Avondale Inc, et al. – ‘424B3’ on 9/19/03

On:  Friday, 9/19/03, at 3:20pm ET   ·   Accession #:  950144-3-10952   ·   File #s:  333-108353, -01

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Prospectus   —   Rule 424(b)(3)
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 424B3       Avondale Mills, Inc. / Avondale Incorporated         142    754K 

Document Table of Contents

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                                                Filed Pursuant to Rule 424(b)(3)
                                                     Registration No. 333-108353

AVONDALE MILLS, INC.

 OFFER TO EXCHANGE

$150,000,000
10 1/4% SENIOR SUBORDINATED NOTES DUE 2013
THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
 FOR
ANY AND ALL OUTSTANDING 10 1/4% SENIOR SUBORDINATED NOTES DUE 2013
THAT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933

THE NEW NOTES                                                                   

        -        The terms of the new notes are substantially identical to the
             old notes, except that the new notes have been registered
            under the Securities Act, and the transfer restrictions,
                exchange offer provisions and additional interest provisions
            relating to the old notes do not apply to the new notes.

        -        The new notes will mature on July 1, 2013. The new notes will
              bear interest at the rate of 10 1/4% per year. We will pay
             interest on the new notes on January 1 and July 1 of each
year, beginning January 1, 2004.            

       -        We may redeem some or all of the new notes at any time prior
                to July 1, 2008, at a specified price. We may redeem some or
                 all of the new notes at any time on or after July 1, 2008, at
          the redemption prices described in this prospectus. In
                addition, on or before July 1, 2006, we may redeem up to 35%
                of the original principal amount of the new notes at 110.25%
              of their face amount, plus accrued and unpaid interest, if
             any, with the net proceeds of specified equity offerings.

       -        The new notes will rank junior in right of payment to all of
                  our existing and future senior indebtedness and equal in right
         of payment with all of our existing and future senior
subordinated indebtedness.                  

        -        The new notes will be fully and unconditionally guaranteed on
       an unsecured, senior subordinated basis by Avondale
          Incorporated, our parent company and sole shareholder.

        -        If we experience certain changes of control, we must offer to
             purchase the new notes at 101% of their face amount, plus
accrued and unpaid interest.                

       -        The new notes will not be listed on any securities exchange.
           Currently, there is no public market for the new notes.

THE EXCHANGE OFFER                                                              

     -        The exchange offer will expire at 5:00 p.m., New York City
time, on October 21, 2003, unless extended. 

   -        All old notes validly tendered and not validly withdrawn
                  pursuant to the exchange offer will be exchanged. For each old
               note validly tendered and not validly withdrawn pursuant to
                 the exchange offer, the holder will receive a new note having
              a principal amount equal to that of the tendered old note.

       -        Tenders of old notes may be withdrawn at any time before the
expiration date of the exchange offer.      

         -        Each broker-dealer that receives new notes for its own account
                pursuant to the exchange offer must acknowledge that it will
                 deliver a prospectus in connection with any resale of the new
notes.                                      

         SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF THE FACTORS
THAT YOU SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER AND AN EXCHANGE  
OF OLD NOTES FOR NEW NOTES.                                                     

         WE ARE NOT ASKING YOU FOR A PROXY, AND YOU ARE REQUESTED NOT TO SEND US
A PROXY.                                                                        

     NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED OF THESE SECURITIES OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE  
OR COMPLETE OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY     
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.                           

The date of this prospectus is September 18, 2003.

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 TABLE OF CONTENTS

                                                        [Enlarge/Download Table]
                                                                                                                    
WHERE YOU CAN FIND MORE INFORMATION.............................................................................   i
SUMMARY.........................................................................................................   1
RISK FACTORS....................................................................................................  10
FORWARD-LOOKING STATEMENTS......................................................................................  18
USE OF PROCEEDS.................................................................................................  19
CAPITALIZATION..................................................................................................  19
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA..................................................................  20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...........................  22
BUSINESS........................................................................................................  34
MANAGEMENT......................................................................................................  43
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................................................................  48
PRINCIPAL SHAREHOLDERS..........................................................................................  49
THE EXCHANGE OFFER..............................................................................................  52
DESCRIPTION OF CERTAIN INDEBTEDNESS.............................................................................  62
DESCRIPTION OF THE NEW NOTES....................................................................................  64
REGISTRATION RIGHTS.............................................................................................  90
BOOK-ENTRY; DELIVERY AND FORM...................................................................................  91
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES..........................................................  93
PLAN OF DISTRIBUTION............................................................................................  93
LEGAL MATTERS...................................................................................................  94
EXPERTS.........................................................................................................  94
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE...................................................................... F-1

         EACH BROKER-DEALER THAT RECEIVES NEW NOTES FOR ITS OWN ACCOUNT PURSUANT
TO THE EXCHANGE OFFER MUST ACKNOWLEDGE THAT IT WILL DELIVER A PROSPECTUS IN     
CONNECTION WITH ANY RESALE OF THE NEW NOTES. THE LETTER OF TRANSMITTAL STATES   
THAT BY SO ACKNOWLEDGING AND BY DELIVERING A PROSPECTUS, A BROKER-DEALER WILL   
NOT BE DEEMED TO ADMIT THAT IT IS AN "UNDERWRITER" WITHIN THE MEANING OF THE    
SECURITIES ACT OF 1933, AS AMENDED, WHICH WE REFER TO AS THE SECURITIES ACT.    
THIS PROSPECTUS, AS IT MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME, MAY BE 
USED BY A BROKER-DEALER IN CONNECTION WITH RESALES OF NEW NOTES RECEIVED IN     
EXCHANGE FOR OLD NOTES WHERE THE OLD NOTES WERE ACQUIRED BY THE BROKER-DEALER AS
A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES. AVONDALE      
MILLS, INC. AND AVONDALE INCORPORATED HAVE AGREED THAT, FOR A PERIOD OF UP TO   
180 DAYS AFTER THE CONSUMMATION OF THE EXCHANGE OFFER, OR FOR SUCH LONGER PERIOD
AS PROVIDED BY THE REGISTRATION RIGHTS AGREEMENT, WE WILL MAKE THIS PROSPECTUS  
AVAILABLE TO ANY BROKER-DEALER FOR USE IN CONNECTION WITH ANY SUCH RESALE. SEE  
"PLAN OF DISTRIBUTION."                                                         

