Document:

LOAN AND SECURITY AGREEMENT

                                 by and between

                    CONGRESS FINANCIAL CORPORATION (SOUTHERN)
                                    as Lender

                                       and

                            DH APPAREL COMPANY, INC.
                            DELTA MERCHANDISING, INC.
                                  as Borrowers

                               Dated: May 16, 2000

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                                                 TABLE OF CONTENTS
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                                                                                                               Page
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SECTION 1.        DEFINITIONS.....................................................................................1

SECTION 2.        CREDIT FACILITIES..............................................................................20
         2.1      Revolving Loans................................................................................20
         2.2      Letter of Credit Accommodations................................................................21
         2.3      Term Loan......................................................................................24
         2.4      Joint and Several Liability....................................................................25

SECTION 3.        INTEREST AND FEES..............................................................................26
         3.1      Interest.......................................................................................26
         3.2      Closing Fee....................................................................................28
         3.3      Servicing Fee..................................................................................28
         3.4      Unused Line Fee................................................................................28
         3.5      Changes in Laws and Increased Costs of Loans...................................................28

SECTION 4.        CONDITIONS PRECEDENT...........................................................................30
         4.1      Conditions Precedent to Initial Loans and Letter of Credit Accommodations......................30
         4.2      Conditions Precedent to All Loans and Letter of Credit Accommodations..........................33

SECTION 5.        GRANT OF SECURITY INTEREST.....................................................................34

SECTION 6.        COLLECTION AND ADMINISTRATION..................................................................35
         6.1      Borrowers' Loan Account........................................................................35
         6.2      Statements.....................................................................................35
         6.3      Collection of Accounts.........................................................................36
         6.4      Payments.......................................................................................38
         6.5      Authorization to Make Loans....................................................................38
         6.6      Use of Proceeds................................................................................39
         6.7      Appointment of Agent for Requesting Loans and Receipts of Loans and
                  Statements.....................................................................................39

SECTION 7.        COLLATERAL REPORTING AND COVENANTS.............................................................40
         7.1      Collateral Reporting...........................................................................40
         7.2      Accounts Covenants.............................................................................41
         7.3      Inventory Covenants............................................................................42
         7.4      Equipment and Real Property Covenants..........................................................43
         7.5      Power of Attorney..............................................................................44
         7.6      Right to Cure..................................................................................45
         7.7      Access to Premises.............................................................................45

                                       (i)
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         7.8       Bills of Lading and Other Documents of Title..................................................45

SECTION 8.        REPRESENTATIONS AND WARRANTIES.................................................................46
         8.1      Corporate Existence, Power and Authority; Subsidiaries.........................................46
         8.2      Financial Statements; No Material Adverse Change...............................................46
         8.3      Chief Executive Office; Collateral Locations...................................................47
         8.4      Priority of Liens; Title to Properties.........................................................47
         8.5      Tax Returns....................................................................................47
         8.6      Litigation.....................................................................................48
         8.7      Compliance with Other Agreements and Applicable Laws...........................................48
         8.8      Environmental Compliance.......................................................................49
         8.9      Employee Benefits..............................................................................49
         8.10     Bank Accounts..................................................................................50
         8.11     Intellectual Property..........................................................................50
         8.12     Acquisition of Assets..........................................................................51
         8.13     Capitalization.................................................................................51
         8.14     Labor Disputes.................................................................................52
         8.15     Corporate Name; Prior Transactions.............................................................52
         8.16     Restrictions on Subsidiaries...................................................................52
         8.17     Material Contracts.............................................................................52
         8.18     Accuracy and Completeness of Information.......................................................53
         8.19     Survival of Warranties; Cumulative.............................................................53
         8.20     Credit Card Agreements.........................................................................53

SECTION 9.        AFFIRMATIVE AND NEGATIVE COVENANTS.............................................................54
         9.1      Maintenance of Existence.......................................................................54
         9.2      New Collateral Locations.......................................................................54
         9.3      Compliance with Laws, Regulations, Etc.........................................................54
         9.4      Payment of Taxes and Claims....................................................................55
         9.5      Insurance......................................................................................56
         9.6      Financial Statements and Other Information.....................................................56
         9.7      Sale of Assets, Consolidation, Merger, Dissolution, Etc........................................58
         9.8      Encumbrances...................................................................................59
         9.9      Indebtedness...................................................................................61
         9.10     Loans, Investments, Guarantees, Etc............................................................62
         9.11     Dividends and Redemptions......................................................................64
         9.12     Transactions with Affiliates...................................................................64
         9.13     Additional Bank Accounts.......................................................................65
         9.14     Compliance with ERISA.  .......................................................................65
         9.15     End of Fiscal Years: Fiscal Quarters...........................................................66
         9.16     Change in Business.............................................................................66
         9.17     Limitation of Restrictions Affecting Subsidiaries..............................................66

                                      (ii)
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         9.18     After Acquired Real Property...................................................................66
         9.19     Costs and Expenses.............................................................................67
         9.20     Further Assurances.............................................................................67
         9.21     Credit Card Agreements.........................................................................68
         9.22     Year 2000 Compliance...........................................................................68

SECTION 10.       EVENTS OF DEFAULT AND REMEDIES.................................................................69
         10.1     Events of Default..............................................................................69
         10.2     Remedies.......................................................................................71

SECTION 11.       JURY TRIAL WAIVER; OTHER WAIVERS
                  AND CONSENTS; GOVERNING LAW       ........................................... .................73
         11.1     Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver..........................73
         11.2     Waiver of Notices..............................................................................74
         11.3     Amendments and Waivers.........................................................................74
         11.4     Waiver of Counterclaims........................................................................74
         11.5     Indemnification................................................................................74

SECTION 12.       TERM OF AGREEMENT; MISCELLANEOUS...............................................................75
         12.1     Term...........................................................................................75
         12.2     Interpretative Provisions......................................................................76
         12.3     Notices........................................................................................78
         12.4     Partial Invalidity.............................................................................78
         12.5     Successors.....................................................................................78
         12.6     Entire Agreement...............................................................................78

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                                      (iii)
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                                    INDEX TO
                             EXHIBITS AND SCHEDULES
                             ----------------------

 Exhibit A                 Information Certificate

 Schedule 1.20             Customs Brokers

 Schedule 1.36             Excluded Property

 Schedule 1.37             Existing Letters of Credit

 Schedule 1.65             Permitted Holders

 Schedule 1.83             Warehouse Equipment

 Schedule 8.2              Pro Forma Balance Sheet and Cash Flow Projections

 Schedule 8.4              Existing Liens

 Schedule 8.7              Permits

 Schedule 8.8              Environmental Matters

 Schedule 8.10             Bank Accounts

 Schedule 8.11             Licensed Intellectual Property

 Schedule 8.14             Labor Matters

 Schedule 8.17             Material Contracts

 Schedule 8.20             Credit Card Agreements

 Schedule 9.9              Existing Indebtedness

 Schedule 9.10             Existing Loans, Advances and Guarantees

                                       (i)
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                           LOAN AND SECURITY AGREEMENT
                           ---------------------------

     This Loan and Security  Agreement dated May 16, 2000 is entered into by and
between  Congress  Financial  Corporation  (Southern),   a  Georgia  corporation
("Lender") and DH Apparel Company, Inc., a Georgia corporation ("Duck Head") and
Delta  Merchandising,  Inc., a South Carolina  corporation  ("Merchandising" and
together  with Duck Head,  each  individually,  a "Borrower"  and  collectively,
"Borrowers").

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

     WHEREAS,  Borrowers have requested that Lender enter into certain financing
arrangements with Borrowers  pursuant to which Lender may make loans and provide
other financial accommodations to Borrowers; and

     WHEREAS,  Lender is willing to make such loans and provide  such  financial
accommodations on the terms and conditions set forth herein;

     NOW,  THEREFORE,  in consideration of the mutual  conditions and agreements
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency  of  which is  hereby  acknowledged,  the  parties  hereto  agree as
follows:

SECTION 1. DEFINITIONS
           -----------

     For  purposes  of this  Agreement,  the  following  terms  shall  have  the
respective meanings given to them below:

     1.1  "Accounts"  shall mean all present and future  rights of  Borrowers to
payment  for  goods  sold or  leased  or for  services  rendered,  which are not
evidenced  by  instruments  or  chattel  paper,  and  whether  or not  earned by
performance, and including, without limitation, Credit Card Receivables.

     1.2 "Adjusted  Eurodollar  Rate" shall mean,  with respect to each Interest
Period for any Eurodollar  Rate Loan, the rate per annum  (rounded  upwards,  if
necessary,  to the next one- sixteenth (1/16) of one (1%) percent) determined by
dividing (a) the  Eurodollar  Rate for such Interest  Period by (b) a percentage
equal to: (i) one (1) minus (ii) the  Reserve  Percentage.  For purposes hereof,
"Reserve Percentage" shall mean the reserve percentage,  expressed as a decimal,
prescribed by any United States or foreign banking authority for determining the
reserve requirement which is or would be applicable to deposits of United States
dollars in a non-United  States or an international  banking office of Reference
Bank used to fund a Eurodollar  Rate Loan or any Eurodollar  Rate Loan made with
the proceeds of such deposit, whether or not the

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Reference  Bank  actually  holds or has made any such  deposits  or  loans.  The
Adjusted Eurodollar Rate shall be adjusted on and as of the effective day of any
change in the Reserve Percentage.

     1.3 "Affiliate" shall mean, with respect to a specified  Person,  any other
Person  (a) which  directly or  indirectly  through  one or more  intermediaries
controls,  or is controlled by, or is under common control with,  such specified
person;  (b) which  beneficially  owns or holds five (5%) percent or more of any
class of the Voting Stock or other equity interest of such specified  person; or
(c) of which  five (5%)  percent  or more of the  Voting  Stock or other  equity
interest is beneficially  owned or held by such specified person or a Subsidiary
of such specified person. For purposes of this definition, "control" (including,
with correlative meanings,  the terms "controlling",  "controlled by" and "under
common control with") when used with respect to any specified  person shall mean
the  possession,  directly  or  indirectly,  of the power to direct or cause the
direction of the  management  and policies of such person,  whether  through the
ownership of Voting Stock, by agreement or otherwise.

     1.4  "Blocked  Accounts"  shall have the  meaning  set forth in Section 6.3
hereof.

     1.5 "Borrowing  Base" shall mean, at any time, as to Borrowers,  the amount
equal to:  (a) eighty-five  (85%) percent of the Net Amount of Eligible Accounts
of  Borrowers,  plus (b) the  lesser of: (i) sixty (60%) percent of the Value of
Eligible  Inventory of Borrowers  consisting of finished goods and raw materials
consisting of uncut finished fabric, or (ii) $12,000,000, less (c) any Reserves.
For purposes only of applying the sublimit on Revolving  Loans based on Eligible
Inventory set forth in clause (b)(ii)  above,  Lender may treat the then undrawn
amounts  of  outstanding  Letter of Credit  Accommodations  for the  purpose  of
purchasing  Eligible  Inventory  as Revolving  Loans to the extent  Lender is in
effect basing the issuance of the Letter of Credit  Accommodations  on the Value
of  the  Eligible   Inventory   being  purchased  with  such  Letter  of  Credit
Accommodations.  In  determining  the actual  amounts  of such  Letter of Credit
Accommodations  to be so treated for purposes of the sublimit,  the  outstanding
Revolving Loans and Reserves shall be attributed  first to any components of the
lending  formulas set forth above that are not subject to such sublimit,  before
being  attributed  to the  components  of the lending  formulas  subject to such
sublimit.

     1.6  "Business  Day" shall mean any day other than a Saturday,  Sunday,  or
other day on which  commercial  banks are  authorized or required to close under
the  laws of the  State of New  York,  State of  Georgia  or the  State of North
Carolina,  and a day on which the  Reference  Bank and  Lender  are open for the
transaction of business,  except that if a determination of a Business Day shall
relate to any  Eurodollar  Rate Loans,  the term Business Day shall also exclude
any day on which banks are closed for dealings in dollar  deposits in the London
interbank market or other applicable Eurodollar Rate market.

     1.7 "Capital Leases" shall mean, as applied to any Person, any lease of (or
any agreement  conveying the right to use) any property (whether real,  personal
or mixed) by such Person as lessee which in accordance with GAAP, is required to
be reflected as a liability on the balance sheet of such Person.

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     1.8  "Capital  Stock" shall mean,  with respect to any Person,  any and all
shares,  interests,  participations or other equivalents (however designated) of
such Person's capital stock,  partnership interests or limited liability company
interests at any time outstanding,  and any and all rights,  warrants or options
exchangeable  for or convertible into such capital stock or other interests (but
excluding any debt security that is  exchangeable  for or convertible  into such
capital stock).

     1.9 "Cash  Equivalents"  shall  mean,  at any  time,  (a) any  evidence  of
Indebtedness  with a  maturity  date of one  hundred  eighty  (180) days or less
issued or  directly  and fully  guaranteed  or insured  by the United  States of
America of any agency or instrumentality thereof; provided, that, the full faith
and credit of the United  States of America is pledged in support  thereof;  (b)
certificates of deposit or bankers'  acceptances  with a maturity of one hundred
eighty (180) days or less of any financial  institution  that is a member of the
Federal Reserve System having combined capital and surplus and undivided profits
of not less than  $250,000,000;  (c) commercial paper  (including  variable rate
demand notes) with a maturity of one hundred eighty (180) days or less issued by
a corporation  (except an Affiliate of any Borrower) organized under the laws of
any State of the United  States of America or the District of Columbia and rated
at least A-1 by Standard & Poor's Ratings Service, a division of The McGraw-Hill
Companies,  Inc.  or at  least  P-1 by  Moody's  Investors  Service,  Inc.;  (d)
repurchase  obligations  with a term of not  more  than  thirty  (30)  days  for
underlying  securities  of the types  described in clause (a) above entered into
with any financial institution having combined capital and surplus and undivided
profits of not less than  $250,000,000;  (e)  repurchase  agreements and reverse
repurchase  agreements  relating  to  marketable  direct  obligations  issued or
unconditionally  guaranteed  by the  United  States of  America or issued by any
governmental  agency  thereof  and  backed by the full  faith and  credit to the
United States of America,  in each case maturing within one hundred eighty (180)
days or less from the date of  acquisition;  provided,  that,  the terms of such
agreements  comply  with  the  guidelines  set  forth in the  Federal  Financial
Agreements of Depository  Institutions  with Securities  Dealers and Others,  as
adopted  by the  Comptroller  of the  Currency  on  October  31,  1985;  and (f)
investments  in money market  funds and mutual funds which invest  substantially
all of their assets in securities of the types  described in clauses (a) through
(e) above.

     1.10 "Change of Control" shall mean (a) the transfer (in one transaction or
a series  of  transactions)  of all or  substantially  all of the  assets of any
Borrower to any Person or group (as such term is used in Section 13(d)(3) of the
Exchange  Act);  (b) the  liquidation  or  dissolution  of any  Borrower  or the
adoption  of a  plan  by  the  stockholders  of  any  Borrower  relating  to the
dissolution  or liquidation  of Borrower;  (c) the  acquisition by any Person or
group (as such term is used in Section 13(d)(3) of the Exchange Act), except for
one or more Permitted Holders, of beneficial ownership,  directly or indirectly,
of fifty  (50%)  percent  or more of the voting  power of the total  outstanding
Voting Stock of Borrower or the Board of Directors of Borrower;  (d) during  any
period of two (2)  consecutive  years,  individuals who at the beginning of such
period  constituted  the Board of Directors of Borrower  (together  with any new
directors who have been appointed by any Permitted  Holder,  or whose nomination
for election by the  stockholders of Borrower,  as the case may be, was approved
by a vote  of at  least  sixty-six  and  two-thirds  (66  2/3%)  percent  of the
directors then still in office who were either directors at the beginning of

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such period or whose  election or  nomination  for  election was  previously  so
approved)  cease  for any  reason  to  constitute  a  majority  of the  Board of
Directors of Borrower then still in office;  or (e) the  failure of Duck Head to
own one  hundred  (100%)  percent of the voting  power of the total  outstanding
Voting Stock of Merchandising.

     1.11 "Code" shall mean the Internal Revenue Code of 1986, together with all
rules, regulations and interpretations thereunder or related thereto.

     1.12 "Collateral" shall have the meaning set forth in Section 5 hereof.

     1.13 "Collateral  Access Agreement" shall mean an agreement in writing,  in
form and substance  satisfactory  to Lender,  from any lessor of premises to any
Borrower,  or any other  person  to whom any  Collateral  (including  Inventory,
Equipment,  bills of lading or other documents of title) is consigned or who has
custody,  control or possession of any such Collateral or is otherwise the owner
or operator of any premises on which any of such Collateral is located, pursuant
to which such lessor,  consignee or other person,  inter alia,  acknowledges the
first priority security  interest of Lender in such Collateral,  agrees to waive
any and all claims such lessor, consignee or other person may, at any time, have
against such  Collateral,  whether for  processing,  storage or  otherwise,  and
agrees to permit  Lender  access to, and the right to remain on, the premises of
such lessor,  consignee or other  person so as to exercise  Lender's  rights and
remedies and otherwise  deal with such  Collateral and in the case of any person
who at any time has  custody,  control or  possession  of any bills of lading or
other documents of title, agrees to hold such bills of lading or other documents
as bailee  for  Lender and to follow all  instructions  of Lender  with  respect
thereto.

     1.14 "Cost" shall mean,  as to  Inventory as of any date,  the cost of such
Inventory on such date, determined on a first-in-first-out  basis principally on
the weighted average cost basis in accordance with GAAP.

     1.15   "Credit  Card   Acknowledgments"   shall  mean,   individually   and
collectively,  the  agreements by Credit Card Issuers or Credit Card  Processors
who are  parties  to Credit  Card  Agreements  in favor of Lender  acknowledging
Lender's first priority security interest in the monies due and to become due to
any Borrower  (including,  without  limitation,  credits and reserves) under the
Credit Card Agreements, and agreeing to transfer all such amounts to the Blocked
Accounts,  as  the  same  now  exist  or may  hereafter  be  amended,  modified,
supplemented, extended, renewed, restated or replaced.

     1.16 "Credit Card  Agreements"  shall mean all  agreements now or hereafter
entered  into by any  Borrower  with any Credit  Card  Issuer or any Credit Card
Processor,  as the  same  now  exist  or may  hereafter  be  amended,  modified,
supplemented,  extended,  renewed,  restated  or  replaced,  including,  but not
limited to, the agreements set forth on Schedule 8.20 hereto.

     1.17 "Credit Card Issuer"  shall mean any person  (other than any Borrower)
who issues or whose members issue credit cards,  including,  without limitation,
MasterCard  or VISA bank  credit or debit  cards or other  bank  credit or debit
cards issued through MasterCard International,

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<PAGE>

Inc., Visa, U.S.A.,  Inc. or Visa International and American Express,  Discover,
Diners Club, Carte Blanche and other non-bank credit or debit cards,  including,
without limitation,  credit or debit cards issued by or through American Express
Travel Related Services Company, Inc. and Novus Services, Inc.

     1.18 "Credit Card Processor"  shall mean any servicing or processing  agent
or any factor or financial intermediary who facilitates,  services, processes or
manages the credit  authorization,  billing  transfer and/or payment  procedures
with respect to any of any Borrower's sales  transactions  involving credit card
or debit card purchases by customers using credit cards or debit cards issued by
any Credit Card Issuer.

     1.19 "Credit Card Receivables" shall mean collectively, (a) all present and
future  rights of any Borrower to payment  from any Credit Card  Issuer,  Credit
Card  Processor or other third party arising from sales of goods or rendition of
services to customers who have  purchased  such goods or services using a credit
or debit card and (b) all present and future  rights of any  Borrower to payment
from any Credit  Card  Issuer,  Credit  Card  Processor  or other third party in
connection with the sale or transfer of Accounts arising pursuant to the sale of
goods or  rendition of services to customers  who have  purchased  such goods or
services using a credit card or a debit card, including, but not limited to, all
amounts at any time due or to become due from any Credit  Card  Issuer or Credit
Card Processor under the Credit Card Agreements or otherwise.

     1.20  "Customs  Brokers"  shall mean the persons  listed on  Schedule  1.20
hereto or such  other  person as may be  selected  by  Borrowers  after the date
hereof  and  after  written  notice by  Borrower  to  Lender  who is  reasonably
acceptable to Lender,  provided,  that, as to each such person  (including those
listed on such Schedule), Borrowers have used their reasonable efforts to obtain
a Collateral  Access Agreement duly  authorized,  executed and delivered by such
person,  such agreement is in full force and effect and such person has complied
with the terms thereof.

     1.21 "Distribution  Agreements" shall mean,  individually and collectively,
the Distribution Agreement, dated as of March 15, 2000 by and among Woodside, DH
Apparel  Company,   Inc.  and  Delta  Apparel,   Inc.  (the  "DWI   Distribution
Agreement"),   bills  of  sale,  quitclaim  deeds,   assignment  and  assumption
agreements and such other instruments of transfer as are referred to therein and
all side  letters  with  respect  thereto,  and all  agreements,  documents  and
instruments  executed and/or  delivered in connection  therewith,  as all of the
foregoing  now  exist  or may  hereafter  be  amended,  modified,  supplemented,
extended, renewed, restated or replaced;  provided, that, the term "Distribution
Agreements" as used herein shall not include any of the  "Financing  Agreements"
as such term is defined herein.

     1.22  "Distribution  and Office  Facility" shall mean the Real Property and
related  assets of Duck Head located in Winder,  Georgia,  as more  particularly
described in the Mortgage covering such Real Property and related assets.

     1.23 "EBITDA" shall mean, as to any Person,  with respect to any period, an
amount equal to: (a) the Net Income of such Person and its Subsidiaries for such
period  on a  consolidated  basis  determined  in  accordance  with  GAAP,  plus
depreciation, amortization and other non-cash

                                        5
<PAGE>

charges   (including,   but  not  limited  to,  imputed  interest  and  deferred
compensation)  for such period (to the extent deducted in the computation of Net
Income), all in accordance with GAAP, plus  the Interest Expense for such period
(to the extent  deducted in the  computation  of Net Income),  plus  charges for
Federal, Provincial, State, district, municipal, local and foreign income taxes.

     1.24 "Eligible Accounts" shall mean Accounts created by Borrowers which are
and continue to be  acceptable  to Lender based on the criteria set forth below.
In general, Accounts shall be Eligible Accounts if:

     (a) such Accounts  arise from the actual and bona fide sale and delivery of
goods by any  Borrower or  rendition of services by any Borrower in the ordinary
course of its business which  transactions  are completed in accordance with the
terms and provisions contained in any documents related thereto;

     (b) such  Accounts are not unpaid more than ninety (90) days after the date
of the original invoice for them;

     (c) such Accounts comply with the terms and conditions contained in Section
7.2(c) of this Agreement;

     (d) such Accounts do not arise from sales on consignment,  guaranteed sale,
sale and return,  sale on  approval,  or other terms under which  payment by the
account debtor may be conditional or contingent;

     (e) the chief  executive  office of the account debtor with respect to such
Accounts is located in the United States of America or Canada  (provided,  that,
at any time promptly upon Lender's request, Borrowers shall execute and deliver,
or cause to be executed and  delivered,  such other  agreements,  documents  and
instruments  as may be required by Lender to perfect the  security  interests of
Lender in those Accounts of an account debtor with its chief executive office or
principal  place of business in Canada in accordance with the applicable laws of
the Province of Canada in which such chief  executive  office or principal place
of  business  is located  and take or cause to be taken  such other and  further
actions as Lender may  request to enable  Lender as secured  party with  respect
thereto to collect such Accounts under the applicable Federal or Provincial laws
of Canada) or, at Lender's  option,  if the chief executive office and principal
place of business of the account debtor with respect to such Accounts is located
other than in the United  States of America or Canada,  then if either:  (i) the
account debtor has delivered to the applicable Borrower an irrevocable letter of
credit issued or confirmed by a bank  satisfactory to Lender and payable only in
the  United  States of America  and in U.S.  dollars,  sufficient  to cover such
Account, in form and substance satisfactory to Lender and if required by Lender,
the  original of such letter of credit has been  delivered to Lender or Lender's
agent and the issuer thereof  notified of the assignment of the proceeds of such
letter of credit to Lender,  or (ii) such Account is subject to credit insurance
payable to Lender issued by an insurer and on terms and in an amount  acceptable
to Lender,  or  (iii) such  Account is otherwise  acceptable  in all respects to
Lender  (subject to such  lending  formula  with  respect  thereto as Lender may
determine);

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<PAGE>

     (f) such  Accounts  do not  consist  of  progress  billings  (such that the
obligation of the account  debtors with respect to such Accounts is  conditioned
upon any Borrower's satisfactory completion of any further performance under the
agreement  giving rise thereto),  bill and hold invoices or retainage  invoices,
except as to bill and hold invoices,  if Lender shall have received an agreement
in writing  from the  account  debtor,  in form and  substance  satisfactory  to
Lender,  confirming the  unconditional  obligation of the account debtor to take
the goods related thereto and pay such invoice;

     (g) the account  debtor with  respect to such  Accounts  has not asserted a
counterclaim,  defense  or  dispute  and does not have,  and does not  engage in
transactions  which may give rise to any right of setoff or  recoupment  against
such Accounts (but the portion of the Accounts of such account  debtor in excess
of the  amount at any time and from time to time  owed by any  Borrower  to such
account  debtor or claimed  owed by such account  debtor may be deemed  Eligible
Accounts);

     (h) there are no  facts,  events or  occurrences  which  would  impair  the
validity, enforceability or collectability of such Accounts or reduce the amount
payable or delay payment thereunder;

     (i) such  Accounts are subject to the first  priority,  valid and perfected
security  interest of Lender and any goods giving rise thereto are not, and were
not at the time of the sale thereof, subject to any liens except those permitted
in this Agreement;

     (j) neither  the account  debtor nor any officer or employee of the account
debtor with  respect to such  Accounts is an officer,  employee,  agent or other
Affiliate of any Borrower;

     (k) the account  debtors with respect to such  Accounts are not any foreign
government,  the United  States of America,  any State,  political  subdivision,
department,  agency or instrumentality thereof, unless, if the account debtor is
the United  States of America,  any State,  political  subdivision,  department,
agency or instrumentality thereof, upon Lender's request, the Federal Assignment
of  Claims  Act of 1940,  as  amended  or any  similar  State or local  law,  if
applicable, has been complied with in a manner satisfactory to Lender;

     (l) there are no  proceedings  or actions  which are  threatened or pending
against the account  debtors with respect to such Accounts which might result in
any material adverse change in any such account debtor's financial condition;

     (m) such  Accounts  of a single  account  debtor or its  affiliates  do not
constitute more than fifteen (15%) percent (the "Percentage  Limitation") of all
otherwise  Eligible  Accounts  (but the portion of the Accounts not in excess of
such Percentage Limitation may be deemed Eligible Accounts), provided, that, the
Percentage  Limitation in respect of (i) J.C.  Penny,  Inc. shall be fifty (50%)
percent,  (ii) Saks, Inc., shall be twenty (20%) percent and (iii) Goodys,  Inc.
shall be twenty  (20%)  percent  subject to  increase  or decrease as Lender may
determine from time to time in its sole discretion;

                                        7
<PAGE>

     (n) such Accounts are not owed by an account debtor who has Accounts unpaid
more ninety (90) days after the original  invoice date for them which constitute
more than fifty (50%) percent of the total Accounts of such account debtor;

     (o) the account debtor is not located in a state  requiring the filing of a
Notice of Business  Activities  Report or similar  report in order to permit any
Borrower to seek judicial  enforcement in such State of payment of such Account,
unless such  Borrower has  qualified to do business in such state or has filed a
Notice of Business  Activities  Report or equivalent report for the then current
year or such  failure to file and  inability  to seek  judicial  enforcement  is
capable of being remedied without any material delay or material cost;

     (p) such Accounts do not constitute Credit Card Receivables;

     (q) such Accounts are owed by account  debtors whose total  indebtedness to
such  Borrower  does not exceed the credit  limit with  respect to such  account
debtors as determined  by Borrowers  substantially  consistent  with its current
practices  as of the date  hereof by more than  twenty  (20%)  percent and as is
reasonably  acceptable  to Lender (but the portion of the Accounts not in excess
of such credit limit may be deemed Eligible Accounts); and

     (r) such Accounts are owed by account  debtors deemed  creditworthy  at all
times by Borrowers  consistent with its current  practice and who are reasonably
acceptable to Lender.

General criteria for Eligible  Accounts may be established and revised from time
to time  by  Lender  in  good  faith  based  on an  event,  condition  or  other
circumstance  arising  after the date hereof,  or existing on the date hereof to
the extent Lender has no written notice thereof from Borrowers,  which adversely
affects or could  reasonably be expected to adversely affect the Accounts in the
good faith determination of Lender. Any Accounts which are not Eligible Accounts
shall nevertheless be part of the Collateral.

     1.25 "Eligible Inventory" shall mean Inventory consisting of finished goods
held for resale in the  ordinary  course of the  business of  Borrowers  and raw
materials of Duck Head consisting of uncut finished fabric, which are acceptable
to Lender based on the criteria set forth below. In general,  Eligible Inventory
shall  not  include  (a) work-in-process;  (b)  raw  materials  other  than  raw
materials  consisting of uncut finished  fabric;  (c) spare parts for equipment;
(d)  packaging  and shipping  materials;  (e) supplies  used or consumed in each
Borrower's  business;  (f)  Inventory  at  premises  other than those  owned and
controlled by a Borrower,  except any Inventory  which would otherwise be deemed
Eligible  Inventory at locations in the United  States of America  which are not
owned and  operated  by a  Borrower  may  nevertheless  be  considered  Eligible
Inventory: (i) as to locations which are leased by Borrower if Lender shall have
received  a  Collateral  Access  Agreement  from the  owner  and  lessor of such
location,  duly  authorized,  executed  and  delivered by such owner and lessor,
except  that  notwithstanding  that  Lender  shall  not  have  received  such an
agreement for a particular  leased  location,  Lender may consider  Inventory at
such leased location which would otherwise be Eligible  Inventory to be Eligible
Inventory and in such event,  Lender may at any time  establish such Reserves as
Lender may  determine  in respect of amounts at any time  payable by Borrower to
the owner or lessor of such

                                        8
<PAGE>

location,  without  limiting  any other rights and remedies of Lender under this
Agreement  or  under  the  other  Financing   Agreements  with  respect  to  the
establishment  of Reserves or otherwise and (ii) as to premises of third parties
(including  consignees and processors),  Lender shall have received a Collateral
Access  Agreement  duly  authorized,  executed  and  delivered  by the owner and
operator of such  premises  (except that  notwithstanding  that Lender shall not
have received such an agreement as to a particular third party location,  Lender
may  consider  Inventory  at such  location  which would  otherwise  be Eligible
Inventory  to be Eligible  Inventory  and in such event,  Lender may at any time
establish  such  Reserves as Lender may  determine  in respect of amounts at any
time payable by Borrower to such third party,  without limiting any other rights
or  remedies  of Lender  under  this  Agreement  or under  the  other  Financing
Agreements with respect to the  establishment of Reserves or otherwise),  and in
addition, if required by Lender, as to premises of third parties where assets of
Borrower are  located:  (A) the owner and operator  executes  appropriate  UCC-1
financing statements in favor of Borrower, which are duly assigned to Lender and
(B) any secured  lender to the owner and  operator  is properly  notified of the
first priority lien on such Inventory of Lender;  (g) Inventory  located outside
the United  States of America  shall only be Eligible  Inventory if (i) it is in
transit  to either the  premises  of a Customs  Broker in the  United  States or
premises of Borrower in the United States and as to premises of a Customs Broker
or premises  which are not owned and  controlled  by Borrower only if Lender has
received a Collateral  Access Agreement duly authorized,  executed and delivered
by such Customs Broker or the owner, lessor and operator of such other premises,
as the case may be, (ii) Lender has a first priority perfected security interest
in and  control and  possession  of all  originals  of  documents  of title with
respect to such  Inventory,  (iii)  Lender  has  received  a  Collateral  Access
Agreement from the Customs Broker dealing with such Inventory,  duly authorized,
executed and delivered by such person,  and such  agreement is in full force and
effect,  binding  upon such person and such person has  complied  with the terms
thereof,  (iv) Lender has received (A) a copy of the certificate of marine cargo
insurance in  connection  therewith in which it has been named as an  additional
insured  and loss payee in a manner  acceptable  to Lender and (B) a copy of the
invoice and manifest with respect thereto, and (v) such Inventory is not subject
to any  Letter of Credit  Accommodation;  (h) Inventory  subject  to a  security
interest or lien in favor of any person other than Lender except those permitted
in this Agreement;  (i) bill and hold goods;  (j) Inventory which is not subject
to the first  priority,  valid and perfected  security  interest of Lender;  (k)
damaged and/or defective Inventory which is unsaleable or which any Borrower has
not marked down to its  realizable  value;  (l)  samples;  (m)  Inventory  to be
returned to vendors; and (n) Inventory purchased or sold on consignment. General
criteria for Eligible Inventory may be established and revised from time to time
by  Lender in good  faith  based on an event,  condition  or other  circumstance
arising  after the date  hereof,  or  existing  on the date hereof to the extent
Lender has no written notice thereof from Borrowers,  which adversely affects or
could reasonably be expected to adversely affect the Inventory in the good faith
determination  of Lender.  Any Inventory  which is not Eligible  Inventory shall
nevertheless be part of the Collateral.

