SECURITIES AND EXCHANGE COMMISSION
                            Washington, D. C. 20549

                                   FORM 10-Q

                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934

                     For the period ended January 26, 1997

                          Commission File No. 0-12781


                                  CULP, INC.

            (Exact name of registrant as specified in its charter)


            NORTH CAROLINA                              56-1001967
       (State or other jurisdiction of      (I.R.S. Employer Identification No.)
   incorporation or other organization)


   101 S. Main St., High Point, North Carolina            27261-2686
      (Address of principal executive offices)            (zip code)

                                (910) 889-5161
             (Registrant's telephone number, including area code)



Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by  Section 13 of the  Securities  Exchange  Act of 1934  during the
preceding 12 months and (2) has been subject to the filing  requirements  for at
least the past 90 days.

                                YES X    NO



          Common shares outstanding at January 26, 1997:  11,352,477
                                Par Value: $.05







                              INDEX TO FORM 10-Q

                               January 26, 1997

Part I -  Financial Information.                                        Page
- ------------------------------------------                              -------

Item 1.    Consolidated Financial Statements:

Statements of Income--Three and Nine Months Ended                       I-1
     January 26, 1997 and January 28, 1996

Balance Sheets--January 26, 1997, January 28, 1996 and April 28, 1996   I-2

Statements of Cash Flows---Nine Months                                  I-3
ended January 26, 1997 and January 28, 1996

Statements of Shareholders' Equity                                      I-4

Notes to Financial Statements                                           I-5

Sales by Product Category/Business Unit                                 I-9

International Sales by Geographic Area                                  I-10

Item 2.   Management's Discussion and Analysis of Financial             I-11
Condition and Results of Operation

Part II - Other Information
- -------------------------------------

Item 1.   Legal Proceedings                                             II-1

Item 2.   Changes in Securities                                         II-1

Item 3.   Default Upon Senior Securities                                II-1

Item 4.   Submission of Matters to a Vote of Security Holders           II-1

Item 5.   Other Information                                             II-1

Item 6.   Exhibits and Reports on Form 8-K                             II-1-II-6

Signatures                                                              II-7






                                   CULP, INC.
                         CONSOLIDATED INCOME STATEMENTS
FOR THE THREE MONTHS AND NINE MONTHS ENDED JANUARY 26, 1997 AND JANUARY 28, 1996

               (Amounts in Thousands, Except for Per Share Data)

THREE MONTHS ENDED (UNAUDITED) Amounts Percent of Sales January 26, January 28, % Over 1997 1996 (Under) 1997 1996 ---------- ---------- -------- ------- ------- Net sales $ 97,468 86,476 12.7 % 100.0 % 100.0 % Cost of sales 80,317 71,447 12.4 % 82.4 % 82.6 % ---------- --------- -------- ------- ------- Gross profit 17,151 15,029 14.1 % 17.6 % 17.4 % Selling, general and administrative expenses 10,760 9,639 11.6 % 11.0 % 11.1 % ---------- --------- -------- ------- ------- Income from operations 6,391 5,390 18.6 % 6.6 % 6.2 % Interest expense 1,228 1,279 (4.0)% 1.3 % 1.5 % Interest income (73) 0 ** % (0.1)% 0.0 % Other expense (income), net 421 266 58.3 % 0.4 % 0.3 % ---------- --------- -------- ------- ------- Income before income taxes 4,815 3,845 25.2 % 4.9 % 4.4 % Income taxes * 1,805 1,430 26.2 % 37.5 % 37.2 % ---------- --------- -------- ------- ------- Net income $ 3,010 2,415 24.6 % 3.1 % 2.8 % ========== ========= ======== ======== ======== Average shares outstanding 11,342 11,232 1.0 % Net income per share $0.27 $0.22 22.7 % Dividends per share $0.0325 $0.0275 18.2 %
NINE MONTHS ENDED (UNAUDITED) Amounts Percent of Sales January 26 January 28, % Over 1997 1996 (Under) 1997 1996 ---------- ---------- -------- ------- ------- Net sales $ 293,201 249,505 17.5 % 100.0 % 100.0 % Cost of sales 241,008 206,171 16.9 % 82.2 % 82.6 % ---------- ---------- -------- ------- ------- Gross profit 52,193 43,334 20.4 % 17.8 % 17.4 % Selling, general and administrative expenses 33,328 27,768 20.0 % 11.4 % 11.1 % ---------- ---------- -------- ------- ------- Income from operations 18,865 15,566 21.2 % 6.4 % 6.2 % Interest expense 3,652 3,964 (7.9)% 1.2 % 1.6 % Interest income (190) 0 ** % (0.1)% 0.0 % Other expense (income), net 1,117 592 88.7 % 0.4 % 0.2 % ---------- ---------- -------- ------- ------- Income before income taxes 14,286 11,010 29.8 % 4.9 % 4.4 % Income taxes * 5,356 4,080 31.3 % 37.5 % 37.1 % ---------- ---------- -------- ------- ------- Net income $ 8,930 6,930 28.9 % 3.0 % 2.8 % ========== ========= ======== ======== ======== Average shares outstanding 11,317 11,218 0.9 % Net income per share $0.79 $0.62 27.4 % Dividends per share $0.0975 $0.0825 18.2 %
* Percent of sales column is calculated as a % of income before income taxes. ** Measurement is not meaningful. I-1 CULP, INC. CONSOLIDATED BALANCE SHEETS JANUARY 26, 1997, JANUARY 28, 1996 AND APRIL 28, 1996 (Unaudited, Amounts in Thousands)
Amounts Increase January 26, January 28, (Decrease) * April 28, 1997 1996 Dollars Percent 1996 ---------- ----------- ------- ------- ---------- Current assets Cash and cash investments $ 406 1,841 1,435) (77.9)% 498 Accounts receivable 50,157 43,642 6,515 14.9 % 52,038 Inventories 50,755 49,960 795 1.6 % 47,395 Other current assets 3,701 3,436 265 7.7 % 4,167 ----------- ------- ------- ------- ------- Total current assets 105,019 98,879 6,140 6.2 % 104,098 Restricted investments 11,778 0 11,778 5,274 Property, plant & equipment, net 86,146 73,356 12,790 17.4 % 76,961 Goodwill 22,413 23,037 (624) (2.7)% 22,871 Other assets 2,906 2,432 474 19.5 % 2,440 ----------- ------- ------- -------- ------- Total assets 228,262 197,704 30,558 15.5 % 211,644 =========== ======= ======= ======== ======= Current Liabilities Current maturities of long-term debt $ 6,100 11,555 (5,455) (47.2)% 7,100 Accounts payable 20,833 22,516 (1,683) (7.5)% 27,308 Accrued expenses 15,644 11,181 4,463 39.9 % 12,564 Income taxes payable 1,753 1,336 417 31.2 % 197 Total current liabilities 44,330 46,588 (2,258) (4.8)% 47,169 ----------- ------- ------- ------- ------- Long-term debt 86,266 68,112 18,154 26.7 % 74,941 Deferred income taxes 8,088 5,381 2,707 50.3 % 8,088 Total liabilities 138,684 120,081 18,603 15.5 % 130,198 ----------- ------- ------- ------- ------- Shareholders' equity 89,578 77,623 11,955 15.4 % 81,446 Total liabilities and shareholders' equity $228,262 197,704 30,558 15.5 % 211,644 =========== ======= ======= ======== ======== Shares outstanding 11,352 11,265 87 0.8 % 11,290 =========== ======= ======= ======== ========
Derived from audited financial statements. I-2 CULP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED JANUARY 26, 1997 AND JANUARY 28, 1996 (Unaudited, Amounts in Thousands)
NINE MONTHS ENDED ------------------------ Amounts ------------------------ January 26, January 28, 1997 1996 ------------- ----------- Cash flows from operating activities: Net income $ 8,930 6,930 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 9,440 9,278 Amortization of intangible assets 634 544 Provision for deferred income taxes 0 (37) Changes in assets and liabilities: Accounts receivable 1,881 610 Inventories (3,360) (4,189) Other current assets 466 (242) Other assets (642) (57) Accounts payable (2,213) (2,838) Accrued expenses 3,080 (351) Income taxes payable 1,556 675 ------------ ---------- Net cash provided by (used in) operating activities 19,772 10,323 ------------ ----------- Cash flows from investing activities: Capital expenditures (18,625) (7,710) Purchases of restricted investments (9,681) 0 Purchase of investments to fund deferred compensation liability 0 (1,286) Proceeds from sale of restricted investments 3,177 795 ------------ ---------- Net cash provided by (used in) investing activities (25,129) (8,201) ------------ ---------- Cash flows from financing activities: Proceeds from issuance of long-term debt 15,900 10,500 Principal payments on long-term debt (5,575) (4,575) Change in accounts payable-capital expenditures (4,262) (6,896) Dividends paid (1,103) (926) Proceeds from sale of common stock 305 223 ------------ ---------- Net cash provided by (used in) financing activities 5,265 (1,674) ------------ ---------- Increase (decrease) in cash and cash investments (92) 448 Cash and cash investments at beginning of period 498 1,393 ----------- ---------- Cash and cash investments at end of period $ 406 1,841 ============ ==========
I-3 CULP, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) (Dollars in thousands, except per share data)
Capital Contributed Total Common Stock in Excess Retained Shareholders' ------------ of Par Value Earnings Equity Shares Amount --------------------------------------------------------------------------------- Balance, April 30, 19 11,204,766 $ 560 $ 16,577 $ 54,259 $ 71,396 Cash dividends (1,236) (1,236) ($.11 per share) Net income 10,980 10,980 Common stock issued in connection with stock option plan 85,534 5 301 306 --------------------------------------------------------------------------------- Balance, April 28, 19 11,290,300 $ 565 $ 16,878 $ 64,003 $ 81,446 Cash dividends (1,103) (1,103) ($.0975 per share) Net income 8,930 8,930 Common stock issued in connection with stock option plan 62,177 1 304 305 --------------------------------------------------------------------------------- Balance, January 26, 11,352,477 $ 566 $ 17,182 $ 71,830 $ 89,578 =================================================================================
I-4 Culp, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. Basis of Presentation The financial information included herein is unaudited; however, such information reflects all adjustments (consisting of normal recurring adjustments) which the management of the company considers necessary for a fair statement of results for the interim periods. Certain amounts for fiscal year 1996 have been reclassified to conform with the fiscal year 1997 presentation. Such reclassifications had no effect on net income as previously reported. All such adjustments are of a normal recurring nature. The results of operations for the nine months ended January 26, 1997 are not necessarily indicative of the results to be expected for the full year. ============================================================================== 2. Accounts Receivable A summary of accounts receivable follows (dollars in thousands): - ------------------------------------------------------------------------------ January 26, 1997 April 28, 1996 - ------------------------------------------------------------------------------ Customers $ 51,807 $ 53,321 Factors -0- 71 Allowance for doubtful accounts (1,304) (1,016) Reserve for returns and allowances ( 346) (338) - ------------------------------------------------------------------------------ $ 50,157 $ 52,038 ============================================================================== 3. Inventories Inventories are carried at the lower of cost of market. Cost is determined for substantially all inventories using the LIFO (last-in, first-out) method. A summary of inventories follows (dollars in thousands): - ------------------------------------------------------------------------------ January 26, 1997 April 28, 1996 - ------------------------------------------------------------------------------ Raw materials $ 31,042 $ 29,150 Work-in-process 3,548 5,067 Finished goods 20,842 16,708 - ------------------------------------------------------------------------------ Total inventories valued at FIFO cost 55,432 50,925 Adjustments of certain inventories to the LIFO cost method (4,677) (3,530) - ------------------------------------------------------------------------------ $ 50,755 $ 47,395 ============================================================================== I-5 4. Restricted Investments. Restricted investments were purchased with proceeds from industrial revenue bond issues and are invested pending application of such proceeds to project costs or repayment of the bonds. The investments are stated at cost which approximates market value. 5. Accounts Payable A summary of accounts payable follows (dollars in thousands): - ------------------------------------------------------------------------------ January 26, 1997 April 28, 1996 - ------------------------------------------------------------------------------ Accounts payable-trade $ 19,357 $ 21,570 Accounts payable-capital expenditures 1,476 5,738 - ------------------------------------------------------------------------------ $ 20,833 $ 27,308 ============================================================================== 6. Accrued Expenses A summary of accrued expenses follows (dollars in thousands): - ------------------------------------------------------------------------------ January 26, 1997 April 28, 1996 - ------------------------------------------------------------------------------ Compensation and benefits $ 10,791 $ 8,153 Other 4,853 4,411 - ------------------------------------------------------------------------------ $ 15,644 $ 12,564 ============================================================================== 7. Long-term Debt A summary of long-term debt follows (dollars in thousands): - ------------------------------------------------------------------------------ January 26, 1997 April 28, 1996 - ------------------------------------------------------------------------------ Industrial revenue bonds and other obligations $ 31,666 $ 22,241 Revolving credit line 29,700 23,300 Term loan 31,000 35,500 Subordinated note payable -0- 1,000 - ------------------------------------------------------------------------------ 92,366 82,041 Less current maturities (6,100) (7,100) - ------------------------------------------------------------------------------ $ 86,266 $ 74,941 ============================================================================== I-6 Culp, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) The company has an unsecured loan agreement with two banks, which provides for a $31,000,000 five-year term loan and a $33,500,000 revolving credit line, which also has a five-year term. The term loan requires monthly installments of $500,000 and a final payment of $6,500,000 on March 1, 2001. The revolving credit line requires payment of an annual facility fee in advance. The company's loan agreements require, among other things, that the company maintain certain financial ratios. At January 26, 1997, the company was in compliance with these required financial covenants. At January 26, 1997, the company had three interest rate swap agreements in order to reduce its exposure to floating interest rates on a portion of its variable rate borrowings. The following table summarizes certain data regarding the interest rate swaps: notional amount interest rate expiration date --------------- ------------- --------------- $ 15,000,000 7.3% April 2000 $ 5,000,000 6.9% June 2002 $ 5,000,000 6.6% July 2002 Net amounts paid under these agreements increased interest expense for the nine months ended January 26, 1997 and January 28, 1996 by approximately $233,000 and $196,000, respectively. Management believes the risk of incurring losses resulting from the inability of the bank to fulfill its obligation under the interest rate swap agreements to be remote and that any losses incurred would be immaterial. The estimated amount at which the company could have terminated these agreements as of January 26, 1997 is approximately $185,000. ============================================================================== 8. Cash Flow Information Payments for interest and income taxes during the period were (dollars in thousands) - ------------------------------------------------------------------------------ 1997 1996 - ------------------------------------------------------------------------------ . Interest $ 3,437 $ 3,990 Income taxes 4,003 3,148 ============================================================================== 9. Foreign Exchange Forward Contracts The company generally enters into foreign exchange forward contracts as a hedge against its exposure to currency fluctuations on firm commitments to purchase certain machinery and equipment and raw materials. Machinery and equipment and raw material purchases hedged by foreign exchange forward contracts are valued by using the exchange rate of the applicable foreign exchange forward contract. At January 26, 1997, the company had approximately $2,600,000 of foreign exchange forward contracts outstanding. I-7 Culp, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 10. Subsequent Event On January 30, 1997, the company sold 1,200,000 shares of common stock in a public offering which provided net proceeds of approximately $16,300,000. The net proceeds from the offering were used to reduce outstanding borrowings under the company's revolving credit line. I-8 CULP, INC. SALES BY PRODUCT CATEGORY/BUSINESS UNIT FOR THREE MONTHS AND NINE MONTHS ENDED JANUARY 26, 1997 AND JANUARY 28, 1996 (Amounts in thousands)
THREE MONTHS ENDED (UNAUDITED) Amounts Percent of Total Sales January 26, January 28, % Over Product Category/Business 1997 1996 (Under) 1997 1996 Upholstery Fabrics Culp Textures $ 20,389 20,685 (1.4)% 20.9 % 23.9 % Rossville/Chromatex 18,953 18,567 2.1 % 19.4 % 21.5 % 39,342 39,252 0.2 % 40.4 % 45.4 % Velvets/Prints 40,387 31,836 26.9 % 41.4 % 36.8 % 79,729 71,088 12.2 % 81.8 % 82.2 % Mattress Ticking Culp Home Fashions 17,739 15,388 15.3 % 18.2 % 17.8 % * $ 97,468 86,476 12.7 % 100.0 % 100.0 %
NINE MONTHS ENDED (UNAUDITED) Amounts Percent of Total Sales January 26, January 28, % Over Product Category/Business 1997 1996 (Under) 1997 1996 Upholstery Fabrics Culp Textures $ 65,191 60,984 6.9 % 22.2 % 24.4 % Rossville/Chromatex 58,840 51,885 13.4 % 20.1 % 20.8 % 124,031 112,869 9.9 % 42.3 % 45.2 % Velvets/Prints 115,487 87,440 32.1 % 39.4 % 35.0 % 239,518 200,309 19.6 % 81.7 % 80.3 % Mattress Ticking Culp Home Fashions 53,683 49,196 9.1 % 18.3 % 19.7 % * $293,201 249,505 17.5 % 100.0% 100.0%
*US. sales were $70,931 and $67,506 for the three months of fiscal 1997 and fiscal 1996, respectively; and $220,791 and $196,543 for the nine months of fiscal 1997 and fiscal 1996, respectively. The percentage increases in U.S. sales were 5.1% for the three months and 12.3% for the nine months. I-9 CULP, INC. INTERNATIONAL SALES BY GEOGRAPHIC AREA FOR THREE MONTHS AND NINE MONTHS ENDED JANUARY 26, 1997 AND JANUARY 28, 1996 (Amounts in thousands)
THREE MONTHS ENDED (UNAUDITED) Percent of the Company's Amounts Total Sales January 26, January 28, % Over 1997 1996 (Under) 1997 1996 Geographic Area North America (Excluding USA) $ 6,482 5,488 18.1 % 6.7 % 6.3 % Europe 7,213 5,590 29.0 % 7.4 % 6.5 % Middle East 4,580 2,383 92.2 % 4.7 % 2.8 % Far East & Asia 6,862 4,052 69.3 % 7.0 % 4.7 % South America 855 703 21.6 % All other areas $ 26,537 18,970 39.9 % 27.2 % 21.9 %
NINE MONTHS ENDED (UNAUDITED) Percent of the Company's Amounts Total Sales January 26, January 28, % Over Geographic Area 1997 1996 (Under) 1997 1996 North America (Excluding USA)$ 20,555 16,275 26.3 % 7.0 % 6.5 % Europe 17,573 13,072 34.4 % 6.0 % 5.2 % Middle East 13,736 7,933 73.2 % 4.7 % 3.2 % Far East & Asia 15,893 9,821 61.8 % 5.4 % 3.9 % South America 2,464 2,297 7.3 % 0.8 % 0.9 % All other areas 2,189 3,564 (38.6)% $ 72,410 52,962 36.7 % 24.7 % 21.2 %
International sales , and the percentage of total sales, for each of the last seven fiscal years follows: fiscal 1991- $20,295 (12%); fiscal 1992-$ 34,094 (18%); fiscal 1993-$40,729 (20%); fiscal 1994-$44,038 (18%); fiscal 1995- $57,971 (19%); and fiscal 1996-$77,397 (22%). Certain amounts for fiscal year 1996 have been reclassified to conform with the fiscal 1997 presentation. I-10 Management's Discussion and Analysis of Operations The following analysis of the financial condition and results of operations should be read in conjunction with the Financial Statements and Notes and other exhibits included elsewhere in this report. Overview For the three months ended January 26, 1997, net sales rose 13% to $97.5 million compared with $86.5 million in the year-earlier period. Net income for the quarter totaled $3.0 million, or $0.27 per share, compared with $2.4 million, or $0.22 per share, for the third quarter of fiscal 1996. The increase in sales primarily reflected higher shipments of upholstery fabrics and, to a lesser degree, increased sales of mattress ticking to both U.S.-based and international manufacturers. The company experienced a generally favorable pattern in incoming orders during the period, but the year-to-year gain in sales was lower than in either the first or second fiscal quarters. Business with U.S.-based customers increased 5% from a year ago while sales to customers outside the United States rose 40% for the quarter. International sales are continuing to account for an increasing percentage of the company's total sales. Demand for the company's products is dependent on the various factors which affect consumer purchases of upholstered furniture and bedding including housing starts and sales of existing homes, the level of consumer confidence, prevailing interest rates for home mortgages and the availability of consumer credit. Three And Nine Months Ended January 26, 1997 Compared With Three And Nine Months Ended January 28, 1996 Net Sales. For the third fiscal quarter, net sales increased $11 million, or 13%, compared with the year-earlier period. Sales of upholstery fabrics increased $8.6 million, or 12%, from a year ago. In this product category, Velvets/Prints had significantly higher sales for the quarter and first nine months, Rossville/Chromatex had slightly higher sales for the quarter and substantially higher sales for the nine month period, and Culp Textures had slightly lower sales for the quarter with a moderate increase for the nine month period. Sales of mattress ticking for the quarter rose $2.4 million, or 15%, from a year ago. International sales, consisting primarily of upholstery fabrics increased $7.6 million from the year-earlier period. International sales accounted for 27% of the company's sales for the third quarter and 25% for the first nine months compared with 22% and 21%, respectively, a year ago. I-11 Gross Profit and Cost of Sales. Gross profit for the third quarter and first nine months increased both in absolute dollars and as a percentage of net sales. Factors contributing to the higher profitability included the increased absorption of fixed costs as a result of the growth in sales as well as the benefit from the company's ongoing capital investment in equipment designed to lower manufacturing costs and raise productivity. During the first nine months, the company also began to experience a stabilization in the cost of raw materials and, in some instances, has realized lower costs. Selling, general and administrative expenses. Selling, general and administrative expenses decreased as a percentage of net sales for the third quarter and increased as a percentage of sales for the first nine months of fiscal 1997. Although the company is continuing to emphasize cost-containment programs, planned increases in expenses related to resources for designing new fabrics and higher selling commissions related to international sales contributed to the higher ratio of SG&A expenses to net sales for the first nine months. The accrual for incentive-based compensation thus far in fiscal 1997 has also been a significant factor behind the increase in these expenses. Interest Expense. Net interest expense of $1.2 million for the third quarter was down from $1.3 million in the year-earlier period due to lower average borrowings outstanding. Income Taxes. The effective tax rate for the third quarter and first nine months was 37.5% Other Expense. Other expense increased $525,000 for the first nine months of fiscal 1997 compared with a year ago, principally due to the non-recurring write-off of certain fixed assets totaling $175,000 and the recognition in the year-earlier period of a gain of $100,000 related to an indemnification for an environmental matter. Liquidity and Capital Resources Liquidity. Cash and cash investments were $406,000 as of January 26, 1997 compared with $498,000 at the end of fiscal 1996. Funded debt (long-term debt, including current maturities, less restricted investments) increased to $80.6 million at the close of the third quarter from $76.8 million at the end of fiscal 1996. As a percentage of total capital (funded debt plus total shareholders' equity), the company's borrowings amounted to 47.4% as of January 26, 1997 compared with 48.5% at the end of fiscal 1996. The company's working capital as of January 26, 1997 was $60.7 million compared with $56.9 million at the close of fiscal 1996. I-12 Cash flow from operations was $19.8 million for the first nine months of fiscal 1997, consisting of $19.0 million from earnings (net income plus depreciation, amortization and deferred income taxes) and $768,000 from changes in working capital. The funds from operations were used principally to fund capital expenditures of $18.6 million. Financing Arrangements. The company has an unsecured loan agreement with two banks, which provides for a $31.0 million five-year term loan and a $33.5 million revolving credit agreement, both of which mature on March 1, 2001. As of January 26, 1997, the company had outstanding balances of $60.7 million under the bank facilities and an additional $3.8 million in borrowings available under the revolving credit facility. On December 17, 1996, the company received "best efforts' commitments from its principal bank lenders, Wachovia Bank of North Carolina, N.A. and First Union National Bank of North Carolina to refinance the existing term loan and revolving line of credit with a $125 million syndicated five-year, unsecured, multi-currency credit facility. Although the agent for the lenders, Wachovia Bank of Georgia, N.A., has agreed to use commercially reasonable efforts to complete this refinancing, subject to certain conditions including the completion of satisfactory loan documentation, there can be no assurance that this refinancing will be completed. The company also has a total of $31.1 million in currently outstanding industrial revenue bonds ("IRBs") which have been used to finance capital expenditures. The IRBs are collateralized by restricted investments of $11.8 million as of January 26, 1997 and letters of credit for the outstanding balance of the IRBs and certain interest payments due thereunder. In December 1996, the company borrowed a total of $9.5 million under two IRBs to finance certain capital investments and expects to finance approximately $8.0 million through an additional IRB to fund a new wet-printing facility in Lumberton, North Carolina. As of January 26, 1997, the company was in compliance with the required financial covenants of its loan agreements. Capital Expenditures. The company is continuing a significant program of capital expenditures intended to increase capacity, enhance manufacturing efficiencies through modernization and increase vertical integration. The company expects total capital expenditures for fiscal 1997 will be approximately $31 million and is currently planning to spend approximately $20 million in fiscal 1998. The company believes that cash flows from operations, funds from a recently completed secondary offering and funds available under existing credit facilities and committed IRB financings will be sufficient to fund capital expenditures and working capital requirements during the remainder of fiscal 1997 and for fiscal 1998. I-13 Stock Offering. On January 30, 1997 the company sold 1.2 million shares in a public offering which provided net proceeds of approximately $16.3 million. The company plans to use the net proceeds on a near-term basis to reduce the outstanding balance of its revolving line of credit. Inflation The company experienced generally higher costs of raw materials during fiscal 1996 and fiscal 1995. Other operating expenses, such as labor, utilities and manufacturing supplies, also increased over these periods. Competitive conditions did not allow the company to fully offset the impact of these increases through higher prices, thereby putting pressure on profit margins. The cost of the company's raw materials has stabilized during the first nine months of fiscal 1997, and in some cases, has declined, thereby helping to raise margins. The net impact on margins from changes in the costs of raw materials will continue to be influenced by product mix, other operating costs and competitive conditions. Forward-Looking Information This discussion on Form 10-Q contains forward-looking statements that are inherently subject to risks and uncertainties. Factors that could influence the matters discussed in the forward-looking statements include the level of housing starts and sales of existing homes, consumer confidence and trends in disposable income. Decreases in these economic indicators could have a negative effect on the company's business and prospects. Likewise, increases in interest rates, particularly home mortgage rates, and increases in consumer debt or the general rate of inflation, could adversely affect the company. I-14 Part II - OTHER INFORMATION - ------------------------------------------- Item 1. Legal Proceedings There are no legal proceedings that are required to be disclosed under this item. Item 2. Change in Securities None Item 3. Default Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) The following exhibits are filed as part of this report or incorporated by reference: 3(i) Articles of Incorporation of the company, as amended, were filed as Exhibit 3(i) to the company's Form 10-Q for the quarter ended January 29, 1995, filed March 15, 1995, and are incorporated herein by reference. 3(ii) Restated and Amended Bylaws of the company, as amended, were filed as Exhibit 3(b) to the company's Form 10-K for the year ended April 28, 1991, filed July 25, 1991, and are incorporated herein by reference. 4(a) Form of Common Stock Certificate of the company was filed as Exhibit 4(a) to Amendment No. 1 to the company's registration statement No. 2-85174, filed on August 30, 1983, and is incorporated herein by reference. 10(a) Loan Agreement dated December 1, 1988 with Chesterfield County, South Carolina relating to Series 1988 Industrial Revenue Bonds in the principal amount of $3,377,000 and related Letter of II-1 Credit and Reimbursement Agreement dated December 1, 1988 with First Union National Bank of North Carolina were filed as Exhibit 10(n) to the company's Form 10-K for the year ended April 29, 1989, and are incorporated herein by reference. 10(b) Loan Agreement dated November 1, 1988 with the Alamance County Industrial Facilities and Pollution Control Financing Authority relating to Series A and B Industrial Revenue Refunding Bonds in the principal amount of $7,900,000, and related Letter of Credit and Reimbursement Agreement dated November 1, 1988 with First Union National Bank of North Carolina were filed as exhibit 10(o) to the company's Form 10-K for the year ended April 29, 1990, and are incorporated herein by reference. 10(c) Loan Agreement dated January 5, 1990 with the Guilford County Industrial Facilities and Pollution Control Financing Authority, North Carolina, relating to Series 1989 Industrial Revenue Bonds in the principal amount of $4,500,000, and related Letter of Credit and Reimbursement Agreement dated January 5, 1990 with First Union National Bank of North Carolina was filed as Exhibit 10(d) to the company's Form 10-K for the year ended April 19, 1990, filed on July 15, 1990, and is incorporated herein by reference. 10(d) Loan Agreement dated as of December 1, 1993 between Anderson County, South Carolina and the company relating to $6,580,000 Anderson County, South Carolina Industrial Revenue Bonds (Culp, Inc. Project) Series 1993, and related Letter of Credit and Reimbursement Agreement dated as of December 1, 1993 by and between the company and First Union National Bank of North Carolina were filed as Exhibit 10(o) to the Company's Form 10-Q for the quarter ended January 30, 1994, filed March 16, 1994, and is incorporated herein by reference. 10(e) Severance Protection Agreement, dated September 21, 1989, was filed as Exhibit 10(f) to the company's Form 10-K for the year ended April 29, 1990, filed on July 25 1990, and is incorporated herein by reference.(*) 10(f) Lease Agreement, dated January 19, 1990, with Phillips Interests, Inc. was filed as Exhibit 10(g) to the company's Form 10-K for the year ended April 29, 1990, filed on July 25, 1990, and is incorporated herein by reference. 10(g) Management Incentive Plan of the company, dated August 1986 and amended July, 1989, was filed as Exhibit 10(o) to the company's Form 10-K for the year ended May 3, 1992, filed on August 4, 1992, and is incorporated herein by reference.(*) 10(h) Lease Agreement, dated September 6, 1988, with Partnership 74 was filed as Exhibit 10(h) to the company's Form 10-K for the year ended April 28, 1991, filed on July 25, 1990, and is incorporated herein by reference. 10(i) Amendment and Restatement of the Employees's Retirement Builder Plan of the company dated May 1, 1981 with amendments dated January 1, 1990 and January 8, 1990 were filed as Exhibit 10(p) to the company's Form 10-K for the year ended May 3, 1992, filed on August 4, 1992, and is incorporated herein by reference.(*) 10(j) First Amendment of Lease Agreement dated July 27, 1992 with Partnership 74 Associates was filed as Exhibit 10(n) to the company's Form 10-K for the year ended May 2, 1993, filed on July 29, 1993, and is incorporated herein by reference. 10(k) Second Amendment of Lease agreement dated April 16, 1993, with Partnership 52 Associates was filed as Exhibit 10(l) to the company's Form 10-K for the year ended May 2, 1993, filed on July 29, 1993, and is incorporated herein by reference. 10(l) 1993 Stock Option Plan was filed as Exhibit 10(o) to the company's Form 10-K for the year ended May 2, 1993, filed on July 29, 1993, and is incorporated herein by reference.(*) 10(m) First Amendment to Loan Agreement dated as of December 1, 1993 by and between The Guilford County Industrial Facilities and Pollution Control Financing Authority and the company, was filed as Exhibit 10(p) to the company's Form 10-Q, filed on March 15, 1994, and is incorporated herein by reference. 10(n) First Amendment to Loan Agreement dated as of December 16, 1993 by and between The Alamance County Industrial Facilities and Pollution Control Financing Authority and the company, was filed as Exhibit 10(q) to the company's Form 10-Q filed, on March 15, 1994, and is incorporated herein by reference. 10(o) First Amendment to Loan Agreement dated as of December 16, 1993 by and between Chesterfield County, South Carolina and II-3 the company, was filed as Exhibit 10(r) to the company's Form 10-Q, filed on March 15, 1994, and is incorporated herein by reference. 10(p) Amendment to Lease dated as of November 4, 1994, by and between the company and RDC, Inc. was filed as Exhibit 10(w) to the company's Form 10-Q, for the quarter ended January 29, 1995, filed on March 15, 1995, and is incorporated herein by reference. 10(q) Amendment to Lease Agreement dated as of December 14, 1994, by and between the company and Rossville Investments, Inc. (formerly known as A & E Leasing, Inc.).was filed as Exhibit 10(y) to the company's Form 10-Q, for the quarter ended January 29, 1995, filed on March 15, 1995, and is incorporated herein by reference. 10(r) Interest Rate Swap Agreement between company and First Union National Bank of North Carolina dated April 17, 1995, was filed as Exhibit 10(aa) to the company's Form 10-K for the year ended April 30, 1995, filed on July 26, 1995, and is incorporated herein by reference. 10(s) Performance-Based Stock Option Plan, dated June 21, 1994, was filed as Exhibit 10(bb) to the company's Form 10-K for the year ended April 30, 1995, filed on July 26, 1995, and is incorporated herein by reference.(*) 10(t) Interest Rate Swap Agreement between company and First Union National Bank of North Carolina, dated May 31, 1995 was filed as exhibit 10(w) to the company's Form 10-Q for the quarter ended July 30, 1995, filed on September 12, 1995, and is incorporated herein by reference. 10(u) Interest Rate Swap Agreement between company and First Union National Bank of North Carolina, dated July 7, 1995 was filed as exhibit 10(x) to the company's Form 10-Q for the quarter ended July 30, 1995, filed on September 12, 1995, and is incorporated herein by reference. 10(v) Second Amendment of Lease Agreement dated June 15, 1994 with Partnership 74 Associates was filed as Exhibit 10(v) to the company's Form 10-Q for the quarter ended October 29, 1995, filed on December 12, 1995, and is incorporated herein by reference. II-4 10(w) Lease Agreement dated November 1, 1993 by and between the company and Chromatex, Inc. was filed as Exhibit 10(w) to the company's Form 10-Q for the quarter ended October 29, 1995, filed on December 12, 1995, and is incorporated herein by reference. 10(x) Lease Agreement dated November 1, 1993 by and between the company and Chromatex Properties, Inc. was filed as Exhibit 10(x) to the company's Form 10-Q for the quarter ended October 29, 1995, filed on December 12, 1995, and is incorporated herein by reference. 10(y) Amendment to Lease Agreement dated May 1, 1994 by and between the company and Chromatex Properties, Inc. was filed as Exhibit 10(y) to the company's Form 10-Q for the quarter ended October 29, 1995, filed on December 12, 1995, and is incorporated herein by reference. 10(z) Canada-Quebec Subsidiary Agreement on Industrial Development (1991), dated January 4, 1995, was filed as Exhibit 10(z) to the company's Form 10-Q for the quarter ended October 29, 1995, filed on December 12, 1995, and is incorporated herein by reference. 10(aa) Loan Agreement between Chesterfield County, South Carolina and the company dated as of April 1, 1996 relating to Tax Exempt Adjustable Mode Industrial Development Bonds (Culp, Inc. Project) Series 1996 in the aggregate amount of $6,000,000 was filed as Exhibit 10(aa) to the company's Form 10-K for the year ended April 28, 1996 on July 25, 1996, and is incorporated herein by reference. 10(bb) 1996 Amended and Restated Credit Agreement dated as of April 1, 1996 by and among the company, First Union National Bank of North Carolina and Wachovia Bank of North Carolina, N.A. was filed as Exhibit 10(bb) to the company's Form 10-K for the year ended April 28, 1996 on July 25, 1996, and is incorporated herein by reference. 10(cc) Loan Agreement between the Alamance County Industrial Facilities and Pollution Control Financing Authority, North Carolina and the company, dated December 1, 1996, relating to Tax Exempt Adjustable Mode Industrial Development Revenue Bonds, (Culp, Inc. Project Series 1996) in the aggregate amount of $6,000,000. II-5 10(dd) Loan Agreement between Luzerne County, North Carolina and the company, dated as of December 1, 1996, relating to Tax-Exempt Adjustable Mode Industrial Development Revenue Bonds (Culp, Inc. Project) Series 1996 in the aggregate principal amount of $3,500,000. 10(ee) First Amendment to 1996 Amended and Restated Credit Agreement, dated as of December 1, 1996, by and among the company, First Union National Bank of North Carolina, and Wachovia Bank of North Carolina, N.A 27 Financial Data Schedule. (b) Reports on Form 8-K: The following report on Form 8-K was filed during the period covered by this report: (1)Form 8-K dated November 6, 1996, included under Item 5, Other Events, disclosure of the company's press release for quarterly earnings and the company's Financial Information Release relating to the financial information for the second quarter ended October 27, 1996. (2)Form 8-K/A dated December 19, 1996, included under item 5, Other Events, amending the company's Form 8-K filed November 6, 1996. II-6 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CULP, INC. (Registrant) Date: March 11, 1997 By: s/s Franklin N. Saxon Franklin N. Saxon Sr. Vice President and Chief Financial Officer (Authorized to sign on behalf of the registrant and also signing as principal accounting officer) Date: March 11, 1997 By s/s Stephen T. Hancock Stephen T. Hancock General Accounting Manager (Chief Accounting Officer)

