 10.1.  Amendments, Etc.                                                     22
SECTION 10.2.  Notices, Etc.                                                        23
SECTION 10.3.  No Waiver; Remedies                                                  23
SECTION 10.4.  Binding Effect; Governing Law                                        23
SECTION 10.5.  Costs, Expenses and Taxes                                            23
SECTION 10.6.  No Bankruptcy Petition                                               23
SECTION 10.7.  Acknowledgment of Assignments                                        24
SECTION 10.8.  Waiver of Setoff                                                     24
SECTION 10.9.  Severability                                                         24
SECTION 10.10. Counterparts                                                         24
SECTION 10.11. Grant of License to Use Trademarks                                   24
SECTION 10.12. Jurisdiction; Consent to Service of Process                          25
SECTION 10.13. Third Party Beneficiaries                                            25
SECTION 10.14. Confirmation of Intent                                               25
SECTION 10.15. Confidentiality of Agreement                                         25
SECTION 10.16. Section and Paragraph Headings                                       25

EXHIBIT A      Form of Originator Note                                             A-1
EXHIBIT B      Form of Purchase Report

SCHEDULE I     Offices Where Books, Records, Etc. Evidencing Receivables Are Kept
SCHEDULE II    List of Trade Names
SCHEDULE III   Authorized Officers of Originator
SCHEDULE 10.2  Notice Addresses
</TABLE>

                                      ii
<PAGE>

                         RECEIVABLES PURCHASE AGREEMENT

RECEIVABLES PURCHASE AGREEMENT, dated as of June 23, 2000, by and between THE
DIXIE GROUP, INC., a Tennessee corporation ("Dixie" or the "Originator"), as
                                             -----          ----------
Originator, and DIXIE FUNDING II, INC., a Tennessee corporation (the
"Purchaser"), as Purchaser.
 ---------

                             W I T N E S S E T H:
                             -------------------

WHEREAS, the Originator intends to sell Receivables to the Purchaser on the
terms and subject to the conditions set forth in this Agreement;

WHEREAS, to obtain the necessary funds to purchase such Receivables, the
Purchaser, the Servicer, Three Pillars Funding Corporation and SunTrust
Equitable Securities Corporation, as Administrator, have entered into the Loan
Agreement;

NOW, THEREFORE, in consideration of the premises and of the mutual covenants and
agreements contained herein, the parties hereto agree as follows:

                                   ARTICLE I
                                  DEFINITIONS

SECTION 1.1. Certain Defined Terms. Capitalized terms used in this Agreement but
             ---------------------
not defined herein shall have the meanings assigned to such terms in the Loan
Agreement. This Agreement is the Receivables Purchase Agreement referred to in
the Loan Agreement. As used in this Agreement, the following terms shall have
the following meanings (such meanings to be equally applicable to both the
singular and plural forms of the terms defined):

          "Additional Receivable" shall mean any Receivable which shall be
           ---------------------
          purchased by, or contributed to, the Purchaser on any Purchase Date
          other than the Closing Date.

          "Authorized Officers" shall mean those officers of the Originator
           -------------------
          designated in Schedule III hereto (or in such other Schedule as may be
                        ------------
          delivered to the parties hereto from time to time) as duly authorized
          to execute and deliver this Agreement and any instruments or documents
          in connection herewith on behalf of the Originator and to take, from
          time to time, all other actions on behalf of the Originator in
          connection herewith.

          "Available Funds" has the meaning assigned to that term in Section
           ---------------                                           -------
          2.3(b).
          ------

          "Business Day" shall mean a day on which each of the Originator and
           ------------
          Purchaser is open at its respective address specified in this
          Agreement for the purpose of conducting its business, except that, in
          respect of such performance or rights under this Agreement as involve
          the Administrator, such term shall have the meaning assigned to it by
          the Loan Agreement.

<PAGE>

          "Contributed Receivables" has the meaning assigned to that term in
           -----------------------
          Section 2.1(c).
          --------------

          "Cost Discount" means, as of any Month End Date, the product of (i)
           -------------
           the Days Sales Outstanding Ratio for the Due Period ending on such
           Month End Date, times (ii) the Cost Rate for such Month End Date.
                           -----

          "Cost Rate" for any Month End Date means an amount equal to (A) the
           ---------
          percentage rate equal to the sum of (i) the LIBOR Rate for the Due
          Period ending on such Month End Date, plus (ii) 4.50% divided by (B)
                                                                -------
          360.

          "Fair Market Value Discount" means, with respect to any Receivable,
           --------------------------
          (i) the Unpaid Balance of such Receivable, times (ii) the sum of the
                                                     -----
          most recently calculated Loss Discount, plus the most recently
          calculated Cost Discount.

          "Incipient Purchase Termination Event" shall mean any condition, act
           ------------------------------------
          or event specified in Section 7.1 that, with the giving of notice or
                                -----------
          the lapse of time, or both, would become a Purchase Termination Event.

          "Ineligible Receivable" has the meaning assigned to that term in
           ---------------------
          Section 2.4(a).
          --------------

          "Initial Contributed Receivables" has the meaning assigned to that
           -------------------------------
          term in Section 2.1(b).
                  --------------

          "Loan Agreement" shall mean the Loan Agreement, dated as of June 23,
           --------------
          2000, among the Purchaser, as borrower, Dixie, as servicer, Three
          Pillars Funding Corporation, as lender, and SunTrust Equitable
          Securities Corporation, as administrator, as amended, supplemented or
          otherwise modified from time to time.

          "Loss Discount" as of any Month End Date means the ratio, expressed as
           -------------
          a percentage, of (i) the losses recognized for all Receivables during
          the period equal to twelve Fiscal Months ending on such Month End Date
          divided by (ii) the Collections on all Receivables received during
          ----------
          such period.

          "Purchase Date" means each Business Day occurring prior to the
           -------------
          Purchase Termination Date.

          "Purchase Price" has the meaning assigned to that term in Section
           --------------                                           -------
          2.2(a).
          ------

          "Purchase Report" means a report in the form of Exhibit B.
           ---------------                                ---------

          "Purchase Termination Date" shall mean the date on which the
           -------------------------
          Purchaser's obligation to purchase Receivables shall terminate
          pursuant to Section 7.1.
                      -----------

                                       2

<PAGE>

          "Purchase Termination Event" has the meaning assigned to that term in
           --------------------------
          Section 7.1.
          -----------

          "Purchased Asset" has the meaning assigned to that term in Section
           ---------------                                           -------
          2.1(a).
          ------

SECTION 1.2.  Accounting and UCC Terms.  All accounting terms not specifically
              ------------------------
defined herein shall be construed in accordance with GAAP; and all terms used in
Article 9 of the UCC that are used but not specifically defined herein are used
herein as defined therein.

                                  ARTICLE II
                      AMOUNTS AND TERMS OF THE PURCHASES

SECTION 2.1.  Purchase and Contribution of Receivables.
              ----------------------------------------

(a) The Originator hereby sells, assigns, transfers and conveys to the
Purchaser on each Purchase Date, on the terms and subject to the conditions
specifically set forth herein, all of its respective right, title and interest,
in, to and under (i) all Receivables (other than Contributed Receivables), now
existing or arising hereafter and prior to the Purchase Termination Date, and
all payment and enforcement rights (but not any obligations) to, in and under
the related Contracts, (ii) all Collections and other monies due or to become
due with respect to the foregoing, (iii) all Related Security for the
Receivables, (iv) all of the Originator's rights and claims under the First Tier
Purchase Agreement, (v)  all lockboxes and accounts to which Collections are
sent, and all funds and investments from time to time therein, (v) all books and
records related to the foregoing and (vi) all proceeds of the foregoing,
including, without limitation, insurance proceeds relating thereto
(collectively, the "Purchased Assets").
                    ----------------

(b) In consideration of the capital stock of the Purchaser issued to Dixie, the
Originator agrees to contribute, and does hereby contribute to the Purchaser,
and the Purchaser hereby accepts from the Originator, all of the Originator's
right, title and interest in and to (i) Receivables, and all of the rights
described in clauses (ii) through (vi) of Section 2.1(a) related thereto,
             ------------          --     -------------
starting with the oldest such Receivable such that the aggregate Unpaid Balance
of all such Receivables shall be as close as possible to, but not less than,
$2,000,000 (the "Initial Contributed Receivables") and (ii) all other
                 -------------------------------
Contributed Receivables.

(c) On each Purchase Date, all of Originator's right, title and interest in and
to the newly created Receivables (other than Receivables indicated on a Purchase
Report as having been contributed by the Originator to the Purchaser (such
Receivables, together with the Initial Contributed Receivables, the "Contributed
                                                                     -----------
Receivables")) and the other Purchased Assets shall be sold, assigned,
-----------
transferred and conveyed to the Purchaser by the sale, assignment, transfer and
conveyance set forth in paragraph (a) above without any further action by the
                        ------------
Originator or the Purchaser; all Contributed Receivables (other than the Initial
Contributed Receivables) shall be contributed to the Purchaser on the date they
are created without further action by the Originator or the Purchaser.

(d) The parties to this Agreement intend that the transactions contemplated
hereby shall be, and shall be treated as, a purchase by the Purchaser and a sale
by the Originator of the Purchased Assets (or, in the case of Contributed
Receivables, as a contribution by the Originator to the Purchaser) and not as a
lending transaction. All sales and contributions of Receivables by the
Originator hereunder shall be without recourse to, or representation or warranty
of any kind (express or implied) by, the Originator, except as otherwise
specifically provided herein. The

                                       3
<PAGE>

foregoing sale, assignment, transfer and conveyance does not constitute and is
not intended to result in a creation or assumption by the Purchaser of any
obligation of the Originator or any other Person in connection with the
Purchased Assets, including, without limitation any obligation to any Obligor.

SECTION 2.2.  Purchase Price.  The amount payable by the Purchaser (the
              --------------
"Purchase Price") for the newly created Receivables sold on any Purchase Date to
 --------------
the Purchaser under this Agreement shall equal the aggregate Unpaid Balance of
such Receivables less the Fair Market Value Discount for such Receivables.

SECTION 2.3.  Payment of Purchase Price.
              -------------------------

(a) On the Closing Date, the Purchaser shall pay the Purchase Price for the
purchase to be made from the Originator with respect to the Receivables existing
on or prior to the Closing Date (other than the Initial Contributed Receivables)
(i) in cash in an amount equal to the amount received by the Purchaser from the
Lender in connection with the first Loan made pursuant to the Loan Agreement and
(ii) by the issuance of an Originator Note in the initial principal amount equal
to the remainder of the Purchase Price owing after subtracting the amount paid
in cash.

     (b) On each Purchase Date falling after the Closing Date until the Purchase
Termination Date, on the terms and subject to the conditions of this Agreement,
the Purchaser shall pay to the Originator the Purchase Price for the Receivables
and other Purchased Assets purchased from the Originator on such Purchase Date
as follows:

          (i)  First, by paying to the Originator a portion of the Purchase
               -----
          Price due by depositing into such account as the Originator shall
          specify immediately available funds from monies held by or on behalf
          of the Purchaser solely to the extent that such monies do not
          constitute Collections that are required to be segregated and held by
          the Servicer or distributed to the Administrator or the Lender
          pursuant to the Loan Agreement on the next Distribution Date or
          required to be paid to the Servicer as the Servicer's Fee on the next
          Distribution Date, or otherwise necessary to pay current expenses of
          the Purchaser (in its reasonable discretion) (such available monies,
          the "Available Funds"), subject to the terms of the Loan Agreement.
               ---------------
          Any Collections that have been paid to, or retained by, the Originator
          during any Due Period shall be credited towards the Purchaser's
          obligation pursuant to this clause first; provided, however, that, if
                                      ------ -----  --------  -------
          Collections paid to, or retained by, the Originator exceed the
          Purchase Price for Receivables and the other Purchased Assets
          purchased from the Originator for such Due Period, or, absent a cash
          payment, the Purchaser shall not have sufficient cash to meet its
          payment obligations pursuant to the Loan Agreement, the Originator
          shall turn over such excess to the Purchaser; and

          (ii)  Second, to the extent any portion of the Purchase Price remains
                ------
          unpaid, the principal amount outstanding under the Originator Note
          issued to the Originator automatically shall be increased in an amount
          equal to such remaining Purchase Price.

To the extent that (x) the amount due pursuant to Section 2.2 with respect to
                                                  -----------
all Receivables created or originated by the Originator that arose during the
corresponding Due Period is

                                       4
<PAGE>

exceeded by (y) the amount paid to the Originator during such Due Period
pursuant to the foregoing sentences for such Receivables, and such excess is not
turned over to the Purchaser pursuant to clause first above, such excess shall
                                         ------------
be treated as a reduction in the principal amount of the Originator Note,
effective as of the last day of the related Due Period; provided, however, that
                                                        --------  -------
if at any time the unpaid principal amount of the Originator Note has been
reduced to zero, the Originator shall pay the Purchaser the remainder owed with
respect thereto in immediately available funds.

(c) All payments hereunder shall be made not later than 3:00 p.m. (New York
time) on the date specified therefor in lawful money of the United States of
America in same day funds (i) if to the Originator, to the bank account
designated in writing by the Originator to the Purchaser and (ii) if to the
Purchaser, to the Collection Account. Whenever any payment to be made hereunder
shall be stated to be due on a day other than a Business Day, such payment shall
be made on the next succeeding Business Day.

(d) Except as expressly set forth herein, the Originator shall not have any
right under this Agreement, by implication or otherwise, to repurchase from the
Purchaser any Purchased Asset or to rescind or otherwise retroactively affect
any purchase of any Purchased Asset after the Purchase Date relating thereto.

SECTION 2.4.  Deemed Collections.
              ------------------

If any of the representations or warranties of the Originator contained in
subsection (a) or (b) of Section 4.2 was not true with respect to any Receivable
---------------   ---    -----------
as of  the applicable Purchase Date (any such Receivable, an "Ineligible
                                                              ----------
Receivable"), the Originator shall pay to the Purchaser a deemed Collection
----------
equal to the Unpaid Balance of such Ineligible Receivable on the next Purchase
Date or, if the Purchase Termination Date has occurred, on the next Business
Day.  Prior to the Purchase Termination Date, but subject to the next sentence,
such deemed Collection  shall be paid (i) by reducing the Purchase Price payable
by the Purchaser to the Originator on the applicable Purchase Date pursuant to
Section 2.2 hereof, and (ii) to the extent such deemed Collection exceeds the
-----------
Purchase Price payable on such Purchase Date, by reducing the amount of the
Originator Note on such Purchase Date (or, once the amount of the Originator
Note has been reduced to zero, by making a cash payment to an account designated
by the Purchaser).  On or subsequent to the Purchase Termination Date or if such
amount is necessary to enable the Purchaser to make any payment required to be
made on such date under the Loan Agreement, such deemed Collection shall be paid
by wire transfer of cash to the Collection Account.

SECTION 2.5.  Adjustments.  The Originator may make an adjustment in the
              -----------
principal amount or finance or other charges accrued or payable with respect to
a Receivables, provided that such adjustment is made in accordance with the
               --------
Collection Policy and the Loan Agreement.  The aggregate amount of all such
adjustments made by the Originator subsequent to each Purchase Date shall be due
and payable to the Purchaser on the next Purchase Date following the date of
processing in respect thereof or, if the Purchase Termination Date has occurred,
on the next Business Day following such date of processing.  The amounts due to
the Purchaser pursuant to the preceding sentence shall be paid on the due date
therefor (i) by reducing the Purchase Price, if any, payable by the Purchaser on
such date, and (ii) to the extent the amount due exceeds the

                                       5
<PAGE>

Purchase Price payable on such date, or if a payment of cash is necessary so
that the Purchaser can make the payments due on the next Distribution Date
pursuant to the Loan Agreement, by wire transfer of cash to the Collection
Account.

SECTION 2.6.  Finance Charges.  Finance charges, late charge revenue, other fees
              ---------------
and charges and other similar items, whenever created (whether prior to or after
the occurrence of a Purchase Termination Event) and whenever received (prior to
or after the occurrence of a Purchase Termination Event), accrued in respect of
Receivables shall be the property of the Purchaser and all Collections with
respect thereto shall be allocated and treated as Collections in respect of
Receivables.

SECTION 2.7.  Allocations of Collections.  For purposes of determining the
              --------------------------
Unpaid Balances of Receivables at any time, the Purchaser and the Originator
agree that the Originator shall apply all Collections on a Receivable by
Receivable basis.

                                  ARTICLE III
                            CONDITIONS TO PURCHASES

SECTION 3.1.  Conditions Precedent to Purchaser's Initial Purchase.  The
              ----------------------------------------------------
obligation of the Purchaser to purchase Receivables hereunder on the occasion of
the Closing Date is subject to the conditions precedent (any one or more of
which can be waived by the Purchaser) that (a) the Loan Agreement and the other
Transaction Documents shall be in full force and effect and all conditions to
the initial advance under the Loan Agreement shall have been satisfied or
waived, (b) the Purchaser shall have received on or before the Closing Date the
following, each (unless otherwise indicated) dated the day of such sale and in
form and substance satisfactory to the Purchaser and (c) the conditions set
forth in clauses (iii), (iv) and (v) shall have been satisfied:
         -------------  ----     ---

          (i)   a copy of duly adopted resolutions of the Board of Directors of
          the Originator authorizing or ratifying the execution, delivery and
          performance, respectively, of the Transaction Documents to which it is
          a party, certified by the Secretary or Assistant Secretary of the
          Originator;

          (ii)  a duly executed certificate of the Secretary or an Assistant
          Secretary of the Originator certifying the names and true signatures
          of the Authorized Officers authorized on behalf of the Originator to
          sign the Transaction Documents to which it is a party;

          (iii) the Administrator shall be satisfied with the Originator's
          systems, computer programs, related materials, computer tapes, disks
          and cassettes, procedures and record keeping relating to and required
          for the collection of Receivables by the Purchaser, and the
          Administrator shall be reasonably satisfied that the procedures of the
          Originator for the preparation, storage and retrieval of such
          materials are sufficient to permit the administration and collection
          of the Receivables by a servicer without the participation of the
          Originator or the Purchaser;

                                       6
<PAGE>

          (iv) the Originator shall have filed and recorded, at its own expense,
          UCC-1 financing statements with respect to the Purchased Assets in
          such manner and in such jurisdictions as are necessary or desirable to
          perfect the Purchaser's ownership interest thereof under the UCC and
          delivered a file-stamped copy of such UCC-1 financing statements or
          other evidence of such filings to the Purchaser and the Administrator
          on or prior to the date hereof; and all other action necessary or
          desirable, in the opinion of the Purchaser or the Administrator, to
          establish the Purchaser's ownership of the Purchased Assets shall have
          been duly taken;

          (v)  the Purchaser and the Administrator shall have received
          photocopies of reports of UCC searches in the central filing office of
          the Originator and any necessary local offices of the Originator with
          respect to the Purchased Assets reflecting the absence of Liens
          thereon, except the Liens created hereunder, pursuant to the Loan
          Agreement in favor of the Administrator and except for Liens as to
          which the Purchaser has received executed UCC termination statements;
          and

          (vi) the Purchaser and the Administrator shall have received such
          other documents, certificates and opinions as the Purchaser or the
          Administrator may request.

SECTION 3.2.  Conditions Precedent to All Purchases.  The obligation of the
              -------------------------------------
Purchaser to pay for each Receivable on each Purchase Date (including the
Closing Date) shall be subject to the further conditions precedent (any one of
which can be waived by the Purchaser) that on such Purchase Date:

(a) the following statements shall be true (and the acceptance by the Originator
of the Purchase Price for any Receivables on any Purchase Date shall constitute
a representation and warranty by the Originator that on such Purchase Date such
statements are true):

          (i) the representations and warranties of the Originator contained in
          Sections 4.1 and 4.2 shall be correct on and as of such Purchase Date
          ------------     ---
          as though made on and as of such date; and

          (ii)no Purchase Termination Event or Incipient Purchase Termination
          Event shall have occurred and be continuing;

(b) the Originator shall have clearly and unambiguously marked its accounting
records evidencing the Receivables being purchased hereunder on such Purchase
Date with a legend stating that such Receivables have been sold to the Purchaser
in accordance with this Agreement;

(c) no material change shall have occurred after the Closing Date with respect
to the Originator's systems, computer programs, related materials, computer
tapes, disks and cassettes, procedures and record keeping relating to and
required for the collection of the Receivables by the Originator which makes
them not sufficient and satisfactory in order to permit the purchase,
administration and collection of the Receivables by the Purchaser in accordance
with the terms and intent of this Agreement; and

(d) the Purchaser shall have received such other approvals, opinions or
documents as the Purchaser may reasonably request.

                                       7
<PAGE>

SECTION 3.3.  Conditions Precedent to Originator's Initial Sale.  The obligation
              -------------------------------------------------
of the Originator to make its initial sale is subject to the conditions
precedent that the Originator shall have received on or before the date of such
sale the following, each (unless otherwise indicated) dated the day of such sale
and in form and substance satisfactory to such Originator:

(a) a copy of duly adopted resolutions of the Board of Directors of the
Purchaser authorizing this Agreement, the documents to be delivered by the
Purchaser hereunder and the transactions contemplated hereby, certified by the
Secretary or Assistant Secretary of the Purchaser; and

(b) a duly executed certificate of the Secretary or Assistant Secretary of the
Purchaser certifying the names and true signatures of the officers authorized on
its behalf to sign this Agreement and the other documents to be delivered by it
hereunder.

                                  ARTICLE IV
                        REPRESENTATIONS AND WARRANTIES

SECTION 4.1.  Representations and Warranties of the Parties.  The Purchaser and
              ---------------------------------------------
the Originator each represents and warrants as to itself as follows:

(a) Each of the Originator and the Purchaser has been duly organized and is
validly existing and in good standing under the laws of the state of its
organization, with full corporate power and authority to own its properties and
to conduct its business as presently conducted. Each of the Originator and the
Purchaser is duly qualified to do business and is in good standing as a foreign
entity (or is exempt from such requirements), and has obtained all necessary
licenses and approvals, in the jurisdiction where its principal place of
business and chief executive office are located and in each other jurisdiction
in which failure to so qualify or to obtain such licenses and approvals would
have a material adverse effect on the conduct of the Originator's or the
Purchaser's business or on the ability of the Originator or the Purchaser, as
the case may be, to perform its obligations under this Agreement.

(b) The sale and contribution of Receivables and the other Purchased Assets
pursuant to this Agreement, the performance of its obligations under this
Agreement and the consummation of the transactions herein contemplated have been
duly authorized by all requisite corporate action and will not conflict with or
result in a breach of any of the terms or provisions of, or constitute a default
under, or result in the creation or imposition of any lien, charge or
encumbrance (other than pursuant to this Agreement or the other Transaction
Documents) upon any of its property or assets, pursuant to the terms of any
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which it is a party or by which it is bound or to which any of its
property or assets is subject, nor will such action result in any violation of
the provisions of its organizational documents or of any statute or any order,
rule or regulation of any federal or state court or governmental agency or body
having jurisdiction over it or any of its properties; and no consent, approval,
authorization, order, registration or qualification of or with any such court or
any such regulatory authority or other such governmental agency or body is
required to be

                                       8
<PAGE>

obtained by or with respect to the Originator or the Purchaser for the sale or
contribution of Receivables and the other Purchased Assets or the consummation
of the transactions contemplated by this Agreement.

(c) This Agreement has been duly executed and delivered by the Originator and
the Purchaser and constitutes a valid and legally binding obligation of the
Originator and the Purchaser, respectively, enforceable against the Originator
and the Purchaser, respectively, in accordance with its terms, except that the
enforceability thereof may be subject to (a) the effects of any applicable
bankruptcy, insolvency, reorganization, receivership, conservatorship or other
laws, regulations and administrative orders affecting the rights of creditors
generally and (b) general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or law).

(d) There is no pending or, to its knowledge after due inquiry, threatened
action or proceeding affecting it or any of its Subsidiaries before any court,
governmental agency or arbitrator, that may reasonably be expected to materially
and adversely affect its condition (financial or otherwise), operations,
properties or prospects, or its ability to perform its obligations under this
Agreement, or that purports to affect the legality, validity or enforceability
of this Agreement. None of the transactions contemplated hereby is or is
threatened to be restrained or enjoined (temporarily, preliminarily or
permanently).

SECTION 4.2.  Additional Representations of the Originator.  The Originator
              --------------------------------------------
additionally represents and warrants as follows:

(a) Eligible Receivable.  Unless otherwise specified in the applicable Purchase
    -------------------
Report, all Receivables sold, contributed and assigned to the Purchaser
hereunder on the Closing Date are Eligible Receivables as of the Closing Date
and all Receivables sold and assigned to the Purchaser hereunder on any Purchase
Date subsequent to the Closing Date will be Eligible Receivables as of such
Purchase Date.

(b) Sale of Receivables.  The Originator is, as of the time of the transfer to
    -------------------
the Purchaser of each Receivable being sold or contributed to the Purchaser on
the Closing Date, and will be, as of the time of the transfer to the Purchaser
of each Receivable sold or contributed to the Purchaser on any subsequent
Purchase Date, the sole owner of such Receivable, free from any lien, security
interest, encumbrance or other right, title or interest of any Person. Each
Receivable existing on the Closing Date has been, and in the case of Additional
Receivables sold or contributed hereafter, such Additional Receivables will be,
on the applicable Purchase Date, conveyed to the Purchaser free and clear of any
Lien. There is no effective financing statement (or similar statement or
instrument of registration under the law of any jurisdiction) now on file or
registered in any public office filed by or against the Originator or any
Subsidiary of the Originator or purporting to be filed on behalf of the
Originator or any Subsidiary of the Originator covering any interest of any kind
in any Purchased Assets which are being, or which hereafter will be, sold or
contributed to the Purchaser, other than those filed to effect the assignment of
the Receivables to the Originator on the Closing Date, and the Originator will
not execute nor will there be on file in any public office any effective
financing statement (or similar statement or instrument of registration under
the laws of any jurisdiction) or statements relating

                                       9
<PAGE>

to such Purchased Assets, except in each case any financing statements filed in
respect of and covering the purchase of the Purchased Assets by the Purchaser
pursuant to this Agreement and the security interest created pursuant to the
Loan Agreement. All filings and recordings (including pursuant to the UCC)
required to perfect the title of the Purchaser in each Purchased Asset sold or
contributed hereunder have been accomplished and are in full force and effect
and the Originator shall, at its expense, perform all acts and execute all
documents necessary or reasonably requested by the Purchaser or the
Administrator at any time and from time to time to evidence, perfect, maintain
and enforce the title or the security interest of the Purchaser or the
Administrator in the Purchased Assets and the priority thereof.

(c) Accuracy of Information.  All information heretofore furnished by, or on
    -----------------------
behalf of, Originator to the Purchaser or the Administrator in connection with
any Transaction Document, or any transaction contemplated thereby, is true and
accurate in every material respect (without omission of any information
necessary to prevent such information from being materially misleading).

(d) Location of Office and Records.  The principal place of business and chief
    ------------------------------
executive office of the Originator, and the office where all Documents are kept,
is located at 185 South Industrial Boulevard, Calhoun, Georgia 30701.

(e) Trade Names.  Set forth on Schedule II hereto is a complete and accurate
    -----------                -----------
list of the trade names of the Originator and its Subsidiaries for the five-year
period preceding the date of this Agreement.

(f) Financial Statements.  The Originator has heretofore furnished to the
    --------------------
Purchaser and the Administrator copies of its consolidated and consolidating
balance sheets and statements of income and changes in financial condition as of
and for the Fiscal Years ended in December of 1998 and December of 1999, audited
by and accompanied by the opinion of Ernst & Young, independent public
accountants. Except as disclosed in writing to the Administrator prior to the
date of this Agreement, such financial statements present fairly in all material
respects the financial condition and results of operations of the Originator and
its consolidated subsidiaries as of such dates and for such periods; such
balance sheets and the notes thereto disclose all liabilities, direct or
contingent, of the Originator and its consolidated subsidiaries as of the dates
thereof required to be disclosed by GAAP and such financial statements were
prepared in accordance with GAAP applied on a consistent basis. Since April 1,
2000, there has been no material adverse change in the condition (financial or
otherwise), operations, properties, assets or prospects of the Originator,
except as disclosed in writing to the Administrator on or prior to the date
hereof.

(g) No Consent.  No action, consent or approval of, registration or filing with
    ----------
or any other action by any Governmental Authority is or will be required in
connection with execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated by this Agreement, except such as
have been made or obtained and are in full force and effect.

(h) Administrator Can Perform.  Upon the delivery by the Originator to the
    -------------------------
Administrator of the computer tapes, disks, cassettes and related materials (in
a generally acceptable readable format)

                                      10
<PAGE>

relating to the administration of the Receivables pursuant to Section 6.2, the
                                                              -----------
Administrator shall have been furnished with all materials and data which are
available, or obtainable by the Originator without undue burden, and which are
necessary to permit immediate collection of the Receivables by the
Administrator, or any party designated by the Administrator, without the
participation of the Originator in such collection.

(i) Security Interest of Purchaser.  This Agreement constitutes a valid sale,
    ------------------------------
transfer and assignment to the Purchaser of all right, title and interest in the
Purchased Assets. Upon the filing of the financing statements described in
Section 3.1(iv), the Purchaser shall have a first priority perfected ownership
---------------
interest in the Purchased Assets and the Contributed Receivables (except to the
extent such first priority perfected security interest was assigned to the
Administrator pursuant to the Loan Agreement). Except as otherwise provided in
this Agreement, neither the Originator nor any Subsidiary thereof (other than
Purchaser) nor any Person claiming through or under the Originator or any
Subsidiary thereof (other than Purchaser) has any claim to or interest in the
Collection Account or any Lock Box Account.

(j) No Material Adverse Change.  Since April 1, 2000, there has been no material
    --------------------------
adverse change in the collectibility of the Receivables or the Originator's
ability to perform its obligations under any Transaction Document.

(k) Solvency.  Both before and after giving effect to the transactions
    --------
contemplated herein, the Originator is Solvent.