     1.26 "Environmental Laws" shall mean all foreign,  Federal, State and local
laws  (including  common law),  legislation,  rules,  codes,  licenses,  permits
(including  any  conditions  imposed  therein),   authorizations,   judicial  or
administrative decisions, injunctions or agreements between any Borrower and any
Governmental Authority, (a) relating to pollution and the

                                        9
<PAGE>

protection, preservation or restoration of the environment (including air, water
vapor,  surface  water,  ground water,  drinking  water,  drinking water supply,
surface  land,  subsurface  land,  plant and  animal  life or any other  natural
resource), or to human health or safety, (b) relating to the exposure to, or the
use,  storage,  recycling,  treatment,  generation,   manufacture,   processing,
distribution,   transportation,   handling,  labeling,  production,  release  or
disposal, or threatened release, of Hazardous Materials,  or (c) relating to all
laws with  regard  to  recordkeeping,  notification,  disclosure  and  reporting
requirements  respecting  Hazardous  Materials.  The term  "Environmental  Laws"
includes (i) the Federal Comprehensive Environmental Response,  Compensation and
Liability Act of 1980, the Federal Superfund Amendments and Reauthorization Act,
the Federal Water  Pollution  Control Act of 1972,  the Federal Clean Water Act,
the Federal Clean Air Act, the Federal Resource Conservation and Recovery Act of
1976 (including the Hazardous and Solid Waste Amendments  thereto),  the Federal
Solid Waste Disposal and the Federal Toxic  Substances  Control Act, the Federal
Insecticide,  Fungicide and Rodenticide Act, and the Federal Safe Drinking Water
Act of 1974,  (ii)  applicable  state  counterparts  to such laws, and (iii) any
common law or equitable  doctrine that may impose  liability or obligations  for
injuries or damages  due to, or  threatened  as a result of, the  presence of or
exposure to any Hazardous Materials.

     1.27 "Equipment"  shall mean all of each Borrower's now owned and hereafter
acquired  equipment,  machinery,  computers  and computer  hardware and software
(whether  owned  or  licensed),   vehicles,  tools,  furniture,   fixtures,  all
attachments, accessions and property now or hereafter affixed thereto or used in
connection  therewith,  and  substitutions  and replacements  thereof,  wherever
located.

     1.28  "ERISA"  shall  mean the United  States  Employee  Retirement  Income
Security Act of 1974,  together with all rules,  regulations and interpretations
thereunder or related thereto.

     1.29 "ERISA Affiliate" shall mean any person required to be aggregated with
Borrowers or any of their respective Subsidiaries under Sections 414(b), 414(c),
414(m) or 414(o) of the Code.

     1.30 "ERISA  Event" shall mean (a) any  "reportable  event",  as defined in
Section 4043 of ERISA or the regulations  issued  thereunder,  with respect to a
Plan;  (b) the  adoption  of any  amendment  to a Plan that  would  require  the
provision of security pursuant to Section  401(a)(29) of the Code or Section 307
of ERISA;  (c) the existence with respect to any Plan of an "accumulated funding
deficiency"  (as  defined in Section  412 of the Code or Section  302 of ERISA),
whether or not  waived;  (d) the  filing  pursuant to Section 412 of the Code or
Section  303(d) of ERISA of an application  for a waiver of the minimum  funding
standard  with  respect  to  any  Plan;  (e) the  occurrence  of  a  "prohibited
transaction"  with respect to which any Borrower or any of its Subsidiaries is a
"disqualified  person"  (within the meaning of Section 4975 of the Code) or with
respect to which any  Borrower or any of its  Subsidiaries  could  otherwise  be
liable;  (f) a  complete  or partial  withdrawal  by any  Borrower  or any ERISA
Affiliate  from a  Multiemployer  Plan or a  cessation  of  operations  which is
treated as such a withdrawal or  notification  that a  Multiemployer  Plan is in
reorganization; (g) the filing of a notice of intent to terminate, the treatment
of a Plan amendment as a termination under Section 4041 or 4041A of

                                       10
<PAGE>

ERISA,  or the  commencement  of  proceedings  by the Pension  Benefit  Guaranty
Corporation to terminate a Plan or Multiemployer Plan; (h) an event or condition
which might  reasonably be expected to constitute  grounds under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to administer, any
Plan or  Multiemployer  Plan; (i) the imposition of any liability under Title IV
of ERISA, other than the Pension Benefit Guaranty  Corporation  premiums due but
not  delinquent  under  Section  4007  of  ERISA,  upon  Borrower  or any  ERISA
Affiliate;  and  (j) any  other  event or  condition  with  respect to a Plan or
Multiemployer  Plan or any Plan  subject  to Title  IV of ERISA  maintained,  or
contributed  to, by any ERISA  Affiliate  that could  reasonably  be expected to
result in liability of any Borrower.

     1.31 "Eurodollar Rate" shall mean with respect to the Interest Period for a
Eurodollar  Rate  Loan,  the  interest  rate per annum  equal to the  arithmetic
average of the rates of interest per annum (rounded  upwards,  if necessary,  to
the next  one-sixteenth  (1/16) of one (1%) percent) at which  Reference Bank is
offered  deposits of United States  dollars in the London  interbank  market (or
other  Eurodollar Rate market selected by Borrower and approved by Lender) on or
about 9:00 a.m. (New York time) two (2) Business Days prior to the  commencement
of such Interest Period in amounts  substantially  equal to the principal amount
of  the  Eurodollar  Rate  Loans  requested  by and  available  to  Borrower  in
accordance  with this Agreement,  with a maturity of comparable  duration to the
Interest Period selected by Borrower.

     1.32  "Eurodollar  Rate Loans"  shall mean any Loans or portion  thereof on
which  interest is payable based on the Adjusted  Eurodollar  Rate in accordance
with the terms hereof.

     1.33 "Event of Default" shall mean the occurrence or existence of any event
or condition described in Section 10.1 hereof.

     1.34 "Excess  Availability" shall mean the amount, as determined by Lender,
calculated at any time, equal to: (a) the lesser of: (i) the  Borrowing Base and
(ii) the Revolving Loan Limit,  minus (b) the sum of: (i) the amount of all then
outstanding and unpaid  Obligations (but not including for this purpose the then
outstanding  principal amount of the Term Loan),  plus (ii) the aggregate amount
of all then  outstanding  and unpaid  trade  payables and other  obligations  of
Borrowers  which are more than sixty  (60) days past due as of such  time,  plus
(iii) the amount of checks  issued by Borrowers to pay trade  payables and other
obligations  which are more than sixty  (60) days past due as of such time,  but
not yet sent.

     1.35  "Exchange  Act"  shall  mean  the  Securities  Exchange  Act of 1934,
together with all rules,  regulations and interpretations  thereunder or related
thereto.

     1.36 "Excluded Property" shall mean the (a) embroidery  equipment listed on
Schedule 1.36 annexed hereto and made a part hereof, and (b) assets of Borrowers
and their  Subsidiaries  located in Costa Rica on the date hereof. The foregoing
shall  not be  construed  as a waiver of any  claims  or  rights of Lender  with
respect to any of the assets  described in this definition or to limit or affect
the rights of Lender to at any time take such action as Lender may  require,  or
to  require  Borrowers  to take  such  action,  so as to  preserve,  protect  or
establish the security interest, lien,

                                       11
<PAGE>

claim or other  interest  of Lender in such  assets  (whether  pursuant  to this
Section,  Section 9.20 hereof or otherwise) in accordance with the terms of this
Agreement.

     1.37  "Existing  Letters of Credit" shall mean the letters of credit issued
for the  account of  Borrowers  by Carolina  First Bank listed on Schedule  1.37
hereto.

     1.38 "Financing  Agreements" shall mean,  collectively,  this Agreement and
all notes, guarantees,  security agreements and other agreements,  documents and
instruments now or at any time hereafter  executed and/or delivered by Borrowers
or any Obligor in connection with this Agreement.

     1.39 "GECC" shall mean General Electric Capital Corporation.

     1.40 "GECC Warehouse Equipment Lease" shall mean the Master Lease Agreement
dated June 21, 1996 (the "Warehouse Equipment Lease") as amended on May __, 2000
by and between  Borrower,  as lessee and GECC, as lessor, as the same now exists
or may hereafter be amended, modified, supplemented, extended, renewed, restated
or replaced in accordance with the terms of this Agreement.

     1.41 "GAAP" shall mean  generally  accepted  accounting  principles  in the
United  States of  America  as in  effect  from time to time as set forth in the
opinions and pronouncements of the Accounting  Principles Board and the American
Institute of Certified Public  Accountants and the statements and pronouncements
of  the  Financial  Accounting  Standards  Board  which  are  applicable  to the
circumstances as of the date of determination consistently applied, except that,
for purposes of Section 9.11 hereof,  GAAP shall be  determined  on the basis of
such  principles in effect on the date hereof and consistent  with those used in
the  preparation of the most recent audited  financial  statements  delivered to
Lender prior to the date hereof.

     1.42  "Governmental  Authority"  shall mean any nation or  government,  any
state,  province,  or other political  subdivision thereof, any central bank (or
similar  monetary  or  regulatory  authority)  thereof,  any  entity  exercising
executive,  legislative,  judicial, regulatory or administrative functions of or
pertaining  to  government,  and  any  corporation  or  other  entity  owned  or
controlled,  through  stock or capital  ownership  or  otherwise,  by any of the
foregoing.

     1.43  "Hazardous  Materials"  shall mean any hazardous,  toxic or dangerous
substances,  materials and wastes,  including hydrocarbons  (including naturally
occurring  or  man-made  petroleum  and  hydrocarbons),   flammable  explosives,
asbestos,  urea  formaldehyde  insulation,   radioactive  materials,  biological
substances, polychlorinated biphenyls, pesticides, herbicides and any other kind
and/or type of pollutants or  contaminants  (including  materials  which include
hazardous  constituents),  sewage, sludge,  industrial slag, solvents and/or any
other  similar  substances,   materials,  or  wastes  and  including  any  other
substances,  materials  or  wastes  that  are  or  become  regulated  under  any
Environmental  Law (including any that are or become  classified as hazardous or
toxic under any Environmental Law).

                                       12
<PAGE>

     1.44 "Indebtedness"  shall mean, with respect to any Person, any liability,
whether or not contingent,  (a) in respect of borrowed money (whether or not the
recourse of the lender is to the whole of the assets of such Person or only to a
portion   thereof)  or  evidenced  by  bonds,   notes,   debentures  or  similar
instruments;  (b)  representing  the balance deferred and unpaid of the purchase
price of any property or services  (except any such balance that  constitutes an
account  payable to a trade  creditor  (whether  or not an  Affiliate)  created,
incurred,  assumed  or  guaranteed  by such  Person  in the  ordinary  course of
business  of such  Person in  connection  with  obtaining  goods,  materials  or
services  that is not overdue by more than  ninety  (90) days,  unless the trade
payable is being  contested in good faith);  (c) all obligations as lessee under
leases  which  have been,  or should be, in  accordance  with GAAP  recorded  as
Capital Leases; (d) any contractual obligation, contingent or otherwise, of such
Person to pay or be liable for the payment of any indebtedness described in this
definition  of  another  Person,   including,   without  limitation,   any  such
indebtedness,  directly or indirectly guaranteed,  or any agreement to purchase,
repurchase,  or otherwise acquire such indebtedness,  obligation or liability or
any security therefor, or to provide funds for the payment or discharge thereof,
or to maintain solvency,  assets, level of income, or other financial condition;
(e)  all  obligations  with  respect  to  redeemable  stock  and  redemption  or
repurchase obligations under any Capital Stock or other equity securities issued
by such Person; (f) all reimbursement  obligations and other liabilities of such
Person with respect to surety bonds  (whether bid,  performance  or  otherwise),
letters of credit,  banker's  acceptances  or similar  documents or  instruments
issued for such Person's  account;  and (g) all  indebtedness  of such Person in
respect of  indebtedness of another Person for borrowed money or indebtedness of
another Person  otherwise  described in this definition  which is secured by any
consensual lien,  security interest,  collateral  assignment,  conditional sale,
mortgage,  deed of trust,  or other  encumbrance  on any  asset of such  Person,
whether or not such  obligations,  liabilities or indebtedness are assumed by or
are a personal liability of such Person, all as of such time.

     1.45 "Information  Certificate"  shall mean the Information  Certificate of
each Borrower constituting Exhibit A hereto containing material information with
respect to such  Borrower,  its business and assets  provided by or on behalf of
such Borrower to Lender in connection with the preparation of this Agreement and
the other  Financing  Agreements  and the  financing  arrangements  provided for
herein.

     1.46  "Intellectual  Property"  shall  mean each  Borrower's  now owned and
hereafter  arising or acquired:  patents,  patent rights,  patent  applications,
copyrights,  works  which  are  the  subject  matter  of  copyrights,  copyright
registrations, trademarks, trade names, trade styles, trademark and service mark
applications,  and  licenses  and  rights  to  use  any of  the  foregoing;  all
extensions,     renewals,    reissues,     divisions,     continuations,     and
continuations-in-part  of any of the  foregoing;  all  rights  to sue for  past,
present  and future  infringement  of any of the  foregoing;  inventions,  trade
secrets, formulae, processes, compounds, drawings, designs, blueprints, surveys,
reports, manuals, and operating standards; goodwill; customer and other lists in
whatever form maintained;  and trade secret rights,  copyright rights, rights in
works of authorship, and contract rights relating to computer software programs,
in whatever form created or maintained.

     1.47 "Interest  Expense" shall mean, for any period, as to any Person,  all
of the  following as  determined in  accordance  with GAAP:  (a) total  interest
expense, whether paid or accrued

                                       13
<PAGE>

during such period (including the interest  component of Capital Leases for such
period),  including,  without limitation, all bank fees, commissions,  discounts
and other fees and charges owed with respect to letters of credit (but excluding
amortization  of  discount and  amortization of deferred  financing fees paid in
cash in connection with the transactions  contemplated hereby,  interest paid in
property  other than cash and any other  interest  expense not payable in cash),
minus  (b) any net  payments  received  during  such  period as interest  income
received in respect of its investments in cash.

     1.48 "Interest Period" shall mean for any Eurodollar Rate Loan, a period of
approximately  one (1), two (2), or three (3) months  duration as Borrowers  may
elect,  the exact  duration to be determined  in  accordance  with the customary
practice in the applicable Eurodollar Rate market; provided, that, Borrowers may
not  elect  an  Interest  Period  which  will  end  after  the  last  day of the
then-current term of this Agreement.

     1.49 "Interest Rate" shall mean,

     (a) as to Prime Rate Loans,  a rate equal to one-half of one (1/2%) percent
per annum in excess of the Prime Rate and, as to Eurodollar  Rate Loans,  a rate
of two and  one-half  (2 1/2%)  percent  per  annum in  excess  of the  Adjusted
Eurodollar Rate (based on the Eurodollar Rate applicable for the Interest Period
selected  by  Borrowers  as in effect  two (2)  Business  Days after the date of
receipt by Lender of the request of Borrowers for such  Eurodollar Rate Loans in
accordance with the terms hereof,  whether such rate is higher or lower than any
rate previously quoted to Borrowers);

     (b) notwithstanding anything to the contrary set forth in clause (a) above,
the Interest Rate shall mean as to Prime Rate Loans, a rate equal to one-quarter
(1/4%)  percent per annum in excess of the Prime  Rate,  as to  Eurodollar  Rate
Loans, a rate equal to two and one- quarter (2 1/4%) percent per annum in excess
of the Adjusted  Eurodollar Rate  (calculated as described in clause (a) above),
effective  as of  the  first  day of  the  month  after  each  of the  following
conditions is satisfied as determined by Lender in good faith: (i) the EBITDA of
Duck  Head  and its  Subsidiaries  for the  immediately  preceding  fiscal  year
(commencing  with the fiscal year ending on June 30, 2000)  calculated  based on
the audited  financial  statements  of Duck Head and its  Subsidiaries  for such
fiscal year delivered to Lender,  together with the  unqualified  opinion of the
independent certified accountants,  in accordance with Section 9.6 hereof, shall
equal or exceed  $5,000,000,  and (ii) no Event of Default or any act, condition
or event which, with notice or passage of time or both would constitute an Event
of Default shall exist or have occurred and be  continuing;  provided,  that, in
the event that the  Interest  Rate is reduced as provided in this clause (b), if
in any  subsequent  fiscal year  thereafter  the  condition  set forth in clause
(b)(i) is not  satisfied,  effective  as of the first day of the month after the
receipt  by  Lender of the  audited  financial  statements  of Duck Head and its
Subsidiaries  for such fiscal year,  the Interest  Rate shall  increase to those
rates set forth in clause (a) above; and

     (c)  notwithstanding  anything to the contrary contained in clauses (a) and
(b) above,  the  Interest  Rate shall mean the rate of two and one-half (2 1/2%)
percent  per annum in excess of the Prime  Rate as to Prime  Rate  Loans and the
rate of four and one-half (4 1/2%) percent per

                                       14
<PAGE>

annum in excess of the Adjusted  Eurodollar Rate as to Eurodollar Rate Loans, at
Lender's option, without notice,  (d) either (i) for the period on and after the
date of termination or non-renewal hereof until such time as all Obligations are
indefeasibly  paid and  satisfied in full, or (ii) for the period from and after
the date of the  occurrence  of any  Event of  Default,  and for so long as such
Event of Default is  continuing as determined by Lender and (e) on the Revolving
Loans at any time  outstanding  in excess of the amounts  available to Borrowers
under  Section  2  (whether  or not such  excess(es)  arise or are made  with or
without Lender's  knowledge or consent and whether made before or after an Event
of Default).

     1.50 "Inventory"  shall mean all of each Borrower's now owned and hereafter
existing or acquired  raw  materials,  work in process,  finished  goods and all
other inventory of whatsoever kind or nature, wherever located.

     1.51  "Letter of Credit  Accommodations"  shall mean the letters of credit,
merchandise  purchase or other guaranties which are from time to time either (a)
issued or opened by Lender for the account of any Borrower or any Obligor or (b)
with respect to which Lender has agreed to indemnify the issuer or guaranteed to
the issuer the  performance  by any Borrower of its  obligations  to such issuer
(including without limitation, the Existing Letters of Credit).

     1.52 "Loans" shall mean the Revolving Loans and the Term Loan.

     1.53  "Material  Contract"  shall mean (a) any contract or other  agreement
(other  than  the  Financing  Agreements),  written  or  oral,  of any  Borrower
involving  monetary  liability  of or to any  Person  in an  amount in excess of
$1,000,000  in any fiscal  year and (b) any other  contract  or other  agreement
(other than the  Financing  Agreements),  whether  written or oral, to which any
Borrower  is a party as to which the  breach,  nonperformance,  cancellation  or
failure to renew by any party  thereto would have a material  adverse  effect on
the  business,   assets,  condition  (financial  or  otherwise)  or  results  of
operations  or prospects of such Borrower or the validity or  enforceability  of
this Agreement, any of the other Financing Agreements,  or any of the rights and
remedies of Lender hereunder or thereunder.

     1.54 "Maximum  Credit" shall mean the amount of $20,760,000 as the same may
be increased pursuant to Section 2.3(b) hereof.

     1.55 "Maximum  Interest Rate" shall mean the maximum  non-usurious  rate of
interest  under  applicable  Federal or State law as in effect from time to time
that may be contracted for, taken,  reserved,  charged or received in respect of
the indebtedness of Borrowers to Lender,  or to the extent that at any time such
applicable  law may  thereafter  permit a higher  maximum non-  usurious rate of
interest, then such higher rate. Notwithstanding any other provision hereof, the
Maximum  Interest  Rate shall be  calculated  on a daily basis  (computed on the
actual number of days elapsed over a year of three hundred  sixty-five  (365) or
three hundred sixty-six (366) days, as the case may be).

                                       15
<PAGE>

     1.56  "Mortgages"  shall  mean,  the  Deed  to  Secure  Debt  and  Security
Agreement,  dated of even date  herewith,  by Duck Head in favor of Lender  with
respect to the Real Property and related  assets of Duck Head located in Winder,
Georgia.

     1.57 "Multiemployer Plan" shall mean a "multi-employer  plan" as defined in
Section  4001(a)(3) of ERISA which is or was at any time during the current year
or the immediately preceding six (6) years contributed to by any Borrower or any
ERISA Affiliate.

     1.58 "Net  Amount of  Eligible  Accounts"  shall  mean the gross  amount of
Eligible Accounts less (a) sales, excise or similar taxes included in the amount
thereof and (b) returns, discounts, claims, credits and allowances of any nature
at any time  issued,  owing,  granted,  outstanding,  available  or claimed with
respect thereto.

     1.59 "Net Income" shall mean,  with respect to any Person,  for any period,
the aggregate of the net income (loss) of such Person and its Subsidiaries, on a
consolidated  basis,  for such period  (excluding to the extent included therein
any extraordinary,  one-time or non-recurring gains) after deducting all charges
which  should be  deducted  before  arriving  at the net income  (loss) for such
period and after  deducting  the  Provision  for Taxes for such  period,  all as
determined in accordance  with GAAP;  provided,  that, (a) the net income of any
Person that is not a  wholly-owned  Subsidiary  or that is accounted  for by the
equity method of  accounting  shall be included only to the extent of the amount
of dividends or  distributions  paid or payable to such Person or a wholly-owned
Subsidiary of such Person; (b) the effect of any change in accounting principles
adopted  by such  Person  or its  Subsidiaries  after the date  hereof  shall be
excluded; and (c) the net income (if positive) of any wholly-owned Subsidiary to
the extent that the declaration or payment of dividends or similar distributions
by such  wholly-owned  Subsidiary  to such  Person or to any other  wholly-owned
subsidiary of such Person is not at the time permitted by operation of the terms
of its charter or any agreement,  instrument,  judgment, decree, order, statute,
rule or governmental regulation applicable to such wholly-owned Subsidiary shall
be excluded.  For the purpose of this  definition,  net income excludes any gain
(but not loss) together with any related  Provision for Taxes for such gain (but
not loss) realized upon the sale or other disposition of any assets that are not
sold  in  the  ordinary  course  of  business  (including,  without  limitation,
dispositions  pursuant  to sale and  leaseback  transactions)  or of any Capital
Stock of such Person or a Subsidiary of such Person and any net income  realized
as a result of changes in accounting  principles or the  application  thereof to
such Person.

     1.60 "Net  Recovery  Percentage"  shall mean the  fraction,  expressed as a
percentage,  (a) the  numerator  of which  is the  amount  equal to the  orderly
liquidation  value of the  Inventory as set forth in the most recent  acceptable
appraisal of Inventory received by Lender in accordance with Section 7.3, net of
operating  expenses,   liquidation   expenses  and  commissions,   and  (b)  the
denominator  of  which  is the  original  cost of the  aggregate  amount  of the
Inventory subject to such appraisal.

     1.61  "Obligations"  shall mean any and all Revolving Loans, the Term Loan,
Letter  of Credit  Accommodations  and all other  obligations,  liabilities  and
indebtedness  of every kind,  nature and  description  owing by any  Borrower to
Lender and/or its affiliates, including principal,

                                       16
<PAGE>

interest,  charges,  fees,  costs and expenses,  however  evidenced,  whether as
principal,  surety, endorser, guarantor or otherwise, whether arising under this
Agreement  or  otherwise,  whether now existing or  hereafter  arising,  whether
arising  before,  during  or  after  the  initial  or any  renewal  term of this
Agreement  or after the  commencement  of any case with  respect to any Borrower
under the United States  Bankruptcy Code or any similar  statute  (including the
payment of interest and other  amounts which would accrue and become due but for
the  commencement  of such case,  whether  or not such  amounts  are  allowed or
allowable  in  whole  or in part in such  case),  whether  direct  or  indirect,
absolute or contingent,  joint or several, due or not due, primary or secondary,
liquidated  or  unliquidated,  secured or  unsecured,  and  however  acquired by
Lender.

     1.62 "Obligor"  shall mean any  guarantor,  endorser,  acceptor,  surety or
other person liable on or with respect to the Obligations or who is the owner of
any property which is security for the Obligations, other than any Borrower.

     1.63  "Payment  Account"  shall have the  meaning  set forth in Section 6.3
hereof.

     1.64 "Permits" shall have the meaning set forth in Section 8.7 hereof.

     1.65  "Permitted  Holders"  shall mean the persons  listed on Schedule 1.65
hereto and their respective successors and assigns.

     1.66 "Person" or "person" shall mean any individual,  sole  proprietorship,
partnership,  corporation  (including any corporation  which elects subchapter S
status  under  the  Code),   limited   liability   company,   limited  liability
partnership,   business   trust,   unincorporated   association,   joint   stock
corporation,  trust,  joint  venture or other  entity or any  government  or any
agency or instrumentality or political subdivision thereof.

     1.67 "Plan"  means an employee  benefit plan (as defined in Section 3(3) of
ERISA) which any Borrower sponsors,  maintains, or to which it makes, is making,
or is obligated to make  contributions,  or in the case of a Multiemployer  Plan
has made contributions at any time during the immediately preceding six (6) plan
years.

     1.68 "Prime Rate" shall mean the rate from time to time publicly  announced
by First Union National Bank, or its successors,  as its prime rate,  whether or
not such announced rate is the best rate available at such bank.

     1.69 "Prime Rate  Loans"  shall mean any Loans or portion  thereof on which
interest  is  payable  based on the  Prime  Rate in  accordance  with the  terms
thereof.

     1.70  "Provision for Taxes" shall mean an amount equal to all taxes imposed
on or measured by net income, whether Federal, State,  Provincial,  municipal or
local,  and whether foreign or domestic,  that are paid or payable by any Person
in respect of any period in accordance with GAAP.

                                       17
<PAGE>

     1.71 "Real Property"  shall mean all now owned and hereafter  acquired real
property of any  Borrower,  including  leasehold  interests,  together  with all
buildings,  structures, and other improvements located thereon and all licenses,
easements and appurtenances  relating thereto,  wherever located,  including the
real property and related assets more particularly described in the Mortgages.

     1.72  "Receivables"  shall mean:  (a) all Accounts;  (b) all amounts at any
time payable to any Borrower in respect of the sale or other disposition by such
Borrower of any Account or other  obligation  for the payment of money;  (c) all
interest, fees, late charges,  penalties,  collection fees and other amounts due
or to become due or otherwise  payable in connection  with any Account;  (d) all
letters of credit,  indemnities,  guarantees,  security  or other  deposits  and
proceeds  thereof  issued  payable to any  Borrower or  otherwise in favor of or
delivered  to any  Borrower in  connection  with any  Account;  or (e) all other
contract rights,  chattel paper,  instruments,  notes,  general  intangibles and
other forms of  obligations  owing to any  Borrower,  whether  from the sale and
lease  of  goods  or  other  property,  licensing  of  any  property  (including
Intellectual  Property or other general  intangibles),  rendition of services or
from loans or  advances  by any  Borrower  or to or for the benefit of any third
person  (including  loans or  advances to any  Affiliates  or  Subsidiaries)  or
otherwise associated with any Accounts,  Inventory or general intangibles of any
Borrower (including, without limitation, choses in action, causes of action, tax
refunds,  tax refund claims,  any funds which may become payable to any Borrower
in connection  with the  termination of any Plan or other employee  benefit plan
and any other amounts  payable to any Borrower  from any Plan or other  employee
benefit  plan,  rights and  claims  against  carriers  and  shippers,  rights to
indemnification,  business interruption insurance and proceeds thereof, casualty
or any similar  types of  insurance  and any  proceeds  thereof and  proceeds of
insurance covering the liens of employees on which any Borrower is beneficiary.

     1.73 "Records" shall mean all of each  Borrower's  present and future books
of  account of every kind or nature,  purchase  and sale  agreements,  invoices,
ledger  cards,  bills  of  lading  and  other  shipping  evidence,   statements,
correspondence,   memoranda,  credit  files  and  other  data  relating  to  the
Collateral or any account debtor,  together with the tapes, disks, diskettes and
other data and software  storage media and devices,  file cabinets or containers
in or on which the  foregoing are stored  (including  any rights of any Borrower
with respect to the foregoing maintained with or by any other person).

     1.74  "Reference  Bank" shall mean First Union National Bank, or such other
bank as Lender may from time to time designate.

     1.75 "Renewal Date" shall the meaning set forth in Section 12.1 hereof.

     1.76 "Reserves" shall mean as of any date of determination, such amounts as
Lender may from time to time  establish  and revise in good faith  reducing  the
amount of  Revolving  Loans and  Letter of  Credit  Accommodations  which  would
otherwise be available to Borrowers  under the lending  formula(s)  provided for
herein: (a) to reflect events, conditions,  contingencies or risks arising after
the date of this Agreement or of which Lender had no actual knowledge as of such
date,  which, as determined by Lender in good faith,  adversely affect, or would
have a reasonable

                                       18
<PAGE>

likelihood  of  adversely  affecting,  either  (i) the  Collateral  or any other
property which is security for the  Obligations  or its value,  (ii) the assets,
business  or  financial  condition  of  Borrowers  or any  Obligor  or (iii) the
security  interests and other rights of Lender in the Collateral  (including the
enforceability,  perfection and priority  thereof);  or (b) to reflect  Lender's
good faith belief that any collateral report or financial  information furnished
by or on  behalf  of  Borrowers  or any  Obligor  to  Lender is or may have been
incomplete,  inaccurate or misleading in any material respect; or (c) to reflect
outstanding Letter of Credit  Accommodations as provided in Section 2.2  hereof;
or (d) to reflect  inventory  shrinkage;  (e)  $375,000  in respect of  deferred
compensation  liabilities  of  Borrowers  for their  employees  and those of any
member of the Duck Head  Employee  Group  (as such  term is  defined  in the DWI
Distribution  Agreement)such  reserve  to  terminate  upon  Lender's  receipt of
evidence,  in form and substance  satisfactory to it that the option provided to
members of the Duck Head Employee  Group to receive a  distribution  of deferred
compensation  benefits in connection with the  transactions  contemplated by the
Distribution Agreement has expired; or (f) to reflect amounts owing by Borrowers
to Credit Card Issuers or Credit Card  Processors in connection  with the Credit
Card Agreements; or (g) in respect of any state of facts which Lender determines
in good faith  constitutes an Event of Default or may, with notice or passage of
time or both,  constitute  an Event of Default.  To the extent Lender may revise
the lending  formulas  used to determine  the  Borrowing  Base or establish  new
criteria or revise existing criteria for Eligible Accounts or Eligible Inventory
so as to address any circumstances, condition, event or contingency in an manner
satisfactory  to  Lender,  Lender  shall not  establish  a Reserve  for the same
purpose. The amount of any Reserve established by Lender shall have a reasonable
relationship to the event, condition or other matter which is the basis for such
reserve as determined by Lender in good faith.

     1.77 "Revolving Loan Limit" shall mean $15,000,000.

     1.78 "Revolving Loans" shall mean the loans now or hereafter made by Lender
to or for the benefit of Borrowers  on a revolving  basis  (involving  advances,
repayments and readvances) as set forth in Section 2.1 hereof.

     1.79  "Subsidiary" or "subsidiary"  shall mean, with respect to any Person,
any corporation,  limited liability  company,  limited liability  partnership or
other  limited or general  partnership,  trust,  association  or other  business
entity of which an aggregate of at least a majority of the  outstanding  Capital
Stock  or other  interests  entitled  to vote in the  election  of the  board of
directors of such  corporation  (irrespective of whether,  at the time,  Capital
Stock of any other class or classes of such corporation shall have or might have
voting power by reason of the happening of any contingency),  managers, trustees
or other controlling persons, or an equivalent  controlling interest therein, of
such Person is, at the time, directly or indirectly, owned by such Person and/or
one or more subsidiaries of such Person.

     1.80 "Term  Loan" shall mean the term loan made by Lender to  Borrowers  as
provided for in Section 2.3 hereof.

                                       19
<PAGE>

     1.81  "Value"  shall mean,  as  determined  by Lender in good  faith,  with
respect to  Inventory,  the lower of (a) cost  computed on a first-in  first-out
basis in accordance with GAAP or (b) market value.