                                                                 
                                                                 

                                LOAN AGREEMENT

                                    between

                 THE ALAMANCE COUNTY INDUSTRIAL FACILITIES AND
                     POLLUTION CONTROL FINANCING AUTHORITY

                                      and

                                  CULP, INC.



                         Dated as of December 1, 1996

                                  Relating to
                          Tax-Exempt Adjustable Mode
                     Industrial Development Revenue Bonds
                             (Culp, Inc. Project)
                                  Series 1996
                in the aggregate principal amount of $6,000,000




                                                                 
                                                                 

CERTAIN  RIGHTS OF THE ISSUER UNDER THIS  AGREEMENT HAVE BEEN ASSIGNED TO, AND
ARE  SUBJECT TO A SECURITY  INTEREST IN FAVOR OF  FIRST-CITIZENS  BANK & TRUST
COMPANY,  AS TRUSTEE  UNDER AN INDENTURE OF TRUST,  DATED AS OF THE DATE FIRST
ABOVE  WRITTEN,  AS AMENDED  OR  SUPPLEMENTED  FROM TIME TO TIME.  INFORMATION
CONCERNING  SUCH  SECURITY  INTEREST MAY BE OBTAINED  FROM THE TRUSTEE AT 2917
HIGHWOODS  BOULEVARD,  RALEIGH,  NORTH CAROLINA  27604,  ATTENTION:  CORPORATE
TRUST DEPARTMENT.











                                       i


                               TABLE OF CONTENTS


                                                                          Page


                                   ARTICLE I

                     DEFINITIONS AND RULES OF CONSTRUCTION

Section 1.1.      Definitions..............................................  2
Section 1.2.      Rules of Construction....................................  5

                                  ARTICLE II

                                REPRESENTATIONS

Section 2.1.      Representations by the Issuer............................  5
Section 2.2.      Representations by the Company...........................  7

                                  ARTICLE III

                          ACQUISITION OF THE PROJECT

Section 3.1.      Agreement to Undertake and Complete the Project..........  9
Section 3.2.      Disbursements from the Initial Fund......................  9
Section 3.3.      Establishment of Completion Date and Certificate ...........
as to Completion   10
Section 3.4.      Closeout of Initial Fund; Disposition of Balance ...........
in Initial Fund    11
Section 3.5.      Company Required to Pay Costs in Event Initial .............
Fund Insufficient  11
Section 3.6.      Company and Issuer Representatives and Successors........ 12
Section 3.7.      Investment of Moneys in Funds............................ 12
Section 3.8.      Plans and Specifications................................. 13

                                  ARTICLE IV

                             ISSUANCE OF THE BONDS

Section 4.1.      Agreement to Issue the Bonds............................. 13
Section 4.2.      No Third-Party Beneficiary............................... 13

                                   ARTICLE V

                           LOAN; PAYMENT PROVISIONS

Section 5.1.      Loan of Proceeds......................................... 14
Section 5.2.      Amounts Payable.......................................... 14
Section 5.3.      Unconditional Obligations................................ 15
Section 5.4.      Prepayments.............................................. 16
Section 5.5.      Credits Against Payments................................. 16
Section 5.6.      Credit Facility and Alternate Credit Facility............ 16
Section 5.7.      Interest Rate Determination Method....................... 16
Section 5.8.      Company Approval of Indenture............................ 16
Section 5.9.      Outstanding Bonds........................................ 17

                                  ARTICLE VI

                             MAINTENANCE AND TAXES

Section 6.1.      Company's Obligations to Maintain and Repair............. 17
Section 6.2.      Taxes and Other Charges.................................. 17

                                  ARTICLE VII

             INSURANCE, EMINENT DOMAIN AND DAMAGE AND DESTRUCTION

Section 7.1.      Insurance................................................ 17
Section 7.2.      Provisions Respecting Eminent Domain..................... 18
Section 7.3.      Damage and Destruction................................... 18

                                 ARTICLE VIII

                               SPECIAL COVENANTS

Section 8.1.      Access to the Property and Inspection.................... 18
Section 8.2.      Financial Statements..................................... 18
Section 8.3.      Further Assurances and Corrective Instruments............ 19
Section 8.4.      Recording and Filing; Other Instruments.................. 19
Section 8.5.      Exclusion from Gross Income for Federal Income Tax .........
Purposes of Interest on the Bonds.......................................... 19
Section 8.6.      Indemnity Against Claims................................. 20
Section 8.7.      Release and Indemnification.............................. 20
Section 8.8.      Compliance with Laws..................................... 21
Section 8.9.      Non-Arbitrage Covenant................................... 21
Section 8.10.     Notice of Determination of Taxability.................... 22
Section 8.11.     No Purchase of Bonds by Company or Issuer................ 22
Section 8.12.     Maintenance of Corporate Existence....................... 22
Section 8.13.     Duties and Obligations................................... 23

                                  ARTICLE IX

                          ASSIGNMENT, LEASE AND SALE

Section 9.1.      Restrictions on Transfer of Issuer's Rights.............. 23
Section 9.2.      Assignment by the Issuer................................. 23
Section 9.3.      Assignment, Lease or Sale of Project or Assignment .........
of Agreement by Company.................................................... 24

                                   ARTICLE X

                        EVENTS OF DEFAULT AND REMEDIES

Section 10.1.     Events of Default Defined................................ 25
Section 10.2.     Remedies on Default...................................... 26
Section 10.3.     Application of Amounts Realized in Enforcement of ..........
Remedies     27
Section 10.4.     No Remedy Exclusive...................................... 27
Section 10.5.     Agreement to Pay Attorneys' Fees and Expenses............ 27
Section 10.6.     Issuer and Company to Give Notice of Default............. 27

                                  ARTICLE XI

                        PREPAYMENTS; PURCHASE OF BONDS

Section 11.1.     Optional Prepayments..................................... 28
Section 11.2.     Mandatory Prepayment Upon a Determination of ...............
Taxability   28
Section 11.3.  Mandatory Prepayment in Event of Cessation of .................
Operation    29
Section 11.4.     Optional Purchase of Bonds............................... 29
Section 11.5.     Relative Priorities...................................... 29
Section 11.6.     Prepayment to Include Fees and Expenses.................. 29
Section 11.7.     Purchase of Bonds........................................ 30

                                  ARTICLE XII

                                 MISCELLANEOUS

Section 12.1.     Amounts Remaining in Funds............................... 31
Section 12.2.     No Implied Waiver........................................ 31
Section 12.3.     Issuer Representative.................................... 31
Section 12.4.     Company Representative................................... 31
Section 12.5.     Notices.................................................. 31
Section 12.6.     Issuer, Governing Body, and their Respective ...............
Members, Attorneys, Officers, Employees and Agents ...........................
Not Liable   31
Section 12.7.     No Liability of Issuer; No Charge Against Issuer's .........
Credit       32
Section 12.8.     If Performance Date Not a Business Day................... 33
Section 12.9.     Binding Effect........................................... 33
Section 12.10.    Severability............................................. 33
Section 12.11.    Amendments, Changes and Modifications.................... 33
Section 12.12.    Execution in Counterparts................................ 33
Section 12.13.    Applicable Law........................................... 33








                                      iv

Exhibit A - Description of the Project
Exhibit B - Form of Requisition and Certificate
Exhibit C - Form of Promissory Note
Exhibit D - Representations and Warranties








                                      10

                                LOAN AGREEMENT


      THIS LOAN AGREEMENT, dated as of December 1, 1996, is made and entered
into by and between THE ALAMANCE COUNTY INDUSTRIAL FACILITIES AND POLLUTION
CONTROL FINANCING AUTHORITY the "Issuer"), a political subdivision duly
organized and existing under the Constitution and laws of the State of North
Carolina (the "State"), and CULP, INC. (the "Company"), a North Carolina
corporation;

                             W I T N E S S E T H:

      WHEREAS, the Industrial and Pollution Control Facilities Financing Act,
Chapter 159C of the General Statutes of North Carolina, as amended (the
"Act"), authorizes the creation of industrial facilities and pollution
control financing authorities by the several counties in North Carolina and
empowers such authorities to acquire, construct, own, repair, maintain,
extend, improve, rehabilitate, renovate, furnish, equip and sell, lease,
exchange, transfer or otherwise dispose of industrial or manufacturing
facilities to the end that such authorities may be able to promote the right
to gainful employment opportunity and private industry and thereby promote
the general welfare of the inhabitants of North Carolina by exercising such
powers to aid in financing industrial or manufacturing facilities for the
purpose of alleviating unemployment or raising below average manufacturing
wages and further authorizes such authorities to loan to others the proceeds
of bonds issued for the purpose of paying for all or any part of an
industrial or manufacturing facility, to mortgage and pledge any or all of
such facilities, whether then owned or thereafter acquired, as security for
the payment of the principal of, premium, if any, and interest on any such
bonds and any agreements made in connection therewith and to pledge or assign
the revenues and receipts from such facilities or loan or from any other
source to the payment of such bonds; and

      WHEREAS, the Issuer has been duly organized pursuant to the Act; and

      WHEREAS, in order to further the purposes of the Act, the Issuer
proposes to undertake the financing of the acquisition and installation of
finishing equipment for upholstery fabric (the "Project") in it existing
facility in Alamance County, North Carolina, which constitutes an industrial
project under the Act, and to obtain the funds therefor by the issuance of
its  Bonds (as hereinafter defined) under an Indenture of Trust securing such
Bonds, between the Issuer and First-Citizens Bank & Trust Company, Raleigh,
North Carolina, as Trustee, dated as of the date hereof (the "Indenture"); and

      WHEREAS, the Issuer proposes to loan the proceeds from the sale of the
Bonds, as hereinafter defined, to the Company to acquire and install the
Project upon the terms and conditions hereinafter set forth; and

      WHEREAS, the Company and Wachovia Bank of North Carolina, National
Association will enter into a Reimbursement Agreement (the "Reimbursement
Agreement") dated as of the date hereof pursuant to which the Bank will issue
an irrevocable letter of credit in an amount not to exceed $___________ to
the Trustee at the request and for the account of the Company upon the terms
set forth in the Reimbursement Agreement; and

      WHEREAS, it has been determined that the financing of the acquisition
and installation of the Project will require the issuance, sale and delivery
by the Issuer of a series of bonds in the aggregate principal amount of Six
Million and no/100 Dollars ($6,000,000) (the "Bonds"); and

      NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter contained, the parties hereto covenant, agree and bind
themselves as follows;




                                   ARTICLE IARTICLE I


                     DEFINITIONS AND RULES OF CONSTRUCTION

      Section I.1.      Definitions.  In addition to the words and terms
elsewhere defined in this Agreement, the following words and terms as used
herein shall have the following meanings unless the context or use clearly
indicates another or different meaning or intent, and any other words and
terms defined in the Indenture shall have the same meanings when used herein
as assigned in the Indenture unless the context or use clearly indicates
another or different meaning or intent:

      "Acquisition", when used with reference to the Project, means
acquisition and installation of the Project.

      "Agreement" shall mean this Loan Agreement between the Issuer and the
Company and any modifications, alterations and supplements hereto made in
accordance with the provisions hereof and of the Indenture.

      "Bond Documents" means, collectively, the Bonds, this Agreement, the
Note, the Indenture, the Credit Facility, the Credit Agreement, the Placement
Agreement, the Remarketing Agreement and the Offering Memorandum.

      "Bond Proceeds" means the principal of the Bonds and any investment
earnings thereon while on deposit in the Initial Fund.

      "Cessation of Operation" has the meaning set forth in Section 11.3
hereof.

      "Commission" means the Local Government Commission of North Carolina, a
division of the Department of the State Treasurer, and any successor or
successors thereto.

      "Company Representative" means any one of the persons at the time
designated to act on behalf of the Company by written certificate furnished
to the Issuer and the Trustee containing the specimen signatures of such
persons and signed on behalf of the Company by the President or any Vice
President of the Company.

      "Completion Date" means, with respect to the Project, the date on which
the Company Representative delivers a completion certificate to the Trustee
pursuant to Section 3.3.

      "Cost(s) of the Project", "Cost" or "Costs" means all costs and
allowances which the Issuer or the Company may properly pay or accrue  for
the Project and which, under generally accepted accounting principles, are
chargeable to the capital account of the Project or could be so charged
either with a proper election to capitalize such costs or, but for a proper
election, to expense such costs, including (without limitation) the following
costs:

      (a)   fees and expenses incurred in preparing the plans and
specifications for the Project (including any preliminary study or planning
or any aspect thereof); any labor, services, materials and supplies used or
furnished in site improvement; any equipment for the Project; any acquisition
necessary to provide utility or other services, including water supply,
sewage and waste disposal facilities; and all tangible personal property
deemed necessary by the Company and acquired in connection with the Project;

      (b)   fees for architectural, engineering, supervisory and consulting
services;

      (c)   any fees and expenses incurred in connection with perfecting and
protecting title to the Project and any fees and expenses incurred in
connection with preparing, recording or filing such documents, instruments or
financing statements as either the Company or the Issuer may deem desirable
to perfect or protect the rights of the Issuer or the Trustee under the Bond
Documents;

      (d)   any legal, accounting or financial advisory fees and expenses,
including, without limitation, fees and expenses of Bond Counsel and counsel
to the Issuer, the Company, the Credit Issuer, the Placement Agent, the
Remarketing Agent or the Trustee, any fees and expenses of the Issuer,
Trustee, Remarketing Agent, Placement Agent, Credit Issuer, Tender Agent,
Paying Agent or any rating agency, filing fees, and printing and engraving
costs, incurred in connection with the authorization, issuance, sale and
purchase of the Bonds, and the preparation of the Bond Documents and all
other documents in connection with the authorization, issuance and sale of
the Bonds;

      (e)   interest to accrue on the Bonds during construction of the
Project;

      (f)   any administrative or other fees charged by the Issuer or
reimbursement thereto of expenses in connection with the Project until the
Completion Date; and

      (g)   any other costs and expenses relating to the Project which could
constitute costs or expenses for which the Issuer may expend Bond proceeds
under the Act.

      "Eminent Domain" means the taking of title to, or the temporary use of,
the Project or any part thereof pursuant to eminent domain or condemnation
proceedings, or by any settlement or compromise of such proceedings, or any
voluntary conveyance of the Project or any part thereof during the pendency
of, or as a result of a threat of, such proceedings.

      "Event of Default" shall have the meaning set forth in Section-10.1.

      "Governing Body" means the board, commission, council or other body in
which the general legislative powers of the Issuer are vested.

      "Issuer Representative" means any one of the persons at the time
designated to act on behalf of the Issuer by written certificate furnished to
the Company and the Trustee containing the specimen signatures of such
persons and signed on behalf of the Issuer by its Chairman or Vice Chairman.

      "Net Proceeds", when used with respect to any proceeds of insurance or
proceeds resulting from Eminent Domain, means the gross proceeds therefrom
less all expenses (including attorneys' fees) incurred in realization thereof.

      "Note" means the Company's promissory note in the principal amount of
$6,000,000 in the form of Exhibit C, as it may be amended from time to time.

      "Offering Memorandum" means the Preliminary Offering Memorandum and the
final Offering Memorandum prepared and used in connection with the initial
placement of the Bonds on the Issue Date.

      "Plans and Specifications" shall mean the plans and specifications used
in the Acquisition of the Project, as the same may be revised from time to
time by the Company in accordance with Section-3.8.

      "Project" means, collectively, the property described in Exhibit-A
hereto, as the same may at any time exist.

      "Remarketing Agreement" means the Remarketing and Interest Services
Agreement, dated as of December 1, 1996, between the Company and the
Remarketing Agent.

      "Tax Regulations" means the applicable treasury regulations promulgated
under the Code or under Section 103 of the Internal Revenue Code of 1954, as
amended, whether at the time proposed, temporary, final or otherwise.

I.2.  Rules of Construction.  Unless the context clearly indicates to the
contrary, the following rules shall apply to the construction of this
Agreement:

      (a)   Capitalized terms used but not defined in this Agreement shall
have the meaning ascribed to them in the Indenture.

      (b)   Words importing the singular number shall include the plural
number and vice versa.

      (c)   The table of contents, captions and headings herein are solely
for convenience of reference only and shall not constitute a part of this
Agreement nor shall they affect its meaning, construction or effect.

      (d)   Words of the masculine gender shall be deemed and construed to
include correlative words of the feminine and neuter genders, and words of
the neuter gender shall be deemed and construed to include correlative words
of the masculine and feminine genders.

      (e)   All references in this Agreement to particular Articles or
Sections are references to Articles and Sections of this Agreement, unless
otherwise indicated.

                                  ARTICLE IIARTICLE II

                                REPRESENTATIONS

      Section II.1.     Representations by the Issuer.  The Issuer represents
and warrants as follows:

      (a)   The Issuer is a political subdivision within the meaning of the
Act and is authorized by the Act to execute and to enter into this Agreement
and to undertake the transactions contemplated herein and to carry out its
obligations hereunder.

      (b)   The Issuer has all requisite power, authority and legal right to
execute and deliver the Bond Documents to which it is a party and all other
instruments and documents to be executed and delivered by the Issuer pursuant
thereto, to perform and observe the provisions thereof and to carry out the
transactions contemplated by the Bond Documents.  All corporate action on the
part of the Issuer which is required for the execution, delivery, performance
and observance by the Issuer of the Bond Documents has been duly authorized
and effectively taken, and such execution, delivery, performance and
observation by the Issuer do not contravene applicable law or any contractual
restriction binding on or affecting the Issuer.

      (c)   The Issuer has duly approved the issuance of the Bonds and the
loan of the proceeds thereof to the Company for the Acquisition of the
Project; no other authorization or approval or other action by, and no notice
to or filing with, any governmental authority or regulatory body is required
as a condition to the performance by the Issuer of its obligations under any
Bond Documents.  THE ISSUER MAKES NO REPRESENTATION OR WARRANTY WHATSOEVER AS
TO THE USE OF THE PROCEEDS OF THE BONDS OR TO THE SUITABILITY OF THE PROJECT
FOR THE COMPANY'S PURPOSES.

      (d)   This Agreement is, and each other Bond Document to which the
Issuer is a party when delivered will be, legal, valid and binding special
obligations of the Issuer enforceable against the Issuer in accordance with
its terms.

      (e)   There is no default of the Issuer in the payment of the principal
of or interest on any of its indebtedness for borrowed money or under any
instrument or instruments or agreements under and subject to which any
indebtedness for borrowed money has been incurred which does or could affect
the validity and enforceability of the Bond Documents or the ability of the
Issuer to perform its obligations thereunder, and no event has occurred and
is continuing under the provisions of any such instrument or agreement which
constitutes or, with the lapse of time or the giving of notice, or both,
would constitute such a default.

      (f)   With respect to the Bonds, there are no other obligations of the
Issuer that have been, are being or will be sold (i) at substantially the
same time, (ii) under a common plan of marketing, and (iii) at substantially
the same rate of interest.

      (g)   There is pending or, to the knowledge of the undersigned
officers of the Issuer, threatened no action or proceeding before any court,
governmental agency or arbitrator (i) to restrain or enjoin the issuance or
delivery of the Bonds or the collection of any revenues pledged under the
Indenture, (ii) in any way contesting or affecting the authority for the
issuance of the Bonds or the validity of any of the Bond Documents, or (iii)
in any way contesting the existence or powers of the Issuer.

      (h)   In connection with the authorization, issuance and sale of the
Bonds, the Issuer has complied with all provisions of the Constitution and
laws of the State, including the Act.

      (i)   The Issuer has not assigned or pledged and will not assign or
pledge its interest in this Agreement for any purpose other than to secure
the Bonds under the Indenture.  The Bonds constitute the only bonds or other
obligations of the Issuer in any manner payable from the revenues to be
derived from this Agreement, and except for the Bonds, no bonds or other
obligations have been or will be issued on the basis of this Agreement.

      (j)   The Issuer is not in default under any of the provisions of the
laws of the State, where any such default would affect the issuance, validity
or enforceability of the Bonds or the transactions contemplated by this
Agreement or the Indenture.

      (k)   The Issuer has obtained from the Governing Body approval of the
issuance of the Bonds required by Section 159C-4(d) of the Act, from the
Secretary of the Department of Commerce of the State approval of the Project
required by Section 159C 7 of the Act and from the Local Government
Commission of the State the approvals required by Sections 159C-6, -8 and -9
of the Act.

II.2. Representations by the Company.  The Company represents and warrants as
follows:

      (a)   The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of North Carolina, is in
good standing under the laws of the State, and has corporate and other legal
power and authority to enter into and to perform the agreements and covenants
on its part contained in the Bond Documents to which it is a party, and has
duly authorized the execution, delivery and performance of the Bond Documents
to which it is a party and has duly approved the Bond Documents.

      (b)   The execution and delivery of the Bond Documents to which it is a
party, consummation of the transactions contemplated hereby and thereby and
by the Bond Documents to which it is not a party, and the fulfillment of or
compliance with the terms and conditions hereof and thereof will not conflict
with or constitute a breach of or a default under the Company's articles of
incorporation or bylaws or any agreement or instrument to which the Company
is a party or any existing law, administrative regulation, court order or
consent decree to which the Company is subject, or by which it or any of its
property is bound.

      (c)   There is no action, suit, proceeding, inquiry or investigation,
at law or in equity, before or by any court, public board or body, pending or
threatened against or affecting the Company or any of its officers, nor to
the best knowledge of the Company is there any basis therefor, wherein an
unfavorable decision, ruling or finding would materially adversely affect the
transactions contemplated by this Agreement or that would adversely affect,
in any way, the validity or enforceability of any of the Bond Documents or
any other agreement or instrument to which the Company is a party and that is
to be used or contemplated for use in the consummation of the transactions
contemplated hereby.

      (d)   No further authorizations, consents or approvals of governmental
bodies or agencies are required in connection with the execution and delivery
by the Company of this Agreement or the other Bond Documents to which the
Company is a party or in connection with the carrying out by the Company of
its obligations under this Agreement or the other Bond Documents to which the
Company is a party.

      (e)   The financing of the Project as provided under this Agreement,
and commitments therefor made by the Issuer have induced the Company to
expand or locate its operations in the jurisdiction of the Issuer.

      (f)   The Company anticipates that upon completion of the Acquisition
of the Project, the Company will operate the Project as a "project" within
the meaning of the Act until the Bonds have been paid in full.