                                   ARTICLE V
                               GENERAL COVENANTS

SECTION 5.1.  Affirmative Covenants of the Originator.  So long as the Purchaser
              ---------------------------------------
shall have any interest in any Purchased Asset, the Originator shall, unless the
Purchaser otherwise consents in writing:

(a) Financial Statements, Reports, Etc.  Deliver or cause to be delivered to the
    ----------------------------------
Purchaser and the Administrator:

          (i) as soon as available and in any event within 95 days after the end
          of each Fiscal Year of the Originator, a balance sheet of the
          Originator as of the end of such year and statements of income and
          retained earnings and of source and application of funds of the
          Originator for the period commencing at the end of the previous Fiscal
          Year and ending with the end of such year, in each case setting forth
          comparative figures for the previous Fiscal Year, certified without
          material qualification in a manner satisfactory to the Purchaser and
          the Administrator by Ernst & Young or other nationally recognized,
          independent public accountants acceptable to the Administrator (it
          being understood that delivery of the Originator's Form 10-K for such
          Fiscal Year filed with the Securities and Exchange Commission will
          satisfy the foregoing requirement), together with a certificate of
          such accounting firm stating that in the course of the regular audit
          of the business of the Originator, which audit was conducted in
          accordance with GAAP, such accounting

                                      11
<PAGE>

     firm has obtained no knowledge that a Purchase Termination Event or
     Incipient Purchase Termination Event has occurred and is continuing, or if,
     in the opinion of such accounting firm, such a Purchase Termination Event
     or Incipient Purchase Termination Event has occurred and is continuing, a
     statement as to the nature thereof;

     (ii)  as soon as available and in any event within 50 days after the end of
     each fiscal quarter, quarterly balance sheets and quarterly statements of
     source and application of funds and quarterly statements of income and
     retained earnings of the Originator, certified by the chief financial or
     executive officer or controller of the Originator (which certification
     shall state that such balance sheets and statements fairly present the
     financial condition and results of operations for such fiscal quarter,
     subject to year-end audit adjustments) (it being understood that delivery
     of the Originator's Form 10-Q filed with the Securities and Exchange
     Commission for such fiscal quarter will satisfy the foregoing requirement),
     delivery of which balance sheets and statements shall be accompanied by a
     certificate of such chief financial or executive officer or controller to
     the effect that no Purchase Termination Event or Incipient Purchase
     Termination Event has occurred and is continuing; and

     (iii) as soon as possible and in any event within one Business Day after
     any officer of the Originator becomes aware of the occurrence of a Servicer
     Event of Default, a Purchase Termination Event or Incipient Purchase
     Termination Event or an event that, with the giving of notice or time
     elapse, or both, would constitute a Servicer Event of Default, an officer's
     certificate of the Originator setting forth details of such event and the
     action that the Servicer or the Originator, as the case may be, proposes to
     take with respect thereto.

(b) Compliance with Laws, Etc.  Comply, and cause all of the Receivables to
    --------------------------
comply, in all material respects with all applicable laws, rules, regulations
and orders applicable to the Originator and the Receivables, including, without
limitation, rules and regulations relating to truth in lending, retail
installment sales, fair credit billing, fair credit reporting, equal credit
opportunity, fair debt collection practices, privacy environmental matters,
labor, taxation and ERISA, where in any such case failure to so comply could
reasonably be expected to have an adverse impact on the Receivables or the
amount of Collections thereunder, or on the ability of the Originator to perform
its obligations hereunder or under the other Transaction Documents to which it
is a party.

(c) Preservation of Corporate Existence.  Preserve and maintain in all
    -----------------------------------
material respects its corporate existence, corporate rights (charter and
statutory) and franchises.

(d) Inspection Rights.  Permit the Purchaser, the Administrator or their duly
    -----------------
authorized representatives, attorneys or auditors to inspect the Receivables,
the Documents and the related accounts, records and computer systems, software
and programs used or maintained by the Originator at such times as the Purchaser
or the Administrator may reasonably request. Upon instructions from the
Purchaser or the Administrator, the Originator shall release any reasonably
requested Document to the Purchaser or the Administrator, as the case may be.

(e) Keeping of Records and Books of Account.  Maintain and implement, or cause
    ---------------------------------------
to be

                                      12
<PAGE>

maintained or implemented, administrative and operating procedures necessary or
advisable for the administration of all Receivables, and, until the delivery to
the Purchaser or its designee, keep and maintain, or cause to be kept and
maintained, all documents, books, records and other information necessary or
advisable for the administration of all Receivables.

(f) Performance and Compliance with Receivables. Duly fulfill all obligations on
    -------------------------------------------
its part to be fulfilled under or in connection with the Receivables and the
related Contracts, including complying with all requirements of law applicable
thereto, and will do nothing to impair the right, title and interest of the
Purchaser in the Purchased Assets; provided, however, that an adjustment or
                                   --------  -------
compromise of a Receivable pursuant to Section 2.5 shall not be deemed to be a
                                       -----------
violation of this paragraph.

(g) Location of Records.  Keep the chief executive office of the Originator
    -------------------
located at 185 South Industrial Boulevard, Calhoun, Georgia 30701, and keep
originals or duplicates of any Documents that it maintains at, and only at, said
offices, and the Originator will not move its chief executive office or permit
any Documents and books evidencing the Purchased Receivables that it may
maintain to be moved unless (i) the Originator shall have given to the Purchaser
and the Administrator not less than 45 days' prior written notice thereof,
clearly describing the new location, and (ii) the Originator shall have taken
such action, satisfactory to the Purchaser and the Administrator, to maintain
the title or ownership of the Purchaser and any security interest of, or any
filing in respect of title of, the Purchaser or the Administrator in the
Purchased Assets at all times fully perfected and in full force and effect.  The
Originator may not, in any event, move the location where it conducts any
administration of the Receivables from 185 South Industrial Boulevard, Calhoun,
Georgia 30701, without the prior written consent of the Administrator.

(h) Collection Policy.  Comply in all material respects with the Collection
    -----------------
Policy.

(i) Insurance.  Keep its insurable properties adequately insured at all times by
    ---------
financially sound and responsible insurers; maintain such other insurance, to
such extent and against such risks, including fire and other risks insured
against by extended coverage, as is customary with companies of the same or
similar size in the same or similar businesses; maintain in full force and
effect public liability insurance against claims for personal injury or death or
property damage occurring upon, in, about or in connection with the use of any
properties owned, occupied or controlled by it or any Subsidiary, as the case
may be, in such amounts and with such deductibles as are customary with
companies of the same or similar size in the same or similar businesses and in
the same geographic area; and maintain such other insurance as may be required
by law.

(j) Obligations and Taxes.  Pay and discharge promptly when due all material
    ---------------------
obligations incurred or arising, all sales tax and all material taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or profits or in respect of its property before the same shall become in
default, as well as all material lawful claims for labor, materials and supplies
or otherwise which, if unpaid, might become a Lien or charge upon such
properties or any part thereof; provided, however, that it and each Subsidiary
                                --------  -------
shall not be required to pay and discharge or to cause to be paid and discharged
any such tax, assessment, charge, levy or claim so long as

                                      13
<PAGE>

the validity or amount thereof shall be contested in good faith by appropriate
proceedings and for which the Originator shall have set aside on its books
adequate reserves with respect thereto in accordance with GAAP.

(k) Obligations with Respect to Receivables.  Use all reasonable measures to
    ---------- ----------------------------
assist the Purchaser in preventing or minimizing any loss being realized on a
Receivable in which the Purchaser owns an interest and take all reasonable steps
to assist the Purchaser in recovering the full amount of such loss. The
Originator shall, at its own expense, take any such steps as are necessary to
maintain perfection of the security interest created by each Receivable in the
related goods and merchandise subject thereto.

(l) Furnishing Copies, Etc.  Furnish to the Purchaser and the Administrator (i)
    ----------------------
upon the Purchaser's or the Administrator's request, a certificate of the chief
financial or executive officer of the Originator certifying, as of the date
thereof, that no Purchase Termination Event has occurred and is continuing and
(ii) promptly following request therefor, such other information, documents,
records or reports with respect to the Purchased Assets or the conditions or
operations, financial or otherwise, of the Originator, as the Purchaser or the
Administrator may from time to time reasonably request.

(m) Obligation to Record and Report.  To the fullest extent permitted by GAAP
    -------------------------------
and by applicable law, record each purchase of Purchased Assets hereunder as a
sale on its books and records, reflect each such purchase in its financial
statements as a sale and recognize gain or loss, as the case may be, on each
such purchase.

(n) Continuing Compliance with the Uniform Commercial Code.  At its expense
    ------------------------------------------------------
perform all acts and execute all documents necessary or reasonably requested by
the Purchaser or the Administrator at any time to evidence, perfect, maintain
and enforce the title or the security interest of the Purchaser or the
Administrator in the Purchased Assets and the priority thereof.  The Originator
will execute and deliver financing statements relating to or covering the
Purchased Assets (reasonably satisfactory in form and substance to the
Purchaser) and, where permitted by law, the Originator will authorize the
Administrator to file one or more financing statements signed only by the
Administrator.  The Originator shall cause its computer records, master data
processing records and other books and records relating to the Receivables to be
marked, with a legend stating that the Receivables have been sold, assigned and
transferred to the Purchaser.  The Originator shall deliver the Receivable Files
related to each Receivable to the Administrator upon request by the Purchaser or
the Administrator; provided that while any Document is in custody of the
                   --------
Originator, the Originator will hold the same for the benefit of the Purchaser.
The Originator will not execute any effective financing statement (or similar
statement or instrument of registration under the laws of any jurisdiction) or
statements relating to any Purchased Assets, except any financing statements
filed or to be filed in respect of and covering the purchase of the Purchased
Assets by the Purchaser pursuant to this Agreement and the security interest
created in favor of the Administrator pursuant to the Loan Agreement.

(o) Proceeds of Purchased Receivables.  In the event that the Originator
    ---------------------------------
receives any amounts in respect of Receivables, deposit or otherwise credit, or
cause to be deposited or otherwise credited, such amounts in accordance with the
procedures set forth in Section 11.2 of the Loan Agreement.

                                      14
<PAGE>

(p) Further Action Evidencing Purchases.  Provide such cooperation, information
    -----------------------------------
and assistance, and prepare and supply the Purchaser, the Servicer and the
Administrator with such data regarding the performance by the Obligors of their
obligations under the Receivables and the performance by the Originator of its
obligations under the Transaction Documents, as may be reasonably requested by
the Purchaser, the Servicer and the Administrator from time to time.

(q) Trade Names.  Promptly notify the Purchaser and the Administrator of any new
    -----------
trade names of the Originator (but in any event, not more frequently than once a
month).

SECTION 5.2.  Negative Covenants of the Originator. So long as the Purchaser
              ------------------------------------
shall have any interest in any Receivables, the Originator shall not, unless the
Purchaser otherwise consents in writing:

(a) Liens.  Sell, assign (by operation of law or otherwise) or otherwise dispose
    -----
of, or create or suffer to exist any Lien upon or with respect to, any Purchased
Asset, or assign any right to receive proceeds in respect thereof except as
                                                                  ------
created or imposed by this Agreement or the Loan Agreement.

(b) Change in Business.  Make any material change in the nature of its business
    ------------------
as carried on at the date hereof or engage in or conduct any business or
activity that is materially inconsistent with the floor covering and relating
businesses.

(c) Extension or Amendment of Purchased Receivables.  Extend, amend or otherwise
    -----------------------------------------------
modify, or attempt or purport to extend, amend or, otherwise modify, the terms
of any Receivables other than in accordance with the Collection Policy and the
terms of the Loan Agreement.

(d) Change in Payment Instructions to Obligors.  Instruct the Obligors on any
    ------------------------------------------
Receivables to make any payments with respect to such Receivables to any place
other than a Lock Box or a Lock Box Account, unless the related Obligor is
delinquent in payment, in which case the Servicer may direct such Obligor to
make direct payment to the Servicer (and the Servicer shall deposit such payment
in the Collection Account pursuant to the Loan Agreement).

(e) Sale of Receivables.  Sell Receivables or transfer any interest in the
    -------------------
Receivables to any Person other than the Purchaser.

(f) Cause a Default.  Take any action which would cause the Purchaser to be in
    ---------------
default under the Loan Agreement, a copy of which has been furnished to
Originator, unless such action shall have been approved and the default waived
by prior written approval of the Administrator and the Purchaser.

(g) Mergers; Sales of Assets.  Sell all or substantially all of its property and
    ------------------------
assets to, or consolidate with or merge into, any other corporation, if the
effect of such sale or merger would cause a "default" or "an event of default"
under this Agreement or the Loan Agreement.

                                      15
<PAGE>

(h) No Amendments. (i) Amend, supplement or otherwise modify this Agreement or
    -------------
(ii) otherwise take or fail to take any action under this Agreement that could
adversely affect the Purchaser's interests hereunder or the Administrator's
interests under the Loan Agreement.

(i) Accounting Changes.  Make any material change (i) in accounting treatment
    ------------------
and reporting practices except as permitted or required by GAAP, (ii) in tax
reporting treatment except as permitted or required by law, (iii) in the
calculation or presentation of financial and other information contained in any
reports delivered hereunder, or (iv) in any financial policy of the Originator
if such change could have an adverse effect on the Receivables or the collection
thereof.

(j) Maintenance of Separate Existence. (i) Fail to do all things necessary to
    ---------------------------------
maintain its corporate existence separate and apart from the Purchaser
including, without limitation, holding regular meetings of its shareholders and
Board of Directors (or executing unanimous written consents in lieu thereof) and
maintaining appropriate books and records (including current minute books); (ii)
except as required by applicable law, suffer any limitation on the authority of
its own directors and officers or partners to conduct its business and affairs
in accordance with their independent business judgment, or authorize or suffer
any Person other than its own officers and directors to act on its behalf with
respect to matters (other than matters customarily delegated to others under
powers of attorney) for which a corporation's own officers and directors would
customarily be responsible; (iii) fail to (A) maintain or cause to be maintained
by an agent of the Originator under the Originator's control physical possession
of all its books and records, (B) maintain capitalization adequate for the
conduct of its business, (C) account for and manage all of its liabilities
separately from those of any other Person, including, without limitation,
payment by it of all payroll and other administrative expenses and taxes from
its own assets, (D) segregate and identify separately all of its assets from
those of any other Person, (E) maintain employees, or pay its employees,
officers and agents for services performed for the Originator or (F) allocate
shared overhead fairly and reasonably; or (iv) commingle its funds with those of
the Purchaser or use the Purchaser's funds for other than the uses permitted
hereunder.

                                    ARTICLE VI
            ADMINISTRATION AND COLLECTION OF PURCHASED RECEIVABLES

SECTION 6.1.  Collection Procedures.
              ---------------------

(a) On or before the Closing Date, the Originator and the Purchaser shall have
established and shall maintain thereafter the system of collecting and
processing Collections of Receivables in accordance with Section 11.2 of the
Loan Agreement.

(b) Any funds held by the Originator representing Collections of Receivables
shall, until deposited in the Collection Account or applied to the Purchase
Price of Receivables in accordance with this Agreement, be held in trust by the
Originator for and as the Administrator's property.

                                      16
<PAGE>

(c) The Originator hereby irrevocably waives any right to set off against, or
otherwise deduct from, any Collections.

(d) The Originator acknowledges that the Originator shall have no right, title
or interest in and to the Collection Account and hereby subordinates its rights
in each Lock Box Account to the Administrator.

SECTION 6.2.  Purchase Information.
              --------------------

(a) On each Reporting Date, the Originator shall prepare and deliver to the
Purchaser and the Administrator a duly completed Purchase Report with respect to
Receivables created during the immediately preceding Due Period and with respect
to activity in such Receivables.

(b) The Purchaser and the Originator agree that, upon request of the Purchaser,
the Originator shall provide the Purchaser with all information required to
prepare periodic reports that may be required to be furnished to the
Administrator pursuant to the Loan Agreement, as promptly as possible on each
Business Day on the basis of the sales and collections figures transmitted the
previous day to the Originator's central computer processing center.

(c) Upon discovery of any error in any report furnished to Purchaser or the
Administrator, the Administrator, the Purchaser and the Originator shall confer
and shall agree upon any necessary adjustments to correct any such errors.
Until correction of such error, all Collections relating to such errors shall be
retained in the Collection Account, to the extent such Collections have been
deposited in the Collection Account pursuant to the terms hereof.  Unless the
Administrator has received actual notice of any discrepancy, the Administrator
and the Purchaser may rely on such reports for all purposes hereunder.

SECTION 6.3.  Compliance Statements.  The Originator shall deliver, or cause to
              ---------------------
be delivered, to the Purchaser and the Administrator, on or before the date that
is 95 days after the end of each Fiscal Year, an officer's certificate signed by
the Chief Executive Officer, the President or any Vice President of the
Originator, dated as of the last day of the preceding Fiscal Year, stating that
(a) a review of the activities of the Originator during the preceding 12 Fiscal
Month period and of its performance under this Agreement has been made under
such officer's supervision and (b) to the best of such officer's knowledge,
based on such review, the Originator has fulfilled its obligations under this
Agreement throughout such Fiscal Year and has complied in all respects with the
Collection Policy, or, if there has been a default in the fulfillment of any
such obligation, specifying each such default known to such officer and the
nature and status thereof.

SECTION 6.4.  Allocations and Applications of Collections.  Collections shall be
              -------------------------------------------
allocated and distributed by the Administrator in accordance with the provisions
of the Loan Agreement and Section 2.7.
                          -----------

SECTION 6.5.  Termination.  The Originator's obligation to sell Receivables
              -----------
under this Agreement shall terminate on the Purchase Termination Date; provided,
                                                                       --------
however, that finance charges, late charges and other fees, charges and similar
-------
items in respect of the Receivables sold or contributed prior to the Purchase
Termination Date shall continue to be the property of the

                                      17
<PAGE>

Purchaser after the Purchase Termination Date notwithstanding that such amounts
may arise or accrue after the Purchase Termination Date.

SECTION 6.6.  Responsibilities of the Originator.  Notwithstanding anything
              ----------------------------------
herein to the contrary (i) the Originator shall perform all its obligations
under the Collection Policy related to the Receivables to the same extent as if
such Receivables had not been transferred to the Purchaser hereunder, (ii) the
exercise by the Purchaser of any of its rights hereunder shall not relieve the
Originator from its obligations with respect to the Receivables and (iii) except
as provided by law, the Purchaser shall not have any obligation or liability
with respect to any Receivables or the underlying Contracts, nor shall the
Purchaser be obligated to perform any of the obligations or duties of the
Originator thereunder.

                                  ARTICLE VII
                          PURCHASE TERMINATION EVENTS

SECTION 7.1.  Purchase Termination Events.  If any of the following events
              ---------------------------
(each, a "Purchase Termination Event") shall occur and be continuing:
          --------------------------

(a) any representation or warranty made or deemed made by or on behalf of the
Originator under or in connection with this Agreement or any Purchase Report or
other information or report delivered by the Originator pursuant hereto shall
prove to have been false or incorrect in any material respect when made or
deemed made; provided, however, that the falsity or incorrectness of any
             --------  -------
representation made pursuant to Section 4.2(a) with respect to any Receivable
                                --------------
shall not constitute a Purchase Termination Event so long as the Originator has
complied with its obligations in respect of such Receivable pursuant to Section
                                                                        -------
2.4;
---

(b) the Originator shall fail to (i) perform or observe any term, covenant or
agreement contained in Section 5.1(c), 5.1(d), 5.1(g), 5.1(h), 5.1(i), 5.1(j),
                       --------------  ------  ------  ------  ------  ------
5.1(k), 5.1(l), 5.1(m) or 5.1(n), or (ii) make any payment or deposit to be made
------  ------  ------    ------
by it hereunder within three Business Days after the same became due and
payable;

(c) the Originator shall fail to perform or observe any other term, covenant or
agreement contained in this Agreement on its part to be performed or observed
and any such failure shall remain unremedied for ten days following the
discovery thereof;

(d) the Originator shall generally not pay its debts as such debts become due,
or shall admit in writing its inability to pay its debts generally, shall make a
general assignment for the benefit of creditors, or shall take any corporate
action to authorize any of the actions set forth above in this subsection (d) or
                                                               --------------
the Originator shall be the subject of an Event of Bankruptcy;

(e) the Originator transfers, sells or otherwise disposes of (whether in one
transaction or a series of transactions) all or substantially all of its assets;
or

(f) the Loan Agreement shall cease to be in full force and effect, a Significant
Event shall have occurred under the Loan Agreement or the Lender's Commitment
under the Loan Agreement

                                      18
<PAGE>

shall be terminated;

then, and in any such event, the Purchaser may, by notice to the Originator,
declare its obligation to purchase Receivables from the Originator to be
terminated, whereupon such obligation shall forthwith be terminated; provided,
                                                                     --------
however, that in the case of any event described in subsection (d) above, such
-------                                             --------------
termination shall automatically occur upon the happening of such event. No
termination under this Section 7.1 of the Purchaser's obligation to purchase
                       -----------
Receivables shall affect the then-existing obligations of the Originator
hereunder (other than the Originator's obligations to sell Receivables to the
Purchaser pursuant hereto).

SECTION 7.2.  Remedies.  If a Purchase Termination Event has occurred and is
              --------
continuing:

(a) The Purchaser (and its assignees) shall have all of the rights and remedies
provided to a secured creditor or a purchaser of accounts or chattel paper under
the UCC by applicable law in respect thereto.

(b) The Purchaser (and its assignees) may at any time (i) notify the respective
Obligors of the Purchaser's ownership of the Receivables and may direct that
payment of all amounts due or to become due under the Receivables be made
directly to the Purchaser or its designee or (ii) give notice, or require that
the Originator, at the Originator's expense, give notice of such ownership to
each such Obligor and direct that all payments be made directly to the Purchaser
or its designee.

(c) The Purchaser (and its assignees) may elect to (i) sue for collection on any
Receivables or (ii) sell any Receivables to any Person for a price that is
acceptable to the Purchaser (or its assignees). In connection with any such
sale, the Purchaser or its assignees shall have the right to assign its rights
under this Agreement to a third party. Any such Receivable shall cease to be a
Receivable for all purposes under this Agreement as of the effective date of
such sale.

(d) The Originator shall, upon the Purchaser's (or its assignee's) request and
at the Originator's expense (i) assemble all of the Originator's documents,
instruments and other records (including, without limitation, credit files and
computer tapes or disks) that (A) evidence or will evidence or record
Receivables sold or contributed by the Originator, (B) evidence the underlying
Contracts relating to such Receivables and (C) are otherwise necessary or
desirable to effect Collections of such Receivables and (ii) deliver such
documents to the Purchaser or its designee at a place designated by the
Purchaser or, at the Purchaser's option, provide the Purchaser or its designee
with access thereto.

(e) The Originator hereby irrevocably authorizes the Purchaser or its designee
or assignees to take any and all steps in the Originator's name and on the
Originator's behalf necessary or desirable, in the reasonable opinion of the
Purchaser, designee or assignee, to collect all amounts due under the
Receivables and the other Purchased Assets, including, without limitation,
endorsing the Originator's name on checks and other instruments representing
Collections, enforcing the Receivables and the other Purchased Assets and
exercising all rights and remedies in respect thereof.

                                      19
<PAGE>

(f) The Originator will (i) deliver to the Purchaser, its designees or assignees
all computer programs, material and data necessary to the immediate collection
of the Receivables by the Purchaser, or a party designated by the Purchaser,
with or without the participation of the Originator and (ii) make such
arrangements with respect to the collection of the Receivables as may be
reasonably required by the Administrator.

                                  ARTICLE VIII
                                INDEMNIFICATION

SECTION 8.1.  Indemnities by the Originator.  Without limiting any other rights
              -----------------------------
that the Purchaser may have hereunder or under applicable law, the Originator
hereby agrees to indemnify the Purchaser (and its assignees) and each
Indemnified Party, on an after-tax basis, from and against any and all claims,
losses and liabilities (including reasonable attorneys' fees) (all the foregoing
being collectively referred to as "Indemnified Amounts") arising out of or
                                   -------------------
resulting from this Agreement or in respect of any Receivable, any related
Contract or any other Purchased Asset, excluding, however, Indemnified Amounts
to the extent resulting from gross negligence or willful misconduct on the part
of the Purchaser or such Indemnified Party, as the case may be. Without limiting
or being limited by the foregoing, the Originator shall pay on demand to the
Purchaser or any Indemnified Party any and all amounts necessary to indemnify
such Person from and against any and all Indemnified Amounts relating to or
resulting from:

(a) reliance on any representation or warranty or statement made or deemed made
by the Originator (or any of their respective officers) under or in connection
with this Agreement or in any certificate, report or document delivered pursuant
hereto that, in any such case, shall have been false or incorrect when made or
deemed made;

(b) the failure by the Originator to comply with any applicable law, rule or
regulation with respect to any Receivable or the related Contract, or the
nonconformity of any Receivable or the related Contract with any such applicable
law, rule or regulation;

(c) the failure to have filed, or any delay in filing, financing statements or
other similar instruments or documents under the Uniform Commercial Code of any
applicable jurisdiction or other applicable laws with respect to the Purchaser's
interest in any Purchased Asset;

(d) any dispute, claim, offset or defense (other than discharge in bankruptcy of
the Obligor) of the Obligor to the payment of any Receivable (including, without
limitation, a defense based on such Receivable or the related Contract not being
a legal, valid and binding obligation of such Obligor enforceable against it in
accordance with its terms), or any other claim resulting from the sale of the
merchandise or services related to any such Receivable or the furnishing or
failure to furnish such merchandise or services;

(e) any failure of the Originator to perform its duties or obligations under
this Agreement or the applicable Contract;

(f) any products liability or warranty claim arising out of or in connection
with merchandise, insurance or services that are the subject of any Receivable;

                                      20
<PAGE>

(g) the commingling of Collections of Receivables at any time with other funds
of the Originator, regardless or whether such commingling shall be permitted by
the Transaction Documents;

(h) any investigation, litigation or proceeding related to this Agreement or in
respect of any Receivable or any Contract;

(i) the payment by the Purchaser of any taxes owed by the Originator, including,
but not limited to, federal, state or local income taxes, excise taxes or
business taxes; or

(j) the failure to vest, and maintain vested, in the Purchaser a valid and
enforceable (A) ownership interest or (B) a first priority perfected security
interest in the items described in Section 2.1(a) (except to the extent such
                                   -----------
first priority perfected security interest was assigned to the Administrator
pursuant to the Loan Agreement).

Notwithstanding the foregoing, the Originator shall not under any circumstances
indemnify the Purchaser (or its assignees) for any Indemnified Amounts that
result solely from a default by an Obligor with respect to a Receivable other
than as described in clause (d) above or resulting from the circumstances
                     ----------
described in clause (b) or (e) above.
             ----------    ---

                                  ARTICLE IX
                              THE ORIGINATOR NOTE

SECTION 9.1.  Originator Note.
              ---------------

(a) On the Closing Date, the Purchaser shall issue to the Originator a revolving
subordinated note in the form attached hereto as Exhibit B (the "Originator
                                                 ---------       ----------
Note"). The principal amount of the Originator Note outstanding from time to
----
time shall be determined in accordance with Sections 2.3, 2.4 and 2.5. It is
                                            -------- ---  ---     ---
understood and agreed that no cash shall be paid to the Originator in respect of
the Originator Note as a result of the principal amount of the Originator Note
decreasing pursuant to the calculations in Sections 2.4 and 2.5. Anything to the
                                           -------- ---     ---
contrary notwithstanding, the Purchaser shall have the right (but not the
obligation) to offset or adjust the Originator Note by any amounts owed by the
Originator to the Purchaser under this Agreement.

(b) Until the Obligations have been indefeasibly paid in full in cash, no
payments (whether for principal or interest) may be made, directly or
indirectly, by the Purchaser on the Originator Note except from amounts released
from the Collection Account pursuant to the Loan Agreement.  The Originator
agrees not to ask, demand, sue for or take or receive from the Purchaser in cash
or other property by set-off (including, without limitation, from or by way of
collateral), payment of all or any part of the Originator Note, except as
permitted by the Loan Agreement.  The Originator agrees that upon any
distribution of all or any of the assets of the Purchaser to creditors of the
Purchaser upon the dissolution, winding up, total or partial liquidation,
arrangement, reorganization, adjustment, protection, relief, or composition of
the Purchaser or its debts, any payment or distribution of any kind in respect
of the Originator Note that otherwise would be payable or deliverable upon or
with respect to the Originator Note, directly or

                                      21
<PAGE>

indirectly, by set-off or in any other manner, including, without limitation,
from or by way of collateral, shall be paid or delivered directly to the
Administrator for application (in the case of cash) to or as collateral (in the
case of non-cash property or securities) for the payment or prepayment in full
of, the Obligations until the Obligations shall have been indefeasibly paid in
full in cash. All payments or distributions upon or with respect to the
Originator Note that are received by the Originator contrary to the provisions
of the Loan Agreement or the Originator Note shall be received in trust for the
benefit of the Secured Parties, shall be segregated from other funds and
property held by the Originator and shall be forthwith paid over to the
Administrator in the same form as so received (with any necessary endorsement)
to be applied (in the case of cash) to, or held as collateral (in the case of
non-cash property or securities) for the payment or prepayment in full of, the
Obligations until the Obligations shall have been indefeasibly paid in full in
cash. The Originator agrees that no payment or distribution to the Secured
Parties pursuant to the provisions of the Originator Note shall entitle the
Originator to exercise any rights or subrogation in respect thereof until the
Obligations shall have been indefeasibly paid in full in cash. The Originator
and the Purchaser each hereby waives promptness, diligence, notice of acceptance
and any other notice with respect to any of the Obligations and the Originator
Note and any requirement that any Secured Party protect, secure, perfect or
insure any security interest or lien on any property subject thereto or exhaust
any right or take any action against the Purchaser or any other Person or any
Collateral.

(c) The Originator agrees and confirms that the Originator Note represents
solely the right to receive certain amounts from funds available to the
Purchaser under the Loan Agreement and that the Originator Note does not
represent a security interest in the Receivables or their proceeds. No payments
may be received, directly or indirectly, by the Originator (and if received, the
Originator agrees to return such payments to the Purchaser) on the Originator
Note unless all amounts required pursuant to the Loan Agreement to be paid have
been paid.

(d) The Originator agrees and confirms that the Administrator shall not have any
duty whatsoever to the Originator as holder of the Originator Note and that the
Administrator shall not be liable to the Originator for any action taken or
omitted to be taken with respect to the Originator Note.

SECTION 9.2.  Restrictions on Transfer of Originator Note.  Neither the
              -------------------------------------------
Originator Note, nor any right of the Originator to receive payments thereunder,
shall be assigned, transferred, exchanged, pledged, hypothecated, participated
or otherwise conveyed.

                                   ARTICLE X
                                 MISCELLANEOUS

SECTION 10.1  Amendments, Etc.  No amendment, modification or waiver of any
              ---------------
provision of this Agreement, or consent to any departure by the Originator
therefrom, shall in any event be effective unless the same shall be in writing
and signed by the Purchaser and the Administrator and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.  The Administrator shall give the Rating Agencies
prompt notice of any such amendment.

                                      22
<PAGE>

SECTION 10.2.  Notices, Etc. All notices and other communications provided for
               ------------
hereunder shall be in writing (including telegraphic, facsimile or cable
communication) and mailed, telegraphed, transmitted, cabled or delivered, at its
address set forth on Schedule 10.2; or, as to each party, at such other address
                     -------------
as shall be designated by such party in a written notice to the other parties.
All such notices and communications shall when mailed or telecopied be effective
when deposited in the mails, or transmitted by telecopier, respectively, except
that notices to the Purchaser pursuant to Article II shall not be effective
                                          ----------
until received by the Purchaser.