     1.82 "Voting  Stock" shall mean with respect to any Person,  (a) one (1) or
more classes of Capital  Stock of such Person  having  general  voting powers to
elect at least a majority  of the board of  directors,  managers  or trustees of
such  Person,  irrespective  of whether at the time  Capital  Stock of any other
class or classes have or might have voting  power by reason of the  happening of
any  contingency,  and (b) any  Capital  Stock  of such  Person  convertible  or
exchangeable  without  restriction  at the  option of the  holder  thereof  into
Capital Stock of such Person described in clause (a) of this definition.

     1.83 "Warehouse  Equipment" shall mean the leased equipment of Duck Head as
described in Schedule Nos. 001 and 002 to the GECC  Warehouse  Equipment  Lease,
whether or not the GECC Warehouse  Equipment  Lease is in full force and effect,
such schedules being annexed hereto as Exhibit 1.83.

     1.84  "Woodside"  shall  mean  Delta  Woodside  Industries,  Inc.,  a South
Carolina corporation, and its successors and assigns.

SECTION 2. CREDIT FACILITIES
           -----------------

     2.1 Revolving Loans.
         ----------------

     (a) Subject to and upon the terms and conditions  contained herein,  Lender
agrees  to make  Revolving  Loans  to  Borrowers  from  time to time in  amounts
requested  by  Borrowers  up to the  amount  equal  to the  lesser  of:  (i) the
Borrowing Base or (ii) the Revolving Loan Limit.

     (b) Lender may, in its  discretion,  from time to time,  upon not less than
five (5) days prior  notice to  Borrower,  (i) reduce the lending  formula  with
respect to Eligible  Accounts to the extent that Lender determines in good faith
that (A) the dilution  with respect to the Accounts for any period (based on the
ratio of (1) the  aggregate  amount of  reductions  in Accounts  other than as a
result of  payments  in cash to (2) the  aggregate  amount of total  sales)  has
increased in any material  respect or may be reasonably  anticipated to increase
in  any  material   respect  above  historical   levels,   or  (B)  the  general
creditworthiness  of account debtors has materially  declined or (ii) reduce the
lending  formula(s) with respect to Eligible Inventory to the extent that Lender
determines that: (A) the number of days of the turnover of the Inventory for any
period has changed or (B) the advance  percentage in the lending formula is more
than  eighty-five  (85%) percent of the Net Recovery  Percentage with respect to
Eligible Inventory as set forth in the most recent appraisal thereof received by
Lender,  or (C) the  nature,  quality  or mix of the  Inventory  has  materially
deteriorated.  The amount of any decrease in the lending  formulas  shall have a
reasonable  relationship to the event,  condition or  circumstance  which is the
basis for such decrease as determined  by Lender in good faith.  In  determining
whether  to  reduce  the  lending   formula(s),   Lender  may  consider  events,
conditions,  contingencies  or risks which are also  considered  in  determining
Eligible Accounts, Eligible Inventory or in establishing Reserves.

                                       20
<PAGE>

     (c)  Except  in  Lender's  discretion,  (i)  the  aggregate  amount  of the
Revolving  Loans  outstanding  at any time shall not exceed the  Revolving  Loan
Limit,  (ii)  the  aggregate  amount  of the  Loans  and the  Letter  of  Credit
Accommodations  outstanding  at any time shall not exceed  the  Maximum  Credit,
(iii)  the   aggregate   amount  of   Revolving   Loans  and  Letter  of  Credit
Accommodations  based on Eligible Inventory  consisting of uncut finished fabric
of  Borrowers  shall  not  exceed  $750,000,  and (iv) the  aggregate  amount of
Revolving Loans and Letter of Credit  Accommodations based on Eligible Inventory
consisting of Eligible Inventory of Merchandising  outstanding at any time shall
not exceed  twenty  (20%)  percent of the  aggregate  amount of all  outstanding
Revolving Loans and Letter of Credit  Accommodations based on Eligible Inventory
to all Borrowers.  In the event that the outstanding  amount of any component of
the Loans, or the aggregate amount of the outstanding Loans and Letter of Credit
Accommodations,  exceed the amounts  available under the lending  formulas,  the
Revolving  Loan Limit,  the  sublimits for Letter of Credit  Accommodations  set
forth in Section 2.2(e) or the Maximum Credit,  as applicable,  such event shall
not limit,  waive or otherwise affect any rights of Lender in that  circumstance
or on any future occasions and Borrower shall, upon demand by Lender,  which may
be made at any time or from time to time, immediately repay to Lender the entire
amount of any such excess(es) for which payment is demanded.

     2.2 Letter of Credit Accommodations.
         --------------------------------

     (a) Subject to and upon the terms and conditions  contained  herein, at the
request of a Borrower,  Lender agrees to provide or arrange for Letter of Credit
Accommodations for the account of such Borrower  containing terms and conditions
acceptable to Lender and the issuer thereof.  Any payments made by Lender to any
issuer thereof and/or  related  parties in connection  with the Letter of Credit
Accommodations  shall  constitute  additional  Revolving  Loans to such Borrower
pursuant to this Section 2.

     (b) In addition  to any  charges,  fees or expenses  charged by any bank or
issuer in connection with the Letter of Credit  Accommodations,  Borrowers shall
pay to Lender a letter  of credit  fee at a rate  equal to one and  one-half  (1
1/2%) percent per annum on the daily outstanding balance of the Letter of Credit
Accommodations for the immediately preceding month (or part thereof), payable in
arrears as of the first day of each  succeeding  month,  except  that  Borrowers
shall pay to Lender  such letter of credit  fee,  at  Lender's  option,  without
notice, at a rate equal to three and one-half (3 1/2%) percent per annum on such
daily  outstanding  balance  for:  (i) the  period  from and  after  the date of
termination  or  non-renewal  hereof until  Lender has  received  full and final
payment of all  Obligations  (notwithstanding  entry of a judgment  against  any
Borrower)  and (ii) the period from and after the date of the  occurrence  of an
Event  of  Default  for so  long as such  Event  of  Default  is  continuing  as
determined by Lender. Such letter of credit fee shall be calculated on the basis
of a three  hundred  sixty  (360)  day  year and  actual  days  elapsed  and the
obligation  of  Borrower  to pay such  fee  shall  survive  the  termination  or
non-renewal of this Agreement.

     (c) Borrowers shall give Lender two (2) Business Days' prior written of any
Borrower's  request for the issuance of a Letter of Credit  Accommodation.  Such
notice shall be  irrevocable  and shall  specify the original face amount of the
Letter of Credit Accommodation

                                       21
<PAGE>

requested,  the effective  date (which date shall be a Business Day) of issuance
of such requested Letter of Credit Accommodation,  whether such Letter of Credit
Accommodations  may be drawn in a single or in partial draws,  the date on which
such requested Letter of Credit  Accommodation is to expire (which date shall be
a Business Day), the purpose for which such Letter of Credit Accommodation is to
be issued, and the beneficiary of the requested Letter of Credit  Accommodation.
Borrowers  shall attach to such notice the proposed form of the Letter of Credit
Accommodation.

     (d) In  addition to being  subject to the  satisfaction  of the  applicable
conditions  precedent  contained  in  Section 4 hereof  and the other  terms and
conditions  contained  herein,  no  Letter  of  Credit  Accommodations  shall be
available unless each of the following  conditions precedent have been satisfied
in a manner  satisfactory to Lender:  (i) Borrowers  shall have delivered to the
proposed issuer of such Letter of Credit Accommodation at such times and in such
manner as such proposed issuer may require, an application in form and substance
satisfactory  to such proposed  issuer and Lender for the issuance of the Letter
of Credit  Accommodation and such other documents as may be required pursuant to
the  terms  thereof,  and the form and  terms of the  proposed  Letter of Credit
Accommodation shall be satisfactory to Lender and such proposed issuer,  (ii) as
of the date of issuance, no order of any court, arbitrator or other Governmental
Authority  shall  purport by its terms to enjoin or restrain  money center banks
generally  from  issuing  letters of credit of the type and in the amount of the
proposed  Letter  of  Credit  Accommodation,  and no  law,  rule  or  regulation
applicable to money center banks generally and no request or directive  (whether
or  not  having  the  force  of  law)  from  any  Governmental   Authority  with
jurisdiction  over money center banks generally shall prohibit,  or request that
the proposed  issuer of such Letter of Credit  Accommodation  refrain from,  the
issuance  of letters of credit  generally  or the  issuance  of such  Letters of
Credit Accommodation;  and (iii) the Excess Availability, prior to giving effect
to any  Reserves  with respect to such Letter of Credit  Accommodations,  on the
date of the proposed issuance of any Letter of Credit  Accommodations,  shall be
equal to or greater than: (A) if the proposed Letter of Credit  Accommodation is
for the purpose of  purchasing  Eligible  Inventory,  the sum of (1) forty (40%)
percent  multiplied by the Value of such Eligible  Inventory,  plus (2) freight,
taxes,  duty and other amounts which Lender estimates must be paid by a Borrower
in connection  with such  Inventory upon arrival and for delivery to one of such
Borrower's  locations for Eligible Inventory within the United States of America
and  (iv) if the  proposed  Letter  of  Credit  Accommodation  is for any  other
purpose,  an amount  equal to one  hundred  (100%)  percent  of the face  amount
thereof and all other  commitments  and  obligations  made or incurred by Lender
with  respect  thereto.  Effective  on the  issuance  of each  Letter  of Credit
Accommodation, a Reserve shall be established in the applicable amount set forth
in Section 2.2(d)(iii)(A) or Section 2.2(d)(iii)(B).

     (e) Except in Lender's discretion,  the amount of all outstanding Letter of
Credit Accommodations and all other commitments and obligations made or incurred
by Lender in connection  therewith shall not at any time exceed $10,000,000.  At
any time an Event of Default  exists or has  occurred  and is  continuing,  upon
Lender's  request,  Borrowers will either furnish cash  collateral to secure the
reimbursement  obligations to the issuer in connection with any Letter of Credit
Accommodations  or furnish  cash  collateral  to Lender for the Letter of Credit
Accommodations.

                                       22
<PAGE>

     (f) Each Borrower shall indemnify and hold Lender harmless from and against
any and all losses,  claims,  damages,  liabilities,  costs and  expenses  which
Lender   may  suffer  or  incur  in   connection   with  any  Letter  of  Credit
Accommodations  and any  documents,  drafts  or  acceptances  relating  thereto,
including any losses, claims,  damages,  liabilities,  costs and expenses due to
any action  taken by any issuer or  correspondent  with respect to any Letter of
Credit  Accommodation.  Each Borrower assumes all risks with respect to the acts
or  omissions  of the  drawer  under or  beneficiary  of any  Letter  of  Credit
Accommodation  and for such purposes the drawer or  beneficiary  shall be deemed
Borrower's  agent.  Each Borrower  assumes all risks for, and agrees to pay, all
foreign, Federal, State and local taxes, duties and levies relating to any goods
subject  to any  Letter of Credit  Accommodations  or any  documents,  drafts or
acceptances thereunder.  Each Borrower hereby releases and holds Lender harmless
from and against any acts, waivers, errors, delays or omissions,  whether caused
by any Borrower,  by any issuer or correspondent or otherwise with respect to or
relating to any Letter of Credit Accommodation,  except for the gross negligence
or wilful misconduct of Lender as determined pursuant to a final, non-appealable
order of a court of  competent  jurisdiction.  The  provisions  of this  Section
2.2(e)  shall  survive  the  payment  of  Obligations  and  the  termination  or
non-renewal of this Agreement.

     (g) In connection  with  Inventory  purchased  pursuant to Letter of Credit
Accommodations,  Borrowers  will, at Lender's  request,  instruct all suppliers,
carriers, forwarders, customs brokers, warehouses or others receiving or holding
cash,  checks,  Inventory,  documents  or  instruments  in which  Lender holds a
security  interest to deliver them to Lender and/or  subject to Lender's  order,
and if they shall come into any  Borrower's  possession,  to deliver them,  upon
Lender's request, to Lender in their original form. Each Borrower shall also, at
Lender's  request,  designate Lender as the consignee on all bills of lading and
other negotiable and non-negotiable documents.

     (h) Each Borrower hereby irrevocably authorizes and directs any issuer of a
Letter of  Credit  Accommodation  to name such  Borrower  as the  account  party
therein and to deliver to Lender all  instruments,  documents and other writings
and property received by issuer pursuant to the Letter of Credit  Accommodations
and to accept and rely upon Lender's instructions and agreements with respect to
all matters  arising in connection with the Letter of Credit  Accommodations  or
the applications therefor. Nothing contained herein shall be deemed or construed
to grant any  Borrower  any right or authority to pledge the credit of Lender in
any  manner.  Lender  shall have no  liability  of any kind with  respect to any
Letter of Credit  Accommodation  provided by an issuer other than Lender  unless
Lender has duly  executed  and  delivered  to such issuer the  application  or a
guarantee  or  indemnification  in writing with respect to such Letter of Credit
Accommodation.  Each Borrower shall be bound by any interpretation  made in good
faith by Lender,  or any other issuer or  correspondent  under or in  connection
with any Letter of Credit Accommodation or any documents,  drafts or acceptances
thereunder,  notwithstanding  that such  interpretation may be inconsistent with
any  instructions  of such  Borrower.  Lender shall have the sole and  exclusive
right and  authority  to,  and no  Borrower  shall:  (i) at any time an Event of
Default  exists or has  occurred and is  continuing,  (A) approve or resolve any
questions  of  non-compliance  of  documents,  (B) give any  instructions  as to
acceptance  or  rejection  of any  documents or goods or (C) execute any and all
applications for steamship or airway guaranties, indemnities or delivery orders,
and (ii) at all times, (A) grant any

                                       23
<PAGE>

extensions of the maturity of, time of payment for, or time of presentation  of,
any  drafts,  acceptances,  or  documents,  and  (B)  agree  to any  amendments,
renewals,  extensions,  modifications,  changes or  cancellations  of any of the
terms or conditions of any of the applications, Letter of Credit Accommodations,
or documents, drafts or acceptances thereunder or any letters of credit included
in the Collateral. Lender may take such actions either in its own name or in any
Borrower's name.

     (i) Any rights,  remedies,  duties or obligations  granted or undertaken by
any Borrower to any issuer or correspondent in any application for any Letter of
Credit  Accommoda  tion,  or any  other  agreement  in  favor of any  issuer  or
correspondent relating to any Letter of Credit Accommodation, shall be deemed to
have been  granted or  undertaken  by such  Borrower  to  Lender.  Any duties or
obligations  undertaken  by  Lender  to  any  issuer  or  correspondent  in  any
application  for any Letter of Credit  Accommodation,  or any other agreement by
Lender in favor of any issuer or correspondent  relating to any Letter of Credit
Accommodation,  shall be deemed  to have been  undertaken  by such  Borrower  to
Lender and to apply in all respects to such Borrower.

     2.3 Term  Loan.  (a)  Lender  is  making a Term  Loan to  Borrowers  in the
         -----------
original  principal  amount of  $5,760,000.  The Term Loan is (i) evidenced by a
Term  Promissory  Note in such  original  principal  amount  duly  executed  and
delivered  by  Borrowers  to Lender  concurrently  herewith;  (ii) to be repaid,
together with interest and other amounts, in accordance with this Agreement, the
Term Promissory  Note, and the other  Financing  Agreements and (iii) secured by
all of the  Collateral.  Borrowers may not reborrow any  principal  amounts paid
pursuant to the Term  Promissory  Note except as provided for in Section  2.3(b)
below.

     (b) At any  time on or after  the  second  anniversary  of the date of this
Agreement,  upon the written  request of Borrowers,  which shall be  irrevocable
(and which shall only be made once),  the  outstanding  principal  amount of the
Term Loan may be increased by an amount equal to the difference  between the (i)
then outstanding  principal amount of the Term Loan and (ii) sixty (60%) percent
of the fair market value of the  Distribution  and Office  Facility  (calculated
based on the updated  appraisal as described  below);  provided,  that, any such
increase  in the  outstanding  principal  amount of the Term Loan  shall only be
effective if each of the  following  conditions  is satisfied as  determined  by
Lender: (A) Lender shall have received the written request of Borrowers for such
increase  after  the  second  anniversary  of the date  hereof,  (B) no Event of
Default, or act, condition or event which with notice or passage of time or both
would  constitute  an Event of  Default  shall  exist  or have  occurred  and be
continuing  on the  proposed  date of any such  increase  of the Term Loan,  (C)
Lender shall have received an updated  appraisal in respect of the  Distribution
and Office  Facility by an  independent  appraiser  acceptable  to Lender and in
form, scope and methodology  acceptable to Lender and addressed to Lender and on
which Lender is expressly  permitted  to rely,  which  appraisal is conducted no
earlier than  forty-five (45) days prior to the effective date of such increase,
(D) Lender shall have  received  such  appraisal  not less than twenty (20) days
prior to the applicable effective date and (E) Lender shall have received (1) an
Amended and  Restated  Term  Promissory  Note (the  "Amended  Term  Note"),  (2)
Amendments to the Mortgages (the "Mortgage  Amendments"),  (3) an endorsement to
the  existing  title  policy  issued  for the  benefit  of  Lender,  in form and
substance, acceptable to Lender,

                                       24
<PAGE>

each in form and substance  satisfactory to Lender,  duly executed and delivered
by  Borrower,  and in the  case  of the  Mortgage  Amendments,  recorded  in the
applicable real estate records.  Upon the  satisfaction of all of the conditions
set forth in the immediately  preceding sentence,  the indebtedness of Borrowers
to Lender arising pursuant to the Term Loan and including the additional advance
provided  for in this  Section  2.3(b)  herein  shall (a) be deemed  amended and
restated as set forth in the Amended Term Note and evidenced  thereby and herein
and in the other Financing  Agreements,  and (b) be deemed secured by all of the
Collateral . Borrower may not reborrow any  principal  amounts paid  pursuant to
the Amended Term Note.

     2.4 Joint and Several Liability.  Borrowers shall be liable for all amounts
         ----------------------------
due to Lender  under  this  Agreement,  regardless  of which  Borrower  actually
receives the Loans or other extensions of credit hereunder or the amount of such
Loans received or the manner in which Lender accounts for such Loans,  Letter of
Credit  Accommodations  or other  extensions of credit on its books and records.
The  Obligations  with respect to Loans made to a Borrower,  and the Obligations
arising as a result of the joint and several liability of a Borrower  hereunder,
with respect to Loans made to the other  Borrower  hereunder,  shall be separate
and  distinct  obligations,  but all such  other  Obligations  shall be  primary
obligations of all Borrowers.  The Obligations  arising as a result of the joint
and several liability of a Borrower  hereunder with respect to Loans,  Letter of
Credit  Accommodations  or other extensions of credit made to the other Borrower
hereunder  shall,  to the fullest  extent  permitted  by law,  be  unconditional
irrespective of (a) the validity or  enforceability,  avoidance or subordination
of the  Obligations  of the other  Borrower or of any  promissory  note or other
document  evidencing all or any part of the Obligations of the other  Borrowers,
(b) the  absence  of any  attempt  to  collect  the  Obligations  from the other
Borrower,  any  Obligor or any other  security  therefor,  or the absence of any
other  action  to  enforce  the  same,  (c) the  waiver,   consent,   extension,
forbearance  or  granting  of any  indulgence  by  Lender  with  respect  to any
provisions of any instrument  evidencing the  Obligations of the other Borrower,
or any part thereof,  or any other  agreement  now or hereafter  executed by the
other  Borrower and delivered to Lender,  (d) the  failure by Lender to take any
steps to perfect and  maintain  its  security  interest  in, or to preserve  its
rights and maintain its security or collateral for the  Obligations of the other
Borrower,  (e) the  election of Lender in any  proceeding  instituted  under the
Bankruptcy  Code, of the  application  of Section  1111(b)(2) of the  Bankruptcy
Code,  (f) the  disallowance of all or any portion of the claim(s) of Lender for
the repayment of the  Obligations of the other Borrower under Section 502 of the
Bankruptcy Code, or (g) any other  circumstances  which might constitute a legal
or equitable discharge or defense of any Obligor or of the other Borrower, other
than  the  wilful  misconduct,  gross  negligence  or bad  faith  of  Lender  as
determined  pursuant to a final,  non-appealable  order of a court of  competent
jurisdiction.  With respect to the Obligations  arising as a result of the joint
and several liability of a Borrower  hereunder with respect to Loans,  Letter of
Credit  Accommodations  or other extensions of credit made to the other Borrower
hereunder,  each Borrower waives,  until the Obligations shall have been paid in
full and this  Agreement  shall have been  terminated,  any right to enforce any
right of  subrogation  or any remedy which Lender now has or may hereafter  have
against  Borrowers,  any  endorser  or any  guarantor  of all or any part of the
Obligations,  and any benefit of, and any right to participate  in, any security
or collateral given to Lender.  Upon any Event of Default and for so long as the
same is continuing,  Lender may proceed  directly and at once,  without  notice,
against any Borrower to collect and recover the full  amount,  or any portion of
the Obligations, without

                                       25
<PAGE>

first proceeding  against the other Borrower or any other Person, or against any
security or collateral for the  Obligations.  Each Borrower  consents and agrees
that Lender  shall be under no  obligation  to  marshall  any assets in favor of
Borrower(s) or against or in payment of any or all of the Obligations.

SECTION 3. INTEREST AND FEES
           -----------------

     3.1 Interest.
         ---------

     (a) Borrowers  shall pay to Lender  interest on the  outstanding  principal
amount of the Loans at the Interest Rate. All interest accruing hereunder on and
after the date of any Event of Default or termination  or non-renewal  hereof or
on the principal amount of the Revolving Loans at any time outstanding in excess
of the  amounts  available  to  Borrowers  under  Section 2 (whether or not such
excess(es),  arise or are made with or without Lender's knowledge or consent and
whether made before or after an Event of Default) shall be payable ON DEMAND.

     (b)  Borrowers  may from time to time  request  that  Prime  Rate  Loans be
converted to Eurodollar  Rate Loans or that any existing  Eurodollar  Rate Loans
continue for an additional  Interest  Period.  Such request from Borrowers shall
specify the amount of the Prime Rate Loans which will constitute Eurodollar Rate
Loans  (subject  to the limits set forth  below) and the  Interest  Period to be
applicable to such  Eurodollar  Rate Loans.  Subject to the terms and conditions
contained  herein,  two (2)  Business  Days  after  receipt  by Lender of such a
request from  Borrowers,  such Prime Rate Loans shall be converted to Eurodollar
Rate Loans or such  Eurodollar  Rate Loans shall  continue,  as the case may be,
provided,  that, (i) no Event of Default,  or act, condition or event which with
notice or  passage of time or both would  constitute  an Event of Default  shall
exist or have occurred and be  continuing,  (ii) no party hereto shall have sent
any notice of  termination or non-renewal  of this  Agreement,  (iii)  Borrowers
shall have complied with such customary  procedures as are established by Lender
and  specified by Lender to Borrower  from time to time for requests by Borrower
for Eurodollar Rate Loans, (iv) no more than four (4) Interest Periods may be in
effect at any one time, (v) the aggregate  amount of the  Eurodollar  Rate Loans
must be in an  amount  not less  than  $3,000,000  or an  integral  multiple  of
$1,000,000 in excess  thereof,  and (vi) Lender shall have  determined  that the
Interest  Period or Adjusted  Eurodollar Rate is available to Lender through the
Reference  Bank and can be readily  determined as of the date of the request for
such Eurodollar Rate Loan by Borrowers. Any request by Borrower to convert Prime
Rate Loans to Eurodollar Rate Loans or to continue any existing  Eurodollar Rate
Loans shall be irrevocable.  Notwithstanding  anything to the contrary contained
herein,  Lender and  Reference  Bank shall not be required  to  purchase  United
States  Dollar  deposits  in the  London  interbank  market or other  applicable
Eurodollar  Rate market to fund any  Eurodollar  Rate Loans,  but the provisions
hereof shall be deemed to apply as if Lender and  Reference  Bank had  purchased
such deposits to fund the Eurodollar Rate Loans.

     (c) Any  Eurodollar  Rate Loans shall  automatically  convert to Prime Rate
Loans upon the last day of the  applicable  Interest  Period,  unless Lender has
received and approved a request to continue such  Eurodollar  Rate Loan at least
two (2) Business Days prior to such last

                                       26
<PAGE>

day in accordance  with the terms hereof.  Any Eurodollar  Rate Loans shall,  at
Lender's option, upon notice by Lender to Borrower,  convert to Prime Rate Loans
in the event that this  Agreement  shall  terminate or not be renewed.  Borrower
shall pay to Lender, upon demand by Lender (or Lender may, at its option, charge
any loan account of Borrowers) any amounts  required to compensate  Lender,  the
Reference Bank or any  participant  with Lender for any loss  (including loss of
anticipated  profits),  cost or expense incurred by such person,  as a result of
the  conversion of Eurodollar  Rate Loans to Prime Rate Loans pursuant to any of
the foregoing.

     (d) Interest shall be payable by Borrowers to Lender monthly in arrears not
later than the first day of each  calendar  month and shall be calculated on the
basis of a three  hundred  sixty  (360) day year and actual days  elapsed.  Each
Borrower  acknowledges  and understands  that the calculation of interest on the
basis of the actual days elapsed over the period of a three  hundred sixty (360)
day year as opposed to a year of three hundred sixty-five (365) or three hundred
sixty-six  (366)  days  results  in a higher  effective  rate of  interest.  The
interest rate on non-contingent  obligations  (other than Eurodollar Rate Loans)
shall  increase or decrease by an amount  equal to each  increase or decrease in
the Prime Rate  effective on the first day of the month after any change in such
Prime Rate is announced based on the Prime Rate in effect on the last day of the
month in which any such change occurs.

     (e) On the date hereof,  the Prime Rate is nine (9 %) percent and therefore
the rate of interest in effect hereunder for Prime Rate Loans outstanding on the
date of this Agreement, expressed in simple interest terms, is nine and one-half
(9 1/2%) percent per annum.

     3.2 Closing Fee.  Borrowers shall pay to Lender as a closing fee the amount
         ------------
of $103,800 which shall be fully earned and payable as of the date hereof.  Such
closing  fee  shall  not  be  subject  to  rebate  upon  any  prepayment  of the
Obligations  except to the extent  required by Section 3.6 of this  Agreement or
applicable  law.  Such  closing  fee  shall  compensate  Lender  for  the  costs
associated with the origination,  structuring, processing, approving and closing
of the  transactions  contemplated by this Agreement,  exclusive of any expenses
for which  Borrowers  have  agreed to  reimburse  Lender  pursuant  to any other
provision  of  this  Agreement  or  the  other  Financing  Agreements  (such  as
attorneys' fees).

     3.3 Servicing Fee. Borrowers shall pay to Lender monthly a servicing fee in
         --------------
an amount  equal to $2,000 in respect of  Lender's  services  for each month (or
part thereof) while this Agreement  remains in effect and for so long thereafter
as any of the Obligations are outstanding, which fee shall be fully earned as of
and  payable in  advance  on the date  hereof and on the first day of each month
hereafter.

     3.4 Unused Line Fee.  Borrowers  shall pay to Lender monthly an unused line
         ----------------
fee at a rate equal to one-quarter  of one (1/4%)  percent per annum  calculated
upon the amount by which $15,000,000 exceeds the average daily principal balance
of the outstanding  Revolving Loans and Letter of Credit  Accommodations  during
the  immediately  preceding  month (or part thereof)  while this Agreement is in
effect and for so long  thereafter as any of the  Obligations  are  outstanding,
which fee shall be payable on the first day of each month in arrears.

                                       27
<PAGE>

     3.5 Changes in Laws and Increased Costs of Loans.
         ---------------------------------------------

     (a)  Notwithstanding   anything  to  the  contrary  contained  herein,  all
Eurodollar  Rate Loans  shall,  upon notice by Lender to  Borrowers,  convert to
Prime  Rate  Loans  in the  event  that  (i) any  change  in  applicable  law or
regulation (or the  interpretation or  administration  thereof) shall either (A)
make it unlawful for Lender,  Reference Bank or any  participant  with Lender to
make or maintain  Eurodollar  Rate Loans or to comply  with the terms  hereof in
connection  with the Eurodollar  Rate Loans, or (B) shall result in the increase
in the  costs  to  Lender,  Reference  Bank  or any  participant  of  making  or
maintaining  any  Eurodollar  Rate  Loans by an  amount  deemed  by Lender to be
material,  or (C) reduce the amounts received or receivable by Lender in respect
thereof,  by an  amount  deemed by  Lender  to be  material  or (ii) the cost to
Lender,  Reference  Bank  or  any  participant  of  making  or  maintaining  any
Eurodollar Rate Loans shall otherwise  increase by an amount deemed by Lender to
be material. Borrower shall pay to Lender, upon demand by Lender (or Lender may,
at its option,  charge any loan  account of  Borrower)  any amounts  required to
compensate  Lender,  the Reference Bank or any  participant  with Lender for any
loss (including loss of anticipated  profits),  cost or expense incurred by such
person as a result of the foregoing,  including,  without  limitation,  any such
loss,  cost or expense  incurred by reason of the liquidation or reemployment of
deposits  or  other  funds  acquired  by such  person  to make or  maintain  the
Eurodollar  Rate Loans or any portion  thereof.  A certificate of Lender setting
forth the basis for the  determination  of such amount  necessary to  compensate
Lender as aforesaid  shall be  delivered  to Borrower  and shall be  conclusive,
absent manifest error.

     (b) If any payments or prepayments in respect of the Eurodollar  Rate Loans
are  received by Lender  other than on the last day of the  applicable  Interest
Period (whether pursuant to acceleration, upon maturity or otherwise), including
any payments pursuant to the application of collections under Section 6.3 or any
other  payments  made with the proceeds of  Collateral,  Borrowers  shall pay to
Lender upon  demand by Lender (or Lender  may,  at its  option,  charge any loan
account of Borrowers) any amounts required to compensate  Lender,  the Reference
Bank or any  participant  with Lender for any additional loss (including loss of
anticipated  profits),  cost or expense  incurred  by such person as a result of
such prepayment or payment,  including,  without  limitation,  any loss, cost or
expense  incurred by reason of the  liquidation or  reemployment  of deposits or
other funds  acquired by such person to make or maintain  such  Eurodollar  Rate
Loans or any portion thereof.

     3.6 Maximum Interest.
         -----------------

     (a) Notwithstanding anything to the contrary contained in this Agreement or
any  of the  other  Financing  Agreements,  in no  event  whatsoever  shall  the
aggregate of all amounts that are contracted for,  charged or received by Lender
pursuant to the terms of this Agreement or any of the other Financing Agreements
and that are deemed  interest under  applicable law exceed the Maximum  Interest
Rate (including, to the extent applicable, the provisions of Section 5197 of the
Revised  Statutes  of the  United  States  of  America  as  amended,  12  U.S.C.
Section 85, as amended). No agreements,  conditions,  provisions or stipulations
contained in this  Agreement or any of the other  Financing  Agreements,  or any
Event of  Default,  or the  exercise  by Lender of the right to  accelerate  the
payment or the maturity of all or any portion of the Obligations, or the

                                       28
<PAGE>

exercise of any option  whatsoever  contained  in this  Agreement  or any of the
other  Financing  Agreements,  or  the  prepayment  by  Borrowers  of any of the
Obligations,  or the  occurrence of any event or contingency  whatsoever,  shall
entitle Lender to contract for, charge or receive in any event,  interest or any
charges,  amounts,  premiums or fees deemed interest by applicable law in excess
of the Maximum Interest Rate. In no event shall any Borrower be obligated to pay
interest  or such  amounts as may be deemed  interest  under  applicable  law in
amounts which exceed the Maximum  Interest Rate. All  agreements,  conditions or
stipulations,  if any, which may in any event or contingency  whatsoever operate
to bind,  obligate or compel any Borrower to pay interest or such amounts  which
are deemed to constitute  interest in amounts which exceed the Maximum  Interest
Rate  shall be without  binding  force or  effect,  at law or in equity,  to the
extent of the excess of interest or such amounts  which are deemed to constitute
interest over such Maximum Interest Rate.

     (b) In the event any  Interest  is  charged  or  received  in excess of the
Maximum Interest Rate ("Excess"), each Borrower acknowledges and stipulates that
any such  charge or  receipt  shall be the result of an  accident  and bona fide
error,  and that any Excess  received by Lender shall be applied,  first, to the
payment of the then  outstanding and unpaid principal  hereunder;  second to the
payment  of the other  Obligations  then  outstanding  and  unpaid;  and  third,
returned  to such  Borrower,  it being the intent of the  parties  hereto not to
enter into a usurious or otherwise illegal relationship. The right to accelerate
the maturity of any of the Obligations  does not include the right to accelerate
any interest  that has not otherwise  accrued on the date of such  acceleration,
and Lender does not intend to collect any unearned  interest in the event of any
such acceleration. Each Borrower recognizes that, with fluctuations in the rates
of interest set forth in Section 3.1 of this Agreement and the Maximum  Interest
Rate, such an unintentional result could inadvertently occur. All monies paid to
Lender  hereunder  or under any of the other  Financing  Agreements,  whether at
maturity or by prepayment,  shall be subject to any rebate of unearned  interest
as and to the extent required by applicable law.