      (g)   The Project is of the type authorized and permitted by the Act,
and the Project is substantially the same in all material respects to that
described in the notice of public hearing published on _________________,
1996.

      (h)   The Project will be acquired and installed and will be operated
by the Company in such manner as to conform with all applicable zoning,
planning, building, environmental and other regulations of the governmental
authorities having jurisdiction over the Project.

      (i)   The Company will cause all of the proceeds of the Bonds to be
applied solely to the payment of Costs of the Project.

      (j)   The Company has taken no action, and has not omitted to take any
action, which action or omission to take action would in any way affect or
impair the excludability of interest on the Bonds from gross income of the
Holders thereof for federal income tax purposes.

      (k)   The Company presently in good faith estimates the Cost of the
Project to equal or exceed the original principal amount of the Bonds.

      (l)   The Project will be located wholly within Alamance County.

      (m)   The representations and warranties contained in Exhibit D and
made a part hereof are true and complete.

                                  ARTICLE IIIARTICLE III

                          ACQUISITION OF THE PROJECT

      Section III.1.    Agreement to Undertake and Complete the Project.  The
Company covenants and agrees to undertake and complete the Acquisition of the
Project.  Upon written request of the Issuer or the Trustee, the Company
agrees to make available to the Issuer and the Trustee (for review and
copying) all the then current Plans and Specifications for the Project.

      The Company agrees to cause the Project to be completed as soon as may
be practicable and to cause all proceeds of the Bonds, including investment
earnings, to be expended no later than three years from the Issue Date.  For
Costs of the Project incurred prior to receipt by the Issuer of the proceeds
of the Bonds, the Company agrees to advance all funds necessary for such
purpose.  Such advances may be reimbursed from the Initial Fund to the extent
permitted by Section 3.2.

      The Company shall obtain or cause to be obtained all necessary permits
and approvals for the Acquisition, operation and maintenance of the Project.

III.2.SectioDisbursements from the Initial Fund.  In the Indenture, the
Issuer has authorized and directed the Trustee to use the moneys in the
Initial Fund for payment or reimbursement to the Company of the Costs of the
Project.

      Each payment for a Cost of the Project shall be made only upon the
receipt by the Trustee and, upon written request therefor, the Issuer of a
requisition and certificate, substantially in the form attached hereto as
Exhibit B and signed by the Company Representative, certifying:

      (a)   the requisition and certificate number;

      (b)   the payee, which may be the Issuer or the Trustee for the payment
of the fees and expenses of the Issuer or the Trustee, as the case may be,
and which may be the Company in the case of (i) work performed by the
Company's personnel, or (ii) payments advanced by the Company for the Project;

      (c)   the amount to be paid;

      (d)   that the payment is due, is a proper charge against the Initial
Fund, and has not been the basis for any previous withdrawal from the Initial
Fund;

      (e)   that all funds being requisitioned shall be used in compliance
with the Code and the Tax Regulations promulgated thereunder, and that
substantially all such funds shall be used for the acquisition or
installation of property of a character subject to the allowance for
depreciation as prescribed by Section 144(a)(1)(A) of the Code and the Tax
Regulations promulgated thereunder.  The Company agrees, however, that it
will not request any such disbursement which, if paid, would result in (i)
less than substantially all (at least ninety-five percent (95%)) of the
proceeds of the Bonds being used to provide land or property subject to the
allowance for depreciation under Section 167 of the Code, constituting the
Project, (ii) less than all of the proceeds of the Bonds being used to
provide the Project under the Act, or (iii) the inclusion of the interest on
any of the Bonds in the gross income of any Holder for purposes of federal
income taxation (as long as such Holder is not a "related person" or a
"substantial user" of the Project as such terms are used in Section 144 of
the Code); and

      (f)   that no Event of Default, as defined in Section 10.1 of this
Agreement, has occurred which has not been waived and that the Company is not
aware of any then existing event or condition which, with the passage of
time, would constitute an Event of Default under Section 10.1.

      Interest on the Bonds and all legal, consulting and issuance expenses
shall be set forth separately in any requisition and certificate requesting
payment therefor.  Such requisitions and certificates shall be consecutively
numbered.  Upon request, the Company shall furnish the Issuer or the Trustee
with copies of invoices or other appropriate documentation supporting
payments or reimbursements requested pursuant to this Section.  The Issuer
and the Trustee may rely conclusively upon any statement made in any such
requisition and certificate.

      Section III.3.    Establishment of Completion Date and Certificate as 
III.3.pletioEstablishment of Completion Date and Certificate as to 
Completion.  The Completion Date shall be the date on which the Company
Representative signs and delivers to the Trustee a certificate stating that,
except for amounts retained by the Trustee for Costs of the Project not then
due and payable, or the liability for which the Company is, in good faith,
contesting or disputing, (a) the Project has been completed to the
satisfaction of the Company, and all labor, services, materials and supplies
used in such Acquisition have been paid for, and (b) the Project is suitable
and sufficient for the efficient operation as a "project" (as defined in the
Act).

      Notwithstanding the foregoing, such certificate may state that it is
given without prejudice to any rights against third parties which exist at
the date of such certificate or which may subsequently come into being.

      Section III.4.    Closeout of Initial Fund; Disposition of Balance in 
III.4.l FundCloseout of Initial Fund; Disposition of Balance in Initial 
Fund.  All moneys and any unliquidated investments remaining in the Initial
Fund on the Completion Date and after payment in full of the Costs of the
Project (except for costs not then due and payable for the payment of which
the Trustee shall have retained amounts as hereinafter provided) shall, as
soon as practicable after the Completion Date, and no later than ninety days
thereafter, at the direction of the Company, be delivered to the Trustee for
deposit in the Surplus Fund.  The Trustee shall, at the direction of the
Company Representative, retain moneys in the Initial Fund for payment of
Costs of the Project not then due and payable.  Any balance of such retained
funds remaining after full payment of such Costs of the Project shall at the
direction of the Company be delivered to the Trustee for deposit in the
Surplus Fund to be applied to the redemption of Bonds in accordance with the
terms of the Indenture.

      Section III.5.    Company Required to Pay Costs in Event Initial Fund 
III.5.icientCompany Required to Pay Costs in Event Initial Fund 
Insufficient.  If the moneys in the Initial Fund available for payment of the
Costs of the Project should not be sufficient to make such payments in full,
the Company agrees to pay directly (or to deposit moneys in the Initial Fund
for the payment of) such costs of completing the Project as may be in excess
of the moneys available therefor in the Initial Fund.  THE ISSUER DOES NOT
MAKE ANY WARRANTY OR REPRESENTATION (EITHER EXPRESS OR IMPLIED) THAT THE
MONEYS DEPOSITED INTO THE INITIAL FUND AND AVAILABLE FOR PAYMENT OF THE COSTS
OF THE PROJECT, UNDER THE PROVISIONS OF THIS AGREEMENT, WILL BE SUFFICIENT TO
PAY ALL OF THE COSTS OF THE PROJECT.  If, after exhausting the moneys in the
Initial Fund for any reason (including, without limitation, losses on
investments made by the Trustee under the Indenture), the Company pays, or
deposits moneys in the Initial Fund for the payment of, any portion of the
Costs of the Project pursuant to the provisions of this Section, the Company
shall not be entitled to any reimbursement therefor from the Issuer or from
the Trustee, nor shall it be entitled to any diminution of the amounts
payable under Section-5.2.

III.6.SectioCompany and Issuer Representatives and Successors.  At or prior
to the initial sale of the Bonds, the Company and the Issuer shall appoint a
Company Representative and an Issuer Representative, respectively, for the
purpose of taking all actions and delivering all certificates required to be
taken and delivered by the Company Representative and the Issuer
Representative under the provisions of this Agreement.  The Company and the
Issuer, respectively, may appoint alternate Company Representatives and
alternate Issuer Representatives to take any such action or make any such
certificate if the same is not taken or made by the Company Representative or
the Issuer Representative.  In the event any of such persons, or any
successor appointed pursuant to the provisions of this Section, should resign
or become unavailable or unable to take any action or deliver any certificate
provided for in this Agreement, another Company Representative or alternate
Company Representative, or another Issuer Representative or alternate Issuer
Representative, shall thereupon be appointed by the Company or the Issuer,
respectively.  If the Company or the Issuer fails to make such designation
within ten (10) days following the date when the then incumbent Company
Representative or Issuer Representative resigns or becomes unavailable or
unable to take any such actions, the President or any Vice President of the
Company, or the Chairman or the Vice Chairman of the Issuer, shall serve as
the Company Representative or the Issuer Representative, respectively.

      Whenever the provisions of this Agreement require the Company's
approval or require the Issuer or the Trustee to take some action at the
request or direction of the Company, the Company Representative shall make,
in writing, such approval or such request or direction unless otherwise
specified in this Agreement.  Any Company action so taken with the written
approval of or at the written direction of the Company Representative shall
be binding upon the Company.

III.7.SectioInvestment of Moneys in Funds.  The Trustee may invest or
reinvest any moneys held pursuant to the Indenture to the extent permitted by
Section 4.7 of the Indenture and by law (but subject to the provisions of
Section 8.9(a) hereof), in Permitted Investments, as defined in the
Indenture, as directed by a Company Representative.

      Any such securities may be purchased at the offering or market price
thereof at the time of such purchase.

      The Trustee may make any and all such investments through its own bond
department or trust investments department.  Any interest accruing on or
profit realized from the investment of any moneys held as part of the Initial
Fund shall be credited to the Initial Fund, and any loss resulting from such
investment shall be charged to the Initial Fund.  Any interest accruing on or
profit realized from the investment of any moneys held as a part of the Bond
Fund shall be credited to the Bond Fund, and any loss resulting from such
investment shall be charged to the Bond Fund.  Neither the Issuer nor the
Trustee shall be liable for any loss resulting from any such investments,
provided the Trustee has performed its respective obligations under Section
4.7 of the Indenture in accordance with Section 7.1(b) of the Indenture.  For
the purposes of this Section, any interest-bearing deposits, including
certificates of deposit, issued by or on deposit with the Trustee shall be
deemed to be investments and not deposits.

III.8.SectioPlans and Specifications.  The Company shall maintain a set of
Plans and Specifications at the Project which shall be available to the
Issuer and the Trustee for inspection and examination during the Company's
regular business hours.  The Issuer, the Trustee and the Company agree that
the Company may supplement, amend and add to the Plans and Specifications,
and that the Company shall be authorized to omit or make substitutions for
components of the Project, without the approval of the Issuer and the
Trustee, provided that no such change shall be made which, after giving
effect to such change, would cause any of the representations and warranties
set forth in Section 2.2 hereof to be false or misleading in any material
respect, or would result in a violation of the covenant set forth in Section
8.5.  If any such change would render materially incorrect or inaccurate the
description of the initial components of the Project as set forth in Exhibit
A to this Agreement, the Company shall deliver to the Issuer and the Trustee
an opinion of Bond Counsel to the effect that such change will not cause the
interest on the Bonds to be includable in the gross income of the owners
thereof for federal income tax purposes, and thereafter, the Company and the
Issuer shall amend such Exhibit A to reflect such change.  No approvals of
the Issuer and the Trustee shall be required for the Acquisition of the
Project or for the solicitation, negotiation, award or execution of contracts
relating thereto.

                                  ARTICLE IVARTICLE IV

                             ISSUANCE OF THE BONDS

      Section IV.1.     Agreement to Issue the Bonds.  To provide funds for
the Acquisition of the Project, the Issuer agrees that it will sell, issue
and deliver the Bonds in the aggregate principal amount of $6,000,000 to the
initial purchasers thereof and will cause the proceeds of the Bonds to be
applied as provided in Section 4.5 of the Indenture.

IV.2. No Third-Party Beneficiary.  It is specifically agreed between the
parties executing this Agreement that it is not intended by any of the
provisions of any part of this Agreement to establish in favor of the public
or any member thereof, other than as expressly provided herein or as
contemplated in the Indenture, the rights of a third-party beneficiary
hereunder, or to authorize anyone not a party to this Agreement to maintain a
suit for personal injuries or property damage pursuant to the terms or
provisions of this Agreement.  The duties, obligations and responsibilities
of the parties to this Agreement with respect to third parties shall remain
as imposed by law.

                                   ARTICLE VARTICLE V

                           LOAN; PAYMENT PROVISIONS

      Section V.1.      Loan of Proceeds. The Issuer agrees, upon the terms
and conditions contained in this Agreement and the Indenture, to lend to the
Company the proceeds received by the Issuer from the sale of the Bonds.  The
loan shall be made by depositing the accrued interest, if any, from the
initial sale of the Bonds into the Bond Fund and the remainder of said
proceeds in the Initial Fund in accordance with Section 4.5 of the
Indenture.  Such proceeds shall be disbursed to or on behalf of the Company
as provided in Section-3.2.  The Company's obligation to repay the loan shall
be evidenced by a Promissory Note, the form of which is attached hereto as
Exhibit C, dated the Issue Date.

V.2.  Amounts Payable.  The Company hereby agrees to pay the Note and repay
the loan made pursuant to this Agreement by making the following payments:

      (a)   The Company shall pay or cause to be paid to the Trustee in
immediately available funds for the account of the Issuer for deposit into
the Bond Fund on or before any Interest Payment Date for the Bonds or any
other date that any payment of interest, premium, if any, or principal is
required to be made in respect of the Bonds pursuant to the Indenture, until
the principal of, premium, if any, and interest on the Bonds shall have been
fully paid or provision for the payment thereof shall have been made in
accordance with the Indenture, a sum which, together with any Eligible Funds
available for such payment in the Bond Fund, will enable the Trustee to pay
the amount payable on such date as principal of (whether at maturity or upon
redemption or acceleration or otherwise), premium, if any, and interest on
the Bonds as provided in the Indenture; provided, however, that the
obligation of the Company to make any payment hereunder shall be deemed
satisfied and discharged  to the extent of the corresponding payment made by
the Credit Issuer under the Credit Facility.

      It is understood and agreed that the Note and all payments payable by
the Company under this subsection are assigned by the Issuer to the Trustee
for the benefit of the Holders.  The Company assents to such assignment.  The
Issuer hereby directs the Company and the Company hereby agrees to pay to the
Trustee at the principal corporate trust office of the Trustee all payments
payable by the Company pursuant to the Note and this subsection.

      (b)   The Company will also pay the reasonable fees and expenses of the
Issuer, the Trustee, the Tender Agent, the Paying Agent, the Placement Agent,
the Remarketing Agent and the Registrar under the Indenture and all other
amounts which may be payable to the Trustee, Paying Agent, Registrar or the
Tender Agent under Section 7.2 of the Indenture, and the reasonable fees and
expenses of the Remarketing Agent, such fees and expenses to be paid when due
and payable by the Company directly to the Trustee, Tender Agent, Paying
Agent, Registrar and Remarketing Agent, respectively, for their own account.

      (c)   The Company will also pay when due and payable the reasonable
fees and expenses of the Issuer related to the issuance of the Bonds,
including without limitation, attorneys' fees and expenses.

      (d)   The Company covenants, for the benefit of the Holders, to pay or
cause to be paid, to the Paying Agent, such amounts as shall be necessary to
enable the Paying Agent to pay the Purchase Price of Bonds delivered to the
Tender Agent or the Remarketing Agent, as the case may be, for purchase, all
as more particularly described in Section 2.6 of the Indenture; provided,
however, that the obligation of the Company to make any such payment under
this subsection shall be reduced by the amount of moneys available for such
payment described in Section 2.6(g)(i) and (ii) of the Indenture; and
provided, further, that the obligation of the Company to make any payment
under this subsection shall be deemed to be satisfied and discharged to the
extent of the corresponding payment made by the Credit Issuer under the
Credit Facility.

      (e)   In the event the Company shall fail to make any of the payments
required in this Section, the item or installment so in default shall
continue as an obligation of the Company until the amount in default shall
have been fully paid.

V.3.  Unconditional Obligations.  The obligation of the Company to make the
payments required by Section 5.2 shall be absolute and unconditional.  The
Company shall pay all such amounts without abatement, diminution or deduction
(whether for taxes or otherwise) regardless of any cause or circumstance
whatsoever including, without limitation, any defense, set-off, recoupment or
counterclaim that the Company may have or assert against the Issuer, the
Trustee or any other Person.

V.4.  Prepayments.  The Company may prepay all or any  part of the amounts
required to be paid by it under Section-5.2, at the times and in the amounts
provided in Article-
XI for redemption of the Bonds, and in the case of
mandatory redemptions of the Bonds, the Company shall cause to be furnished
to the Issuer such amounts on or prior to the applicable redemption dates.
Prepayment of amounts due hereunder pursuant to this Section shall be
deposited in the Bond Fund.

V.5.  Credits Against Payments.  To the extent that principal of or premium,
if any, or interest on the Bonds shall be paid with moneys available under
the Credit Facility, from remarketing proceeds (with respect to Purchase
Price) or other sources available under the Indenture, the obligation of the
Company to make, payments required by Section 5.2 shall be satisfied and
discharged to the extent of an amount equal to the principal of or premium,
if any, or interest on the Bonds so paid.  If the principal of and premium,
if any, and interest on the Bonds shall have been paid sufficiently that
payment of the Bonds shall have occurred in accordance with Article V of the
Indenture, then the obligations of the Company pursuant to Section 5.2, ipso
facto, shall be deemed to have been paid in full, and the Company's
obligations under Section-5.2 and this Agreement shall be discharged.
Notwithstanding the foregoing to the extent that principal of or premium, if
any, or interest on the Bonds is paid from drawings under the Credit
Facility, there shall be credited against the unpaid loan payments required
by Section 5.2 hereof, an amount equal to the principal of or premium, if
any, or interest on the Bonds so paid.

V.6.  Credit Facility and Alternate Credit Facility.  The Company shall
provide for the payment of amounts payable pursuant to Section 5.2(a) and (d)
herein, by the delivery to the Trustee on the Issue Date of the Original
Credit Facility.  The Company shall be entitled to terminate the Credit
Facility as provided therein and in the Indenture and shall be entitled to
provide an Alternate Credit Facility under certain circumstances as provided
in the Indenture.

V.7.   Interest Rate Determination Method.  The Company is hereby granted the
right to designate from time to time changes in the Interest Rate
Determination Method (as defined in the Indenture) in the manner and to the
extent set forth in Section-2.4 of the Indenture.

V.8.  Company Approval of Indenture.  A copy of the Indenture has been
submitted to the Company for its examination and review.  By its execution of
this Agreement, the Company acknowledges that it has approved, has agreed to
and is bound by the provisions of the Indenture which by their terms are
applicable to the Company.  The Company agrees that the Trustee shall be
entitled to enforce and to benefit from the terms and conditions of this
Agreement that relate to it notwithstanding the fact that it is not a
signatory hereto.

V.9.  Outstanding Bonds.  Promptly after each June 30, the Company shall
notify the Commission and the Issuer, by first class mail, of the aggregate
principal amount of the Bonds Outstanding at the close of business on such
June 30.

                                  ARTICLE VIARTICLE VI

                             MAINTENANCE AND TAXES

      Section VI.1.     Company's Obligations to Maintain and Repair.  The
Company agrees that during the term of this Agreement it will keep and
maintain the Project in good condition, repair and working order, ordinary
wear and tear excepted, at its own cost, and will make or cause to be made
from time to time all necessary repairs thereto (including external and
structural repairs) and renewals and replacements thereto.

VI.2. Taxes and Other Charges.  (a)  The Company will promptly pay and
discharge or cause to be promptly paid and discharged, as the same become
due, all taxes, assessments, governmental charges or levies and all utility
and other charges incurred in the operation, maintenance, use, occupancy and
upkeep of the Project imposed upon it or in respect of the Project before the
same shall become in default, as well as all lawful claims which, if unpaid,
might become a lien or charge upon such property and assets or any part
thereof, except such that are contested in good faith by the Company for
which the Company has maintained adequate reserves satisfactory to the Credit
Issuer, or in the absence of any Credit Issuer, satisfactory to the Issuer
and the Trustee.

      (b) The Company shall furnish the Issuer and the Trustee, upon request,
with proof of payment of any taxes, governmental charges, utility charges,
insurance premiums or other charges required to be paid by the Company under
this Agreement.

                                  ARTICLE VIIARTICLE VII

             INSURANCE, EMINENT DOMAIN AND DAMAGE AND DESTRUCTION

      Section VII.1.    Insurance.  The Company will during the term of this
Agreement and at all times while any Bonds are outstanding continuously
insure the Project against such risks as are customarily insured against by
businesses of like size and type, paying as the same become due all premiums
in respect thereof.  In addition the Company shall comply, or cause
compliance, with applicable worker's compensation laws of the State.  While a
Credit Facility is in effect, the Company shall only be required to comply
with the insurance requirements set forth in the Credit Agreement.

VII.2.SectioProvisions Respecting Eminent Domain.  In case of any damage to
or destruction of all or any part of the Project exceeding $50,000, the
Company shall give prompt written notice thereof to the Issuer and the
Trustee.  In case of a taking or proposed taking of all or any part of the
Project or any right therein by Eminent Domain, the party upon which notice
of such taking is served shall give prompt written notice to the other and to
the Trustee.  Each such notice shall describe generally the nature and extent
of such damage, destruction, taking, loss, proceedings or negotiations.

VII.3.SectioDamage and Destruction.  If at any time while any of the Bonds
are Outstanding, the Project, or any portion thereof, shall be damaged or
destroyed by fire, flood, windstorm or other casualty, or title to, or the
temporary use of, the Project, or any portion thereof, shall have been taken
by the power of Eminent Domain, the Company (unless it shall have exercised
its option to prepay all of the Bonds) shall cause the Net Proceeds from
insurance or condemnation or an amount equal thereto to be used for the
repair, reconstruction, restoration or improvement of the Project.
Notwithstanding the above, so long as the Credit Facility is outstanding, the
Company shall comply with the terms of the Credit Agreement related to the
use of insurance proceeds.

VIII                             ARTICLE VIII

                               SPECIAL COVENANTS

      Section VIII.1.   Access to the Property and Inspection.  The Issuer
and the Trustee, and their respective agents and employees, shall have the
right, at all reasonable times during normal business hours of the Company
upon the furnishing of reasonable notice to the Company under the
circumstances, to enter upon and examine and inspect the Project and to
examine and copy the books and records of the Company insofar as such books
and records relate to the Project or the Bond Documents.

VIII.2.ectioFinancial Statements.  The Company shall, upon request, deliver
to the Trustee and the Issuer as soon as practicable and in any event within
120 days after the end of each fiscal year of the Company, the financial
reports of the Company for such fiscal year.

VIII.3.ectioFurther Assurances and Corrective Instruments.Instruments

      (a)   Subject to the provisions of the Indenture, the Issuer and the
Company agree that they will, from time to time, execute, acknowledge and
deliver, or cause to be executed, acknowledged and delivered, such
supplements and amendments hereto and such further instruments as may
reasonably be required for carrying out the intention or facilitating the
performance of this Agreement.

      (b)   The Company shall cause this Agreement to be kept recorded and
filed in such manner and in such places as may be required by law to fully
preserve and protect the security of the Holders and the rights of the
Trustee and to perfect the security interest created by the Indenture.

VIII.4.ectioRecording and Filing; Other Instruments.Instruments

      (a)   The Company covenants that it will cause continuation statements
to be filed as required by law in order fully to preserve and to protect the
rights of the Trustee or the Issuer in the assignment of certain rights of
the Issuer under this Agreement and otherwise under the Indenture.  The
Company covenants that it will cause Counsel to render an opinion to the
Issuer and to the Trustee not earlier than 60 nor later than 30 days prior to
each anniversary date occurring at five-year intervals after the issuance of
the Bonds to the effect that all Financing Statements, notices and other
instruments required by applicable law, including this Agreement, have been
recorded or filed or re-recorded or re-filed in such manner and in such
places required by law in order to fully preserve and protect the rights of
the Trustee in the assignment of certain rights of the Issuer under this
Agreement and otherwise under the Indenture.

      (b)   The Company and the Issuer shall execute and deliver all
instruments and shall furnish all information and evidence deemed necessary
or advisable in order to enable the Company to fulfill its obligations as
provided in subsection (a) of this Section.  The Company shall file and
re-file and record and re-record or shall cause to be filed and re-filed and
recorded and re-recorded all instruments required to be filed and re-filed
and recorded or re-recorded and shall continue or cause to be continued the
liens of such instruments for so long as any of the Bonds shall be
Outstanding.

      Section VIII.5.   Exclusion from Gross Income for Federal Income Tax 
VIII.5.s of Exclusion from Gross Income for Federal Income Tax Purposes of 
Interest on the Bonds.  The Company covenants and agrees that it has not
taken and will not take or cause to be taken, and has not omitted and will
not omit or cause to be omitted, any action which will result in interest
paid on the Bonds being included in gross income of the Holders of the Bonds
for the purposes of federal income taxation.

      The Company covenants and agrees that it will take or cause to be taken
all required actions necessary to preserve the exclusion from gross income
for federal income tax purposes of interest on the Bonds; and the Issuer
covenants and agrees that it will take or cause to be taken all required
actions to preserve the exclusion from gross income for federal income tax
purposes of interest on the Bonds.

VIII.6.ectioIndemnity Against Claims.  The Company will pay and discharge and
will indemnify and hold harmless the Issuer, the Commission and the Trustee,
and their respective officers, employees and agents, from any taxes,
assessments, impositions and other charges in respect of the Project.  If any
such claim is asserted, or any such lien or charge upon payments, or any such
taxes, assessments, impositions or other charges, are sought to be imposed,
the Issuer or the Commission, as the case may be, will give prompt written
notice to the Company and the Trustee; provided, however, that the failure to
provide such notice will not relieve the Company of the Company's obligations
and liability under this Section and will not give rise to any claim against
or liability of the Issuer or the Trustee.  The Company shall have the sole
right and duty to assume, and shall assume, the defense thereof, with counsel
selected by the Company and reasonably acceptable to the person on behalf of
which the Company undertakes a defense, with full power to litigate,
compromise or settle the same in its sole discretion.

VIII.7.ectioRelease and Indemnification.  The Company shall at all times
protect, indemnify and hold harmless the Trustee, the Issuer, the Governing
Body, the Commission and their respective directors, members, officers,
attorneys, agents and employees against any and all liability, losses,
damages, costs, expenses, taxes, causes of action, suits, claims, demands and
judgments of any nature arising from or in connection with the Project or the
financing of the Project, including, without limitation, all claims or
liability resulting from, arising out of or in connection with the acceptance
or administration of the Bond Documents or the trusts thereunder or the
performance of duties under the Bond Documents or any loss or damage to
property or any injury to or death of any person that may be occasioned by
any cause whatsoever pertaining to the Project or the use thereof, including
without limitation any lease thereof or assignment of its interest in this
Agreement, such indemnification to include the reasonable costs and expenses
of defending itself or investigating any claim of liability and other
reasonable expenses and attorneys' fees incurred by the Issuer, The Trustee,
the Governing Body and their respective directors, members, officers,
attorneys, agents and employees in connection therewith, provided that the
benefits of this Section shall not inure to any person other than the Issuer,
the Governing Body, the Trustee and their respective directors, members,
officers, attorneys, agents and employees, and provided further that such
loss, damage, death, injury, claims, demands or causes shall not have
resulted from the gross negligence or willful misconduct of, the Issuer, the
Trustee or such director, member, officer, attorneys, agent or employee.  The
obligations of the Company under this Section shall survive the termination
of this Agreement and the Indenture.  Notwithstanding any other provision of
this Agreement or the Indenture to the contrary, the Company agrees (i)-not
to assert any claim or institute any action or suit against the Trustee or
its employees arising from or in connection with any investment of funds made
by the Trustee in good faith as directed by a Company Representative, and
(ii)-to indemnify and hold harmless the Trustee and its employees against any
liability, losses, damages, costs, expenses, causes of action, suits, claims,
demands and judgments of any nature arising from or in connection with any
such investment.  In addition, the Issuer shall have the right, in the event
of a suit against the Issuer, to hire its own counsel, and the Company shall
indemnify the Issuer for the costs thereof.

VIII.8.ectioCompliance with Laws.  The Company agrees to comply with all
applicable zoning, planning, building, environmental and other regulations of
the governmental authorities having jurisdiction of the Project during the
Company's operation of the Project.

VIII.9.ectioNon-Arbitrage Covenant.   Covenant

      (a)   The Company and the Issuer covenant that they will (i) not take,
or fail to take, any action or make any investment or use of the proceeds of
the Bonds that would cause the Bonds to be "arbitrage bonds" within the
meaning of Section 148 of the Code and (ii) comply with the requirements of
Section 148 of the Code; provided that, the Issuer shall not be liable for
any loss resulting from the investment of any funds in accordance with any
written instructions of the Company.

      (b)   In the event that all of the proceeds of the Bonds, including the
investment proceeds thereof, are not expended by the date which is six (6)
months following the Issue Date, or if for any other reason a rebate is
payable to the United States pursuant to Section 148 of the Code, the Company
shall calculate, or cause to be calculated, the Rebate Amount (as defined in
the Indenture).  The Company agrees to pay the amount so calculated, together
with supporting documentation, to the Trustee so as to permit the Trustee to
pay such rebate to the United States at the times required by the Code.  The
amount paid by the Company to the Trustee shall be deposited into the Rebate
Fund.  The Company shall maintain or cause to be maintained records of the
determinations of the rebate, if any, pursuant to this Section 8.9(b) until
six (6) years after the retirement of the Bonds.  This Section 8.9(b) shall
be construed in accordance with Section 148(f) of the Code, including,
without limitation, any applicable tax regulations promulgated under the
Code.  Nothing contained in this Agreement or in the Indenture shall be
interpreted or construed to require the Issuer to pay any applicable rebate,
such obligation being the sole responsibility of the Company.  The Company
shall pay all fees, costs and expenses associated with calculation of the
Rebate Amount (as defined in the Indenture) and, upon request from the
Issuer, provide the Issuer with a copy of such calculation.