 WHERE YOU CAN FIND MORE INFORMATION

        Avondale Mills, Inc. and Avondale Incorporated have filed with the SEC
a registration statement on Form S-4 under the Securities Act relating to the   
offering of the new notes. This prospectus is part of the registration          
statement. As described below, you may obtain from the SEC a copy of the        
registration statement and exhibits that Avondale Mills, Inc. and Avondale      
Incorporated filed with the SEC. The registration statement may contain         
additional information that may be important to you. Statements made in this    
prospectus about legal documents may not necessarily be complete and you should 
read the documents which are filed as exhibits to the registration statement or 
otherwise filed with the SEC.                                                   

         Avondale Incorporated currently files reports with the SEC. As a result
of the exchange offer, Avondale Incorporated will be subject to the periodic    
reporting and other informational requirements of the Securities Exchange Act of
1934. In addition, under the indenture governing the old notes and the new      
notes, Avondale Mills, Inc. and Avondale Incorporated have agreed that during   
any period in which Avondale Mills, Inc. and Avondale Incorporated are not      
subject to the reporting and informational requirements of the Exchange Act, for
so long as the new notes remain outstanding, they will distribute to the holders
of the notes, copies of the financial information that Avondale Mills, Inc. and 
Avondale Incorporated would have been required to file with the SEC pursuant to 
the                                                                             

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Exchange Act; provided, however, that so long as Avondale Incorporated is the   
guarantor of the old notes or the new notes, the reports, information and other 
documents required to be filed and provided as described hereunder may, at      
Avondale Mills, Inc.'s option, be filed by and be those of Avondale Incorporated
rather than Avondale Mills, Inc. This financial information shall include annual
reports containing consolidated financial statements and notes thereto, together
with an opinion thereon expressed by an independent public accounting firm,     
management's discussion and analysis of financial condition and results of      
operations, as well as quarterly reports containing unaudited condensed         
consolidated financial statements for the first three quarters of each fiscal   
year.                                                                           

         The registration statement, as well as such reports, exhibits and other
information filed by Avondale Mills, Inc. and Avondale Incorporated with the SEC
are available to the public over the Internet at the SEC's web site at          
http://www.sec.gov. Please note that the SEC's website is included in this      
prospectus as an inactive textual reference only. The information contained on  
the SEC's website is not incorporated by reference into this prospectus and     
should not be considered to be part of this prospectus. You may also read and   
copy any document Avondale Mills, Inc. and Avondale Incorporated files with the 
SEC at its public reference facilities at 450 Fifth Street, N.W., Washington,   
D.C. 20549. You can also obtain copies of the documents at prescribed rates by  
writing to the Public Reference Section of the SEC at 450 Fifth Street, N.W.,   
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further       
information on the operation of the public reference facility.                  

You may request a copy of Avondale Mills, Inc.'s and Avondale 
Incorporated's filings with the SEC, or any of the agreements or other documents
that constitute exhibits to those filings, at no cost, by writing or telephoning
us at the following address or phone number:                                    

            Avondale Mills, Inc.
              506 South Broad Street
             Monroe, Georgia 30655
            Attention: Secretary
                 Telephone: (770) 267-2226

       TO OBTAIN TIMELY DELIVERY OF THIS INFORMATION, YOU MUST REQUEST IT NO
LATER THAN FIVE (5) BUSINESS DAYS BEFORE OCTOBER 21, 2003, THE EXPIRATION DATE  
OF THE EXCHANGE OFFER.                                                          

       YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS.
WE HAVE NOT AUTHORIZED ANYONE ELSE TO PROVIDE YOU WITH ADDITIONAL OR DIFFERENT  
INFORMATION. WE ARE ONLY OFFERING TO EXCHANGE THE OLD NOTES FOR NEW NOTES IN    
JURISDICTIONS WHERE THE OFFER IS PERMITTED. YOU SHOULD NOT ASSUME THAT THE      
INFORMATION IN THIS PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON
THE FRONT OF THIS DOCUMENT.                                                     

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 SUMMARY

         The following summary highlights selected information contained in this
prospectus and may not contain all of the information that is important to you. 
For a more complete understanding of this offering, we encourage you to read    
this entire document. In this prospectus, unless the context requires otherwise,
references to "Avondale," "Avondale Mills," "our company," "we," "our" and "us" 
refer to Avondale Mills, Inc. and its subsidiaries. References to "the          
guarantor" and "our parent" refer to Avondale Incorporated, our parent company, 
sole shareholder and the guarantor of the notes. References to a "fiscal" year  
refer to our fiscal year, which ends on the last Friday in August, and may      
include 52 or 53 weeks. Whenever we refer to EBITDA in this prospectus, we have 
calculated it as described below under "-- Summary Consolidated Financial and   
Other Data."                                                                    

 OUR COMPANY

GENERAL                                                                         

   We are a leading domestic manufacturer and marketer of cotton and
cotton-blend fabrics and yarns used in the production of casual apparel and, to 
a lesser extent, home furnishings and industrial products. We design,           
manufacture and market a broad line of indigo-dyed denim for both branded and   
private label apparel producers of denim jeans, slacks, shorts, skirts and      
jackets as well as non-apparel producers of denim luggage, bags and other       
products. We also design and manufacture an extensive line of piece-dyed        
sportswear and workwear fabrics. Our sportswear fabrics are marketed to both    
branded and private label producers of casual, or khaki, slacks, shorts and     
skirts. Our workwear fabrics are marketed to producers of uniforms, career      
apparel and other workwear (shirts, slacks and jackets) that are distributed    
through either the rental or retail channels. We manufacture cotton and         
cotton-blend yarns, which are sold to knitters and weavers of apparel fabrics.  
We also manufacture specialty and coated fabrics, which are sold to the apparel,
home furnishings and industrial markets. In fiscal 2002, we sold our fabrics and
yarns to approximately 1,200 customers, including many of the world's leading   
apparel companies.                                                              

         Our predecessor was founded in 1895 by the family of G. Stephen Felker,
our chairman, president and chief executive officer. We currently operate 20    
manufacturing facilities with locations in Alabama, Georgia, North Carolina and 
South Carolina. Our facilities and equipment are modern and efficient,          
reflecting the significant investment made in recent years to enhance our       
productivity, operating efficiencies and manufacturing flexibility, and to      
reduce our unit costs. During this time, we have closely managed our working    
capital and reduced our debt considerably.                                      

 In fiscal 2002, we had net sales, EBITDA and net loss of $659.7
million, $67.9 million and ($0.1) million, respectively. For the thirty-nine    
weeks ended May 30, 2003, we had net sales, EBITDA and net income of $461.1     
million, $52.6 million and $1.1 million, respectively. See "-- Summary          
Consolidated Financial and Other Data" for a discussion of EBITDA and the       
reconciliation of EBITDA to net income (loss).                                  