     (c) By the execution of this  Agreement,  each Borrower agrees that (A) the
credit or return of any Excess shall  constitute  the  acceptance by Borrower of
such Excess,  and (B) Borrower shall not seek or pursue any other remedy,  legal
or equitable,  against Lender,  based in whole or in part upon  contracting for,
charging  or  receiving  any  interest  or such  amounts  which  are  deemed  to
constitute  interest in excess of the Maximum  Interest Rate. For the purpose of
determining  whether  or not any  Excess  has been  contracted  for,  charged or
received by Lender, all interest at any time contracted for, charged or received
from Borrowers in connection  with this Agreement or any of the other  Financing
Agreements  shall,  to the extent  permitted by  applicable  law, be  amortized,
prorated,  allocated  and spread  during the entire  term of this  Agreement  in
accordance  with the amounts  outstanding  from time to time  hereunder  and the
Maximum  Interest  Rate from time to time in effect in order to lawfully  charge
the maximum amount of interest permitted under applicable laws.

     (d) Each Borrower and Lender shall,  to the maximum extent  permitted under
applicable law, (i) characterize any non-principal payment as an expense, fee or
premium rather than as interest and (ii) exclude  voluntary  prepayments and the
effects thereof.

                                       29
<PAGE>

     (e) The  provisions of this Section 3.6 shall be deemed to be  incorporated
into each of the other  Financing  Agreements  (whether or not any  provision of
this  Section is referred to  therein).  Each of the  Financing  Agreements  and
communications  relating to any interest  owed by Borrowers  and all figures set
forth  therein  shall,  for the sole  purpose  of  computing  the  extent of the
Obligations,   be  automatically  recomputed  by  Borrower,  and  by  any  court
considering the same, to give effect to the  adjustments or credits  required by
this Section.

SECTION 4. CONDITIONS PRECEDENT
           --------------------

     4.1   Conditions   Precedent   to  Initial   Loans  and  Letter  of  Credit
           ---------------------------------------------------------------------
Accommodations.  Each of the following is a condition precedent to Lender making
--------------
the initial  Loans and  providing  the initial  Letter of Credit  Accommodations
hereunder:

     (a) Lender  shall have  received,  in form and  substance  satisfactory  to
Lender,  evidence that the  Distribution  Agreements have been duly executed and
delivered by and to the appropriate  parties thereto and all of the transactions
contemplated under the terms of the Distribution Agreements,  including, without
limitation, all of the reorganization events described in Section 2.1 of the DWI
Distribution  Agreement have been consummated prior to or contemporaneously with
the execution of this  Agreement and that each Borrower has good and  marketable
title to all of the assets used in the  operations and business of the Duck Head
Apparel Company division of Woodside;

     (b) Lender  shall  have  received  a summary  of the  opinion,  in form and
substance  satisfactory  to  Lender,  addressed  and  delivered  to the Board of
Directors  of Woodside as to the solvency of Duck Head and its  Subsidiaries  at
the time of the distribution contemplated by the Distribution Agreements;

     (c) Lender  shall have  received,  in form and  substance  satisfactory  to
Lender,  all  releases,  terminations  and such  other  documents  as Lender may
request to evidence and  effectuate the  termination by the existing  lenders to
Borrowers of their  respective  financing  arrangements  with  Borrowers and the
termination  and release by it or them,  as the case may be, of any  interest in
and to any  assets  and  properties  of each  Borrower  and each  Obligor,  duly
authorized,  executed and  delivered by it or each of them,  including,  but not
limited to, (i) UCC  termination  statements  for all UCC  financing  statements
previously  filed by it or any of them or their  predecessors,  as secured party
and any Borrower or any Obligor, as debtor and (ii) satisfactions and discharges
of any  mortgages,  deeds of trust or deeds to secure  debt by  Borrower  or any
Obligor in favor of such  existing  lender or lenders,  in form  acceptable  for
recording with the appropriate Governmental Authority;

     (d) all requisite  corporate  action and proceedings in connection with the
transactions contemplated by the Distribution Agreements, this Agreement and the
other  Financing  Agreements  shall be  satisfactory  in form and  substance  to
Lender,  and  Lender  shall  have  received  all  information  and copies of all
documents, including records of requisite corporate action and proceedings which
Lender may have requested in connection therewith,

                                       30
<PAGE>

such  documents  where  requested  by Lender or its counsel to be  certified  by
appropriate corporate officers or Governmental Authorities;

     (e) no material adverse change shall have occurred in the assets,  business
or  financial  condition  of Borrower  since the date of Lender's  latest  field
examination  and no change or event shall have  occurred  which would impair the
ability of any Borrower or any Obligor to perform its  obligations  hereunder or
under any of the other Financing  Agreements to which it is a party or of Lender
to enforce the Obligations or realize upon the Collateral;

     (f) Lender  shall have  completed  a field  review of the  Records and such
other  information  with  respect to the  Collateral  as Lender  may  require to
determine  the amount of Revolving  Loans  available  to  Borrowers  (including,
without limitation,  current perpetual inventory records and/or roll-forwards of
Accounts  and  Inventory  through  the date of  closing  and test  counts of the
Inventory in a manner  satisfactory  to Lender,  together  with such  supporting
documentation  as may be  necessary  or  appropriate,  and other  documents  and
information  that will  enable  Lender to  accurately  identify  and  verify the
Collateral), the results of which each case shall be satisfactory to Lender, not
more than three (3) Business Days prior to the date hereof;

     (g) Lender  shall have  received,  in form and  substance  satisfactory  to
Lender, all consents,  waivers,  acknowledgments and other agreements from third
persons which Lender may deem necessary or desirable in order to permit, protect
and  perfect  its  security  interests  in and liens upon the  Collateral  or to
effectuate the provisions or purposes of this Agreement and the other  Financing
Agreements,  including,  without  limitation,  Collateral  Access  Agreements by
owners and lessors of leased premises of any Borrower and by warehouses at which
Collateral is located;

     (h) the Excess Availability as determined by Lender, as of the date hereof,
shall be not less than $8,000,000  after giving effect to the initial Loans made
or to be made and  Letter  of  Credit  Accommodations  issued or to be issued in
connection with the initial transactions hereunder;

     (i) Lender  shall have  received,  in form and  substance  satisfactory  to
Lender,  all agreements with the depository  banks and Borrowers with respect to
the Blocked Accounts as Lender may require pursuant to Section 6.3 hereof,  duly
authorized,  executed and delivered by such  depository  banks and Borrowers and
(i) evidence that all local banks used by Borrowers for collections  from retail
store  locations  have been  irrevocably  authorized  and directed in writing to
remit such amounts to the Blocked Accounts;

     (j) Lender shall have received evidence, in form and substance satisfactory
to Lender, that Lender has a valid perfected first priority security interest in
all of the Collateral other than the Excluded Property;

     (k) Lender shall have  received  and  reviewed  UCC search  results for all
jurisdictions  in the United  States and Canada which assets of any Borrower are
located,  which search  results shall be in form and substance  satisfactory  to
Lender;

                                       31
<PAGE>

     (l) Lender shall have received an  environmental  audit of Duck Head's Real
Property  and  related  assets  located  in  Winder,  Georgia  conducted  by  an
independent  environmental  engineering firm acceptable to Lender,  and in form,
scope and  methodology  satisfactory  to Lender,  confirming (i) Duck Head is in
compliance with all material applicable  Environmental Laws and (ii) the absence
of any  material  potential  or actual  liability  of Duck Head for any remedial
action  with  respect  to any  environmental  condition  or any  other  material
environmental problems;

     (m) Lender  shall have  received,  in form and  substance  satisfactory  to
Lender,  a valid and effective  title  insurance  policy issued by a company and
agent acceptable to Lender (i) insuring the priority,  amount and sufficiency of
the Mortgages,  (ii) insuring against matters that would be disclosed by surveys
and  (iii)  containing  any  legally  available   endorsements,   assurances  or
affirmative coverage requested by Lender for protection of its interests;

     (n)  Lender  shall  have  received  evidence  of  insurance  and loss payee
endorsements  required  hereunder and under the other Financing  Agreements,  in
form and  substance  satisfactory  to  Lender,  and  certificates  of  insurance
policies and/or endorsements naming Lender as loss payee;

     (o) Lender  shall have  received,  in form and  substance  satisfactory  to
Lender,  duly  authorized,  executed and delivered by Woodside and Duck Head the
agreement of Woodside  consenting to the  collateral  assignment by Duck Head to
Lender of all of its rights and remedies and claims for damages and other relief
under the  Distribution  Agreements  and  granting  Lender such other  rights as
Lender may require, duly authorized, executed and delivered by Woodside;

     (p) Lender  shall have  received,  in form and  substance  satisfactory  to
Lender, a pro-forma consolidated balance sheet of Duck Head and its Subsidiaries
reflecting  the  initial   transactions   contemplated  under  the  Distribution
Agreements and hereunder, including, but not limited to, (i) the consummation of
the  transfer of the assets by Woodside to Duck Head and the other  transactions
contemplated  by the  Distribution  Agreements  and (ii) the Loans and Letter of
Credit Accommodations provided by Lender to Borrowers on the date hereof and the
use of the proceeds of the initial Loans as provided  herein,  accompanied  by a
certificate, dated of even date herewith, of the chief financial officer of Duck
Head stating that such pro-forma  balance sheet annexed  thereto  represents the
reasonable,  good faith opinion of such officer as to the subject matter thereof
as of the date of such certificate;

     (q) Lender shall have received  Credit Card  Acknowledgments  in each case,
duly  authorized,  executed and  delivered by the Credit Card Issuers and Credit
Card Processors;

     (r) Lender  shall have  received,  in form and  substance  satisfactory  to
Lender,  such  opinion  letters  of  counsel to  Borrowers  with  respect to the
Distribution  Agreements,  the  Financing  Agreements  and such other matters as
Lender may request; and

                                       32
<PAGE>

     (s) the  other  Financing  Agreements  and all  instruments  and  documents
hereunder and thereunder  shall have been duly executed and delivered to Lender,
in form and substance satisfactory to Lender.

     4.2 Conditions Precedent to All Loans and Letter of Credit  Accommodations.
         -----------------------------------------------------------------------
Each of the  following is an  additional  condition  precedent to Lender  making
Loans and/or providing Letter of Credit  Accommodations to Borrowers,  including
the initial Loans and Letter of Credit  Accommodations  and any future Loans and
Letter of Credit Accommodations:

     (a) all  representations  and warranties  contained herein and in the other
Financing Agreements shall be true and correct in all material respects with the
same effect as though such  representations  and warranties had been made on and
as of the date of the making of each such Loan or providing  each such Letter of
Credit Accommodation and after giving effect thereto,  except to the extent that
such  representations and warranties  expressly relate solely to an earlier date
(in which  case such  representations  and  warranties  shall have been true and
accurate on and as of such earlier date);

     (b) no law,  regulation,  order,  judgment  or decree  of any  Governmental
Authority  shall  exist,  and no  action,  suit,  investigation,  litigation  or
proceeding  shall be pending or threatened in any court or before any arbitrator
or Governmental Authority,  which (i) purports to enjoin, prohibit,  restrain or
otherwise  affect (A) the making of the Loans or providing  the Letter of Credit
Accommodations,  or  (B)  the  consummation  of  the  transactions  contemplated
pursuant to the terms hereof or the other  Financing  Agreements  or (ii) has or
could  reasonably be expected to have a material  adverse  effect on the assets,
business  or  prospects  of any  Borrower  or would  impair  the  ability of any
Borrower  to  perform  its  obligations  hereunder  or  under  any of the  other
Financing Agreements or of Lender to enforce any Obligations or realize upon any
of the Collateral; and

     (c) no Event of Default and no act,  condition or event which,  with notice
or passage of time or both, would constitute an Event of Default, shall exist or
have occurred and be continuing on and as of the date of the making of such Loan
or providing  each such Letter of Credit  Accommodation  and after giving effect
thereto.

SECTION 5. GRANT OF SECURITY INTEREST
           --------------------------

     To secure payment and performance of all Obligations,  each Borrower hereby
grants to Lender a continuing  security interest in, a lien upon, and a right of
set off  against,  and  hereby  assigns  to Lender as  security,  the  following
property  and  interests  in  property  of such  Borrower,  whether now owned or
hereafter  acquired or existing,  and wherever located  (together with all other
collateral  security  for the  Obligations  at any  time  granted  to or held or
acquired by Lender, collectively, the "Collateral"):

     5.1 Receivables;

                                       33
<PAGE>

     5.2  all  other   present  and  future   general   intangibles   (including
Intellectual  Property and existing and future leasehold interests in equipment,
real estate and fixtures),  chattel paper,  documents,  instruments,  investment
property  (including   securities,   whether   certificated  or  uncertificated,
securities  accounts,  security  entitlements,  commodity contracts or commodity
accounts), letters of credit, bankers' acceptances and guaranties;

     5.3  all  present  and  future  monies,  securities  and  other  investment
property,  credit  balances,  deposits,  deposit  accounts and other property of
Borrower  now or  hereafter  held or  received by or in transit to Lender or its
Affiliates  or at any  other  depository  or other  institution  from or for the
account of Borrower,  whether for safekeeping,  pledge,  custody,  transmission,
collection or otherwise,  and all present and future liens,  security interests,
rights,  remedies,  title and interest in, to and in respect of Receivables  and
other  Collateral,  including  (a)  rights and  remedies  under or  relating  to
guaranties,  contracts  of  suretyship,  letters  of credit and credit and other
insurance  related  to the  Collateral,  (b)  rights  of  stoppage  in  transit,
replevin,  repossession,  reclamation and other rights and remedies of an unpaid
vendor,  lienor or secured party,  (c) goods  described in invoices,  documents,
credit card sales drafts, credit card sale slips or charge slips or receipts and
other forms of store  receipts,  contracts  or  instruments  with respect to, or
otherwise representing or evidencing, Receivables or other Collateral, including
returned,  repossessed and reclaimed  goods, and (d) deposits by and property of
account debtors or other persons securing the obligations of account debtors;

     5.4 Inventory;

     5.5 Equipment;

     5.6 Real Property;

     5.7 Records; and

     5.8 all  products  and proceeds of the  foregoing,  in any form,  including
insurance proceeds and all claims against third parties for loss or damage to or
destruction of any or all of the foregoing.

     5.9  Notwithstanding  anything  to the  contrary  contained  in Section 5.1
through 5.8 above,  the types or items of  Collateral  described in such Section
shall  not  include  any  Equipment  which  is,  or at the  time  of  Borrower's
acquisition  thereof  shall be,  subject to a purchase  money  mortgage or other
purchase  money lien or  security  interest  (including  capitalized  or finance
leases) permitted under Section 9.8 hereof if: (a) the valid grant of a security
interest or lien to Lender in such item of Equipment is  prohibited by the terms
of the agreement between Borrower and the holder of such purchase money mortgage
or other  purchase money lien or security  interest or under  applicable law and
such prohibition has not been or is not waived,  or the consent of the holder of
the purchase money  mortgage or other  purchase money lien or security  interest
has not  been  or is not  otherwise  obtained,  or  under  applicable  law  such
prohibition  cannot be  waived  and (b) the  purchase  money  mortgage  or other
purchase  money lien or security  interest on such item of Equipment is or shall
become valid and perfected .

                                       34
<PAGE>

SECTION 6. COLLECTION AND ADMINISTRATION
           -----------------------------

     6.1  Borrowers'  Loan  Account.  Lender  shall  maintain  one or more  loan
          --------------------------
account(s)  on its books in which  shall be  recorded  (a) all Loans,  Letter of
Credit Accommodations and other Obligations and the Collateral, (b) all payments
made by or on  behalf of  Borrowers  and (c) all other  appropriate  debits  and
credits as provided in this Agreement,  including fees, charges, costs, expenses
and  interest.  All entries in the loan  account(s)  shall be made in accordance
with Lender's customary practices as in effect from time to time.

     6.2  Statements.  Lender shall render to Duck Head, as agent for Borrowers,
          -----------
each  month a  statement  setting  forth  the  balance  in the  Borrowers'  loan
account(s)  maintained by Lender for Borrower pursuant to the provisions of this
Agreement,  including principal,  interest,  fees, costs and expenses. Each such
statement shall be subject to subsequent  adjustment by Lender but shall, absent
manifest  errors or  omissions,  be  considered  correct and deemed  accepted by
Borrowers and conclusively  binding upon Borrower as an account stated except to
the extent that Lender  receives a written notice from Borrowers of any specific
exceptions  of  Borrower  thereto  within  thirty  (30) days after the date such
statement  has been  mailed by  Lender.  Until  such time as Lender  shall  have
rendered  to Borrower a written  statement  as  provided  above,  the balance in
Borrowers' loan account(s) shall be presumptive  evidence of the amounts due and
owing to Lender by Borrowers.

     6.3 Collection of Accounts.
         -----------------------

     (a) Each Borrower  shall  establish and maintain,  at its expense,  deposit
account  arrangements and merchant payment arrangements with the banks set forth
on Schedule  6.3 hereto and after  prior  written  notice to Lender,  subject to
Section  9.13,  such other banks as each  Borrower may  hereafter  select as are
acceptable to Lender.  The banks set forth on Schedule 6.3 constitute all of the
banks with whom each  Borrower  has deposit  account  arrangements  and merchant
payment  arrangements  as of the date hereof and identifies  each of the deposit
accounts at such banks to a retail store  location of such Borrower or otherwise
describes the nature of the use of such deposit account by such Borrower.

     (i) Each  Borrower  shall  deposit all proceeds  from sales of Inventory in
every form,  including,  without  limitation,  cash,  checks,  credit card sales
drafts,  credit card sales or charge  slips or receipts and other forms of daily
store  receipts,  from each  retail  store  location  of such  Borrower  on each
Business  Day into the deposit  accounts of such  Borrower  used solely for such
purpose and  identified  to each retail store  location as set forth on Schedule
6.3 (together with any other deposit accounts at any time established or used by
Borrower for  receiving  such store  receipts  from any retail  store  location,
collectively,  the "Store Bank  Accounts")  or as otherwise  provided in Section
6.3(a)(ii) below. Each Borrower shall,  authorize and direct,  and shall use its
best  efforts  to cause,  all  available  funds  deposited  into the Store  Bank
Accounts  to be  sent  by wire  transfer  or by  transfer  using  the  automated
clearinghouse  network  ("ACH  transfer")  not less  frequently  than  once each
calendar  week, and all other proceeds of Collateral to be sent by wire transfer
or by ACH  transfer,  to the Blocked  Account as provided in Section  6.3(a)(ii)
below. Each Borrower shall irrevocably  authorize and direct in writing, in form
and substance

                                       35
<PAGE>

satisfactory  to Lender,  each of the banks into  which  proceeds  from sales of
Inventory  from each  retail  store  location of such  Borrower  are at any time
deposited  as  provided  above to (a) honor all wire or ACH  transfer  requests,
provided  that any and all  amounts  released  and/or  transferred  by such bank
pursuant to such  requests  are sent to the  Blocked  Account and (b) follow any
contrary  instructions  sent to such banks by  Lender.  Such  authorization  and
direction shall not be rescinded,  revoked or modified without the prior written
consent  of Lender.  In the event any of such banks  fails to send such funds to
the Blocked  Account as provided  herein,  such Borrower shall pursue all of its
rights  and  remedies,  as  requested  by Lender,  as a result of such  failure.
Notwithstanding the foregoing, for those Store Bank Accounts that transfer funds
weekly by ACH transfer  initiated by  Borrower's  store  management  notifying a
third  party  processor,  Borrower  shall  irrevocably  authorize  and direct in
writing, in form and substance satisfactory to Lender, the third party processor
that establishes the routing and executes the ACH transfer to send funds only to
the Blocked Accounts and to agree to do so at any time upon Lender's request and
Lender shall receive an agreement from such third party processor confirming its
agreement to do so. Such  authorization  and  direction  shall not be rescinded,
revoked or modified without the prior written consent of Lender.

     (ii) Each Borrower shall  establish and maintain,  at its expense,  deposit
accounts with such banks as are  acceptable  to Lender (the "Blocked  Accounts")
into which Borrower  shall  promptly  either cause all amounts on deposit in its
Store Bank Accounts to be sent as provided in Section  6.3(a)(i)  above or shall
itself  deposit or cause to be deposited  all proceeds  from sales of Inventory,
all amounts  payable to such  Borrower  from Credit Card Issuers and Credit Card
Processors and all other proceeds of Collateral.  The banks at which the Blocked
Accounts are  established  shall enter into an agreement,  in form and substance
satisfactory  to Lender,  providing  that all items received or deposited in the
Blocked  Accounts are the property of Lender,  that the  depository  bank has no
lien upon, or right of setoff against, the Blocked Accounts,  the items received
for deposit therein,  or the funds from time to time on deposit therein and that
the depository bank will wire, or otherwise transfer,  in immediately  available
funds,  on a daily  basis,  all funds  received  or  deposited  into the Blocked
Accounts  to such  bank  account  of  Lender  as  Lender  may from  time to time
designate for such purpose ("Payment Account"). Borrower agrees that all amounts
deposited in such Blocked  Accounts or in the Store Bank Accounts or other funds
received  and  collected  by Lender,  whether as proceeds of  Inventory or other
Collateral or otherwise shall be treated as payments to Lender in respect of the
Obligations and therefore shall  constitute  property of Lender to the extent of
the then outstanding Obligations.

     (b) For the  purposes  of  calculating  interest on the  Obligations,  such
payments  or other  funds  received  will be  applied  (conditional  upon  final
collection)  to the  Obligations  one (1)  Business  Day  following  the date of
receipt of immediately  available  funds by Lender in the Payment  Account.  For
purposes of calculating the amount of the Revolving Loans available to Borrower,
such  payments  will be  applied  (conditional  upon  final  collection)  to the
Obligations  on the Business Day of receipt by Lender of  immediately  available
funds in the Payment  Account,  if such payments are received in sufficient time
(in  accordance  with Lender's  usual and customary  practices as in effect from
time to time) to credit Borrower's loan account on such day, and if not, then on
the next Business Day.

                                       36
<PAGE>

     (c)  Each  Borrower  and  all of its  shareholders,  directors,  employees,
agents,  Subsidiaries or other Affiliates  shall,  acting as trustee for Lender,
receive, as the property of Lender, any cash, checks,  credit card sales drafts,
credit card sales slips or receipts, notes, drafts, all forms of store receipts,
monies,  checks,  notes, drafts or any other payment relating to and/or proceeds
of Accounts or other  Collateral which come into their possession or under their
control and immediately upon receipt thereof, shall deposit or cause the same to
be deposited in the Blocked Accounts,  or remit the same or cause the same to be
remitted, in kind, to Lender. In no event shall the same be commingled with such
Borrower's own funds. Each Borrower agrees to reimburse Lender on demand for any
amounts owed or paid to any bank at which a Blocked  Account is  established  or
any  other  bank or  person  involved  in the  transfer  of funds to or from the
Blocked Accounts arising out of Lender's payments to or  indemnification of such
bank or person.  The  obligation of each  Borrower to reimburse  Lender for such
amounts   pursuant  to  this  Section  6.3  shall  survive  the  termination  or
non-renewal of this Agreement.

     6.4 Payments.  All  Obligations  shall be payable to the Payment Account as
         ---------
provided in Section 6.3 or such other place as Lender may designate from time to
time.  Lender shall apply  payments  received or collected from Borrowers or for
the account of Borrowers  (including the monetary  proceeds of collections or of
realization upon any Collateral) as follows: first, to pay any fees, indemnities
or expense  reimbursements  then due to Lender from  Borrowers;  second,  to pay
interest due in respect of any Loans;  third, to pay principal due in respect of
the Loans;  fourth, to pay or prepay any other  Obligations  whether or not then
due, in such order and manner as Lender determines.  Notwithstanding anything to
the contrary  contained in this Agreement,  unless so directed by Borrowers,  or
unless an Event of  Default  shall  exist or have  occurred  and be  continuing,
Lender shall not apply any  payments  which it receives to any  Eurodollar  Rate
Loans,  except (a) on the expiration date of the Interest  Period  applicable to
any  such  Eurodollar  Rate  Loans,  or  (b) in  the  event  that  there  are no
outstanding Prime Rate Loans. At Lender's option, all principal, interest, fees,
costs,  expenses and other charges  provided for in this  Agreement or the other
Financing  Agreements  may  be  charged  directly  to  the  loan  account(s)  of
Borrowers.  Borrowers shall make all payments to Lender on the Obligations  free
and clear of, and without  deduction  or  withholding  for or on account of, any
setoff, counterclaim, defense, duties, taxes, levies, imposts, fees, deductions,
withholding,  restrictions  or  conditions  of any kind. If after receipt of any
payment  of, or  proceeds  of  Collateral  applied to the payment of, any of the
Obligations,  Lender is required to surrender or return such payment or proceeds
to any Person for any reason,  then the Obligations  intended to be satisfied by
such payment or proceeds  shall be  reinstated  and continue and this  Agreement
shall  continue in full force and effect as if such  payment or proceeds had not
been received by Lender.  Borrowers  shall be liable to pay to Lender,  and does
hereby  indemnify  and hold Lender  harmless  for the amount of any  payments or
proceeds  surrendered  or  returned.  This  Section 6.4 shall  remain  effective
notwithstanding  any  contrary  action  which may be taken by Lender in reliance
upon such payment or proceeds. This Section 6.4 shall survive the payment of the
Obligations and the termination or non-renewal of this Agreement.

     6.5 Authorization to Make Loans. Lender is authorized to make the Loans and
         ----------------------------
provide  the  Letter of Credit  Accommodations  based upon  telephonic  or other
instructions received from anyone purporting to be an officer of any Borrower or
other authorized person or, at the

                                       37
<PAGE>

discretion of Lender,  if such Loans are  necessary to satisfy any  Obligations.
All  requests  for  Loans or Letter of  Credit  Accommodations  hereunder  shall
specify  the date on which  the  requested  advance  is to be made or  Letter of
Credit  Accommodations  established  (which day shall be a Business Day) and the
amount of the  requested  Loan.  Requests  received  after  11:00 a.m.  Atlanta,
Georgia  time on any day shall be deemed to have been made as of the  opening of
business on the  immediately  following  Business  Day.  All Loans and Letter of
Credit  Accommodations  under this Agreement shall be  conclusively  presumed to
have been made to, and at the request of and for the benefit of,  Borrowers when
deposited to the credit of any Borrower or otherwise disbursed or established in
accordance with the instructions of any Borrower or in accordance with the terms
and conditions of this Agreement.

     6.6 Use of Proceeds.  The initial Revolving Loan under this Agreement shall
         ----------------
be in an amount that is not less than $250,000.  Borrowers shall use the initial
proceeds of the Loans  provided by Lender to Borrowers  hereunder  only for: (a)
payments  to each of the persons  listed in the  disbursement  direction  letter
furnished  by  Borrowers  to Lender on or about the date  hereof  and (b) costs,
expenses and fees in connection with the preparation, negotiation, execution and
delivery of this Agreement and the other Financing  Agreements.  All other Loans
made or Letter of Credit Accommodations provided by Lender to Borrowers pursuant
to the provisions hereof shall be used by Borrowers only for general  operating,
working capital and other proper  corporate  purposes of Borrowers not otherwise
prohibited by the terms hereof.  None of the proceeds will be used,  directly or
indirectly, for the purpose of purchasing or carrying any margin security or for
the  purposes  of reducing or retiring  any  indebtedness  which was  originally
incurred to purchase or carry any margin security or for any other purpose which
might  cause any of the Loans to be  considered  a "purpose  credit"  within the
meaning of Regulation U of the Board of Governors of the Federal Reserve System,
as amended.

     6.7  Appointment  of Agent for  Requesting  Loans and Receipts of Loans and
          ----------------------------------------------------------------------
Statements.
-----------

     (a) Each Borrower hereby irrevocably  appoints and constitutes Duck Head as
its agent to  request  and  receive  Loans and  Letter of Credit  Accommodations
pursuant to this Agreement and the other Financing Agreements from Lender in the
name or on behalf of such  Borrower.  Lender may disburse the Loans to such bank
account of a Borrower  or Duck Head or  otherwise  make such Loans to a Borrower
and provide such Letter of Credit  Accommodations to a Borrower as Duck Head may
designate or direct, without notice to any other Borrower or Obligor.

     (b) Duck Head hereby  accepts the  appointment  by  Borrowers to act as the
agent of Borrowers pursuant to this Section 6.7. Duck Head shall ensure that the
disbursement of any Loans to each Borrower  requested by or paid to Duck Head or
the  issuance of any Letter of Credit  Accommodations  for a Borrower  hereunder
shall be paid to or for the account of such Borrower.

                                       38
<PAGE>

     (c) Each Borrower hereby irrevocably  appoints and constitutes Duck Head as
its agent to receive  statements  on account and all other  notices  from Lender
with respect to the  Obligations or otherwise  under or in connection  with this
Agreement and the other Financing Agreements.

     (d) No purported  termination  of the  appointment of Duck Head as agent as
aforesaid  shall be effective,  except after ten (10) days' prior written notice
to Lender.

SECTION 7. COLLATERAL REPORTING AND COVENANTS
           ----------------------------------

     7.1 Collateral Reporting.
         ---------------------

     (a) Borrowers  shall provide Lender with the following  documents in a form
satisfactory to Lender:

          (i) on a weekly basis,  or more  frequently  as required by Lender,  a
     schedule of sales made, credits issued and cash received;

          (ii) on a monthly basis or more frequently as Lender may request,  (A)
     perpetual  inventory  reports,   (B)  inventory  reports  by  location  and
     category,  (C)  agings  of  accounts  payable  (and  including  information
     indicating  the  status of  payments  to owners  and  lessors of the leased
     premises of Borrowers) and (D) agings of accounts receivable (together with
     a reconciliation to the previous month's aging and general ledger);

          (iii) upon Lender's  request,  (A) copies of customer  statements  and
     credit memos,  remittance advices and reports,  and copies of deposit slips
     and  bank  statements,  (B) copies  of  shipping  and  delivery  documents,
     (C) copies  of  purchase  orders,   invoices  and  delivery  documents  for
     Inventory and Equipment acquired by each Borrower; (D) reports on sales and
     use tax collections, deposits and payments, including monthly sales and use
     tax  accruals,  and (E)  reports  by  retail  store  location  of sales and
     operating profits for each such retail store location;

          (iv) as soon as  available,  but in any event not later  than five (5)
     days after receipt by any Borrower,  the monthly statements received by any
     Borrower from any Credit Card Issuers or Credit Card  Processors,  together
     with  such  additional   information  with  respect  thereto  as  shall  be
     sufficient  to enable  Lender to monitor the  transactions  pursuant to the
     Credit Card Agreements;

          (v) as soon as possible,  but in any event not later than two (2) days
     prior to the  removal  of any  Equipment  currently  located  in the United
     States  to a  location  of  Borrower  outside  of  the  United  States,  in
     accordance  with  Section  7.4(e),  a  description  of such  item of  moved
     Equipment together with the net book value of such item of Equipment; and

                                       39

<PAGE>

          (vi) such other  reports as to the  Collateral as Lender shall request
     from time to time; and

     (b) If any of any  Borrower's  records  or reports  of the  Collateral  are
prepared or maintained by an accounting  service,  contractor,  shipper or other
agent,  each Borrower hereby  irrevocably  authorizes such service,  contractor,
shipper or agent to deliver  such  records,  reports,  and related  documents to
Lender and to follow Lender's  instructions  with respect to further services at
any time that an Event of Default exists or has occurred and is continuing.