SECTION 10.3.  No Waiver; Remedies. No failure on the part of the Purchaser to
               -------------------
exercise, and no delay in exercising, any right under this Agreement shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right preclude any other or further exercise thereof or the exercise of any
other right. The remedies herein provided are cumulative and not exclusive of
any remedies provided by law.

SECTION 10.4.  Binding Effect; Governing Law. This Agreement shall be
               -----------------------------
binding upon and inure to the benefit of the Originator and the Purchaser and
their respective successors and assigns, except that the Originator shall not
have the right to assign its rights hereunder or any interest herein without the
prior written consent of the Purchaser and the Administrator. This Agreement
shall create and constitute the continuing obligations of the parties hereto in
accordance with its terms, and shall remain in full force and effect until such
time, after the Purchase Termination Date, until the Purchaser shall not have
any interest in any Purchased Asset and all obligations of the Originator
hereunder shall have been paid in full; provided, however, that the
                                        --------  -------
indemnification provisions of Article VIII shall be continuing and shall survive
                              ------------
any termination of this Agreement. This Agreement and the Originator Note shall
be governed by, and construed in accordance with, the laws of the State of
Tennessee.

SECTION 10.5.  Costs, Expenses and Taxes. In addition to the rights of
               -------------------------
indemnification granted to the Purchaser under Article VIII, the Originator
                                               ------------
agrees to pay on demand all costs and expenses of the Purchaser and the
Administrator in connection with the preparation, execution and delivery of this
Agreement, the Loan Agreement and the other agreements and documents to be
delivered hereunder and thereunder, including, without limitation, the
reasonable fees and out-of-pocket expenses of counsel for the Purchaser and the
Administrator with respect thereto and with respect to advising the Purchaser
and the Administrator as to their rights and remedies under this Agreement, and
all costs and expenses (including, without limitation, reasonable counsel fees
and expenses), in connection with the enforcement (whether through negotiations,
legal proceedings or otherwise) of this Agreement and the documents to be
delivered hereunder. In addition, the Originator agrees to pay any and all stamp
and other taxes and fees payable or determined to be payable in connection with
the execution, delivery, filing and recording of this Agreement or the other
documents to be delivered hereunder, and agrees to hold the Purchaser harmless
from and against any and all liabilities with respect to or resulting from any
delay in paying or omitting to pay such taxes and fees.

SECTION 10.6.  No Bankruptcy Petition. The Originator covenants and agrees
               ----------------------
that prior to the date which is one year and one day after the payment in full
of all Senior Indebtedness (as defined in the Originator Note) it will not
institute against, or join any other Person in instituting against, the
Purchaser or the Lender any bankruptcy, reorganization, arrangement, insolvency
or

                                      23
<PAGE>

liquidation proceedings, or other proceedings under any federal or state
bankruptcy or similar law. This Section 10.6 shall survive the termination of
                                ------------
this Agreement.

SECTION 10.7.  Acknowledgment of Assignments. The Originator hereby
               -----------------------------
acknowledges and consents to the assignment by the Purchaser of the Purchased
Assets and the rights of the Purchaser under this Agreement to the Administrator
pursuant to the Loan Agreement.  The Originator further acknowledges that, in
accordance with the terms of the Loan Agreement, the Administrator may, under
certain circumstances, exercise some or all of the rights of the Purchaser
hereunder.

SECTION 10.8.  Waiver of Setoff. Except as expressly set forth in this
               ----------------
Agreement, all payments hereunder by the Originator to the Purchaser or by the
Purchaser to the Originator shall be made without setoff, counterclaim or other
defense and each of the Purchaser and the Originator hereby waives any and all
of its rights to assert any right of setoff, counterclaim or other defense to
the making of a payment due hereunder to the Originator or the Purchaser, as the
case may be; provided, however; that, notwithstanding the foregoing, the
             --------  -------
Purchaser hereby reserves any and all of its rights to assert any such right of
setoff, counterclaim or other defense against the Originator with respect to the
Purchase Price of Receivables purchased from the Originator.

SECTION 10.9.  Severability. Wherever possible, each provision of this
               ------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under such law, such provision shall be ineffective only to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.

SECTION 10.10. Counterparts. This Agreement and any amendment or supplement
               ------------
hereto or any waiver granted in connection herewith may be executed in any
number of counterparts and by the different parties on separate counterparts and
each such counterpart shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same agreement.

SECTION 10.11. Grant of License to Use Trademarks. For the sole purpose of
               ----------------------------------
enabling the Purchaser (or its assignees) to perform the functions of servicing
and collecting the Receivables upon a Purchase Termination Event, the Originator
hereby grants to the Purchaser (or its assignees) an irrevocable, non-exclusive
license (exercisable without payment of royalty or other compensation to the
Originator) to use, license, or sublicense any copyright, trade name, trademark
or similar rights or properties now owned or hereafter acquired by the
Originator, and wherever the same may be located, and including in such license
reasonable access to all media in which any of the licensed items may be
recorded or stored and to all computer and automatic machinery software and
programs used for the compilation or printout thereof. The aforementioned
servicing and collecting functions shall be performed in accordance with
customary business practices and in a manner which will not materially adversely
affect any of such licenses or licensed items.

                                      24
<PAGE>

SECTION 10.12. Jurisdiction; Consent to Service of Process.
               -------------------------------------------

(a) The Originator and the Purchaser hereby submit to the nonexclusive
jurisdiction of any United States District Court for the Southern District of
New York and of any New York state court sitting in New York, New York for
purposes of all legal proceedings arising out of, or relating to, the
Transaction Documents or the transactions contemplated thereby. The Originator
and the Purchaser hereby irrevocably waive, to the fullest extent possible, any
objection it may now or hereafter have to the venue of any such proceeding and
any claim that any such proceeding has been brought in an inconvenient forum.
Nothing in this Section 10.12 shall affect the right of the Administrator or
                -------------
Lender to bring any action or proceeding against the Originator and the
Purchaser or its property in the courts of other jurisdictions.

(b) TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY HERETO IRREVOCABLY
WAIVES ALL RIGHT OF TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
ARISING OUT OF, OR IN CONNECTION WITH, ANY TRANSACTION DOCUMENT OR ANY MATTER
ARISING THEREUNDER.

SECTION 10.13. Third Party Beneficiaries. Each of the Secured Parties shall
               -------------------------
be third-party beneficiaries of this Agreement.

SECTION 10.14. Confirmation of Intent. It is the express intent of the
               ----------------------
parties hereto that the sale and contribution to the Purchaser pursuant to
Section 2.1 hereof of all of the Originator's right, title and interest, in, to
-----------
and under all Purchased Assets and the Contributed Receivables shall be treated
under applicable state law and Federal bankruptcy law as a sale or contribution,
as the case may be, by the Originator to the Purchaser.  However, if it is
determined contrary to the express intent of the parties that the transfer is
not a sale or contribution, as the case may be, and that all or any portion of
the assets described in Section 2.1 continue to be property of the Originator,
                        -----------
then the Originator hereby grants to the Purchaser a security interest in all of
the Originator's right, title and interest in, to and under all such assets and
this Agreement shall constitute a security agreement under applicable law. The
Originator, the Purchaser and the Administrator shall, to the extent consistent
with the Loan Agreement and this Agreement, take such action as may be necessary
to ensure that, if this Agreement were deemed to create a security interest in
the assets described in Section 2.1, such interest would be deemed to be a
                        -----------
perfected security interest of first priority under applicable law and will be
maintained as such throughout the terms of this Agreement and the Loan
Agreement.

SECTION 10.15. Confidentiality of Agreement. Unless otherwise consented to
               ----------------------------
by the Administrator, the Originator hereby agrees that it will not disclose the
contents of any Transaction Document, or any other confidential or proprietary
information furnished by the Administrator, the Lender or the Purchaser, to any
Person other than its Affiliates (which Affiliates shall have executed an
agreement satisfactory in form and in substance to the Administrator to be bound
by the provisions of this Section 10.15), auditors and attorneys or as required
                          -------------
by applicable law.

SECTION 10.16. Section and Paragraph Headings. Section and paragraph headings
               ------------------------------
used in this Agreement are provided solely for convenience of reference and
shall not affect the meaning or interpretation of any provision of this
Agreement.

                                      25
<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.

                                             DIXIE FUNDING II, INC.,
                                             as Purchaser

                                             By: /s/ Gary A. Harmon
                                                 ------------------------------
                                                Name:  Gary A. Harmon
                                                Title: President

                                             THE DIXIE GROUP, INC.,
                                             as Originator

                                             By: /s/ Gary A. Harmon
                                                 ------------------------------
                                                Name:  Gary A. Harmon
                                                Title: Vice President and
                                                       Chief Financial Officer

                                      26
<PAGE>

EXHIBIT A
---------

                                ORIGINATOR NOTE
                                ---------------

New York, New York
June 23, 2000

FOR VALUE RECEIVED, DIXIE FUNDING II, INC., a Tennessee corporation ("SPE")
                                                                      ---
promises to pay to The Dixie Group, Inc. ("Dixie") at the office of Dixie, the
                                           -----
principal sum equal to the aggregate amount due and owing to Dixie pursuant to
Section 2.3 of the Receivables Purchase Agreement as adjusted from time to time
pursuant to Sections 2.4 and 2.5 of the Receivables Purchase Agreement (as the
same may be increased or decreased from time to time), on the date which is
twelve months following the Purchase Termination Date under the Receivables
Purchase Agreement.

Section 1.01.  Receivables Purchase Agreement. This Note is an "Originator Note"
               ------------------------------
described in, and is subject to the terms and conditions set forth in, the
Receivables Purchase Agreement, dated as of June 23, 2000 (as amended,
supplemented, or otherwise modified from time to time, the "Receivables
                                                            -----------
Purchase Agreement"), between SPE, as the Purchaser, and Dixie, as Originator.
------------------
Reference is hereby made to the Receivables Purchase Agreement for a statement
of certain other rights and obligations of SPE and Dixie. In the case of any
conflict between the terms of this Note and the terms of the Receivables
Purchase Agreement, the terms of the Receivables Purchase Agreement shall
control.

Section 1.02.  Definitions.  Capitalized terms used (but not defined) herein
               -----------
have the meanings ascribed thereto in the Receivables Purchase Agreement or in
the Loan Agreement (as defined in the Receivables Purchase Agreement). In
addition, as used herein, the following terms have the following meanings:

          "Final Maturity Date" means the date that falls one year and one day
           -------------------
     after the later of (x) the Purchase Termination Date and (y) the date on
     which the principal amount of the Loans shall have been reduced to zero and
     all other amounts payable by SPE to Lender, the Administrator, the Affected
     Parties and Indemnified Parties under the Transaction Documents shall have
     been paid in full.

          "Junior Liabilities" means all obligations of SPE to Dixie under this
           ------------------
     Note.

          "Senior Agent" means the Administrator.
           ------------

          "Senior Indebtedness" means all (a) obligations of SPE under the Loan
           -------------------
     Agreement dated as of June 23, 2000 (as in effect from time to time, the
     "Loan Agreement") among SPE, Dixie, Three Pillars Funding Corporation (the
      --------------
     "Lender") and SunTrust Equitable Securities Corporation, as administrator
      ------
     (the "Administrator") and any renewal, extension, restatement or refunding
           -------------
     thereof and (b) all obligations of SPE to the Senior Interest Holders,
     howsoever created, arising or evidenced, whether direct or indirect,
     absolute or contingent, now or hereafter existing, or due or to become due
     on or before the Final Maturity Date.

          "Senior Interest Holders" means, collectively, the Senior Agent and
           -----------------------
     the Indemnified Parties.

          "Subordination Provisions" means, collectively, clauses (a) through
           ------------------------                       -----------
     (k) of Section 1.07 hereof.
     ---    ------------

          Section 1.03. Interest. Subject to the Subordination Provisions, SPE
                        --------
promises to pay interest on the aggregate unpaid principal amount of this Note
outstanding on each day at a variable rate per annum equal to the sum of the
                                           --- -----
LIBOR Rate for the applicable Due Period, plus 0.50%.

                                      A-1

<PAGE>

          Section 1.04. Interest Payment Dates. Subject to the Subordination
                        ----------------------
Provisions, SPE shall pay accrued interest on this Note on each Distribution
Date and on the Final Maturity Date (or, if any such day is not a Business Day,
the next succeeding Business Day). SPE also shall pay accrued interest on the
principal amount of each prepayment hereof on the date of each such prepayment.

          Section 1.05. Basis of Computation. Interest accrued hereunder shall
                        --------------------
be computed for the actual number of days elapsed on the basis of a 360-day
year.

          Section 1.06. Principal Payment Dates. Subject to the Subordination
                        -----------------------
Provisions, any unpaid principal of this Note shall be paid on the Final
Maturity Date (or, if such date is not a Business Day, the next succeeding
Business Day). Subject to the Subordination Provisions, the principal amount of
and accrued interest on this Note may be prepaid on any Business Day without
premium or penalty.

          Section 1.07. Subordination Provisions. SPE covenants and agrees, and
                        ------------------------
Dixie, by its acceptance of this Note, likewise covenants and agrees, that the
payment of all Junior Liabilities is hereby expressly subordinated in right of
payment to the payment and performance of the Senior Indebtedness to the extent
and in the manner set forth in the following clauses of this Section 1.07. To
                                                             ------------
the extent this Section 1.07 conflicts with the terms of the Loan Agreement, the
                ------------
terms of the Loan Agreement shall control.

          (a)  No payment or other distribution of SPE's assets of any kind or
character, whether in cash, securities, or other rights or property, shall be
made on account of this Note except to the extent such payment or other
distribution is (i) permitted under the Loan Agreement and (ii) made pursuant to
Section 1.04 or 1.06 of this Note;
------------    ----

          (b)  If an Event of Bankruptcy has occurred with respect to SPE or the
Purchase Termination Date has occurred, then the Senior Indebtedness shall first
be paid and performed in full and in cash before Dixie shall be entitled to
receive and to retain any payment or distribution in respect of the Junior
Liabilities. In order to implement the foregoing: (x) all payments and
distributions of any kind or character in respect of the Junior Liabilities to
which Dixie would be entitled except for this subsection 1.07 shall be made
                                              ---------------
directly to the Senior Agent (for the benefit of the Senior Interest Holders);
and (y) Dixie hereby irrevocably agrees that the Senior Agent, in the name of
Dixie or otherwise, may demand, sue for, collect, receive and receipt for any
and all such payments or distributions, and file, prove and vote or consent in
any such proceeding with respect to any and all claims of Dixie relating to the
Junior Liabilities, in each case until the Senior Indebtedness shall have been
paid and performed in full and in cash.

          (c)  In the event that Dixie receives any payment or other
distribution of any kind or character from SPE or from any other source
whatsoever, in respect of the Junior Liabilities, other than as expressly
permitted by the terms of this Note, such payment or other distribution shall be
received in trust for the Senior Interest Holders and shall be turned over by
Dixie to the Senior Agent (for the benefit of the Senior Interest Holders)
forthwith. All payments and distributions received by the Senior Agent in
respect

                                      A-2
<PAGE>

of this Note, to the extent received in or converted into cash, may be applied
by the Senior Agent (for the benefit of the Senior Interest Holders) first to
the payment of any and all reasonable expenses (including, without limitation,
reasonable attorneys' fees and other legal expenses) paid or incurred by the
Senior Agent or the Senior Interest Holders in enforcing these Subordination
Provisions, or in endeavoring to collect or realize upon the Junior Liabilities,
and any balance thereof shall, solely as between Dixie and the Senior Interest
Holders, be applied by the Senior Agent toward the payment of the Senior
Indebtedness in a manner determined by the Senior Agent to be in accordance with
the Loan Agreement; but as between the Purchaser and its creditors, no such
payments or distributions of any kind or character shall be deemed to be
payments or distributions in respect of the Senior Indebtedness.

          (d)  Upon the final payment in full and in cash of all Senior
Indebtedness, Dixie shall be subrogated to the rights of the Senior Interest
Holders to receive payments or distributions from SPE that are applicable to the
Senior Indebtedness until the Junior Liabilities are paid in full.

          (e)  These Subordination Provisions are intended solely for the
purpose of defining the relative rights of Dixie, on the one hand, and the
Senior Interest Holders, on the other hand. Nothing contained in the
Subordination Provisions or elsewhere in this Note is intended to or shall
impair, as between SPE, its creditors (other than the Senior Interest Holders)
and Dixie, SPE's obligation, which is unconditional and absolute, to pay the
Junior Liabilities as and when the same shall become due and payable in
accordance with the terms hereof and of the Receivables Purchase Agreement or to
affect the relative rights of Dixie and creditors of SPE (other than the Senior
Interest Holders).

          (f)  Dixie shall not, until the Senior Indebtedness have been finally
paid and performed in full and in cash, (i) cancel, waive, forgive, transfer or
assign, or commence legal proceedings to enforce or collect, or subordinate to
any obligation of SPE, howsoever created, arising or evidenced, whether direct
or indirect, absolute or contingent, or now or hereafter existing, or due or to
become due, other than the Senior Indebtedness, the Junior Liabilities, or any
rights in respect thereof or (ii) convert the Junior Liabilities into an equity
interest in the  Purchaser, unless, in the case of each of clauses (i) and (ii)
                                                           -----------     ----
above, Dixie shall have received the prior written consent of the Senior Agent
in each case.

          (g)  Dixie shall not, without the advance written consent of the
Senior Agent, commence, or join with any other Person in commencing, any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings,
or other proceedings under any federal or state bankruptcy or similar law, with
respect to SPE until at least one year and one day shall have passed since the
Senior Indebtedness shall have been finally paid and performed in full and in
cash.

          (h)  If, at any time, any payment (in whole or in part) made with
respect to any Senior Indebtedness is rescinded or must be restored or returned
by a Senior Interest Holder (whether in connection with any Event of Bankruptcy
or otherwise), these Subordination Provisions shall continue to be effective or
shall be reinstated, as the case

                                      A-3
<PAGE>

may be, as though such payment had not been made.

          (i)  Each of the Senior Interest Holders may, from time to time, to
the extent consistent with the Transaction Documents, at its sole discretion,
without notice to Dixie, and without waiving any of its rights under these
Subordination Provisions, take any or all of the following actions: (i) retain
or obtain an interest in any property to secure any of the Senior Indebtedness;
(ii) retain or obtain the primary or secondary obligations of any other obligor
or obligors with respect to any of the Senior Indebtedness; (iii) extend or
renew for one or more periods (whether or not longer than the original period),
alter or exchange any of the Senior Indebtedness, or release or compromise any
obligation of any nature with respect to any of the Senior Indebtedness; (iv)
amend, supplement, or otherwise modify any Transaction Document; and (v) release
its security interest in, or surrender, release or permit any substitution or
exchange for all or any part of any rights or property securing any of the
Senior Indebtedness, or extend or renew for one or more periods (whether or not
longer than the original period), or release, compromise, alter or exchange any
obligations of any nature of any obligor with respect to any such rights or
property.

          (j)  Dixie hereby waives:  (i) notice of acceptance of these
Subordination Provisions by any of the Senior Interest Holders; (ii) notice of
the existence, creation, non-payment or non-performance of all or any of the
Senior Indebtedness; and (iii) all diligence in enforcement, collection or
protection of, or realization upon the Senior Indebtedness, or any thereof, or
any security therefor.

          (k)  These Subordination Provisions constitute a continuing offer from
SPE to all Persons who become the holders of, or who continue to hold, Senior
Indebtedness; and these Subordination Provisions are made for the benefit of the
Senior Interest Holders, and the Senior Agent may proceed to enforce such
provisions on behalf of each of such Persons.

          Section 1.08. Amendments, Etc. No failure or delay on the part of
                        ---------------
Dixie in exercising any power or right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such power or right
preclude any other or further exercise thereof or the exercise of any other
power or right.  No amendment, modification or waiver of, or consent with
respect to, any provision of this Note shall in any event be effective unless
(a) the same shall be in writing and signed and delivered by SPE and Dixie, and
(b) all consents required for such actions under the Transaction Documents shall
have been received by the appropriate Persons.

          Section 1.09. Limitation on Interest. Notwithstanding anything in this
                        ----------------------
Note to the contrary, SPE shall never be required to pay unearned interest on
any amount outstanding hereunder, and shall never be required to pay interest on
the principal amount outstanding hereunder, at a rate in excess of the maximum
interest rate that may be contracted for, charged or received without violating
applicable federal or state law.

          Section 1.10. No Negotiation. This Note is not negotiable.
                        --------------

                                      A-4
<PAGE>

          Section 1.11. Governing Law. THIS NOTE SHALL GOVERNED BY, AND
                        -------------
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF TENNESSEE.

          Section 1.12. Captions. Paragraph captions used in this Note are
                        --------
provided solely for convenience of reference only and shall not affect the
meaning or interpretation of any provision of this Note.

                                      A-5
<PAGE>

     IN WITNESS WHEREOF, the undersigned has caused this Note to be executed by
its officer thereunto duly authorized on the date first above written.

                            DIXIE FUNDING II, INC.

                            By: /s/ Gary A. Harmon
                                --------------------
                            Name:  Gary A. Harmon
                            Title: President

                                      A-6
<PAGE>

                                                                      SCHEDULE I
                                                                      ----------

                      OFFICES WHERE BOOKS, RECORDS, ETC.
                        EVIDENCING RECEIVABLES ARE KEPT
<PAGE>

                                                                     SCHEDULE II
                                                                     -----------

                              LIST OF TRADE NAMES
<PAGE>

                                                                    SCHEDULE III
                                                                    ------------

                       AUTHORIZED OFFICERS OF ORIGINATOR<PAGE>

                                                                    EXHIBIT 10.2

                                LOAN AGREEMENT

                           dated as of June 23, 2000

                                     among

                            DIXIE FUNDING II, INC.

                                  as Borrower

                                      and

                            THE DIXIE GROUP, INC.,

                                  as Servicer

                                      and

                      THREE PILLARS FUNDING CORPORATION,

                                   as Lender

                                      and

                  SUNTRUST EQUITABLE SECURITIES CORPORATION,

                               as Administrator

<PAGE>

                               TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
    <S>                                                                     <C>
                              ARTICLE I DEFINITION

     Section 1.1  Defined Terms                                               1
     Section 1.2  Other Definitional Provisions                              20
     Section 1.3  Other Terms                                                21
     Section 1.4  Computation of Time Periods                                21

         ARTICLE II THE LENDER'S COMMITMENT, BORROWING PROCEDURES AND
                                  LENDER NOTE

     Section 2.1  Lender's Commitment                                        21
     Section 2.2  Borrowing Procedures                                       21
     Section 2.3  Funding                                                    21
     Section 2.4  Representation and Warranty                                22
     Section 2.5  Early Termination of Lender's Commitment                   22
     Section 2.6  Voluntary Termination of Lender's Commitment;Reduction of
                    Facility Limit                                           22
     Section 2.7  Note                                                       22

                        ARTICLE III INTEREST, FEES, ETC.

     Section 3.1  Interest Rates                                             23
     Section 3.2  Interest Payment Dates                                     23
     Section 3.3  Interest Allocations                                       24
     Section 3.4  Fees                                                       24
     Section 3.5  Computation of Interest and Fees                           24

       ARTICLE IV REPAYMENTS AND PREPAYMENTS; DISTRIBUTION OF COLLECTIONS

     Section 4.1  Repayments and Prepayments                                 24
     Section 4.2  Application of Collections                                 25
     Section 4.3  Application of Certain Payments                            26
     Section 4.4  Due Date Extension                                         27
     Section 4.5  Making of Payments                                         27
     Section 4.6  Dilution Cash Reserve Account                              27

                           ARTICLE V SECURITY INTEREST

     Section 5.1  Grant of Security                                          28
     Section 5.2  Administrator Appointed Attorney-in-Fact                   29
     Section 5.3  Administrator May Perform                                  29
     Section 5.4  Release of Collateral                                      29

                        ARTICLE VI INCREASED COSTS, ETC.

     Section 6.1  Increased Costs                                            30
     Section 6.2  Funding Losses                                             31
</TABLE>

                                       i
<PAGE>

<TABLE>
     <S>                                                                    <C>
     Section 6.3  Withholding Taxes                                          31

                       ARTICLE VII CONDITIONS TO BORROWING

     Section 7.1   Initial Loan                                              32
     Section 7.2   All Loans                                                 34

                   ARTICLE VIII REPRESENTATIONS AND WARRANTIES

     Section 8.1   Organization and Good Standing, etc.                      35
     Section 8.2   Power and Authority; Due Authorization                    35
     Section 8.3   No Violation                                              35
     Section 8.4   Validity and Binding Nature                               36
     Section 8.5   Government Approvals                                      36
     Section 8.6   Solvency                                                  36
     Section 8.7   Margin Regulations                                        36
     Section 8.8   Quality of Title                                          36
     Section 8.9   Offices                                                   37
     Section 8.10  Compliance with Applicable Laws; Licenses, etc.           37
     Section 8.11  No Proceedings                                            37
     Section 8.12  Investment Company Act, Etc.                              38
     Section 8.13  Eligible Receivables                                      38
     Section 8.14  Accuracy of Information                                   38
     Section 8.15  No Material Adverse Change                                39
     Section 8.16  Trade Names and Subsidiaries                              39
     Section 8.17  Accounts                                                  39
     Section 8.18  Sales by Originator                                       39

                  ARTICLE IX COVENANTS OF BORROWER AND SERVICER

     Section 9.1   Affirmative Covenants                                     40
     Section 9.2   Negative Covenants of Borrower                            46

                  ARTICLE X SIGNIFICANT EVENTS AND THEIR EFFECT

     Section 10.1  Events of Default                                         48
     Section 10.2  Amortization Events                                       49
     Section 10.3  Effect of Significant Event                               50

                             ARTICLE XI THE SERVICER

     Section 11.1  Dixie as Initial Servicer                                 50
     Section 11.2  Certain Duties of Servicer                                50
     Section 11.3  Servicing Compensation                                    54
     Section 11.4  Agreement Not to Resign                                   54
     Section 11.5  Designation of Servicer                                   54
     Section 11.6  Termination                                               54
     Section 11.7  Servicer Events of Default                                55

                            ARTICLE XII ADMINISTRATOR

     Section 12.1  Authorization and Action                                  56
</TABLE>

                                      ii
<PAGE>

<TABLE>
     <S>                                                                    <C>
     Section 12.2  Administrator and Affiliates                              56

                            ARTICLE XIII ASSIGNMENTS

     Section 13.1  Restrictions on Assignments                               56
     Section 13.2  Documentation                                             57
     Section 13.3  Rights of Assignee                                        57
     Section 13.4  Notice of Assignment                                      57

                           ARTICLE XIV INDEMNIFICATION

     Section 14.1  General Indemnity of Borrower                             58
     Section 14.2  Indemnity of Servicer                                     58

                            ARTICLE XV MISCELLANEOUS

     Section 15.1   No Waiver; Remedies                                      58
     Section 15.2   Amendments, Etc.                                         59
     Section 15.3   Notices, Etc.                                            59
     Section 15.4   Costs, Expenses and Taxes                                59
     Section 15.5   Binding Effect; Survival                                 60
     Section 15.6   Captions and Cross References                            60
     Section 15.7   Severability                                             60
     Section 15.8   Governing Law                                            61
     Section 15.9   Counterparts                                             61
     Section 15.10  Submission to Jurisdiction; Waiver of Trial by Jury      61
     Section 15.11  No Recourse Against Lender                               61
     Section 15.12  No Proceedings                                           61
     Section 15.13  Confidentiality of Agreement                             62
     Section 15.14  ENTIRE AGREEMENT                                         62
</TABLE>

EXHIBIT A      Form of Borrowing Request (Section 2.2)
EXHIBIT B      Form of Lender Note (Section 2.7)
EXHIBIT C      Form of Monthly Report (Section 9.1.9(c))
EXHIBIT D      Form of Borrowing Base Certificate (Section 7.1.11)
EXHIBIT E      Form of Collection Account Agreement
EXHIBIT F      Form of LockBox Account Agreement
EXHIBIT G      Form of Originator Note

SCHEDULE I     Fiscal Months
SCHEDULE II    List of Collection Account and LockBox Accounts
SCHEDULE III   Summary of Collection Policy
SCHEDULE IV    Form of Contract
SCHEDULE 8.11  Description of Proceedings
SCHEDULE 9.1.5 Collateral Review Requirements
SCHEDULE 9.2.6 Locations of Documents
SCHEDULE 15.3  Notice Addresses

                                      iii
<PAGE>

                                LOAN AGREEMENT

     THIS LOAN AGREEMENT is made and entered into as of June 23, 2000, among
DIXIE FUNDING II, INC., a Tennessee corporation ("Borrower"), THE DIXIE GROUP,
                                                  --------
INC., a Tennessee corporation ("Dixie"), as initial servicer (in such capacity,
                                -----
the "Servicer"), THREE PILLARS FUNDING CORPORATION, a Delaware corporation
     --------
(together with its successors and permitted assigns, "Lender"), and SUNTRUST
                                                      ------
EQUITABLE SECURITIES CORPORATION, a Tennessee corporation, as agent and
administrator for Lender (in such capacity, together with its successor and
assigns in such capacity, the "Administrator").
                               -------------

                                  BACKGROUND
                                  ----------

     1.   Borrower desires that Lender extend financing to Borrower on the terms
and subject to the conditions set forth herein.

     2.   Lender is willing to provide such financing on the terms and subject
to the conditions set forth in this Agreement.

     NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the parties hereto agree as follows:

                                   ARTICLE I

                                  DEFINITIONS

     Section 1.1 Defined Terms. As used in this Agreement, the following terms
                 -------------
have the following meanings:

     "Accounts Receivable Turnover Ratio" means with respect to any Due Period,
      ----------------------------------
the ratio computed as of the last day of such Due Period by dividing (a) the
aggregate amount of Sales during the most recent twelve Due Periods by (b) the
rolling twelve month average of the aggregate Unpaid Balance of Receivables.

     "Administrator" has the meaning set forth in the Preamble.
      -------------                                   --------

     "Administrator's Account" has the meaning set forth in Section 4.5.
      -----------------------                               -----------

     "Advance Rate" means the percentage equal to (a) 100% minus (b) the Reserve
      ------------                                         -----
Percentage.

     "Adverse Claim" means a lien, security interest, pledge, charge or
      -------------
encumbrance, or similar right or claim of any Person.

                                       1
<PAGE>

     "Affected Party" means each of Lender, any Liquidity Bank, any permitted
      --------------
assignee of Lender or any Liquidity Bank, any Support Provider and any holder of
a participation interest in the rights and obligations of any Liquidity Bank or
Credit Bank under the Liquidity Agreement or the Credit Agreement, as the case
may be, Administrator and any holding company of Bank.

     "Affiliate" of any Person means any other Person that (i) directly or
      ---------
indirectly controls, is controlled by or is under common control with such
Person or (ii) is an officer or director of such Person. A Person shall be
deemed to be "controlled by" another Person if such other Person possesses,
directly or indirectly, power (a) to vote 5% or more of the securities (on a
fully diluted basis) having ordinary voting power for the election of directors
or managing partners of such other Person, or (b) to direct or cause the
direction of the management and policies of such other Person whether by
contract or otherwise. The word "Affiliated" has a correlative meaning.
                                 ----------

     "Aggregate Unpaid Balance" means, at any time, the aggregate Unpaid Balance
      ------------------------
of all Eligible Receivables at such time.