PRODUCTS                                                                        

   We conduct our business through three principal segments: apparel
fabrics, yarns and other sales.                                                 

         Apparel fabrics. Our apparel fabrics consist of cotton and cotton-blend
denim, sportswear and workwear fabrics and are generally manufactured to fill   
specific customer orders.                                                       

    We are a leading domestic manufacturer and marketer of indigo-dyed
denim used in the production of branded and private label denim jeans, slacks,  
shorts, skirts, jackets and other denim garments. We design, often in           
conjunction with our customers, and manufacture a broad range of high quality,  
value-added denim with new and innovative colors, textures, weaves and finishes.
Our denim customers include VF Corporation (the maker of the Lee, Rider,        
Wrangler, Rustler, Brittania, Chic and Healthtex brands), Levi Strauss & Co., or
Levi's, The Gap Inc. (including Old Navy) and several large private label       
manufacturers.                                                                  

   We are one of the largest domestic manufacturers and marketers of
cotton sportswear fabrics used in the production of khaki slacks, shorts, skirts
and other sportswear garments. We produce fabrics in a wide variety of styles,  
colors, finishes, textures and weights according to individual customer         
specifications, including, for example, fabrics with water and stain repellant  
finishes. Our sportswear fabrics customers include Levi's (the maker of the     

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Dockers brand), VF Corporation, Haggar Corp., Tropical Sportswear Int'l         
Corporation (maker of the Savane and Farah brands) and several large private    
label manufacturers.                                                            

   We are a leading domestic manufacturer and marketer of cotton and
cotton-blend workwear fabrics used in the production of uniforms, career apparel
and other workwear (shirts, slacks, jackets and other garments). Our workwear   
fabrics customers require durable fabrics characterized by long wear and easy   
care. We work closely with our customers to develop fabrics with these and other
enhanced performance characteristics. Our workwear fabrics customers include    
Cintas Corporation, Carhartt, Inc., VF Corporation, Williamson-Dickie Mfg. Co.  
and American Uniform Co.                                                        

        Apparel fabric sales accounted for 78.1% and 79.2% of our net sales in
fiscal 2002 and the thirty-nine weeks ended May 30, 2003, respectively.         

       Yarns. We are one of the largest domestic manufacturers of cotton and
cotton-blend yarns, which we use internally in the production of our woven      
apparel fabrics or market to knitters or weavers of apparel fabrics. Our        
customers use our yarns in the manufacture of a broad range of items, including 
apparel (T-shirts, underwear, socks and hosiery, knitted shirts, shorts and     
slacks, denim jeans, woven khaki slacks, and fleece sweatshirts, pants and      
jackets), and home furnishings. Yarn customers include Fruit of the Loom Ltd.,  
Russell Corporation and numerous other producers of knit apparel. Our yarn sales
accounted for 15.9% and 15.4% of our net sales in fiscal 2002 and the           
thirty-nine weeks ended May 30, 2003, respectively.                             

     Other. Our other sales include specialty greige and coated fabrics.

      We produce undyed, unfinished cotton and cotton-blend greige fabrics
that we market to manufacturers of apparel, home furnishings and industrial     
products. We work with our customers to create new fabric styles and            
constructions and can alter our overall product mix to meet changing customer   
requirements. In addition, we can maintain our production levels and            
efficiencies by manufacturing greige fabrics for use in our apparel fabrics     
operation.                                                                      

        We produce a variety of coated fabrics that we market to recreational,
industrial and military product manufacturers. Products made from our coated    
fabrics include awnings, tents, boat covers and life vests. We also finish      
customers' fabrics on a commission basis, which enables those customers to meet 
short delivery schedules while minimizing inventories.                          

        Our other sales accounted for 6.0% and 5.4% of our net sales in fiscal
2002 and the thirty-nine weeks ended May 30, 2003, respectively.                

       We are an Alabama corporation and our principal executive offices are
located at 506 South Broad Street, Monroe, Georgia 30655. Our telephone number  
is (770) 267-2226.                                                              

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THE EXCHANGE OFFER

       On June 30, 2003, we completed the offering of $150,000,000 aggregate
principal amount of our 10 1/4% senior subordinated notes due 2013 in a         
transaction exempt from registration under the Securities Act. In connection    
with the offering, we entered into a registration rights agreement with the     
initial purchasers of the old notes in which we agreed to commence this exchange
offer. Accordingly, you may exchange your old notes for new notes which have    
substantially the same terms. We refer to the old notes and the new notes       
together as the notes. The following is a summary of the exchange offer. For a  
more complete description of the terms of the exchange offer, see "The Exchange 
Offer" in this prospectus.                                                      

                                                        [Enlarge/Download Table]
                                                                                                
Securities Offered............................ $150,000,000 aggregate principal amount          
                                               of our 10 1/4% senior subordinated notes         
                                               due 2013, registered under the Securities Act.   
                                               The terms of the new notes offered in the        
                                               exchange offer are substantially identical to    
                                               those of the old notes, except that the transfer 
                                               restrictions, exchange offer provisions and      
                                               additional interest provisions relating to the   
                                               old notes do not apply to the new notes.         

The Exchange Offer............................ We are offering new notes in exchange for a like 
                                               principal amount of our old notes. We are        
                                               offering these new notes to satisfy our          
                                               obligations under a registration rights agreement
                                               which we entered into with the initial purchasers
                                               of the old notes. You may tender your outstanding
                                               notes for exchange by following the procedures   
                                               described under the heading "The Exchange Offer."
                                               The exchange offer is not subject to any federal 
                                               or state regulatory requirements other than      
                                               securities laws.                                 

Expiration Date; Tenders; Withdrawal.......... The exchange offer will expire at 5:00 p.m., New 
                                               York City time, on October 21, 2003, unless we   
                                               extend it. We do not currently intend to extend  
                                               the exchange offer. However, if we elect to      
                                               extend the exchange offer on one or more         
                                               occasions, we will not extend the exchange       
                                               offer for more than an aggregate of 30 days.     
                                               You may withdraw any old notes that you tender   
                                               for exchange at any time prior to the expiration 
                                               date of the exchange offer. We will accept any   
                                               and all old notes validly tendered and not       
                                               validly withdrawn before the expiration date. See
                                               "The Exchange Offer--Procedures for Tendering Old
                                               Notes" and "--Withdrawal of Tenders of Old       
                                               Notes" for a more complete description of the    
                                               tender and withdrawal period.                    