     7.2 Accounts Covenants.
         -------------------

     (a) Borrowers  shall notify Lender  promptly of: (i) any material  delay in
any  Borrower's  performance  of any of its  obligations  to any account  debtor
involving an Account exceeding $100,000 or the assertion of any claims, offsets,
defenses or  counterclaims  by any account debtor  involving an amount exceeding
$100,000 or any disputes with account debtors, or any settlement,  adjustment or
compromise  thereof  involving an amount exceeding  $100,000,  (ii) all material
adverse  information  relating to the financial  condition of any account debtor
and (iii) any event or circumstance  which, to Borrower's  knowledge would cause
Lender to consider any then existing Accounts as no longer constituting Eligible
Accounts,  (iv) any notice of a material  default by  Borrower  under any of the
Credit Card  Agreements  or of any default which might result in the Credit Card
Issuer or Credit Card Processor ceasing to make payments or suspending  payments
to any  Borrower,  (v) any notice  from any Credit  Card  Issuer or Credit  Card
Processor that such person is ceasing or  suspending,  or will cease or suspend,
any  present  or future  payments  due or to become  due to  Borrower  from such
person,  or that such person is  terminating or will terminate any of the Credit
Card  Agreements,  and (vi) the  failure  of any  Borrower  to  comply  with any
material  terms of the Credit Card  Agreements  or any terms thereof which might
result in the Credit Card Issuer or Credit Card Processor  ceasing or suspending
payments  to any  Borrower.  No credit,  discount,  allowance  or  extension  or
agreement  for any of the  foregoing  shall be  granted  to any  account  debtor
without  Lender's  consent,  except in the  ordinary  course  of any  Borrower's
business in  accordance  with  practices  and policies  previously  disclosed in
writing to Lender.  So long as no Event of Default exists or has occurred and is
continuing,  Borrowers  shall settle,  adjust or compromise  any claim,  offset,
counterclaim  or dispute with any account  debtor.  At any time that an Event of
Default exists or has occurred and is continuing,  Lender shall,  at its option,
have the  exclusive  right to settle,  adjust or compromise  any claim,  offset,
counterclaim or dispute with account debtors or grant any credits,  discounts or
allowances.

     (b) Without  limiting  the  obligation  of  Borrowers  to deliver any other
information to Lender,  each Borrower shall promptly report to Lender any return
of Inventory by any one account debtor if the Inventory so returned in such case
has a value in  excess  of  $50,000.  At any time that  Inventory  is  returned,
reclaimed or repossessed,  the Account (or portion thereof) which arose from the
sale of such returned, reclaimed or repossessed Inventory shall not be deemed an
Eligible  Account.  In the event any account  debtor  returns  Inventory when an
Event of Default exists or has occurred and is continuing,  each Borrower shall,
upon Lender's request, (i) hold the returned Inventory in trust for Lender, (ii)
segregate all returned  Inventory from all of its other property,  (iii) dispose
of the returned Inventory solely according to Lender's instructions, and

                                       40

<PAGE>

(iv) not issue any credits, discounts or allowances with respect thereto without
Lender's prior written consent.

     (c) With  respect to each  Account:  (i) the  amounts  shown on any invoice
delivered  to Lender or schedule  thereof  delivered to Lender shall be true and
complete,  (ii) no payments  shall be made thereon except  payments  immediately
delivered to Lender  pursuant to the terms of this  Agreement,  (iii) no credit,
discount,  allowance or extension or agreement for any of the foregoing shall be
granted to any account  debtor except as reported to Lender in  accordance  with
this Agreement and except for credits, discounts,  allowances or extensions made
or given in the ordinary course of each  Borrower's  business in accordance with
practices and policies  previously  disclosed to Lender,  (iv) there shall be no
setoffs,  deductions,  contras, defenses,  counterclaims or disputes existing or
asserted with respect  thereto  except as reported to Lender in accordance  with
the terms of this Agreement,  (v) none of the  transactions  giving rise thereto
will  violate  any  applicable  State  or  Federal  laws  or  regulations,   all
documentation  relating  thereto will be legally  sufficient under such laws and
regulations and all such documentation will be legally enforceable in accordance
with its terms.

     (d) Lender shall have the right at any time or times,  in Lender's  name or
in the name of a nominee of Lender, to verify the validity,  amount or any other
matter  relating  to any  Account  or  other  Collateral,  by  mail,  telephone,
facsimile transmission or otherwise.

     (e) Each Borrower  shall  deliver or cause to be delivered to Lender,  with
appropriate endorsement and assignment, with full recourse to such Borrower, all
chattel  paper and  instruments  which such Borrower now owns or may at any time
acquire  immediately  upon  Borrower's  receipt  thereof,  except as Lender  may
otherwise agree.

     (f) Lender may, at any time or times that an Event of Default exists or has
occurred  and is  continuing,  (i) notify any or all  account  debtors  that the
Accounts  have been  assigned to Lender and that Lender has a security  interest
therein and Lender may direct any or all accounts  debtors,  Credit Card Issuers
and Credit Card Processors to make payment of Accounts directly to Lender,  (ii)
extend the time of payment of,  compromise,  settle or adjust for cash,  credit,
return of  merchandise or otherwise,  and upon any terms or conditions,  any and
all  Accounts  or other  obligations  included  in the  Collateral  and  thereby
discharge or release the account debtor or any other party or parties in any way
liable for payment  thereof  without  affecting  any of the  Obligations,  (iii)
demand,  collect or enforce  payment of any Accounts or such other  obligations,
but without any duty to do so, and Lender shall not be liable for its failure to
collect or enforce the payment  thereof nor for the  negligence of its agents or
attorneys  with respect  thereto and (iv) take whatever  other action Lender may
deem  necessary or desirable for the  protection of its  interests.  At any time
that an Event of Default exists or has occurred and is  continuing,  at Lender's
request,  all invoices and statements  sent to any account  debtor,  Credit Card
Issuer and Credit Card  Processor  shall state that the  Accounts and such other
obligations  have been  assigned to Lender and are payable  directly and only to
Lender and each  Borrower  shall  deliver to Lender such  originals of documents
evidencing the sale and delivery of goods or the  performance of services giving
rise to any Accounts as Lender may require.

                                       41

<PAGE>

     7.3 Inventory Covenants.  With respect to the Inventory:  (a) each Borrower
         --------------------
shall at all times maintain inventory records reasonably satisfactory to Lender,
keeping correct and accurate  records  itemizing and describing the kind,  type,
quality  and  quantity  of  Inventory,   Borrower's   cost  therefor  and  daily
withdrawals  therefrom and additions thereto;  (b) each Borrower shall conduct a
physical  count of the  Inventory  at least once each  year,  but at any time or
times as  Lender  may  request  on or after an Event of  Default,  and  promptly
following such physical  inventory shall supply Lender with a report in the form
and with such specificity as may be reasonably satisfactory to Lender concerning
such physical  count;  (c) each Borrower shall not remove any Inventory from the
locations set forth or permitted  herein,  without the prior written  consent of
Lender,  except for sales of Inventory in the ordinary course of such Borrower's
business and except to move  Inventory  directly  from one location set forth or
permitted herein to another such location and except for Inventory  shipped from
the  manufacturer  thereof to such Borrower which is in transit to the locations
set forth or permitted herein;  (d) upon Lender's request,  each Borrower shall,
at its expense,  twice in any twelve (12) month period, but at any time or times
as Lender may  request on or after an Event of  Default,  deliver or cause to be
delivered to Lender  written  reports or appraisals as to the Inventory in form,
scope and  methodology  acceptable  to Lender and by an appraiser  acceptable to
Lender,  addressed  to Lender and upon which  Lender is  expressly  permitted to
rely;  (e) each Borrower  shall  produce,  use, store and maintain the Inventory
with all reasonable care and caution and in accordance with applicable standards
of  any  insurance  and  in  conformity  with  applicable  laws  (including  the
requirements of the Federal Fair Labor Standards Act of 1938, as amended and all
rules,  regulations and orders related  thereto);  (f) each Borrower assumes all
responsibility  and liability  arising from or relating to the production,  use,
sale or other  disposition  of the  Inventory;  (g) each Borrower shall not sell
Inventory  to any customer on  approval,  or any other basis which  entitles the
customer to return or may obligate such Borrower to  repurchase  such  Inventory
except for the right of return given to customers  of such  Borrower  consistent
with its current  policies as of the date hereof;  (h) each Borrower  shall keep
the  Inventory in good and  marketable  condition;  and (i) Borrower  shall not,
acquire or accept any Inventory on consignment or approval.

     7.4 Equipment and Real  Property  Covenants.  With respect to the Equipment
         ----------------------------------------
and Real Property: (a) upon Lender's request, Borrowers shall, at their expense,
no more than once in any twelve (12) month  period,  but at any time or times as
Lender  may  request  on or after an Event of  Default,  deliver  or cause to be
delivered to Lender written reports or appraisals as to the Equipment and/or the
Real  Property in form,  scope and  methodology  acceptable  to Lender and by an
appraiser  acceptable  to Lender,  addressed  to Lender and upon which Lender is
expressly  permitted to rely; (b) each Borrower shall keep the Equipment in good
order,  repair,  running  and  marketable  condition  (ordinary  wear  and  tear
excepted);  (c) each Borrower shall use the Equipment and Real Property with all
reasonable care and caution and in accordance  with applicable  standards of any
insurance and in conformity  with all applicable  laws; (d) the Equipment is and
shall  be used in  each  Borrower's  business  and  not  for  personal,  family,
household or farming use;  (e) each Borrower shall not remove any Equipment from
the locations set forth or permitted  herein,  except to the extent necessary to
have any Equipment repaired or maintained in the ordinary course of the business
of such  Borrower or to move  Equipment  directly from one location set forth or
permitted  herein to another such  location and except for the movement of motor
vehicles used by or for the benefit of each Borrower in the ordinary

                                       42

<PAGE>

course of business and no Borrower shall remove any Equipment  currently located
in the United States to any location outside of the United States, except, that,
Borrower  may remove  Equipment  currently  located in the United  States to any
location outside of the United States so long as at the time of such movement of
Equipment each of the following  conditions is satisfied:  (i) Borrower notifies
Lender of its intention to move such  Equipment,  (ii) the net book value of all
such item of  Equipment  when  aggregated  with the net book  value of all other
Equipment  moved out of the United  States  pursuant  to this  Section  does not
exceed $500,000,  and (iii) as of the date of any such movement of Equipment and
after  giving  effect  thereto,  no Event of Default or act,  condition or event
which  with  notice or  passage  of time or both  would  constitute  an Event of
Default exists or has occurred and is  continuing;  (f) the Equipment is now and
shall remain  personal  property and each  Borrower  shall not permit any of the
Equipment to be or become a part of or affixed to real  property so as to become
a fixture or an  accession  to real  property  unless it is attached to the Real
Property subject to a Mortgage; and (g) each Borrower assumes all responsibility
and liability arising from the use of the Equipment and Real Property.

     7.5 Power of Attorney.  Each Borrower  hereby  irrevocably  designates  and
         ------------------
appoints  Lender (and all persons  designated by Lender) as such Borrower's true
and lawful  attorney-in-  fact, and  authorizes  Lender,  in such  Borrower's or
Lender's  name,  to: (a) at any time an Event of Default  or act,  condition  or
event which with notice or passage of time or both would  constitute an Event of
Default  exists  or has  occurred  and  is  continuing  (i)  demand  payment  on
Receivables or other  Collateral,  (ii) enforce  payment of Receivables by legal
proceedings  or  otherwise,  (iii)  exercise all of such  Borrower's  rights and
remedies to collect any Receivable or other Collateral,  (iv) sell or assign any
Receivable  upon such  terms,  for such  amount and at such time or times as the
Lender  deems  advisable,  (v) settle,  adjust,  compromise,  extend or renew an
Account, (vi) discharge and release any Receivable, (vii) prepare, file and sign
such  Borrower's  name on any  proof  of claim in  bankruptcy  or other  similar
document  against an account debtor other obligor in respect of any  Receivables
or other  Collateral,  (viii) notify the post office  authorities  to change the
address for delivery of  remittances  from account  debtors or other obligors in
respect of Receivables or other proceeds of Collateral to an address  designated
by Lender,  and open and  dispose of all mail  addressed  to such  Borrower  and
handle and store all mail relating to the  Collateral;  and (ix) do all acts and
things  which  are  necessary,  in  Lender's  determination,   to  fulfill  such
Borrower's  obligations under this Agreement and the other Financing  Agreements
and (b) at any time to (i) take  control in any manner of any item of payment in
respect of Receivables or  constituting  Collateral or otherwise  received in or
for deposit in the Blocked Accounts or otherwise  received by Lender,  (ii) have
access to any lockbox or postal box into which  remittances from account debtors
or other  obligors in respect of Receivables or other proceeds of Collateral are
sent or received,  (iii) endorse  such Borrower's name upon any items of payment
in respect of Receivables or  constituting  Collateral or otherwise  received by
Lender  and  deposit  the  same  in  Lender's  account  for  application  to the
Obligations, (iv) endorse such Borrower's name upon any chattel paper, document,
instrument, invoice, or similar document or agreement relating to any Receivable
or any goods pertaining thereto or any other Collateral, including any warehouse
or other  receipts,  or bills of lading and other  negotiable or  non-negotiable
documents, (v) clear Inventory the purchase of which was financed with Letter of
Credit Accommodations  through U.S. Customs in Borrower's name, Lender's name or
the name of  Lender's  designee,  and to sign and  deliver to customs  officials
powers of attorney in such Borrower's name for such

                                       43

<PAGE>

purpose,  and to complete in Borrower's  or Lender s  name,  any order,  sale or
transaction,  obtain the necessary documents in connection therewith and collect
the proceeds  thereof,  (vi) sign such  Borrower's  name on any  verification of
Receivables  and notices thereof to account debtors or other obligors in respect
thereof and (vii)  execute in such  Borrower's  name and file any UCC  financing
statements or amendments  thereto.  Each Borrower hereby releases Lender and its
officers,  employees and designees from any liabilities  arising from any act or
acts  under  this  power of  attorney  and in  furtherance  thereof,  whether of
omission or commission,  except as a result of Lender's own gross  negligence or
wilful misconduct as determined  pursuant to a final  non-appealable  order of a
court of competent jurisdiction.

     7.6 Right to Cure. Lender may, at its option, (a) upon notice to Borrowers,
         --------------
cure any default by any Borrower under any material agreement with a third party
which  affects  the  Collateral,  its value or the ability of Lender to collect,
sell or otherwise dispose of the Collateral or the rights and remedies of Lender
therein or the  ability of any  Borrower to perform  its  obligations  under the
other  Financing  Agreements,  (b) pay or bond on appeal  any  judgment  entered
against  Borrower,  (c)  discharge  taxes,  liens,  security  interests or other
encumbrances  at any time levied on or existing  with respect to the  Collateral
and (d) pay any amount,  incur any expense or perform any act which, in Lender's
judgment, is necessary or appropriate to preserve,  protect,  insure or maintain
the Collateral and the rights of Lender with respect thereto. Lender may add any
amounts  so  expended  to the  Obligations  and charge  any  Borrower's  account
therefor,  such amounts to be repayable by Borrowers on demand.  Lender shall be
under no  obligation  to effect such cure,  payment or bonding and shall not, by
doing so, be deemed to have assumed any  obligation  or liability of  Borrowers.
Any payment made or other  action  taken by Lender  under this Section  shall be
without  prejudice to any right to assert an Event of Default  hereunder  and to
proceed accordingly.

     7.7 Access to Premises.  From time to time as  requested by Lender,  at the
         -------------------
cost and expense of  Borrowers  (a) Lender or its designee  shall have  complete
access to  all of  Borrower'  premises  during normal  business  hours and after
notice to Borrower,  or at any time and without  notice to Borrowers if an Event
of  Default  exists or has  occurred  and is  continuing,  for the  purposes  of
inspecting,  verifying and auditing the Collateral  and all of Borrowers'  books
and records, including the Records, and (b) each Borrower shall promptly furnish
to Lender such copies of such books and records or extracts  therefrom as Lender
may request, and (c) Lender or its designee may use during normal business hours
such of each Borrower's  personnel,  equipment,  supplies and premises as may be
reasonably  necessary for the foregoing  (provided,  that,  Borrowers shall make
such  personnel,  equipment,  supplies and  premises  available to Lender or its
designee in such manner so as to minimize any  interference  with the operations
of  Borrowers  and  so as to  enable  Lender  or its  designee  to  comply  with
applicable  health and safety  procedures  and  regulations)  and if an Event of
Default  exists or has occurred and is continuing for the collection of Accounts
and realization of other Collateral.

     7.8 Bills of Lading  and Other  Documents  of Title.  In the event that any
         ------------------------------------------------
Inventory which would otherwise be Eligible Inventory located outside the United
States of America  which is in transit to  premises  of a Customs  Broker in the
United  States or premises  of a Borrower  as  described  in the  definition  of
Eligible Inventory, constitutes Eligible Inventory then (a) each

                                       44

<PAGE>

Borrower  shall cause all bills of lading and other  documents of title relating
to goods being  purchased by such  Borrower  which are outside the United States
and in transit to the  premises of such  Borrower  or the  premises of a Customs
Broker in the United States to name such Borrower as consignee, unless and until
Lender  may direct  otherwise;  (b) at such time and from time to time as Lender
may direct,  each Borrower shall cause Lender or such  financial  institution or
other  person  as Lender  may  specify  to be named as  consignee;  (c)  without
limiting  any other rights of Lender  hereunder,  Lender shall have the right to
endorse and negotiate on behalf of, and as  attorney-in-fact  for, each Borrower
any bill of lading or other  document of title with respect to such goods naming
such Borrower as consignee to Lender;  (d) there shall be three (3) originals of
each of such bill of lading or other  document of title  which  unless and until
Lender  shall  direct  otherwise  shall be  delivered  as  follows:  (i) one (1)
original to such Customs  Broker as each Borrower may specify (so long as Lender
has  received a  Collateral  Access  Agreement  duly  authorized,  executed  and
delivered by such Customs  Broker),  and (ii) two (2)  originals to Lender or to
such other person as Lender may designate  for such  purpose;  (e) such Borrower
shall  obtain a copy  (but not the  originals)  of such  bill of lading or other
documents from the Customs Broker; and (f)such Borrower shall cause all bills of
lading or other  documents of title relating to goods purchased by such Borrower
which are  outside  the United  States and in  transit to the  premises  of such
Borrower or the premises of a Customs  Broker in the United  States to be issued
in a form so as to  constitute  negotiable  documents as such term is defined in
the Uniform Commercial Code.

SECTION 8. REPRESENTATIONS AND WARRANTIES
           ------------------------------

     Each Borrower  hereby,  jointly and  severally,  represents and warrants to
Lender the  following  (which shall  survive the  execution and delivery of this
Agreement),  the truth and accuracy of which are a  continuing  condition of the
making of Loans and  providing  Letter  of  Credit  Accommodations  by Lender to
Borrowers.

     8.1 Corporate Existence, Power and Authority;  Subsidiaries.  Each Borrower
         --------------------------------------------------------
is a corporation duly organized and in good standing under the laws of its state
of  incorporation  and is duly  qualified as a foreign  corporation  and in good
standing in all states or other jurisdictions where the nature and extent of the
business  transacted by it or the  ownership of assets makes such  qualification
necessary,  except for those  jurisdictions  in which the  failure to so qualify
would not have a material adverse effect on such Borrower's financial condition,
results of  operation  or  business  or the rights of Lender in or to any of the
Collateral. The execution, delivery and performance of this Agreement, the other
Financing Agreements and the transactions  contemplated hereunder and thereunder
are all within each Borrower's  corporate powers,  have been duly authorized and
are not in contravention  of law or the terms of such Borrower's  certificate of
incorporation, by-laws, or other organizational documentation, or any indenture,
agreement  or  undertaking  to which such  Borrower  is a party or by which such
Borrower or its  property  are bound.  This  Agreement  and the other  Financing
Agreements  constitute  legal,  valid and binding  obligations  of each Borrower
enforceable  against it in accordance with their respective terms.  Borrowers do
not have any Subsidiaries except as set forth on the Information Certificate.

                                       45

<PAGE>

     8.2 Financial  Statements;  No Material  Adverse Change.  (a) All financial
         ----------------------------------------------------
statements  relating to Borrowers  which have been or may hereafter be delivered
by Borrowers  to Lender have been  prepared in  accordance  with GAAP and fairly
present the financial  condition and the results of operation of Borrowers as at
the dates and for the  periods set forth  therein.  Except as  disclosed  in any
interim financial  statements furnished by Borrowers to Lender prior to the date
of this  Agreement,  there has been no  material  adverse  change in the assets,
liabilities,  properties  and condition,  financial or otherwise,  of Borrowers,
since the date of the most recent  audited  financial  statements  furnished  by
Borrowers to Lender prior to the date of this Agreement.

     (b) The pro forma balance sheets and future cash flow projections  attached
as Schedule 8.2 for Duck Head and its Subsidiaries  (together with the summaries
of assumptions and projected  assumptions,  based on historical performance with
respect  thereto)  furnished  by Duck Head to  Lender  prior to the date of this
Agreement  represent  the  reasonable,  good faith  opinion of Duck Head and its
management as to the subject matter thereof.

     8.3 Chief  Executive  Office;  Collateral  Locations.  The chief  executive
         -------------------------------------------------
office of each  Borrower and such  Borrower's  Records  concerning  Accounts are
located only at the  addresses  set forth on the  signature  page hereto and its
only other places of business and the only other  locations  of  Collateral,  if
any, are the addresses set forth in the Information Certificate,  subject to the
right of each Borrower to establish new locations in accordance with Section 9.2
below. The Information  Certificates  correctly identifies any of such locations
which are not owned by  Borrowers  and sets  forth the owners  and/or  operators
thereof  and to the  best of  each  Borrower's  knowledge,  the  holders  of any
mortgages on such locations.

     8.4 Priority of Liens;  Title to  Properties.  The security  interests  and
         -----------------------------------------
liens granted to Lender under this Agreement and the other Financing  Agreements
constitute  valid and perfected  first priority liens and security  interests in
and upon the  Collateral  subject  only to the liens  indicated  on Schedule 8.4
hereto and the other liens  permitted under Section 9.8 hereof (other than as to
specific items of Collateral as to which the security  interest of Lender is not
required  as of the date  hereof  to be  perfected  consisting  of the  Excluded
Property).  Each Borrower has good and marketable title to all of its properties
and  assets  subject  to  no  liens,  mortgages,  pledges,  security  interests,
encumbrances  or charges of any kind,  except  those  granted to Lender and such
others as are  specifically  listed on Schedule  8.4 hereto or  permitted  under
Section 9.8 hereof.

     8.5 Tax  Returns.  Each  Borrower  has filed,  or caused to be filed,  in a
         -------------
timely manner all tax returns, reports and declarations which are required to be
filed by it. All  information in such tax returns,  reports and  declarations is
complete and accurate in all material respects. Each Borrower has paid or caused
to be paid  all  taxes  due and  payable  or  claimed  due  and  payable  in any
assessment  received  by it,  and  has  collected,  deposited  and  remitted  in
accordance with all applicable laws all sales and/or use taxes applicable to the
conduct of its business,  except taxes the validity of which are being contested
in good faith by  appropriate  proceedings  diligently  pursued and available to
each Borrower and with respect to which adequate reserves have been set aside on
its books.  Adequate  provision has been made for the payment of all accrued and
unpaid Federal, State, county, local, foreign and other taxes whether or not yet
due and payable and whether or not  disputed.  Each  Borrower has  collected and
deposited in a separate bank

                                       46
<PAGE>

account or remitted to the  appropriate tax authority all sales and/or use taxes
applicable to its business required to be collected under the laws of the United
States and each  possession  or territory  thereof,  and each State or political
subdivision  thereof,  including  any  State in  which  each  Borrower  owns any
Inventory or owns or leases any other property.

     8.6 Litigation.  Except as set forth on the Information Certificate,  there
         -----------
is no present  investigation by any Governmental  Authority  pending,  or to the
best of any Borrower's knowledge threatened,  against or affecting Borrower, its
assets or  business  and there is no action,  suit,  proceeding  or claim by any
Person pending, or to the best of any Borrower's knowledge  threatened,  against
such  Borrower  or  its  assets  or  goodwill,   or  against  or  affecting  any
transactions  contemplated  by this  Agreement,  which if  adversely  determined
against such Borrower would result in any material adverse change in the assets,
business  or  prospects  of such  Borrower  or would  impair the ability of such
Borrower  to  perform  its  obligations  hereunder  or  under  any of the  other
Financing  Agreements  to  which  it is a party  or of  Lender  to  enforce  any
Obligations or realize upon any Collateral.

     8.7 Compliance with Other Agreements and Applicable Laws.
         -----------------------------------------------------

     (a) Each Borrower is not in default in any material  respect  under,  or in
violation  in any  respect  of any of the terms  of,  any  agreement,  contract,
instrument,  lease or other  commitment to which it is a party or by which it or
any of its assets are bound.  Each  Borrower is in  compliance  in all  material
respects with the  requirements of all applicable laws,  rules,  regulations and
orders  of any  Governmental  Authority  relating  to its  business,  including,
without  limitation,   those  set  forth  in  or  promulgated  pursuant  to  the
Occupational Safety and Health Act of 1970, as amended, the Fair Labor Standards
Act of 1938,  as  amended,  ERISA,  the  Code,  as  amended,  and the  rules and
regulations  thereunder,  all Federal,  State and local  statutes,  regulations,
rules and orders relating to consumer credit (including,  without limitation, as
each has been amended,  the  Truth-in-Lending  Act, the Fair Credit Billing Act,
the  Equal  Credit  Opportunity  Act and the  Fair  Credit  Reporting  Act,  and
regulations,  rules and orders promulgated  thereunder),  all Federal, State and
local  states,  regulations,  rules and orders  pertaining  to sales of consumer
goods (including,  without limitation, the Consumer Products Safety Act of 1972,
as amended,  and the Federal Trade  Commission Act of 1914, as amended,  and all
regulations, rules and orders promulgated thereunder).

     (b) Each Borrower has obtained all material permits,  licenses,  approvals,
consents,  certificates,  orders or  authorizations  of any governmental  agency
required for the lawful conduct of its business.  Schedule 8.7 hereto sets forth
all material permits, licenses,  approvals,  consents,  certificates,  orders or
authorizations  (the  "Permits")  issued to or held by  Borrowers as of the date
hereof by any Federal,  State or local governmental  agency and any applications
pending by Borrowers with such federal,  state or local governmental agency. The
Permits constitute all permits,  licenses,  approvals,  consents,  certificates,
orders or  authorizations  necessary  for each  Borrower  to own and operate its
business as presently conducted or proposed to be conducted where the failure to
have  such  Permits  would  have a  material  adverse  effect  on the  business,
performance, operations or properties of such Borrower or the legality, validity
or  enforceability  of this Agreement or the other  Financing  Agreements or the
ability of Borrower to perform its

                                       47
<PAGE>

obligations under the Agreement or any of the other Financing  Agreements or the
rights and remedies of Lender under this Agreement or any of the other Financing
Agreements.  All of the Permits are valid and  subsisting  and in full force and
effect.  There are no actions,  claims or proceedings pending or threatened that
seek the  revocation,  cancellation,  suspension or  modification  of any of the
Permits.

     8.8 Environmental Compliance.
         -------------------------

     (a) Except as set forth on  Schedule  8.8  hereto,  each  Borrower  and any
Subsidiary have not generated, used, stored, treated, transported, manufactured,
handled, produced or disposed of any Hazardous Materials, on or off its premises
(whether  or not  owned by it) in any  manner  which at any  time  violates  any
applicable  Environmental Law or any license, permit,  certificate,  approval or
similar  authorization  thereunder  and the  operations of such Borrower and any
Subsidiary complies in all material respects with all Environmental Laws and all
licenses,   permits,   certificates,   approvals   and  similar   authorizations
thereunder.

     (b)  Except  as set  forth  on  Schedule  8.8  hereto,  there  has  been no
investigation,  proceeding,  complaint,  order,  directive,  claim,  citation or
notice by any  Governmental  Authority or any other person nor is any pending or
to the  best  of each  Borrower's  knowledge  threatened,  with  respect  to any
non-compliance with or violation of the requirements of any Environmental Law by
any Borrower and any Subsidiary or the release,  spill or discharge,  threatened
or actual, of any Hazardous Material or the generation, use, storage, treatment,
transportation,  manufacture,  handling, production or disposal of any Hazardous
Materials or any other  environmental,  health or safety  matter,  which affects
such Borrower or its business,  operations or assets or any  properties at which
such Borrower has transported, stored or disposed of any Hazardous Materials.

     (c)  Each  Borrower  and  its  Subsidiaries  have  no  material   liability
(contingent  or  otherwise) in  connection  with a release,  spill or discharge,
threatened  or  actual,  of any  Hazardous  Materials  or the  generation,  use,
storage,  treatment,   transportation,   manufacture,  handling,  production  or
disposal of any Hazardous Materials.

     (d)  Each  Borrower  and  its  Subsidiaries  have  all  licenses,  permits,
certificates,  approvals  or similar  authorizations  required to be obtained or
filed in connection with the operations of such Borrower under any Environmental
Law  and all of such  licenses,  permits,  certificates,  approvals  or  similar
authorizations are valid and in full force and effect.

     8.9 Employee Benefits.
         ------------------

     (a) Each Plan is in material  compliance with the applicable  provisions of
ERISA,  the Code and other  federal or state law. Each Plan which is intended to
qualify under Section 401(a) of the Code has received a favorable  determination
letter  from the  Internal  Revenue  Service and to the best  knowledge  of each
Borrower, nothing has occurred which would cause the loss of such qualification.
Each Borrower and its ERISA  Affiliates have made all required  contributions to
any Plan subject to Section 412 of the Code, and no application for a funding

                                       48
<PAGE>

waiver or an extension of any amortization period pursuant to Section 412 of the
Code has been made with respect to any Plan.

     (b)  There  are  no  pending  or to the  best  knowledge  of any  Borrower,
threatened claims, actions or lawsuits, or action by any Governmental Authority,
with respect to any Plan. There has been no prohibited  transaction or violation
of the fiduciary responsibility rules with respect to any Plan that has not been
fully cured by reversal of the  transaction or otherwise,  including  payment in
full of any applicable fees or penalties.

     (c) (i) No ERISA  Event has  occurred or is  reasonably  expected to occur;
(ii) the current value of each Plan's assets  (determined in accordance with the
assumptions  used for funding such Plan  pursuant to Section 412 of the Code) do
not  exceed  such  Plan's  liabilities  under  Section   4001(a)(16)  of  ERISA;
(iii) each  Borrower  and its  ERISA  Affiliate  have  not  incurred  and do not
reasonably  expect to incur,  any liability under Title IV of ERISA with respect
to any Plan (other than  premiums due and not  delinquent  under Section 4007 of
ERISA); (iv) each Borrower and its ERISA Affiliates have not incurred and do not
reasonably expect to incur, any liability (and no event has occurred which, with
the  giving  of  notice  under  Section  4219 of  ERISA,  would  result  in such
liability)  under Section 4201 or 4243 of ERISA with respect to a  Multiemployer
Plan;  and  (v) each  Borrower  and its ERISA  Affiliates  have not engaged in a
transaction that could be subject to Section 4069 or 4212(c) of ERISA.

     8.10 Bank Accounts.  All of the deposit  accounts,  investment  accounts or
          --------------
other accounts in the name of or used by each Borrower maintained at any bank or
other financial  institution  are set forth on Schedule 8.10 hereto,  subject to
the right of each Borrower to establish new accounts in accordance  with Section
9.13 below.

     8.11 Intellectual Property.  Borrower owns or licenses or otherwise has the
          ----------------------
right  to use all  Intellectual  Property  necessary  for the  operation  of its
business as  presently  conducted  or proposed to be  conducted.  As of the date
hereof, Borrower does not have any Intellectual Property registered,  or subject
to pending applications, in the United States Patent and Trademark Office or any
similar office or agency in the United States, any State thereof,  any political
subdivision  thereof or in any other  country,  other than  those  described  in
Schedule 8.11 hereto and has not granted any licenses with respect thereto other
than as set forth in Schedule 8.11 hereto.  No event has occurred  which permits
or would  permit  after  notice  or  passage  of time or both,  the  revocation,
suspension  or  termination  of such  rights.  To the best of the  knowledge  of
Borrower,  no slogan or other  advertising  device,  product,  process,  method,
substance  or  other  Intellectual  Property  or  goods  bearing  or  using  any
Intellectual  Property  presently  contemplated  to be  sold by or  employed  by
Borrower infringes any patent,  trademark,  servicemark,  tradename,  copyright,
license or other  Intellectual  Property owned by any other Person presently and
no claim or litigation is pending or  threatened  against or affecting  Borrower
contesting  its right to sell or use any such  Intellectual  Property.  Schedule
8.11 sets forth all of the agreements or other arrangements of Borrower pursuant
to which  Borrower  has a license or other right to use any  trademarks,  logos,
designs,  representations or other Intellectual Property owned by another person
as in  effect  on the  date  hereof  and the  dates  of the  expiration  of such
agreements or other arrangements of Borrower as in effect on the date hereof. No
trademark, servicemark or other

                                       49
<PAGE>

Intellectual  Property  at any time used by  Borrower  which is owned by another
person, or owned by Borrower subject to any security interest,  lien, collateral
assignment,  pledge  or other  encumbrance  in favor of any  person  other  than
Lender,  is affixed to any Eligible  Inventory,  except to the extent  permitted
under the term of the license agreements listed on Schedule 8.11 hereto.