VIII.10.ctioNotice of Determination of Taxability.  Promptly after the
Company first becomes aware of any Determination of Taxability or an event
that could trigger a Determination of Taxability, the Company shall give
written notice thereof to the Issuer, the Remarketing Agent and the Trustee.

VIII.11.ctioNo Purchase of Bonds by Company or Issuer.  During the time a
Credit Facility is in effect, neither the Company, the Issuer nor any
affiliates of any of them shall purchase any of the Bonds from the
Remarketing Agent except under the circumstances under which the Remarketing
Agent may remarket Bonds to the Company or the Issuer as provided in Section
2.7(d) of the Indenture.

VIII.12.ctioMaintenance of Corporate Existence.e Existence

      So long as a Credit Facility is in effect the Company agrees that it
will maintain its corporate existence, will not dissolve or otherwise dispose
of all or substantially all of its assets and will not consolidate with or
merge into another corporation or permit one or more other corporations to
consolidate with or merge into it, except either with the consent of the
Credit Issuer or as provided in the original Credit Agreement; if a Credit
Facility is not in effect,  the Company agrees that it will continue to be a
corporation either organized under the laws of or duly qualified to do
business as a foreign corporation in the State, will maintain its corporate
existence, will not dissolve or otherwise dispose of all or substantially all
of its assets and will not consolidate with or merge into another corporation
or permit one or more corporations to consolidate with or merge into it;
provided, that the Company may, without violating the foregoing, consolidate
with or merge into another corporation, or permit one or more corporations to
consolidate with or merge into it, or transfer all or substantially all of
its assets to another such corporation (and thereafter dissolve or not
dissolve, as the Company may elect) if the corporation surviving such merger
or resulting from such consolidation, or the corporation to which all or
substantially all of the assets of the Company are transferred, as the case
may be:

            (i)   is a corporation organized under the laws of the United
      States of America, or any state, district or territory thereof, and
      qualified to do business in the State;

            (ii)  shall expressly in writing assume all of the obligations of
      the Company contained in this Agreement;

            (iii) has a consolidated tangible net worth (after giving effect
      to such consolidation, merger or transfer) of not less than the
      consolidated tangible net worth of the Company and its consolidated
      subsidiaries immediately prior to such consolidation, merger or
      transfer; and

            (iv)  provided that no Event of Default has occurred and is
      continuing hereunder.

            The term "consolidated tangible net worth," as used in this
Section, shall mean the difference obtained by subtracting total consolidated
liabilities (not including as a liability any capital or surplus item) from
total consolidated tangible assets of the Company and all of its consolidated
subsidiaries, computed in accordance with generally accepted accounting
principles.  Prior to any such consolidation, merger or transfer the Trustee
shall be furnished a certificate from the chief financial officer of the
Company or his/her deputy stating that in the opinion of such officer none of
the covenants in this Agreement will be violated as a result of said
consolidation, merger or transfer.

VIII.13.ctioDuties and Obligations.  The Company covenants and agrees that it
will fully and faithfully perform all the duties and obligations that the
Issuer has covenanted and agreed in the Indenture to cause the Company to
perform and any duties and obligations that the Company is required in the
Indenture to perform.  The foregoing shall not apply to any duty or
undertaking of the Issuer that by its nature cannot be delegated or assigned.

IX                                ARTICLE IX

                          ASSIGNMENT, LEASE AND SALE

      Section IX.1.     Restrictions on Transfer of Issuer's Rights.  The
Issuer agrees that, except for the assignment of its rights under this
Agreement to the Trustee pursuant to the Indenture, it will not during the
term of this Agreement sell, assign, transfer or convey its interests in this
Agreement except as provided in Section 9.2.

IX.2. Assignment by the Issuer.  It is understood, agreed and acknowledged
that the Issuer, as security for payment of the principal of and premium, if
any, and interest on the Bonds, will assign to the Trustee pursuant to the
Indenture, among other things, certain of its rights, title and interests in
and to this Agreement (reserving its rights, however, pursuant to sections of
this Agreement providing that notices, reports and other statements be given
to the Issuer and that consents be obtained from the Issuer and also
reserving its rights to reimbursement and payment of costs and expenses under
Sections 5.2(b) and (c), its right of access under Section 8.1, and its
rights to indemnification and non-liability under Sections 8.6, 8.7, 12.6 and
12.7, all of this Agreement).  The Company consents to such assignment and
agrees that the Trustee shall be entitled to enforce this Agreement directly
against the Company as a third party beneficiary hereof.

      Section IX.3.     Assignment, Lease or Sale of Project or Assignment of 
IX.3.mAssignment, Lease or Sale of Project or Assignment of Agreement by 
Company.  (a) With the prior written consent of the Trustee, the Issuer and
if a Credit Facility is then in effect, the issuer of such Credit Facility
(i) the rights of the Company under this Agreement may be assigned by the
Company and (ii) the Project may be leased or sold as a whole or in part by
the Company; provided, however, that (1) no such assignment, lease or sale
shall relieve the Company from primary liability for any of its obligations
hereunder, and in the event of any assignment, lease or sale, the Company
shall continue to remain primarily liable for payments to be made pursuant to
the Note and hereunder and for the performance and observance of the other
agreements on its part herein provided to be performed and observed by it to
the same extent as though no assignment, lease or sale had been made, (2)
each lessee, purchaser or assignee of the Company's interest in this
Agreement shall assume the obligations of the Company hereunder to the extent
of the interest assigned, leased or sold, and the Company shall, not more
than 60 nor less than 30 days prior to the effective date of any such
assignment, lease or sale, furnish or cause to be furnished to the Issuer and
the Trustee a true and complete copy of each such assignment, lease or
purchase contract and assumption of obligations and (3) prior to any lease or
sale, the Company shall have caused to be delivered to the Issuer and the
Trustee an opinion of Bond Counsel to the effect that such leasing or sale
will not cause interest on the Bonds to be includable in the gross income of
the owners thereof for purposes of federal income taxation.

      (b)  Notwithstanding the provisions of Section 9.3(a) above, the
Company may sell or lease the Project and assign its interest in this
Agreement in full, and may be released from all liability under this
Agreement, so long as the Trustee receives (i) consent of the Issuer, 100% of
the Holders of the Bonds, and, if a Credit Facility is in effect, the issuer
of such Credit Facility to such transfer or assignment, and (ii) an Opinion
of Bond Counsel that such sale, lease, assignment or release, as applicable,
will not have an adverse effect on the excludability of interest on the Bonds
from gross income for federal income tax purposes.

      (c)  Notwithstanding the foregoing, if the Company with the consent of
the Credit Issuer determines that any fixtures, apparatus, or other movable
property constituting a part of the Project have become inadequate, obsolete,
worn out, unsuitable, undesirable, inappropriate or unnecessary for its
purposes at any time, the Company may remove such items from the Project and
sell, trade in, or otherwise dispose of them (as a whole or in part).

                                   ARTICLE XARTICLE X

                        EVENTS OF DEFAULT AND REMEDIES

      Section X.1.      Events of Default Defined.  The term "Event of
Default" shall mean any one or more of the following events:

      (a)   Failure by the Company to make any payments required to be paid
pursuant to Section 5.2(a) or to pay the Purchase Price of Bonds as required
pursuant to Section 5.2(d) herein;

      (b)   The occurrence of an Event of Default under the Indenture;

      (c)   Any representation by or on behalf of the Company contained in
this Agreement or in any instrument furnished in compliance with or in
reference to this Agreement or the Indenture proves false or  misleading in
any material respect as of the date of the making or furnishing thereof;

      (d)   Failure by the Company to observe or perform any of its other
covenants, conditions, payments or agreements under this Agreement for a
period of 30 days after written notice, specifying such failure and
requesting that it be remedied, is given to the Company by the Issuer or the
Trustee; provided, however, that if such performance, observation or
compliance requires work to be done, action to be taken or conditions to be
remedied that by their nature cannot reasonably be done, taken or remedied
within such 30 day period, no Event of Default shall be deemed to have
occurred or to exist if, and so long as, the Company shall commence such
performance, observation or compliance within such period and shall
diligently and continuously prosecute the same to completion;

      (e)   The Company shall (i) apply for or consent to the appointment of,
or the taking of possession by, a receiver, custodian, assignee,
sequestrator, trustee, liquidator or similar official of the Company or of
all or a substantial part of its property, (ii) admit in writing its
inability, or be generally unable, to pay its debts as such debts become due,
(iii) make a general assignment for the benefit of its creditors, (iv)
commence a voluntary case under the Federal Bankruptcy Code (as now or
hereafter in effect), (v) file a petition seeking to take advantage of any
other federal or state law relating to bankruptcy, insolvency,
reorganization, arrangement, winding-up or composition or adjustment of
debts, (vi) fail to controvert in a timely or appropriate manner, or
acquiesce in writing to, any petition filed against the Company in an
involuntary case under said Federal Bankruptcy Code, or (vii) take any
corporate action for the purpose of effecting any of the foregoing;

      (f)   A proceeding or case shall be commenced, without the application
or consent of the Company, in any court of competent jurisdiction, seeking
(i) the liquidation, reorganization, arrangement, dissolution, winding-up or
composition or adjustment of debts of the Company, (ii) the appointment of a
trustee, receiver, custodian, assignee, sequestrator, liquidator or similar
official of the Company or of all or any substantial part of its assets, or
(iii) similar relief in respect of the Company under any law relating to
bankruptcy, insolvency, reorganization, arrangement, winding-up or
composition or adjustment of debts and such proceeding or case shall continue
undismissed, or an order, judgment or decree approving or ordering any of the
foregoing shall be entered and continue unstayed and in effect, for a period
of 90 days from the commencement of such proceeding or case or the date of
such order, judgment or decree, or an order for relief against the Company
shall be entered in an involuntary case under said Federal Bankruptcy Code;

      (g)   If a Credit Facility is in effect, the Trustee shall have
received a written notice from the Credit Issuer of the occurrence and
continuance of an "Event of Default" (as defined in the Credit Agreement); or

      (h)   If a Credit Facility is in effect, the Trustee shall have
received a written notice from the Credit Issuer that amounts which may be
drawn upon under the Credit Facility with respect to interest (other than
interest corresponding to the principal amount of Bonds which have been
redeemed) will not be reinstated following any drawing for such interest.

X.2.  Remedies on Default.  Upon the occurrence of an  Event of Default under
this Agreement, the Trustee, as assignee of the Issuer, but only if
acceleration of the principal amount of the Bonds has been declared pursuant
to Section 6.2 of the Indenture, shall take any one or more of the following
remedial steps:

      (a)   By written notice declare all payments hereunder and under the
Note immediately due and payable, whereupon the same shall become immediately
due and payable without presentment, demand, protest or any other notice
whatsoever, all of which are hereby expressly waived by the Company.

      (b)   Take whatever other action at law or in equity may appear
necessary or desirable to collect the amounts payable pursuant hereto and
under the Note then due and thereafter to become due or to enforce the
performance and observance of any obligation, agreement or covenant of the
Company under this Agreement, including the making of any drawing under the
Credit Facility.

      In the enforcement of the remedies provided in this Section, the Issuer
and the Trustee may treat all reasonable expenses of enforcement, including,
without limitation, legal, accounting and advertising fees and expenses, as
additional amounts payable by the Company then due and owing.

      Section X.3.      Application of Amounts Realized in Enforcement of 
X.3.diApplication of Amounts Realized in Enforcement of Remedies.  Any
amounts collected pursuant to action taken under Section 10.2 shall be paid
to the Trustee and applied in accordance with Section 6.7 of the Indenture.

X.4.  No Remedy Exclusive.  No remedy herein conferred upon or reserved to
the Issuer is intended to be exclusive of any other available remedy or
remedies, but each and every such remedy shall be cumulative and shall be in
addition to every other remedy given under this Agreement or now or hereafter
existing at law or in equity or by statute.  No delay or omission to exercise
any right or power accruing upon an Event of Default under this Agreement
shall impair any such right or power or shall be construed to be a waiver
thereof, but any such right and power may be exercised from time to time and
as often as may be deemed expedient.

X.5.  Agreement to Pay Attorneys' Fees and Expenses.  Upon the occurrence of
an Event of Default under this Agreement, if the Issuer or the Trustee
employs attorneys or incurs other expenses for the collection of amounts
payable hereunder or for the enforcement of the performance or observance of
any covenants or agreements on the part of the Company herein contained,
whether or not suit is commenced, the Company agrees that it will on demand
therefor pay to the Issuer or the Trustee or any combination thereof, as the
case may be, the reasonable fees of such attorneys and such other reasonable
expenses so incurred by the Issuer or the Trustee.

X.6.  Issuer and Company to Give Notice of Default.  The Issuer and the
Company severally covenant that they will, at the expense of the Company,
promptly give to the Trustee, the Tender Agent, the Remarketing Agent, the
Paying Agent and the Credit Issuer, and  to each other, written notice of any
Event of Default under this Agreement of which they shall have actual
knowledge or written notice, but the Issuer shall not be liable for failing
to give such notice.


                                  ARTICLE XIARTICLE XI

                        PREPAYMENTS; PURCHASE OF BONDS

      Section XI.1.     Optional Prepayments.

      (a)   The Company shall have, and is hereby granted, the option to
prepay the unpaid principal amount hereunder and under the Note in whole,
together with interest thereon to the date of redemption of the Bonds, at any
time by taking, or causing the Issuer to take, the actions required by the
Indenture for the redemption of all Bonds then outstanding, upon the
occurrence of any of the events set forth in Section 2.18(b) of the Indenture.

      (b)   The Company shall have, and is hereby granted, the option to
prepay all or any portion of the unpaid balance hereunder and under the Note,
together with interest thereon to the date of redemption of the Bonds, at any
time by taking, or causing the Issuer to take, the actions required by the
Indenture (i) to discharge the lien thereof through the redemption, or
provision for payment of redemption of all Bonds then outstanding or (ii) to
effect the redemption, or provision for payment or redemption, of less than
all Bonds then outstanding, pursuant to Section 2.18(a) of the Indenture.

      (c)   To make a prepayment pursuant to this Section 11.1, the Company
shall give written notice to the Issuer, the Trustee and the Registrar which
shall specify therein (i) the date of the intended prepayment, which shall
not be less than 45 days from the date any Bonds are to be redeemed from such
prepayment, and (ii) the principal amount to be prepaid and the date or dates
on which the prepayment is to occur.  All such prepayments shall be in the
amount of the unpaid amount hereunder and under the Note if made pursuant to
Section 11.1(a) or in the amount of an Authorized Denomination if made
pursuant to Section 11.1(b) and the Company shall furnish additional funds,
if necessary, to make such prepayments in such amounts.  In addition, the
Company shall make such additional payments as shall be necessary to pay any
redemption premium on the Bonds in connection with such redemption.

      Section XI.2.     Mandatory Prepayment Upon a Determination of 
XI.2.iMandatory Prepayment Upon a Determination of Taxability.  In the event
of a Determination of Taxability, the Company shall forthwith, and in any
event within 45 days of any such Determination of Taxability, pay the entire
unpaid principal balance hereunder and under the Note plus accrued interest
thereon to the date of payment, provided, that, if the Company delivers to
the Trustee the opinion of Bond Counsel described in Section 2.18(c) of the
Indenture, which opinion states that interest on the Bonds will not be
includable in the gross income of the owners thereof if less than all of the
Bonds are redeemed, then the Company shall prepay the Loan in the amount
necessary to redeem the amount of Bonds stated in such opinion.

      The Company hereby agrees to give prompt written notice to the Issuer
and the Trustee of (a) the occurrence of an event that gives or may give rise
to a Determination of Taxability or (b) its receipt of any oral or written
advice from the Internal Revenue Service that an event giving rise to a
Determination of Taxability shall have occurred.

Section XI.3.  Mandatory Prepayment in Event of Cessation of Operation.  In
the event of a "Cessation of Operation," the Company shall be required to
prepay the unpaid aggregate amount of the Note within 45 days after the date
of "Cessation of Operation," such payment to be due on the redemption date,
plus accrued interest to the date of redemption of the Bonds from such
prepayment, in accordance with the provisions of the Bonds and without
payment of premium.

      For the purposes of this Section 11.3, a "Cessation of Operation" of
the Project shall not be deemed to have occurred until 60 days shall have
elapsed after written notice has been given to the Company by the Issuer or
the Trustee that operation of the Project shall have ceased and the Company
shall not have demonstrated to the satisfaction of the Issuer and the Trustee
that the Company (or an assignee or lessee permitted by Section 9.3 hereof)
is operating the Project as a "project" (within the meaning of the Act).

XI.4. Optional Purchase of Bonds.  Subject to the terms of the Indenture
regarding the use of Eligible Funds, the Company may at any time, and from
time to time, furnish moneys to the Tender Agent accompanied by a notice
directing such moneys to be applied to the purchase of Bonds delivered for
purchase pursuant to the terms thereof, which Bonds shall be delivered to the
Trustee for cancellation in accordance with Section 2.8 of the Indenture.
The Company shall deliver to the Remarketing Agent and the Credit Issuer a
copy of any such notice.

XI.5. Relative Priorities.  The obligations of the Company under Section 11.2
shall be and remain superior to the rights, obligations and options of the
Company under Section 11.1.

XI.6. Prepayment to Include Fees and Expenses.  Any prepayment under this
Article shall also include any expenses of prepayment, as well as all
expenses and costs provided for herein.

XI.7. Purchase of Bonds.Purchase of Bonds

      (a)   In consideration of the issuance of the Bonds by the Issuer, but
for the benefit of the Holders, the Company has agreed, and does hereby
covenant, to cause the necessary arrangements to be made and to be thereafter
continued whereby the Holders from time to time may deliver, or may be
required to deliver Bonds for purchase and whereby such Bonds shall be so
purchased.  In furtherance of the foregoing covenant of the Company, the
Issuer, at the request of the Company, has set forth in the Bonds the terms
and conditions relating to the delivery of Bonds by the Holders thereof for
purchase, has set forth in the Indenture the duties and responsibilities of
the Tender Agent with respect to the purchase of Bonds, and of the
Remarketing Agent with respect to the remarketing of Bonds and has therein
provided for the appointment of the Tender Agent and Remarketing Agent.  The
Company hereby authorizes and directs the Tender Agent and the Remarketing
Agent to purchase, offer, sell and deliver Bonds in accordance with the
provisions of the Indenture.

      Without limiting the generality of the foregoing covenant of the
Company, and in consideration of the Issuer's having set forth in the Bonds
and the Indenture the aforesaid provisions, the Company covenants, for the
benefit of the Holders, to provide for arrangements to pay, or cause to be
paid, such amounts as shall be  necessary to effect the payment of the
Purchase Price of Bonds delivered for purchase, all as more particularly
described in the Indenture.

      (b)   Notwithstanding the provisions of subsection (a) of this Section,
the obligations of the Company under subsection (a) of this Section with
respect to the purchase of Bonds shall be terminated on the date the Bonds
begin to bear interest at the Fixed Rate in accordance with the Indenture.

      (c)   In furtherance of the obligations of the Company under subsection
(a) of this Section, the Company shall provide for the payment of its
obligations under said subsection (a) by the delivery of the Original Credit
Facility simultaneously with the original delivery of the Bonds.  In order to
implement such undertaking of the Company, the Issuer, at the direction of
the Company, has set forth in the Indenture the terms and conditions relating
to drawings under the Credit Facility to provide moneys for the purchase of
Bonds.  The Company hereby authorizes and directs the Trustee to draw moneys
under the Credit Facility in accordance with the provisions of the Indenture
to the extent necessary to provide moneys payable under Section 2.7 of the
Indenture if and when due.

      (d)   The Issuer shall have no obligation or responsibility, financial
or otherwise, with respect to the purchase of Bonds or the making or
continuation of arrangements therefor other than as expressly set forth in
subsection (a) of this Section, except that the Issuer shall generally
cooperate with the Company, the Tender Agent and the Remarketing Agent as
contemplated in Section 2.7 of the Indenture.

                                  ARTICLE XIIARTICLE XII

                                 MISCELLANEOUS

      Section XII.1.    Amounts Remaining in Funds.  Subject to the
provisions of Article V of the Indenture and as provided in Article IV of the
Indenture, it is agreed by the parties hereto that amounts remaining in the
Bond Fund, Initial Fund or Bond Purchase Fund upon expiration or earlier
termination of this Agreement, as provided in this Agreement, after payment
in full of the Bonds (or provision for payment thereof having been made in
accordance with the provisions of the Indenture) and all other amounts owing
under the Indenture, shall be paid to the Credit Issuer (if a Credit Facility
is in effect and there is any amount then owing by the Company to the Credit
Issuer) and otherwise shall belong to and be paid to the Company by the
Trustee.

XII.2.SectioNo Implied Waiver.  In the event any provision of this Agreement
should be breached by either party and thereafter waived by the other party,
such waiver shall be limited to the particular breach so waived and shall not
be deemed to waive any other breach thereunder or hereunder.

XII.3.SectioIssuer Representative.  Whenever under the provisions of this
Agreement the approval of the Issuer is required or the Issuer is required to
take some action at the request of the Company, such approval shall be made
or such action shall be taken by the Issuer Representative; and the Company
and the Trustee shall be authorized  to rely on any such approval or action.

XII.4.SectioCompany Representative.  Whenever under the provisions of this
Agreement the approval of the Company is required or the Company is required
to take some action at the request of the Issuer, such approval shall be made
or such action shall be taken by the Company Representative; and the Issuer,
the Tender Agent, the Remarketing Agent, the Paying Agent and the Trustee
shall be authorized to rely on any such approval or action.

XII.5.SectioNotices.  Notice under this Agreement shall be given in
accordance with Section 9.4 of the Indenture.

      Section XII.6.    Issuer, Governing Body, and their Respective Members, 
XII.6.eys, OIssuer, Governing Body, and their Respective Members, Attorneys, 
Officers, Employees and Agents Not Liable.  To the extent permitted by law,
no recourse shall be had for the enforcement of any obligation, promise or
agreement of the Issuer contained herein or in the other Bond Documents to
which the Issuer is a party or for any claim based hereon or thereon or
otherwise in respect hereof or thereof against the Commission, any member of
the Governing Body, any commissioner, director, officer, agent, attorney or
employee, as such, in his/her individual capacity, past, present or future,
of the Commission, any member of the Governing Body, the Issuer or of any
successor entity, either directly or through the Issuer, the Governing Body
or any successor entity, whether by virtue of any constitutional provision,
statute or rule of law, or by the enforcement of any assessment or penalty or
otherwise.  No personal liability whatsoever shall attach to, or be incurred
by, the Commission, any member of the Governing Body, any commissioner,
officer, agent, attorney or employee, as such, in his/her individual
capacity, past, present or future, of the Commission, the Issuer, the
Governing Body, or of any successor entity, either directly or through the
Commission, the Issuer, the Governing Body, or of any successor entity, under
or by reason of any of the obligations, promises or agreements entered into
between the Issuer, the Commission or Governing Body and the Company, whether
herein contained or to be implied herefrom as being supplemental hereto; and
all personal liability of that character against every such member of the
Governing Body, commissioner, director, officer, agent, attorney or employee
is, by the execution of this Agreement and as a condition of, and as part of
the consideration for, the execution of this Agreement, expressly waived and
released.

      Notwithstanding any other provision of this Agreement, the Issuer shall
not be liable to the Company or the Trustee or any other person for any
failure of the Issuer to take action under this Agreement unless the Issuer
(a) is requested in writing by an appropriate person to take such action, (b)
is assured of payment of, or reimbursement for, any reasonable expenses in
such action, and (c) is afforded, under the existing circumstances, a
reasonable period to take such action.  In acting under this Agreement, or in
refraining from acting under this Agreement, the Issuer may conclusively rely
on the advice of its counsel.

      Section XII.7.    No Liability of Issuer; No Charge Against Issuer's 
XII.7.      No Liability of Issuer; No Charge Against Issuer's Credit.  Any
obligation of the Issuer created by, arising out of, or entered into in
contemplation of this Agreement, including the Bonds, shall not impose a debt
or pecuniary liability upon the Issuer, the State or any political
subdivision thereof or constitute a charge upon the general credit or taxing
powers of any of the foregoing.  Any such obligation shall be payable solely
out of the revenues and any other moneys derived hereunder and under the
Indenture and the Credit Facility, except (as provided in the Indenture and
in this Agreement) to the extent it shall be paid out of moneys attributable
to the proceeds of the Bonds or the income from the temporary investment
thereof.

      The principal of, premium, if any, and interest on the Bonds shall be
payable solely from the funds pledged for their payment in accordance with
the Indenture and from payments made pursuant to the Credit Facility.

XII.8.SectioIf Performance Date Not a Business Day.  If the last date for
performance of any act or the exercising of any right, as provided in this
Agreement, shall not be a Business Day, such payment may be made or act
performed or right exercised on the next succeeding Business Day.

XII.9.SectioBinding Effect.  This Agreement shall inure to the benefit of and
shall be binding upon the Issuer, the Company, and their respective
successors and assigns.  No assignment of this Agreement by the Company shall
relieve the Company of its obligations hereunder.

XII.10.ectioSeverability.  In the event any provision of this Agreement shall
be held invalid or unenforceable by any court of competent jurisdiction, such
holding shall not invalidate or render unenforceable any other provision
hereof.

XII.11.ectioAmendments, Changes and Modifications.  Subsequent to the
issuance of the Bonds and prior to payment of the Bonds, this Agreement may
not be effectively amended, changed, modified, altered or terminated except
in accordance with the Indenture.







C-302349
                                      33


XII.12.ectioExecution in Counterparts.  This Agreement may be executed in
several counterparts, each of which, taken together, shall be an original and
all of which shall constitute but one and the same instrument.

XII.13.ectioApplicable Law.  This Agreement shall be governed by and
construed in accordance with the laws of the State.


           [The remainder of this page is left blank intentionally]







C-302349
                                      36

      IN WITNESS WHEREOF, the Issuer and the Company have caused this
Agreement to be executed in their respective legal names and their respective
corporate seals to be hereunto affixed, and the signatures of duly authorized
persons to be attested, all as of the date first above written.


                    THE ALAMANCE COUNTY INDUSTRIAL FACILITIES
                    AND POLLUTION CONTROL FINANCING AUTHORITY


                                          By:  /s/ William H. Ritter
                                                    Chairman

[SEAL]

ATTEST:

/s/ J. Douglas Avent
    Secretary


                                          CULP, INC.



                                          By:  /s/ Franklin N. Saxon
                                               Senior Vice President

[SEAL]

ATTEST:

/s/ Kenneth M. Ludwig
 Assistant Secretary








                                         A-1

                                      EXHIBIT A

                             DESCRIPTION OF THE PROJECT

Acquisition and installation of finishing  equipment for upholstery fabric in an
existing fmanufacturing facility in Alamance County, North Carolina.



                                      B-2

                                   EXHIBIT B

$__________________                                          No. _____________


                          REQUISITION AND CERTIFICATE


                                      ______________, 19___


First-Citizens Bank & Trust Company
2917 Highwoods Boulevard
Raleigh, North Carolina 27604
Attention: Corporate Trust Department

Ladies and Gentlemen:

On behalf of Culp, Inc. (the  "Company"),  I hereby  requisition  from the funds
representing  the  proceeds  of the  sale  of  the  Tax-Exempt  Adjustable  Mode
Industrial  Development  Revenue Bonds (Culp, Inc. Company Project) Series 1996,
issued by The  Alamance  County  Industrial  Facilities  and  Pollution  Control
Financing  Authority (the  "Issuer"),  and dated December 1, 1996 (the "Bonds"),
which funds are held by you in the Initial Fund in accordance with the Indenture
of Trust, dated as of December 1, 1996 (the "Indenture"), from the Issuer to you
the sum of  $_________________  to be paid to the  person or  persons  indicated
below:

              (1)   $__________________ for

                    _________________________________________________
                    _________________________________________________

              payable to _________________________________, and

              (2)   $_____________for________________________________
                     ________________________________________________

              payable to______________________________________.


I hereby  certify that (a) the  obligation  to make such payment was incurred by
the Issuer or the Company in connection  with the Acquisition (as defined in the
Agreement, of even date with the Indenture,  between the Issuer and the Company,
hereinafter  referred to as the "Agreement") of the Project  (referred to in the
Agreement),  is a proper charge  against the Costs of the Project (as defined in
the Agreement),  and has not been the basis for any prior  requisition which has
been paid; (b) neither the Company nor, to the best of the Company's  knowledge,
the Issuer has received  written notice of any lien, right to lien or attachment
upon, or claim  affecting the right of such payee to receive  payment of, any of
the  money  payable  under  this  requisition  to any of the  persons,  firms or
corporations  named  herein,  or if any notice of any such lien,  attachment  or
claim has been  received  such lien,  attachment  or claim has been  released or
discharged or will be released or discharged  upon payment of this  requisition;
(c) this requisition  contains no items  representing  payment on account of any
retained  percentages  which the Issuer or the  Company is entitled to retain at
this  date;  (d) the  payment of this  requisition  will not result in less than
substantially  all (95% or more) of the  proceeds  of the  Bonds to be  expended
under this requisition and under all prior requisitions having been used for the
acquisition and installation of real property or property of a character subject
to the allowance for  depreciation  under the Internal  Revenue Code of 1986, as
amended;  and (e) no "Event of Default" (as defined in the Agreement),  or event
which after notice or lapse of time or both would  constitute  such an "Event of
Default" has occurred and not been waived.

        The following paragraph is to be completed when any requisition and
certificate includes any item for payment for labor or to contractors,  builders
or
materialmen.