     "Agreement" means this Loan Agreement, as it may be amended, supplemented
      ---------
or otherwise modified from time to time in accordance with the terms hereof.

     "Allocations" has the meaning set forth in Section 3.3.
      -----------                               -----------

     "Alternative Rate" means, for any Interest Period, an interest rate per
      ----------------                                                   ---
annum equal to either (a) the LIBOR Rate or (b) if the LIBOR Rate is unavailable
-----
for any reason, or there is less than two (2) Business Days prior notice to the
Liquidity Banks of any funding by them, the Base Rate.

     "Alternative Rate Allocation" has the meaning set forth in Section 3.3.
      ---------------------------                               -----------

     "Amortization Event" means any of the events described in Section 10.2.
      ------------------                                       ------------

     "Applicable Margin" has the meaning set forth in the Fee Letter.
      -----------------

     "Bank" means SunTrust Bank, a Georgia banking corporation.
      ----

     "Bankruptcy Code" means the Bankruptcy Code, 11 U.S.C. (S) 101, et seq., as
      ---------------                                                -- ---
amended.

     "Base Rate" means, on any date, a fluctuating rate of interest per annum
      ---------                                                     --- -----
equal to the higher of:

          (a)  the Prime Rate; or

          (b)  the Federal Funds Rate (as defined below) most recently
               determined by Bank plus 0.50% per annum.
                                             --- -----

                                       2
<PAGE>

     "Borrower" has the meaning set forth in the Preamble.
      --------                                   --------

     "Borrowing Base" means at any time an amount equal to (1) the Advance Rate
      --------------
times (2) an amount equal to (a) the Aggregate Unpaid Balance at such time,
-----
minus (b) the aggregate Excess Concentration Amount for all Obligors at such
-----
time.

     "Borrowing Base Certificate" has the meaning set forth in Section 7.1.11.
      --------------------------                               --------------

     "Borrowing Base Deficit" means an amount equal to the excess of (x) the
      ----------------------
aggregate principal amount of all outstanding Loans under the Lender Note over
                                                                          ----
(y) the sum of the Borrowing Base plus all Collections on deposit in the
Collection Account.

     "Borrowing Request" has the meaning set forth in Section 2.2.
      -----------------                               -----------

     "Business Day" means any day on which (a) Bank is not authorized or
      ------------
required to be closed for business in Atlanta, Georgia and (b) commercial banks
in New York City are not authorized or required to be closed and, in the case of
a Rate Setting Date, banks are open for business in London, England.

     "Charge-Offs" means all Receivables not previously deemed a Defaulted
      -----------
Receivable that are written-off by the Servicer or should, in accordance with
the Collection Policy, be written off.

     "Closing Date" means the date of the first Loan hereunder.
      ------------

     "Collateral" has the meaning set forth in Section 5.1(a).
      ----------                               --------------

     "Collateral Review" has the meaning set forth in Section 9.1.5(e).
      -----------------                               ----------------

     "Collection Account" means that certain bank account numbered 8800 296 280
      ------------------
maintained with SunTrust Bank, which is identified as "Dixie Funding II
Collection Account", in the Borrower's name and pledged, on a first-priority
basis, to the Administrator pursuant to Section 5.1(a).
                                        --------------

     "Collection Account Agreement" means an agreement by and among the
      ----------------------------
Borrower, the Administrator and Collection Account Bank, in substantially the
form attached hereto as Exhibit E, specifying the rights of the Lender and the
                        ---------
Administrator in the Collection Account.

     "Collection Account Bank" means the bank holding the Collection Account.
      -----------------------

     "Collection Policy" means those collection and credit policies of Dixie
      -----------------
with respect to the Receivables on file with the Servicer, as amended from time
to time in accordance with this Agreement.

                                       3
<PAGE>

     "Collections" means (i) all payments received in respect of the
      -----------
Receivables, in the form of cash, checks, wire transfers, ACH transfers or any
other form of payment in accordance with the terms of a Receivable or otherwise,
(ii) all proceeds from the sale or other disposition of any collateral securing
a Receivable, (iii) any Repurchase Amounts, (iv) any insurance proceeds or sales
tax refund payments received in respect of a Receivable and (v) any
indemnification, recourse payments or other amounts payable to the Borrower or
any Originator in respect of a Receivable pursuant to this Agreement, the
Receivables Purchase Agreement, the First Tier Purchase Agreement or otherwise.

     "Commercial Paper Notes" means short-term promissory notes issued by Lender
      ----------------------
to fund its Loans or investments in receivables or other financial assets.

     "Commercial Paper Rate" means, for any Interest Period for the related
      ---------------------
Loan, a rate per annum equal to the sum of (i) the rate or, if more than one
             --- -----
rate, the weighted average of the rates, determined by converting to an
interest-bearing equivalent rate per annum the discount rate (or rates) at which
                                 --- -----
Commercial Paper Notes outstanding during such Interest Period have been or may
be sold by any placement agent or commercial paper dealer selected by
Administrator, plus (ii) the commissions and charges charged by such placement
               ----
agent or commercial paper dealer with respect to such Commercial Paper Notes,
expressed as a percentage of the face amount thereof and converted to an
interest-bearing equivalent rate per annum.
                                 --- -----

     "Commitment Termination Date" means the earliest to occur of (i) the
      ---------------------------
Scheduled Commitment Termination Date, (ii) the date of any termination of the
Lender's Commitment pursuant to Section 2.5, (iii) the date of any termination
                                -----------
of the Lender's Commitment, in whole, by Borrower pursuant to Section 2.6, and
                                                              -----------
(iv) the effective date on which the Lender's Commitment is terminated pursuant
to Section 10.3.
   ------------

     "Concentration Limit" means for any Obligor whose long term unsecured
      -------------------
credit rating is (a) greater than AA+ by S&P and Aa1 by Moody's, 12.0% of the
Aggregate Unpaid Balance; (b) greater than or equal to AA- by S&P and A3 by
Moody's and less than or equal to AA+ by S&P or Aa1 by Moody's, 10.0% of the
Aggregate Unpaid Balance; (c) greater than or equal to A- by S&P and Aa2 by
Moody's and less than or equal to A+ by S&P or A1 by Moody's, 8% of the
Aggregate Unpaid Balance; (d) greater than or equal to BBB by S&P and Baa2 by
Moody's and less than or equal to BBB+ by S&P or Baal by Moody's, 5% of the
Aggregate Unpaid Balance, or (e) less than BBB by S&P or Baa2 by Moody's, 3% of
the Aggregate Unpaid Balance; provided however, that should an Obligor not
                              -------- -------
included under item (a) above have a short term unsecured credit rating by S&P
and Moody's of A-1+/P-1, then such Obligor's Concentration Limit will be 12.0%
of the Aggregate Unpaid Balance; and, provided, further that if an Obligor is
                                      --------  -------
rated by only one of S&P and Moody's, such one rating shall control.

     "Consolidated Tangible Net Worth" means at any date, with respect to any
      -------------------------------
Person, the consolidated stockholders' equity of such Person and its
consolidated Subsidiaries, plus the principal amount of subordinated debt of
                           ----
such Person, minus (to the extent reflected in determining such consolidated
             -----
stockholders' equity) all intangible

                                       4
<PAGE>

assets (determined in accordance with GAAP) as reported in the audited
consolidated financial statements of such Person for the fiscal year in
question.

     "Contract" means either a written agreement between an Originator and a
      --------
Person, or an invoice, pursuant to which such Person is obligated to pay for
goods, merchandise and/or services.

     "Covered Taxes" has the meaning set forth in Section 6.3.
      -------------                               -----------

     "CP Allocation" has the meaning set forth in Section 3.3.
      -------------                               -----------

     "Credit Advance" means a drawing under a letter of credit issued pursuant
      --------------
to a Credit Agreement for the account of Lender, a loan to Lender under a Credit
Agreement or any other advance or disbursement of funds to Lender or for
Lender's account pursuant to a Credit Agreement or any such letter of credit, in
each case to the extent such drawing, loan, advance or disbursement has not been
repaid or reimbursed to Credit Bank in accordance with the related Credit
Agreement.

     "Credit Agreement" means and includes any program-wide agreement entered
      ----------------
into by any Credit Bank providing for the issuance of one or more letters of
credit for the account of Lender, the issuance of one or more surety bonds for
which Lender is obligated to reimburse the applicable Credit Bank for any
drawings hereunder, the sale by Lender to any Credit Bank of receivables or
other financial assets owned or held by Lender (or portions thereof) and/or the
making of loans and/or other extensions of credit to Lender in connection with
its commercial paper program, together with any cash collateral agreement,
letter of credit, surety bond or other agreement or instrument executed and
delivered in connection therewith (but excluding the Liquidity Agreement, or
similar agreement, or any voluntary advance agreement).

     "Credit Bank" means and includes Bank and any other or additional bank or
      -----------
other Person (other than Borrower or other customer of Lender or any liquidity
provider as such) now or hereafter extending credit or a purchase commitment to
or for the account of Lender or issuing a letter of credit, surety bond or other
instrument, in each case to support any obligations arising under or in
connection with Lender's commercial paper program.

     "Credit Sales" means for any Due Period, the aggregate amount of all trade
      ------------
receivables with credit terms of any kind originated by an Originator during
such Due Period.

     "Cut-Off Date" means June 3, 2000.
      ------------

     "Date of Processing" means, with respect to any transaction, the date on
      ------------------
which such transaction is first recorded in an Originator's computer files
(without regard to the effective date of such recordation).

                                       5
<PAGE>

     "Days Sales Outstanding Ratio" means with respect to any Due Period, the
      ----------------------------
ratio computed as of the last day of such Due Period by dividing (a) 360 by (b)
the Accounts Receivable Turnover Ratio for such Due Period.

     "Debt" of any Person means, without duplication, (i) all indebtedness of
      ----
such Person for borrowed money, (ii) all indebtedness of such Person for the
deferred purchase price of property or services (other than property and
services purchased, and expense accruals and deferred compensation items
arising, in the ordinary course of business), (iii) all obligations of such
Person evidenced by notes, bonds, debentures or other similar instruments (other
than performance, surety and appeal bonds arising in the ordinary course of
business), (iv) all indebtedness of such Person created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to repossession
or sale of such property), (v) all obligations of such Person under leases which
have been or should be, in accordance with GAAP, recorded as capital leases, to
the extent required to be so recorded, (vi) all reimbursement, payment or
similar obligations of such Person, contingent or otherwise, under acceptance,
letter of credit or similar facilities (other than letters of credit in support
of trade obligations or in connection with workers' compensation, unemployment
insurance, old-age pensions and other social security benefits in the ordinary
course of business), (vii) all net obligations of such Person in respect of
interest rate swap, cap, collar, swaption, option or similar agreements, (viii)
all obligations arising in connection with a sale or other transfer of any of
such Person's financial assets which are, or are intended to be, classified as
loans for federal tax purposes, (ix) all Debt referred to in clauses (i) through
                                                             -----------
(viii) above guaranteed directly or indirectly by such Person, or in effect
------
guaranteed directly or indirectly by such Person through an agreement (A) to pay
or purchase such Debt or to advance or supply funds for the payment or purchase
of such Debt, (B) to purchase, sell or lease (as lessee or lessor) property, or
to purchase or sell services, primarily for the purpose of enabling the debtor
to make payment of such Debt or to assure the holder of such Debt against loss
in respect of such Debt, (C) to supply funds to or in any other manner invest in
the debtor (including any agreement to pay for property or services irrespective
of whether such property is received or such services are rendered) or (D)
otherwise to assure a creditor against loss in respect of such Debt, and (x) all
Debt referred to in clauses (i) through (viii) above secured by (or for which
                    -----------         ------
the holder of such Debt has an existing right, contingent or otherwise, to be
secured by) any lien, security interest or other charge or encumbrance upon or
in property (including, without limitation, accounts and contract rights) owned
by such Person, even though such Person has not assumed or become liable for the
payment of such Debt.

     "Default Rate" has the meaning set forth in Section 3.1(c).
      ------------                               --------------

     "Default Ratio" means, with respect to any Due Period, the ratio (expressed
      -------------
as a percentage) computed as of the last day of such Due Period, by dividing (a)
the sum of, without double counting (i) the Unpaid Balance of Receivables that
became Defaulted Receivables during such Due Period and (ii) the Unpaid Balance
of Receivables that

                                       6
<PAGE>

became Charge-Offs during such Due Period by (b) Sales for the Due Period four
months prior to such Due Period.

     "Defaulted Receivable" means any Receivable (i) which has been, or should
      --------------------
have been, written off as uncollectible by the Servicer in accordance with the
Collection Policy, (ii) as to which, at the end of any Due Period, any payment,
or part thereof, remains unpaid for 91 days or more past the due date for such
payment, determined by reference to the original contractual payment terms of
such Receivable or (iii) as to which the Obligor thereon has suffered an Event
of Bankruptcy.

     "Delinquency Ratio" means, with respect to any Due Period, the ratio
      -----------------
(expressed as a percentage) computed as of the last day of such Due Period, by
dividing (i) the Unpaid Balance of Receivables which are Delinquent Receivables
as of the last day of such Due Period by (ii) an amount equal to the aggregate
Unpaid Balance of all Eligible Receivables as of the last day of such Due
Period, minus the aggregate Excess Concentration Amount as of the last day of
        -----
such Due Period.

     "Delinquent Receivables" means a Receivable (other than a Defaulted
      ----------------------
Receivable) as to which all or any part of a scheduled payment remains unpaid
for 31 days or more from the original due date for such payment.

     "Deposit Date" has the meaning set forth in Section 11.2(d).
      ------------                               ---------------

     "Determination Date" means, with respect to a Distribution Date, the last
      ------------------
day of the month immediately preceding such Distribution Date.

     "Dilution Cash Reserve" means, as of any date, an amount equal to the funds
      ---------------------
on deposit in the Dilution Cash Reserve Account at such time.

     "Dilution Cash Reserve Account" means that certain bank account designated
      -----------------------------
as the Dilution Cash Reserve Account maintained with SunTrust Bank, in the
Borrower's name and pledged, on a first priority basis, to the Administrator
pursuant to Section 5.1(a).
            --------------

     "Dilution Horizon Ratio" means, with respect to any Due Period, the ratio
      ----------------------
computed as of the last day of such Due Period by dividing (a) Sales for such
Due Period by (b) an amount equal to the aggregate Unpaid Balance of all
Eligible Receivables as of the last day of such Due Period, minus the aggregate
                                                            -----
Excess Concentration Amount as of the last day of such Due Period.

     "Dilution Ratio" means, with respect to any Due Period, the ratio
      --------------
(expressed as a percentage) computed as of the last day of such Due Period, by
dividing (a) the positive difference, if any, between (x) Gross Dilutions for
such Due Period less (y) the Dilution Cash Reserve, by (b) Sales for the Due
Period one month prior to such Due Period.

     "Dilution Reserve" means, with respect to any Due Period the product of (a)
      ----------------
the sum of (i) the product of (x) the Stress Factor times (y) the Expected
                                                    -----
Dilution Ratio plus
               ----

                                       7
<PAGE>

(ii) the product of (x) the positive difference, if any, between (1) the
Dilution Spike Rate less (2) the Expected Dilution Ratio times (y) a ratio
                                                         -----
computed by dividing (1) the Dilution Spike Rate by (2) the Expected Dilution
Ratio times (b) the Dilution Horizon Ratio.
      -----

     "Dilution Spike Rate" means, with respect to any Due Period, the highest
      -------------------
Dilution Ratio over the most recent twelve-month period.

     "Distribution Date" means the 20th day of each month (beginning in the
      -----------------
month immediately following the month in which the initial Loan is made
hereunder) or, if such day is not a Business Day, the Business Day immediately
thereafter.

     "Dixie" means, The Dixie Group, Inc., a Tennessee corporation.
      -----

     "Documents" means all documentation relating to the Receivables including,
      ---------
without limitation, the Contracts, billing statements and computer records and
programs.

     "Dollar(s)" and the sign "$" shall mean lawful money of the United States
      ---------                -
of America.

     "Due Period" means a Fiscal Month.
      ----------

     "Eligible Receivable" means each Receivable:
      -------------------

          (a)  that was created in compliance, in all material respects, with
     the Collection Policy in the regular and ordinary course of the business of
     the related Originator;

          (b)  that was created pursuant to a Contract that complies, in all
     material respects, with Dixie's standard administration and documentation
     policies and procedures;

          (c)  that was not, as of the date such Receivable was transferred to
     the Borrower by Dixie, a Delinquent Receivable;

          (d)  that is not a Defaulted Receivable;

          (e)  as to which, at the time of the sale of such Receivable to
     Borrower, Dixie was the sole owner thereof and had good and marketable
     title thereto, free and clear of all Liens and Adverse Claims, and which
     was sold or contributed to Borrower pursuant to the Receivables Purchase
     Agreement;

          (f)  if such Receivable was originated by an Originator other than
     Dixie, which was sold to Dixie pursuant to the First Tier Purchase
     Agreement;

                                       8
<PAGE>

          (g)  the assignment of which by the related Originator (if other than
     Dixie) to Dixie pursuant to the First Tier Purchase Agreement, and by Dixie
     to Borrower pursuant to the Receivables Purchase Agreement does not
     contravene or conflict with any law, rule or regulation or any contractual
     or other restriction, limitation or encumbrance, and the sale or assignment
     of which does not require the consent of the Obligor thereof;

          (h)  which is denominated and payable in Dollars and is only payable
     in the United States of America;

          (i)  the Obligor of which is a United States or Canadian resident;
     provided that the Unpaid Balance of Eligible Receivables which have
     --------
     Canadian residents as Obligors may not exceed 5.0% of the Aggregate Unpaid
     Balance of all Eligible Receivables;

          (j)  the Obligor of which is not an officer, director or Affiliate of
     any Originator or a Governmental Authority;

          (k)  that arises under a Contract which has been duly authorized and
     which, together with such Receivable, is in full force and effect and such
     Contract, together with such Receivable, constitutes the legal, valid and
     binding payment obligation of the Obligor with respect thereto, enforceable
     against such Obligor in accordance with its terms and is not subject to any
     right of rescission, setoff, counterclaim or defense (including the defense
     of usury) or to any repurchase obligation or return right;

          (l)  that does not contravene any applicable requirements of law
     (including without limitation all laws, rules and regulations relating to
     truth in lending, fair credit billing, fair credit reporting, fair debt
     collection practices and privacy) and which complies with all applicable
     requirements of law and with respect to which all consents, licenses,
     approvals or authorizations of, or registrations or declarations with, any
     governmental authority required to be obtained, effected or given by the
     related Originator in connection with the creation or the execution,
     delivery and performance of such Receivable, have been duly obtained,
     effected or given and are in full force and effect;

          (m)  that complies with all applicable requirements of the Collection
     Policy;

          (n)  as to which each of the Borrower's and the Administrator's (for
     the benefit of the Secured Parties) first priority security interest in
     such Receivable has been perfected under the applicable Uniform Commercial
     Code and other applicable laws;

          (o)  as to which the Servicer is in possession of the related
     Receivable File;

                                       9
<PAGE>

          (p)  which provides for repayment in full of the Unpaid Balance
     thereof within 31 days of the date of the creation thereof; provided, that
                                                                 --------
     the Unpaid Balance thereof may have a maximum term in excess of 31 days,
     but in no case greater than 120 days, so long as (1) the aggregate Unpaid
     Balance of all such Receivables at any time does not exceed 15% of the
     Aggregate Unpaid Balance at such time and (2) the aggregate Unpaid Balance
     that have a maximum term in excess of 90 days at any time does not exceed
     3% of the Aggregate Unpaid Balance at such time;

          (q)  the terms of which have not been modified or waived except as
     permitted under the Collection Policy and this Agreement; and

          (r)  which constitutes an "account" or "chattel paper" under and as
     defined in Article 9 of the Uniform Commercial Code of all applicable
     jurisdictions.

     "Event of Bankruptcy" shall be deemed to have occurred with respect to a
      -------------------
Person if either:

          (a)  a case or other proceeding shall be commenced, without the
     application or consent of such Person, in any court, seeking the
     liquidation, reorganization, debt arrangement, dissolution, winding up, or
     composition or readjustment of debts of such Person, the appointment of a
     trustee, receiver, custodian, liquidator, assignee, sequestrator or the
     like for such Person or all or substantially all of its assets, or any
     similar action with respect to such Person under any law relating to
     bankruptcy, insolvency, reorganization, winding up or composition or
     adjustment of debts; or an order for relief in respect of such Person shall
     be entered in an involuntary case under the federal bankruptcy laws or
     other similar laws now or hereafter in effect; or

          (b)  such Person shall commence a voluntary case or other proceeding
     under any applicable bankruptcy, insolvency, reorganization, debt
     arrangement, dissolution or other similar law now or hereafter in effect,
     or shall consent to the appointment of or taking possession by a receiver,
     liquidator, assignee, trustee, custodian, sequestrator (or other similar
     official) for such Person or for any substantial part of its property, or
     shall make any general assignment for the benefit of creditors, or shall
     fail to, or admit in writing its inability to, pay its debts generally as
     they become due, or, if a corporation or similar entity, its board of
     directors shall vote to implement any of the foregoing.

     "Event of Default" means any of the events described in Section 10.1.
      ----------------                                       ------------

     "Excess Concentration Amount" at any time means with respect to any
      ---------------------------
Obligor, the amount, if any, by which the aggregate Unpaid Balance of all
Eligble Receivables of such Obligor exceeds the Concentration Limit for such
Obligor, in each case, at such time.

                                      10
<PAGE>

     "Expected Dilution Ratio" means, with respect to any Due Period, the
      -----------------------
rolling twelve-month average Dilution Ratio for the most recently ended twelve-
month period.

     "Facility Limit" has the meaning set forth in Section 2.1.
      --------------                               -----------

     "Factoring Contract" means the Factoring Contract and Security Agreement,
      ------------------
dated as of February 26, 1999, between Dixie and GE Factors.

     "Federal Funds Rate" means, for any period, the per annum rate set forth in
      ------------------
the weekly statistical release designated as H.15(519), or any successor
publication, published by the Federal Reserve Board (including any such
successor, "H.15(519)") for such day opposite the caption "Federal Funds
            ---------
(Effective)."  If on any relevant day such rate is not yet published in
H.15(519), the rate for such day will be the rate set forth in the daily
statistical release designated as the Composite 3:30 p.m. Quotations for U.S.
Government Securities, or any successor publications, published by the Federal
Reserve Bank of Atlanta (including any such successor, the "Composite 3:30 p.m.
                                                            -------------------
Quotations") for such day under the caption "Federal Funds Effective Rate."  If
----------
on any relevant day the appropriate rate for such previous day is not yet
published in either H.15(519) or the Composite 3:30 p.m. Quotations, the rate
for such day will be the arithmetic mean as determined by Bank of the rates for
the last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New
York time) on that day by each of three leading brokers of Federal funds
transactions in New York City selected by Bank.

     "Fee Letter" has the meaning set forth in Section 3.4.
      ----------                               -----------

     "Fees" means all fees and other amounts payable by Borrower to
      ----
Administrator or Lender pursuant to the Fee Letter.

     "First Tier Purchase Agreement" means the First Tier Purchase Agreement,
      -----------------------------
dated as of June 23, 2000, by and among Dixie and the other Originators, as such
First Tier Purchase Agreement may be amended, supplemented or otherwise modified
from time to time with the prior written consent of the Administrator.

     "Fiscal Month" means each period of four or five weeks, as set forth on
      ------------
Schedule I hereto, as such Schedule is updated pursuant hereto.
----------

     "Fiscal Year" means any period of twelve consecutive Fiscal Months ending
      -----------
on the last Saturday in December.

     "GAAP" means generally accepted United States accounting principles as in
      ----
effect from time to time.

     "GE Factors" means GE Capital First Factors Corporation, a North Carolina
      ----------
corporation.

                                      11
<PAGE>

     "Governmental Authority" means the United States of America, any state or
      ----------------------
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.

     "Gross Dilutions" means, with respect to any Due Period, the aggregate
      ---------------
amount of returns, net credits, and any other non-cash reductions to the Credit
Sales that occurred or were made, granted or incurred during such Due Period.

     "Indemnified Amounts" has the meaning set forth in Section 14.1.
      -------------------                               ------------

     "Indemnified Party" has the meaning set forth in Section 14.1.
      -----------------                               ------------

     "Initial Purchase Date" means the first Purchase Date to occur under the
      ---------------------
Receivables Purchase Agreement.

     "Initiation Date" means, with respect to any Receivable, the date of the
      ---------------
transaction that gave rise to the original Unpaid Balance of such Receivable.

     "Interest Period" means with respect to any Loan:
      ---------------

          (a)  the period commencing on the date of the initial funding of such
     Loan and ending on, but excluding, the Business Day immediately preceding
     the next following Distribution Date; and

          (b)  thereafter, each period commencing on, and including, the
     Business Day immediately preceding a Distribution Date and ending on, but
     excluding, the Business Day immediately preceding the next following
     Distribution Date;

provided, however, that if any Interest Period for any Loan that commences
--------  -------
before the Commitment Termination Date would otherwise end on a date occurring
after such Commitment Termination Date, such Interest Period shall end on such
Commitment Termination Date and the duration of each such Interest Period that
commences on or after the Commitment Termination Date, if any, shall be of such
duration as shall be selected by Administrator.

     "Lender" has the meaning set forth in the Preamble.
      ------                                   --------

     "Lender Note" has the meaning set forth in Section 2.7.
      -----------                               -----------

     "Lender's Commitment" has the meaning set forth in Section 2.1.
      -------------------                               -----------

     "Liabilities" means, with respect to any Person, all obligations of such
      -----------
Person which would, in accordance with GAAP, be classified on a balance sheet as
liabilities, including, without limitation, (i) Debt secured by Liens against
property of such Person whether or not such Person is liable for the payment
thereof and (ii) deferred liabilities.

     "LIBOR Rate" means, for any Interest Period, the rate per annum on the Rate
      ----------
Setting Day of such Interest Period shown on page 3750 of Telerate or any
successor

                                      12
<PAGE>

page as the composite offered rate for London interbank deposits for one month,
as shown under the heading "USD" as of 11:00 a.m. (London time); provided that
                                                                 --------
in the event no such rate is shown, the LIBOR Rate shall be the rate per annum
(rounded upwards, if necessary, to the nearest 1/16th of one percent) based on
the rates at which Dollar deposits for one month are displayed on page "LIBOR"
of the Reuters Screen as of 11:00 a.m. (London time) on the Rate Setting Day (it
being understood that if at least two such rates appear on such page, the rate
will be the arithmetic mean of such displayed rates); provided further, that in
                                                      -------- -------
the event fewer than two such rates are displayed, or if no such rate is
relevant, the LIBOR Rate shall be the rate per annum equal to the average of the
rates at which deposits in Dollars are offered by the Administrator at
approximately 11:00 a.m. (London time) on the Rate Setting Day to prime banks in
the London interbank market for a one month.

     "Lien" means any mortgage, pledge, assignment, lien, security interest or
      ----
other charge or encumbrance of any kind, including the retained security title
of a conditional vendor or a lessor.

     "Liquidity Agreement" means and includes (a) the Liquidity Asset Purchase
      -------------------
Agreement (regarding Dixie Funding II, Inc.), dated as of June 23, 2000, among
Lender, as borrower, Bank, as liquidity agent for the Liquidity Banks, SunTrust
Equitable Securities Corporation, as administrator for Lender, and the Liquidity
Banks, and (b) any other agreement hereafter entered into by Lender providing
for the sale by Lender of Loans (or portions thereof), or the making of loans or
other extensions of credit to Lender secured by security interests in the Loans
(or portions thereof), to support all or part of Lender's payment obligations
under the Commercial Paper Notes or to provide an alternate means of funding
Lender's investments in accounts receivable or other financial assets, in each
case as amended, supplemented or otherwise modified from time to time.

     "Liquidity Bank" means and includes Bank and the various financial
      --------------
institutions as are, or may become, parties to the Liquidity Agreement, as
purchasers thereunder.

     "Loan" means any amount disbursed as principal by Lender to Borrower under
      ----
this Agreement.

     "LockBox" shall have the meaning specified in Section 11.2(c) hereof.
      -------                                      ---------------

     "LockBox Account" means any of those bank accounts described on Schedule II
      ---------------                                                -----------
hereto and any additional or replacement account to which Collections are sent
in accordance with Section 9.1.14.
                   --------------

     "LockBox Account Agreement" means an agreement among an Originator, the
      -------------------------
Borrower, the Administrator and the bank holding any LockBox Account, in
substantially the form of Exhibit F attached hereto.
                          ---------

                                      13
<PAGE>

     "Loss Horizon Ratio" means with respect to any Due Period, the ratio
      ------------------
computed as of the last day of such Due Period by dividing (a) the sum of (i)
Sales for such Due Period, plus (ii) Sales for the immediately preceding Due
                           ----
Period, plus (iii) 75% of the Sales for the second (2nd) immediately preceding
        ----
Due Period by (b) an amount equal to the Aggregate Unpaid Balance as of the last
day of such Due Period, minus the aggregate Excess Concentration Amount as of
                        -----
the last day of such Due Period.

     "Loss Reserve" means with respect to any Due Period, the product of (i) the
      ------------
highest rolling three-month average Default Ratio over the most recent twelve
Due Periods, (ii) the Loss Horizon Ratio and (iii) the Stress Factor.

     "Mail Payments" shall have the meaning specified in Section 11.2(c) hereof.
      -------------                                      ---------------

     "Material Adverse Effect" means with respect to any event or circumstance,
      -----------------------
a material adverse effect on: (a) the business, assets, financial condition or
operations of Borrower or Servicer; (b) the ability of Servicer or Borrower to
perform their respective obligations under this Agreement or any other
Transaction Document; (c) the validity, enforceability or collectibility of this
Agreement or any other Transaction Document; (d) the existence, perfection or
priority of (i) the Administrator's (for the benefit of the Secured Parties)
security interest in the Collateral, or (ii) Borrower's ownership interest in
the Receivables; (e) the validity, enforceability or collectibility of the
Receivables; or (f) the ability of the Originators to generate Receivables of a
credit quality at least equal to those existing on the Closing Date.

     "Merchandise" means (i) carpeting, other floor covering and goods related
      -----------
to the foregoing, in each case of the type sold by the Originators on the
Closing Date, and (ii) service contracts and services in respect of any goods or
merchandise referred to in clause (i) above.
                           ----------

     "Month End Date" means the last day of each Fiscal Month.
      --------------

     "Monthly Report" has the meaning set forth in Section 9.1.5(b).
      --------------                               ----------------

     "Moody's" means Moody's Investors Service, Inc.
      -------

     "Obligations" means all obligations (monetary or otherwise) of Borrower to
      -----------
Lender, Administrator, any Affected Party or any Indemnified Party and their
respective successors, permitted transferees and assigns arising under or in
connection with this Agreement, the Lender Note and each other Transaction
Document, in each case however created, arising or evidenced, whether direct or
indirect, absolute or contingent, now or hereafter existing, or due or to become
due.