     8.12 Acquisition of Assets.
          ----------------------

     (a)  The  Distribution   Agreements  and  the   transactions   contemplated
thereunder  have been duly  executed,  delivered  and  performed  (except to the
extent  that  the  Distribution  Agreements  as in  effect  on the  date  hereof
expressly  contemplate  performance  after the date hereof) in  accordance  with
their  terms  by  the  respective  parties  thereto  in all  material  respects,
including  the  fulfillment  of all  conditions  precedent set forth therein and
giving effect to the terms of the Distribution Agreements and the assignments to
be executed and delivered by Woodside (or any of its affiliates or subsidiaries)
thereunder,  each Borrower has acquired and has good and marketable title to the
assets,  free and clear of all claims,  liens,  pledges and  encumbrances of any
kind,  except as permitted  hereunder.  Duck Head has acquired all of the assets
consisting  of the Duck Head  Apparel  Company  division  of all of the  various
subsidiaries of Woodside.

     (b) All actions and proceedings, required by the Distribution Agreements in
respect of the Intercompany  Reorganization  (as such term is defined in the DWI
Distribution  Agreement),  applicable  law or  regulation  (including,  but  not
limited to, compliance with the Hart-Scott-Rodino Anti-Trust Improvements Act of
1976,  as  amended  if  applicable)  to be  taken  or have  been  taken  and the
transactions   required   thereunder  have  been  duly  and  validly  taken  and
consummated  hereof (except for those provisions thereof that are solely for the
benefit of Woodside and not for Duck Head and do not otherwise  affect or relate
to Duck Head).

     (c)  No  court  of  competent   jurisdiction  has  issued  any  injunction,
restraining   order  or  other  order  which   prohibits   consummation  of  the
transactions  described in the  Distribution  Agreements and no  governmental or
other  action or  proceeding  has been  threatened  or  commenced,  seeking  any
injunction,  restraining  order or other order which seeks to void or  otherwise
modify the transactions described in the Distribution Agreements.

     (d) Borrowers has delivered,  or caused to be delivered,  to Lender,  true,
correct and complete copies of the Distribution Agreements.

     8.13 Capitalization.
          ---------------

     (a)  All  of  the  issued  and  outstanding  shares  of  Capital  Stock  of
Merchandising are directly and beneficially owned and held by Duck Head.

     (b) Each  Borrower  is solvent and will  continue  to be solvent  after the
creation of the  Obligations,  the  security  interests  of Lender and the other
transaction  contemplated hereunder, is able to pay its debts as they mature and
has (and has reason to believe it will

                                       50
<PAGE>

continue to have)  sufficient  capital (and not  unreasonably  small capital) to
carry on its business  and all  businesses  in which it is about to engage.  The
assets and  properties of each Borrower at a fair valuation and at their present
salable value are, and will be, greater than the  Indebtedness of such Borrower,
and including  subordinated  and contingent  liabilities  computed at the amount
which, to the best of each Borrower's knowledge,  represents an amount which can
reasonably be expected to become an actual or mature liability.

     8.14 Labor Disputes.
          ---------------

     (a) Set  forth  on  Schedule  8.14  hereto  is a list  (including  dates of
termination)  of all  collective  bargaining  or similar  agreements  between or
applicable  to  each  Borrower  and  any  union,  labor  organization  or  other
bargaining  agent in  respect  of the  employees  of each  Borrower  on the date
hereof.

     (b) There is (i) no  significant  unfair labor practice  complaint  pending
against any Borrower or, to the best of the knowledge of  Borrowers,  threatened
against it,  before the  National  Labor  Relations  Board,  and no  significant
grievance  or  significant  arbitration  proceeding  arising out of or under any
collective  bargaining  agreement  is pending  on the date  hereof  against  any
Borrower or, to best of the knowledge of each Borrower,  threatened  against it,
and (ii) no significant strike,  labor dispute,  slowdown or stoppage is pending
against any Borrower or, to the best of the knowledge of  Borrowers,  threatened
against any Borrower.

     8.15 Corporate Name;  Prior  Transactions.    Each Borrower has not, during
          -------------------------------------
the past five years,  been known by or used by any other corporate or fictitious
name or  been a  party  to any  merger  or  consolidation,  or  acquired  all or
substantially  all of the assets of any Person,  or acquired any of its property
or assets out of the  ordinary  course of  business,  except as set forth in the
Information Certificate.

     8.16 Restrictions on  Subsidiaries.  Except  for restrictions  contained in
          ------------------------------
this Agreement or any other  agreement with respect to Indebtedness of Borrowers
permitted hereunder as in effect on the date hereof, there are no contractual or
consensual  restrictions  on any  Borrower  or any  of  its  Subsidiaries  which
prohibit  or  otherwise  restrict  (a) the  transfer  of  cash or  other  assets
(i) between   Borrower  and  any  of  its   Subsidiaries  or  (ii) between   any
Subsidiaries  of  Borrowers  or (b) the  ability of any  Borrower  or any of its
Subsidiaries to incur  Indebtedness or grant security interests to Lender in the
Collateral.

     8.17  Material  Contracts.  Schedule  8.17 hereto  sets forth all  Material
           --------------------
Contracts  to which any  Borrower is a party or is bound as of the date  hereof.
Each Borrower has delivered  true,  correct and complete copies of such Material
Contracts to Lender on or before the date hereof. Each Borrower is not in breach
of or in default under any Material  Contract and has not received any notice of
the intention of any other party thereto to terminate any Material Contract.

     8.18 Accuracy and Completeness of Information. All information furnished by
          -----------------------------------------
or on behalf of Borrowers in writing to Lender in connection with this Agreement
or any of the other Financing Agreements or any transaction  contemplated hereby
or thereby, including all

                                       51
<PAGE>

information on the  Information  Certificate is true and correct in all material
respects on the date as of which such information is dated or certified and does
not omit any  material  fact  necessary  in order to make such  information  not
misleading.  No  event  or  circumstance  has  occurred  which  has had or could
reasonably be expected to have a material adverse affect on the business, assets
or prospects of any Borrower,  which has not been fully and accurately disclosed
to Lender in writing.

     8.19 Survival of Warranties; Cumulative. All representations and warranties
          -----------------------------------
contained  in this  Agreement  or any of the other  Financing  Agreements  shall
survive the execution and delivery of this Agreement and shall be deemed to have
been  made  again to Lender on the date of each  additional  borrowing  or other
credit accommodation  hereunder and shall be conclusively  presumed to have been
relied  on by  Lender  regardless  of  any  investigation  made  or  information
possessed by Lender. The  representations  and warranties set forth herein shall
be cumulative and in addition to any other  representations  or warranties which
each Borrower shall now or hereafter give, or cause to be given, to Lender.

     8.20 Credit Card Agreements. Set forth in Schedule 8.20 hereto is a correct
          -----------------------
and  complete  list of (a)  all of the  Credit  Card  Agreements  and all  other
agreements,  documents and instruments existing as of the date hereof between or
among any Borrower,  any of its affiliates,  the Credit Card Issuers, the Credit
Card  Processors  and any of their  affiliates,  (b) the percentage of each sale
payable to the Credit Card Issuer or Credit  Card  Processor  under the terms of
the  Credit  Card  Agreements,  (c) all other fees and  charges  payable by each
Borrower under or in connection with the Credit Card Agreements and (d) the term
of such Credit Card  Agreements.  The Credit Card  Agreements  constitute all of
such agreements necessary for each Borrower to operate its business as presently
conducted  with  respect  to credit  cards and debit  cards and no  Accounts  of
Borrower  arise from  purchases by  customers of Inventory  with credit cards or
debit cards,  other than those which are issued by Credit Card Issuers with whom
any  Borrower has entered  into one of the Credit Card  Agreements  set forth on
Schedule  8.20 hereto or with whom each  Borrower has entered into a Credit Card
Agreement  in  accordance  with  Section  9.21  hereof.  Each of the Credit Card
Agreements constitutes the legal, valid and binding obligations of such Borrower
and to the best of Borrower's knowledge, the other parties thereto,  enforceable
in accordance with their respective  terms and are in full force and effect.  No
default or event of default,  or act,  condition  or event which after notice or
passage of time or both, would constitute a default or an event of default under
any of the Credit Card Agreements exists or has occurred.  Each Borrower and the
other parties  thereto have complied with all of the terms and conditions of the
Credit Card Agreements to the extent  necessary for such Borrower to be entitled
to receive all payments thereunder. Each Borrower has delivered, or caused to be
delivered to Lender, true, correct and complete copies of all of the Credit Card
Agreements.

SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
           ----------------------------------

     9.1  Maintenance of Existence.  Each Borrower shall at all times  preserve,
          -------------------------
renew and keep in full, force and effect its corporate  existence and rights and
franchises  with  respect  thereto  and  maintain  in full  force and effect all
permits, licenses, trademarks, tradenames, approvals, authorizations, leases and
contracts necessary to carry on the business as presently or proposed to

                                       52
<PAGE>

be  conducted.  Each  Borrower  shall give Lender thirty (30) days prior written
notice of any  proposed  change in its  corporate  name,  which notice shall set
forth  the new name and such  Borrower  shall  deliver  to  Lender a copy of the
amendment to the Certificate of Incorporation of such Borrower providing for the
name  change  certified  by  the  Secretary  of  State  of the  jurisdiction  of
incorporation of such Borrower as soon as it is available.

     9.2 New  Collateral  Locations.  Each  Borrower  may open any new  location
         ---------------------------
within the  continental  United  States  provided such Borrower (a) gives Lender
fifteen (15) days prior written  notice of the intended  opening of any such new
location and (b) executes and delivers,  or causes to be executed and delivered,
to Lender  such  agreements,  documents,  and  instruments  as  Lender  may deem
reasonably  necessary or desirable to protect its interests in the Collateral at
such location, including UCC financing statements.

     9.3 Compliance with Laws, Regulations, Etc.
         ---------------------------------------

     (a) Each Borrower  shall,  and shall cause any Subsidiary to, at all times,
comply in all material  respects with all laws,  rules,  regulations,  licenses,
permits, approvals and orders applicable to it and duly observe all requirements
of any Federal,  State or local  Governmental  Authority,  including  ERISA, the
Code, the Occupational Safety and Health Act of 1970, as amended, the Fair Labor
Standards Act of 1938, as amended, and all statutes, rules, regulations, orders,
permits and stipulations relating to environmental pollution and employee health
and safety, including all of the Environmental Laws.

     (b) At the  reasonable  request of Lender  and in any event,  to the extent
required by applicable law, each Borrower shall  establish and maintain,  at its
expense,  a system to assure  and  monitor  its  continued  compliance  with all
Environmental  Laws in all of its operations,  which system shall include annual
reviews of such  compliance  by  employees  or agents of such  Borrower  who are
familiar  with  the  requirements  of  the  Environmental  Laws.  Copies  of all
environmental surveys, audits,  assessments,  feasibility studies and results of
remedial  investigations shall be promptly furnished, or caused to be furnished,
by such  Borrower to Lender.  Each  Borrower  shall take prompt and  appropriate
action to respond to any non- compliance with any of the Environmental  Laws and
shall regularly report to Lender on such response.

     (c) Each  Borrower  shall  give  both  oral and  written  notice  to Lender
immediately  upon such  Borrower's  receipt of any notice of, or such Borrower's
otherwise  obtaining knowledge of, (i) the occurrence of any event involving the
release, spill or discharge,  threatened or actual, of any Hazardous Material or
(ii)  any  investigation,   proceeding,  complaint,  order,  directive,  claims,
citation or notice with respect to: (A) any non-compliance  with or violation of
any Environmental  Law by such Borrower or (B) the release,  spill or discharge,
threatened or actual,  of any  Hazardous  Material or (C) the  generation,  use,
storage,  treatment,   transportation,   manufacture,  handling,  production  or
disposal of any Hazardous  Materials or (D) any other  environmental,  health or
safety matter,  which affects Borrower or its business,  operations or assets or
any  properties  at  which  Borrower  transported,  stored  or  disposed  of any
Hazardous Materials.

                                       53
<PAGE>

     (d) Without  limiting the  generality  of the  foregoing,  whenever  Lender
reasonably  determines  that there is  non-compliance,  or any  condition  which
requires  any  action  by or on  behalf  of any  Borrower  in order to avoid any
material non-compliance, with any Environmental Law, Borrower shall, at Lender's
request and Borrowers' expense: (i) cause an independent  environmental engineer
acceptable  to Lender to conduct  such  tests of the site where such  Borrower's
non-compliance  or  alleged  non-compliance  with  such  Environmental  Laws has
occurred as to such non-compliance and prepare and deliver to Lender a report as
to such non- compliance setting forth the results of such tests, a proposed plan
for responding to any environmental  problems described therein, and an estimate
of the costs  thereof and (ii) provide to Lender a  supplemental  report of such
engineer  whenever  the scope of such  non-compliance,  or  Borrower's  response
thereto or the estimated costs thereof, shall change in any material respect.

     (e) Each Borrower shall indemnify and hold harmless Lender,  its directors,
officers, employees, agents, invitees, representatives,  successors and assigns,
from and against any and all losses, claims,  damages,  liabilities,  costs, and
expenses  (including  attorneys' fees and legal expenses) directly or indirectly
arising  out  of  or   attributable   to  the  use,   generation,   manufacture,
reproduction,  storage, release, threatened release, spill, discharge,  disposal
or presence  of a Hazardous  Material,  including  the costs of any  required or
necessary repair, cleanup or other remedial work with respect to any property of
any Borrower and the preparation and implementation of any closure,  remedial or
other  required   plans.   All   representations,   warranties,   covenants  and
indemnifications   in  this  Section  9.3  shall  survive  the  payment  of  the
Obligations and the termination or non-renewal of this Agreement.

     9.4 Payment of Taxes and Claims.  Each Borrower shall,  and shall cause any
         ----------------------------
Subsidiary to, duly pay and discharge all taxes, assessments,  contributions and
governmental charges upon or against it or its properties or assets,  except for
taxes the  validity of which are being  contested  in good faith by  appropriate
proceedings   diligently   pursued  and  available  to  such  Borrower  or  such
Subsidiary, as the case may be, and with respect to which adequate reserves have
been set  aside on its  books.  Each  Borrower  shall be  liable  for any tax or
penalties imposed on Lender as a result of the financing  arrangements  provided
for herein and each Borrower  agrees to indemnify and hold Lender  harmless with
respect to the foregoing,  and to repay to Lender on demand the amount  thereof,
and until paid by  Borrowers  such amount  shall be added and deemed part of the
Loans,  provided,  that,  nothing contained herein shall be construed to require
Borrower  to pay any income or  franchise  taxes  attributable  to the income of
Lender from any  amounts  charged or paid  hereunder  to Lender.  The  foregoing
indemnity  shall survive the payment of the  Obligations  and the termination or
non-renewal of this Agreement.

     9.5 Insurance.  Each Borrower shall,  and shall cause any Subsidiary to, at
         ----------
all times, maintain with financially sound and reputable insurers insurance with
respect to the Collateral  against loss or damage and all other insurance of the
kinds and in the amounts  customarily insured against or carried by corporations
of  established  reputation  engaged  in the  same  or  similar  businesses  and
similarly  situated.  Said policies of insurance shall be satisfactory to Lender
as to form,  amount and  insurer.  Each  Borrower  shall  furnish  certificates,
policies  or  endorsements  to Lender as Lender  shall  require as proof of such
insurance,  and, if such Borrower fails to do so, Lender is authorized,  but not
required, to obtain such insurance at the expense of

                                       54
<PAGE>

Borrowers.  All  policies  shall  provide  for at least  thirty  (30) days prior
written notice to Lender of any  cancellation  or reduction of coverage and that
Lender may act as attorney  for any  Borrower in  obtaining,  and at any time an
Event of Default exists or has occurred and is continuing,  adjusting, settling,
amending and canceling  such  insurance.  Each Borrower shall cause Lender to be
named as a loss payee and an  additional  insured (but without any liability for
any  premiums)  under such  insurance  policies and such  Borrower  shall obtain
non-contributory lender's loss payable endorsements to all insurance policies in
form  and  substance   satisfactory  to  Lender.   Such  lender's  loss  payable
endorsements  shall specify that the proceeds of such insurance shall be payable
to Lender as its interests  may appear and further  specify that Lender shall be
paid regardless of any act or omission by Borrower or any of its Affiliates.  At
its option,  Lender may apply any insurance  proceeds  received by Lender at any
time to the cost of repairs or  replacement  of Collateral  and/or to payment of
the  Obligations,  whether or not then due,  in any order and in such  manner as
Lender  may  determine  or  hold  such  proceeds  as  cash  collateral  for  the
Obligations.

     9.6 Financial Statements and Other Information.
         -------------------------------------------

     (a) Each Borrower  shall,  and shall cause any  Subsidiary  to, keep proper
books  and  records  in which  true and  complete  entries  shall be made of all
dealings or transactions of or in relation to the Collateral and the business of
Borrower and its  Subsidiaries in accordance with GAAP.  Borrower shall promptly
furnish to Lender  all such  financial  and other  information  as Lender  shall
reasonably  request  relating to the  Collateral  and the assets,  business  and
operations of each Borrower,  and to notify the auditors and accountants of each
Borrower  that Lender is  authorized  to obtain such  information  directly from
them.  Without  limiting the foregoing,  Borrowers  shall furnish or cause to be
furnished to Lender, the following: (i) within thirty (30) days after the end of
each fiscal month (other than the end of a fiscal  quarter),  monthly  unaudited
consolidated  financial  statements  (including  in each  case  balance  sheets,
statements  of income and loss,  statements  of cash  flow,  and  statements  of
shareholders' equity), all in reasonable detail, fairly presenting the financial
position and the results of the operations of Duck Head and its  Subsidiaries as
of the end of and through  such  fiscal  month,  certified  to be correct by the
chief financial  officer of Duck Head,  subject to normal year-end  adjustments,
(ii) within  forty-five  (45) days after the end of each fiscal  quarter  (other
than at the end of the fiscal year), unaudited consolidated financial statements
(including  in  each  case  balance  sheets,  statements  of  income  and  loss,
statements  of cash flow,  and  statements  of  shareholders'  equity) and (iii)
within ninety (90) days after the end of each fiscal year, audited  consolidated
financial  statements of Duck Head and its Subsidiaries  (including in each case
balance  sheets,  statements  of income  and loss,  statements  of cash flow and
statements of shareholders'  equity), and the accompanying notes thereto, all in
reasonable  detail,  fairly presenting the financial position and the results of
the operations of Duck Head and its  Subsidiaries  as of the end of and for such
fiscal year,  together with the  unqualified  opinion of  independent  certified
public  accountants,  which accountants shall be an independent  accounting firm
selected by Duck Head and reasonably  acceptable to Lender,  that such financial
statements  have been prepared in accordance  with GAAP,  and present fairly the
results of operations and financial  condition of Borrower and its  Subsidiaries
as of the end of and for the fiscal year then ended.

                                       55
<PAGE>

     (b) Each Borrower shall promptly notify Lender in writing of the details of
(i) any loss, damage, investigation,  action, suit, proceeding or claim relating
to the Collateral or any other property which is security for the Obligations or
which would result in any material  adverse change in such Borrower's  business,
properties,  assets,  goodwill or condition,  financial or  otherwise,  (ii) any
Material  Contract  of any  Borrower  being  terminated  or  amended  or any new
Material  Contract  entered  into (in which event such  Borrower  shall  provide
Lender with a copy of such  Material  Contract),  (iii) any  order,  judgment or
decree in excess of $500,000 shall have been entered against any Borrower or any
of its  properties  or assets,  (iv) any  notification  of  violation of laws or
regulations  received  by any  Borrower,  (v) any  ERISA  Event,  and  (vi)  the
occurrence of any Event of Default or act, condition or event which, with notice
or the passage of time or giving of notice or both, would constitute an Event of
Default.

     (c) Borrowers shall promptly after the sending or filing thereof furnish or
cause to be furnished to Lender copies of all reports  which any Borrower  sends
to its  stockholders  generally  and  copies  of all  reports  and  registration
statements which Borrower files with the Securities and Exchange Commission, any
national securities exchange or the National  Association of Securities Dealers,
Inc.

     (d) Without limiting the rights of Lender under any other provision of this
Agreement, as soon as available,  but in any event not later than three (3) days
after the end of each calendar month,  each Borrower shall deliver to Lender, in
form and substance  satisfactory to Lender,  in each case certified by the chief
financial  officer  of  such  Borrower  as true  and  correct:  (i) a  statement
confirming  the  payment of rent and other  amounts due to owners and lessors of
real property used by such Borrower in the immediately  preceding month (subject
to year-end or periodic  adjustments) which have not executed  Collateral Access
Agreements, and (ii) the addresses of existing retail store locations closed, in
each case  since the date of the most  recent  certificate  delivered  to Lender
containing the information required under this clause.

     (e) Borrowers shall deliver,  or cause to be delivered,  to Lender,  within
ninety (90) days from the date hereof, an opening unaudited consolidated balance
sheet of Duck Head and its Subsidiaries  after giving effect to the transactions
contemplated  by this Agreement and the  Distribution  Agreements  which present
fairly the financial condition of Borrower as of such date.

     (f) Each  Borrower  shall  furnish or cause to be  furnished to Lender such
budgets, forecasts,  projections and other information respecting the Collateral
and the business of such Borrower,  as Lender may, from time to time, reasonably
request.  Lender  is  hereby  authorized  to  deliver  a copy  of any  financial
statement or any other  information  relating to the business of any Borrower to
any court or other  Governmental  Authority  to the extent  required by statute,
rule,  regulation,  subpoena or court order or to any participant or assignee or
prospective participant or assignee. Each Borrower hereby irrevocably authorizes
and directs all  accountants  or  auditors to deliver to Lender,  at  Borrowers'
expense,  copies of the  financial  statements  of Borrowers  and any reports or
management  letters  prepared  by such  accountants  or  auditors  on  behalf of
Borrowers and to disclose to Lender such  information as they may have regarding
the business of Borrowers.  Any documents,  schedules,  invoices or other papers
delivered to Lender may be

                                       56
<PAGE>

destroyed  or  otherwise  disposed  of by Lender one (1) year after the same are
delivered  to Lender,  except as otherwise  designated  by Borrower to Lender in
writing.

     9.7 Sale of Assets, Consolidation,  Merger, Dissolution, Etc. Each Borrower
         ---------------------------------------------------------
shall not, and shall not permit any Subsidiary to, directly or indirectly,

     (a) merge into or with or  consolidate  with any other Person or permit any
other  Person  to merge  into or with or  consolidate  with it  except  that any
Borrower  may  merge  with and into or  consolidate  with  the  other  Borrower,
provided,  that, each of the following  conditions is satisfied as determined by
Lender: (i) Lender shall have received not less than ten (10) days prior written
notice of the  intention of such  Borrower to so merge or  consolidate  and such
information with respect thereto as Lender may request, (ii) as of the effective
date of the merger or consolidation and after giving effect thereto, no Event of
Default or act,  condition or event which with notice or passage of time or both
would  constitute  an Event of  Default,  shall  exist or have  occurred  and be
continuing,  (iii) Lender shall have received true,  correct and complete copies
of all  agreements,  documents  and  instruments  relating  to  such  merger  or
consolidation, including, but not limited to, the certificate or certificates of
merger or consolidation to be filed with each appropriate  Secretary of State or
other Governmental Authority (and promptly after such merger or consolidation is
effective,  as such certificate or certificates of merger or consolidation  have
been  filed  with  each  appropriate  Secretary  of State or other  Governmental
Authority),  and (iv) each Obligor shall ratify and confirm that its  guarantees
of the  Obligations  shall apply to the Obligations as assumed by such surviving
entity; or

     (b) sell,  assign,  lease,  transfer,  abandon or otherwise  dispose of any
Capital  Stock or  Indebtedness  to any other Person or any of its assets to any
other Person, except for

          (i) sales of Inventory in the ordinary course of business,

          (ii) the  disposition  of any of the  embroidery  equipment  listed on
     Schedule  1.36 hereto and the Real  Property of Borrower  located at Planta
     Jupiter, Contigua al Motel Amar, San Francisco de Dos Rios, San Jose, Costa
     Rica,

          (iii) the  disposition  of worn-out or obsolete  Equipment  so long as
     such disposition shall not, in the good faith determination of Lender, have
     a  material  adverse  effect on the  condition  (financial  or  otherwise),
     business,  performance,  operations  or properties  of such  Borrower;  the
     ability of Borrower to repay the Obligations or of such Borrower to perform
     its  obligations  under  this  Agreement  or  any of  the  other  Financing
     Agreements,

          (iv) the issuance and sale by Duck Head of Capital  Stock of Duck Head
     after the date hereof;  provided,  that, (A) Lender shall have received not
     less than ten (10) Business Days prior written  notice of such issuance and
     sale by Duck Head,  which  notice  shall  specify  the parties to whom such
     shares are to be sold, the terms of such sale, the total amount which it is
     anticipated  will be realized  from the issuance and sale of such stock and
     the net cash proceeds which it is anticipated  will be received by Borrower
     from  such  sale,  (B)  Borrower  shall  not be  required  to pay any  cash
     dividends or repurchase or redeem such Capital Stock or make any other

                                       57
<PAGE>

     payments in respect thereof except as permitted in Section 9.11 hereof, (C)
     the  terms of such  Capital  Stock,  and the terms  and  conditions  of the
     purchase  and sale  thereof,  shall not include any terms that  include any
     limitation  on the right of Duck Head to request or receive Loans or Letter
     of Credit  Accommodations  or the right of Duck Head to amend or modify any
     of the terms and conditions of this Agreement or any of the other Financing
     Agreements or otherwise in any way relate to or affect the  arrangements of
     Duck Head with Lender are more  restrictive or burdensome to Duck Head than
     the terms of any Capital Stock in effect on the date hereof,  and (D) as of
     the date of such  issuance and sale and after  giving  effect  thereto,  no
     Event of Default or act, condition or event which with notice or passage of
     time or both  would  constitute  an Event of  Default  shall  exist or have
     occurred;

          (v) the issuance of Capital  Stock of Duck Head  consisting  of common
     stock pursuant to (A) a stock option plan,  401(k) plan or incentive  stock
     award plan of Duck Head for the  benefit of its  employees,  directors  and
     consultants,  provided,  that,  in no event  shall Duck Head be required to
     issue,  or shall Duck Head  issue,  Capital  Stock  pursuant  to such stock
     option plan,  401(k) plan or incentive  stock award plan which would result
     in an Event of  Default,  (B) the  option  granted  to Robert D.  Rockey to
     purchase up to 1,000,000 shares of DH Apparel Company, Inc. common stock on
     the date six (6) months  after the  distribution  of DH  Apparel  Company's
     stock to the  shareholder's  of Woodside  at a purchase  price equal to the
     average daily closing stock price for DH Apparel Company, Inc. common stock
     for the six (6) month period following the distribution;

     (c) form or  acquire  any  Subsidiaries  other  than  those  listed  on the
Information Certificate;

     (d) wind up, liquidate or dissolve; or

     (e) agree to do any of the foregoing.

     9.8 Encumbrances.  Each Borrower shall not, and shall permit any Subsidiary
         -------------
to, create,  incur,  assume or suffer to exist any security interest,  mortgage,
pledge, lien, charge or other encumbrance of any nature whatsoever on any of its
assets or properties, including the Collateral, except:

     (a) the security interests and liens of Lender;

     (b) liens  securing  the  payment of taxes,  either not yet  overdue or the
validity of which are being  contested in good faith by appropriate  proceedings
diligently  pursued and  available to such Borrower or such  Subsidiary,  as the
case may be and with respect to which  adequate  reserves have been set aside on
its books;

     (c)  non-consensual  statutory liens (other than liens securing the payment
of taxes) arising in the ordinary course of such Borrower's or such Subsidiary's
business to the extent: (i) such liens secure  Indebtedness which is not overdue
or (ii) such liens secure  Indebtedness  relating to claims or liabilities which
are fully insured and being defended at the sole cost and

                                       58
<PAGE>

expense and at the sole risk of the insurer or being  contested in good faith by
appropriate  proceedings  diligently  pursued and  available to such Borrower or
such Subsidiary,  in each case prior to the commencement of foreclosure or other
similar  proceedings  and with respect to which adequate  reserves have been set
aside on its books;

     (d)  zoning  restrictions,   easements,   licenses,   covenants  and  other
restrictions  affecting the use of Real  Property  which do not interfere in any
material  respect with the use of such Real Property or ordinary  conduct of the
business of such Borrower or such Subsidiary as presently  conducted  thereon or
materially impair the value of the Real Property which may be subject thereto;

     (e) purchase  money  security  interests in  Equipment  (including  Capital
Leases) and purchase  money  mortgages on Real  Property to secure  Indebtedness
permitted under Section 9.9(b) hereof;

     (f) a first  and  only  deed to  secure  debt (a  "Security  Deed")  on the
Distribution  and Office Facility  arising after the second  anniversary of this
Agreement  so long  as each of the  following  conditions  is  satisfied  in the
determination of Lender: (i) Lender shall have received not less than forty-five
(45) days  prior  written  notice of the  intention  of Duck Head to grant  such
security interest and incur such Indebtedness,  (ii) the Indebtedness secured by
such Real  Property,  arises from loans in cash or other  immediately  available
funds provided to Duck Head, the proceeds of which are used,  first, to pay, the
entire  outstanding amount of all principal and all accrued interest on the Term
Loan, and second,  to repay the outstanding  principal amount of Revolving Loans
which amounts may be reborrowed,  (iii) such Security Deed and does not apply to
any property of Duck Head other than the Distribution and Office Facility,  (iv)
as of the date of the incurrence of such  Indebtedness  and the creation of such
Security Deed and after giving effect thereto,  the Excess Availability shall be
not less than $4,000,000,  (v) such Security Deed shall be in form and substance
satisfactory  to Lender,  (vi) Lender shall have  received a  Collateral  Access
Agreement,  duly executed by such new lender, in form and substance satisfactory
to Lender,  and (vii) as of the date of the granting of any such  Security  Deed
and incurrence of such Indebtedness and after giving effect thereto, no Event of
Default or act,  condition  or event  which with  notice,  lapse of time or both
would constitute an Event of Default shall exist or have occurred; to the extent
that each of the foregoing conditions has been satisfied in the determination of
Lender,  Lender  shall,  at the  request of Duck Head,  at  Borrowers'  expense,
execute and  deliver a release of Deed to Secure Debt and such other  release of
lien as requested by the new lender, provided, that, such releases shall each be
in form and substance satisfactory to Lender;

     (g) setoff or credit balances of any Borrower with Credit Card Issuers, but
not liens on or rights of setoff  against  any other  property or assets of such
Borrower  pursuant  to the  Credit  Card  Agreements  (as in  effect on the date
hereof) to secure the obligations of such Borrower to the Credit Card Issuers as
a result of fees and chargebacks; or

     (h) the security interests and liens set forth on Schedule 8.4 hereto.