I hereby  certify  that insofar as the amount  covered by the above  requisition
includes  payments  to  be  made  for  labor  or  to  contractors,  builders  or
materialmen, including materials or supplies, in connection with the Acquisition
of the Project,  (i) all  obligations  to make such  payment have been  properly
incurred,  (ii) any such labor was actually  performed and any such materials or
supplies were actually  furnished or installed in or about the Project and are a
proper  charge  against the Costs of the  Project,  and (iii) such  materials or
supplies either are not subject to any lien or security interest or, if the same
are so subject,  such lien or security  interest  will be released or discharged
upon payment of this requisition.



                              ______________________________________
                              Company Representative








                                      C-2

                                   EXHIBIT C


AFTER THE  ENDORSEMENT AS HEREON PROVIDED AND PLEDGE OF THIS NOTE, THIS NOTE MAY
NOT BE  ASSIGNED,  PLEDGED,  ENDORSED  OR  OTHERWISE  TRANSFERRED  EXCEPT  TO AN
ASSIGNEE OR  SUCCESSOR OF THE TRUSTEE IN  ACCORDANCE  WITH THE  INDENTURE,  BOTH
REFERRED TO HEREIN.

$6,000,000                                                  December ___, 1996

                                PROMISSORY NOTE

FOR VALUE RECEIVED, Culp, Inc., a corporation duly formed and existing under the
laws of the State of North Carolina (the  "Company"),  by this  promissory  note
hereby promises to pay to the order of The Alamance County Industrial Facilities
and Pollution  Control  Financing  Authority (the "Issuer") the principal sum of
Six Million Dollars ($6,000,000), together with interest on the unpaid principal
amount  hereof,  from the Issue  Date (as  defined in the  Indenture  referenced
below)  until paid in full,  at a rate per annum  equal to the rate of  interest
borne by the Bonds (as hereinafter  defined),  premium, if any, on the Bonds and
Purchase  Price (as defined in the  Indenture).  All such payments of principal,
interest,  premium  and  Purchase  Price  shall be made in funds  which shall be
immediately  available  on the due date of such  payments and in lawful money of
the  United  States  of  America  at the  principal  corporate  trust  office of
First-Citizens Bank & Trust Company,  Raleigh,  North Carolina, or its successor
as trustee under the Indenture.

The principal  amount,  interest,  premium,  if any, and Purchase Price shall be
payable on the dates and in the  amount,  that  principal  of,  interest  on the
Bonds, premium, if any, and Purchase Price are payable, subject to prepayment as
hereinafter provided.

The Company shall receive a credit for the amounts due and payable  hereunder to
the  extent  that  payments  are made by the Credit  Issuer  (as  defined in the
Indenture)  pursuant to drawings  under the Credit  Facility  (as defined in the
Indenture).

This promissory  note is the "Note" referred to in the Loan Agreement,  dated as
of December 1, 1996 (the  "Agreement")  between the Company and the Issuer,  the
terms, conditions and provisions of which are hereby incorporated by reference.

This  Note  and the  payments  required  to be made  hereunder  are  irrevocably
assigned,   without  recourse,   representation  or  warranty,  and  pledged  to
First-Citizens  Bank & Trust Company  under the Indenture of Trust,  dated as of
December 1, 1996 (the "Indenture"), by and between the Issuer and First-Citizens
Bank & Trust Company, as Trustee, and such payments will be made directly to the
Trustee  for  the  account  of the  Issuer  pursuant  to such  assignment.  Such
assignment  is made as  security  for the  payment of  $6,000,000  in  aggregate
principal amount of Tax-Exempt  Adjustable Mode Industrial  Development  Revenue
Bonds  (Culp,  Inc.  Project)  Series 1996 (the  "Bonds"),  issued by the Issuer
pursuant to the  Indenture.  All the terms,  conditions  and  provisions  of the
Indenture and the Bonds are hereby incorporated as a part of this Note.

The Company may at its option,  and may under certain  circumstances be required
to, prepay together with accrued interest,  all or any part of the amount due on
this Note, as provided in the Agreement.








                                      C-2


Presentation, demand, protest and notice of dishonor are hereby expressly waived
by the Company.

        The Company hereby promises to pay reasonable costs of collection and
reasonable attorneys' fees in case of default on this Note.

This Note shall be governed by, and  construed in accordance  with,  the laws of
the State of North Carolina.


                                CULP, INC.


[SEAL]                          By:________________________________
                                Name: _____________________________
                                Title: ____________________________

ATTEST:


___________________________
_________ Secretary









                                  ENDORSEMENT


Pay to the order of First-Citizens  Bank & Trust Company,  without recourse,  as
Trustee under the Indenture  referred to in the within mentioned  Agreement,  as
security for such Bonds issued under such Indenture.  This  endorsement is given
without any warranty as to the authority or  genuineness of the signature of the
maker of the Note.

                              THE ALAMANCE COUNTY INDUSTRIAL FACILITIES AND
                              POLLUTION CONTROL FINANCING AUTHORITY


                              By:   ________________________________
                              Name: _______________________________
                              Title: ______________________________



Dated:  __________, 1996




                                   EXHIBIT D

            REPRESENTATIONS AND WARRANTIES RELATING TO TAX MATTERS
                   WITH RESPECT TO THE BONDS AND THE PROJECT

1. Not less than 95% of the net  proceeds of the Bonds  (consisting  of the face
amount of the Bonds less any original  issue  discount  plus any original  issue
premium, but including issuance costs) shall be used to provide facilities to be
used in the manufacturing or production of tangible personal property, including
facilities  that  are  directly  related  and  ancillary  to such  manufacturing
facilities  and  located  on the  same  site  as the  manufacturing  facilities;
provided,  however,  that not more  than  twenty-five  percent  (25%) of the net
proceeds shall be used to provide such ancillary facilities.

2.  The  aggregate  amount  of  capital  expenditures  (as  defined  by  Section
1.103-10(b)(2)  of the Tax Regulations to include any  expenditure  which was or
could have been  treated  as a capital  expenditure  under any rule or  election
under the Code) with  respect  to  facilities  located in the same  incorporated
municipality as the Project,  or which are contiguous or integrated  facilities,
the principal user of which was or is the Company or any Related Person, paid or
incurred during the period  beginning three years before the date of issuance of
the Bonds,  and financed  otherwise than out of the Bond proceeds (not including
investment  earnings  thereon) and  otherwise  than out of the proceeds of other
outstanding  issues  to  which  Section  144(a)(2)  of  the  Code  applies,   is
$1,303,000.

3. The aggregate  face amount of all prior issues  outstanding as of the date of
issuance  of the Bonds  (whether or not the issuer of each issue is the same) to
which Section  144(a) of the Code or Section  103(b)(6) of the Internal  Revenue
Code of 1954, as amended applies,  the proceeds of which were or will be used to
any  extent  with  respect  to  facilities  located  in  the  same  incorporated
municipality  as the  incorporated  municipality in which the Project is located
and the  principal  user  of  which  is the  Company  or a  Related  Person,  is
$2,124,000. The Issuer hereby elects to have the provisions of Section 144(a) of
the Code apply to the Bonds.  The Company and, at the  direction of the Company,
the Issuer,  shall file any reports or  statements  and take any other action as
may be required from time to time with respect to the qualification of the Bonds
as an exempt small issue within the meaning of Section 144(a) of the Code.

4. (a) During the period  commencing  15 days before the date of issuance of the
Bonds,  neither the Company nor any Related Person (or group of Related  Persons
which includes the Company) has guaranteed,  arranged, participated in, assisted
with,  borrowed the proceeds of, or leased facilities  financed by,  obligations
issued under Section 144(a) of the Code by any state or local  governmental unit
or any constituted  authority  empowered to issue obligations by or on behalf of
any state or local  governmental  unit  other  than the  Issuer.  Except for the
Company or any "related person" (or group of "related  persons"),  no Person has
(1)-guaranteed,  arranged, participated in, assisted with or paid any portion of
the cost of the  issuance  of the Bonds,  or  (2)-provided  any  property or any
franchise,  trademark  or trade name  (within the meaning of Section 1253 of the
Code) which is to be used in connection with the Project.

(b) During the period commencing on the date of issuance of the Bonds and ending
15 days thereafter,  there will be no obligations issued under Section 144(a) of
the Code which are  guaranteed by the Company or any Related Person (or group of
Related  Persons  which  includes  the  Company)  or which are  issued  with the
assistance  or  participation  of, or by  arrangement  with,  the Company or any
Related Person (or group of Related Persons which includes the Company)  without
the written opinion of Hunton & Williams to the effect that the issuance of such
obligations  will not adversely  affect their  opinion as to the exemption  from
present  federal income tax of interest on the Bonds.  Other than the Company or
any Related  Person (or group of Related  Persons  including  the  Company),  no
Person has (i) guaranteed, arranged, participated in, assisted with the issuance
of, or paid any portion of the cost of the  issuance  of, any of the Bonds,  and
(ii) provided any property or any franchise, trademark or trade name (within the
meaning of Section 1253 of the Code) which is to be used in connection  with the
Project.

(c) The Bonds are not being  issued as part of an issue the interest of which is
exempt from federal income  taxation under any other provision of law other than
Section 144(a) of the Code.

5. No  portion of the Bond  proceeds  is being  used to  provide a  facility,  a
purpose  of which is retail  food and  beverage  services,  automobile  sales or
service, or the provision of recreation or entertainment. No portion of the Bond
proceeds is being used to provide any private or commercial golf course, country
club,  health club,  massage parlor,  tennis club,  skating facility  (including
roller skating,  skateboard and ice skating), racquet sports facility (including
any  handball  or  racquetball  court),  hot  tub  facility,   suntan  facility,
racetrack, skybox or other luxury box, airplane, store the principal business of
which is the sale of  alcoholic  beverages  for  consumption  off  premises,  or
facility used  primarily for gambling.  No portion of the Bond proceeds is being
used  directly or  indirectly  to provide  residential  real property for family
units.

6. (a) As of the date of  issuance  of the Bonds,  the sum of (i) the  aggregate
authorized  face  amount of the  Bonds  allocated  in  accordance  with  Section
144(a)(10)(C)  of the Code to the Company or any  Related  Person to the Company
plus (ii) the aggregate  authorized  face amount of any  outstanding  tax-exempt
facility-related  bonds (as defined in Section 144(a)(10)(B) of the Code) of the
Company, or any Related Person to the Company, does not exceed $40 million.

(b) As of the  date of  issuance  of the  Bonds,  the  sum of (i) the  aggregate
authorized  face  amount of the  Bonds  allocated  in  accordance  with  Section
144(a)(10)(C) of the Code to any known  test-period  beneficiary,  as defined in
Section  144(a)(10)(D)  of the Code, or any Related  Person to such  test-period
beneficiary  (other than the Company or any Related  Person to the Company) plus
(ii)  the  aggregate  authorized  face  amount  of  any  outstanding  tax-exempt
facility-related bonds (as defined in Section 144(a)(10)(B) of the Code) of such
known  test-period  beneficiary,  or any Related  Person thereto (other than the
Company or any Related Person to the Company), does not exceed $40 million.

7. There are no other bonds to which Section  144(a) of the Code applies  which,
together with the Bonds,  are to be used with respect to (a) a single  building,
(b) an enclosed shopping mall, or (c) a strip of offices,  stores or warehouses,
using substantial common facilities with the Project or a portion thereof.

8. Bond proceeds that will be used to pay the cost of acquisition of any real or
personal  property other than land (or any interest  therein) is or will be used
only with  respect to either  (aF) real or  personal  property  the first use of
which is pursuant to such  acquisition  with the Bond proceeds or (b) a building
(and/or  related  equipment  therefor) if the  rehabilitation  expenditures  (as
defined in Section 147(d)(3) of the Code) with respect to such building equal or
exceed  fifteen  percent  (15%) of the  portion  of the cost of  acquiring  such
building (and the equipment  thereof) to be financed with the Bond proceeds;  or
(c) a structure other than a building (and equipment therefor) if rehabilitation
expenditures (as defined in Section  147(d)(3) of the Code) with respect to such
property  equal or exceed  one  hundred  percent  of the  portion of the cost of
acquiring such property to be financed with the Bond proceeds.

9. (a) No portion of the Bond proceeds  will be used directly or indirectly  for
the  acquisition  of land or any interest  therein to be used for the purpose of
farming.

(b)  Less  than  25% of the  Bond  proceeds  are or  will be  used  directly  or
indirectly  for the  acquisition  of land to be used  for  purposes  other  than
farming.

10. The Bonds will not be  federally  guaranteed  within the  meaning of Section
149(b) of the Code.  For purposes of this  representation,  no principal user of
the financed  property has entered into any leases of the financed  property to,
or sales or service contracts with, any federal government agency.

11.  The costs of the  issuance  of the Bonds  including,  but not  limited  to,
underwriter's spread,  counsel fees, financial advisor fees, rating agency fees,
trustee  fees  incurred  in  connection  with the  borrowing,  paying  agent and
certifying and  authenticating  agent fees related to the issuance of the Bonds,
accountant fees,  printing costs and costs incurred in obtaining public approval
of the  Bonds,  paid  from the  proceeds  of the  Bonds or  investment  earnings
thereon, will not exceed 2% of the aggregate face amount of the Bonds.

12.  The  Company  hereby  represents  that  the  information  contained  in the
certificates  or letters of  representation  of the Company  with respect to the
compliance  with the  requirements  of Section  103 of the Code,  including  the
information  in  Form  8038   (excluding  the  issue  number  and  the  employer
identification  number of the  Issuer),  filed by the  Company  on behalf of the
Issuer  with  respect to the Bonds,  and the  Project is true and correct in all
material respects.


                                LOAN AGREEMENT

                                    between

                LUZERNE COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY

                                      and

                                  CULP, INC.



                         Dated as of December 1, 1996

                                  Relating to
                          Tax-Exempt Adjustable Mode
                     Industrial Development Revenue Bonds
                             (Culp, Inc. Project)
                                  Series 1996
                in the aggregate principal amount of $3,500,000




                                                                 
                                                                 

CERTAIN  RIGHTS OF THE ISSUER UNDER THIS  AGREEMENT HAVE BEEN ASSIGNED TO, AND
ARE  SUBJECT TO A SECURITY  INTEREST IN FAVOR OF  FIRST-CITIZENS  BANK & TRUST
COMPANY,  AS TRUSTEE  UNDER AN INDENTURE OF TRUST,  DATED AS OF THE DATE FIRST
ABOVE  WRITTEN,  AS AMENDED  OR  SUPPLEMENTED  FROM TIME TO TIME.  INFORMATION
CONCERNING  SUCH  SECURITY  INTEREST MAY BE OBTAINED  FROM THE TRUSTEE AT 2917
HIGHWOODS  BOULEVARD,  RALEIGH,  NORTH CAROLINA  27604,  ATTENTION:  CORPORATE
TRUST DEPARTMENT.




                               TABLE OF CONTENTS





      ARTICLE I

                     DEFINITIONS AND RULES OF CONSTRUCTION

      Section 1.1.      Definitions..........................................1
      Section 1.2.      Rules of Construction................................4

      ARTICLE II

                                REPRESENTATIONS

      Section 2.1.      Representations by the Issuer........................4
      Section 2.2.      Representations by the Company.......................6

      ARTICLE III

                          ACQUISITION OF THE PROJECT

      Section 3.1.      Agreement to Undertake and Complete the
Project                 7
      Section 3.2.      Disbursements from the Initial Fund..................8
      Section 3.3.      Establishment of Completion Date and
            Certificate as to Completion
            8
      Section 3.4.      Closeout of Initial Fund; Disposition of
            Balance in Initial Fund
            9
      Section 3.5.      Company Required to Pay Costs in Event
            Initial Fund Insufficient
            9
      Section 3.6.      Company and Issuer Representatives and
            Successors  9
      Section 3.7.      Investment of Moneys in Funds.......................10
      Section 3.8.      Plans and Specifications............................10

      ARTICLE IV

                             ISSUANCE OF THE BONDS

      Section 4.1.      Agreement to Issue the Bonds........................11
      Section 4.2.      No Third-Party Beneficiary..........................11

      ARTICLE V

                           LOAN; PAYMENT PROVISIONS

      Section 5.1.      Loan of Proceeds....................................11
      Section 5.2.      Amounts Payable.....................................12
      Section 5.3.      Unconditional Obligations...........................13
      Section 5.4.      Prepayments.........................................13
      Section 5.5.      Credits Against Payments............................13
      Section 5.6.      Credit Facility and Alternate Credit
            Facility    13
      Section 5.7.      Interest Rate Determination Method..................14

      ARTICLE VI

                             MAINTENANCE AND TAXES

      Section 6.1.      Company's Obligations to Maintain
                        and Repair..........................................14
      Section 6.2.      Taxes and Other Charges.............................14

      ARTICLE VII

             INSURANCE, EMINENT DOMAIN AND DAMAGE AND DESTRUCTION

      Section 7.1.      Insurance...........................................14
      Section 7.2.      Provisions Respecting Eminent Domain................14
      Section 7.3.      Damage and Destruction..............................15

      ARTICLE VIII

                               SPECIAL COVENANTS

      Section 8.1.      Access to the Property and Inspection...............15
      Section 8.2.      Financial Statements................................15
      Section 8.3.      Further Assurances and Corrective
            Instruments 15
      Section 8.4.      Recording and Filing; Other Instruments.............15
      Section 8.5.      Exclusion from Gross Income for Federal
            Income Tax Purposes of Interest on the
            Bonds       16
      Section 8.6.      Indemnity Against Claims............................16
      Section 8.7.      Release and Indemnification.........................17
      Section 8.8.      Compliance with Laws................................17
      Section 8.9.      Non-Arbitrage Covenant..............................17
      Section 8.10.     Notice of Determination of Taxability...............18
      Section 8.11.     No Purchase of Bonds by Company or
            Issuer      18
      Section 8.12.     Maintenance of Corporate Existence..................18
      Section 8.13.     Company Approval of Indenture.......................19
      Section 8.14.     Duties and Obligations..............................19
      Section 8.15.     Non-Discrimination Covenant.........................20




      ARTICLE IX

                          ASSIGNMENT, LEASE AND SALE

      Section 9.1.      Restrictions on Transfer of
                        Issuer's Rights.....................................21
      Section 9.2.      Assignment by the Issuer............................21
      Section 9.3.      Assignment, Lease or Sale of Project or
            Assignment of Agreement by Company
            22

      ARTICLE X

                        EVENTS OF DEFAULT AND REMEDIES

      Section 10.1.     Events of Default Defined...........................22
      Section 10.2.     Remedies on Default.................................23
      Section 10.3.     Application of Amounts Realized in
            Enforcement of Remedies
            24
      Section 10.4.     No Remedy Exclusive.................................24
      Section 10.5.     Agreement to Pay Attorneys' Fees and
            Expenses    24
      Section 10.6.     Issuer and Company to Give Notice of
            Default     24

      ARTICLE XI

                        PREPAYMENTS; PURCHASE OF BONDS

      Section 11.1.     Optional Prepayments................................25
      Section 11.2.     Mandatory Prepayment Upon a
            Determination of Taxability
            25
      Section 11.3.     Optional Purchase of Bonds..........................26
      Section 11.4.     Relative Priorities.................................26
      Section 11.5.     Prepayment to Include Fees and Expenses.............26
      Section 11.6.     Purchase of Bonds...................................26

      ARTICLE XII

                                 MISCELLANEOUS

      Section 12.1.     Amounts Remaining in Funds..........................27
      Section 12.2.     No Implied Waiver...................................27
      Section 12.3.     Issuer Representative...............................27
      Section 12.4.     Company Representative..............................28
      Section 12.5.     Notices.............................................28
      Section 12.6.     Issuer, Governing Body, Members,
            Commissioners, Directors, Officers,
            Agents, Attorneys and Employees of
            Issuer and Governing Body Not Liable
            28
      Section 12.7.     No Liability of Issuer; No Charge
            Against Issuer's Credit
            28
      Section 12.8.     If Performance Date Not a Business Day..............29
      Section 12.9.     Binding Effect......................................29
      Section 12.10...............................................Severability
            29
      Section 12.11......................Amendments, Changes and Modifications
            29
      Section 12.12..................................Execution in Counterparts
            29
      Section 12.13.............................................Applicable Law
            29


Exhibit A - Description of the Project
Exhibit B - Form of Requisition and Certificate
Exhibit C - Form of Promissory Note





                                LOAN AGREEMENT



C-392210.02340.01188
                                      -1-



            THIS LOAN  AGREEMENT,  dated as of  December 1,  1996, is made and
entered into by and between LUZERNE COUNTY  INDUSTRIAL  DEVELOPMENT  AUTHORITY
the "Issuer"),  a political  subdivision duly organized and existing under the
Constitution  and laws of the State of Pennsylvania  (the "State"),  and CULP,
INC. (the "Company"), a North Carolina corporation;

                             W I T N E S S E T H:

            WHEREAS,  the  Issuer  is a  body  corporate  and  politic  and  a
political  subdivision  of  the  State  and  is  authorized  pursuant  to  the
Pennsylvania  Economic Development Financing Law (Act of August 23, 1967, P.L.
251, Section 1), as amended (the "Act"),  to make loans to private persons for
the acquisition,  construction,  and equipping of manufacturing facilities for
industry in Luzerne County,  Pennsylvania  and to issue its bonds from time to
time for such purpose; and

            WHEREAS,  in order to further the  purposes of the Act, the Issuer
will issue and sell its Tax-Exempt  Adjustable Mode  Industrial  Revenue Bonds
(Culp,  Inc.  Project)  Series  1996  in  an  aggregate  principal  amount  of
$3,500,000 (the "Bonds"); and

            WHEREAS,  the proceeds from the sale of Bonds will be used to make
a loan  (the  "Loan")  to the  Company  to  finance,  or to  reimburse  to the
Company,  a  portion  of the  cost  of the  acquisition  and  installation  of
equipment in an existing  manufacturing  facility in Luzerne  County leased by
the Company (the "Project"); and

            WHEREAS,  the Issuer intends to issue the Bonds under an Indenture
of Trust dated as of even date herewith  between  First-Citizens  Bank & Trust
Company (the "Trustee") and the Issuer (the  "Indenture") and to assign to the
Trustee as security for the Bonds  certain of the  Issuer's  rights under this
Agreement and the Company's Note of even date  herewith,  in the form attached
hereto as Exhibit C; and

            WHEREAS,  the Issuer and the Company  desire to set forth  certain
terms and conditions with respect to the issuance of the Bonds;

            NOW,  THEREFORE,  in  consideration of the premises and the mutual
covenants hereinafter contained,  the parties hereto covenant,  agree and bind
themselves as follows;

                                   ARTICLE IARTICLE I














C-392210.02340.01188
                                      -5-


                     DEFINITIONS AND RULES OF CONSTRUCTION

            Section I.1.      Definitions.   In  addition  to  the  words  and
terms elsewhere  defined in this  Agreement,  the following words and terms as
used  herein  shall have the  following  meanings  unless  the  context or use
clearly indicates another or different meaning or intent,  and any other words
and terms  defined in the  Indenture  shall have the same  meanings  when used
herein  as  assigned  in the  Indenture  unless  the  context  or use  clearly
indicates another or different meaning or intent:

            "Acquisition",  when used with  reference  to the  Project,  means
acquisition, construction, installation and equipping.

            "Agreement"  shall mean this Loan Agreement between the Issuer and
the Company and any modifications,  alterations and supplements hereto made in
accordance with the provisions hereof and of the Indenture.

            "Bond Documents" means,  collectively,  the Bonds, this Agreement,
the Note,  the  Indenture,  the Credit  Facility,  the Credit  Agreement,  the
Placement Agreement, the Remarketing Agreement and the Offering Memorandum.

            "Bond   Proceeds"  means  the  principal  of  the  Bonds  and  any
investment earnings thereon while on deposit in the Initial Fund.

            "Company  Representative" means any one of the persons at the time
designated  to act on behalf of the Company by written  certificate  furnished
to the Issuer and the  Trustee  containing  the  specimen  signatures  of such
persons  and  signed on behalf of the  Company  by the  President  or any Vice
President of the Company.

            "Completion Date" means, with respect to the Project,  the date on
which the Company  Representative  delivers a  completion  certificate  to the
Trustee pursuant to Section 3.3.

            "Cost(s) of the  Project",  "Cost" or "Costs"  means all costs and
allowances  which the Issuer or the  Company  may  properly  pay or accrue for
the Project and which, under generally  accepted  accounting  principles,  are
chargeable  to the  capital  account  of the  Project  or could be so  charged
either with a proper  election to  capitalize  such costs or, but for a proper
election, to expense such costs,  including (without limitation) the following
costs:

            (a)   fees and  expenses  incurred  in  preparing  the  plans  and
specifications  for the Project  (including any preliminary  study or planning
or any aspect thereof);  any labor,  services,  materials and supplies used or
furnished  in  site  improvement  and  construction;  any  equipment  for  the
Project;  and any acquisition  necessary to provide utility  services or other
services,   including   trackage   to  provide   the   Project   with   public
transportation  facilities,  roadways,  parking lots, water supply, sewage and
waste disposal facilities;  and all real and tangible personal property deemed
necessary by the Company and acquired in connection with the Project;

            (b)   fees  for   architectural,   engineering,   supervisory  and
consulting services;

            (c)   any  fees  and   expenses   incurred  in   connection   with
perfecting  and  protecting  title to the  Project  and any fees and  expenses
incurred in connection  with  preparing,  recording or filing such  documents,
instruments  or financing  statements  as either the Company or the Issuer may
deem  desirable  to perfect or protect the rights of the Issuer or the Trustee
under the Bond Documents;

            (d)   any  legal,   accounting  or  financial  advisory  fees  and
expenses,  including,  without  limitation,  fees and expenses of Bond Counsel
and counsel to the Issuer,  the  Company,  the Credit  Issuer,  the  Placement
Agent,  the  Remarketing  Agent or the  Trustee,  any fees and expenses of the
Issuer,  Trustee,  Remarketing Agent,  Placement Agent, Credit Issuer,  Tender
Agent,  Paying  Agent or any rating  agency,  filing  fees,  and  printing and
engraving  costs,  incurred in connection  with the  authorization,  issuance,
sale and purchase of the Bonds,  and the preparation of the Bond Documents and
all other  documents in connection with the  authorization,  issuance and sale
of the Bonds;

            (e)   interest to accrue on the Bonds during  construction  of the
Project;

            (f)   any  administrative  or other fees  charged by the Issuer or
reimbursement  thereto of expenses in  connection  with the Project  until the
Completion Date; and

            (g)   any other costs and expenses  relating to the Project  which
could  constitute  costs or  expenses  for which the Issuer  may  expend  Bond
proceeds under the Act.

            "Eminent  Domain"  means the taking of title to, or the  temporary
use of,  the  Project  or any part  thereof  pursuant  to  eminent  domain  or
condemnation  proceedings,   or  by  any  settlement  or  compromise  of  such
proceedings,  or any  voluntary  conveyance of the Project or any part thereof
during the pendency of, or as a result of a threat of, such proceedings.

            "Event  of   Default"   shall  have  the   meaning  set  forth  in
Section 10.1.

            "Governing  Body"  means the board,  commission,  council or other
body in which the general legislative powers of the Issuer are vested.

            "Issuer  Representative"  means any one of the persons at the time
designated to act on behalf of the Issuer by written certificate  furnished to
the  Company  and the  Trustee  containing  the  specimen  signatures  of such
persons and signed on behalf of the Issuer by its Chairman or Vice Chairman.

            "Net  Proceeds",  when  used  with  respect  to  any  proceeds  of
insurance or proceeds resulting from Eminent Domain,  means the gross proceeds
therefrom  less  all  expenses   (including   attorneys'   fees)  incurred  in
realization thereof.

            "Offering  Memorandum" means the Preliminary  Offering  Memorandum
and the final  Offering  Memorandum  prepared and used in connection  with the
initial placement of the Bonds on the Issue Date.

            "Plans   and   Specifications"    shall   mean   the   plans   and
specifications  used in the  Acquisition  of the  Project,  as the same may be
revised from time to time by the Company in accordance with Section 3.8.

            "Project"  means the project  more fully  described  in  Exhibit-A
hereto, as the same may at any time exist.

            "Remarketing   Agreement"   means  the  Remarketing  and  Interest
Services Agreement,  dated as of December 1, 1996, between the Company and the
Remarketing Agent.

            "Tax  Regulations"  means  the  applicable  treasury   regulations
promulgated  under the Code or under Section 103 of the Internal  Revenue Code
of 1954,  as  amended,  whether  at the  time  proposed,  temporary,  final or
otherwise.

Rules of Construction.  Unless the context clearly  indicates to the contrary,
the following rules shall apply to the construction of this Agreement:

            (a)   Capitalized  terms used but not  defined  in this  Agreement
shall have the meaning ascribed to them in the Indenture.

            (b)   Words  importing  the  singular  number  shall  include  the
plural number and vice versa.

            (c)   The table of  contents,  captions  and  headings  herein are
solely for  convenience  of reference  only and shall not constitute a part of
this Agreement nor shall they affect its meaning, construction or effect.

            (d)   Words of the masculine  gender shall be deemed and construed
to include correlative words of the feminine and neuter genders,  and words of
the neuter gender shall be deemed and construed to include  correlative  words
of the masculine and feminine genders.

            (e)   All references in this  Agreement to particular  Articles or
Sections are  references  to Articles and Sections of this  Agreement,  unless
otherwise indicated.