     "Obligor" means, with respect to any Receivable, the Person or Persons
      -------
obligated to make payments with respect to such Receivable, including any
guarantor thereof.

                                      14
<PAGE>

     "Obligor Concentration" means with respect to any Due Period, the ratio
      ---------------------
(expressed as a percentage) computed as of the last day of such Due Period by
dividing (i) the aggregate Unpaid Balance of Eligible Receivables owed by an
Obligor by (ii) the Aggregate Outstanding Principal Amount on such day.

     "Originator" means any of Dixie, in its capacity as originator under the
      ----------
Receivables Purchase Agreement, and those Subsidiaries of Dixie that generate
Receivables and that are parties to the First Tier Purchase Agreement.

     "Originator Note" means, collectively, (i) the subordinated promissory note
      ---------------
dated as of the initial Purchase Date issued by the Borrower to Dixie pursuant
to the Receivables Purchase Agreement and (ii) any other promissory notes
subsequently issued by the Borrower to Dixie pursuant to the Receivables
Purchase Agreement, which promissory notes in each case shall be in the form of
Exhibit G hereto.
---------

     "Originator Payables" means (i) the obligation of Dixie to make a payment,
      -------------------
pursuant to Section 2.4 of the Receivables Purchase Agreement, for any
Receivable that was represented to be an Eligible Receivable that was not an
Eligible Receivable on the date such Receivable was sold by Dixie to the
Borrower, and (ii) all other amounts owed by Dixie to the Borrower from time to
time pursuant to this Agreement or the Receivables Purchase Agreement.

     "Permitted Investment" means, at any time:
      --------------------

          (i)   marketable obligations issued by, or the full and timely payment
     of which is directly and fully guaranteed or insured by, the United States
     government or any other government with an equivalent rating, or any agency
     or instrumentality thereof when such marketable obligations are backed by
     the full faith and credit of the United States government or such other
     equivalently rated government, as the case may be, but excluding any
     securities which are derivatives of such obligations;

          (ii)  time deposits, bankers' acceptances and certificates of deposit
     of any domestic commercial bank or any United States branch or agency of a
     foreign commercial bank which (x) has capital, surplus and undivided
     profits in excess of $100,000,000 and which has a commercial paper or
     certificate of deposit rating meeting the requirements specified in clause
                                                                         ------
     (iii) below (or equivalent rating from the Rating Agencies) or (y) is set
     -----
     forth in a list (which may be updated from time to time) (A) approved by
     the Administrator and (B) with respect to which a written statement has
     been obtained from each of the Rating Agencies to the effect that the
     rating of the Commercial Paper Notes will not be downgraded or withdrawn
     solely as a result of the acquisition of such investments;

          (iii) commercial paper which is (x) rated at least as high as the
     Commercial Paper Notes by the Rating Agencies, or (y) set forth in a list
     (which may be updated from time to time) (A) approved by the Administrator
     and (B)

                                      15
<PAGE>

     with respect to which a written statement has been obtained from each of
     the Rating Agencies to the effect that the rating of the Commercial Paper
     Notes will not be downgraded or withdrawn solely as a result of the
     acquisition of such investments;

          (iv) secured repurchase obligations for underlying securities of the
     types described in clauses (i) and (ii) above entered into with any bank of
                        -----------     ----
     the type described in clause (ii) above; and
                           -----------

          (v)  freely redeemable shares in money market funds which invest
     solely in obligations, bankers' acceptances, time deposits, certificates of
     deposit, repurchase agreements and commercial paper of the types described
     in clause (i) through (iv) above, without regard to the limitations as to
        ----------         ----
     the maturity of such obligations, bankers' acceptances, time deposits,
     certificates of deposit, repurchase agreements or commercial paper set
     forth below, which are rated at least "AAm" or "AAmg" or their equivalent
     by at least one Rating Agency, provided that there is no r-highlighter
                                    --------
     affixed to such rating.

     "Person" means an individual, partnership, limited liability company,
      ------
corporation (including a business trust), joint stock company, trust,
unincorporated association, joint venture, government or any agency or political
subdivision thereof or any other entity.

     "Prime Rate" means as of any date of determination, the rate of interest
      ----------
most recently announced by Bank at its principal office in Atlanta, Georgia as
its prime rate (it being understood that at any one time there shall exist only
one such prime rate so announced, which rate is not necessarily intended to be
the lowest rate of interest determined by Bank in connection with extensions of
credit).

     "Program Documents" means the Liquidity Agreement, the Credit Agreement,
      -----------------
the Voluntary Advance Agreement, the documents under which Administrator
performs its obligations with respect to the Lender's commercial paper program
and the other documents to be executed and delivered in connection therewith, as
amended, supplemented or otherwise modified from time to time.

     "Purchase Date" has the meaning set forth in Section 2.3(a) of the
      -------------
Receivables Purchase Agreement.

     "Rate Setting Day" means, for any Interest Period, two (2) Business Days
      ----------------
prior to the commencement of such Interest Period. In the event such day is not
a Business Day, then the Rate Setting Day shall be the immediately preceding
Business Day.

     "Rating Agencies" means S&P and Moody's.
      ---------------

     "Receivable" means, (i) with respect to any Obligor (other than GE
      ----------
Factors), the indebtedness of such obligor under a Contract arising from a sale
of Merchandise by an Originator, and includes the right to payment of any
interest, finance, returned check or

                                      16
<PAGE>

late charges and other obligations of such Obligor with respect thereto and (ii)
with respect to GE Factors, the obligation of GE Factors to pay the purchase
price for accounts receivable pursuant to the Factoring Contract.

     "Receivable File" means with respect to a Receivable, (i) the Contract
      ---------------
giving rise to the Receivable and other evidences of the Receivable including,
without limitation, tapes, discs, punch cards and related property and rights
and (ii) each UCC financing statement related thereto, if any.

     "Receivables Purchase Agreement" means the Receivables Purchase Agreement,
      ------------------------------
dated as of June 23, 2000, by and between Dixie and the Borrower, as such
Receivables Purchase Agreement may be amended, supplemented or otherwise
modified from time to time with the prior written consent of the Administrator.

     "Regulatory Change" means, relative to any Affected Party:
      -----------------

          (a)  any change in (or the adoption, implementation, change in the
     phase-in or commencement of effectiveness of) any: (i) United States
     Federal or state law or foreign law applicable to such Affected Party, (ii)
     regulation, interpretation, directive, requirement or request (whether or
     not having the force of law) applicable to such Affected Party of (A) any
     court or government authority charged with the interpretation or
     administration of any law referred to in clause (a)(i), or of (B) any
                                              -------------
     fiscal, monetary or other authority having jurisdiction over such Affected
     Party, or (iii) GAAP or regulatory accounting principles applicable to such
     Affected Party and affecting the application to such Affected Party of any
     law, regulation, interpretation, directive, requirement or request referred
     to in clause (a)(i) or (a)(ii) above;
           -------------    -------

          (b)  any change in the application to such Affected Party of any
     existing law, regulation, interpretation, directive, requirement, request
     or accounting principles referred to in clause (a)(i), (a)(ii) or (a)(iii)
                                             -------------  -------    --------
     above; or

          (c)  the issuance, publication or release of any regulation,
     interpretation, directive, requirement or request of a type described in
     clause (a)(ii) above to the effect that the obligations of any Liquidity
     --------------
     Bank under the Liquidity Agreement are not entitled to be included in the
     zero percent category of off-balance sheet assets for purposes of any risk-
     weighted capital guidelines applicable to such Liquidity Bank or any
     related Affected Party.

     "Related Security" means, with respect to any Receivable, (a) all right,
      ----------------
title and interest, but none of the obligations, of the related Originator, in
the merchandise (including returned merchandise), if any, relating to the sale
which gave rise to such Receivable, (b) all right, title and interest, but none
of the obligations, of the related Originator, in, to and under other Liens and
property subject to Liens from time to time purporting to secure payment of such
Receivable, whether pursuant to the Contract related to such Receivable or
otherwise, (c) all UCC Financing Statements or similar

                                      17
<PAGE>

instruments covering any collateral securing payment of such Receivable, (d) all
guaranties, indemnities, insurance and other agreements (including the related
Receivable File) or arrangement and other collateral of whatever character from
time to time supporting or securing payment of such Receivable, whether pursuant
to the Contract relating to such Receivable or otherwise relating to such
Receivable and (e) all other instruments and all rights under the documents in
the Receivables File relating to such Receivables and all rights (but not
obligations) relating to such Receivables.

     "Reporting Date" has the meaning set forth in Section 9.1.5(b).
      --------------                               ----------------

     "Requirements of Law" for any Person or any of its property shall mean the
      -------------------
certificate of incorporation or articles of association and by-laws or other
organizational or governing documents of such Person or any of its property, and
any statute, law, treaty, rule or regulation, or determination of an arbitrator
or Governmental Authority, in each case applicable to or binding upon such
Person or any of its property or businesses or to which such Person or any of
its property or businesses is subject, whether federal, state or local.

     "Reserve Floor" means for any Due Period, 15.0%.
      -------------

     "Reserve Percentage" means the percentage equal to the greater of (a) the
      ------------------
sum of (i) the Loss Reserve, (ii) the Dilution Reserve, (iii) the Yield Reserve,
and (iv) the Servicing Reserve and (b) the Reserve Floor.

     "Sales" means, for any Due Period, the aggregate amount of sales generated
      -----
by the Originators during such Due Period.

     "S&P" means Standard & Poor's, a division of The McGraw-Hill Companies,
      ---
Inc.

     "Scheduled Commitment Termination Date" means June 22, 2001.
      -------------------------------------

     "Secured Obligations" has the meaning set forth in Section 5.1(b).
      -------------------                               --------------

     "Secured Parties" means the holders from time to time of the Secured
      ---------------
Obligations including, without limitation, Lender and Administrator.

     "Servicer" means Dixie or its successor in interest, or any successor
      --------
Servicer appointed as provided in Section 11.5.
                                  ------------

     "Servicer Event of Default" shall have the meaning specified in Section
      -------------------------                                      -------
11.7.
----

     "Servicing Fee" means, as to any Due Period, the monthly fee payable to
      -------------
Servicer, which, so long as Dixie is Servicer, shall be equal to the Servicing
Fee Rate divided by 12 multiplied by the aggregate Unpaid Balance of the
Receivables at the beginning of such Due Period.  The Servicing Fee for any
successor Servicer shall be equal to the fee reasonably agreed to by the
Administrator and such successor.

                                      18
<PAGE>

     "Servicing Fee Rate" means 1.80%.
      ------------------

     "Servicing Reserve" means with respect to any Due Period, the product of
      -----------------
(i) the highest Days Sales Outstanding Ratio during the most recent twelve-month
period, (ii) the Stress Factor, (iii) 2.40% and (iv) 1/360.

     "Significant Event" means any Amortization Event or Event of Default.
      -----------------

     "Solvent" means with respect to any Person that as of the date of
      -------
determination both (A)(i) the then fair saleable value of the property of such
Person is (y) greater than the total amount of liabilities (including contingent
liabilities) of such Person and (z) not less than the amount that will be
required to pay the probable liabilities on such Person's then existing debts as
they become absolute and matured considering all financing alternatives and
potential asset sales reasonably available to such Person; (ii) such Person's
capital is not unreasonably small in relation to its business or any
contemplated or undertaken transaction; and (iii) such Person does not intend to
incur, or believe (nor should it reasonably believe) that it will incur, debts
beyond its ability to pay such debts as they become due; and (B) such Person is
"solvent" within the meaning given that term and similar terms under applicable
laws relating to fraudulent transfers and conveyances.  For purposes of this
definition, the amount of any contingent liability at any time shall be computed
as the amount that, in light of all of the facts and circumstances existing at
such time, represents the amount that can reasonably be expected to become an
actual or matured liability.

     "Stated Maturity Date" means June 22, 2001; provided, however, that such
      --------------------                       --------  -------
date may be accelerated pursuant to Section 10.3.
                                    ------------

     "Stress Factor" means 2.0.
      -------------

     "Subsidiary" means, with respect to any Person, a corporation of which such
      ----------
Person and/or its other Subsidiaries own, directly or indirectly, such number of
outstanding shares as have more than 50% of the ordinary voting power for the
election of directors.

     "SunTrust" has the meaning set forth in the Preamble.
      --------                                   --------

     "Support Provider" means and includes any entity now or hereafter extending
      ----------------
credit or liquidity support or having a commitment to extend credit or liquidity
support to or for the account of, or to make loans to or purchases from, Lender
or issuing a letter of credit, surety bond or other instrument to support any
obligations arising under or in connection with the commercial paper program of
Lender.

     "Telerate Page 3750" shall mean the display designated as "Page 3750" on
      ------------------
the Telerate Service (or such other page as may replace "Page 3750" on that
service or another service as may be nominated by the British Bankers'
Association as the information vendor for the purpose of displaying British
Bankers' Association Interest Settlement Rate for Dollars).

                                      19
<PAGE>

     "Transaction Documents" means this Agreement, the Receivables Purchase
      ---------------------
Agreement, the First Tier Purchase Agreement, the Lender Note, the Fee Letter,
the Originator Note and the other instruments, certificates, agreements, reports
and documents to be executed and delivered under or in connection with this
Agreement, the First Tier Purchase Agreement, or the Receivables Purchase
Agreement (except the Program Documents), as any of the foregoing may be
amended, supplemented, amended and restated, or otherwise modified from time to
time in accordance with this Agreement, the First Tier Purchase Agreement, and
the Receivables Purchase Agreement.

     "UCC" means the Uniform Commercial Code as from time to time in effect in
      ---
the applicable jurisdiction or jurisdictions.

     "Unmatured Significant Event" means any event that, if it continues
      ---------------------------
uncured, will, with lapse of time or notice or lapse of time and notice,
constitute a Significant Event.

     "Unpaid Balance" shall mean with respect to any Receivable the aggregate
      --------------
principal balance of such Receivable or, in the case of Receivables generated
pursuant to the Factoring Contract, the aggregate purchase price due from GE
Factors for the related account receivable.

     "Voluntary Advance Agreement" means the Voluntary Advance Agreement, dated
      ---------------------------
as of March 11, 1999, among Lender, the Administrator and Bank, as it may be
amended, supplemented or otherwise modified from time to time.

     "Warranty Payments" means (i) any payments made by Dixie pursuant to
      -----------------
Section 2.4 of the Receivables Purchase Agreement; and (ii) any payments made by
the Servicer pursuant to Section 11.2(c)(vi) hereof.
                         -------------------

     "Yield Reserve" means with respect to any Due Period, the product of (1)
      -------------
the highest Day Sales Outstanding Ratio during the most recent twelve-month
period, (2) the Stress Factor, (3) the Prime Rate as in effect on the last day
of such Due Period and (4) 1/360.

     Section 1.2  Other Definitional Provisions.
                  -----------------------------

          (a)  Unless otherwise specified therein, all terms defined in this
     Agreement have the meanings as so defined herein when used in the Lender
     Note or any other Transaction Document, certificate, report or other
     document made or delivered pursuant hereto.

          (b)  Each term defined in the singular form in Section 1.1 or
                                                         -----------
     elsewhere in this Agreement shall mean the plural thereof when the plural
     form of such term is used in this Agreement, the Lender Note or any other
     Transaction Document,

                                      20
<PAGE>

     certificate, report or other document made or delivered pursuant hereto,
     and each term defined in the plural form in Section 1.1 shall mean the
                                                 -----------
     singular thereof when the singular form of such term is used herein or
     therein.

          (c)  The words "hereof," "herein," "hereunder" and similar terms when
     used in this Agreement shall refer to this Agreement as a whole and not to
     any particular provision of this Agreement, and article, section,
     subsection, schedule and exhibit references herein are references to
     articles, sections, subsections, schedules and exhibits to this Agreement
     unless otherwise specified.

     Section 1.3  Other Terms.  All accounting terms not specifically defined
                  -----------
herein shall be construed in accordance with GAAP.  All terms used in Article 9
of the UCC and not specifically defined herein, are used herein as defined in
such Article 9.

     Section 1.4  Computation of Time Periods.  Unless otherwise stated in this
                  ---------------------------
Agreement, in the computation of a period of time from a specified date to a
later specified date, the word "from" means "from and including" and the words
"to" and "until" each means "to but excluding."

                                  ARTICLE II

         THE LENDER'S COMMITMENT, BORROWING PROCEDURES AND LENDER NOTE

     Section 2.1  Lender's Commitment.  On the terms and subject to the
                  -------------------
conditions set forth in this Agreement, Lender agrees to make loans to Borrower
on a revolving basis from time to time (the "Lender's Commitment") before the
                                             -------------------
Commitment Termination Date in such amounts as may be from time to time
requested by Borrower pursuant to Section 2.2; provided, however, that the
                                  -----------  --------  -------
aggregate principal amount of all Loans from time to time outstanding hereunder
shall not exceed the lesser of (a) $60,000,000 (the "Facility Limit") and (b)
                                                     --------------
the Borrowing Base.  Within the limits of the Lender's Commitment, Borrower may
borrow, prepay and reborrow under this Section 2.1.
                                       -----------

     Section 2.2  Borrowing Procedures.  Borrower (or the Servicer on its
                  --------------------
behalf) may request a Loan hereunder by giving notice to Administrator of a
proposed borrowing not later than 2:00 p.m. (New York City time), two Business
Days prior to the proposed date of such borrowing (or such lesser period of time
as the Lender may consent); provided that Borrower shall not request, and Lender
                            --------
shall not make, Loans more than four times during any calendar month.  Each such
notice (herein called a "Borrowing Request") shall be in the form of Exhibit A
                         -----------------                           ---------
(or, if acceptable to the Administrator, the information required therein may be
given by telephone) and shall include the date and amount of such proposed
borrowing.  Any Borrowing Request given by Borrower (or the Servicer on its
behalf) pursuant to this Section 2.2 shall be irrevocable and binding on
                         -----------
Borrower.

                                      21
<PAGE>

     Section 2.3  Funding.  Subject to the satisfaction of the conditions
                  -------
precedent set forth in Article VII with respect to such Loan and the limitations
                       -----------
set forth in Section 2.1, Lender shall make the proceeds of such requested Loan
             -----------
available to Administrator at its office in Atlanta, Georgia in same day funds
on the proposed date of borrowing. Upon receipt by Administrator of such funds,
Administrator will make such funds available to Borrower at such office on such
date. Each borrowing shall be on a Business Day and shall be in an amount of at
least $500,000 and in integral multiples of $100,000 (or in such other amounts
as the Lender or the Administrator may approve).

     Section 2.4  Representation and Warranty.  Each request for a borrowing
                  ---------------------------
pursuant to Section 2.2 shall automatically constitute a representation and
            -----------
warranty by Borrower to Administrator and Lender that on the requested date of
such borrowing (a) the representations and warranties contained in Article VIII
                                                                   ------------
will be true and correct as of such requested date as though made on such date,
(b) no Significant Event or Unmatured Significant Event has occurred and is
continuing or will result from such borrowing, and (c) after giving effect to
such requested borrowing, the aggregate principal balance of the outstanding
Loans hereunder will not exceed the lesser of the Borrowing Base and the
Facility Limit.

     Section 2.5  Early Termination of Lender's Commitment.  The Lender's
                  ----------------------------------------
Commitment shall terminate and Lender shall have no obligation to make any
further Loans (or to fund any increase in any existing Loan), on the earliest
date of termination of (i) the Liquidity Banks' commitments under the Liquidity
Agreement or (ii) the Credit Banks' commitments under the Credit Agreement.
Administrator agrees to use its reasonable efforts to give Borrower at least 30
days' prior written notice of the termination of the Lender's Commitment
pursuant to clause (i) or (ii) above.
            ----------    ----

     Section 2.6  Voluntary Termination of Lender's Commitment; Reduction of
                  ----------------------------------------------------------
Facility Limit.  Borrower may, in its sole discretion for any reason upon at
--------------
least 10 days' notice to Administrator (with a copy to Lender), terminate the
Lender's Commitment in whole, or, reduce in part the unused portion of the
Facility Limit; provided, however that (a) each such partial reduction will be
                --------  -------
in a minimum amount of $5,000,000 or a higher integral multiple of $1,000,000
and shall not reduce the Facility Limit below $40,000,000, and (b) in connection
therewith Borrower shall comply with Section 3.2(b) and Section 4.1(b).
                                     --------------     --------------

     Section 2.7  Note.  Each Loan from Lender shall be evidenced by a single
                  ----
promissory grid note (herein, as amended, modified, extended or replaced from
time to time, called the "Lender Note") substantially in the form set forth in
                          -----------
Exhibit B, with appropriate insertions, payable to the order of Lender.
---------
Borrower hereby irrevocably authorizes Administrator in connection with the
Lender Note to make (or cause to be made) appropriate notations on the grid
attached to the Lender Note (or on any continuation of such grid, or at
Administrator's option, in its records), which notations, if made, shall
evidence, inter alia, the date of, the outstanding principal of, and the
          ----- ----
interest rate and Interest Period applicable to the Loans evidenced thereby.
Such notations shall be rebuttably presumptive evidence of the subject matter
thereof, absent manifest error; provided, however, that the failure to make any
                                --------  -------
such notations shall not limit or otherwise affect any Obligations of Borrower.

                                      22
<PAGE>

                                  ARTICLE III

                             INTEREST, FEES, ETC.

     Section 3.1  Interest Rates.  Borrower hereby promises to pay interest on
                  --------------
the unpaid principal amount of each Loan (or each portion thereof) for the
period commencing on the date of such Loan until such Loan is paid in full, as
follows:

          (a)  at all times while the making or maintenance of such Loan (or the
     applicable portion thereof) by Lender is funded by the issuance of
     Commercial Paper Notes of Lender, during each Interest Period, at a rate
     per annum equal to the sum of (1) the Commercial Paper Rate applicable to
     --- -----
     such Interest Period, plus (2) the Applicable Margin;
                           ----

          (b)  at all times while the making or maintenance of such Loan (or the
     applicable portion thereof) by Lender is funded during each Interest Period
     pursuant to the Liquidity Agreement or the Voluntary Advance Agreement, at
     a rate per annum equal to the sum of (1) the Alternative Rate applicable to
            --- -----
     such Interest Period, plus (2) the Applicable Margin; and
                           ----

          (c)  notwithstanding the provisions of the preceding clauses (a) and
                                                               -----------
     (b), in the event that a Significant Event or an Unmatured Significant
     ---
     Event has occurred and is continuing, at a rate per annum (the "Default
                                                     --- -----       -------
     Rate") equal to the Base Rate applicable from time to time (but not less
     ----
     than the interest rate in effect for such Loan as at the date of such
     Significant Event), plus a margin of 3.00%.

     After the date any principal amount of any Loan is due and payable (whether
on the Stated Maturity Date, upon acceleration or otherwise) or after any other
monetary Obligation of Borrower arising under this Agreement shall become due
and payable, the Borrower shall pay (to the extent permitted by law, if in
respect of any unpaid amounts representing interest) interest (after as well as
before judgment) on such amounts at a rate per annum equal to the Default Rate.
                                           --- -----
No provision of this Agreement or the Lender Note shall require the payment or
permit the collection of interest in excess of the maximum permitted by
applicable law.

     Section 3.2  Interest Payment Dates.  Interest accrued on each Loan shall
                  ----------------------
be payable, without duplication:

          (a)  on the Stated Maturity Date;

          (b)  on the date of any payment or prepayment, in whole or in part, of
     principal outstanding on such Loan;

                                      23
<PAGE>

          (c)  on each Distribution Date prior to the Stated Maturity Date and
     thereafter on the last day of each Interest Period; and

          (d)  on that portion of any Loan the Stated Maturity Date of which is
     accelerated pursuant to Section 10.3, immediately upon such acceleration.
                             ------------

     Section 3.3  Interest Allocations.  Administrator shall from time to time
                  --------------------
and in its sole discretion determine whether interest in respect of the Loans
then outstanding, or any portion thereof, shall be calculated by reference to
the Commercial Paper Rate (such portion being herein called a "CP Allocation")
                                                               -------------
or the Alternative Rate (such portion being herein called an "Alternative Rate
                                                              ----------------
Allocation", and together with a CP Allocation individually called an
----------
"Allocation", and collectively, "Allocations"); provided, however, that,
 ----------                      -----------    --------  -------
Administrator shall use its reasonable efforts to allocate all or substantially
all of the Loans from Lender to a CP Allocation (it being understood that if
Lender is not able to issue sufficient Commercial Paper Notes to fund all of its
assets at such time and no Significant Event or Unmatured Significant Event has
occurred and is continuing, Lender and Administrator shall, at least, fund the
Loans pro rata with its other non-defaulted assets with Commercial Paper Notes);
provided further, however, that Administrator may determine, at any time and in
-------- -------  -------
its sole discretion, that the Commercial Paper Rate is unavailable or otherwise
not desirable, in which case the Loans from Lender will be allocated to an
Alternative Rate Allocation (unless the Default Rate is in effect).

     Section 3.4  Fees.  Borrower agrees to pay Administrator and Lender certain
                  ----
fees in the amounts and on the dates set forth in the letter agreement executed
in connection herewith between Borrower, Administrator and Lender (as the same
may be amended, supplemented or otherwise modified, the "Fee Letter").
                                                         ----------

     Section 3.5  Computation of Interest and Fees.  All interest and fees shall
                  --------------------------------
be computed on the basis of the actual number of days (including the first day
but excluding the last day) occurring during the period for which such interest
or fee is payable over a year comprised of 360 days.

                                  ARTICLE IV

            REPAYMENTS AND PREPAYMENTS; DISTRIBUTION OF COLLECTIONS

     Section 4.1  Repayments and Prepayments.  Borrower shall repay in full the
                  --------------------------
unpaid principal amount of each Loan on the Stated Maturity Date.  Prior
thereto, Borrower:

          (a)  may, from time to time on any Business Day, make a prepayment, in
     whole or in part, of the outstanding principal amount of any Loans;
     provided, however, that, unless otherwise consented to by the
     --------  -------
     Administrator,  all such voluntary prepayments shall require at least two
     Business Days' (or, in the case

                                      24
<PAGE>

     of a voluntary prepayment of $10,000,000 or more, at least seven Business
     Days') prior written notice to Administrator and all such voluntary partial
     prepayments shall be in a minimum amount of $1,000,000 and an integral
     multiple of $100,000;

          (b)  shall, on each date when any reduction in the Facility Limit
     shall become effective pursuant to Section 2.6, make a prepayment of the
                                        -----------
     Loans in an amount equal to the excess, if any, of the aggregate
     outstanding principal amount of the Loans over the Facility Limit as so
     reduced;

          (c)  shall, immediately upon any acceleration of the Stated Maturity
     Date of any Loans pursuant to Section 10.3, repay all Loans, unless,
                                   ------------
     pursuant to Section 10.3(a), only a portion of all Loans is so accelerated,
                 ---------------
     in which event Borrower shall repay the accelerated portion of the Loans;
     and

          (d)  shall, if at any time a Borrowing Base Deficit shall exist, make
     a prepayment of the Loans in an amount equal to such Borrowing Base
     Deficit, such payment to be made on the next Distribution Date to occur.

     Each such prepayment shall be subject to the payment of any amounts
required by Section 6.2.
            -----------

     Section 4.2  Application of Collections.
                  --------------------------

          (a)  All Collections deposited in the Collection Account shall be
     distributed by the Servicer at such times and in the order of priority set
     forth in this Section 4.2.
                   -----------

          (b)  On each Distribution Date prior to the Commitment Termination
     Date, the Servicer shall distribute from Collections on deposit in the
     Collection Account and from funds withdrawn from the Dilution Cash Reserve
     Account pursuant to Section 4.6 on such Distribution Date, if any, the
                         -----------
     following amounts, without duplication, in the following order of priority:

          first, if the Servicer is not Dixie or an Affiliate of Dixie the
          -----
     accrued Servicing Fee payable for the related Due Period (plus, if
     applicable, the amount of Servicing Fee payable for any prior Due Period to
     the extent such amount has not been distributed to Servicer);

          second, interest accrued on the Loans during the related Interest
          ------
     Period (plus, if applicable, the amount of interest on the Loans accrued
     for any prior Interest Period to the extent such amount has not been
     distributed to Lender, and to the extent permitted by law, interest
     thereon);

          third, all Fees accrued during such Due Period (plus, if applicable,
          -----
     the amount of Fees accrued for any prior Due Period to the extent such
     amount has

                                      25
<PAGE>

     not been distributed to Lender or Administrator);

          fourth, as a repayment of principal of the Loans, an amount equal to
          ------
     the Borrowing Base Deficit, if any;

          fifth, all other Obligations then payable by Borrower under this
          -----
     Agreement;

          sixth, in the event that the funds in the Dilution Cash Reserve
          -----
     Account are less than $400,000, as a deposit to the Dilution Cash Reserve
     Account to the extent necessary to bring the amount of such funds up to
     $400,000;

          seventh, if the Servicer is Dixie or an Affiliate of Dixie the accrued
          -------
     Servicing Fee payable for the related Due Period (plus, if applicable, the
     amount of Servicing Fee payable for any prior Due Period to the extent such
     amount has not been distributed to Servicer);and

          eighth, so long as no Significant Event or Unmatured Significant Event
          ------
     shall be continuing, the balance, if any, to Borrower.

          (c)  On and after the Commitment Termination Date, Administrator
     shall, on the last day of each Interest Period, distribute from the
     Collection Account and from funds withdrawn from the Dilution Cash Reserve
     Account pursuant to Section 4.6, the following amounts, without
                         -----------
     duplication, in the following order of priority:

          first, if the Servicer is not Dixie or an Affiliate of Dixie the
          -----
     accrued but unpaid Servicing Fee;

          second, the accrued but unpaid interest on the Loans;
          ------

          third, all accrued but unpaid Fees;
          -----

          fourth, the outstanding principal amount of the Loans;
          ------

          fifth, all other Obligations payable by Borrower under this Agreement;
          -----

          sixth, if the Servicer is Dixie or an Affiliate of Dixie the accrued
          -----
     but unpaid Servicing Fee; and

          seventh, once all amounts described in clauses first through sixth
          -------                                        -----         -----
     have been paid in full, the balance, if any, to Borrower.

     Section 4.3  Application of Certain Payments.  Each payment of principal of
                  -------------------------------
the Loans shall be applied to such Loans as Borrower shall direct or, in the
absence of such notice or during the existence of a Significant Event or after
the Commitment Termination Date, as Administrator shall determine in its
discretion.

                                      26
<PAGE>

     Section 4.4  Due Date Extension.  If any payment of principal or interest
                  ------------------
with respect to any Loan falls due on a day which is not a Business Day, then
such due date shall be extended to the next following Business Day, and
additional interest shall accrue at the applicable interest rate and be payable
for the period of such extension.