                                       59
<PAGE>

     9.9  Indebtedness.  Each  Borrower  shall  not,  and shall not  permit  any
          -------------
Subsidiary  to, incur,  create,  assume,  become or be liable in any manner with
respect to, or permit to exist, any Indebtedness, except:

     (a) the Obligations;

     (b) purchase money  Indebtedness  (including  Capital Leases) to the extent
secured by purchase money  security  interests in Equipment  (including  Capital
Leases) so long as such security  interests do not apply to any property of such
Borrower  other than the  Equipment so acquired,  and the  Indebtedness  secured
thereby does not exceed the cost of the  Equipment so  acquired;  except,  that,
with respect to the Warehouse  Equipment,  Duck Head may refinance the Warehouse
Equipment which was previously financed under the GECC Warehouse Equipment Lease
(the "Refinancing  Indebtedness") so long as each of the following conditions is
satisfied  in the  determination  of Lender:  (A) the  principal  amount of such
Refinancing  Indebtedness  shall not exceed the lesser of (1)  $1,550,000 or (2)
the fair market value of the Warehouse  Equipment (plus the amount of reasonable
refinancing  fees and expenses  incurred in connection  therewith on the date of
such  refinancing),  (B) as of the date of any such refinancing and after giving
effect  thereto,  the  Excess  Availability  of Duck Head shall not be less than
$8,000,000,  (C) the  Refinancing  Indebtedness  shall  only be  secured  by the
Warehouse  Equipment,  (D) Lender shall have received true, correct and complete
copies of all  agreements,  documents  and  instruments  evidencing or otherwise
related  to  such   Refinancing   Indebtedness,   each  in  form  and  substance
satisfactory  to Lender and as duly  authorized,  executed and  delivered by the
parties thereto, and (E) as of the date of incurring such Indebtedness and after
giving effect  thereto,  no Event of Default,  or act,  condition or event which
with  notice or passage of time or both would  constitute  an Event of  Default,
shall exist or have occurred and be  continuing;  to the extent that each of the
foregoing  conditions has been satisfied in the determination of Lender,  Lender
shall, at the request of Duck Head, at Borrowers' expense, execute and deliver a
UCC-3 Partial  Release with respect to the Warehouse  Equipment  subject to such
refinancing  and such other release of lien as shall be reasonably  requested by
the new  lender,  provided,  that,  such  releases  shall  each  be in form  and
substance satisfactory to Lender;

     (c)  Indebtedness of Duck Head arising after the second  anniversary of the
date  of  this  Agreement  to the  extent  secured  by a  Security  Deed  on the
Distribution and Office Facility permitted under Section 9.8 (f) above;

     (d) Indebtedness of any Borrower under interest swap  agreements,  interest
rate cap  agreements,  interest rate collar  agreements,  interest rate exchange
agreements and similar  contractual  agreements  entered into for the purpose of
protecting a Person against fluctuations in interest rates; provided, that, such
arrangements are with banks or other financial  institutions  that have combined
capital and surplus and undivided  profits of not less than $100,000,000 and are
not for speculative purposes and such Indebtedness shall be unsecured;

     (e) the Indebtedness set forth on Schedule 9.9 hereto;  provided, that, (i)
Borrower may only make regularly scheduled payments of principal and interest in
respect of such  Indebtedness  in accordance  with the terms of the agreement or
instrument evidencing or giving

                                       60
<PAGE>

rise to such  Indebtedness  as in effect on the date hereof,  (ii) such Borrower
shall not, directly or indirectly,  (A) amend, modify, alter or change the terms
of such Indebtedness or any agreement, document or instrument related thereto as
in effect on the date  hereof  except,  that,  such  Borrower  may,  after prior
written notice to Lender, amend, modify, alter or change the terms thereof so as
to extend the maturity  thereof,  or defer the timing of any payments in respect
thereof,  or to forgive or cancel any portion of such  Indebtedness  (other than
pursuant to payments  thereof),  or to reduce the  interest  rate or any fees in
connection  therewith,  or (B) redeem,  retire,  defease,  purchase or otherwise
acquire such Indebtedness,  or set aside or otherwise deposit or invest any sums
for such purpose, and (iii) such Borrower shall furnish to Lender all notices or
demands in connection with such  Indebtedness  either received by Borrower or on
its behalf,  promptly after the receipt  thereof,  or sent by Borrower or on its
behalf, concurrently with the sending thereof, as the case may be.

     9.10 Loans,  Investments,  Guarantees,  Etc. Each  Borrower  shall not, and
          ---------------------------------------
shall not permit any  Subsidiary to,  directly or indirectly,  make any loans or
advance money or property to any person, or invest in (by capital  contribution,
dividend  or  otherwise)  or  purchase  or  repurchase   the  Capital  Stock  or
Indebtedness  or all or a  substantial  part of the  assets or  property  of any
person,  or guarantee,  assume,  endorse,  or otherwise  become  responsible for
(directly or indirectly) the Indebtedness, performance, obligations or dividends
of any Person,  or form or acquire any  Subsidiaries,  or agree to do any of the
foregoing, except:

     (a) the  endorsement  of  instruments  for  collection  or  deposit  in the
ordinary course of business;

     (b)  investments  in cash  or  Cash  Equivalents,  provided,  that,  (i) no
Revolving Loans are then outstanding and (ii) as to any of the foregoing, unless
waived in writing by Lender, each Borrower shall take such actions as are deemed
necessary  by  Lender  to  perfect  the  security  interest  of  Lender  in such
investments;

     (c) the existing equity  investments of each Borrower as of the date hereof
in its Subsidiaries,  provided, that, Borrower shall have any obligation to make
any other  investment in, or loans to, or other payments in respect of, any such
Subsidiaries;

     (d) guarantees by any  Subsidiaries  of any Borrower of the  Obligations in
favor of Lender;

     (e)  stock or  obligations  issued  to a  Borrower  by any  Person  (or the
representative  of such Person) in respect of  Indebtedness of such Person owing
to such Borrower in connection with the insolvency, bankruptcy,  receivership or
reorganization  of such Person or a composition or  readjustment of the debts of
such  Person;  provided,  that,  the  original  of any such stock or  instrument
evidencing such obligations shall be promptly delivered to Lender, upon Lender's
request,  together  with such stock power,  assignment  or  endorsement  by such
Borrower as Lender may request;

                                       61
<PAGE>

     (f)  obligations  or account  debtors to a Borrower  arising from  Accounts
which are past due  evidenced by a promissory  note made by such account  debtor
payable to such  Borrower;  provided,  that,  promptly  upon the  receipt of the
original of any such promissory note by any Borrower, such promissory note shall
be endorsed to the order of Lender by such  Borrower and  promptly  delivered to
Lender as so endorsed;

     (g) the loans,  advances and  guarantees set forth on Schedule 9.10 hereto;
provided,  that, as to such loans,  advances and guarantees,  (i) each  Borrower
shall not, directly or indirectly,  (A) amend, modify, alter or change the terms
of such loans,  advances or guarantees or any agreement,  document or instrument
related thereto, or (B) as to such guarantees, redeem, retire, defease, purchase
or otherwise acquire the obligations arising pursuant to such guarantees, or set
aside or otherwise  deposit or invest any sums for such  purpose,  and (ii) each
Borrower shall furnish to Lender all notices or demands in connection  with such
loans,  advances or guarantees or other Indebtedness  subject to such guarantees
either  received by such Borrower or on its behalf,  promptly  after the receipt
thereof,  or sent by such  Borrower  or on its  behalf,  concurrently  with  the
sending thereof, as the case may be; and

     (h)  unsecured  loans by any  Borrower to any other  Borrower to the extent
permitted  under Section 9.12 hereof;  provided,  that, as to any such loan, (i)
each month  Borrowers  shall  provide  to Lender a report in form and  substance
reasonably  satisfactory  to Lender  of the  amount  of such  loans  made in the
immediately preceding month and any repayments in connection therewith, and (ii)
the  Indebtedness  arising pursuant to any such loan shall not be evidenced by a
promissory note or other instrument,  unless the single original of such note or
other instrument is delivered to Lender to hold as part of the Collateral,  with
such endorsement and/or assignment by the payee of such note or other instrument
as Lender may reasonably require.

     9.11  Dividends  and  Redemptions.  Each  Borrower  shall not,  directly or
           ----------------------------
indirectly,  declare or pay any  dividends  on account of any shares of class of
Capital  Stock of such  Borrower now or hereafter  outstanding,  or set aside or
otherwise  deposit  or invest  any sums for such  purpose,  or  redeem,  retire,
defease,  purchase or otherwise acquire any shares of any class of Capital Stock
(or set aside or otherwise  deposit or invest any sums for such purpose) for any
consideration other than common stock or apply or set apart any sum, or make any
other distribution (by reduction of capital or otherwise) in respect of any such
shares or agree to do any of the foregoing except

     (a) any Subsidiary of a Borrower may pay dividends to such Borrower;

     (b)  Duck  Head  may pay  cash  dividends  or  distributions  from  legally
available funds therefor,  to its shareholders from time to time in amounts such
that the aggregate amount paid to shareholders does not exceed twenty-five (25%)
percent of its cumulative Net Income (calculated from the date of this Agreement
to date of  determination),  provided,  that, (i) Lender shall have received ten
(10) days prior to any payment thereof, a certificate signed by Borrower's chief
financial  officer (A)  setting  forth Duck  Head's  cumulative  Net Income with
respect to which the dividend or  distribution  is to be made and providing full
information  and  computations  with  respect  thereto and (B) such  dividend or
distribution  is not in violation of  applicable  law or any other  agreement to
which Duck Head is a party or by which it is bound, (ii) as of the date of any

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such payment and after giving effect thereto,  the Excess  Availability shall be
not less than $6,000,000, and (iii) as of the date of any such payment and after
giving effect thereto, no Event of Default or any act, condition or event which,
with notice or passage of time or both,  would  constitute  an Event of Default,
shall exist or have occurred;

     (c) Duck Head may repurchase its Capital Stock  consisting of common stock,
provided, that, as to (i) any such repurchase,  each of the following conditions
is satisfied:  (A) as of the date of the payment for such  repurchase  and after
giving effect thereto, no Event of Default or any act, condition or event which,
with notice or passage of time or both,  would  constitute  an Event of Default,
shall exist or have occurred and be  continuing,  (B) such  repurchase  shall be
paid with funds legally available therefor, (C)such repurchase shall not violate
any law or regulation or the terms of any indenture, agreement or undertaking to
which such  Borrower  is a party or by which such  Borrower  or its  property is
bound,  (D) as of the date of any such  payment  for such  repurchase  and after
giving  effect  thereto,   the  Excess  Availability  shall  be  not  less  than
$6,000,000,  and (E) the aggregate  amount of all payments for such  repurchases
during the term of this Agreement shall not exceed $3,000,000.

     9.12 Transactions  with Affiliates.  Each Borrower shall not, and shall not
          ------------------------------
permit any Subsidiary to, directly or indirectly,

     (a)  purchase,  acquire or lease any property  from,  or sell,  transfer or
lease any property to, any officer,  director,  agent or other person affiliated
with  such  Borrower,  except in the  ordinary  course  of and  pursuant  to the
reasonable requirements of such Borrower's business and upon fair and reasonable
terms no less  favorable to such Borrower  than such Borrower  would obtain in a
comparable arm's length transaction with an unaffiliated person; or

     (b)  make  any  payments  of  management,  consulting  or  other  fees  for
management or similar  services,  or of any  Indebtedness  owing to any officer,
employee, shareholder, director or other Affiliate of such Borrower except:

          (i) reasonable  compensation to officers,  employees and directors for
     services rendered to Borrower in the ordinary course of business;

          (ii) dividends permitted under Section 9.11 (b) above; and

          (iii)  payments  by any  Borrower to Cargud,  S.A.  for (A) actual and
     necessary reasonable  out-of-pocket  administrative,  operating and capital
     expenditures  of Cargud,  S.A.  for the  business of Borrower as  presently
     conducted in the ordinary  course of business  (including  lease  payments,
     payroll, insurance, franchise taxes and similar items), provided, that, the
     amount of all such  payments  permitted  under  Section  9.12  (iii)(A)  in
     respect of capital  expenditures shall not exceed $100,000 in the aggregate
     for all  Borrowers  in any  fiscal  year of  Borrowers,  and (B) actual and
     necessary reasonable out-of-pocket legal, accounting,  insurance (including
     premiums  for such  insurance),  marketing,  payroll and  similar  types of
     services paid for by Cargud, S.A. in the ordinary course of its business as
     conducted as of the date hereof or as the same may be directly attributable
     to such Borrower; provided, that, (1) such expenses are in the ordinary

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<PAGE>

     course of and pursuant to the reasonable  requirements  of such  Borrower's
     business  as  conducted  on the date  hereof,  and (2) to the  extent  such
     expenses are payable to Cargud,  S.A.,  such expenses shall be payable upon
     terms no less favorable to such Borrower, than such Borrower,  could obtain
     in a  comparable  arm's  length  transaction  with a  person  who is not an
     Affiliate.

     9.13  Additional  Bank  Accounts.  Each  Borrower  shall not,  directly  or
           ---------------------------
indirectly,  open, establish or maintain any deposit account, investment account
or any other account with any bank or other  financial  institution,  other than
the Blocked Accounts and the accounts set forth in Schedule 8.10 hereto, except:
(a)  as to any  new  or  additional  Blocked  Accounts  and  other  such  new or
additional  accounts which contain any Collateral or proceeds thereof,  with the
prior written consent of Lender and subject to such conditions thereto as Lender
may  establish  and (b) as to any accounts used by any Borrower to make payments
of payroll,  taxes or other  obligations to third  parties,  after prior written
notice to Lender.

     9.14 Compliance with ERISA. Each Borrower shall and shall cause each of its
          ----------------------
ERISA  Affiliates  to:  (a) maintain  each Plan in  compliance  in all  material
respects with the applicable provisions of ERISA, the Code and other Federal and
State law;  (b) cause  each Plan which is qualified  under Section 401(a) of the
Code to maintain such  qualification;  (c) not terminate any of such Plans so as
to incur any  liability to the Pension  Benefit  Guaranty  Corporation;  (d) not
allow or suffer to exist any prohibited  transaction involving any of such Plans
or any trust created  thereunder  which would subject any Borrower or such ERISA
Affiliate  to a tax or penalty or other  liability  on  prohibited  transactions
imposed  under  Section  4975  of the  Code  or  ERISA;  (e) make  all  required
contributions  to any Plan which it is  obligated  to pay under  Section  302 of
ERISA,  Section  412 of the Code or the  terms of such  Plan;  (f) not  allow or
suffer to exist any accumulated funding deficiency,  whether or not waived, with
respect to any such Plan;  or (g) allow or suffer to exist any  occurrence  of a
reportable  event or any other event or condition which presents a material risk
of termination by the Pension Benefit Guaranty Corporation of any such Plan that
is a single employer plan,  which  termination  could result in any liability to
the Pension Benefit Guaranty Corporation.

     9.15 End of Fiscal  Years:  Fiscal  Quarters.    Each Borrower  shall,  for
          ----------------------------------------
financial reporting purposes, cause its, and each of its Subsidiaries'(a) fiscal
years  to end the  Saturday  closest  to June 30 of  each  year  and  (b) fiscal
quarters to end on the last day of the thirteenth  (13th) week following the end
of the  immediately  preceding  fiscal quarter,  provided,  that, the end of the
fourth  fiscal  quarter shall be on the last day of the  fourteenth  (14th) week
following  the end of the third fiscal  quarter  whenever  necessary to have the
fourth fiscal quarter end on the Saturday closest to June 30.

     9.16 Change in  Business.  Each  Borrower  shall not engage in any business
          --------------------
other than the  business of such  Borrower  on the date hereof and any  business
reasonably  related,  ancillary or  complimentary  to the business in which such
Borrower is engaged on the date hereof.

     9.17 Limitation of  Restrictions  Affecting  Subsidiaries.    Each Borrower
          -----------------------------------------------------
shall not, directly, or indirectly, create or otherwise cause or suffer to exist
any  encumbrance  or  restriction  which  prohibits or limits the ability of any
Subsidiary of such Borrower to (a) pay dividends or

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<PAGE>

make other  distributions  or pay any  Indebtedness  owed to any Borrower or any
Subsidiary  of any Borrower;  (b) make  loans or advances to any Borrower or any
Subsidiary of any Borrower,  (c) transfer any of its properties or assets to any
Borrower or any  Subsidiary of any Borrower;  or  (d) create,  incur,  assume or
suffer to exist any lien upon any of its property,  assets or revenues,  whether
now owned or  hereafter  acquired,  other  than  encumbrances  and  restrictions
arising  under   (i) applicable   law,  (ii) this   Agreement,   (iii) customary
provisions  restricting  subletting  or  assignment  of any  lease  governing  a
leasehold  interest of any Borrower or any of its  Subsidiaries,  (iv) customary
restrictions  on  dispositions  of real property  interests  found in reciprocal
easement  agreements  of each  Borrower  or its  Subsidiary,  (v) any  agreement
relating to  permitted  Indebtedness  incurred by a  Subsidiary  of any Borrower
prior to the date on which such  Subsidiary  was  acquired by any  Borrower  and
outstanding on such acquisition date, and (vi) the  extension or continuation of
contractual  obligations  in existence on the date hereof;  provided,  that, any
such  encumbrances or  restrictions  contained in such extension or continuation
are no less favorable to Lender than those  encumbrances and restrictions  under
or pursuant to the contractual obligations so extended or continued.

     9.18 After Acquired Real Property.  If any Borrower  hereafter acquires any
          -----------------------------
Real  Property,  fixtures  or any other  property  that is of the kind or nature
described in the Mortgage and such Real Property,  fixtures or other property at
any one  location  has a fair market value in an amount equal to or greater than
$500,000  (or if an Event of  Default,  or act,  condition  or event  which with
notice or passage of time or both would  constitute an Event of Default  exists,
then regardless of the fair market value of such assets),  without  limiting any
other rights of Lender, or duties or obligations of any Borrower,  upon Lender's
request,  such Borrower shall execute and deliver to Lender a mortgage,  deed of
trust or deed to secure debt,  as Lender may  determine,  in form and  substance
substantially  similar to the  Mortgages  and as to any  provisions  relating to
specific state laws satisfactory to Lender and in form appropriate for recording
in the real estate  records of the  jurisdiction  in which such Real Property or
other property is located  granting to Lender a first and only lien and mortgage
on and  security  interest in such Real  Property,  fixtures  or other  property
(except as such  Borrower  would  otherwise be  permitted to incur  hereunder or
under the Mortgages or as otherwise  consented to in writing by Lender) and such
other agreements,  documents and instruments as Lender may require in connection
therewith.

     9.19 Costs and Expenses. Borrowers shall pay to Lender on demand all costs,
          -------------------
expenses,  filing  fees  and  taxes  paid or  payable  in  connection  with  the
preparation,   negotiation,  execution,  delivery,  recording,   administration,
collection,  liquidation,  enforcement and defense of the Obligations,  Lender's
rights in the Collateral, this Agreement, the other Financing Agreements and all
other documents related hereto or thereto, including any amendments, supplements
or consents  which may  hereafter be  contemplated  (whether or not executed) or
entered  into in  respect  hereof  and  thereof,  including:  (a) all  costs and
expenses of filing or recording  (including  Uniform  Commercial  Code financing
statement  filing  taxes  and fees,  documentary  taxes,  intangibles  taxes and
mortgage  recording taxes and fees, if  applicable);  (b) costs and expenses and
fees  for  insurance  premiums,   environmental  audits,  surveys,  assessments,
engineering  reports and inspections,  appraisal fees and search fees, costs and
expenses  of  remitting  loan  proceeds,  collecting  checks and other  items of
payment,  and establishing and maintaining the Blocked  Accounts,  together with
Lender's customary charges and fees with respect thereto; (c) charges,

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<PAGE>

fees or expenses  charged by any bank or issuer in connection with the Letter of
Credit  Accommodations;  (d) costs and expenses of preserving and protecting the
Collateral; (e) costs and expenses paid or incurred in connection with obtaining
payment  of the  Obligations,  enforcing  the  security  interests  and liens of
Lender,  selling or  otherwise  realizing  upon the  Collateral,  and  otherwise
enforcing the provisions of this Agreement and the other Financing Agreements or
defending  any claims  made or  threatened  against  Lender  arising  out of the
transactions  contemplated  hereby and thereby  (including  preparations for and
consultations  concerning any such matters);  (f) all out-of-pocket expenses and
costs  heretofore and from time to time hereafter  incurred by Lender during the
course  of  periodic  field   examinations  of  the  Collateral  and  Borrowers'
operations,  plus a per diem  charge at the rate of $650 per  person per day for
Lender's  examiners in the field and office;  and (g) the fees and disbursements
of counsel  (including legal assistants) to Lender in connection with any of the
foregoing.

     9.20 Further Assurances. At the request of Lender at any time and from time
          -------------------
to time,  Borrowers shall, at their expense,  duly execute and deliver, or cause
to be duly  executed and  delivered,  such  further  agreements,  documents  and
instruments, and do or cause to be done such further acts as may be necessary or
proper to evidence, perfect, maintain and enforce the security interests and the
priority thereof in the Collateral and to otherwise effectuate the provisions or
purposes of this Agreement or any of the other Financing Agreements.  Lender may
at any time and from time to time request a  certificate  from an officer of any
Borrower  representing that all conditions  precedent to the making of Loans and
providing Letter of Credit Accommodations contained herein are satisfied. In the
event of such  request by Lender,  Lender may, at its option,  cease to make any
further  Loans or provide  any  further  Letter of Credit  Accommodations  until
Lender has received such  certificate  and, in addition,  Lender has  determined
that such conditions are satisfied. Where permitted by law, each Borrower hereby
authorizes  Lender  to  execute  and file one or more UCC  financing  statements
signed only by Lender.

     9.21 Credit Card  Agreements.  Each Borrower  shall (a) observe and perform
          ------------------------
all material  terms,  covenants,  conditions  and  provisions of the Credit Card
Agreements  to be observed and  performed by it at the times set forth  therein;
(b) not do, permit,  suffer or refrain from doing anything, as a result of which
there  could be a  default  under or  breach  of any of the  terms of any of the
Credit Card  Agreements  and (c) at all times  maintain in full force and effect
the Credit Card Agreements and not terminate,  cancel, surrender, modify, amend,
waive or release any of the Credit Card  Agreements,  or consent to or permit to
occur any of the foregoing; except, that, (i) any such Borrower may terminate or
cancel any of the Credit Card  Agreements in the ordinary course of the business
of such Borrower;  provided, that, such Borrower shall give Lender not less than
fifteen  (15) days prior  written  notice of its  intention  to so  terminate or
cancel any of the Credit Card Agreements; (d) not enter into any new Credit Card
Agreements with any new Credit Card Issuer unless (i) Lender shall have received
not less than thirty (30) days prior  written  notice of the  intention  of such
Borrower to enter into such agreement (together with such other information with
respect  thereto as Lender may  request)  and (ii) such  Borrower  delivers,  or
causes to be  delivered  to Lender,  a Credit  Card  Acknowledgment  in favor of
Lender;  (e) give Lender  immediate  written notice of any Credit Card Agreement
entered  into by such  Borrower  after the date  hereof,  together  with a true,
correct and  complete  copy  thereof  and such other  information  with  respect
thereto as Lender may request; and (f) furnish to Lender, promptly upon

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<PAGE>

the request of Lender,  such information and evidence as Lender may require from
time to time  concerning  the  observance,  performance  and  compliance by such
Borrower  or the other party or parties  thereto  with the terms,  covenants  or
provisions of the Credit Card Agreements.

     9.22 Year 2000 Compliance. Each Borrower shall take all action which may be
          ---------------------
required so that its  computer-based  information  systems,  including,  without
limitation,  all of its proprietary  computer hardware and software (and whether
supplied  by others or with  which  Borrower's  systems  interface)  are able to
operate  effectively and correctly  process data using dates on or after January
1, 2000.  Compliance with the foregoing shall mean that the systems will operate
and correctly  process data without human  intervention  such that (a)  there is
correct century recognition,  (b) calculations properly accommodate same century
and  multi-century  formulas and date  values,   and (c) all leap years shall be
calculated correctly.  Upon Lender's request,  Borrowers shall certify to Lender
in  writing  that its  information  systems  have  been  modified,  updated  and
programmed  as  required  by this  Section.  On and after  January 1, 2000,  the
computer-based  information systems of each Borrower shall be, and with ordinary
course  upgrading  and  maintenance,  will  continue to be  sufficient to permit
Borrower to conduct its business  without any adverse  effect as a result of the
year 2000.

SECTION 10. EVENTS OF DEFAULT AND REMEDIES
            ------------------------------

     10.1 Events of Default.  The  occurrence or existence of any one or more of
          ------------------
the  following  events  are  referred  to  herein  individually  as an "Event of
Default", and collectively as "Events of Default":

     (a) (i) any Borrower fails to pay any of the  Obligations  within three (3)
Business Days after the same becomes due and payable or (ii) any Borrower or any
Obligor  fails to perform any of the  covenants  contained in Sections 9.3, 9.4,
9.6,  9.13,  9.14,  9.16,  or 9.22 or of this  Agreement  and such failure shall
continue for ten (10) days;  provided,  that, such ten (10) day period shall not
apply in the case of: (A) any failure to observe any such covenant  which is not
capable  of being  cured at all or within  such ten (10) day period or which has
been the  subject  of a prior  failure  within a six (6) month  period or (B) an
intentional  breach of any Borrower or any Obligor of any such covenant or (iii)
any  Borrower  fails to  perform  any of the  terms,  covenants,  conditions  or
provisions  contained in this Agreement or any of the other Financing Agreements
other than those described in Sections 10.1(a)(i) and 10.1(a)(ii) above;

     (b) any representation,  warranty or statement of fact made by any Borrower
to  Lender  in this  Agreement,  the  other  Financing  Agreements  or any other
agreement,  schedule,  confirmatory  assignment or otherwise  shall when made or
deemed made be false or misleading in any material respect;

     (c) any Obligor  revokes,  terminates or fails to perform any of the terms,
covenants,  conditions  or  provisions of any  guarantee,  endorsement  or other
agreement of such party in favor of Lender;

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<PAGE>

     (d) any judgment for the payment of money is rendered  against any Borrower
or any Obligor in excess of $500,000 in any one case or in excess of  $2,000,000
in the  aggregate  and shall remain  undischarged  or unvacated  for a period in
excess of thirty  (30) days or  execution  shall at any time not be  effectively
stayed,  or any  judgment  other than for the payment of money,  or  injunction,
attachment,  garnishment  or execution  is rendered  against any Borrower or any
Obligor  or any of their  assets  having a value in  excess of  $500,000  in the
aggregate;

     (e) any Obligor (being a natural person or a general  partner of an Obligor
which  is a  partnership)  dies  or any  Borrower  or any  Obligor,  which  is a
partnership,  limited  liability  company,  limited  liability  partnership or a
corporation, dissolves or suspends or discontinues doing business;

     (f) Any  Borrower  or any Obligor  becomes  insolvent  (however  defined or
evidenced),  makes an assignment  for the benefit of  creditors,  makes or sends
notice of a bulk  transfer  or calls a meeting  of its  creditors  or  principal
creditors;

     (g) a case or proceeding  under the bankruptcy laws of the United States of
America  now or  hereafter  in effect or under any  insolvency,  reorganization,
receivership, readjustment of debt, dissolution or liquidation law or statute of
any  jurisdiction  now or hereafter  in effect  (whether at law or in equity) is
filed  against any Borrower or any Obligor or all or any part of its  properties
and such petition or application is not dismissed  within  forty-five  (45) days
after the date of its  filing or any  Borrower  or any  Obligor  shall  file any
answer admitting or not contesting such petition or application or indicates its
consent to, acquiescence in or approval of, any such action or proceeding or the
relief requested is granted sooner;

     (h) a case or proceeding  under the bankruptcy laws of the United States of
America  now or  hereafter  in effect or under any  insolvency,  reorganization,
receivership, readjustment of debt, dissolution or liquidation law or statute of
any  jurisdiction  now or  hereafter  in effect  (whether at a law or equity) is
filed by any Borrower or any Obligor or for all or any part of its property; or

     (i) any  default  by any  Borrower  or any  Obligor  under  any  agreement,
document or instrument  relating to any Indebtedness for borrowed money owing to
any person other than Lender, or any capitalized lease  obligations,  contingent
Indebtedness  in connection with any guarantee,  letter of credit,  indemnity or
similar type of instrument in favor of any person other than Lender, in any case
in an amount in excess of $500,000,  which  default  continues for more than the
applicable cure period,  if any, with respect  thereto,  or any material default
under  any of the  Distribution  Agreements  by any  Borrower,  Woodside,  Delta
Apparel,  Inc. or any other party thereto or under any other material  contract,
lease,  license or other  obligation  to any person  other  than  Lender,  which
default continues for more than the applicable cure period, if any, with respect
thereto or any Credit Card Issuer or Credit Card Processor  withholds payment of
amounts otherwise payable to any Borrower to fund a reserve account or otherwise
hold as  collateral,  or shall  require any Borrower to pay funds into a reserve
account or for such Credit Card Issuer or Credit  Card  Processor  to  otherwise
hold as collateral, or any Borrower shall provide a letter of credit, guarantee,
indemnity or similar instrument to or in favor of such Credit Card Issuer or

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<PAGE>

Credit  Card  Processor  such  that in the  aggregate  all of such  funds in the
reserve account, other amounts held as collateral and the amount of such letters
of credit, guarantees,  indemnities or similar instruments shall exceed $500,000
or any Credit  Card Issuer or Credit  Card  Processor  shall debit or deduct any
amounts from any deposit account of any Borrower;

     (j) any Credit Card Issuer or Credit  Card  Processor  shall send notice to
any Borrower that it is ceasing to make or suspending  payments to such Borrower
of  amounts  due or to become due to  Borrower  or shall  cease or suspend  such
payments,  or shall  send  notice to any  Borrower  that it is  terminating  its
arrangements with such Borrower or such arrangements shall terminate as a result
of any event of default under such  arrangements,  which continues for more than
the applicable cure period,  if any, with respect thereto,  unless such Borrower
shall have entered into  arrangements  with another Credit Card Issuer or Credit
Card  Processor,  as the case may be,  within thirty (30) days after the date of
any such notice;

     (k) an ERISA  Event shall occur  which  results in or could  reasonably  be
expected to result in liability of any Borrower in an aggregate amount in excess
of $500,000;

     (l) any Change of Control;

     (m)  the  indictment  by  any  Governmental  Authority,  or as  Lender  may
reasonably  and in  good  faith  determine,  the  threatened  indictment  by any
Governmental Authority of any Borrower of which such Borrower or Lender receives
notice,  in either  case,  as to which there is a reasonable  possibility  of an
adverse  determination,  in the good faith  determination  of Lender,  under any
criminal  statute,  or  commencement  or threatened  commencement of criminal or
civil proceedings against any Borrower, pursuant to which statute or proceedings
the penalties or remedies sought or available  include  forfeiture of (i) any of
the Collateral with an aggregate value of $500,000 or (ii) any other property of
such Borrower which is necessary or material to the conduct of its business;

     (n) there shall be a material  adverse  change in the  business,  assets or
prospects of any Borrower or any Obligor after the date hereof; or

     (o) there  shall be an event of  default  under any of the other  Financing
Agreements.

     10.2 Remedies.
          ---------

     (a) At any  time  an  Event  of  Default  exists  or  has  occurred  and is
continuing,  Lender  shall  have  all  rights  and  remedies  provided  in  this
Agreement, the other Financing Agreements, the Uniform Commercial Code and other
applicable law, all of which rights and remedies may be exercised without notice
to or consent by any Borrower or any  Obligor,  except as such notice or consent
is expressly  provided for hereunder or required by applicable  law. All rights,
remedies  and  powers  granted  to  Lender  hereunder,  under  any of the  other
Financing  Agreements,  the Uniform Commercial Code or other applicable law, are
cumulative,   not   exclusive   and   enforceable,   in   Lender's   discretion,
alternatively,  successively,  or concurrently on any one or more occasions, and
shall include, without limitation, the right to apply to a court of

                                       69
<PAGE>

equity  for an  injunction  to  restrain  a breach or  threatened  breach by any
Borrower of this Agreement or any of the other Financing Agreements. Lender may,
at any time or times,  proceed  directly  against any Borrower or any Obligor to
collect  the  principal  balance of the  Obligations  and all  interest  accrued
thereon without prior recourse to the Collateral.

     (b) Without limiting the foregoing,  at any time an Event of Default exists
or has occurred and is  continuing,  Lender may, in its  discretion  and without
limitation,  (i)   accelerate  the  payment  of  the  principal  balance  of the
Obligations  and all  interest  accrued  thereon  and demand  immediate  payment
thereof to Lender  (provided,  that, upon the occurrence of any Event of Default
described  in  Sections  10.1(g)  and  10.1(h),  the  principal  balance  of the
Obligations  and  all  interest  accrued  thereon  shall  automatically   become
immediately due and payable),  (ii)  with or without judicial process or the aid
or  assistance  of  others,  enter upon any  premises  on or in which any of the
Collateral  may be located and take  possession  of the  Collateral  or complete
processing,  manufacturing  and repair of all or any portion of the  Collateral,
(iii)   require any  Borrower,  at  Borrowers'  expense,  to  assemble  and make
available  to  Lender  any part or all of the  Collateral  at any place and time
designated by Lender, (iv)  collect, foreclose, receive, appropriate, setoff and
realize upon any and all  Collateral,  (v)  remove any or all of the  Collateral
from any  premises  on or in which the same may be  located  for the  purpose of
effecting the sale,  foreclosure or other  disposition  thereof or for any other
purpose,  (vi)  sell, lease,  transfer,  assign, deliver or otherwise dispose of
any and all Collateral (including,  without limitation,  entering into contracts
with respect thereto,  public or private sales at any exchange,  broker's board,
at any office of Lender or elsewhere) at such prices or terms as Lender may deem
reasonable, for cash, upon credit or for future delivery, with the Lender having
the right to purchase the whole or any part of the Collateral at any such public
sale, all of the foregoing  being free from any right or equity of redemption of
any Borrower, which right or equity of redemption is hereby expressly waived and
released by each Borrower and/or  (vii) terminate this Agreement.  If any of the
Collateral is sold or leased by Lender upon credit terms or for future delivery,
the Obligations  shall not be reduced as a result thereof until payment therefor
is finally  collected  by Lender.  If notice of  disposition  of  Collateral  is
required by law,  five (5) days prior notice by Lender to Borrowers  designating
the time and place of any public sale or the time after  which any private  sale
or other intended disposition of Collateral is to be made, shall be deemed to be
reasonable  notice  thereof and each Borrower  waives any other  notice.  In the
event Lender institutes an action to recover any Collateral or seeks recovery of
any Collateral by way of prejudgment remedy, each Borrower waives the posting of
any bond which might otherwise be required.