Material United States Federal Income Tax                                                       
Consequences.................................. Your exchange of old notes for new notes to be   
                                               issued in the exchange offer will not result in  
                                               any gain or loss to you for United States federal
                                               income tax purposes. See "Material United States 
                                               Federal Income Tax Considerations" for a summary 
                                               of United States federal income tax consequences 
                                               associated with the exchange of old notes for new
                                               notes and the ownership and disposition of those 
                                               new notes.                                       

Use of Proceeds............................... We will not receive any cash proceeds from the   
                                               exchange offer.                                  

Exchange Agent................................ Wachovia Bank, National Association              

Shelf Registration............................ If applicable interpretations of the staff of the
                                               SEC do not permit us to effect the exchange      
                                               offer, or upon the request of any holder of old  
                                               notes under certain circumstances, we will be    
                                               required to file, and use our reasonable best    
                                               efforts to cause to become effective, a shelf    
                                               registration statement under the Securities Act  
                                               which would cover resales of old notes. See      
                                               "Registration Rights."                           

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                                                        [Enlarge/Download Table]
                                                                                                         
Consequences of Your Failure to Exchange Your                                                            
Old Notes..................................... Old notes that are not exchanged in the exchange          
                                               offer will continue to be subject to the                  
                                               restrictions on transfer that are described in            
                                               the legend on the old notes. In general, you may          
                                               offer or sell your old notes only if they are             
                                               registered under, or offered or sold under an             
                                               exemption from, the Securities Act and                    
                                               applicable state securities laws. We do not               
                                               currently intend to register the old notes                
                                               under the Securities Act. Following                       
                                               consummation of the exchange offer, we will               
                                               not be required to register under the                     
                                               Securities Act any old notes that remain                  
                                               outstanding except in the limited                         
                                               circumstances in which we are obligated to                
                                               file a shelf registration statement for                   
                                               certain holders of old notes not eligible to              
                                               participate in the exchange offer pursuant to             
                                               the registration rights agreement. In                     
                                               addition, upon consummation of the exchange               
                                               offer, we will no longer be obligated to pay              
                                               additional interest on the old notes. If your             
                                               old notes are not tendered and accepted in the            
                                               exchange offer, it may become more difficult              
                                               for you to sell or transfer your old notes.               
                                               Interest on any old notes that are not                    
                                               tendered for exchange in the exchange offer               
                                               will continue to accrue at a rate equal to 10             
                                               1/4% per year.                                            

Consequences of Exchanging                                                                               
Your Old Notes; Who May Participate                                                                      
in the Exchange Offer......................... Based on interpretations of the staff of the SEC,         
                                               we believe that you will be allowed to resell the         
                                               new notes that we issue in the exchange offer if:         

                                                   -    you are acquiring the new notes in the           
                                                        ordinary course of your business,                

                                                   -    you are not participating in and do not          
                                                        intend to participate in a distribution of       
                                                        the new notes,                                   

                                                   -    you have no arrangement or understanding         
                                                        with any person to participate in a              
                                                        distribution of the new notes, and               

                                                   -    you are not one of our "affiliates," as defined  
                                                        in Rule 405 under the Securities Act.            

                                               If any of these conditions are not satisfied, you         
                                               will not be eligible to participate in the                
                                               exchange offer, you should not rely on the interpretations
                                               of the staff of the SEC in connection with the exchange   
                                               offer and you must comply with the registration and       
                                               prospectus delivery requirements of the Securities Act    
                                               in connection with the resale of your notes.              

                                               If you are a broker-dealer and you will receive new       
                                               notes for your own account in exchange for old notes that 
                                               you acquired as a result of market-making activities or   
                                               other trading activities, you will be required to         
                                               acknowledge that you will deliver a prospectus in         
                                               connection with any resale of the new notes. See "Plan of 
                                               Distribution" for a description of the prospectus delivery
                                               obligations of broker-dealers in the exchange offer.      

                                               In accordance with the foregoing conditions, if you are a 
                                               broker-dealer that acquired the old notes directly from   
                                               us in the initial offering and not as a result of market- 
                                               making activities, you will not be eligible to participate
                                               in the exchange offer.                                    

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                                                        [Enlarge/Download Table]
                                                                                                
Conditions of the Exchange Offer.............. Notwithstanding any other term of the exchange   
                                               offer, or any extension of the exchange offer, we
                                               do not have to accept for exchange, or exchange  
                                               new notes for, any old notes, and we may         
                                               terminate the exchange offer before acceptance of
                                               the old notes, if in our reasonable judgment:    

                                                   -    the exchange offer would violate        
                                                        applicable law or any applicable        
                                                        interpretation of the staff of the SEC; 
                                                        or                                      

                                                   -    any action or proceeding has been       
                                                        instituted or threatened in any court or
                                                        by any governmental agency that might   
                                                        materially impair our ability to proceed
                                                        with the exchange offer or any material 
                                                        adverse development has occurred, with  
                                                        respect to us; or                       

                                                   -    we have not obtained any governmental   
                                                        approval which we deem necessary for the
                                                        consummation of the exchange offer.     

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 THE NEW NOTES

     The summary below describes the principal terms of the new notes. Certain
of the terms and conditions described below are subject to important limitations
and exceptions. The "Description of the New Notes" section of this prospectus   
contains a more detailed description of the terms and conditions of the new     
notes.                                                                          

                                                        [Enlarge/Download Table]
                                                                                                
Issuer........................................ Avondale Mills, Inc.                             

Notes Offered................................. $150,000,000 aggregate principal amount of 10    
                                               1/4% Senior Subordinated Notes due 2013.         

Maturity Date................................. July 1, 2013.                                    

Interest Payment Dates........................ January 1 and July 1 of each year, beginning     
                                               January 1, 2004.                                 

Guarantee..................................... The payment of principal and interest on the new 
                                               notes will be fully and unconditionally          
                                               guaranteed on an unsecured, senior subordinated  
                                               basis by Avondale Incorporated, our parent       
                                               company and sole shareholder. See "Description of
                                               the New Notes -- Guaranty."                      