                                  ARTICLE IIARTICLE II

                                REPRESENTATIONS

            Section II.1.     Representations   by  the  Issuer.   The  Issuer
represents and warrants as follows:

            (a)   The Issuer is a duly  constituted  public body corporate and
politic of the State  within the meaning of the Act and is  authorized  by the
Act to  execute  and to  enter  into  this  Agreement  and  to  undertake  the
transactions contemplated herein and to carry out its obligations hereunder.

            (b)   The  Issuer has all  requisite  power,  authority  and legal
right to execute  and deliver  the Bond  Documents  to which it is a party and
all other  instruments  and  documents  to be executed  and  delivered  by the
Issuer pursuant thereto,  to perform and observe the provisions thereof and to
carry out the transactions  contemplated by the Bond Documents.  All corporate
action  on the  part of the  Issuer  which  is  required  for  the  execution,
delivery,  performance  and observance by the Issuer of the Bond Documents has
been duly authorized and  effectively  taken,  and such  execution,  delivery,
performance and observation by the Issuer do not contravene  applicable law or
any contractual restriction binding on or affecting the Issuer.

            (c)   The Issuer has duly  approved  the issuance of the Bonds and
the loan of the  proceeds  thereof to the Company for the  Acquisition  of the
Project;  no other authorization or approval or other action by, and no notice
to or filing with, any  governmental  authority or regulatory body is required
as a condition to the performance by the Issuer of its  obligations  under any
Bond Documents.

            (d)   This  Agreement  is, and each other Bond  Document  to which
the Issuer is a party when delivered will be, legal valid and binding  special
obligations of the Issuer  enforceable  against the Issuer in accordance  with
its terms.

            (e)   There is no  default  of the  Issuer in the  payment  of the
principal  of or interest on any of its  indebtedness  for  borrowed  money or
under any instrument or  instruments or agreements  under and subject to which
any  indebtedness  for borrowed  money has been  incurred  which does or could
affect the validity and  enforceability  of the Bond  Documents or the ability
of the  Issuer  to  perform  its  obligations  thereunder,  and no  event  has
occurred and is  continuing  under the  provisions  of any such  instrument or
agreement  which  constitutes  or,  with the  lapse of time or the  giving  of
notice, or both, would constitute such a default.

            (f)   With  respect to the Bonds,  there are no other  obligations
of the Issuer that have been,  are being or will be sold (i) at  substantially
the  same  time,  (ii)  under  a  common  plan  of  marketing,  and  (iii)  at
substantially the same rate of interest.

            (g)   There is pending  or, to the  knowledge  of the  undersigned
officers of the Issuer,  threatened no action or proceeding  before any court,
governmental  agency or  arbitrator  (i) to restrain or enjoin the issuance or
delivery of the Bonds or the  collection  of any  revenues  pledged  under the
Indenture,  (ii) in any way  contesting  or affecting  the  authority  for the
issuance of the Bonds or the validity of any of the Bond  Documents,  or (iii)
in any way contesting the existence or powers of the Issuer.

            (h)   In connection with the  authorization,  issuance and sale of
the Bonds,  the Issuer has complied with all  provisions  of the  Constitution
and laws of the State, including the Act.

            (i)   The Issuer has not  assigned  or pledged and will not assign
or pledge its interest in this  Agreement for any purpose other than to secure
the Bonds under the  Indenture.  The Bonds  constitute the only bonds or other
obligations  of the  Issuer in any  manner  payable  from the  revenues  to be
derived  from this  Agreement,  and except  for the  Bonds,  no bonds or other
obligations have been or will be issued on the basis of this Agreement.

            (j)   The Issuer is not in default under any of the  provisions of
the laws of the State,  where any such  default  would  affect  the  issuance,
validity or  enforceability  of the Bonds or the transactions  contemplated by
this Agreement or the Indenture.

Representations  by the  Company.  The  Company  represents  and  warrants  as
follows:

            (a)   The  Company is a  corporation  duly  incorporated,  validly
existing and in good standing  under the laws of the state of North  Carolina,
is in good standing  under the laws of the State,  and has corporate and other
legal  power and  authority  to enter into and to perform the  agreements  and
covenants on its part  contained in the Bond Documents to which it is a party,
and has duly  authorized the execution,  delivery and  performance of the Bond
Documents to which it is a party and has duly approved the Bond Documents.

            (b)   The  execution  and delivery of the Bond  Documents to which
it is a  party,  consummation  of the  transactions  contemplated  hereby  and
thereby  and by the  Bond  Documents  to  which  it is not a  party,  and  the
fulfillment of or compliance with the terms and conditions  hereof and thereof
will not  conflict  with or  constitute  a breach  of or a  default  under the
Company's  articles of  incorporation or bylaws or any agreement or instrument
to  which  the  Company  is  a  party  or  any  existing  law,  administrative
regulation,  court order or consent decree to which the Company is subject, or
by which it or any of its property is bound.

            (c)   There  is  no   action,   suit,   proceeding,   inquiry   or
investigation,  at law or in equity,  before or by any court,  public board or
body,  pending or  threatened  against or affecting  the Company or any of its
officers,  nor to the  best  knowledge  of the  Company  is  there  any  basis
therefor,  wherein an unfavorable decision, ruling or finding would materially
adversely  affect the  transactions  contemplated  by this  Agreement  or that
would adversely  affect,  in any way, the validity or enforceability of any of
the Bond  Documents or any other  agreement or instrument to which the Company
is a party and that is to be used or contemplated  for use in the consummation
of the transactions contemplated hereby.

            (d)   No  further   authorizations,   consents  or   approvals  of
governmental  bodies or agencies are required in connection with the execution
and delivery by the Company of this  Agreement or the other Bond  Documents to
which the Company is a party or in  connection  with the  carrying  out by the
Company of its  obligations  under this  Agreement or the other Bond Documents
to which the Company is a party.

            (e)   The  financing  of  the  Project  as  provided   under  this
Agreement,  and  commitments  therefor  made by the Issuer  have  induced  the
Company to expand or locate its operations in the jurisdiction of the Issuer.

            (f)   The  Company   anticipates   that  upon  completion  of  the
Acquisition  of the  Project,  the  Company  will  operate  the  Project  as a
"project"  within  the  meaning  of the Act until the Bonds  have been paid in
full.

            (g)   The Project is of the type  authorized  and permitted by the
Act, and the Project is  substantially  the same in all  material  respects to
that described in the notice of public hearing published on September 1, 1996.

            (h)   The Project will be acquired,  constructed and installed and
will be  operated  by the  Company  in such  manner  as to  conform  with  all
applicable zoning, planning, building,  environmental and other regulations of
the governmental authorities having jurisdiction over the Project.

            (i)   The Company  will cause all of the  proceeds of the Bonds to
be applied solely to the payment of Costs of the Project.

            (j)   The  Company  has taken no  action,  and has not  omitted to
take any action,  which  action or  omission  to take action  would in any way
affect or impair the  excludability of interest on the Bonds from gross income
of the Holders thereof for federal income tax purposes.

            (k)   The Company  presently in good faith  estimates  the Cost of
the Project to equal or exceed the original principal amount of the Bonds.

            (l)   The Project will be located  wholly within  Luzerne  County,
Pennsylvania.

                                  ARTICLE IIIARTICLE III

                          ACQUISITION OF THE PROJECT

            Section III.1.    Agreement  to   Undertake   and  Complete  the  
Project.  The Company  covenants  and agrees to  undertake  and  complete  the
Acquisition  of  the  Project.  Upon  written  request  of the  Issuer  or the
Trustee,  the Company  agrees to make  available to the Issuer and the Trustee
(for review and  copying) all the then current  Plans and  Specifications  for
the Project.

            The Company  agrees to cause the Project to be  completed  as soon
as may be  practicable  and to cause  all  proceeds  of the  Bonds,  including
investment  earnings,  to be expended no later than three years from the Issue
Date.  For Costs of the  Project  incurred  prior to  receipt by the Issuer of
the proceeds of the Bonds,  the Company agrees to advance all funds  necessary
for such purpose.  Such  advances may be  reimbursed  from the Initial Fund to
the extent permitted by Section 3.2.

            The Company  shall  obtain or cause to be obtained  all  necessary
permits and approvals for the  Acquisition,  operation and  maintenance of the
Project.

Disbursements  from  the  Initial  Fund.  In the  Indenture,  the  Issuer  has
authorized  and directed the Trustee to use the moneys in the Initial Fund for
payment or reimbursement to the Company of the Costs of the Project.

            Each  payment  for a Cost of the  Project  shall be made only upon
the receipt by the Trustee and, upon written request  therefor,  the Issuer of
a requisition and  certificate,  substantially  in the form attached hereto as
Exhibit B and signed by the Company Representative.

            The  Company  agrees  that it will not  request  any  disbursement
which,  if paid,  would  result in (i) less than  substantially  all (at least
ninety-five  percent (95%)) of the proceeds of the Bonds being used to provide
land or property subject to the allowance for  depreciation  under Section 167
of the Code,  constituting the Project,  (ii) less than all of the proceeds of
the Bonds  being  used to  provide  the  Project  under the Act,  or (iii) the
inclusion  of the  interest  on any of the  Bonds in the  gross  income of any
Holder for purposes of federal income  taxation (as long as such Holder is not
a "related  person" or a  "substantial  user" of the Project as such terms are
used in Section 144 of the Code).

            Interest  on the  Bonds and all  legal,  consulting  and  issuance
expenses  shall be set forth  separately in any  requisition  and  certificate
requesting  payment  therefor.  Such  requisitions and  certificates  shall be
consecutively  numbered.  Upon  request,  the Company shall furnish the Issuer
or the Trustee  with copies of  invoices  or other  appropriate  documentation
supporting  payments or  reimbursements  requested  pursuant  to this  Section
3.2.  The Issuer and the  Trustee  may rely  conclusively  upon any  statement
made in any such requisition and certificate.

            Section III.3.    Establishment    of   Completion   Date   and   
Establishment  of  Completion  Date  and  Certificate  as to  Completion.  The
Completion  Date shall be the date on which the Company  Representative  signs
and delivers to the Trustee a  certificate  stating  that,  except for amounts
retained by the Trustee for Costs of the Project not then due and payable,  or
the  liability  for  which  the  Company  is,  in good  faith,  contesting  or
disputing,  (a) the  Project has been  completed  to the  satisfaction  of the
Company,  and  all  labor,  services,  materials  and  supplies  used  in such
Acquisition  have  been  paid  for,  and  (b)  the  Project  is  suitable  and
sufficient for the efficient operation as a "project" (as defined in the Act).

            Notwithstanding the foregoing,  such certificate may state that it
is given without  prejudice to any rights against third parties which exist at
the date of such certificate or which may subsequently come into being.

            Section III.4.    Closeout  of  Initial  Fund;   Disposition  of  
Closeout of Initial Fund;  Disposition  of Balance in Initial Fund. All moneys
and  any  unliquidated  investments  remaining  in  the  Initial  Fund  on the
Completion  Date and after payment in full of the Costs of the Project (except
for costs not then due and payable for the payment of which the Trustee  shall
have retained  amounts as hereinafter  provided) shall, as soon as practicable
after the Completion  Date, and no later than ninety days  thereafter,  at the
direction  of the  Company,  be  delivered  to the  Trustee for deposit in the
Surplus   Fund.   The  Trustee   shall,   at  the  direction  of  the  Company
Representative,  retain moneys in the Initial Fund for payment of Costs of the
Project  not  then  due  and  payable.  Any  balance  of such  retained  funds
remaining  after  full  payment  of such  Costs  of the  Project  shall at the
direction  of the  Company be  delivered  to the  Trustee  for  deposit in the
Surplus Fund to be applied to the  redemption of Bonds in accordance  with the
terms of the Indenture.

            Section III.5.    Company  Required to Pay Costs in Event Initial 
Company  Required  to Pay Costs in Event  Initial  Fund  Insufficient.  If the
moneys in the Initial Fund  available  for payment of the Costs of the Project
should not be sufficient to make such payments in full,  the Company agrees to
pay  directly  (or to deposit  moneys in the Initial  Fund for the payment of)
such  costs of  completing  the  Project  as may be in  excess  of the  moneys
available  therefor  in the  Initial  Fund.  THE  ISSUER  DOES  NOT  MAKE  ANY
WARRANTY  OR  REPRESENTATION  (EITHER  EXPRESS  OR  IMPLIED)  THAT THE  MONEYS
DEPOSITED  INTO THE INITIAL FUND AND AVAILABLE FOR PAYMENT OF THE COSTS OF THE
PROJECT,  UNDER THE  PROVISIONS OF THIS  AGREEMENT,  WILL BE SUFFICIENT TO PAY
ALL OF THE  COSTS OF THE  PROJECT.  If,  after  exhausting  the  moneys in the
Initial  Fund  for  any  reason  (including,  without  limitation,  losses  on
investments  made by the Trustee  under the  Indenture),  the Company pays, or
deposits  moneys in the  Initial  Fund for the  payment of, any portion of the
Costs of the Project  pursuant to the  provisions  of this  Section  3.5,  the
Company  shall not be entitled to any  reimbursement  therefor from the Issuer
or from  the  Trustee,  nor  shall it be  entitled  to any  diminution  of the
amounts payable under Section-5.2.

            Section III.6.    Company   and   Issuer   Representatives   and  
Company  and  Issuer  Representatives  and  Successors.  At or  prior  to  the
initial sale of the Bonds,  the Company and the Issuer shall appoint a Company
Representative and an Issuer Representative,  respectively, for the purpose of
taking all actions and  delivering all  certificates  required to be taken and
delivered by the Company  Representative and the Issuer  Representative  under
the provisions of this  Agreement.  The Company and the Issuer,  respectively,
may  appoint   alternate   Company   Representatives   and  alternate   Issuer
Representatives  to take any such action or make any such  certificate  if the
same  is not  taken  or  made  by the  Company  Representative  or the  Issuer
Representative.  In the event any of such persons,  or any successor appointed
pursuant  to the  provisions  of this  Section  3.6,  should  resign or become
unavailable or unable to take any action or deliver any  certificate  provided
for in this Agreement,  another Company  Representative  or alternate  Company
Representative,   or  another  Issuer   Representative   or  alternate  Issuer
Representative,  shall  thereupon  be  appointed by the Company or the Issuer,
respectively.  If the  Company  or the Issuer  fails to make such  designation
within  ten (10)  days  following  the date  when the then  incumbent  Company
Representative  or Issuer  Representative  resigns or becomes  unavailable  or
unable to take any such actions,  the  President or any Vice  President of the
Company,  or the Chairman or the Vice  Chairman of the Issuer,  shall serve as
the Company Representative or the Issuer Representative, respectively.

            Whenever the  provisions of this  Agreement  require the Company's
approval  or  require  the Issuer or the  Trustee  to take some  action at the
request or  direction of the Company,  the Company  Representative  shall make
such  approval  or such  request  or  direction  in writing  unless  otherwise
specified  in this  Agreement.  Any action so taken with the written  approval
of or at the written direction of the Company  Representative shall be binding
upon the Company.

Investment  of Moneys in Funds.  The Trustee may invest or reinvest any moneys
held pursuant to the  Indenture to the extent  permitted by Section 4.7 of the
Indenture  and  by law  (but  subject  to the  provisions  of  Section  8.9(a)
hereof), in Permitted  Investments,  as defined in the Indenture,  as directed
by a Company Representative.

            Any such  securities  may be  purchased  at the offering or market
price thereof at the time of such purchase.

            The Trustee may make any and all such investments  through its own
bond department or trust investments  department.  Any interest accruing on or
profit  realized from the investment of any moneys held as part of the Initial
Fund shall be credited to the Initial Fund,  and any loss  resulting from such
investment  shall be charged to the Initial Fund. Any interest  accruing on or
profit  realized from the  investment of any moneys held as a part of the Bond
Fund shall be  credited  to the Bond Fund,  and any loss  resulting  from such
investment  shall be  charged  to the Bond  Fund.  Neither  the Issuer nor the
Trustee  shall be liable  for any loss  resulting  from any such  investments,
provided the Trustee has performed its  respective  obligations  under Section
4.7 of the Indenture in accordance  with Section 7.1(b) of the Indenture.  For
the purposes of this Section 3.7,  any  interest-bearing  deposits,  including
certificates  of deposit,  issued by or on deposit  with the Trustee  shall be
deemed to be investments and not deposits.

Plans  and  Specifications.  The  Company  shall  maintain  a set of Plans and
Specifications  at the Project  which shall be available to the Issuer and the
Trustee for inspection and examination  during the Company's  regular business
hours.  The Issuer,  the  Trustee  and the Company  agree that the Company may
supplement,  amend  and add to the  Plans  and  Specifications,  and  that the
Company shall be authorized to omit or make  substitutions  for  components of
the  Project,  without the  approval of the Issuer and the  Trustee,  provided
that no such change shall be made which,  after giving  effect to such change,
would cause any of the  representations  and  warranties  set forth in Section
2.2 hereof to be false or misleading in any material respect,  or would result
in a violation  of the  covenant  set forth in Section 8.5. If any such change
would  render  materially  incorrect  or  inaccurate  the  description  of the
initial  components  of  the  Project  as  set  forth  in  Exhibit  A to  this
Agreement,  the Company shall deliver to the Issuer and the Trustee an opinion
of Bond  Counsel to the effect that such change will not cause the interest on
the Bonds to be  includable  in the gross  income of the  owners  thereof  for
federal income tax purposes, and thereafter,  the Company and the Issuer shall
amend such Exhibit A to reflect  such  change.  No approvals of the Issuer and
the Trustee  shall be required for the  Acquisition  of the Project or for the
solicitation, negotiation, award or execution of contracts relating thereto.

                                  ARTICLE IVARTICLE IV

                             ISSUANCE OF THE BONDS

            Section IV.1.     Agreement to Issue the Bonds.  To provide  funds
for the  Acquisition  of the  Project,  the Issuer  agrees  that it will sell,
issue and deliver the Bonds in the  aggregate  principal  amount of $3,500,000
to the initial  purchasers thereof and will cause the proceeds of the Bonds to
be applied as provided in Section 4.5 of the Indenture.

No  Third-Party  Beneficiary.  It is  specifically  agreed between the parties
executing  this  Agreement that it is not intended by any of the provisions of
any part of this  Agreement  to establish in favor of the public or any member
thereof,  other than as expressly  provided  herein or as  contemplated in the
Indenture,  the rights of a third-party beneficiary hereunder, or to authorize
anyone not a party to this Agreement to maintain a suit for personal  injuries
or property  damage  pursuant to the terms or  provisions  of this  Agreement.
The duties,  obligations and responsibilities of the parties to this Agreement
with respect to third parties shall remain as imposed by law.

                                   ARTICLE VARTICLE V

                           LOAN; PAYMENT PROVISIONS

            Section V.1.      Loan of Proceeds.  The Issuer  agrees,  upon the
terms and conditions  contained in this  Agreement and the Indenture,  to lend
to the  Company  the  proceeds  received  by the  Issuer  from the sale of the
Bonds.  The loan shall be made by  depositing  the accrued  interest,  if any,
from the  initial  sale of the Bonds into the Bond Fund and the  remainder  of
said  proceeds  in the  Initial  Fund in  accordance  with  Section 4.5 of the
Indenture.  Such  proceeds  shall be  disbursed to or on behalf of the Company
as provided in Section-3.2.  The Company's  obligation to repay the loan shall
be  evidenced by a Promissory  Note,  the form of which is attached  hereto as
Exhibit C, dated the Issue Date.

Amounts  Payable.  The  Company  hereby  agrees  to pay the Note and repay the
loan made pursuant to this Agreement by making the following payments:

            (a)   The Company  shall pay or cause to be paid to the Trustee in
immediately  available  funds for the account of the Issuer for  deposit  into
the Bond  Fund on or before  any  Interest  Payment  Date for the Bonds or any
other date that any payment of  interest,  premium,  if any, or  principal  is
required to be made in respect of the Bonds pursuant to the  Indenture,  until
the principal of,  premium,  if any, and interest on the Bonds shall have been
fully  paid or  provision  for the  payment  thereof  shall  have been made in
accordance with the Indenture,  a sum which,  together with any Eligible Funds
available  for such  payment in the Bond Fund,  will enable the Trustee to pay
the amount  payable on such date as  principal of (whether at maturity or upon
redemption or  acceleration  or otherwise),  premium,  if any, and interest on
the  Bonds  as  provided  in  the  Indenture;   provided,  however,  that  the
obligation  of the  Company  to make any  payment  hereunder  shall be  deemed
satisfied and  discharged to the extent of the  corresponding  payment made by
the Credit Issuer under the Credit Facility.

            It is  understood  and  agreed  that  the  Note  and all  payments
payable by the Company  under this  subsection  are  assigned by the Issuer to
the  Trustee  for the  benefit of the  Holders.  The  Company  assents to such
assignment.  The Issuer  hereby  directs the  Company  and the Company  hereby
agrees to pay to the Trustee at the  principal  corporate  trust office of the
Trustee  all  payments  payable by the  Company  pursuant to the Note and this
subsection.

            (b)   The Company will also pay the  reasonable  fees and expenses
of the Issuer, the Trustee,  the Tender Agent, the Paying Agent, the Placement
Agent,  the  Remarketing  Agent and the Registrar  under the Indenture and all
other amounts which may be payable to the Trustee,  Paying Agent, Registrar or
the Tender Agent under Section 7.2 of the Indenture,  and the reasonable  fees
and expenses of the Remarketing  Agent, such fees and expenses to be paid when
due and payable by the Company directly to the Trustee,  Tender Agent,  Paying
Agent, Registrar and Remarketing Agent, respectively, for their own account.

            (c)   The  Company   will  also  pay  when  due  and  payable  the
reasonable  fees and  expenses  of the Issuer  related to the  issuance of the
Bonds, including without limitation, attorneys' fees and expenses.

            (d)   The Company  covenants,  for the benefit of the Holders,  to
pay or  cause  to be paid,  to the  Paying  Agent,  such  amounts  as shall be
necessary  to  enable  the  Paying  Agent to pay the  Purchase  Price of Bonds
delivered to the Tender Agent or the  Remarketing  Agent,  as the case may be,
for  purchase,  all as  more  particularly  described  in  Section  2.6 of the
Indenture;  provided,  however, that the obligation of the Company to make any
such  payment  under  this  Section  5.2(d)  shall be reduced by the amount of
moneys available for such payment  described in Section  2.6(g)(i) and (ii) of
the Indenture;  and provided,  further,  that the obligation of the Company to
make any payment  under this  Section  5.2(d)  shall be deemed to be satisfied
and discharged to the extent of the  corresponding  payment made by the Credit
Issuer under the Credit Facility.

            (e)   In the  event  the  Company  shall  fail to make  any of the
payments  required in this Section 5.2, the item or  installment so in default
shall  continue as an  obligation  of the Company  until the amount in default
shall have been fully paid.

Unconditional  Obligations.   The  obligation  of  the  Company  to  make  the
payments  required  by Section 5.2 shall be absolute  and  unconditional.  The
Company shall pay all such amounts without abatement,  diminution or deduction
(whether  for taxes or  otherwise)  regardless  of any  cause or  circumstance
whatsoever including,  without limitation, any defense, set-off, recoupment or
counterclaim  that the  Company may have or assert  against  the  Issuer,  the
Trustee or any other Person.

Prepayments.  The Company  may prepay all or any part of the amounts  required
to be paid by it under  Section 5.2,  at the times and in the amounts provided
in  Article XI  for  redemption  of the  Bonds,  and in the case of  mandatory
redemptions  of the Bonds,  the  Company  shall cause to be  furnished  to the
Issuer  such  amounts  on  or  prior  to  the  applicable   redemption  dates.
Prepayment  of amounts due  hereunder  pursuant  to this  Section 5.4 shall be
deposited in the Bond Fund.

Credits  Against  Payments.  To the extent that principal of,  Purchase Price,
premium,  if any, or interest on the Bonds shall be paid with moneys available
under  the  Credit  Facility,  from  remarketing  proceeds  (with  respect  to
Purchase  Price)  or  other  sources   available  under  the  Indenture,   the
obligation  of the Company to make  payments  required by Section 5.2 shall be
satisfied and  discharged to the extent of the principal of,  Purchase  Price,
premium,  if any, or interest on the Bonds so paid.  If the  principal  of and
premium,  if any, and interest on the Bonds shall have been paid  sufficiently
that payment of the Bonds shall have occurred in accordance  with Article V of
the Indenture,  then the  obligations of the Company  pursuant to Section 5.2,
ipso  facto,  shall be deemed to have  been  paid in full,  and the  Company's
obligations under Section 5.2 and this Agreement shall be discharged.

Credit Facility and Alternate Credit  Facility.  The Company shall provide for
the payment of amounts payable  pursuant to Section 5.2(a) and (d) herein,  by
the  delivery  to the  Trustee  on the  Issue  Date  of  the  Original  Credit
Facility.  The Company shall be entitled to terminate  the Credit  Facility as
provided  therein  and in the  Indenture  and shall be  entitled to provide an
Alternate  Credit  Facility  under  certain  circumstances  as provided in the
Indenture.

Interest Rate  Determination  Method.  The Company is hereby granted the right
to  designate  from time to time changes in the  Interest  Rate  Determination
Method  (as  defined  in the  Indenture)  in the  manner and to the extent set
forth in Section 2.4 of the Indenture.

                                  ARTICLE VIARTICLE VI

                             MAINTENANCE AND TAXES

            Section VI.1.     Company's  Obligations  to Maintain  and Repair.
The Company  agrees that  during the term of this  Agreement  it will keep and
maintain the Project in good  condition,  repair and working  order,  ordinary
wear and tear  excepted,  at its own  cost,  and will make or cause to be made
from  time to time all  necessary  repairs  thereto  (including  external  and
structural repairs) and renewals and replacements thereto.

Taxes and Other  Charges.  The Company  will  promptly  pay and  discharge  or
cause to be promptly paid and  discharged,  as the same become due, all taxes,
assessments,  governmental charges or levies and all utility and other charges
incurred  in the  operation,  maintenance,  use,  occupancy  and upkeep of the
Project  imposed  upon it or in respect of the  Project  before the same shall
become in  default,  as well as all lawful  claims  which,  if  unpaid,  might
become a lien or charge  upon such  property  and assets or any part  thereof,
except  such that are  contested  in good faith by the  Company  for which the
Company has maintained  adequate  reserves  satisfactory to the Credit Issuer,
or in the  absence of any Credit  Issuer,  satisfactory  to the Issuer and the
Trustee.

                                  ARTICLE VIIARTICLE VII

             INSURANCE, EMINENT DOMAIN AND DAMAGE AND DESTRUCTION

            Section VII.1.    Insurance.  The Company  will during the term of
this Agreement and at all times while any Bonds are  outstanding  continuously
insure the Project  against such risks as are  customarily  insured against by
businesses  of like size and type,  paying as the same become due all premiums
in  respect  thereof.   In  addition  the  Company  shall  comply,   or  cause
compliance, with applicable worker's compensation laws of the State.

Provisions   Respecting   Eminent  Domain.   In  case  of  any  damage  to  or
destruction of all or any part of the Project exceeding  $50,000,  the Company
shall give prompt  written  notice  thereof to the Issuer and the Trustee.  In
case of a taking or  proposed  taking of all or any part of the Project or any
right  therein by Eminent  Domain,  the party upon which notice of such taking
is served  shall give prompt  written  notice to the other and to the Trustee.
Each such  notice  shall  describe  generally  the  nature  and extent of such
damage, destruction, taking, loss, proceedings or negotiations.

Damage  and  Destruction.   If  at  any  time  while  any  of  the  Bonds  are
Outstanding,  the  Project,  or any  portion  thereof,  shall  be  damaged  or
destroyed by fire,  flood,  windstorm or other  casualty,  or title to, or the
temporary use of, the Project,  or any portion thereof,  shall have been taken
by the power of Eminent  Domain,  the Company  (unless it shall have exercised
its option to prepay  all of the  Bonds)  shall  cause the Net  Proceeds  from
insurance  or  condemnation  or an  amount  equal  thereto  to be used for the
repair,   reconstruction,   restoration   or   improvement   of  the  Project.
Notwithstanding the above, so long as the Credit Facility is outstanding,  the
Company  shall  comply with the terms of the Credit  Agreement  related to the
use of insurance proceeds.

                                 ARTICLE VIII

                               SPECIAL COVENANTS

            Section VIII.1.   Access  to  the  Property  and  Inspection.  The
Issuer and the Trustee, and their respective agents and employees,  shall have
the  right,  at all  reasonable  times  during  normal  business  hours of the
Company upon the  furnishing  of  reasonable  notice to the Company  under the
circumstances,  to enter upon and  examine  and  inspect  the  Project  and to
examine and copy the books and  records of the  Company  insofar as such books
and records relate to the Project or the Bond Documents.

Financial  Statements.  The  Company  shall,  upon  request,  deliver  to  the
Trustee  and the  Issuer as soon as  practicable  and in any event  within 120
days after the end of each fiscal year of the Company,  the financial  reports
of the Company for such fiscal year.

Further Assurances and Corrective Instruments.es and Corrective Instruments

            (a)   Subject to the provisions of the  Indenture,  the Issuer and
the Company agree that they will, from time to time, execute,  acknowledge and
deliver,   or  cause  to  be  executed,   acknowledged  and  delivered,   such
supplements  and  amendments  hereto  and  such  further  instruments  as  may
reasonably  be required  for carrying out the  intention or  facilitating  the
performance of this Agreement.

            (b)   The Company  shall cause this  Agreement to be kept recorded
and  filed in such  manner  and in such  places as may be  required  by law to
fully  preserve  and protect the security of the Holders and the rights of the
Trustee and to perfect the security interest created by the Indenture.