     Section 4.5  Making of Payments.  All payments of principal of, or interest
                  ------------------
on, the Loans and of all Fees, and all amounts to be deposited by Borrower or
Servicer hereunder, shall be made by Borrower or Servicer, as applicable, no
later than 10:00 a.m. (New York City time), on the day when due in lawful money
of the United States of America in same day funds to Bank, as Administrator,
Reference: Three Pillars Funding Corporation/The Dixie Group, Inc., Transaction,
Account No. 8800171236, ABA #061 000 104 at Bank's office at 25 Park Place in
Atlanta, Georgia (the "Administrator's Account").  Funds received by
                       -----------------------
Administrator after 10:00 a.m. New York City time, on the date when due, will be
deemed to have been received by Administrator on its next following Business
Day.

     Section 4.6  Dilution Cash Reserve Account.  On or before the Closing Date,
                  -----------------------------
Borrower shall establish at SunTrust Bank a segregated account, designated as
the Dilution Cash Reserve Account.  On the date of the first Loan hereunder,
$400,000.00 of the proceeds of such Loan shall be deposited into the Dilution
Cash Reserve Account.  On each Distribution Date thereafter, the Servicer shall
deposit, or cause to be deposited, all amounts, if any, required to be deposited
in the Dilution Cash Reserve Account pursuant to clause sixth of Section 4.2(b).
                                                 ------------    --------------
If there are insufficient funds in the Collection Account on any Distribution
Date to make the payments described in clauses first through fifth of Section
                                       ------- -----         -----    -------
4.2(b), then the Servicer shall (and if the Servicer does not make such
------
withdrawal, the Administrator may) withdraw from the Dilution Cash Reserve
Account the lesser of the amount of funds therein and the amount of such
insufficiency, and shall distribute such funds pursuant to the priorities set
forth in Section 4.2(b).  On the first date that monies are distributed pursuant
         --------------
to Section 4.2(c) on or after the Commitment Termination Date, the Servicer
   --------------
shall (and if the Servicer does not make such withdrawal, the Administrator may)
withdraw all of the funds in the Dilution Cash Reserve Account and distribute
such funds pursuant to the priorities set forth in Section 4.2(c).  Monies on
                                                   --------------
deposit in the Dilution Cash Reserve Account may be invested at the direction of
the Servicer in Permitted Investments that mature on or before the next
occurring Distribution Date.  To the extent that the funds in the Dilution Cash
Reserve Account exceed $400,000 on any Distribution Date, such excess may be
distributed to, at the direction of, Borrower.  The Servicer shall be
responsible for any loss due to the investment of funds in the Dilution Cash
Reserve Account, and shall deposit the amounts of such loss into such account on
or before the Distribution Date next occurring after the date  on which such
loss occurs.

                                      27
<PAGE>

                                   ARTICLE V

                               SECURITY INTEREST

     Section 5.1  Grant of Security.
                  -----------------

          (a)  Borrower hereby assigns and pledges to Administrator (for the
     benefit of the Secured Parties), and hereby grants to Administrator (for
     the benefit of the Secured Parties) a security interest in all of
     Borrower's right, title and interest in and to the following, whether now
     or hereafter existing and wherever located:

               (i)   all Receivables, Related Security and Receivable Files;

               (ii)  all of Borrower's rights, remedies, powers and privileges
          in respect of the Receivables Purchase Agreement and the First Tier
          Purchase Agreement, including a direct right to cause an Originator to
          make payments with respect to Gross Dilutions or with respect to
          Receivables that are not Eligible Receivables pursuant to the
          Receivables Purchase Agreement or the First Tier Purchase Agreement,
          as the case may be;

               (iii) the LockBox Accounts, the Dilution Cash Reserve Account and
          the Collection Account and all funds on deposit therein, together with
          all certificates and instruments, if any, from time to time evidencing
          such accounts, and funds on deposit and all investments made with such
          funds, all claims thereunder or in connection therewith, and interest,
          dividends, moneys, instruments, securities and other property from
          time to time received, receivable or otherwise distributed in respect
          of any or all of the foregoing; and

               (iv)  all products and proceeds (including, without limitation,
          insurance proceeds) of, and additions, improvements and accessions to,
          and books and records describing or used in connection with, all and
          any of the property described above (items (i) through (iv) are
                                               ---------         ----
          collectively referred to as the "Collateral").
                                           ----------

          (b)  This grant of security secures the payment and performance of all
     Obligations of Borrower now or hereafter existing or arising under, or in
     connection with, the Loan Agreement, the Lender Note and each other
     Transaction Document, whether for principal, interest, costs, fees,
     expenses or otherwise (all such obligations of Borrower being called the
     "Secured Obligations").
      -------------------

          (c)  This grant of security shall create a continuing security
     interest in the Collateral and shall:

          1.   remain in full force and effect until Administrator's (for the
     benefit of the Secured Parties) interest in the Collateral shall have been
     released in accordance with Section 5.4;
                                 -----------

                                      28
<PAGE>

          2.   be binding upon Borrower, its successors, transferees and
     assigns; and

          3.   inure, together with the rights and remedies of Administrator
     (for the benefit of the Secured Parties) hereunder, to the benefit of
     Administrator and each Secured Party and their respective successors,
     transferees and assigns.

     Section 5.2  Administrator Appointed Attorney-in-Fact. Borrower hereby
                  ----------------------------------------
     irrevocably appoints Administrator (for the benefit of the Secured Parties)
     as Borrower's attorney-in-fact, with full authority in the place and stead
     of Borrower and in the name of Borrower or otherwise, from time to time in
     Administrator's discretion, after the occurrence and during the
     continuation of a Significant Event to take any action and to execute any
     instrument which Administrator may deem necessary or advisable to
     accomplish the purposes of the Transaction Documents, including, without
     limitation:

          (a)  to ask, demand, collect, sue for, recover, compromise, receive
     and give acquittance and receipts for moneys due and to become due under or
     in respect of any of the Collateral;

          (b)  to receive, endorse, and collect any drafts or other instruments,
     documents and chattel paper, in connection with clause (a) above;
                                                     ----------

          (c)  to file any claims or take any action or institute any
     proceedings which Administrator may deem necessary or desirable for the
     collection of any of the Collateral or otherwise to enforce the rights of
     Administrator (for the benefit of the Secured Parties) with respect to any
     of the Collateral;

          (d)  to sell, transfer, assign or otherwise deal in or with the
     Collateral or any part thereof pursuant to the terms and conditions
     hereunder; and

          (e)  to perform the affirmative obligations of Borrower under the
     Transaction Documents.

Administrator agrees to give Borrower and Servicer written notice of the taking
of any such action, but the failure to give such notice shall not affect the
rights, power or authority of Administrator with respect thereto.  Borrower
hereby acknowledges, consents and agrees that the power of attorney granted
pursuant to this Section 5.2 is irrevocable and coupled with an interest.
                 -----------

     Section 5.3  Administrator May Perform. If Borrower fails to perform any
                  -------------------------
agreement contained herein, Administrator (for the benefit of the Secured
Parties) may itself perform, or cause performance of such agreement, and the
expenses of Administrator incurred in connection therewith shall be payable by
Borrower.

     Section 5.4  Release of Collateral.  Administrator's (for the benefit of
                  ---------------------
the Secured Parties) right, title and interest in the Collateral shall be
released effective on the date occurring after the Commitment Termination Date
on which all Secured Obligations shall have been finally and fully paid and
performed.

                                      29
<PAGE>

                                  ARTICLE VI

                             INCREASED COSTS, ETC.

     Section 6.1  Increased Costs.  If  any change in Regulation D of the Board
                  ---------------
of Governors of the Federal Reserve System, or any Regulatory Change, in each
case occurring after the date hereof:

          (A)  shall subject any Affected Party to any tax, duty or other charge
     with respect to any Loan made or funded by it, or shall change the basis of
     taxation of payments to such Affected Party of the principal of or interest
     on any Loan owed to or funded by it or any other amounts due under this
     Agreement in respect of any Loan made or funded by it (except for changes
     in the rate of tax on the overall net income of such Affected Party imposed
     by the jurisdiction in which such Affected Party's principal executive
     office is located); or

          (B)  shall impose, modify or deem applicable any reserve (including,
     without limitation, any reserve imposed by the Board of Governors of the
     Federal Reserve System, but excluding any reserve included in the
     determination of interest rates pursuant to Section 3.1), special deposit
                                                 -----------
     or similar requirement against assets of, deposits with or for the account
     of, or credit extended by, any Affected Party;

          (C)  shall change the amount of capital maintained or required or
     requested or directed to be maintained by any Affected Party; or

          (D)  shall impose on any Affected Party any other condition affecting
     any Loan made or funded by any Affected Party;

and the result of any of the foregoing is or would be to (i) increase the cost
to or to impose a cost on (I) an Affected Party funding or making or maintaining
any Loan (including extensions of credit under the Liquidity Agreement, the
Voluntary Advance Agreement or any Credit Advance, or any commitment of such
Affected Party with respect to any of the foregoing), or (II) Administrator for
continuing its or Borrower's relationship with Lender, (ii) to reduce the amount
of any sum received or receivable by an Affected Party under this Agreement, the
Lender Note, the Liquidity Agreement, the Voluntary Advance Agreement or the
Credit Agreement with respect thereto, or (iii) in the good faith determination
of such Affected Party, to reduce the rate of return on the capital of an
Affected Party as a consequence of its obligations hereunder, or under the
Liquidity Agreement, the Voluntary Advance Agreement or Credit Agreement, or
arising in connection herewith or therewith to a level below that which such
Affected Party could otherwise have achieved, then after demand by such Affected
Party to Borrower (which

                                      30
<PAGE>

demand shall be accompanied by a written statement setting forth the basis of
such demand), Borrower shall pay such Affected Party such additional amount or
amounts as will (in the reasonable determination of such Affected Party)
compensate such Affected Party for such increased cost or such reduction. Such
written statement (which shall include calculations in reasonable detail) shall,
in the absence of manifest error, be rebuttably presumptive evidence of the
subject matter thereof.

     Section 6.2  Funding Losses.  Borrower hereby agrees that upon demand by
                  --------------
any Affected Party (which demand shall be accompanied by a statement setting
forth the basis for the calculations of the amount being claimed) Borrower will
indemnify such Affected Party against any net loss or expense which such
Affected Party may sustain or incur (including, without limitation, any net loss
or expense incurred by reason of the liquidation or reemployment of deposits or
other funds acquired by such Affected Party to fund or maintain any Loan made by
Lender to Borrower), as reasonably determined by such Affected Party, as a
result of (a) any payment or prepayment (including any mandatory prepayment) of
any Loan on a date other than the last day of the Interest Period for such Loan,
or (b) any failure of Borrower to borrow any Loan on a date specified therefor
in a related Borrowing Request.  Such written statement shall, in the absence of
manifest error, be rebuttably presumptive evidence of the subject matter
thereof.

     Section 6.3  Withholding Taxes.  (a)  All payments made by Borrower or
                  -----------------
Servicer hereunder shall be made free and clear of, and without reduction or
withholding for or on account of, any present or future taxes, now or hereafter
imposed, levied, collected, withheld or assessed by any Governmental Authority
or other taxing authority excluding, in the case of    Administrator and Lender,
net income taxes imposed on    Administrator or Lender by the jurisdiction under
the laws of which Administrator or Lender is organized or any political
subdivision or taxing authority thereof or therein (such taxes, excluding such
net income taxes, the "Covered Taxes").  If any Covered Taxes are required to be
                       -------------
withheld from any amounts payable to Administrator or Lender, the amounts so
payable to Administrator or Lender shall be increased to the extent necessary to
yield to Administrator or Lender (after payment of all taxes) all such amounts
payable hereunder at the rates or in the amounts specified herein.  Whenever any
Covered Taxes are payable by Borrower or Servicer, as promptly as possible
thereafter, Borrower or Servicer shall send to Administrator for its own account
or for the account of Lender, as the case may be, a certified copy of an
original official receipt received by Borrower or Servicer showing payment
thereof.  If Borrower or Servicer fails to pay any Covered Taxes when due to the
appropriate taxing authority or fails to remit to Administrator the required
documentary evidence, Borrower or Servicer shall indemnify Administrator and
Lender for such Covered Taxes and any incremental taxes that may become payable
by Administrator or Lender as a result of any such failure.

     (b)  At least five (5) Business Days prior to the first date on which any
payments, including discount or Fees, are payable hereunder for the account of
Lender, if Lender is not incorporated under the laws of the United States,
Lender agrees to deliver to each of Borrower and Administrator two (2) duly
completed copies of (i) United

                                      31
<PAGE>

States Internal Revenue Service Form 1001 or 4224 (or successor applicable form)
certifying that such Lender is entitled to receive payments hereunder without
deduction or withholding of any United States federal income taxes or (ii)
United States Internal Revenue Service Form W-8 or W-9 (or successor applicable
form) to establish an exemption from United States backup withholding tax.
Lender shall replace or update such forms as is necessary or appropriate to
maintain any applicable exemption or as is requested by Administrator or
Borrower. If Lender does not deliver the forms described in this Section 6.3(b),
                                                                 --------------
Borrower or Administrator shall withhold United States federal income taxes from
any payments made hereunder at the statutory rate applicable to payments made to
Lender. Lender agrees to indemnify and hold Borrower and Administrator harmless
for any United States federal income taxes, penalties, interest and other costs
and losses incurred or payable by Borrower or Administrator as a result of
either (i) Lender's failure to submit any form required to be provided pursuant
to this Section 6.3(b) or (ii) Borrower's or Administrator's reliance on any
        --------------
form that Lender has provided pursuant to this Section 6.3(b).
                                               --------------

                                  ARTICLE VII

                            CONDITIONS TO BORROWING

     The making of any Loan hereunder is subject to the following conditions
precedent:

     Section 7.1  Initial Loan.  The obligation of Lender to make the initial
                  ------------
Loan hereunder is, in addition to the conditions precedent specified in Section
                                                                        -------
7.2, subject to the condition precedent that Administrator shall have received
---
all of the following, each duly executed and dated the date of such Loan (or
such earlier date as shall be satisfactory to Administrator), in form and
substance satisfactory to Administrator:

          7.1.1  Resolutions.  Certified copies of resolutions of the Board of
                 -----------
     Directors of Borrower, Servicer and each Originator authorizing or
     ratifying the execution, delivery and performance, respectively, of the
     Transaction Documents to which it is a party, together with a certified
     copy of its articles or certificate of incorporation and by-laws.

          7.1.2  Consents, etc.  Certified copies of all documents evidencing
                 -------------
     any necessary corporate action, consents and governmental approvals (if
     any) with respect to the Transaction Documents.

          7.1.3  Incumbency and Signatures.  A certificate of the Secretary or
                 -------------------------
     an Assistant Secretary of each of Borrower, Servicer and each Originator
     certifying the names of its officer or officers authorized to sign the
     Transaction Documents to which it is a party.

          7.1.4  Good Standing Certificates.  Good standing certificates for
                 --------------------------
     Borrower, Servicer and each Originator issued as of a recent date
     acceptable to

                                      32
<PAGE>

     Administrator by (a) the Secretary of State of the jurisdiction of such
     Person's incorporation or organization, and (b) the Secretary of State of
     the jurisdiction where such Person's chief executive office and principal
     place of business are located.

          7.1.5  Financing Statements.  (i) Acknowledgment copies of proper
                 --------------------
     financing statements (Form UCC-1), filed on or prior to the date of the
     initial Loan, naming Borrower as debtor and Administrator (for the benefit
     of the Secured Parties) as the secured party as may be necessary or, in the
     opinion of Administrator, desirable under the UCC to perfect
     Administrator's (for the benefit of the Secured Parties) security interest
     in the Collateral, (ii) acknowledgment copies of proper financing
     statements, filed on or prior to the date of the initial Loan, naming Dixie
     as seller/debtor, Borrower as purchaser/secured party and Administrator as
     assignee as may be necessary or, in the opinion of Administrator, desirable
     under the UCC to perfect Borrower's ownership interest in the Receivables,
     (iii) acknowledgment copies of proper financing statements, filed on or
     prior to the date of the initial Loan, naming each Originator (other than
     Dixie), respectively, as seller/debtor, Dixie as purchaser/secured party
     and the Administrator, as assignee, as may be necessary or, in the opinion
     of the Administrator, desirable under the UCC to perfect Dixie's ownership
     in the Receivables purchased from such Originator, and (iv) executed copies
     of proper Uniform Commercial Code Form UCC-3 termination statements, if
     any, necessary to release all liens and other Adverse Claims of any Person
     in the Collateral granted by Borrower or Originator.

          7.1.6  Search Reports.  A written search report provided to
                 --------------
     Administrator by a search service acceptable to Administrator listing all
     effective financing statements that name Borrower or any Originator as
     debtor or assignor and that are filed in the jurisdictions in which filings
     were made pursuant to Section 7.1.5 above and in such other jurisdictions
                           -------------
     that Administrator shall reasonably request, together with copies of such
     financing statements (none of which shall cover any Collateral or interests
     therein or proceeds of any thereof, other than financing statements
     effecting an assignment of Receivables to Dixie on the Closing Date), and
     tax and judgment lien search reports from a Person satisfactory to
     Administrator showing no evidence of such lien filed against Borrower or
     any Originator.

          7.1.7  Fee Letter; Payment of Fees.  The Fee Letter, together with all
                 ---------------------------
     outstanding Fees payable pursuant to the Fee Letter.

          7.1.8  Receivables Purchase Agreement; First Tier Purchase Agreement.
                 -------------------------------------------------------------
     (i) Duly executed and delivered counterparts of each of the Receivables
     Purchase Agreement and the First Tier Purchase Agreement and all documents,
     agreements and instruments contemplated thereby, and (ii) evidence that
     each of the conditions precedent to the execution and delivery of each of
     the Receivables Purchase Agreement and the First Tier Purchase Agreement
     has been satisfied

                                      33
<PAGE>

     to Administrator's satisfaction, and that the initial assignments and
     transfers under the Receivables Purchase Agreement have been consummated.

          7.1.9   Opinions of Counsel. Opinions of counsel to Borrower, Servicer
                  -------------------
     and the Originators in form and substance satisfactory to the
     Administrator.

          7.1.10  Lender Note. The Lender Note, duly executed by Borrower.
                  -----------

          7.1.11  Borrowing Base Certificate. A certificate, substantially in
                  --------------------------
     the form of Exhibit D (a "Borrowing Base Certificate"), duly executed by an
                 ---------     --------------------------
     officer of Borrower (or the Servicer on its behalf) showing a calculation
     of the Borrowing Base as of the date of such initial Loan.

          7.1.12  Lock Box Agreements. The Lock Box Agreements, duly executed by
                  -------------------
     all of the parties thereto, and the Collection Account Agreement, duly
     executed by all of the parties thereto.

          7.1.13  Releases. Releases and termination statements duly executed by
                  --------
     each Person, other than Borrower, that has an interest in the Receivables.

          7.1.14  Other. Such other documents, certificates and opinions as
                  -----
     Administrator may request.

     Section 7.2  All Loans.  The making of the initial Loan and each subsequent
                  ---------
Loan are subject to the following further conditions precedent that:

           7.2.1  No Default, etc.  (a) No Significant Event or Unmatured
                  ----------------
     Significant Event has occurred and is continuing or will result from the
     making of such Loan, (b) no Servicer Event of Default has occurred and is
     continuing, (c) the representations and  warranties of Borrower and
     Servicer contained in Article VIII are true and correct as of the date of
                           ------------
     such requested Loan, with the same effect as though made on the date of
     such Loan, and (d) after giving effect to such Loan, the aggregate unpaid
     balance of the Loans will not exceed the Borrowing Base or the Facility
     Limit.  By making a Borrowing Request, Borrower shall be deemed to have
     represented and warranted that items (a), (b), (c) and (d) in the preceding
                                    ---------  ---  ---     ---
     sentence are true and correct.

           7.2.2  Borrowing Request, etc.  Administrator shall have received a
                  -----------------------
     Borrowing Request for such Loan in accordance with Section 2.2, together
                                                        -----------
     with all items required to be delivered in connection therewith.

           7.2.3  Commitment Termination Date.  The Commitment Termination Date
                  ----------------------------
     shall not have occurred.

           7.2.4  Collateral Review.  Administrator shall have received the
                  ------------------
most-recent Collateral Review pursuant to Section 9.1.5(e).
                                          ----------------

                                      34
<PAGE>

                                 ARTICLE VIII

                         REPRESENTATIONS AND WARRANTIES

     In order to induce Lender and Administrator to enter into this Agreement
and, in the case of Lender, to make Loans hereunder, Borrower hereby represents
and warrants to Administrator and Lender as to itself as follows, and Servicer
hereby represents and warrants to Lender and Administrator as to itself as
follows:

     Section 8.1  Organization and Good Standing, etc.  Each of Borrower and
                  ------------------------------------
Servicer has been duly organized and is validly existing and in good standing
under the laws of its state of organization, with power and authority to own
their respective properties and to conduct their respective businesses as such
properties are presently owned and such businesses are presently conducted.
Each of Borrower and Servicer is duly licensed or qualified to do business as a
foreign entity in good standing in the jurisdiction where its principal place of
business and chief executive office are located and in each other jurisdiction
in which the failure to be so licensed or qualified has had, or would be
reasonably likely to have a Material Adverse Effect.

     Section 8.2  Power and Authority; Due Authorization.  Each of Borrower and
                  --------------------------------------
Servicer has (a) all necessary power, authority and legal right to (i) execute,
deliver and perform its obligations under this Agreement and each of the other
Transaction Documents to which it is a party, and (ii) in the case of Borrower,
to borrow on the terms and subject to the conditions herein provided, and (b)
duly authorized, by all necessary action, the execution, delivery and
performance of this Agreement and the other Transaction Documents to which it is
a party and, in the case of Borrower, the borrowing, and the granting of
security therefor, on the terms and conditions provided herein.  Servicer had at
all relevant times, and now has, all necessary power, authority and legal right
to perform its duties as Servicer.

     Section 8.3  No Violation.  The consummation of the transactions
                  ------------
contemplated by this Agreement and the other Transaction Documents and the
fulfillment of the terms hereof and thereof will not (a) conflict with, result
in any breach of any of the terms and provisions of, or constitute (with or
without

                                      35
<PAGE>

notice or lapse of time or both) a default under, (i) the organizational
documents of Borrower or Servicer, or (ii) any indenture, loan agreement,
pooling and servicing agreement, receivables purchase agreement, mortgage, deed
of trust, or other agreement or instrument to which Borrower or Servicer is a
party or by which any of them or any of their respective properties is bound,
(b) result in or require the creation or imposition of any Adverse Claim upon
any of their respective properties pursuant to the terms of any such indenture,
loan agreement, pooling and servicing agreement, receivables purchase agreement,
mortgage, deed of trust, or other agreement or instrument, other than pursuant
to the terms of the Transaction Documents, or (c) violate any law or any order,
rule, or regulation applicable to Borrower or Servicer or of any court or of any
federal, state or foreign regulatory body, administrative agency, or other
governmental instrumentality having jurisdiction over Borrower, Originator or
Servicer or any of their respective properties.

     Section 8.4  Validity and Binding Nature.  This Agreement is, and the other
                  ---------------------------
Transaction Documents to which it is a party when duly executed and delivered by
Borrower or Servicer (as applicable) and the other parties thereto will be, the
legal, valid and binding obligation of Borrower or Servicer (as applicable)
enforceable in accordance with their respective terms, except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar law affecting creditors' rights generally and by general principles
of equity.

     Section 8.5  Government Approvals.  No authorization or approval or other
                  --------------------
action by, and no notice to or filing with, any governmental authority or
regulatory body required for the due execution, delivery or performance by
Borrower or Servicer of any Transaction Document to which it is a party remains
unobtained or unfiled.

     Section 8.6  Solvency.  The Borrower is Solvent.
                  --------

     Section 8.7  Margin Regulations.  Neither Borrower or Servicer is engaged
                  ------------------
in the business of extending credit for the purpose of purchasing or carrying
margin stock, and no proceeds of any Loans, directly or indirectly, will be used
for a purpose that violates, or would be inconsistent with, Regulations T, U and
X promulgated by the Federal Reserve Board from time to time.

     Section 8.8  Quality of Title.  The Collateral, including, without
                  ----------------
limitation, the Receivables, in which a security interest is to be granted to
the Administrator (for the benefit of the

                                      36
<PAGE>

Secured Parties) pursuant to this Agreement shall be owned by Borrower free and
clear of any Adverse Claim. Borrower has a first priority perfected ownership
interest in the Receivables. This Agreement creates a valid first priority
security interest in favor of Administrator (for the benefit of the Secured
Parties) in the Collateral, including without limitation the Receivables, which
security interest has been perfected (free and clear of any Adverse Claim) as
security for the Obligations. No effective financing statement or other
instrument similar in effect covering any of the Collateral or any interest
therein is on file in any recording office except for financing statements that
may be filed (i) in favor of Administrator (for the benefit of the Secured
Parties) in accordance with this Agreement, (ii) in favor of Borrower in
accordance with the Receivables Purchase Agreement or in favor of Dixie in
accordance with the First Tier Purchase Agreement, or (iii) UCC-3 termination
statements necessary to release all Liens and Adverse Claims of any Person in
the Collateral granted by Borrower or any Originator.

     Section 8.9  Offices.  The principal place of business and chief executive
                  -------
office of Borrower and Servicer is located at the address referred to on

Schedule 15.3 to this Agreement(or at such other locations, notified to
-------------
Administrator in jurisdictions where all action required thereby has been taken
and completed).

     Section 8.10  Compliance with Applicable Laws; Licenses, etc.
                   -----------------------------------------------

          (a) Each of Borrower and Servicer is in compliance with the
     requirements of all applicable laws, rules, regulations, and orders of all
     governmental authorities, a breach of any of which, individually or in the
     aggregate, would be reasonably likely to have a Material Adverse Effect.

          (b) Neither Borrower nor Servicer has failed to obtain any licenses,
     permits, franchises or other governmental authorizations necessary to the
     ownership of its properties or to the conduct of its business, which
     violation or failure to obtain has had, or would be reasonably likely to
     have, a Material Adverse Effect.

     Section 8.11  No Proceedings.  Except as described in Schedule 8.11,
                   --------------                          -------------

               (i)  there is no order, judgment, decree, injunction, stipulation
          or consent order of or with any

                                      37
<PAGE>

          court or other government authority to which Borrower or Servicer is
          subject, and there is no action, suit, arbitration, regulatory
          proceeding or investigation pending, or, to the knowledge of Borrower
          or Servicer, threatened, before or by any court, regulatory body,
          administrative agency or other tribunal or governmental
          instrumentality, against Borrower or Servicer that, individually or in
          the aggregate, has had, or is reasonably likely to have a Material
          Adverse Effect; and

               (ii  there is no action, suit, proceeding, arbitration,
          regulatory or governmental investigation, pending or, to the knowledge
          of Borrower or Servicer, threatened, before or by any court,
          regulatory body, administrative agency, or other tribunal or
          governmental instrumentality (A) asserting the invalidity of this
          Agreement, the Lender Note or any other Transaction Document, (B)
          seeking to prevent the issuance of the Lender Note or the consummation
          of any of the other transactions contemplated by this Agreement or any
          other Transaction Document or (C) seeking to adversely affect the
          federal income tax attributes of Borrower.

     Section 8.12  Investment Company Act, Etc. Neither Borrower nor Servicer is
                   ----------------------------
an "investment company" within the meaning of the Investment Company Act of
1940, as amended, or a "holding company", or a "subsidiary company", of a
"holding company", or an "affiliate" of a "holding company", or of a "subsidiary
company" of a "holding company", within the meaning of the Public Utility
Holding Company Act of 1935, as amended.

     Section 8.13  Eligible Receivables.  Each Receivable included in the
                   --------------------
Borrowing Base as an Eligible Receivable on the date of any Borrowing Base
Certificate, Monthly Report or any Loan shall be an Eligible Receivable on such
date.

     Section 8.14  Accuracy of Information. All information heretofore furnished
                   -----------------------
by, or on behalf of, Borrower or Servicer to the Administrator or Lender in
connection with any Transaction Document, or any transaction contemplated
thereby, is true and accurate in every material respect (without omission of any
information necessary to prevent such information from being materially
misleading).

                                      38
<PAGE>

     Section 8.15  No Material Adverse Change.  Since April 1, 2000, there has
                   --------------------------
been no material adverse change in the collectibility of the Receivables or
Servicer's or Borrower's (i) financial condition, business or operations or (ii)
ability to perform its obligations under any Transaction Document.

     Section 8.16  Trade Names and Subsidiaries. Borrower has not used any other
                   ----------------------------
names, trade names or assumed names for the six year period preceding the date
of this Agreement.  Borrower has no Subsidiaries and does not own or hold,
directly or indirectly, any equity interest in any Person.

     Section 8.17  Accounts.  Set forth in Schedule II hereto is a complete and
                   --------                -----------
accurate description, as of the Closing Date, of the Collection Account, the
LockBox Accounts and the LockBoxes maintained by any Originator, Borrower or
Servicer for the purpose of receiving Collections with respect to Receivables,
and the Dilution Cash Reserve Account, Collection Account and the LockBox
Accounts have been validly and effectively assigned to Administrator pursuant to
this Agreement, the LockBox Account Agreements and the Collection Account
Agreement.  The Collection Account Agreement and the LockBox Account Agreements
continue to be the legal, valid and binding obligations of the parties thereto,
enforceable against such parties in accordance with their respective terms, and
Borrower and Servicer acknowledge that all cash and other proceeds of the
Receivables will be deposited in the Collection Account or a LockBox Account in
accordance with this Agreement and are subject to the terms and conditions of
this Agreement.  None of any Originator, Servicer or Borrower has granted any
interest in the Collection Account, any LockBox or any LockBox Account to any
Person other than the Administrator, and Administrator has exclusive control of
the Collection Account and the LockBox Accounts.

     Section 8.17  Sales by Originator.  Each sale of Receivables by an
                   -------------------
Originator (other than Dixie) to Dixie shall have been effected under, and in
accordance with the terms of, the First Tier Purchase Agreement, including the
payment by Dixie to such Originator of an amount equal to the purchase price
therefor as described in the First Tier Purchase Agreement, and each such sale
shall have been made for "reasonably equivalent value" (as such term is used
under Section 548 of the Federal Bankruptcy Code) and not for or an account of
"antecedent debt" (as such term is used under Section 547 of the Federal
Bankruptcy Code) owed by Dixie to such Originator.  Each sale of Receivables by
Dixie to Borrower shall have been effected under, and in accordance with the
terms of, the Receivables Purchase Agreement, including the payment by Borrower
to Dixie of an amount equal to the purchase price therefor as described in the
Receivables Purchase Agreement, and each such sale shall have been made for
"reasonably equivalent value" (as such term is used under Section 548 of the
Federal Bankruptcy Code) and not for or on account of "antecedent debt" (as such
term is used under Section 547 of the Federal Bankruptcy Code) owed by Borrower
to Dixie.