Ranking....................................... The new notes will be our unsecured senior       
                                               subordinated obligations and will rank junior in 
                                               right of payment to our existing and future      
                                               senior indebtedness, including our obligations   
                                               under the revolving credit facility and the      
                                               equipment note. The guarantee by Avondale        
                                               Incorporated will rank junior to all existing and
                                               future senior indebtedness of Avondale           
                                               Incorporated, including Avondale Incorporated's  
                                               guarantee of our obligations under the revolving 
                                               credit facility and the equipment note. Avondale 
                                               Incorporated currently conducts no business and  
                                               has no significant assets other than our capital 
                                               stock, all of which is pledged to secure Avondale
                                               Incorporated's obligations under the revolving   
                                               credit facility. After giving pro forma effect to
                                               the offering of the old notes and our use of the 
                                               net proceeds from the offering of the old notes, 
                                               as of May 30, 2003, we would have had            
                                               approximately $22.5 million of senior            
                                               indebtedness outstanding. This amount does not   
                                               include $57.0 million that we would have had     
                                               available for borrowing under our revolving      
                                               credit facility, all of which would be senior    
                                               indebtedness.                                    

                                               The new notes and the guarantee will rank equal  
                                               in right of payment with any of our or Avondale  
                                               Incorporated's current or future senior          
                                               subordinated indebtedness.                       

Optional Redemption........................... We may redeem some or all of the new notes at any
                                               time prior to July 1, 2008, at a specified       
                                               redemption price. We may redeem some or all of   
                                               the new notes at any time on or after July 1,    
                                               2008, at the redemption prices described in      
                                               "Description of the New Notes -- Optional        
                                               Redemption." In addition, on or before July 1,   
                                               2006, we may redeem up to 35% of the original    
                                               principal amount of the new notes at 110.25% of  
                                               their face amount, plus accrued and unpaid       
                                               interest, with the net proceeds of specified     
                                               equity offerings as described in "Description of 
                                               the New Notes -- Optional Redemption."           

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                                                        [Enlarge/Download Table]
                                                                                                
Change of Control............................. Upon the occurrence of a change of control (as   
                                               described in "Description of the New Notes--     
                                               Change of Control"), we must offer to repurchase 
                                               the new notes at 101% of their principal amount, 
                                               plus accrued and unpaid interest to the date of  
                                               repurchase.                                      

Restrictive Covenants......................... The indenture governing the old notes and the new
                                               notes contains certain covenants limiting our    
                                               ability and the ability or our restricted        
                                               subsidiaries to:                                 

                                               -    incur additional indebtedness;              

                                               -    pay dividends or make other distributions   
                                                    on, redeem or repurchase capital stock;     

                                               -    make investments or other restricted        
                                                    payments;                                   

                                               -    engage in transactions with affiliates;     

                                               -    issue capital stock of restricted           
                                                    subsidiaries;                               

                                               -    sell assets; or                             

                                               -    effect a consolidation or merger.           

                                               These covenants are subject to important         
                                               exceptions and qualifications which are described
                                               in this prospectus under the caption "Description
                                               of the New Notes -- Certain Covenants."          

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 SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA

         The following summary consolidated statement of income data and summary
consolidated balance sheet data as of and for each of the five fiscal years in  
the period ended August 30, 2002 have been derived from our audited consolidated
financial statements, which have been audited by Arthur Andersen LLP as of and  
for the four fiscal years ended August 31, 2001 and by Crisp Hughes Evans LLP as
of and for the fiscal year ended August 30, 2002. The consolidated summary      
financial data as of and for the thirty-nine weeks ended May 31, 2002 and May   
30, 2003 were derived from our unaudited condensed consolidated financial       
statements and, in our opinion, reflect all adjustments, consisting of normal   
accruals, necessary for a fair presentation of the data for those periods. Our  
results of operations for the thirty-nine weeks ended May 30, 2003 may not be   
indicative of results that may be expected for the full year. The summary       
consolidated financial data set forth below should be read in conjunction with  
"Management's Discussion and Analysis of Financial Condition and Results of     
Operations" and the consolidated financial statements and notes thereto included
elsewhere in this prospectus.                                                   

                                                        [Enlarge/Download Table]


                                                                                                        THIRTY-NINE WEEKS  
                                                                                                              ENDED        
                                                                           FISCAL YEAR                  ------------------ 
                                                    --------------------------------------------------   MAY 31,   MAY 30, 
                                                       1998       1999      2000      2001      2002      2002      2003   
                                                    ----------  --------  --------  --------  --------  --------  -------- 
                                                                             (IN MILLIONS, EXCEPT RATIOS)                  
                                                                                                                           
STATEMENT OF INCOME DATA:                                                                                                  
Net sales.......................................... $  1,064.3  $  890.9  $  836.5  $  772.8  $  659.7  $  475.2  $  461.1 
Gross profit.......................................      137.3      89.7     116.3      60.9      54.0      34.4      40.5 
Facility restructuring.............................        2.7       6.2        --        --       7.0       7.0       2.5 
Operating income (loss)............................       86.6      45.3      77.9      27.9      18.7       5.8      17.1 
Interest expense, net..............................       23.3      23.0      20.2      20.4      18.4      15.3      13.4 
Discount and expenses on sales of receivables......        7.3       5.6       5.6       4.9       1.1       1.3       2.1 
Other expense (income), net........................        0.5       0.5       0.5       0.8      (0.5)     (0.4)     (0.2)
Income (loss) before income taxes..................       55.4      16.3      51.6       1.8      (0.3)    (10.5)      1.7 
Provision for (benefit of) income taxes............       21.1       6.3      18.6       0.5      (0.2)     (4.7)      0.7 
Net income (loss)..................................       34.3      10.0      33.0       1.3      (0.1)     (5.8)      1.1 
BALANCE SHEET DATA (AT PERIOD END):                                                                                        
Total assets....................................... $    463.6  $  439.7  $  438.7  $  453.0  $  397.4  $  415.7  $  378.0 
Long-term debt, including current portion..........      246.8     219.5     187.7     230.1     170.0     196.9     166.9 
Shareholders' equity...............................      104.0     109.0     134.5     130.0     130.3     117.5     125.7 
OTHER DATA:                                                                                                                
Capital expenditures............................... $     66.3  $   50.1  $   30.5  $   91.1  $   13.1  $    9.7  $   13.1 
Depreciation and amortization......................       39.9      42.8      42.8      46.4      45.5      34.4      32.4 
Net cash provided by operating activities..........       81.8      99.4      67.7      48.1      71.7      44.6      18.4 
EBITDA(1)..........................................      126.6      93.9     115.5      75.5      67.9      44.0      52.6 
Ratio of EBITDA to interest expense, net and                                                                               
  discount and expenses on sale of receivables(1)..       4.1x      3.3x      4.5x      3.0x      3.5x      2.6x      3.4x 
Ratio of total long-term debt to EBITDA(1).........       1.9x      2.3x      1.6x      3.0x      2.5x        --        -- 

----------                                                                      

(1) EBITDA is a supplemental non-GAAP financial measure. EBITDA is defined as   
net income (loss) plus (a) interest expense, net, (b) provision for     
    (benefit of)income taxes, (c) discount and expenses on sales of receivables,
(d)depreciation and amortization, (e) non-cash portion of facility      
    restructuring charges and (f) plus or minus, as the case may be, adjustments
to cost of goods sold made under the LIFO inventory valuation method. We
have presented EBITDA because we believe that it is a widely accepted   
 financial indicator of a company's ability to service indebtedness and is
    used by investors and analysts to evaluate companies in our industry. EBITDA
  is also used as a measure for certain covenants under our revolving credit
facility, our equipment note and the indenture governing the notes.     