     (c) For the purpose of enabling  Lender to exercise the rights and remedies
hereunder,  each Borrower hereby grants to Lender, to the extent assignable,  an
irrevocable,  non- exclusive license  (exercisable without payment of royalty or
other compensation to any Borrower) to use, assign, license or sublicense any of
the  trademarks,  service-marks,  trade names,  business  names,  trade  styles,
designs,  logos and other source of business  identifiers and other Intellectual
Property  and  general  intangibles  now  owned or  hereafter  acquired  by such
Borrower,  wherever the same maybe located, 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 programs used for the compilation or printout thereof.

                                       70
<PAGE>

     (d) Lender may apply the cash proceeds of Collateral  actually  received by
Lender from any sale, lease,  foreclosure or other disposition of the Collateral
to payment of the  Obligations,  in whole or in part and in such order as Lender
may elect,  whether or not then due. Each Borrower shall remain liable to Lender
for the payment of any deficiency with interest at the highest rate provided for
herein  and all costs and  expenses  of  collection  or  enforcement,  including
attorneys' fees and legal expenses.

     (e) Without  limiting the  foregoing,  upon the  occurrence  of an Event of
Default  or an  event  which  with  notice  or  passage  of time  or both  would
constitute an Event of Default,  Lender may, at its option,  without notice, (i)
cease making Loans or arranging  for Letter of Credit  Accommodations  or reduce
the  lending  formulas  or  amounts  of  Revolving  Loans  and  Letter of Credit
Accommodations  available to Borrowers  and/or (ii)  terminate  any provision of
this Agreement providing for any future Loans or Letter of Credit Accommodations
to be made by Lender to Borrowers.

SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW
            ------------------------------------------------------------

     11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver.
          ----------------------------------------------------------------------

     (a) The validity,  interpretation and enforcement of this Agreement and the
other  Financing  Agreements  and any dispute  arising  out of the  relationship
between the parties  hereto,  whether in contract,  tort,  equity or  otherwise,
shall be governed by the internal laws of the State of Georgia  (without  giving
effect to principles of conflicts of law).

     (b)  Each  Borrower  and  Lender  irrevocably  consent  and  submit  to the
non-exclusive  jurisdiction of the Superior Court of Fulton County,  Georgia and
the United States District Court for the Northern  District of Georgia and waive
any objection  based on venue or forum non conveniens with respect to any action
instituted  therein  arising under this Agreement or any of the other  Financing
Agreements or in any way connected with or related or incidental to the dealings
of the parties hereto in respect of this Agreement or any of the other Financing
Agreements or the transactions  related hereto or thereto,  in each case whether
now existing or hereafter  arising,  and whether in  contract,  tort,  equity or
otherwise,  and agree that any dispute with respect to any such matters shall be
heard only in the courts  described  above  (except  that Lender  shall have the
right to bring any action or proceeding  against any Borrower or its property in
the courts of any other jurisdiction which Lender deems necessary or appropriate
in order to realize on the Collateral or to otherwise enforce its rights against
any Borrower or its property).

     (c) Each  Borrower  hereby waives  personal  service of any and all process
upon it and  consents  that all such service of process may be made by certified
mail  (return  receipt  requested)  directed  to its  address  set  forth on the
signature  pages hereof and service so made shall be deemed to be completed five
(5) days after the same shall have been so deposited in the U.S.  mails,  or, at
Lender's option, by service upon Borrower in any other manner provided under the
rules of any such  courts.  Within  thirty  (30) days after such  service,  each
Borrower shall appear

                                       71
<PAGE>

in  answer to such  process,  failing  which  such  Borrower  shall be deemed in
default and  judgment  may be entered by Lender  against  such  Borrower for the
amount of the claim and other relief requested.

     (d) EACH  BORROWER AND LENDER  HEREBY  WAIVES ANY RIGHT TO TRIAL BY JURY OF
ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS AGREEMENT OR
ANY OF THE  OTHER  FINANCING  AGREEMENTS  OR (ii) IN ANY WAY  CONNECTED  WITH OR
RELATED OR INCIDENTAL  TO THE DEALINGS OF THE PARTIES  HERETO IN RESPECT OF THIS
AGREEMENT OR ANY OF THE OTHER FINANCING  AGREEMENTS OR THE TRANSACTIONS  RELATED
HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR  HEREAFTER  ARISING,  AND
WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE.  EACH BORROWER AND LENDER HEREBY
AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL
BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT BORROWER OR LENDER MAY FILE AN
ORIGINAL  COUNTERPART  OF A COPY OF THIS  AGREEMENT  WITH ANY  COURT AS  WRITTEN
EVIDENCE OF THE  CONSENT OF THE  PARTIES  HERETO TO THE WAIVER OF THEIR RIGHT TO
TRIAL BY JURY.

     (e) Lender  shall not have any  liability  to  Borrowers  (whether in tort,
contract, equity or otherwise) for losses suffered by any Borrower in connection
with, arising out of, or in any way related to the transactions or relationships
contemplated  by this  Agreement,  or any act,  omission or event  occurring  in
connection  herewith,  unless it is  determined  by a final and non-  appealable
judgment  or court order  binding on Lender,  that the losses were the result of
acts or omissions  constituting gross negligence or willful  misconduct.  In any
such  litigation,  Lender  shall be entitled  to the  benefit of the  rebuttable
presumption  that it acted in good faith and with the exercise of ordinary  care
in the performance by it of the terms of this Agreement.

     11.2 Waiver of Notices.  Each  Borrower  hereby  expressly  waives  demand,
          ------------------
presentment,  protest and notice of protest and notice of dishonor  with respect
to any and all instruments and commercial  paper,  included in or evidencing any
of the Obligations or the Collateral,  and any and all other demands and notices
of any kind or nature whatsoever with respect to the Obligations, the Collateral
and this Agreement,  except such as are expressly provided for herein. No notice
to or demand on any Borrower  which Lender may elect to give shall  entitle such
Borrower to any other or further notice or demand in the same,  similar or other
circumstances.  Without limiting the generality of the foregoing,  each Borrower
waives (i) notice prior to Lender's  taking  possession or control of any of the
Collateral or any bond or security which might be required by any court prior to
allowing Lender to exercise any of Lender's remedies,  including the issuance of
an  immediate  writ  of  possession  and  (ii)  the  benefit  of all  valuation,
appraisement and exemption laws.

     11.3  Amendments  and Waivers.  Neither this  Agreement  nor any  provision
           ------------------------
hereof shall be amended,  modified,  waived or discharged orally or by course of
conduct,  but only by a written  agreement  signed by an  authorized  officer of
Lender,  and as to amendments,  as also signed by an authorized  officer of each
Borrower. Lender shall not, by any act, delay, omission or otherwise

                                       72
<PAGE>

be deemed to have expressly or impliedly waived any of its rights, powers and/or
remedies  unless  such waiver  shall be in writing  and signed by an  authorized
officer of  Lender.  Any such  waiver  shall be  enforceable  only to the extent
specifically  set forth therein.  A waiver by Lender of any right,  power and/or
remedy on any one  occasion  shall not be construed as a bar to or waiver of any
such right,  power and/or remedy which Lender would otherwise have on any future
occasion, whether similar in kind or otherwise.

     11.4 Waiver of Counterclaims.  Each Borrower waives all rights to interpose
          ------------------------
any  claims,  deductions,  setoffs or  counterclaims  of any nature  (other then
compulsory  counterclaims)  in any  action or  proceeding  with  respect to this
Agreement,  the Obligations,  the Collateral or any matter arising  therefrom or
relating hereto or thereto.

     11.5  Indemnification.  Each Borrower shall indemnify and hold Lender,  and
           ----------------
its directors,  agents, employees and counsel, harmless from and against any and
all losses, claims, damages, liabilities, costs or expenses imposed on, incurred
by  or  asserted  against  any  of  them  in  connection  with  any  litigation,
investigation,  claim or  proceeding  commenced  or  threatened  related  to the
negotiation,  preparation,  execution,  delivery,  enforcement,  performance  or
administration  of  this  Agreement,  any  other  Financing  Agreements,  or any
undertaking or proceeding related to any of the transactions contemplated hereby
or any act,  omission,  event  or  transaction  related  or  attendant  thereto,
including amounts paid in settlement,  court costs, and the fees and expenses of
counsel, except for such losses, claims, damages, liabilities, costs or expenses
resulting  from the  gross  negligence  or  wilful  misconduct  of  Lender,  its
directors,  agents,  employees  or counsel as  determined  pursuant  to a final,
non-appealable  order of a court of competent  jurisdiction.  To the extent that
the  undertaking  to indemnify,  pay and hold harmless set forth in this Section
may be unenforceable because it violates any law or public policy, each Borrower
shall pay the maximum portion which it is permitted to pay under  applicable law
to Lender in  satisfaction  of  indemnified  matters  under  this  Section.  The
foregoing  indemnity  shall  survive  the  payment  of the  Obligations  and the
termination or non-renewal of this Agreement.

SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS
            --------------------------------

     12.1 Term.
          ----

     (a)  This  Agreement  and  the  other  Financing  Agreements  shall  become
effective  as of the date set forth on the first page hereof and shall  continue
in full force and effect for a term  ending on the date three (3) years from the
date hereof  (the  "Renewal  Date"),  and from year to year  thereafter,  unless
sooner  terminated  pursuant  to the  terms  hereof.  Lender  or  Borrowers  may
terminate this  Agreement and the other  Financing  Agreements  effective on the
Renewal Date or on the  anniversary of the Renewal Date in any year by giving to
the other party at least sixty (60) days prior written notice;  provided,  that,
this  Agreement  and  all  other   Financing   Agreements   must  be  terminated
simultaneously.  Upon the effective  date of  termination  or non-renewal of the
Financing  Agreements,  Borrowers shall pay to Lender,  in full, all outstanding
and unpaid  Obligations  and shall  furnish  cash  collateral  to Lender in such
amounts as Lender  determines  are  reasonably  necessary to secure  Lender from
loss, cost, damage or expense, including attorneys'

                                       73
<PAGE>

fees  and  legal  expenses,  in  connection  with  any  contingent  Obligations,
including issued and outstanding  Letter of Credit  Accommodations and checks or
other  payments  provisionally  credited to the  Obligations  and/or as to which
Lender has not yet received  final and  indefeasible  payment.  Such payments in
respect  of the  Obligations  and  cash  collateral  shall be  remitted  by wire
transfer in Federal funds to such bank account of Lender,  as Lender may, in its
discretion,  designate in writing to Borrowers for such purpose.  Interest shall
be due until and  including  the next  Business  Day,  if the amounts so paid by
Borrower  to the bank  account  designated  by Lender are  received in such bank
account later than 12:00 noon, Atlanta, Georgia time.

     (b) No  termination  of this  Agreement or the other  Financing  Agreements
shall relieve or discharge Borrowers of their respective duties, obligations and
covenants  under this  Agreement  or the other  Financing  Agreements  until all
Obligations  have been  fully and  finally  discharged  and paid,  and  Lender's
continuing  security  interest in the  Collateral and the rights and remedies of
Lender hereunder, under the other Financing Agreements and applicable law, shall
remain  in effect  until  all such  Obligations  have  been  fully  and  finally
discharged and paid.

     (c) If for any reason this Agreement is terminated  prior to the end of the
then  current  term  or  renewal  term  of  this  Agreement,   in  view  of  the
impracticality  and extreme  difficulty of  ascertaining  actual  damages and by
mutual agreement of the parties as to a reasonable  calculation of Lender's lost
profits  as a  result  thereof,  Borrowers  agree  to pay to  Lender,  upon  the
effective date of such termination, an early termination fee in the amount equal
to one (1%)  percent of the Maximum  Credit.  For  purposes of  calculating  the
foregoing early  termination  fee, the term "Maximum  Credit" shall be deemed to
be, on such date of  determination,  the sum of (i) the Revolving Loan Limit and
(ii) the original  principal  amount of the Term Loan but only in the event that
such  Term  Loan has not been  paid out in  accordance  with the  provisions  of
Section 9.9 (c) hereof.  Such early  termination fee shall be presumed to be the
amount of damages  sustained by Lender as a result of such early termination and
each Borrower  agrees that it is reasonable  under the  circumstances  currently
existing.  In addition,  Lender shall be entitled to such early  termination fee
upon the  occurrence of any Event of Default  described in Sections  10.1(g) and
10.1(h)  hereof,  even if Lender does not exercise  its right to terminate  this
Agreement,  but elects,  at its option,  to provide  financing  to  Borrowers or
permit the use of cash collateral  under the United States  Bankruptcy Code. The
early termination fee provided for in this Section 12.1 shall be deemed included
in the Obligations.

     (d)  Notwithstanding  anything to the contrary contained in Section 12.1(c)
above,  in the event of the  termination  of this  Agreement  at the  request of
Borrower  prior to the end of the term of this  Agreement and the full and final
repayment of all Obligations and the receipt by Lender of cash collateral all as
provided  in Section  12.1(a)  above,  Borrower  shall not be required to pay to
Lender an early  termination  fee if such  payments  are made to Lender with the
initial  proceeds of a financing  transaction  provided or underwritten by First
Union National Bank to Borrower.

     12.2 Interpretative Provisions.
          --------------------------

                                       74
<PAGE>

     (a) All terms used  herein  which are  defined in Article 1 or Article 9 of
the  Uniform  Commercial  Code  shall have the  meanings  given  therein  unless
otherwise defined in this Agreement.

     (b) All references to the plural herein shall also mean the singular and to
the singular shall also mean the plural unless the context otherwise requires.

     (c) All references to Borrower and Lender  pursuant to the  definitions set
forth in the recitals hereto, or to any other person herein, shall include their
respective successors and assigns.

     (d) The words "hereof", "herein",  "hereunder",  "this Agreement" and words
of similar import when used in this Agreement shall refer to this Agreement as a
whole and not any  particular  provision of this Agreement and as this Agreement
now  exists or may  hereafter  be  amended,  modified,  supplemented,  extended,
renewed, restated or replaced.

     (e) The word "including" when used in this Agreement shall mean "including,
without limitation".

     (f) An Event of Default shall exist or continue or be continuing until such
Event of  Default is waived in  accordance  with  Section  11.3 or is cured in a
manner  satisfactory  to  Lender,  if such  Event of Default is capable of being
cured as determined by Lender.

     (g) Any accounting term used in this Agreement shall have, unless otherwise
specifically  provided herein, the meaning  customarily given in accordance with
GAAP,  and  all  financial  computations  hereunder  shall  be  computed  unless
otherwise  specifically provided herein, in accordance with GAAP as consistently
applied  and  using  the same  method  for  inventory  valuation  as used in the
preparation  of the financial  statements of Borrower most recently  received by
Lender prior to the date hereof.

     (h) In the  computation of periods of time from a specified date to a later
specified date, the word "from" means "from and  including",  the words "to" and
"until"  each  mean "to but  excluding"  and the word  "through"  means  "to and
including".

     (i) Unless otherwise  expressly provided herein,  (i) references  herein to
any agreement,  document or instrument shall be deemed to include all subsequent
amendments,  modifications,  supplements,  extensions, renewals, restatements or
replacements  with  respect  thereto,  but only to the  extent  the same are not
prohibited  by  the  terms  hereof  or of any  other  Financing  Agreement,  and
(ii) references  to any statute or  regulation  are to be construed as including
all statutory and  regulatory  provisions  consolidating,  amending,  replacing,
recodifying, supplementing or interpreting the statute or regulation.

     (j) The captions  and headings of this  Agreement  are for  convenience  of
reference only and shall not affect the interpretation of this Agreement.

                                       75
<PAGE>

     (k) This Agreement and other Financing Agreements may use several different
limitations,  tests or measurements to regulate the same or similar matters. All
such  limitations,  tests and  measurements  are  cumulative  and shall  each be
performed in accordance with their terms.

     (l) This  Agreement and the other  Financing  Agreements  are the result of
negotiations  among and have been  reviewed  by  counsel to Lender and the other
parties,  and are the products of all parties.  Accordingly,  this Agreement and
the other  Financing  Agreements  shall not be construed  against  Lender merely
because of Lender's involvement in their preparation.

     12.3  Notices.  All  notices,  requests and demands  hereunder  shall be in
           --------
writing  and (a) made to  Lender  at its  address  set  forth  below and to each
Borrower at its chief executive office set forth below, or to such other address
as either party may designate by written notice to the other in accordance  with
this  provision,  and (b) deemed to have been  given or made:  if  delivered  in
person,   immediately  upon  delivery;   if  by  telex,  telegram  or  facsimile
transmission,  immediately upon sending and upon confirmation of receipt;  if by
nationally recognized overnight courier service with instructions to deliver the
next Business Day, one (1) Business Day after sending; and if by certified mail,
return receipt requested, five (5) days after mailing.

     12.4 Partial  Invalidity.  If any provision of this Agreement is held to be
          --------------------
invalid  or  unenforceable,   such  invalidity  or  unenforceability  shall  not
invalidate  this Agreement as a whole,  but this Agreement shall be construed as
though  it did not  contain  the  particular  provision  held to be  invalid  or
unenforceable  and the rights and  obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.

     12.5  Successors.  This Agreement,  the other Financing  Agreements and any
           -----------
other document  referred to herein or therein shall be binding upon and inure to
the benefit of and be  enforceable  by Lender,  Borrowers  and their  respective
successors and assigns, except that no Borrower may assign its rights under this
Agreement,  the other  Financing  Agreements and any other document  referred to
herein or therein without the prior written consent of Lender. Lender may, after
notice to Borrowers,  assign its rights and delegate its obligations  under this
Agreement and the other  Financing  Agreements  and further may assign,  or sell
participations  in,  all  or any  part  of  the  Loans,  the  Letter  of  Credit
Accommodations or any other interest herein to another financial  institution or
other person,  in which event,  the assignee or  participant  shall have, to the
extent of such assignment or  participation,  the same rights and benefits as it
would have if it were the Lender hereunder,  except as otherwise provided by the
terms of such assignment or participation.

     12.6 Entire Agreement. This Agreement, the other Financing Agreements,  any
          -----------------
supplements hereto or thereto,  and any instruments or documents delivered or to
be delivered in connection herewith or therewith represents the entire agreement
and  understanding  concerning the subject matter hereof and thereof between the
parties  hereto,  and  supersede  all other  prior  agreements,  understandings,
negotiations  and   discussions,   representations,   warranties,   commitments,
proposals,  offers and contracts  concerning the subject matter hereof,  whether
oral

                                       76
<PAGE>

or  written.  In the  event  of any  inconsistency  between  the  terms  of this
Agreement and any schedule or exhibit hereto,  the terms of this Agreement shall
govern.

                                       77

<PAGE>

     IN WITNESS  WHEREOF,  Lender and Borrowers have caused these presents to be
duly executed as of the day and year first above written.

LENDER                                          BORROWER

CONGRESS FINANCIAL CORPORATION                  DH APPAREL COMPANY, INC.
(SOUTHERN)
By:  Daniel Cott                                By: K. Scott Grassmyer
     -------------------------                      ------------------------
Title:  Executive Vice President                Title: Sr. Vice President & CFO

Address:                                        Chief Executive Office:

200 Galleria Parkway                            1020-A Barrow Industrial Parkway
Suite 1500                                      Winder, Georgia  30680
Atlanta, Georgia 30339
                                                DELTA MERCHANDISING, INC.

                                                By:  K. Scott Grassmyer
                                                    ---------------------------
                                                Title: Sr. Vice President & CFO

                                                Chief Executive Office:

                                                1020-A Barrow Industrial Parkway
                                                Winder, Georgia 30680

                                       78TERM PROMISSORY NOTE
                              --------------------

$5,760,000                                                    New York, New York
                                                                    May 16, 2000

     FOR VALUE RECEIVED, DH APPAREL COMPANY,  INC., a Georgia corporation ("DH")
and DELTA MERCHANDISING, INC., a South Carolina corporation ("DMI" and, together
with DH, (each individually,  a "Debtor" and collectively,  "Debtors"),  hereby,
jointly and severally,  unconditionally  promise to pay to the order of CONGRESS
FINANCIAL  CORPORATION  (SOUTHERN),  a  Georgia  corporation  ("Payee"),  at the
offices of Payee at 200 Galleria Parkway, Suite 1500, Atlanta, Georgia 30339, or
at such  other  place as  Payee  or any  holder  hereof  may  from  time to time
designate,  the  principal  sum of FIVE MILLION  SEVEN  HUNDRED  SIXTY  THOUSAND
DOLLARS  ($5,760,000)  in lawful  money of the United  States of America  and in
immediately   available   funds,  in  seventy-two   (72)   consecutive   monthly
installments (or earlier as hereinafter provided) on the first day of each month
commencing June 1, 2000 of which the first seventy-one (71)  installments  shall
each be in the  amount  of  EIGHTY  THOUSAND  DOLLARS  ($80,000),  and the  last
installment shall be in the amount of the entire unpaid balance of this Note.

     Debtors hereby further promise to pay interest to the order of Payee on the
unpaid  principal  balance hereof at the Interest  Rate.  Such interest shall be
paid in like money at said office or place from the date hereof, commencing June
1, 2000 and on the first day of each  month  thereafter  until the  indebtedness
evidenced by this Note is paid in full. Interest payable upon and after an Event
of Default or termination  or non-renewal of the Loan Agreement (as  hereinafter
defined) shall be payable upon demand.

     For purposes  hereof,  (a) subject to clauses (b) and (c) below,  "Interest
Rate"  shall mean a rate equal to  one-half  of one (1/2%)  percent per annum in
excess of the Prime Rate and, as to  Eurodollar  Rate  Loans,  a rate of two and
one-half (2 1/2%)  percent per annum in excess of the Adjusted  Eurodollar  Rate
(based on the Eurodollar  Rate  applicable for the Interest  Period  selected by
Debtors as in effect two (2) Business Days after the date of receipt by Payee of
the request of Debtors for such  Eurodollar  Rate Loans in  accordance  with the
terms  hereof,  whether  such rate is higher or lower  than any rate  previously
quoted to Debtors);  (b)  notwithstanding  anything to the contrary set forth in
clause (a) above,  the Interest  Rate shall mean as to Prime Rate Loans,  a rate
equal to one-quarter (1/4%) percent per annum in excess of the Prime Rate, as to
Eurodollar  Rate Loans, a rate equal to two and one-quarter (2 1/4%) percent per
annum in excess of the  Adjusted  Eurodollar  Rate  (calculated  as described in
clause (a) above),  effective as of the first day of the month after each of the
following conditions is satisfied as determined by Payee in good faith: (ii) the
EBITDA of DH and its  Subsidiaries  for the  immediately  preceding  fiscal year
(commencing  with the fiscal year ending on June 30, 2000)  calculated  based on
the audited financial statements of DH and its Subsidiaries for such fiscal year
delivered to Payee,  together with the unqualified  opinion of their independent
certified accountants, in accordance

                                       -1-
<PAGE>

with Section 9.6 or the Loan Agreement,  shall equal or exceed  $5,000,000,  and
(iii) no Event of Default or any act,  condition or event which,  with notice or
passage of time or both would constitute an Event of Default shall exist or have
occurred and be continuing;  provided, that, in the event that the Interest Rate
is reduced as provided in this  clause  (b),  if in any  subsequent  fiscal year
thereafter the condition set forth in clause (b)(i) is not satisfied,  effective
as of the first  day of the month  after  the  receipt  by Payee of the  audited
financial  statements  of DH and its  Subsidiaries  for such  fiscal  year,  the
Interest Rate shall  increase to those rates set forth in clause (a) above;  (c)
notwithstanding anything to the contrary contained in clauses (a) and (b) above,
the Interest  Rate shall mean the rate of two and one-half (2 1/2%)  percent per
annum in excess of the Prime  Rate as to Prime  Rate  Loans and the rate of four
and  one-half (4 1/2%)  percent per annum in excess of the  Adjusted  Eurodollar
Rate as to Eurodollar Rate Loans, at Payee's option,  without notice, (i) either
(A) for the period on and after the date of  termination  or  non-renewal of the
Loan Agreement  until such time as all  Obligations  are  indefeasibly  paid and
satisfied  in  full,  or  (B) for  the  period  from and  after  the date of the
occurrence of any Event of Default,  and for so long as such Event of Default is
continuing as determined by Payee; (d) the term "Prime Rate" shall mean the rate
from time to time  publicly  announced  by First  Union  National  Bank,  or its
successors,  from time to time, as its prime rate, whether or not such announced
rate is the best rate  available  at such bank;  (e) the term "Event of Default"
shall mean an Event of  Default  as such term is defined in the Loan  Agreement;
and (f) the term "Loan  Agreement"  shall mean the Loan and Security  Agreement,
dated of even date  herewith,  by and among  Debtors and Payee,  as the same now
exists or may hereafter be amended, modified,  supplemented,  extended, renewed,
restated or replaced.  Unless otherwise  defined herein,  all capitalized  terms
used herein shall have the meaning assigned thereto in the Loan Agreement.

     The Interest Rate  applicable to Prime Rate Loans payable  hereunder  shall
increase  or  decrease  by  an  amount  equal  to  each  increase  or  decrease,
respectively,  in the Prime Rate,  effective on the first day of the month after
any change in the Prime Rate is  announced.  The  increase or decrease  shall be
based on the Prime Rate in effect on the last day of the month in which any such
change  occurs.  Interest  shall be  calculated  on the basis of a three hundred
sixty (360) day year and actual  days  elapsed.  In no event shall the  interest
charged  hereunder  exceed the maximum  permitted under the laws of the State of
Georgia or other applicable law.

     This  Note is issued  pursuant  to the  terms  and  provisions  of the Loan
Agreement to evidence the Term Loan by Payee to Debtors. This Note is secured by
the  Collateral  described  in the Loan  Agreement  and all  notes,  guarantees,
security agreements and other agreements, documents and instrument now or at any
time  hereafter  executed  and/or  delivered by any Debtor or any other party in
connection therewith (all of the foregoing, together with the Loan Agreement, as
the same now exist or may hereafter be amended, modified, supplemented, renewed,
extended,  restated or replaced,  being  collectively  referred to herein as the
"Financing  Agreements"),  and is  entitled  to all of the  benefits  and rights
thereof and of the other  Financing  Agreements.  At the time any payment is due
hereunder, at its option, Payee may charge the amount thereof to any accounts of
Debtors maintained by Payee.

     If any  payment of  principal  or  interest  is not made  within  three (3)
business  days after the same  becomes due  hereunder,  or if any other Event of
Default shall occur for any reason, or if the

                                       -2-
<PAGE>

Loan  Agreement  shall be terminated  or not renewed for any reason  whatsoever,
then and in any such  event,  in  addition  to all rights and  remedies of Payee
under the Financing Agreements, applicable law or otherwise, all such rights and
remedies  being  cumulative,   not  exclusive  and  enforceable   alternatively,
successively and concurrently,  Payee may, at its option,  declare any or all of
Debtors' obligations, liabilities and indebtedness owing to Payee under the Loan
Agreement and the other  Financing  Agreements (the  "Obligations"),  including,
without  limitation,  all amounts  owing under this Note, to be due and payable,
whereupon the then unpaid  balance  hereof,  together with all interest  accrued
thereon, shall forthwith become due and payable, together with interest accruing
thereafter  at  the  then  applicable  Interest  Rate  stated  above  until  the
indebtedness evidenced by this Note is paid in full, plus the costs and expenses
of collection hereof,  including,  but not limited to, attorneys' fees and legal
expenses.

     Each Debtor (i) waives diligence,  demand, presentment,  protest and notice
of any  kind,  (ii)  agrees  that it will not be  necessary  for  Payee to first
institute  suit in order to enforce  payment of this Note and (iii)  consents to
any one or more  extensions  or  postponements  of  time  of  payment,  release,
surrender or  substitution  of  collateral  security,  or  forbearance  or other
indulgence,   without  notice  or  consent.  The  pleading  of  any  statute  of
limitations  as a defense to any demand  against any Debtor is expressly  hereby
waived by each Debtor.  Upon any Event of Default or  termination or non-renewal
of the Loan  Agreement,  Payee shall have the right,  but not the  obligation to
setoff against this Note all money owed by Payee to any Debtor.

     Payee shall not be required to resort to any  Collateral  for payment,  but
may proceed  against one or both Debtors and any guarantors or endorsers  hereof
in such order and manner as Payee may choose.  None of the rights of Payee shall
be waived or diminished by any failure or delay in the exercise thereof.

     The validity,  interpretation  and  enforcement  of this Note and the other
Financing Agreements and any dispute arising in connection herewith or therewith
shall be governed by the internal laws of the State of Georgia  (without  giving
effect to principles of conflicts of law).

     Each  Debtor   irrevocably   consents  and  submits  to  the  non-exclusive
jurisdiction  of the  Superior  Court of Fulton  County,  Georgia and the United
States  District  Court for the  Northern  District  of  Georgia  and waives any
objection  based on venue or forum non  conveniens  with  respect  to any action
instituted  therein  arising  under  this  Note  or any of the  other  Financing
Agreements  or in any  way  connection  with or  related  or  incidental  to the
dealings  of such  Debtor  and Payee in respect of this Note or any of the other
Financing Agreements or the transactions related hereto or thereto, in each case
whether now existing or hereafter arising, and whether in contract, tort, equity
or otherwise,  and agrees that any dispute arising out of the relationship among
Debtors and Payee or the conduct of such persons in connection with this Note or
otherwise  shall be heard only in the courts  described above (except that Payee
shall have the right to bring any action or proceeding against any Debtor or its
property in the courts of any other  jurisdiction which Payee deems necessary or
appropriate  in order to realize on the  Collateral or to otherwise  enforce its
rights against any Debtor or its property).

                                       -3-
<PAGE>

     Each Debtor hereby waives  personal  service of any and all process upon it
and  consents  that all such  service of process may be made by  certified  mail
(return receipt requested) directed to it and service so made shall be deemed to
be  completed  five (5) days after the same shall have been so  deposited in the
U.S.  mails,  or, at Payee's  option,  by service  upon such Debtor in any other
manner  provided  under the rules of any such  courts.  Within  thirty (30) days
after such service, such Debtor shall appear in answer to such process,  failing
which such  Debtor  shall be deemed in default  and  judgment  may be entered by
Payee  against  such  Debtor  for the  amount  of the  claim  and  other  relief
requested.

     EACH DEBTOR HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,  DEMAND,
ACTION  OR  CAUSE OF  ACTION  (iv)  ARISING  UNDER  THIS  NOTE OR (v) IN ANY WAY
CONNECTED  WITH OR RELATED OR INCIDENTAL TO THE DEALINGS AMONG DEBTORS AND PAYEE
IN  RESPECT  OF  THIS  NOTE  OR ANY OF THE  OTHER  FINANCING  AGREEMENTS  OR THE
TRANSACTIONS  RELATED  HERETO OR THERETO IN EACH CASE  WHETHER  NOW  EXISTING OR
HEREAFTER  ARISING,  AND WHETHER IN CONTRACT,  TORT,  EQUITY OR OTHERWISE.  EACH
DEBTOR  AGREES AND  CONSENTS  THAT ANY SUCH  CLAIM,  DEMAND,  ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY.

     The execution and delivery of this Note has been authorized by the Board of
Directors  and by any  necessary  vote or  consent of the  stockholders  of each
Debtor.  Each  Debtor  hereby  authorizes  Payee to  complete  this  Note in any
particulars according to the terms of the loan evidenced hereby.

                                       -4-

<PAGE>

     This Note shall be binding upon the  successors  and assigns of Debtors and
inure to the  benefit  of  Payee  and its  successors,  endorsees  and  assigns.
Whenever used herein,  the term "Debtor" or "Debtors" shall be deemed to include
each Debtor's  respective  successors  and assigns and the term "Payee" shall be
deemed  to  include  its  successors,  endorsees  and  assigns.  If any  term or
provision  of this Note shall be held  invalid,  illegal or  unenforceable,  the
validity of all other terms and  provisions  hereof  shall in no way be affected
thereby.

                                DH APPAREL COMPANY, INC.

                                By: /s/ K. Scott Grassmyer
                                    --------------------------------
                                Title: Sr. Vice President & CFO

                                DELTA MERCHANDISING, INC.

                                By: /s/ K. Scott Grassmyer
                                    --------------------------------
                                Title: Sr. Vice President & CFO

                                       -5-

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