                                      39
<PAGE>

                                  ARTICLE IX

                       COVENANTS OF BORROWER AND SERVICER

     Section 9.1  Affirmative Covenants. From the date hereof until the first
                  ---------------------
day, following the Commitment Termination Date, on which all Obligations shall
have been finally and fully paid and performed, Borrower hereby covenants and
agrees with Lender and Administrator that as to itself, and Servicer hereby
covenants and agrees with Lender and Administrator as to itself, that it will:

           9.1.1  Compliance with Laws, Etc. Comply in all material respects
                  --------------------  ---
     with all applicable laws, rules, regulations and orders of all governmental
     authorities (including those which relate to the Receivables).

           9.1.2  Preservation of Corporate Existence. Preserve and maintain its
                  -----------------------------------
     existence rights, franchises and privileges in the jurisdiction of its
     incorporation or organization, and qualify and remain qualified in good
     standing as a foreign entity in the jurisdiction where its principal place
     of business and its chief executive office are located and in each other
     jurisdiction where the failure to preserve and maintain such existence,
     rights, franchises, privileges and qualifications would have a Material
     Adverse Effect.

           9.1.3  Performance and Compliance with Receivables. Timely and fully
                  -------------------------------------------
     perform and comply with all provisions, covenants and other promises
     required to be observed by it under the Receivables and all other
     agreements related to such Receivables.

           9.1.4  Collection Policy.  Comply in all material respects with the
                  -----------------
     Collection Policy applicable to the Receivables.

           9.1.5  Reporting Requirements.  Furnish to Administrator and Lender:
                  ----------------------

           (a)    Financial Statements.
                  --------------------

                       (i)  as soon as available, and in any event within 95
                  days after the end of each Fiscal Year of Borrower, a copy of
                  the annual report for such Fiscal Year of Borrower including a
                  copy of the balance sheet of Borrower, in each case, as at the
                  end of such Fiscal Year, together with the related statements
                  of earnings and cash flows for such Fiscal Year, certified by
                  the chief executive officer, chief financial officer or
                  controller of Borrower (which certification shall state that
                  such balance sheet and statements fairly present the financial
                  condition and results of operations for such Fiscal Year in
                  accordance with GAAP), together with a certificate of such
                  officer stating that such officer has obtained no knowledge
                  that a Significant Event or Unmatured Significant Event

                                      40
<PAGE>

               has occurred and is continuing, or if, in the opinion of such
               officer, such a Significant Event or Unmatured Significant Event
               has occurred and is continuing, a statement as to the nature
               thereof;

                    (ii)  as soon as available and in any event within 95 days
               after the end of each Fiscal Year of Dixie, a balance sheet of
               Dixie as of the end of such year and statements of income and
               retained earnings and of source and application of funds of
               Dixie, along with consolidating statements, for the period
               commencing at the end of the previous Fiscal Year and ending with
               the end of such year, in each case setting forth comparative
               figures for the previous Fiscal Year, certified without material
               qualification in a manner satisfactory to Administrator by Ernst
               & Young or other nationally recognized independent public
               accountants acceptable to Administrator (it being understood that
               delivery of Dixie's Form 10-K for such Fiscal Year filed with the
               Securities and Exchange Commission will satisfy the foregoing
               requirement), together with a certificate of such accounting firm
               stating that in the course of the regular audit of the business
               of Dixie, which audit was conducted in accordance with GAAP, such
               accounting firm has obtained no knowledge that a Significant
               Event or Unmatured Significant Event has occurred and is
               continuing, or if, in the opinion of such accounting firm, such a
               Significant Event or Unmatured Significant Termination Event has
               occurred and is continuing, a statement as to the nature thereof;
               and

                    (iii) as soon as available and in any event within 50 days
               after the end of each fiscal quarter, quarterly balance sheets
               and quarterly statements of source and application of funds and
               quarterly statements of income and retained earnings of Dixie,
               certified by the chief executive or financial officer or
               controller of Dixie (which certification shall state that such
               balance sheets and statements fairly present the financial
               condition and results of operations for such fiscal quarter,
               subject to year-end audit adjustments) (it being understood that
               delivery of Dixie's Form 10-Q filed with the Securities and
               Exchange Commission for such fiscal quarter will satisfy the
               foregoing requirement), delivery of which balance sheets and
               statements shall be accompanied by a certificate of such chief
               financial officer or controller to the effect that no Significant
               Event or Unmatured Significant Event has occurred and is
               continuing.

          (b)  Monthly Reports.  On or before the 16th day after each Month End
               ---------------
     Date (each, a "Reporting Date"), Servicer shall prepare and deliver to
                    --------------
     Administrator and Lender a report, substantially in the form of Exhibit C
                                                                     ---------
     or in such other form acceptable to Administrator (a "Monthly Report"), as
                                                           --------------
     of such Month End Date signed by an authorized officer of Servicer.

                                      41
<PAGE>

          (c) Significant Events.  As soon as possible but in any event withing
              ------------------
     three days after any officer of Borrower or Servicer becomes aware of the
     occurrence of a Significant Event or an Unmatured Significant Event, or a
     Purchase Termination Event or Incipient Purchase Termination Event under
     (and as defined in) the Receivables Purchase Agreement, an officer's
     certificate of Borrower or Servicer, as the case may be, setting forth
     details of such event and the action that Servicer, Borrower or Dixie, as
     the case may be, proposes to take with respect thereto.

          (d) Servicing Certificate.  Servicer shall deliver, or cause to be
              ---------------------
     delivered, to Administrator, on or before the date that is 95 days after
     the end of each Fiscal Year, an officer's certificate signed by the
     president, chief executive officer or any vice president of Servicer, dated
     as of the last day of the preceding Fiscal Year, stating that (a) a review
     of the activities of Servicer during the preceding 12-Fiscal Month period
     and of its performance under this Agreement has been made under such
     officer's supervision and (b) to the best of such officer's knowledge,
     based on such review, Servicer has fulfilled its obligations under the
     Agreement throughout such Fiscal Year and has complied in all respects with
     the Collection  Policy, or, if there has been a default in the fulfillment
     of any such obligation, specifying each such default known to such officer
     and the nature and status thereof.

          (e) Collateral Review.  As soon as possible, and in any event within
              -----------------
     30 days after the Closing Date, and after each semi-annual period
     thereafter, a report of the independent certified public accountants of
     Dixie (each such report, a "Collateral Review") which satisfies the
                                 -----------------
     requirements set forth on Schedule 9.1.5.
                               --------------

          (f) Collection Policy.  On or before May 1 of each year, a copy of the
              -----------------
     Collection Policy as then in effect, together with a summary of any changes
     to the Collection Policy from the one delivered to the Administrator during
     the previous year (or on or prior to the Closing Date in the case of the
     Collection Policy delivered in 2001).

          (g) Fiscal Months.  On or before November 1 of each year, on updated
              -------------
     Schedule I hereto showing the schedule of Fiscal Months for the following
     ----------
     Fiscal Year.

          (h) Other.  Promptly, from time to time, such other information,
              -----
     documents, records or reports respecting the Collateral, the Receivables or
     the condition or operations, financial or otherwise, of Borrower,
     Originator or Servicer as Administrator may from time to time reasonably
     request in order to protect the interests of Administrator or Lender under
     or as contemplated by this Agreement or the other Transaction Documents.

                                      42
<PAGE>

          9.1.6  Use of Proceeds.  Borrower shall use the proceeds of the Loans
                 ---------------
     made hereunder solely in connection with the acquisition or funding of
     Receivables or the repayment of amounts owed under the Originator Note in
     connection therewith.

          9.1.7  Separate Legal Entity. Borrower hereby acknowledges that Lender
                 ---------------------
     and Administrator are entering into the transactions contemplated by this
     Agreement and the other Transaction Documents in reliance upon Borrower's
     identity as a legal entity separate from any other Person. Therefore, from
     and after the date hereof, Borrower shall take all reasonable steps to
     continue Borrower's identity as a separate legal entity and to make it
     apparent to third Persons that Borrower is an entity with assets and
     liabilities distinct from those of any other Person, and is not a division
     of any other Person.  Without limiting the generality of the foregoing and
     in addition to and consistent with the covenant set forth in Section 9.1.2,
                                                                  -------------
     Borrower shall take such actions as shall be required in order that:

          (a) Borrower will be a limited purpose corporation whose primary
     activities are restricted in its certificate of incorporation to owning
     financial assets and financing the acquisition thereof and conducting such
     other activities as it deems necessary or appropriate to carry out its
     primary activities;

          (b) Not less than two members of Borrower's Board of Directors (the
     "Independent Directors") shall be individuals who are not, and during the
      ---------------------
     past five (5) years have not been, a director, officer, employee or 5%
     beneficial owner of the outstanding common stock of any Person or entity
     beneficially owning any outstanding shares of common stock of Dixie or any
     Affiliate thereof; provided, however, that an individual shall not be
                        --------  -------
     deemed to be ineligible to be an Independent Director solely because such
     individual serves or has served in the capacity of an "independent
     director" or similar capacity for special purpose entities formed by Dixie
     or any of its Affiliates.  The certificate of incorporation of Borrower
     shall provide that (i) the Board of Directors shall not approve, or take
     any other action to cause the filing of, a voluntary bankruptcy petition
     with respect to Borrower unless the Independent Directors shall approve the
     taking of such action in writing prior to the taking of such action, and
     (ii) such provision cannot be amended without the prior written consent of
     the Independent Directors;

          (c) Any employee, consultant or agent of Borrower will be compensated
     from funds of Borrower, as appropriate, for services provided to Borrower;

          (d) Borrower will allocate and charge fairly and reasonably overhead
     expenses shared with any other Person. To the extent, if any, that Borrower
     and any other Person share items of expenses such as legal, auditing and
     other professional services, such expenses will be allocated to the extent
     practical on the basis of actual use or the value of services rendered, and
     otherwise on a

                                      43
<PAGE>

     basis reasonably related to the actual use or the value of services
     rendered;

          (e)    Borrower's operating expenses will not be paid by any other
     Person except as permitted under the terms of this Agreement or otherwise
     consented to by Administrator and Lender;

          (f)    Borrower's books and records will be maintained separately from
     those of any other Person;

          (g)    All audited financial statements of any Person that are
     consolidated to include Borrower will contain detailed notes clearly
     stating that (A) all of Borrower's assets are owned by Borrower, and (B)
     Borrower is a separate corporate entity;

          (h)    Borrower's assets will be maintained in a manner that
     facilitates their identification and segregation from those of any other
     Person;

          (i)    Borrower will strictly observe corporate formalities in its
     dealings with all other Persons, and funds or other assets of Borrower will
     not be commingled with those of any other Person;

          (j)    Borrower shall not, directly or indirectly, be named or enter
     into an agreement to be named, as a direct or contingent beneficiary or
     loss payee, under any insurance policy with respect to any amounts payable
     due to occurrences or events related to any other Person; and

          (k)    Any Person that renders or otherwise furnishes services to
     Borrower will be compensated thereby at market rates for such services it
     renders or otherwise furnishes thereto.  Borrower will not hold itself out
     to be responsible for the debts of any other Person or the decisions or
     actions respecting the daily business and affairs of any other Person.

          9.1.8  Adverse Claims on Receivables.  Defend each Receivable against
                 -----------------------------
     all claims and demands of all Persons at any time claiming the same or any
     interest therein adverse to Administrator and the Secured Parties.

          9.1.9  Further Assurances.  At their expense, perform all acts and
                 ------------------
     execute all documents reasonably requested by Administrator at any time to
     evidence, perfect, maintain and enforce the title or the security interest
     of Administrator in the Receivables and the priority thereof.  Borrower
     will, at the reasonable request of Administrator, execute and deliver
     financing statements relating to or covering the Collateral and, where
     permitted by law, Borrower shall authorize Administrator to file one or
     more financing statements signed only by Administrator.  Borrower and
     Servicer shall cause its computer records, master data processing records
     and other books and records relating to the Receivables to be marked, with
     a legend stating that the Receivables have been sold to

                                      44
<PAGE>

Borrower and that the Collateral has been pledged to Administrator for the
benefit of the Secured Parties.

          9.1.10  Servicing. Servicer shall use all reasonable measures to
                  ---------
     prevent or minimize any loss being realized on a Receivable and shall take
     all reasonable steps to recover the full amount of such loss. Borrower and
     Servicer shall, at their own expense, take such steps as are necessary to
     maintain perfection of the security interest created by each Receivable in
     the related goods and merchandise subject thereto. Servicer shall use its
     best efforts, consistent with prudent servicing procedures, to repossess or
     otherwise convert the ownership of the goods or merchandise securing any
     Receivable which becomes a Defaulted Receivable. Servicer shall follow such
     practices and procedures for servicing the Receivables as would be
     customary and usual for a prudent servicer under similar circumstances,
     including using reasonable efforts to realize upon any recourse to the
     Obligors and selling the Merchandise securing a Receivable at a public or
     private sale.

          9.1.11  Inspection. Servicer and Borrower shall permit Lender,
                  ----------
     Administrator or their duly authorized representatives, attorneys or
     auditors to inspect the Receivables, the Receivable Files, Documents and
     the related accounts, records and computer systems, software and programs
     used or maintained by Borrower or Servicer at such times as Lender or
     Administrator may reasonably request. Upon instructions from Lender or
     Administrator, Borrower or Servicer shall release any document related to
     any Receivables to Lender or Administrator, as the case may be.

          9.1.12  Cooperation. Borrower and Servicer shall provide such
                  -----------
     cooperation, information and assistance, and prepare and supply
     Administrator with such data regarding the performance by the Obligors of
     their obligations under the Receivables and the performance by Borrower and
     Servicer of their respective obligations under the Transaction Documents,
     as may be reasonably requested by Administrator from time to time.

          9.1.13  Facility. Servicer shall maintain its facility from which it
                  --------
     services the Receivables in its present condition, ordinary wear and tear
     excepted, or such other facility of similar quality, security and safety as
     Servicer may select from time to time. Servicer shall make all property tax
     payments, lease payments and all other payments with respect to such
     facility. Servicer shall (i) ensure that Administrator shall have complete
     and unrestricted access, at Servicer's expense, to such facility and all
     computers and other systems relating to the servicing of the Receivables
     and all persons employed at such facility, (ii) use its best efforts to
     retain the employees based at such facility to provide assistance to
     Administrator and (iii) continue to store on a daily basis all back-up
     files relating to the Receivables and the servicing of the Receivables at
     the facilities of Dixie at 185 South Industrial Blvd., SW, Calhoun, Georgia
     30701, or such other storage facility of similar quality, security and
     safety as Servicer may select from time to

                                      45
<PAGE>

     time, in the case of each of clauses (i), (ii) and (iii) until the receipt
                                  -----------  ----     -----
     of all Collections in respect of all Receivables or all Receivables have
     been written off in accordance with the Collection Policy.

          9.1.14  Accounts. Borrower shall not maintain any bank accounts other
                  --------
     than the Collection Account and the LockBox Accounts described on Schedule
                                                                       --------
     II. Except as set forth in the last sentence of Section 11.2(c)(ii)
     --                                              -------------------
     Borrower shall not make, nor will it permit any Originator or Servicer to
     make, any change in its instructions to Obligors regarding payments to be
     made to a LockBox. Neither Borrower nor Servicer shall, nor will it permit
     any Originator to, add any LockBox Account Bank or Collection Account Bank,
     or Lock Box Account or Collection Account, to those listed on Schedule II
                                                                   -----------
     unless Administrator shall have consented thereto and received a copy of
     any new duly executed Collection Account Agreement or LockBox Account
     Agreement, as the case may be. Neither Borrower nor Servicer shall, nor
     will it permit any Originator to, terminate any LockBox Account Bank or
     Collection Account Bank or close any LockBox Account or Collection Account
     unless Administrator shall have received at least thirty (30) days prior
     notice of such termination.

     Section 9.2  Negative Covenants of Borrower. From the date hereof until the
                  ------------------------------
first day, following the Commitment Termination Date, on which all Obligations
shall have been finally and fully paid and performed, each of Borrower and
Servicer hereby covenants and agrees:

          9.2.1   Sales, Liens, Etc. Except pursuant to, or as contemplated by,
                  -----------------
     the Transaction Documents, Borrower shall not sell, assign (by operation of
     law or otherwise) or otherwise dispose of, or create or suffer to exist
     voluntarily or, for a period in excess of 5 days, involuntarily any Adverse
     Claims upon or with respect to any of its assets, including, without
     limitation, the Collateral, any interest therein or any right to receive
     any amount from or in respect thereof.

          9.2.2   Mergers, Acquisitions, Sales, Subsidiaries, etc.
                  ------------------------------------------------

          (a)     Certain Restrictions on Borrower.  Borrower shall not:
                  --------------------------------

                  (i)  be a party to any merger or consolidation, or directly or
          indirectly purchase or otherwise acquire all or substantially all of
          the assets or any stock of any class of, or any partnership or joint
          venture interest in, any other Person, except for Permitted
          Investments, or sell, transfer, assign, convey or lease any of its
          property and assets (or any interest therein) other than pursuant to,
          or as contemplated by, this Agreement or the other Transaction
          Documents;

                  (ii) make, incur or suffer to exist an investment in, equity
          contribution to, loan or advance to, or payment obligation in respect
          of the deferred purchase price of property from, any other Person,
          except for Permitted Investments or pursuant to the Transaction
          Documents;

                                      46
<PAGE>

                 (iii)  create any direct or indirect Subsidiary or otherwise
          acquire direct or indirect ownership of any equity interests in any
          other Person other than pursuant to the Transaction Documents; or

                 (iv)   enter into any transaction with any Affiliate except for
          the transactions contemplated by the Transaction Documents and other
          transactions upon fair and reasonable terms materially no less
          favorable to Borrower than would be obtained in a comparable arm's
          length transaction with a Person not an Affiliate.

          9.2.3  Change in Business Policy: Change in Collection Policy.
                 ------------------------------------------------------
     Borrower shall not make any change in the character of its business.
     Neither Borrower nor Servicer shall make any change in the Collection
     Policy that could adversely affect the collectibility of any Receivable.

          9.2.4  Other Debt. Borrower shall not incur any Debt to any Person
                 ----------
     other than pursuant to this Agreement, the Receivables Purchase Agreement
     or otherwise in connection with a transaction involving Lender, Bank, any
     Credit Bank, any Liquidity Bank or any other Persons providing liquidity or
     credit support to Lender.

          9.2.5  Certificate of Incorporation and By-Laws. Borrower shall not
                 ----------------------------------------
     amend its certificate of incorporation or by-laws.

          9.2.6  Chief Executive Office. The principal place of business and
                 ----------------------
     chief executive office of each of Borrower and Servicer is located at the
     address referred to on Schedule 15.3 to this Agreement. Originals or
                            -------------
     duplicates of documents and records evidencing all Receivables are kept at,
     and only at, the offices set forth on Schedule 9.2.6, and neither Borrower
                                           --------------
     nor Servicer shall move its chief executive office or permit the documents
     and records evidencing the Receivables to be moved unless (i) Borrower or
     Servicer, as the case may be, shall have given to Administrator prior
     written notice thereof, clearly describing the new location, and (ii)
     Borrower shall have taken such action, satisfactory to Administrator, to
     maintain the title or ownership of Borrower and any security interest of
     Administrator in the Collateral at all times fully perfected and in full
     force and effect. Servicer shall not, in any event, move the location where
     it conducts the servicing and collection of the Receivables from the
     address referred to on Schedule 15.3 to this Agreement, without the prior
                            -------------
     written consent of Administrator, which consent shall not be unreasonably
     withheld.

          9.2.7  Financing Statements. Borrower shall not execute any effective
                 --------------------
     financing statement (or similar statement or instrument of registration
     under the laws of any jurisdiction) or statements relating to any
     Receivables other than the financing statements described in Section 7.1.5.
                                                                  -------------

                                      47
<PAGE>

          9.2.8  Business Restrictions.  Borrower shall not (i) engage in any
                 ---------------------
     business or transactions, or be a party to any documents, agreements or
     instruments, other than the Transaction Documents or those incidental to
     the purposes thereof, or (ii) make any expenditure for any assets (other
     than Receivables) if such expenditure, when added to other such
     expenditures made during the same calendar year would, in the aggregate,
     exceed $4,950; provided, however, that the foregoing will not restrict the
                    --------  -------
     Borrower's ability to pay servicing compensation as provided herein and, so
     long as no Significant Event or Unmatured Significant Event shall have
     occurred and be continuing, and that Borrower's tangible net worth, after
     giving effect thereto, shall not be less than $2,000,000, the Borrower's
     ability to pay amounts due on the Originator Note or other payments or
     distributions legally made to Borrower's equity owners.

                                   ARTICLE X

                      SIGNIFICANT EVENTS AND THEIR EFFECT

     Section 10.1 Events of Default. Each of the following shall constitute an
                  -----------------
Event of Default under this Agreement:

          10.1.1  Non-Payment of Loans, Etc. Borrower shall fail to make any
                  --------------------------
     payment when due of any principal of or interest on any Loan, or payment of
     any other amount payable by Borrower hereunder, including, without
     limitation, interest on any Loan or any Fees, or shall fail to make any
     deposit required to be made hereunder when due and such failure shall
     continue for three Business Days.

          10.1.2  Non-Compliance with Other Provisions. Borrower shall fail to
                  ------------------------------------
     perform or observe any other term, covenant or agreement contained in this
     Agreement or any other Transaction Document on its part to be performed or
     observed and any such failure shall remain unremedied for thirty days after
     the earlier to occur of (i) Borrower having knowledge thereof and (ii)
     Borrower having received written notice thereof from the Lender or the
     Administrator.

          10.1.3  Breach of Representations and Warranties. Any representation
                  ----------------------------------------
     or warranty of Borrower made or deemed to have been made hereunder or in
     any other Transaction Document or any other writing or certificate
     furnished by or on behalf of Borrower to Administrator or Lender for
     purposes of or in connection with this Agreement or any other Transaction
     Document shall prove to have been false or incorrect in any material
     respect when made or deemed to have been made, and shall continue to be
     false or incorrect for a period of 30 days after the earlier to occur of
     (i) Borrower having obtained knowledge thereof and (ii) Borrower having
     received written notice thereof from the Lender or the Administrator.

          10.1.4  Bankruptcy.  An Event of Bankruptcy shall have occurred and
                  ----------
     remained continuing with respect to Borrower.

                                      48
<PAGE>

          10.1.5  Tax Liens. The Internal Revenue Service shall file notice of
                  ---------
     a lien pursuant to Section 6323 of the Internal Revenue Code with regard to
     any of the assets of Borrower, and such lien shall not have been released
     within 5 Business Days.

     Section 10.2 Amortization Events. Each of the following shall constitute an
                  -------------------
Amortization Event under this Agreement:

          10.2.1  Servicer Event of Default. A Servicer Event of Default shall
                  -------------------------
     have occurred and remained continuing.

          10.2.2  Borrowing Base Deficit. A Borrowing Base Deficit shall exist
                  ----------------------
     and such condition shall continue unremedied for three Business Days.

          10.2.3  Default Ratio. The Default Ratio shall be equal to or exceed
                  -------------
     3.5% on a rolling three-month average basis.

          10.2.4  Delinquency Ratio. The Delinquency Ratio shall be equal to or
                  -----------------
     exceed 15% on a rolling three-month average basis.

          10.2.5  Dilution Ratio. The Dilution Ratio shall be equal to or exceed
                  --------------
     6% on a rolling three-month average basis.

          10.2.6  Dilution Cash Reserve. The Dilution Cash Reserve is less than
                  ---------------------
     $400,000 at any time.

          10.2.7  Accounts Receivable Turnover Ratio. The Accounts Receivable
                  ----------------------------------
     Turnover Ratio is less than 7.5 for any Due Period.

          10.2.8  Event of Default. An Event of Default shall have occurred and
                  ----------------
     remained continuing.

          10.2.9  Validity of Transaction Documents. (a) Any Transaction
                  ---------------------------------
     Document, or any lien or security interest granted thereunder, shall
     (except in accordance with its terms), in whole or in part, terminate,
     cease to be effective or cease to be the legally valid, binding and
     enforceable obligation of Borrower, Servicer or any Originator party to
     such Transaction Document, (b) Borrower, any Originator or Servicer shall,
     directly or indirectly, contest in any manner such effectiveness, validity,
     binding nature or enforceability or (c) any security interest securing any
     Obligation shall, in whole or in part, cease to be a perfected first
     priority security interest.

                                      49
<PAGE>

     Section 10.3 Effect of Significant Event.
                  ---------------------------

          (a)  Optional Termination. Upon the occurrence of a Significant Event
               --------------------
     (other than an Event of Default described in Section 10.1.4 or an
                                                  --------------
     Amortization Event described in Section 10.2.2), Administrator may, and at
                                     --------------
     the request of Lender shall, by notice to the Borrower (a copy of which
     shall be promptly forwarded by Administrator to each Rating Agency),
     declare all or any portion of the outstanding principal amount of the Loans
     and other Obligations to be due and payable and/or the Lender's Commitment
     (if not theretofore terminated) to be terminated by declaring the
     Commitment Termination Date to have occurred, whereupon the full unpaid
     amount of such Loans and other Obligations which shall be so declared due
     and payable shall be and become immediately due and payable, without
     further notice, demand or presentment, and/or, as the case may be, the
     Lender's Commitment shall terminate.

          (b)  Automatic Termination. Upon the occurrence of an Event of Default
               ---------------------
     described in Section 10.1.4 or an Amortization Event described in Section
                  --------------                                       -------
     10.2.2), the Commitment Termination Date shall be deemed to have occurred
     ------
     automatically, and all outstanding Loans and all other Obligations shall
     become immediately and automatically due and payable, all without
     presentment, demand, protest, or notice of any kind.

          (c)  Notice to Rating Agencies. The Administrator shall notify each
               -------------------------
     Rating Agency of the occurrence of any continuing Significant Event,
     promptly following its actual knowledge thereof.

                                  ARTICLE XI

                                 THE SERVICER

     Section 11.1 Dixie as Initial Servicer. The servicing, administering and
                  -------------------------
collection of the Receivables shall be conducted by the Person designated from
time to time as Servicer hereunder. Until such time as Administrator shall
notify Dixie in writing pursuant to Section 5.05 hereof of the revocation of
                                    ------------
such power and authority, Borrower, Lender and Administrator hereby appoint
Dixie, and Dixie hereby agrees to act, as Servicer hereunder.

     Section 11.2 Certain Duties of Servicer.
                  --------------------------

          (a)  Authorization to Act as Borrower's Agent. Borrower hereby
               ----------------------------------------
     appoints Servicer as its agent for the following purposes: (i) selecting
     the amount of each requested Loan and executing Borrowing Requests on
     behalf of Borrower, (ii) making transfers among, deposits to and
     withdrawals from all deposit accounts of Borrower for the purposes
     described in the Transaction Documents, (iii) arranging payment by Borrower
     of all Fees, expenses, other Obligations and other amounts payable under
     the Transaction Documents, (iv) causing the repayment and prepayment of the
     Loans as required or permitted

                                      50
<PAGE>

     pursuant to Section 4.1 and (v) executing and preparing the Monthly
                 -----------
     Reports; provided, however, that Servicer shall act in such capacity only
              --------  -------
     as an agent of Borrower and shall incur thereby no additional obligations
     with respect to any Loan. Borrower irrevocably agrees that (A) it shall be
     bound by all proper actions taken by Servicer pursuant to the preceding
     sentence, and (B) Lender, Administrator and the banks holding all deposit
     accounts of Borrower are entitled to accept submissions, determinations,
     selections, specifications, transfers, deposits and withdrawal requests,
     and payments from Servicer on behalf of Borrower.

          (b)  Servicer to Act as Servicer. (i) Servicer shall service and
               ---------------------------
     administer the Receivables on behalf of Borrower and Administrator (for the
     benefit of the Secured Parties) and shall have full power and authority,
     acting alone and/or through subservicers as provided in Section
                                                             -------
     11.2(b)(iii), to do any and all things which it may deem reasonably
     ------------
     necessary or desirable in connection with such servicing and administration
     and which are consistent with this Agreement. Consistent with the terms of
     this Agreement, Servicer may waive, modify or vary any term of any
     Receivable or consent to the postponement of strict compliance with any
     such term or in any manner, grant indulgence to any Obligor if, in
     Servicer's reasonable determination, such waiver, modification,
     postponement or indulgence is not materially adverse to the interests of
     Borrower or Administrator (for the benefit of the Secured Parties);
     provided, however, that Servicer may not permit any modification with
     --------  -------
     respect to any Receivable that would reduce the Unpaid Balance (except for
     actual payments thereof), or extend the due date thereof, except that
     Servicer may take such actions with respect to Defaulted Receivables if
     such actions will, in Servicer's reasonable business judgment, maximize the
     Collections thereof. Without limiting the generality of the foregoing,
     Servicer in its own name or in the name of Borrower is hereby authorized
     and empowered by Borrower when Servicer believes it appropriate in its best
     judgment to execute and deliver, on behalf of Borrower, any and all
     instruments of satisfaction or cancellation, or of partial or full release
     or discharge and all other comparable instruments, with respect to the
     Receivables.

               (ii)   Servicer shall service and administer the Receivables by
          employing such procedures (including collection procedures) and degree
          of care, in each case consistent with applicable law, with the
          Collection Policy and with prudent industry standards, as are
          customarily employed by Servicer in servicing and administering
          receivables owned or serviced by Servicer comparable to the
          Receivables. Servicer shall not take any action to impair
          Administrator's (for the benefit of the Secured Parties) security
          interest in any Receivable, except to the extent allowed pursuant to
          this Agreement or required by law.

               (iii)  Servicer may perform any of its duties pursuant to this
          Agreement, including those delegated to it pursuant to this Agreement,

                                      51
<PAGE>

          through subservicers appointed by Servicer, provided that such
                                                      --------
          subservicing arrangements may be terminated, at the Administrator's
          discretion, upon the replacement of Dixie as Servicer. Such
          subservicers may include Affiliates of Servicer. Notwithstanding any
          such delegation of a duty, Servicer shall remain obligated and liable
          for the performance of such duty as if Servicer were performing such
          duty.

               (iv)  Servicer may take such actions as are necessary to
          discharge its duties as Servicer in accordance with this Agreement,
          including the power to execute and deliver on behalf of Borrower such
          instruments and documents as may be customary, necessary or desirable
          in connection with the performance of Servicer's duties under this
          Agreement (including consents, waivers and discharges relating to the
          Receivables).

               (v)   Servicer shall keep separate records covering the
          transactions contemplated by this Agreement, including the identity
          and collection status of each Receivable purchased by Borrower from
          the Originator and the Originator Payables.

          (c)  Collections. (i) On or prior to the Closing Date, Borrower and
               -----------
     Servicer shall have established and shall maintain thereafter the following
     system of collecting and processing Collections of Receivables. The
     Obligors shall be instructed to make payments of Receivables only by check
     mailed to a Post Office Box listed on Schedule II (the "LockBoxes")(such
                                           -----------       ---------
     payments, upon receipt in a LockBox being referred to herein as "Mail
                                                                      ----
     Payments") or by wire transfer to an account that is subject to a LockBox
     --------
     Account Agreement.