However, EBITDA: (a) does not represent net income or cash flow from    
 operations as defined by generally accepted accounting principles; (b) is
 not necessarily indicative of cash available to fund our cash flow needs;
(c) should not be considered as an alternative to operating income, net 
  income or cash flows from operating activities as determined in accordance
with generally accepted accounting principles; and (d) should not be    
construed as a measure of our operating performance, profitability or   
liquidity. EBITDA as calculated by us is not necessarily comparable to  
similarly titled measures reported by other companies.                  

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     The following table reconciles EBITDA on a consolidated basis to the line
on our consolidated statement of income entitled net income (loss) for the      
periods presented in the table above:                                           

                                                        [Enlarge/Download Table]

                                                                                                             THIRTY-NINE    
                                                                                                             WEEKS ENDED    
                                                                          FISCAL YEAR                       --------------  
                                                     ---------------------------------------------------    MAY 31,  MAY 30,
                                                        1998       1999       2000       2001      2002      2002     2003  
                                                     ---------   --------  ---------   --------  --------   ------   -----  
                                                                                    (IN MILLIONS)                           
                                                                                                                            
Net income (loss)..................................  $    34.3   $   10.0  $    33.0   $    1.3  $   (0.1)  $ (5.8)  $ 1.1  
Interest expense, net..............................       23.3       23.0       20.2       20.4      18.5     15.3    13.4  
Discount and expenses on sales of receivables......        7.3        5.6        5.6        4.9       1.1      1.3     2.1  
Provision for (benefit of) income taxes............       21.1        6.3       18.6        0.5      (0.2)    (4.7)    0.7  
Depreciation and amortization......................       39.9       42.8       42.8       46.4      45.5     34.4    32.4  
Facility restructuring (non-cash portion)..........        2.7        6.2         --         --       5.3      5.3     2.2  
Adjustment of carrying value of inventories to LIFO                                                                         
  basis, net of market adjustment..................       (2.0)        --       (4.7)       2.0      (2.2)    (1.8)    0.7  
                                                     ---------   --------  ---------   --------  --------   ------   -----  
EBITDA.............................................  $   126.6   $   93.9  $   115.5   $   75.5  $   67.9   $ 44.0   $52.6  
                                                     =========   ========  =========   ========  ========   ======   =====  

Ratio of Earnings to Fixed Charges  

         The following table shows the ratio of earnings to fixed charges of our
company, which includes our subsidiaries, on a consolidated basis. The ratio of 
earnings to fixed charges has been computed by dividing:                        

-        income before income taxes plus fixed charges, by    

-        fixed charges.                                       

  Fixed charges include interest, whether expensed or capitalized,
amortization of deferred financing costs, discount and expenses on sale of      
receivables and the portion of capital lease payments that is representative of 
interest or financing charges. For fiscal 2002, earnings were insufficient      
to cover fixed charges by $0.4 million.                                         

                                                        [Enlarge/Download Table]

                                                                                        THIRTY-NINE
                                                     FISCAL YEAR                        WEEKS ENDED
                                 ----------------------------------------------------  ------------
                                 1998        1999        2000        2001        2002  MAY 30, 2003
                                 ----        ----        ----        ----        ----  ------------
                                                                                                   
Ratio of earnings to fixed                                                                         
 charges ....................... 2.8x        1.5x        2.9x        1.1x          --      1.1x    

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RISK FACTORS

        You should carefully consider the following information with the other
information contained in this prospectus before deciding to tender your old     
notes in exchange for new notes pursuant to the exchange offer.                 

RISKS RELATING TO OUR INDEBTEDNESS AND THE NOTES

YOUR RIGHT TO RECEIVE PAYMENTS ON THE NEW NOTES OR THE GUARANTEE IS JUNIOR TO   
ALL EXISTING AND FUTURE SENIOR INDEBTEDNESS OF OUR COMPANY OR AVONDALE          
INCORPORATED.                                                                   

       The new notes will be our unsecured, senior subordinated obligations.
The new notes will be guaranteed by Avondale Incorporated, our parent company   
and sole shareholder, on an unsecured, senior subordinated basis. By their      
express terms, the new notes rank junior in right of payment to all of our      
existing and future indebtedness and the guarantee ranks junior in right of     
payment to all of Avondale Incorporated's existing and future indebtedness,     
other than, in either case, any indebtedness that expressly provides that it    
ranks equal with, or junior in right of payment to, the notes or the guarantee, 
as applicable. As a result, upon any distribution to our creditors or the       
creditors of Avondale Incorporated in a bankruptcy, liquidation or              
reorganization or similar proceeding relating to us or Avondale Incorporated or 
our or its property, the holders of our senior indebtedness and the senior      
indebtedness of Avondale Incorporated will be entitled to be paid in full and in
cash before any payment may be made with respect to the new notes or the        
guarantee.                                                                      

 Avondale Incorporated currently conducts no business and has no
significant assets other than our capital stock, all of which is pledged to     
secure Avondale Incorporated's obligations under the revolving credit facility. 
Thus, currently there are no resources supporting Avondale Incorporated's       
guarantee of the new notes that are incremental to those to which holders of the
new notes already have access as our direct creditors. Avondale Incorporated's  
guarantee of the new notes is subordinate in right of payment to the guarantee  
by Avondale Incorporated of our obligations under the revolving credit facility.