Recording and Filing; Other Instruments.and Filing; Other Instruments

            (a)   The  Company  covenants  that  it  will  cause  continuation
statements  to be filed as required  by law in order fully to preserve  and to
protect the rights of the Trustee or the Issuer in the  assignment  of certain
rights of the Issuer under this  Agreement and otherwise  under the Indenture.
The Company  covenants  that it will cause Counsel to render an opinion to the
Issuer and to the Trustee not earlier  than 60 nor later than 30 days prior to
each anniversary  date occurring at five-year  intervals after the issuance of
the Bonds to the  effect  that all  Financing  Statements,  notices  and other
instruments  required by applicable law,  including this Agreement,  have been
recorded  or filed or  re-recorded  or  re-filed  in such  manner  and in such
places  required by law in order to fully  preserve  and protect the rights of
the  Trustee  in the  assignment  of certain  rights of the Issuer  under this
Agreement and otherwise under the Indenture.

            (b)   The  Company  and the Issuer  shall  execute and deliver all
instruments and shall furnish all  information  and evidence deemed  necessary
or  advisable  in order to enable the  Company to fulfill its  obligations  as
provided  in Section  8.4(a).  The  Company  shall file and re-file and record
and  re-record  or shall  cause to be filed  and  re-filed  and  recorded  and
re-recorded all instruments  required to be filed and re-filed and recorded or
re-recorded  and shall  continue  or cause to be  continued  the liens of such
instruments for so long as any of the Bonds shall be Outstanding.

            Section VIII.5.   Exclusion  from Gross Income for Federal Income 
Exclusion  from Gross  Income for Federal  Income Tax Purposes of Interest on 
the Bonds.  The  Company  covenants  and agrees that it has not taken and will
not take or cause to be taken,  and has not omitted and will not omit or cause
to be omitted,  any action  which will  result in  interest  paid on the Bonds
being  included in gross  income of the Holders of the Bonds for the  purposes
of federal income taxation.

            The Company  covenants and agrees that it will take or cause to be
taken all required  actions  necessary to preserve  the  exclusion  from gross
income for federal  income tax  purposes  of  interest  on the Bonds;  and the
Issuer  covenants  and  agrees  that it will  take or cause  to be  taken  all
required  actions to  preserve  the  exclusion  from gross  income for federal
income tax purposes of interest on the Bonds.

Indemnity  Against  Claims.  The  Company  will  pay and  discharge  and  will
indemnify and hold harmless the Issuer and the Trustee,  and their  respective
officers,  employees and agents, from any taxes, assessments,  impositions and
other  charges in respect of the Project.  If any such claim is  asserted,  or
any  such  lien or  charge  upon  payments,  or any such  taxes,  assessments,
impositions  or other  charges,  are sought to be  imposed,  the Issuer or the
Trustee,  as the case may be, will give prompt  written notice to the Company;
provided,  however,  that the failure to provide  such notice will not relieve
the Company of the Company's  obligations and liability under this Section 8.6
and will not give rise to any claim  against or liability of the Issuer or the
Trustee.  The Company shall have the sole right and duty to assume,  and shall
assume,  the defense thereof,  with counsel acceptable to the person on behalf
of which the  Company  undertakes  a  defense,  with full  power to  litigate,
compromise or settle the same in its sole discretion.

Release  and  Indemnification.   The  Company  shall  at  all  times  protect,
indemnify and hold the Issuer,  the Governing Body and the Trustee,  and their
respective  members,  directors,  officers,  employees,  attorneys and agents,
harmless  against any and all liability,  losses,  damages,  costs,  expenses,
taxes, causes of action,  suits,  claims,  demands and judgments of any nature
arising  from or in  connection  with  the  Project  or the  financing  of the
Project,  including,  without  limitation,  all claims or liability  resulting
from,  arising out of or in connection  with the acceptance or  administration
of the Bond  Documents or the trusts  thereunder or the  performance of duties
under the Bond  Documents  or any loss or damage to  property or any injury to
or  death  of any  person  that  may be  occasioned  by any  cause  whatsoever
pertaining  to the Project or the use thereof,  including  without  limitation
any lease  thereof or  assignment  of its  interest  in this  Agreement,  such
indemnification  to include the  reasonable  costs and  expenses of  defending
itself or investigating  any claim of liability and other reasonable  expenses
and  attorneys'  fees  incurred  by the  Issuer,  the  Governing  Body and the
Trustee,  and  their  respective  members,  directors,   officers,  employees,
attorneys and agents, in connection  therewith,  provided that the benefits of
this  Section  8.7 shall not inure to any person  other than the  Issuer,  the
Trustee,  the Governing Body, their respective members,  directors,  officers,
employees,  attorneys and agents, and provided further that such loss, damage,
death,  injury,  claims,  demands or causes shall not have  resulted  from the
gross  negligence  or  willful  misconduct  of,  the  Issuer or such  members,
directors,  officers, employees,  attorneys and agents. The obligations of the
Company  under  this  Section  8.7  shall  survive  the  termination  of  this
Agreement  and the  Indenture.  Notwithstanding  any other  provision  of this
Agreement or the  Indenture to the  contrary,  the Company  agrees  (i) not to
assert any claim or  institute  any action or suit  against the Trustee or its
employees  arising from or in connection  with any investment of funds made by
the  Trustee  in good  faith as  directed  by a  Company  Representative,  and
(ii) to indemnify and hold the Trustee and its employees  harmless against any
liability,  losses, damages, costs, expenses, causes of action, suits, claims,
demands and  judgments of any nature  arising from or in  connection  with any
such investment.

Compliance  with  Laws.  The  Company  agrees  to comply  with all  applicable
zoning,  planning,  building,  environmental  and  other  regulations  of  the
governmental  authorities  having  jurisdiction  of  the  Project  during  the
Company's operation of the Project.

Non-Arbitrage Covenant.  9.   Non-Arbitrage Covenant

            (a)   The Company and the Issuer  covenant  that they will (i) not
take,  or fail to  take,  any  action  or make  any  investment  or use of the
proceeds  of the Bonds  that  would  cause the Bonds to be  "arbitrage  bonds"
within  the  meaning  of  Section  148 of the Code and  (ii)  comply  with the
requirements of Section 148 of the Code.

            (b)   In  the  event  that  all  of the  proceeds  of  the  Bonds,
including the investment proceeds thereof,  are not expended by the date which
is six (6)  months  following  the Issue  Date,  or if for any other  reason a
rebate is payable to the United  States  pursuant  to Section 148 of the Code,
the Company shall calculate, or cause to be calculated,  the Rebate Amount (as
defined  in  the  Indenture).   The  Company  agrees  to  pay  the  amount  so
calculated,  together with supporting  documentation,  to the Trustee so as to
permit  the  Trustee  to pay such  rebate  to the  United  States at the times
required by the Code.  The amount paid by the Company to the Trustee  shall be
deposited  into the Rebate  Fund.  The Company  shall  maintain or cause to be
maintained  records of the  determinations  of the rebate, if any, pursuant to
this  Section  8.9(b) until six (6) years after the  retirement  of the Bonds.
This Section  8.9(b) shall be construed in accordance  with Section  148(f) of
the Code,  including,  without  limitation,  any  applicable  tax  regulations
promulgated  under the Code.  Nothing  contained  in this  Agreement or in the
Indenture  shall be  interpreted or construed to require the Issuer to pay any
applicable  rebate,  such  obligation  being  the sole  responsibility  of the
Company.  The Company shall pay all fees,  costs and expenses  associated with
calculation  of the Rebate  Amount  (as  defined  in the  Indenture)  and upon
request from the Issuer provide the Issuer with a copy of such calculation.

Notice of  Determination  of  Taxability.  Promptly  after the  Company  first
becomes  aware of any  Determination  of  Taxability  or an event  that  could
trigger a Determination  of Taxability,  the Company shall give written notice
thereof to the Issuer, the Remarketing Agent and the Trustee.

No Purchase of Bonds by Company or Issuer.  During the time a Credit  Facility
is in effect  neither the  Company,  the Issuer nor any  affiliates  of any of
them shall purchase any of the Bonds from the  Remarketing  Agent except under
the circumstances  under which the Remarketing Agent may remarket Bonds to the
Company or the Issuer as provided in Section 2.7(d) of the Indenture.

Maintenance of Corporate Existence.enance of Corporate Existence

            So long as a Credit  Facility is in effect the Company agrees that
it will  maintain  its  corporate  existence,  will not  dissolve or otherwise
dispose of all or  substantially  all of its  assets and will not  consolidate
with  or  merge  into  another   corporation  or  permit  one  or  more  other
corporations  to  consolidate  with or merge into it,  except  either with the
consent of the Credit Issuer or as provided in the original Credit  Agreement;
if a  Credit  Facility  is not in  effect,  the  Company  agrees  that it will
continue  to be a  corporation  either  organized  under  the  laws of or duly
qualified to do business as a foreign  corporation in the State, will maintain
its  corporate  existence,  will not dissolve or  otherwise  dispose of all or
substantially  all of its assets and will not  consolidate  with or merge into
another  corporation or permit one or more corporations to consolidate with or
merge  into  it;  provided,  that  the  Company  may,  without  violating  the
foregoing,  consolidate with or merge into another corporation,  or permit one
or more  corporations to consolidate with or merge into it, or transfer all or
substantially  all of its assets to another such  corporation  (and thereafter
dissolve  or not  dissolve,  as the  Company  may  elect)  if the  corporation
surviving   such  merger  or  resulting  from  such   consolidation,   or  the
corporation  to which all or  substantially  all of the assets of the  Company
are transferred, as the case may be:

             (i)  is a  corporation  organized  under  the laws of the  United
States of America, or any state,  district or territory thereof, and qualified
to do business in the State;

            (ii)  shall  expressly in writing assume all of the obligations of
the Company contained in this Agreement;

            (iii) has a  consolidated  tangible net worth (after giving effect
to such  consolidation,  merger or transfer) of not less than the consolidated
tangible  net  worth  of  the  Company  and  its   consolidated   subsidiaries
immediately prior to such consolidation, merger or transfer; and

            (iv)  provided  that no  Event  of  Default  has  occurred  and is
continuing hereunder.

The term  "consolidated  tangible net worth," as used in this  Section,  shall
mean the difference  obtained by subtracting  total  consolidated  liabilities
(not  including  as a  liability  any  capital  or  surplus  item)  from total
consolidated  tangible  assets  of the  Company  and  all of its  consolidated
subsidiaries,  computed  in  accordance  with  generally  accepted  accounting
principles.  Prior to any such  consolidation,  merger or transfer the Trustee
shall be  furnished  a  certificate  from the chief  financial  officer of the
Company or his/her  deputy stating that in the opinion of such officer none of
the  covenants  in  this  Agreement  will  be  violated  as a  result  of said
consolidation, merger or transfer.

Company Approval of Indenture.  The Company  understands that the Issuer will,
pursuant to the  Indenture  and as security  for the payment of the  principal
of, premium,  if any, and the interest on the Bonds,  assign and pledge to the
Trustee,  and create a security interest in favor of the Trustee in certain of
its  rights,  title  and  interest  in and to this  Agreement  (including  all
payments hereunder)  reserving,  however, the Reserved Rights; and the Company
hereby  agrees  and  consents  to such  assignment  and  pledge.  The  Company
acknowledges  that it has received a copy of the Indenture for its examination
and review.  By its  execution  of this  Agreement,  the Company  acknowledges
that it has  approved,  has  agreed to and is bound by the  provisions  of the
Indenture.  The Company  agrees that the Trustee  shall be entitled to enforce
and to benefit from the terms and  conditions of this Agreement that relate to
it notwithstanding the fact that it is not a signatory hereto.

Duties and  Obligations.  The Company  covenants and agrees that it will fully
and  faithfully  perform  all the duties and  obligations  that the Issuer has
covenanted  and agreed in the  Indenture  to cause the  Company to perform and
any duties and  obligations  that the Company is required in the  Indenture to
perform.  The  foregoing  shall  not apply to any duty or  undertaking  of the
Issuer that by its nature cannot be delegated or assigned.

Non-Discrimination Covenant.  Non-DiThe  Company  agrees  that during the term
of this  Agreement,  as to  itself  and as to  each  occupant  of the  Project
controlling,  controlled by or under common  control with the Company (each, a
"Contractor") as follows:

            (a)   Contractor  shall not  discriminate  against  any  employee,
applicant for employment,  independent  contractor or any other person because
of race, color, religious creed, handicap,  ancestry,  national origin, age or
sex.  Contractor shall take  affirmative  action to insure that applicants are
employed,  and that employes or agents are treated during employment,  without
regard to their race, color,  religious creed,  handicap,  ancestry,  national
origin,  age  or  sex.  Such  affirmative  action  shall  include,  but is not
limited  to:  employment,  upgrading,  demotion  or  transfer,  recruiting  or
recruitment  advertising;  layoff or termination;  rates of pay or other forms
of  compensation;  and  selection  for  training.  Contractor  shall  post  in
conspicuous places, available to employes,  agents,  applicants for employment
and other persons,  a notice to be provided by the contracting  agency setting
forth the provisions of this Section 8.15.

            (b)   Contractor   shall  in   advertisements   or  requests   for
employment placed by it or on its behalf,  state that all qualified applicants
will receive  consideration  for  employment  without  regard to race,  color,
religious creed, handicap, ancestry, national origin, age or sex.

            (c)   Contractor   shall  send  each  labor   union  or   workers'
representative  with which it has a collective  bargaining  agreement or other
contract  or  understanding,  a notice  advising  said labor union or workers'
representative  of its  commitment to this Section 8.15.  Similar notice shall
be sent to every other source of recruitment regularly utilized by Contractor.

            (d)   It shall be no defense to a finding  of  noncompliance  with
this  Section  8.15  that  Contractor  had  delegated  some of its  employment
practices to any union,  training program or other source of recruitment which
prevents it from meeting its obligations.  However,  if the evidence indicates
that Contractor was not on notice of the third-party  discrimination or made a
good  faith  effort  to  correct  it,  such  factor  shall  be  considered  in
mitigation in determining appropriate sanctions.

            (e)   Where the  practices of a union or of any  training  program
or other source of recruitment  will result in the exclusion of minority group
persons,  so that Contractor will be unable to meet its obligations under this
Section 8.15,  Contractor  shall then employ and fill vacancies  through other
nondiscriminatory employment procedures.

            (f)   Contractor  shall  comply  with all state and  federal  laws
prohibiting  discrimination  in hiring or employment  opportunities.  In event
of  Contractor's  noncompliance  with this Section 8.15 or with any such laws,
the maturity of the  indebtedness to the Issuer pursuant to this Agreement may
be accelerated pursuant to Section 10.2 of this Agreement,  and Contractor may
de declared  temporarily  ineligible for further contracts from the State, and
other sanctions may be imposed and remedies invoked.

            (g)   Contractor shall furnish all necessary  employment documents
and records to, and permit  access to its books,  records and accounts by, the
contracting agency for purposes of investigation to ascertain  compliance with
the  provisions of this clause.  If Contractor  does not possess  documents or
records reflecting the necessary information requested,  it shall furnish such
information on reporting forms supplied by the contracting agency.

            (h)   Contractor shall actively  recruit  minority  subcontractors
and women  subcontractors or subcontractors with substantial minority or women
representation among their employees.

            (i)   Contractor  shall  include the  provisions  of this  Section
8.15 in every  subcontract,  so that such provisions will be binding upon each
subcontractor.

            (j)   Contractor  obligations  under this  clause  are  limited to
Contractor's  facilities  within  the State  or,  where  the  contract  is for
purchase of goods  manufactured  outside of the State, the facilities at which
such goods are actually produced.


                                  ARTICLE IX

                          ASSIGNMENT, LEASE AND SALE

            Section IX.1.     Restrictions  on Transfer  of  Issuer's  Rights.
The Issuer  agrees that,  except for the  assignment  of its rights under this
Agreement  to the Trustee  pursuant to the  Indenture,  it will not during the
term of this Agreement sell, assign,  transfer or convey its interests in this
Agreement except as provided in Section 9.2.

Assignment by the Issuer.  It is understood,  agreed and acknowledged that the
Issuer,  as security for payment of the principal of and premium,  if any, and
interest on the Bonds,  will assign to the Trustee  pursuant to the Indenture,
among other things,  certain of its rights, title and interests in and to this
Agreement  (reserving  its  rights,  however,  pursuant  to  sections  of this
Agreement  providing  that notices,  reports and other  statements be given to
the Issuer and that  consents be obtained  from the Issuer and also  reserving
its rights to  reimbursement  and payment of costs and expenses under Sections
5.2(b)  and (c),  its right of access  under  Section  8.1,  and its rights to
indemnification  and non-liability under Sections 8.6, 8.7, 12.6 and 12.7, all
of this  Agreement).  The Company  consents to such assignment and agrees that
the Trustee shall be entitled to enforce this Agreement  directly  against the
Company as a third party beneficiary hereof.

            Section IX.3.     Assignment,   Lease  or  Sale  of  Project  or  
Assignment,  Lease or Sale of Project or  Assignment  of Agreement by Company.
With the prior  written  consent  of the  Trustee,  the Issuer and if a Credit
Facility is then in effect,  the issuer of such Credit Facility (a) the rights
of the  Company  under this  Agreement  may be assigned by the Company and (b)
the  Project  may be  leased  or sold as a  whole  or in part by the  Company;
provided,  however,  that (i) no such assignment,  lease or sale shall relieve
the Company from primary liability for any of its obligations  hereunder,  and
in the event of any  assignment,  lease or sale, the Company shall continue to
remain  primarily  liable for  payments  to be made  pursuant  to the Note and
hereunder and for the  performance  and observance of the other  agreements on
its part  herein  provided  to be  performed  and  observed  by it to the same
extent  as  though  no  assignment,  lease or sale had been  made,  (ii)  each
lessee,  purchaser  or assignee of the  Company's  interest in this  Agreement
shall  assume the  obligations  of the Company  hereunder to the extent of the
interest  assigned,  leased or sold, and the Company  shall,  not more than 60
nor less  than 30 days  prior to the  effective  date of any such  assignment,
lease or sale,  furnish or cause to be furnished to the Issuer and the Trustee
a true and complete copy of each such assignment,  lease or purchase  contract
and  assumption  of  obligations  and (iii)  prior to any  lease or sale,  the
Company  shall have  caused to be  delivered  to the Issuer and the Trustee an
opinion  of Bond  Counsel  to the  effect  that such  leasing or sale will not
cause  interest  on the  Bonds to be  includable  in the  gross  income of the
owners thereof for purposes of federal income taxation.

                                   ARTICLE XARTICLE X

                        EVENTS OF DEFAULT AND REMEDIES

            Section X.1.      Events of Default  Defined.  The term  "Event of
Default" shall mean any one or more of the following events:

            (a)   Failure by the Company to make any  payments  required to be
paid  pursuant  to  Section  5.2(a) or to pay the  Purchase  Price of Bonds as
required pursuant to Section 5.2(d) herein;

            (b)   The occurrence of an Event of Default under the Indenture;

            (c)   Any  representation by or on behalf of the Company contained
in this  Agreement or in any  instrument  furnished in  compliance  with or in
reference to this  Agreement or the  Indenture  proves false or  misleading in
any material respect as of the date of the making or furnishing thereof;

            (d)   Failure by the  Company  to  observe  or perform  any of its
other covenants,  conditions,  payments or agreements under this Agreement for
a  period  of 30 days  after  written  notice,  specifying  such  failure  and
requesting  that it be remedied,  is given to the Company by the Issuer or the
Trustee;

            (e)   The   Company   shall  (i)  apply  for  or  consent  to  the
appointment  of,  or the  taking  of  possession  by, a  receiver,  custodian,
assignee,  sequestrator,  trustee,  liquidator  or  similar  official  of  the
Company  or of all or a  substantial  part  of its  property,  (ii)  admit  in
writing its inability,  or be generally unable, to pay its debts as such debts
become due, (iii) make a general  assignment for the benefit of its creditors,
(iv) commence a voluntary  case under the Federal  Bankruptcy  Code (as now or
hereafter  in effect),  (v) file a petition  seeking to take  advantage of any
other   federal   or   state   law   relating   to   bankruptcy,   insolvency,
reorganization,  arrangement,  winding-up  or  composition  or  adjustment  of
debts,  (vi)  fail  to  controvert  in a  timely  or  appropriate  manner,  or
acquiesce  in  writing  to,  any  petition  filed  against  the  Company in an
involuntary  case  under  said  Federal  Bankruptcy  Code,  or (vii)  take any
corporate action for the purpose of effecting any of the foregoing;

            (f)   A  proceeding  or  case  shall  be  commenced,  without  the
application   or  consent  of  the   Company,   in  any  court  of   competent
jurisdiction,  seeking  (i)  the  liquidation,  reorganization,   arrangement,
dissolution,  winding-up or composition or adjustment of debts of the Company,
(ii)  the   appointment   of  a  trustee,   receiver,   custodian,   assignee,
sequestrator,  liquidator or similar  official of the Company or of all or any
substantial  part of its  assets,  or (iii)  similar  relief in respect of the
Company  under any law  relating to  bankruptcy,  insolvency,  reorganization,
arrangement,  winding-up  or  composition  or  adjustment  of  debts  and such
proceeding  or case  shall  continue  undismissed,  or an order,  judgment  or
decree  approving  or  ordering  any of the  foregoing  shall be  entered  and
continue  unstayed  and  in  effect,   for  a  period  of  90  days  from  the
commencement  of such  proceeding or case or the date of such order,  judgment
or decree,  or an order for relief  against the Company shall be entered in an
involuntary case under said Federal Bankruptcy Code;

            (g)   If a Credit  Facility is in effect,  the Trustee  shall have
received  a  written  notice  from the  Credit  Issuer of the  occurrence  and
continuance of an "Event of Default" (as defined in the Credit Agreement); or

            (h)   If a Credit  Facility is in effect,  the Trustee  shall have
received a written  notice from the Credit  Issuer that  amounts  which may be
drawn upon under the Credit  Facility  with  respect to  interest  (other than
interest  corresponding  to the  principal  amount  of Bonds  which  have been
redeemed) will not be reinstated following any drawing for such interest.

Remedies on Default.  Upon the  occurrence  of an Event of Default  under this
Agreement,  the Trustee,  as assignee of the Issuer,  but only if acceleration
of the  principal  amount of the Bonds has been  declared  pursuant to Section
6.2 of the  Indenture,  shall take any one or more of the  following  remedial
steps:

            (a)   By written notice  declare all payments  hereunder and under
the  Note  immediately  due and  payable,  whereupon  the  same  shall  become
immediately due and payable without presentment,  demand, protest or any other
notice whatsoever, all of which are hereby expressly waived by the Company.

            (b)   Take  whatever  other  action at law or in equity may appear
necessary  or  desirable to collect the amounts  payable  pursuant  hereto and
under  the Note  then due and  thereafter  to  become  due or to  enforce  the
performance  and  observance of any  obligation,  agreement or covenant of the
Company  under this  Agreement,  including the making of any drawing under the
Credit Facility.

            In the enforcement of the remedies  provided in this Section 10.2,
the Issuer and the Trustee may treat all reasonable  expenses of  enforcement,
including,  without  limitation,  legal,  accounting and advertising  fees and
expenses, as additional amounts payable by the Company then due and owing.

            Section X.3.      Application of Amounts  Realized in Enforcement 
Application  of Amounts  Realized  in  Enforcement  of  Remedies.  Any amounts
collected  pursuant to action  taken under  Section  10.2 shall be paid to the
Trustee and applied in accordance with Section 6.7 of the Indenture.

No Remedy  Exclusive.  No remedy  herein  conferred  upon or  reserved  to the
Issuer is intended to be exclusive of any other available  remedy or remedies,
but each and every such remedy  shall be  cumulative  and shall be in addition
to every other remedy given under this Agreement or now or hereafter  existing
at law or in  equity or by  statute.  No delay or  omission  to  exercise  any
right or power  accruing upon an Event of Default under this  Agreement  shall
impair any such right or power or shall be construed  to be a waiver  thereof,
but any such right and power may be  exercised  from time to time and as often
as may be deemed expedient.

Agreement to Pay  Attorneys'  Fees and Expenses.  Upon the  occurrence of an s
Event of Default under this  Agreement,  if the Issuer or the Trustee  employs
attorneys  or incurs  other  expenses for the  collection  of amounts  payable
hereunder or for the  enforcement  of the  performance  or  observance  of any
covenants or agreements on the part of the Company herein  contained,  whether
or not suit is commenced,  the Company agrees that it will on demand  therefor
pay to the Issuer or the Trustee or any combination  thereof,  as the case may
be, the reasonable fees of such attorneys and such other  reasonable  expenses
so incurred by the Issuer or the Trustee.

Issuer  and  Company to Give  Notice of  Default.  The Issuer and the  Company
severally  covenant  that they will,  at the expense of the Company,  promptly
give to the Trustee,  the Tender  Agent,  the  Remarketing  Agent,  the Paying
Agent and the Credit  Issuer,  and to each other,  written notice of any Event
of Default under this  Agreement of which they shall have actual  knowledge or
written  notice,  but the Issuer  shall not be liable for failing to give such
notice.

                                  ARTICLE XIARTICLE XI

                        PREPAYMENTS; PURCHASE OF BONDS

            Section XI.1.     Optional Prepayments.

            (a)   The Company shall have,  and is hereby  granted,  the option
to prepay the unpaid  principal  amount hereunder and under the Note in whole,
together with interest  thereon to the date of redemption of the Bonds, at any
time by taking,  or causing the Issuer to take,  the  actions  required by the
Indenture  for  the  redemption  of  all  Bonds  then  outstanding,  upon  the
occurrence of any of the events set forth in Section 2.18(b) of the Indenture.

            (b)   The Company shall have,  and is hereby  granted,  the option
to prepay all or any  portion of the unpaid  balance  hereunder  and under the
Note,  together with interest  thereon to the date of redemption of the Bonds,
at any time by taking,  or causing the Issuer to take, the actions required by
the  Indenture (i) to discharge the lien thereof  through the  redemption,  or
provision for payment of redemption of all Bonds then  outstanding  or (ii) to
effect the  redemption,  or provision for payment or redemption,  of less than
all Bonds then outstanding, pursuant to Section 2.18(a) of the Indenture.

            (c)   To make a  prepayment  pursuant to this  Section  11.1,  the
Company  shall  give  written  notice  to the  Issuer,  the  Trustee  and  the
Registrar   which  shall  specify   therein  (i)  the  date  of  the  intended
prepayment,  which  shall not be less than 45 days from the date any Bonds are
to be  redeemed  from such  prepayment,  and (ii) the  principal  amount to be
prepaid and the date or dates on which the  prepayment  is to occur.  All such
prepayments  shall be in the amount of the unpaid  amount  hereunder and under
the  Note  if  made  pursuant  to  Section  11.1(a)  or in  the  amount  of an
Authorized  Denomination  if made pursuant to Section  11.1(b) and the Company
shall furnish  additional  funds,  if necessary,  to make such  prepayments in
such amounts.  In addition,  the Company shall make such  additional  payments
as  shall  be  necessary  to  pay  any  redemption  premium  on the  Bonds  in
connection with such redemption.

            Section XI.2.     Mandatory  Prepayment Upon a  Determination  of 
Mandatory  Prepayment  Upon a Determination  of Taxability.  In the event of a
Determination  of Taxability,  the Company shall  forthwith,  and in any event
within 45 days of any such Determination of Taxability,  pay the entire unpaid
principal  balance  hereunder and under the Note plus accrued interest thereon
to the  date of  payment,  provided,  that,  if the  Company  delivers  to the
Trustee  the  opinion of Bond  Counsel  described  in  Section  2.18(c) of the
Indenture,  which  opinion  states  that  interest  on the  Bonds  will not be
includable  in the gross income of the owners  thereof if less than all of the
Bonds are  redeemed,  then the  Company  shall  prepay  the Loan in the amount
necessary to redeem the amount of Bonds stated in such opinion.

            The Company  hereby  agrees to give prompt  written  notice to the
Issuer  and the  Trustee of (a) the  occurrence  of an event that gives or may
give rise to a  Determination  of Taxability or (b) its receipt of any oral or
written advice from the Internal  Revenue Service that an event giving rise to
a Determination of Taxability shall have occurred.

Optional  Purchase of Bonds.  Subject to the terms of the Indenture  regarding
the use of  Eligible  Funds,  the  Company  may at any time,  and from time to
time,  furnish moneys to the Tender Agent  accompanied  by a notice  directing
such moneys to be applied to the  purchase  of Bonds  delivered  for  purchase
pursuant to the terms  thereof,  which Bonds shall be delivered to the Trustee
for  cancellation  in  accordance  with  Section  2.8  of the  Indenture.  The
Company  shall deliver to the  Remarketing  Agent and the Credit Issuer a copy
of any such notice.

Relative  Priorities.  The obligations of the Company under Section 11.2 shall
be and remain  superior to the rights,  obligations and options of the Company
under Section 11.1.

Prepayment to Include Fees and  Expenses.  Any  prepayment  under this Article
shall also  include any  expenses of  prepayment,  as well as all expenses and
costs provided for herein.

Purchase of Bonds.n XI.6.     Purchase of Bonds

            (a)   In  consideration  of  the  issuance  of  the  Bonds  by the
Issuer,  but for the benefit of the Holders,  the Company has agreed, and does
hereby  covenant,  to cause the  necessary  arrangements  to be made and to be
thereafter  continued  whereby the Holders from time to time may  deliver,  or
may be required to deliver  Bonds for purchase and whereby such Bonds shall be
so purchased.  In  furtherance of the foregoing  covenant of the Company,  the
Issuer,  at the request of the  Company,  has set forth in the Bonds the terms
and  conditions  relating to the delivery of Bonds by the Holders  thereof for
purchase,  has set forth in the Indenture the duties and  responsibilities  of
the  Tender  Agent  with  respect  to  the  purchase  of  Bonds,  and  of  the
Remarketing  Agent with  respect to the  remarketing  of Bonds and has therein
provided for the  appointment of the Tender Agent and Remarketing  Agent.  The
Company  hereby  authorizes  and directs the Tender Agent and the  Remarketing
Agent to  purchase,  offer,  sell and  deliver  Bonds in  accordance  with the
provisions of the Indenture.