               (ii)  On or prior to the Closing Date, Administrator shall have
          received a consent to assignment of the assignment of each LockBox to
          Administrator. Servicer's right of access thereto shall be revocable
          at the option of Administrator upon the occurrence of Unmatured
          Significant Event or Significant Event. In addition, after the
          occurrence of any Unmatured Significant Event or any Significant
          Event, Servicer agrees that it shall, upon the written request of
          Administrator, notify all Obligors under Receivables to make payment
          thereof to (i) one or more bank accounts and/or post-office boxes
          designated by Administrator and specified in such notice or (ii) any
          successor Servicer appointed hereunder.

               (iii) Servicer shall remove all Mail Payments, or cause all Mail
          Payments to be removed, from each LockBox by the close of business on
          each Business Day and deposited into a LockBox Account. All funds in
          each LockBox shall be swept into the Collection Account on each
          Business Day. Servicer shall process all such Mail Payments, and all
          wire transfers, ACH payments and other payments on the date received
          by recording the amount of the payment received from the Obligor and
          the applicable account or invoice number.

                                      52
<PAGE>

               (iv)    All Collections received by an Originator or Servicer in
          respect of Receivables will, pending remittance to the Collection
          Account as provided herein, be held by such Originator or Servicer in
          trust for the exclusive benefit of Administrator, and shall not be
          commingled with any other funds or property of such Originator or
          Servicer.

               (v)     Borrower and Servicer hereby irrevocably waive any right
          to set off against, or otherwise deduct from, any Collections.

               (vi)    In performing its duties and obligations hereunder,
          Servicer (A) shall not impair the rights of Borrower or Administrator
          in any Receivable, (B) shall not amend the terms of any Receivable
          other than in accordance with the Collection Policy and this
          Agreement, (C) shall not release any Merchandise securing a Receivable
          from the lien created by such Receivable except as specifically
          provided for herein, and (D) shall be entitled to commence or settle
          any legal action to enforce collection of any Receivable or to
          foreclose upon or repossess any Merchandise securing such Receivable.
          In the event that Servicer shall breach any of its covenants set forth
          in clause (A), (B) or (C) of this Section 11.2(c)(vi), Servicer shall
             ----------  ---    ---         -------------------
          pay the Unpaid Balance of each Receivable affected thereby on the
          Distribution Date following the Due Period in which such event occurs.
          For the purposes of Section 11.7 hereof, Servicer shall not be deemed
                              ------------
          to have breached its obligations under this Section 11.2(c)(vi) unless
                                                      -------------------
          it shall fail to make such payment with respect to any Receivable
          affected by Servicer's noncompliance with clause (A), (B) or (C) of
                                                    ----------  ---    ---
          this Section 11.2(c)(vi).
               -------------------

               (viii)  All payments or other amounts collected or received by
          Servicer in respect of a Receivable shall be applied to the Unpaid
          Balance of such Receivable.

          (d)  Collection Account. (i) On any Business Day, Borrower may
               ------------------
     withdraw, or permit Servicer to withdraw, funds that are on deposit in the
     Collection Account, provided that (A) no Significant Event or Unmatured
                         --------
     Significant Event has occurred and is continuing, (B) the Commitment
     Termination Date has not occurred, and (C) after giving effect to such
     withdrawal, no Borrowing Base Deficit has occurred (based on the most
     recent Monthly Report, adjusted for Collections received to date and new
     Eligible Receivables generated since such date) or will result therefrom
     and there are funds in the Collection Account at least equal to the
     interest on the Loans and the Fees accrued through such date. The
     withdrawal of funds from the Collection Account shall be deemed to
     constitute a representation by Borrower and the Servicer that all of the
     foregoing conditions have been met as of the date of such withdrawal, and
     after giving effect thereto.

          (ii) Prior to 3:00 p.m., New York time, on the Business Day preceding

                                      53
<PAGE>

     each Distribution Date (a "Deposit Date") (1) Servicer shall deposit or
                                ------------
     cause to be deposited in the Collection Account, to the extent not already
     on deposit therein, an amount equal to, without duplication, the lesser of
     (A) (i) the aggregate amount of all Collections received during the
     immediately preceding Due Period, plus (ii) the aggregate amounts due from
                                       ----
     Servicer on such Distribution Date pursuant to Section 11.2(c)(vi) hereof,
                                                    -------------------
     plus (iii) the aggregate amount of Originator Payables paid on such
     ----
     Distribution Date and (B) the amounts due on such Distribution Date
     pursuant to clauses first through seventh of Section 4.2(b), and the
                                                  --------------
     remainder of the Collections from such Due Period shall be applied pursuant
     to the Receivables Purchase Agreement, provided that if a Significant Event
                                            --------
     or Unmatured Significant Event shall exist on such Distribution Date or the
     Commitment Termination Date has occurred, then the Servicer shall deposit
     all of the amounts described in the foregoing clause A in the Collection
                                                   --------
     Account on such Deposit Date.

          (iii)  Servicer shall distribute the amounts on deposit in the
     Collection Account in accordance with Section 4.2 hereof.

          (iv)   Funds deposited in the Collection Account may be invested by
     Servicer in Permitted Investments that mature not later than the Business
     Day next preceding the Distribution Date. All income, gain or losses
     realized from any such investment shall be credited or debited (as
     applicable) to the balance of the Collection Account. Servicer shall have
     no obligation to reimburse the Collection Account for any losses realized
     by reason of such investments.

     Section 11.3  Servicing Compensation. Servicer, as compensation for its
                   ----------------------
activities hereunder, shall be entitled to receive the Servicing Fee, which
shall be payable by Borrower on each Distribution Date from funds on deposit in
the Collection Account in accordance with Section 4.2. Servicer shall be
                                          -----------
required to pay all expenses incurred by it in connection with its servicing
activities hereunder (including payment of the fees and expenses of any
subservicer) and shall not be entitled to reimbursement therefor except as
specifically provided herein.

     Section 11.4  Agreement Not to Resign. Dixie acknowledges that Lender and
                   -----------------------
Administrator have relied on Dixie's agreement to act as Servicer hereunder in
their respective decisions to execute and deliver the respective Transaction
Documents to which they are parties. In recognition of the foregoing, Dixie
agrees not to resign as Servicer voluntarily, except as required by law (as
evidenced by the delivery of an outside opinion of counsel to Administrator, in
form and substance satisfactory to Administrator), without the prior written
consent of the Administrator.

     Section 11.5  Designation of Servicer. Borrower agrees not to designate any
                   -----------------------
Person other than Dixie as Servicer without the prior written consent of
Administrator.

     Section 11.6  Termination. The authorization of Servicer to act on behalf
                   -----------
of Borrower under this Agreement and the other Transaction Documents shall
terminate at

                                      54
<PAGE>

the sole discretion of Administrator upon the replacement of Servicer by a
successor Servicer selected by Administrator.

     Section 11.7  Servicer Events of Default. Each of the following shall
                   --------------------------
constitute a "Servicer Event of Default" under this Agreement:
              -------------------------

          (a)    failure by the Servicer to make any payments required to be
     made by it hereunder on the day on which such payment is required to be
     made and such failure continues for three Business Days;

          (b)    failure on the part of the Servicer to observe or perform in
     any respect any other covenants or agreements of the Servicer contained
     herein which continues unremedied for a period of 30 days after the earlier
     of (i) Servicer's knowledge thereof and (ii) receipt by Servicer of written
     notice thereof from the Lender or the Administrator;

          (c)    the delegation by the Servicer of its duties hereunder, except
     as expressly permitted in accordance with the terms hereof;

          (d)    any representation, warranty or certification made by the
     Servicer herein proves to have been incorrect when made and which continues
     to be incorrect for a period of 30 days after the earlier of (i) Servicer's
     knowledge thereof and (ii) receipt by Servicer of written notice thereof
     from the Lender or the Administrator;

          (e)    so long as Dixie shall be the Servicer the Consolidated
     Tangible Net Worth of Dixie shall be less than or equal to $70,000,000;

          (f)    an Event of Bankruptcy shall have occurred with respect to the
     Servicer or any Originator;

          (g)    a final judgment or judgments for the payment of money in
     excess of $50,000 in the aggregate shall have been rendered against
     Borrower or $5,000,000 in the aggregate shall have been rendered against
     Dixie and the same shall have remained unsatisfied and in effect, without
     stay of execution, for a period of 30 consecutive days after the period for
     appellate review shall have elapsed; or

          (h)    Dixie shall fail to pay any Debt in excess of $5,000,000 when
     due, or a default shall have occurred and be continuing with respect to any
     such Debt which default results in, or would permit, the acceleration of
     such Debt.

At any time during the continuance of any Servicer Event of Default,
Administrator may, in its sole discretion, notify Servicer in writing of the
revocation of its appointment as Servicer hereunder. Upon revocation of
Servicer's appointment hereunder, Administrator shall appoint a successor
Servicer.

                                      55
<PAGE>

     Servicer agrees that upon receipt of written notification from
Administrator of the revocation of Servicer's appointment as Servicer hereunder,
Servicer shall upon the written request of Administrator (which request may be
contained in the notification of revocation) (i) notify all Obligors under the
Receivables to make payment thereof to a bank account(s) or post office box
designated by Administrator and specified in such notice, and (ii) pay to
Administrator (or its designee) immediately all Collections then held or
thereafter received by Servicer or Originator of Receivables, together with all
other payment obligations of the Servicer hereunder owing to Lender or the
Administrator.

     Servicer shall, at its sole cost and expense, cooperate with and assist the
successor Servicer (including, without limitation, providing access to, and
transferring, all Receivable Files and all records (including data-processing
records) relating thereto (which shall be held in trust for the benefit of the
parties hereto in accordance with their respective interests)) and allowing the
successor Servicer to use all licenses, hardware or software necessary or
desirable to collect the Receivables). Dixie irrevocably agrees to act (if
requested to do so) as the data-processing agent for the successor Servicer (in
substantially the same manner as Dixie conducted such data-processing functions
while it acted as Servicer).

                                  ARTICLE XII

                                 ADMINISTRATOR

     Section 12.1  Authorization and Action.  Lender hereby appoints SunTrust
                   ------------------------
Equitable Securities Corporation as its Administrator for purposes of the
Transaction Documents and authorizes SunTrust Equitable Securities Corporation
in such capacity to take such action on its behalf under each Transaction
Document and to exercise such powers hereunder and thereunder as are delegated
to SunTrust Equitable Securities Corporation, as Administrator, by the terms
hereof and thereof, together with such powers as are reasonably incidental
thereto.

     Section 12.2  Administrator and Affiliates.  SunTrust and any of its
                   ----------------------------
Affiliates may generally engage in any kind of business with Borrower, SunTrust,
Servicer, any Obligor, any of their respective Affiliates and any Person who may
do business with or own securities of Borrower, SunTrust, Servicer, any Obligor
or any of their respective Affiliates, all as if SunTrust Equitable Securities
Corporation were not Administrator and without any duty to account therefor to
Lender.

                                  ARTICLE XIII

                                  ASSIGNMENTS

     Section 13.1  Restrictions on Assignments.  Neither Borrower nor Servicer
                   ---------------------------
may assign its rights hereunder or any interest herein without the prior written
consent of

                                      56
<PAGE>

Administrator and Lender.  Lender may not assign its rights hereunder, any Loan
or the Lender Note (or any portion thereof) to any Person without the prior
written consent of Borrower; provided, however, that
                             --------  -------

          (a)  Lender may assign, or grant a security interest in, all or any
     portion of the Loans and the Lender Note to Credit Bank, any Liquidity Bank
     (or any successor of any thereof by merger, consolidation or otherwise),
     any Affiliate of Credit Bank or any Liquidity Bank in connection with a
     draw under the Liquidity Agreement or a Credit Advance (which may then
     assign all or any portion thereof so assigned or any interest therein to
     such party or parties as it may choose); and

          (b)  Lender may assign any Loan to any other Person proposed by Lender
     and consented to by Borrower (such consent not to be unreasonably
     withheld). The Administrator shall promptly provide notice of any such
     assignment to each Rating Agency.

     Within five Business Days after notice to Borrower of any proposed
assignment by Lender for which Borrower's consent is required, Borrower agrees
to advise Administrator of its consent or non-consent thereto.  If Borrower does
not consent to such assignment Lender may immediately assign the Loan (or
portion thereof) that was subject to such proposal to Bank, any Liquidity Bank
or any Affiliate of Bank or any Liquidity Bank.  Subject to Section 13.2, all of
                                                            ------------
the aforementioned assignments shall be upon such terms and conditions as Lender
and the assignee may mutually agree.

     Section 13.2  Documentation.  Lender shall deliver to each assignee an
                   -------------
assignment, in such form as Lender and the related assignee may agree, duly
executed by Lender, assigning any such Loan to the assignee, and Lender shall
promptly execute and deliver all further instruments and documents, and take all
further action, that the assignee may reasonably request, in order to perfect,
protect or more fully evidence the assignee's right, title and interest in and
to such Loan, and to enable the assignee to exercise or enforce any rights
hereunder or under the Lender Note evidencing such Loan.

     Section 13.3  Rights of Assignee.  Upon the foreclosure of any assignment
                   ------------------
of any Loans made for security purposes, or upon any other assignment of any
Loan from Lender pursuant to this Article XIII, the respective assignee
                                  ------------
receiving assignment shall have all of the rights of Lender hereunder to the
extent of such assignment with respect to such Loans and all references to
Lender in Section 6.1 shall be deemed to apply to such assignee to the extent of
          -----------
such assignment.

     Section 13.4  Notice of Assignment.  Lender shall provide notice to
                   --------------------
Borrower any assignment hereunder by Lender to any assignee. Lender authorizes
Administrator to, and Administrator agrees that it shall, endorse the Lender
Note to reflect any assignments made pursuant to this Article XIII or
                                                      ------------
otherwise.

                                      57
<PAGE>

                                  ARTICLE XIV

                                INDEMNIFICATION

     Section 14.1  General Indemnity of Borrower.  Without limiting any other
                   -----------------------------
rights which any such Person may have hereunder or under applicable law,
Borrower hereby agrees to indemnify Administrator, Lender, Servicer, each
Liquidity Bank, each Credit Bank, Bank, each of Bank's Affiliates and each of
their respective successors, transferees, participants and assigns and all
officers, directors, shareholders, controlling persons, employees and agents of
any of the foregoing (each of the foregoing Persons being individually called an
"Indemnified Party"), forthwith on demand, on an after-tax basis, from and
 -----------------
against any and all damages, losses, claims, liabilities and related costs and
expenses, including reasonable attorneys' fees and disbursements (all of the
foregoing being collectively called "Indemnified Amounts") awarded against or
                                     -------------------
incurred by any of them arising out of or relating to any Transaction Document
or the transactions contemplated thereby, any commingling of funds (whether or
not permitted hereunder), or the use of proceeds therefrom by Borrower,
including (without limitation) in respect of the funding of any Loan or in
respect of any Receivable; excluding, however, (a) Indemnified Amounts to the
                           ---------  -------
extent determined by a court of competent jurisdiction to have resulted from
gross negligence or willful misconduct on the part of such Indemnified Party and
(b) any tax upon or measured by net income (except those described in Section
                                                                      -------
6.1(A)) on any Indemnified Party.
------

     Section 14.2  Indemnity of Servicer.  Without limiting any other rights
                   ---------------------
which any such Person may have hereunder or under applicable law, Dixie as
Servicer, hereby agrees to indemnify each Indemnified Party forthwith on demand,
on an after-tax basis, from and against any and all Indemnified Amounts awarded
against or incurred by any of them arising from, or related to, the negligence
or willful misconduct of Dixie, the inaccuracy of any representation or warranty
of Dixie, or the failure of Dixie to perform its obligations under any
Transaction Document; excluding, however, (a) Indemnified Amounts to the extent
                      ---------  -------
determined by a court of competent jurisdiction to have resulted from gross
negligence or willful misconduct on the part of such Indemnified Party, (b)
Indemnified Amounts to the extent solely due to non-payment by any Obligor of an
amount due and payable with respect to a Receivable for credit reasons, and (c)
any tax upon or measured by net income on any Indemnified Party.

                                  ARTICLE XV

                                 MISCELLANEOUS

     Section 15.1  No Waiver; Remedies.  No failure on the part of Lender,
                   -------------------
Administrator, any Indemnified Party or any Affected Party to exercise, and no
delay in exercising, any right, power or remedy hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise by any of them of any
right, power or remedy hereunder preclude any other or further exercise thereof,
or the exercise of any other

                                      58
<PAGE>

right, power or remedy. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law. Without limiting the foregoing, each
of Bank, each Credit Bank and each Liquidity Bank is hereby authorized by
Borrower at any time and from time to time, to the fullest extent permitted by
law, to set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other indebtedness at any
time owing by Bank, such Credit Bank or such Liquidity Bank to or for the credit
or the account of Borrower, now or hereafter existing under this Agreement, to
Administrator, any Affected Party, any Indemnified Party, or Lender or their
respective successors and assigns.

     Section 15.2  Amendments, Etc.  No amendment, modification or waiver of, or
                   ---------------
consent with respect to, any provision of this Agreement and any Schedules
hereto, or the Lender Note shall in any event be effective unless the same shall
be in writing and signed and delivered by (i) Borrower, Servicer, Administrator
and Lender (with respect to an amendment), or (ii) Administrator and Lender
(with respect to a waiver or consent by them) or Servicer or Borrower (with
respect to a waiver or consent by them), as the case may be, and then any such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given; provided, however, that no material amendment
                                  --------  -------
of this Agreement (other than an amendment to extend the Scheduled Commitment
Termination Date) shall be effective unless the Lender (or the Administrator on
its behalf) shall have received written confirmation by the Rating Agencies that
such amendment shall not cause the rating on the then outstanding Commercial
Paper Notes to be downgraded or withdrawn.  The Administrator shall provide each
Rating Agency with a copy of each amendment to or consent or waiver under this
Agreement promptly following the effective date thereof.

     Section 15.3  Notices, Etc.  All notices and other communications provided
                   ------------
for hereunder shall, unless otherwise stated herein, be in writing (including
facsimile communication) and shall be personally delivered or sent by certified
mail, postage prepaid, or by facsimile, to the intended party at the address or
facsimile number of such party set forth opposite its name on Schedule 15.3
                                                              -------------
hereto or at such other address or facsimile number as shall be designated by
such party in a written notice to the other parties hereto.  All such notices
and communications shall be effective, (a) if personally delivered, when
received, (b) if sent by certified mail, three Business Days after having been
deposited in the mail, postage prepaid, (c) if sent by overnight courier, one
Business Day after having been given to such courier, and (d) if transmitted by
facsimile, when sent, receipt confirmed by telephone or electronic means, except
that notices and communications pursuant to Section 2.2 shall not be effective
                                            -----------
until received.

     Section 15.4  Costs, Expenses and Taxes.  In addition to its obligations
                   -------------------------
under Section 14.1, Borrower agrees to pay on demand:
      ------------

          (a)    all costs and expenses incurred by Administrator, Lender, each
     Liquidity Bank, each Credit Bank and Servicer in connection with (i) the
     preparation, execution, delivery, administration and enforcement of, or any
     breach of, this Agreement, the Lender Note, the other Transaction
     Documents,

                                      59
<PAGE>

     the Liquidity Agreement and, to the extent directly related to this
     Agreement, the Program Documents (including any amendments or modifications
     of or supplements to the Program Documents directly related to this
     Agreement), including, without limitation, the reasonable fees and expenses
     of counsel to any of such Persons incurred in connection therewith, (ii)
     the perfection of the Administrator's security interest in the
     Collateral,(iii) the maintenance of the Collection Account and the LockBox
     Accounts, (iv) the audit of the books, records and procedures of the
     Originators, Servicer and Borrower by Administrator's auditors (which may
     be employees of Administrator), and (v) Rating Agency fees related to the
     transactions contemplated by this Agreement; and

          (b)    all stamp and other taxes and fees payable or determined to be
     payable in connection with the execution, delivery, filing and recording of
     this Agreement, the Lender Note, the other Transaction Documents, or (to
     the extent directly related to this Agreement) the Program Documents, and
     agrees to indemnify each Indemnified Party against any liabilities with
     respect to or resulting from any delay in paying or omission to pay such
     taxes and fees.

     Section 15.5  Binding Effect; Survival.  This Agreement shall be binding
                   ------------------------
upon and inure to the benefit of Borrower, SunTrust, Dixie, Lender,
Administrator, and their respective successors and assigns, and the provisions
of Article VI and Article XIV shall inure to the benefit of the Affected Parties
   ----------     -----------
and the Indemnified Parties, respectively, and their respective successors and
assigns; provided, however, nothing in the foregoing shall be deemed to
         --------  -------
authorize any assignment not permitted by Article XIII.  This Agreement shall
                                          ------------
create and constitute the continuing obligations of the parties hereto in
accordance with its terms, and shall remain in full force and effect until such
time, after the Commitment Termination Date, when all Obligations have been
finally and fully paid and performed.  The rights and remedies with respect to
any breach of any representation and warranty made by Borrower or Servicer
pursuant to Article VIII and the indemnification and payment provisions of
            ------------
Article XIV and Article VI, Sections 15.4, 15.11 and 15.12 shall be continuing
-----------     ----------  -------------  -----     -----
and shall survive any termination of this Agreement and any termination of
Dixie's rights to act as Servicer hereunder or under any other Transaction
Document.

     Section 15.6  Captions and Cross References.  The various captions
                   -----------------------------
(including, without limitation, the table of contents) in this Agreement are
provided solely for convenience of reference and shall not affect the meaning or
interpretation of any provision of this Agreement.  Unless otherwise indicated,
references in this Agreement to any Section, Appendix, Schedule or Exhibit are
to such Section of or Appendix, Schedule or Exhibit to this Agreement, as the
case may be, and references in any Section, subsection, or clause to any
subsection, clause or subclause are to such subsection, clause or subclause of
such Section, subsection or clause.

     Section 15.7  Severability.  Any provision of this Agreement which is
                   ------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent

                                      60
<PAGE>

of such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of such
provision in any other jurisdiction.

     Section 15.8  Governing Law.  THIS AGREEMENT AND THE LENDER NOTE SHALL BE A
                   -------------
CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF (OTHER THAN SECTION 5-
1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW).

     Section 15.9  Counterparts.  This Agreement may be executed by the parties
                   ------------
hereto in several counterparts, each of which shall be deemed to be an original
but all of which shall constitute together but one and the same agreement.

     Section 15.10 Submission to Jurisdiction; Waiver of Trial by Jury.  (a)
                   ---------------------------------------------------
Borrower and Servicer hereby submit to the nonexclusive jurisdiction of any
United States District Court for the Southern District of New York and of any
New York state court sitting in New York, New York for purposes of all legal
proceedings arising out of, or relating to, the Transaction Documents or the
transactions contemplated thereby.  Borrower and Servicer hereby irrevocably
waive, to the fullest extent possible, any objection it may now or hereafter
have to the venue of any such proceeding and any claim that any such proceeding
has been brought in an inconvenient forum.  Nothing in this Section 15.10 shall
                                                            -------------
affect the right of the Administrator or Lender to bring any action or
proceeding against Borrower or Servicer or its property in the courts of other
jurisdictions.

     (b)  TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY HERETO
IRREVOCABLY WAIVES ALL RIGHT OF TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM ARISING OUT OF, OR IN CONNECTION WITH, ANY TRANSACTION DOCUMENT OR
ANY MATTER ARISING THEREUNDER.

     Section 15.11  No Recourse Against Lender.  The obligations of the Lender
                    --------------------------
under this Agreement are solely the corporate obligations of Lender.  No
recourse shall be had for any obligation, covenant or agreement (including,
without limitation, the payment of any amount owing in respect to this Agreement
or the payment of any fee hereunder or for any other obligation or claim)
arising out of or based upon this Agreement or any other agreement, instrument
or document entered into pursuant hereto or in connection herewith against any
stockholder, employee, officer, director, manager, administrator, partner or
incorporator of Lender, as such, by the enforcement of any assessment or by any
legal or equitable proceeding, by virtue of any statute or otherwise.

     Section 15.12  No Proceedings.  Each of the parties hereto hereby agree
                    --------------
that it will not institute against Lender, or join any other Person in
instituting against Lender, any insolvency proceeding (namely, any proceeding of
the type referred to in the definition of Event of Bankruptcy) so long as any
Commercial Paper Notes issued by Lender shall be outstanding and there shall not
have elapsed one year plus one day

                                      61
<PAGE>

since the last day on which any such Commercial Paper Notes shall be
outstanding. The provisions of this Section 15.12 shall survive the termination
                                    -------------
hereof.

     Section 15.13  Confidentiality of Agreement.  Unless otherwise consented to
                    ----------------------------
by the Administrator, each of Borrower and Servicer hereby agrees that it will
not disclose the contents of any Transaction Document, or any other confidential
or proprietary information furnished by the Administrator or the Lender to any
Person other than its Affiliates (which Affiliates shall have executed an
agreement satisfactory in form and in substance to the Administrator to be bound
by this Section 15.13) auditors and attorneys or as required by applicable law.
        -------------

     Section 15.14  ENTIRE AGREEMENT.  THIS AGREEMENT AND THE OTHER TRANSACTION
                    ----------------
DOCUMENTS EXECUTED AND DELIVERED HEREWITH REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES HERETO AND THERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.

                     [signature pages begin on next page]

                                      62
<PAGE>

     IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective officers thereunto duly authorized as of the day and year
first above written.

                              DIXIE FUNDING II, INC., as Borrower

                              By: /s/ Gary A. Harmon
                                  ----------------------------------------------
                              Name:  Gary A. Harmon
                              Title: President

                              THE DIXIE GROUP, INC., as Servicer

                              By: /s/ Gary A. Harmon
                                  ----------------------------------------------
                              Name:  Gary A. Harmon
                              Title: Vice President and Chief Financial Officer

                                      S-1
<PAGE>

                              THREE PILLARS FUNDING CORPORATION,
                              as Lender

                              By: /s/ Susan Burdick-Brennan
                                  ----------------------------------------------
                              Name:  Susan Burdick-Brennan
                              Title: Vice President

                                                                  Loan Agreement

                                      S-2
<PAGE>

                              SUNTRUST EQUITABLE SECURITIES
                              CORPORATION, as Administrator

                              By: /s/ Amy W. Menendorp
                                  ----------------------------------------------
                              Name:  Amy W. Menendorp
                              Title: Managing Director

                                                                  Loan Agreement

                                      S-3
<PAGE>

                                 SCHEDULE 8.11

                          DESCRIPTION OF PROCEEDINGS

None.

<PAGE>

                                SCHEDULE 9.1.5

                        COLLATERAL REVIEW REQUIREMENTS

I.   Initial Report of Independent Accountants

     (a)  shall be titled the "Initial Report of Independent Accountants on
          Agreed Upon Procedures";

     (b)  shall be addressed to The Dixie Group, Inc., as Servicer and to
          SunTrust Equitable Securities Corporation as Administrator:

                         Tim Mueller
                         SunTrust Equitable Securities Corp.
                         Mail Code 3950
                         303 Peachtree Street, 24/th/ Floor
                         Atlanta, GA  30308

     (c)  the review and subsequent report shall be conducted by Ernst & Young
          LLP, or such other nationally recognized accounting firm that is
          reasonably acceptable to the Administrator;

     (d)  the report shall be delivered within 30 days after this transaction's
          Closing Date (anticipated to be 6/15/00); and

     (e)  randomly select a sample of 100 accounts included in the receivable
          schedule delivered by the Borrower pursuant to the initial funding and
          perform the following:

          (i)  agree account information including: receivables balance and
               repayment terms to the receivable servicing system;

         (ii)  verify that the Receivable Files and Dixie's computer records
               have been marked or stamped as required by the Loan Agreement
               (Section 9.1.9); and

         (iii) verify that the Receivable Files have been segregated and stored
               as required by the Loan Agreement.

II.  Reports of Independent Accountants

<PAGE>

     (a)  shall be titled "Report of Independent Accountants on Agreed Upon
          Procedures";

     (b)  shall be addressed as detailed in item I above;

     (c)  the reviews and subsequent reports shall be conducted by Ernst & Young
          LLP, or such other nationally recognized accounting firm that is
          reasonably acceptable to the Administrator;

     (d)  the reports shall be delivered within 30 days after each semi-annual
          period following this transaction's Closing Date; and

     (e)  each report will verify the following:

          (i)   agree data from three (3) randomly selected Monthly Reports over
                the most recent semi-annual period to the system reports and
                accounting records used in the compilation of those Monthly
                Reports;

          (ii)  verify mathematical accuracy of calculations in the Monthly
                Reports in item (i) above and ensure that calculations comply
                with the requirements specified in the Loan Agreement;

          (iii) randomly select a sample of 100 accounts included in the
                receivable schedules delivered by the Borrower pursuant to the
                subsequent findings during the most recent semi-annual period
                and perform the following;

                .   agree account information including: receivable balance and
                    repayment terms to the receivable servicing system;
                .   verify that the receivable files and Dixie's computer
                    records have been marked or stamped as required by the Loan
                    Agreement;
                .   verify that the receivable files have been segregated and
                    stored as required by the Loan Agreement.

          (iv)  confirm that the LockBox Account Agreements remain in place and
                are in effect;

          (v)   randomly select a sample of 15 Business Days during the most
                recent semi-annual period and verify that the Collections are
                being received

<PAGE>

                by or being directed by the Servicer in the LockBox Accounts on
                each Business Day such Collected are received; and

         (vi)   confirm that the Servicer has transferred all Collections to the
                Collection Account as required by the Loan Agreement.

<PAGE>

                                 SCHEDULE 15.3

                               NOTICE ADDRESSES

Borrower:           Dixie Funding II, Inc.
                    185 South Industrial Boulevard
                    Calhoun, Georgia  30701
                    Attention:  Gary A. Harmon
                    Facsimile:  (706) 625-0782
                    Telephone:  (706) 625-7990

Servicer:           The Dixie Group, Inc.
                    185 South Industrial Boulevard
                    Calhoun, Georgia  30701
                    Attention:  Gary A. Harmon
                    Facsimile:  (706) 625-0782
                    Telephone:  (706) 625-7990

Lender:             Three Pillars Funding Corporation
                    c/o AMACAR Group, L.L.C.
                    6525 Morrison Boulevard
                    Suite 318
                    Charlotte, North Carolina  28211
                    Attention: Susan Burdick-Brennan
                    Facsimile:  (704) 365-1362
                    Telephone:  (704) 365-0569

Administrator:      SunTrust Equitable Securities Corporation
                    24th Floor MC3949
                    303 Peachtree Street
                    Atlanta, Georgia 30308
                    Attention: James Bennison
                    Facsimile: (404) 827-6514
                    Telephone:  (404) 732-0766

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