      In addition, all payments on the new notes and the guarantee will be
blocked in the event of a payment default on senior indebtedness and may be     
blocked for up to 179 of 360 consecutive days in the event of certain non-      
payment defaults on senior indebtedness.                                        

        In the event of a bankruptcy, liquidation or reorganization or similar
proceeding relating to us or Avondale Incorporated, holders of the new notes    
will participate with, the holders of old notes, trade creditors and all other  
holders of our subordinated indebtedness and the subordinated indebtedness of   
Avondale Incorporated in the assets remaining after we and Avondale Incorporated
have paid all of our senior indebtedness in full. However, because the indenture
requires that amounts otherwise payable to holders of the old notes and the new 
notes in a bankruptcy or similar proceeding be paid to holders of senior        
indebtedness instead, holders of the old notes and the new notes may receive    
less, ratably, than holders of trade payables in any such proceeding. In any of 
these cases, we and Avondale Incorporated may not have sufficient funds or      
assets to pay all of our creditors, and holders of notes may receive less,      
ratably, than the holders of senior indebtedness.                               

        After giving pro forma effect to the offering of the old notes and the
new notes and our use of the net proceeds from the offering of the old notes, as
of May 30, 2003, we would have had approximately $22.5 million of senior        
indebtedness outstanding. This amount does not include $57.0 million that we    
would have had available for borrowing under our revolving credit facility, all 
of which would be senior indebtedness.                                          

COVENANTS IN OUR DEBT AGREEMENTS RESTRICT OUR ACTIVITIES AND COULD ADVERSELY    
AFFECT OUR BUSINESS.                                                            

        Our debt agreements, such as the indenture governing the old notes and
the new notes, our revolving credit facility, our equipment note and our        
receivables securitization facility, contain various covenants that limit our   
ability and the ability of our restricted subsidiaries to engage in a variety of
transactions including:                                                         

-        incurring additional indebtedness;                           

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  -        paying dividends or making other distributions on, redeeming or
repurchasing capital stock;                         

-        making investments or other restricted payments;             

-        engaging in transactions with affiliates;                    

-        issuing capital stock of restricted subsidiaries;            

-        selling assets; or                                           

-        effecting a consolidation or merger.                         

        These covenants limit our operational flexibility and could prevent us
from taking advantage of business opportunities as they arise, growing our      
business or competing effectively. In addition, our revolving credit facility   
requires us to maintain specified financial ratios and satisfy other financial  
condition tests. Our ability to meet these financial ratios and tests can be    
affected by events beyond our control, and we cannot assure you that we will    
meet these tests.                                                               

    A breach of any of these covenants or other provisions in our debt
agreements could result in an event of default, which if not cured or waived,   
could result in such debt becoming immediately due and payable. This, in turn,  
could cause our other debt to become due and payable as a result of             
cross-acceleration provisions contained in the agreements governing such other  
debt. In the event that some or all of our debt is accelerated and becomes      
immediately due and payable, we may not have the funds to repay, or the ability 
to refinance, such debt. In addition, even if the new notes become immediately  
due and payable, as a result of the subordination provisions of the new notes,  
the holders of the new notes would not be entitled to receive any payment in    
respect of the new notes until all of our senior indebtedness was paid in full. 

WE MAY NOT HAVE THE FUNDS NECESSARY TO FINANCE THE REPURCHASE OF THE NOTES IN   
CONNECTION WITH A CHANGE OF CONTROL OFFER REQUIRED BY THE INDENTURE.            

    Upon the occurrence of certain specific kinds of change of control
events, the indenture requires us to make an offer to repurchase all outstanding
notes at 101% of the principal amount thereof, plus accrued and unpaid interest 
(and additional interest, if any) to the date of repurchase. However, it is     
possible that we will not have sufficient funds, or the ability to raise        
sufficient funds, at the time of the change of control to make the required     
repurchase of the notes. In addition, restrictions under our revolving credit   
facility and our other senior indebtedness may not allow us to repurchase the   
notes upon a change of control. If we could not refinance such senior           
indebtedness or otherwise obtain a waiver from the holders of such indebtedness,
we would be prohibited from repurchasing the notes under the indenture. In      
addition, certain important corporate events, such as leveraged                 
recapitalizations that would increase the level of our indebtedness would not   
constitute a "change of control" under the indenture. See "Description of the   
New Notes -- Change of Control."                                                

FUTURE DEBT THAT WE MAY INCUR COULD HAVE AN ADVERSE EFFECT ON OUR OPERATIONAL   
AND FINANCIAL FLEXIBILITY.                                                      

        After giving pro forma effect to the issuance of the old notes, at May
30, 2003, we would have had approximately $172.5 million of indebtedness        
outstanding. We would have had the ability to borrow up to an additional $57.0  
million under our revolving credit facility. The indenture governing the old    
notes and the new notes and our other debt agreements limit, but do not         
prohibit, the incurrence of additional debt in the future. Our level of         
indebtedness could have significant consequences to our business, including the 
following:                                                                      

         -        a substantial portion of our cash flow from operations will be
           dedicated to paying principal and interest on our debt,
                  thereby reducing funds available for investments, acquisitions
or other purposes;                          

        -        a significant amount of debt could make us more vulnerable to
             changes in economic conditions or increases in prevailing
interest rates;                             

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      -        our ability to obtain additional financing for investments,
     acquisitions or other purposes could be impaired;

      -        the increase in the amount of debt we have outstanding will
            make it more difficult for us to comply with some of the
                 covenants in our debt agreements which require us to maintain
specified financial ratios; and             

       -        we may be more leveraged than some of our competitors, which
may result in a competitive disadvantage.   

AN ACTIVE TRADING MARKET FOR THE NEW NOTES MAY NOT DEVELOP, WHICH MAY IMPAIR    
THEIR LIQUIDITY AND REDUCE THEIR MARKET PRICE.                                  

The new notes are a new issue of securities for which there is
currently no trading market. We cannot assure you that an active trading market 
for the notes will develop or be sustained. We do not intend to list the notes  
on any national securities exchange or Nasdaq. If an active trading market for  
the new notes fails to develop or be sustained, the liquidity and the trading   
prices of the notes could be adversely affected.                                

         Even if an active trading market for the new notes were to develop, the
new notes could trade at prices that may be lower than their face value. Whether
or not the new notes trade at lower prices depends on many factors, some of     
which are beyond our control, including:                                        

-        prevailing interest rates;                           

-        demand for high yield debt securities generally;     

-        general economic conditions;                         

         -        our financial condition, performance and future prospects; and

-        prospects for companies in our industry generally.   

        To the extent that old notes are tendered and accepted in the exchange
offer, the trading market for old notes which are not tendered and for          
tendered-but-unaccepted old notes could be adversely affected due to the limited
amount of old notes that are expected to remain outstanding following the       
exchange offer. Generally, when there are fewer outstanding securities of an    
issue, there is less demand to purchase that security, which results in a lower 
price for the security. Conversely, if many old notes are not tendered, or are  
tendered but unaccepted, the trading market for the new notes could be adversely
affected. See "Plan of Distribution" and "The Exchange Offer" for further       
information regarding the distribution of the new notes and the consequences of 
failure to participate in the exchange offer.                                   