            Without  limiting the generality of the foregoing  covenant of the
Company,  and in  consideration  of the Issuer's having set forth in the Bonds
and the Indenture the aforesaid  provisions,  the Company  covenants,  for the
benefit of the  Holders,  to provide for  arrangements  to pay, or cause to be
paid,  such  amounts  as shall be  necessary  to  effect  the  payment  of the
Purchase  Price of Bonds  delivered  for  purchase,  all as more  particularly
described in the Indenture.

            (b)   Notwithstanding  the  provisions  of  Section  11.6(a),  the
obligations of the Company under Section  11.6(a) with respect to the purchase
of Bonds shall be  terminated  on the date the Bonds begin to bear interest at
the Fixed Rate in accordance with the Indenture.

            (c)   In  furtherance  of the  obligations  of the  Company  under
Section 11.6(a),  the Company shall provide for the payment of its obligations
under such Section  11.6(a) by the delivery of the  Original  Credit  Facility
simultaneously   with  the  original  delivery  of  the  Bonds.  In  order  to
implement  such  undertaking of the Company,  the Issuer,  at the direction of
the Company,  has set forth in the Indenture the terms and conditions relating
to drawings  under the Credit  Facility to provide  moneys for the purchase of
Bonds.  The Company  hereby  authorizes and directs the Trustee to draw moneys
under the Credit  Facility in accordance  with the provisions of the Indenture
to the extent  necessary to provide  moneys  payable  under Section 2.7 of the
Indenture if and when due.

            (d)   The  Issuer  shall  have no  obligation  or  responsibility,
financial  or  otherwise,  with respect to the purchase of Bonds or the making
or continuation of arrangements  therefor other than as expressly set forth in
Section  11.6(a),  except that the Issuer shall  generally  cooperate with the
Company,  the  Tender  Agent  and the  Remarketing  Agent as  contemplated  in
Section 2.7 of the Indenture.

                                  ARTICLE XIIARTICLE XII

                                 MISCELLANEOUS

            Section XII.1.    Amounts  Remaining  in  Funds.  Subject  to  the
provisions  of Article V of the Indenture and as provided in Article IV of the
Indenture,  it is agreed by the parties  hereto that amounts  remaining in the
Bond Fund,  Initial  Fund or Bond  Purchase  Fund upon  expiration  or earlier
termination of this Agreement,  as provided in this  Agreement,  after payment
in full of the Bonds (or  provision  for payment  thereof  having been made in
accordance  with the  provisions of the Indenture) and all other amounts owing
under the Indenture,  shall be paid to the Credit Issuer (if a Credit Facility
is in effect and there is any amount  then owing by the  Company to the Credit
Issuer)  and  otherwise  shall  belong  to and be paid to the  Company  by the
Trustee.

No Implied  Waiver.  In the event any  provision of this  Agreement  should be
breached  by either  party and  thereafter  waived  by the other  party,  such
waiver  shall be limited to the  particular  breach so waived and shall not be
deemed to waive any other breach thereunder or hereunder.

Issuer  Representative.  Whenever  under the  provisions of this Agreement the
approval  of the Issuer is  required  or the Issuer is  required  to take some
action at the  request of the  Company,  such  approval  shall be made or such
action  shall be taken by the Issuer  Representative;  and the Company and the
Trustee shall be authorized  to rely on any such approval or action.

Company  Representative.  Whenever  under the provisions of this Agreement the
approval  of the  Company is  required or the Company is required to take some
action at the  request  of the  Issuer,  such  approval  shall be made or such
action  shall be taken by the  Company  Representative;  and the  Issuer,  the
Tender Agent,  the Remarketing  Agent,  the Paying Agent and the Trustee shall
be authorized to rely on any such approval or action.

Notices.  Notice  under  this  Agreement  shall be given  in  accordance  with
Section 9.4 of the Indenture.

            Section XII.6.    Issuer, Governing Body, Members, Commissioners, 
Directors,  Officers, Agents, Attorneys and Employees of Issuer and Governing 
Issuer, Governing Body, Members, Commissioners,  Directors, Officers, Agents, 
Attorneys  and  Employees  of Issuer and  Governing  Body Not  Liable.  To the
extent  permitted by law, no recourse shall be had for the  enforcement of any
obligation,  promise or  agreement  of the Issuer  contained  herein or in the
other Bond  Documents  to which the  Issuer is a party or for any claim  based
hereon or  thereon or  otherwise  in respect  hereof or  thereof  against  the
Issuer,  the Governing  Body,  any member,  commissioner,  director,  officer,
agent,  attorney or employee,  as such, in his/her individual capacity,  past,
present or future,  of the Issuer,  the  Governing  Body,  or of any successor
entity,  either  directly  or through the Issuer,  the  Governing  Body or any
successor entity, whether by virtue of any constitutional  provision,  statute
or rule  of  law,  or by the  enforcement  of any  assessment  or  penalty  or
otherwise.  No personal  liability  whatsoever shall attach to, or be incurred
by, any member, commissioner,  director, officer, agent, attorney or employee,
as such,  in his/her  individual  capacity,  past,  present or future,  of the
Issuer,  the Governing  Body, or of any successor  entity,  either directly or
through the Issuer,  the Governing Body or any successor  entity,  under or by
reason of any of the obligations,  promises or agreements entered into between
the  Issuer  and  the  Company,  whether  herein  contained  or to be  implied
herefrom as being  supplemental  hereto;  and all  personal  liability of that
character against every such member,  commissioner,  director, officer, agent,
attorney  or  employee  is,  by  the  execution  of  this  Agreement  and as a
condition  of, and as part of the  consideration  for,  the  execution of this
Agreement, expressly waived and released.

            Notwithstanding any other provision of this Agreement,  the Issuer
shall not be liable to the Company or the Trustee or any other  person for any
failure of the Issuer to take action  under this  Agreement  unless the Issuer
(a) is requested in writing by an appropriate  person to take such action, (b)
is assured of payment of, or  reimbursement  for, any  reasonable  expenses in
such  action,  and  (c) is  afforded,  under  the  existing  circumstances,  a
reasonable period to take such action.  In acting under this Agreement,  or in
refraining from acting under this Agreement,  the Issuer may conclusively rely
on the advice  of its counsel.

            Section XII.7.    No  Liability  of  Issuer;  No  Charge  Against 
No Liability of Issuer;  No Charge Against Issuer's Credit.  Any obligation of
the Issuer  created by,  arising out of, or entered into in  contemplation  of
this  Agreement,  including  the Bonds,  shall not impose a debt or  pecuniary
liability upon the Issuer, the State or any political  subdivision  thereof or
constitute  a charge  upon the general  credit or taxing  powers of any of the
foregoing.  Any such  obligation  shall be payable  solely out of the revenues
and any other moneys derived  hereunder and under the Indenture and the Credit
Facility,  except (as provided in the Indenture and in this  Agreement) to the
extent  it shall be paid out of moneys  attributable  to the  proceeds  of the
Bonds or the income from the temporary investment thereof.

            The  principal  of,  premium,  if any,  and  interest on the Bonds
shall  be  payable  solely  from  the  funds  pledged  for  their  payment  in
accordance  with the  Indenture  and from payments made pursuant to the Credit
Facility.

If  Performance  Date Not a Business Day. If the last date for  performance of
any act or the exercising of any right, as provided in this  Agreement,  shall
not be a Business  Day,  such  payment may be made or act  performed  or right
exercised on the next succeeding Business Day.

Binding  Effect.  This  Agreement  shall  inure to the benefit of and shall be
binding upon the Issuer,  the Company,  and their  respective  successors  and
assigns.  No  assignment  of this  Agreement by the Company  shall relieve the
Company of its obligations hereunder.

Severability.  In the  event any  provision  of this  Agreement  shall be held
invalid or unenforceable by any court of competent jurisdiction,  such holding
shall not invalidate or render unenforceable any other provision hereof.

Amendments,  Changes  and  Modifications.  Subsequent  to the  issuance of the
Bonds  and  prior  to  payment  of  the  Bonds,  this  Agreement  may  not  be
effectively  amended,  changed,  modified,  altered  or  terminated  except in
accordance with the Indenture.

Execution  in  Counterparts.   This  Agreement  may  be  executed  in  several
counterparts,  each of which, taken together,  shall be an original and all of
which shall constitute but one and the same instrument.




C-392210.02340.01188
                                      -1-

Applicable  Law.  This  Agreement  shall  be  governed  by  and  construed  in
accordance with the laws of the State.



            IN WITNESS  WHEREOF,  the Issuer and the Company  have caused this
Agreement to be executed in their  respective legal names and their respective
corporate seals to be hereunto affixed,  and the signatures of duly authorized
persons to be attested, all as of the date first above written.


                                LUZERNE COUNTY INDUSTRIAL
                                DEVELOPMENT AUTHORITY

                                By:   /s/ Charles B. Johnson            
                                      Charles B. Johnson
                                      Chairman
[SEAL]

ATTEST:

/s/ George J. Ellis   
Secretary/Treasurer


                                CULP, INC.



                                By:   /s/ Franklin N. Saxon             
                                      Franklin N. Saxon
                                      Vice President

[SEAL]

ATTEST:

/s/ Henry H. Ralston
Henry H. Ralston
Assistant Secretary




                                       A-1

                                      EXHIBIT A



C-392210.02340.01188
                                         A-1


                             DESCRIPTION OF THE PROJECT


Culp, Inc. (the "Company") will use the bond proceeds to (a) acquire and install
15 weaving  machines  with  electronic  jacquard  heads,  gantries  and required
accessories  and (b) a new  warping  machine to support  the  increased  weaving
capacity  for  the  Company's   Chromatex   plant  located  in  West   Hazleton,
Pennsylvania.  This plant produces jacquard upholstery fabrics,  and it contains
all  of  the  yarn  preparation   equipment,   looms,  finishing  equipment  and
distribution  facilities used by the  Rossville/Chromatex  business unit of Culp
for woven jacquard fabrics.












C-392210.02340.01188
                                      B-1

                                   EXHIBIT B





C-392210.02340.01188
                                      B-1


$__________________                                          No. _____________


                          REQUISITION AND CERTIFICATE


                                      ______________, 19___


First-Citizens Bank & Trust Company
2917 Highwoods Boulevard
Raleigh, North Carolina 27604
Attention: Corporate Trust Department

Ladies and Gentlemen:

On behalf of Culp, Inc. (the  "Company"),  I hereby  requisition  from the funds
representing  the  proceeds  of the  sale  of  the  Tax-Exempt  Adjustable  Mode
Industrial Development Revenue Bonds (Culp, Inc. Project) Series 1996, issued by
the Luzerne County Industrial  Development  Authority (the "Issuer"),  and dated
December  1,  1996 (the  "Bonds"),  which  funds are held by you in the  Luzerne
County  Industrial  Development  Authority (Culp,  Inc. Project) Initial Fund in
accordance  with the  Indenture  of  Trust,  dated as of  December 1,  1996 (the
"Indenture"), from the Issuer to you the sum of $_________________ to be paid to
the person or persons indicated below:

              (1)   $__________________ for __________________________
                    __________________________________________________
                    __________________________________________________
                    payable to _________________________________, and

              (2)   $__________________ for __________________________
                    __________________________________________________
                    __________________________________________________
                    payable to ______________________________________.


I hereby  certify that (a) the  obligation  to make such payment was incurred by
the Issuer or the Company in connection  with the Acquisition (as defined in the
Agreement, of even date with the Indenture,  between the Issuer and the Company,
hereinafter  referred to as the "Agreement") of the Project  (referred to in the
Agreement),  is a proper charge  against the Costs of the Project (as defined in
the Agreement),  and has not been the basis for any prior  requisition which has
been paid; (b) neither the Company nor, to the best of the Company's  knowledge,
the Issuer has received  written notice of any lien, right to lien or attachment
upon, or claim  affecting the right of such payee to receive  payment of, any of
the  money  payable  under  this  requisition  to any of the  persons,  firms or
corporations  named  herein,  or if any notice of any such lien,  attachment  or
claim has been  received  such lien,  attachment  or claim has been  released or
discharged or will be released or discharged  upon payment of this  requisition;
(c) this requisition  contains no items  representing  payment on account of any
retained  percentages  which the Issuer or the  Company is entitled to retain at
this  date;  (d) the  payment of this  requisition  will not result in less than
substantially  all (95%) or more) of the  proceeds  of the Bonds to be  expended
under this requisition and under all prior requisitions having been used for the
acquisition and installation of real property or property of a character subject
to the allowance for  depreciation  under the Internal  Revenue Code of 1986, as
amended;  and (e) no "Event of Default" (as defined in the Agreement),  or event
which after notice or lapse of time or both would  constitute  such an "Event of
Default" has occurred and not been waived.

The following  paragraph is to be completed when any requisition and certificate
includes  any  item  for  payment  for  labor  or to  contractors,  builders  or
materialmen.

I hereby  certify  that insofar as the amount  covered by the above  requisition
includes  payments  to  be  made  for  labor  or  to  contractors,  builders  or
materialmen, including materials or supplies, in connection with the Acquisition
of the Project,  (i) all  obligations  to make such  payment have been  properly
incurred,  (ii) any such labor was actually  performed and any such materials or
supplies were actually  furnished or installed in or about the Project and are a
proper  charge  against the Costs of the  Project,  and (iii) such  materials or
supplies either are not subject to any lien or security interest or, if the same
are so subject,  such lien or security  interest  will be released or discharged
upon payment of this requisition.



                              ______________________________________
                              Company Representative
















C-392210.02340.01188
                                      C-1

                                   EXHIBIT C











C-392210.02340.01188
                                      C-1



AFTER THE  ENDORSEMENT AS HEREON PROVIDED AND PLEDGE OF THIS NOTE, THIS NOTE MAY
NOT BE  ASSIGNED,  PLEDGED,  ENDORSED  OR  OTHERWISE  TRANSFERRED  EXCEPT  TO AN
ASSIGNEE OR  SUCCESSOR OF THE TRUSTEE IN  ACCORDANCE  WITH THE  INDENTURE,  BOTH
REFERRED TO HEREIN.

$3,500,000                                                    December 4, 1996


                                PROMISSORY NOTE

FOR VALUE RECEIVED, Culp, Inc., a corporation duly formed and existing under the
laws of the State of North Carolina (the  "Company"),  by this  promissory  note
hereby  promises to pay to the order of Luzerne  County  Industrial  Development
Authority  (the  "Issuer")  the  principal  sum of Three  Million  Five  Hundred
Thousand  Dollars  ($3,500,000),  together with interest on the unpaid principal
amount  hereof,  from the Issue  Date (as  defined in the  Indenture  referenced
below)  until paid in full,  at a rate per annum  equal to the rate of  interest
borne by the Bonds (as hereinafter  defined),  premium, if any, on the Bonds and
Purchase  Price (as defined in the  Indenture).  All such payments of principal,
interest,  premium  and  Purchase  Price  shall be made in funds  which shall be
immediately  available  on the due date of such  payments and in lawful money of
the  United  States  of  America  at the  principal  corporate  trust  office of
First-Citizens Bank & Trust Company,  Raleigh,  North Carolina, or its successor
as trustee under the Indenture.

The principal  amount,  interest,  premium,  if any, and Purchase Price shall be
payable on the dates and in the  amount,  that  principal  of,  interest  on the
Bonds, premium, if any, and Purchase Price are payable, subject to prepayment as
hereinafter provided.

The Company shall receive a credit for the amounts due and payable  hereunder to
the  extent  that  payments  are made by the Credit  Issuer  (as  defined in the
Indenture)  pursuant to drawings  under the Credit  Facility  (as defined in the
Indenture).

This promissory  note is the "Note" referred to in the Loan Agreement,  dated as
of December 1, 1996 (the  "Agreement")  between the Company and the Issuer,  the
terms, conditions and provisions of which are hereby incorporated by reference.

This  Note  and the  payments  required  to be made  hereunder  are  irrevocably
assigned,   without  recourse,   representation  or  warranty,  and  pledged  to
First-Citizens  Bank & Trust Company  under the Indenture of Trust,  dated as of
December 1, 1996 (the "Indenture"), by and between the Issuer and First-Citizens
Bank & Trust Company, as Trustee, and such payments will be made directly to the
Trustee  for  the  account  of the  Issuer  pursuant  to such  assignment.  Such
assignment  is made as  security  for the  payment of  $3,500,000  in  aggregate
principal amount of Tax-Exempt  Adjustable Mode Industrial  Development  Revenue
Bonds  (Culp,  Inc.  Project)  Series 1996 (the  "Bonds"),  issued by the Issuer
pursuant  to the  Indenture.  All the terms  conditions  and  provisions  of the
Indenture and the Bonds are hereby incorporated as a part of this Note.

The Company may at its option,  and may under certain  circumstances be required
to, prepay together with accrued interest,  all or any part of the amount due on
this Note, as provided in the Agreement.

Presentation, demand, protest and notice of dishonor are hereby expressly waived
by the Company.

The Company hereby promises to pay reasonable costs of collection and reasonable
attorneys' fees in case of default on this Note.

This Note shall be governed by, and  construed in accordance  with,  the laws of
the State of Pennsylvania.


                                CULP, INC.


[SEAL]                          By:________________________________
                                      Franklin N. Saxon
                                      Vice President

ATTEST:


___________________________
_________ Secretary








                        FIRST AMENDMENT TO 1996 AMENDED
                         AND RESTATED CREDIT AGREEMENT

      THIS FIRST  AMENDMENT  TO 1996 AMENDED AND  RESTATED  CREDIT  AGREEMENT,
dated as of  December  1, 1996,  is made among CULP,  INC.,  a North  Carolina
corporation  (the  "Borrower"),  FIRST UNION NATIONAL BANK OF NORTH  CAROLINA,
N.A., a national banking association  ("First Union"),  WACHOVIA BANK OF NORTH
CAROLINA,  N.A., a national banking association ("Wachovia") ("First Union and
Wachovia  being  referred to  collectively  herein as the  "Banks")  and FIRST
UNION,  acting in the manner and to the extent  described in Section 12 of the
Credit  Agreement  (as  defined  herein)  (in  such  capacity,  the  "Agent").
Capitalized  terms not defined herein shall have the meanings ascribed to them
in the Credit Agreement.









                             BACKGROUND STATEMENT

      A.    The  Borrower  and the Banks are  parties to the 1996  Amended and
Restated   Credit   Agreement,   dated  as  of  April  1,  1996  (the  "Credit
Agreement"),  pursuant  to which,  among  other  things,  the Banks  have made
available  to the Borrower  certain  irrevocable  letters of credit  issued by
Wachovia as credit  enhancement  for various  industrial  development  revenue
bonds issued for the benefit of the Borrower.

      B.    The  Borrower is  currently  negotiating  the  issuance of two new
industrial  development  revenue bond issues,  the  $3,500,000  Luzerne County
Industrial   Development   Authority  Tax-Exempt  Adjustable  Mode  Industrial
Development  Revenue  Bonds (Culp,  Inc.  Project)  Series 1996 (the  "Luzerne
Bonds") and the  $6,000,000  The Alamance  County  Industrial  Facilities  and
Pollution Control Financing  Authority  Tax-Exempt  Adjustable Mode Industrial
Development  Revenue Bonds (Culp,  Inc.  Project)  Series 1996 (the  "Alamance
Bonds" and together with the Luzerne Bonds, the "Bonds").

      C.    The Borrower has  requested  that  Wachovia  issue an  irrevocable
letter of credit in the amount of $3,675,000 as a credit  enhancement  for the
Luzerne  Bonds.  The Banks are  willing  for  authorize  the  issuance of such
letter  of  credit  (the  "Luzerne  Letter  of  Credit")  upon the  terms  and
conditions hereof.

      D.    In addition,  the Borrower has requested  that  Wachovia  issue an
irrevocable  letter  of  credit  in  the  amount  of  $6,300,000  as a  credit
enhancement  for the Alamance  Bonds.  The Banks are willing for authorize the
issuance  of such  letter of credit  (the  "Alamance  Letter  of  Credit"  and
together with the Luzerne Letter of Credit,  the "New Letters of Credit") upon
the terms and conditions hereof.






      E.    To  effectuate  the  issuance  of the New Letters of Credit,
the  Borrower  and the Banks  desire to amend the  Credit  Agreement  to
increase the LOC Committed Amount under the Credit Agreement.

                            STATEMENT OF AGREEMENT

      NOW, THEREFORE,  for good and valuable consideration,  the receipt
and sufficiency of which are hereby acknowledged,  the Borrower, each of
the  Banks and the  Agent,  for  themselves  and  their  successors  and
assigns, agree as follows:

                                   ARTICLE I

                        AMENDMENTS TO CREDIT AGREEMENT

      I.1.  Amendment  to  Section  1.1.   Section  1.1  of  the  Credit
Agreement is hereby  amended by deleting such the  definition of "Letter
of Credit" in its entirety and substituting therefor the following:

            "Letter of Credit" shall mean the Existing  Letters of
      Credit,  the Irrevocable Letter of Credit No. LC 968-080881,
      issued in the amount of  $3,675,000  as credit  support  for
      the  $3,500,000   Luzerne  County   Industrial   Development
      Authority Tax-Exempt Adjustable Mode Industrial  Development
      Revenue  Bonds  (Culp,   Inc.   Project)  Series  1996,  the
      Irrevocable  Letter of Credit No. LC  968-080882,  issued in
      the  amount  of  $6,300,000   as  credit   support  for  the
      $6,000,000  The Alamance  County  Industrial  Facilities and
      Pollution Control Financing Authority Tax-Exempt  Adjustable
      Mode  Industrial   Development  Revenue  Bonds  (Culp,  Inc.
      Project)  Series  1996,  and any letter of credit  issued by
      the  Issuing  Bank  pursuant  to the terms  hereof,  as such
      Letters  of  Credit  may  be  amended,  modified,  extended,
      renewed or replaced from time to time.

      I.2.  Amendment to Section  4.5(a).  Section  4.5(a) of the Credit
Agreement is hereby amended by deleting such  subsection in its entirety
and substituting therefor the following:

      4.5  Letters of Credit.

            (a)  Issuance.  Subject  to the terms  and  conditions
      hereof  and of the  LOC  Documents,  if any,  and any  other
      terms and  conditions  which the Issuing Bank may reasonably
      require,  the Issuing Bank shall issue,  and the Banks shall
      participate  in,  Letters of Credit  for the  account of the
      Borrower   from   time  to  time  upon   request   from  the
      Restatement  Date until the Revolving  Loan Maturity Date in
      a form  acceptable to the Issuing Bank;  provided,  however,
      that (i) the aggregate  amount of LOC Obligations  shall not
      at any time exceed THIRTY-TWO  MILLION FOUR HUNDRED NINETEEN
      THOUSAND   FOUR   HUNDRED   THIRTEEN   AND  54/100   DOLLARS
      ($32,419,413.54)  (the "LOC Committed  Amount").  Letters of
      Credit will be issued  solely for the purpose of  supporting
      industrial    development    revenue    bonds   or   similar
      tax-advantaged  programs  for the  benefit of the  Borrower.
      Except as otherwise  expressly agreed upon by all the Banks,
      Letters of Credit  shall not have an  original  expiry  date
      later than the  Revolving  Loan Maturity  Date.  Each Letter
      of Credit shall comply with the related LOC  Documents.  The
      Issuance  and expiry date of each Letter of Credit  shall be
      a Business Day.

                                  ARTICLE II

                         ISSUANCE OF LETTERS OF CREDIT

      II.1. Luzerne   Letter  of  Credit.   Subject  to  the  terms  and
conditions  hereinafter  set forth,  on December 4, 1996,  or such other
later  date as  requested  by the  Borrower,  Wachovia  shall  issue the
Luzerne  Letter of Credit.  The Luzerne Letter of Credit shall be issued
in an amount equal to the sum of (i) the aggregate  principal  amount of
the Luzerne  Bonds plus (ii) an amount equal to the 120 days interest on
the Luzerne  Bonds,  computed as though the Luzerne  Bonds bore interest
at a rate of 15% per annum,  notwithstanding the actual rate bore by the
Luzerne Bonds from time to time,  based on a 360-day year for the actual
number of days elapsed.

      II.2. Alamance  Letter  of  Credit.   Subject  to  the  terms  and
conditions  hereinafter  set forth,  on December 20, 1996, or such other
later  date as  requested  by the  Borrower,  Wachovia  shall  issue the
Alamance  Letter of  Credit.  The  Alamance  Letter  of Credit  shall be
issued  in an  amount  equal to the sum of (i) the  aggregate  principal
amount of the  Alamance  Bonds plus (ii) an amount equal to the 120 days
interest on the Alamance  Bonds,  computed as though the Alamance  Bonds
bore  interest  at a rate of 15% per annum,  notwithstanding  the actual
rate bore by the  Alamance  Bonds from time to time,  based on a 360-day
year for the actual number of days elapsed.

      II.3. Letter of Credit  Fees.  On the date of issuance of the each
New Letter of Credit (each,  a "Date of  Issuance"),  the Borrower shall
pay to the  Agent a fee  equal  to (i)  the  product  of the  Applicable
Percentage  times the amount of such New  Letter of  Credit,  times (ii)
the  quotient of the number of days  between  such Date of Issuance  and
April  1,  1997  divided  by  365.  The  Agent  shall  pay to the  Banks
(including  the Issuing  Bank)  their  respective  ratable  share of the
Letter of Credit Fee promptly upon receipt.
 



                                  ARTICLE III

                       CONDITIONS TO BANK'S OBLIGATIONS

      III.1.  Conditions  to  Issuance  of the  Letters of  Credit.  The
obligations  of  Wachovia to issue each of the New Letters of Credit are
subject  to  the  satisfaction  of  all  of  the  following   conditions
precedent:

            (a)   Credit  Document.  This Amendment shall have been duly
      authorized,  executed and delivered by the  Borrower,  shall be in
      form and substance satisfactory to the Banks;

            (b)   Letter of Credit Fee.  The Agent  shall have  received
      the letter of credit  fee (paid  pursuant  to Section  2.3 of this
      Amendment) applicable to such New Letter of Credit; and

            (c)   Other  Documents.  The Banks shall have  received such
      other  documents  and  certificates  as the Banks  may  reasonably
      request  in  connection  with  this  Amendment,  each in form  and
      substance satisfactory to the Banks.

                                  ARTICLE IV

                        REPRESENTATIONS AND WARRANTIES

      The Borrower hereby represents and warrants that:

      IV.1. Compliance  with  Credit  Agreement.   The  Borrower  is  in
compliance in all material  respects with all terms and  provisions  set
forth in the Credit Agreement to be observed or performed by it.

      IV.2. Representations  in Credit  Agreement.  The  representations
and  warranties  of the Borrower set forth in the Credit  Agreement  are
true and correct in all material respects as of the date hereof,  except
insofar  as any such  representation  or  warranty  relates  solely to a
prior date.

      IV.3. No Event of  Default.  No Event of  Default,  nor any  event
that  upon  notice,  lapse  of time or both  would  become  an  Event of
Default, has occurred and is continuing.

                                   ARTICLE V

                                    GENERAL

      V.1.  Full Force and Effect.  Except as expressly  amended hereby,
the  Credit  Agreement  shall  continue  in full  force  and  effect  in
accordance  with the provisions  thereof on the date hereof.  As used in
the Credit Agreement,  "hereinafter,"  "hereto,"  "hereof," and words of
similar import shall,  unless the context otherwise  requires,  mean the
Credit  Agreement after  amendment by this  Amendment.  Any reference to
the Credit  Agreement  or any of the other Loan  Documents  herein or in
any  such  documents  shall  refer  to the  Credit  Agreement  and  Loan
Documents as amended hereby.

      V.2.  Applicable  Law.  This  Amendment  shall be  governed by and
construed in accordance  with the internal  laws and judicial  decisions
of the State of North Carolina.

      V.3.  Counterparts.  This  Amendment  may  be  executed  in two or
more counterparts,  each of which shall constitute an original,  but all
of which when taken together shall constitute but one instrument.

      V.4.  Headings.  The  headings  of  this  Amendment  are  for  the
purposes  of  reference  only and shall not affect the  construction  of
this Amendment.

      V.5.  Effectiveness.   This   Amendment   shall  be  deemed  fully
executed and  effective  when  executed by the  Borrower,  the Agent and
each of the Banks.



      IN WITNESS WHEREOF, the Borrower,  each of the Banks and the Agent
have caused  this  Amendment  to be  executed  by their duly  authorized
officers all as of the day and year first above written.


                                    CULP, INC.


                                    By: /s/ Franklin N. Saxon          
                                        Franklin N. Saxon
                                        Vice President


                                    FIRST UNION NATIONAL BANK
                                      OF NORTH CAROLINA, for itself
                                      and as Agent


                                    By:  /s/ David Silander            
                                         David Silander
                                         Vice President


                                    WACHOVIA  BANK  OF  NORTH  CAROLINA,
N.A.


                                    By: /s/ Peter T. Callahan          
                                        Peter T. Callahan
 







 

5 1,000 9-MOS APR-27-1997 APR-29-1996 JAN-26-1997 406 0 51,807 (1,650) 50,157 105,019 165,337 (79,191) 228,262 44,330 0 0 0 566 89,012 228,262 293,201 293,201 241,008 241,008 1,117 0 3,652 14,286 5,356 0 0 0 0 8,930 0.79 0.79