IF YOU DO NOT EXCHANGE YOUR OLD NOTES FOR NEW NOTES, YOU WILL CONTINUE TO HAVE  
RESTRICTIONS ON YOUR ABILITY TO RESELL THEM, WHICH COULD REDUCE THEIR VALUE.    

         The old notes were not registered under the Securities Act or under the
securities laws of any state and may not be resold, offered for resale, or      
otherwise transferred unless they are subsequently registered or resold pursuant
to an exemption from the registration requirements of the Securities Act and    
applicable state securities laws. If you do not exchange your old notes for new 
notes pursuant to the exchange offer, you will not be able to resell, offer to  
resell, or otherwise transfer the old notes unless they are registered under the
Securities Act or unless you resell them, offer to resell them or otherwise     
transfer them under an exemption from the registration requirements of, or in a 
transaction not subject to, the Securities Act. In addition, we will no longer  
be under an obligation to register the old notes under the Securities Act except
in the limited circumstances provided in the registration rights agreement.     

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 RISK FACTORS RELATING TO OUR BUSINESS

A DECLINE IN GENERAL ECONOMIC OR POLITICAL CONDITIONS AND THE CYCLICALITY OF THE
TEXTILE INDUSTRY COULD CAUSE OUR SALES AND PROFITS TO DECLINE.                  

     Domestic demand for textile products, including consumer demand for
textile products at the retail level, tends to vary with the business cycle of  
the U.S. economy as well as changes in global economic and political conditions.
A decline in general economic conditions may adversely affect demand for our    
products, which could cause sales of our products to decrease. In addition, the 
popularity, supply and demand for particular textile products may change        
significantly from year to year based upon prevailing fashion trends and other  
factors. These factors historically have contributed to fluctuations in the     
sales and profitability of certain textile products and in our results of       
operations. A decline in the demand for textile products or an increase in the  
supply of textile products due to expansion of capacity within the textile      
industry, changes in fashion trends or deteriorating economic conditions could  
cause our sales and profits to decrease.                                        

OUR INDUSTRY IS HIGHLY COMPETITIVE AND OUR SUCCESS DEPENDS ON OUR ABILITY TO    
COMPETE EFFECTIVELY.                                                            

  The textile industry is highly competitive. We sell our products
primarily to domestic customers and compete with both large, vertically         
integrated textile manufacturers and numerous smaller companies specializing in 
limited segments of the market. Our competitors include both domestic and       
foreign companies, a number of which are larger in size, have significantly     
greater financial resources and, in the case of foreign competitors, lower labor
costs than we do. Competition in the form of imported textile and apparel       
products, pricing strategies of domestic competitors and the proliferation of   
newly styled fabrics competing for fashion acceptance affect our business       
environment. The primary competitive factors in the textile industry include    
price, product styling and differentiation, quality, flexibility of production  
and finishing, delivery time and customer service. The needs of particular      
customers and the characteristics of particular products determine the relative 
importance of these various factors. To the extent that one or more of our      
competitors gains an advantage with respect to any key competitive factor, our  
sales and profits may decrease. In addition, import protections given to foreign
textile manufacturers could make our products less competitive and may cause our
sales and profits to decrease.                                                  

WE MAY BE UNABLE TO REVERSE DECLINES IN NET SALES OVER THE PAST SEVERAL YEARS.  

     Our net sales have been in decline for the past several years. From
fiscal 1998 to fiscal 2002, our net sales declined from $1,064.3 million to     
$659.7 million, a decrease of 38%. The majority of the decline can be attributed
to macro-economic issues including global over-supply, a strong U.S. dollar,    
weak domestic retail sales, declining raw material costs and increased          
unemployment. A portion of the decline in net sales is the result of            
management's strategic decision to reduce its exposure to low-margin, commodity 
open-end yarn sales.                                                            

         Selling prices remained very competitive during 2003 as domestic retail
sales of apparel continued to reflect weak consumer demand and a general decline
in consumer confidence reflective of the uncertainties presented by the current 
economic and political environment. In addition, the strength of the U.S. dollar
in comparison to the currencies of many Asian countries continues to promote the
importation of goods from those countries by U.S. retailers, exacerbating the   
already highly competitive market conditions resulting from the imbalance of    
global supply and demand for textile and apparel products. Net sales for fiscal 
2003 are expected to be below fiscal 2002 and we cannot be certain that our net 
sales will not continue to decline in future periods.                           

WE HAVE SEVERAL CUSTOMERS THAT ACCOUNT FOR A LARGE PORTION OF OUR NET SALES. THE
LOSS OF, OR SIGNIFICANT DECLINE IN OUR SALES TO, ANY OF OUR LARGE CUSTOMERS     
COULD CAUSE SALES TO DECREASE.                                                  

      VF Corporation, which has been one of our most significant customers
for the last several years, accounted for approximately 20% and 16% of our net  
sales in fiscal 2002 and the thirty-nine weeks ended May 30, 2003, respectively.
While no other single customer accounted for more than 10% of our net sales in  
these periods, several customers accounted for more than 5% of our net sales.   
The loss of VF Corporation or other significant customers, or a significant     
reduction in their respective purchases, could cause a material decrease in     
sales. See "Business -- Operations -- Sales and Marketing."                     

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FOREIGN IMPORTS CREATE SIGNIFICANT COMPETITION, WHICH MAY ADVERSELY AFFECT OUR  
BUSINESS.                                                                       

        Imports of foreign-made textile and apparel products are a significant
source of competition for us as well as other domestic textile manufacturers.   
Many foreign textile manufacturers have significantly lower labor costs than    
domestic textile manufacturers, and enjoy other competitive advantages such as  
favorable currency exchange rates against the U.S. dollar. Although we believe  
we generally are able to bring our products to market faster than comparable    
imported products, we may not be able to compete effectively with imported      
foreign-made textile products.                                                  

U.S. GOVERNMENTAL POLICIES REGARDING IMPORTS COULD MAKE IT DIFFICULT FOR OUR    
PRODUCTS TO COMPETE EFFECTIVELY WITH IMPORTED TEXTILE PRODUCTS.                 

    The extent of import protection afforded by the U.S. government to
domestic textile producers has been, and is likely to remain, subject to        
considerable domestic political deliberation and foreign considerations. In view
of the labor cost advantages and the number of foreign products that compete    
with certain of our products, substantial elimination of import protection could
have a material adverse effect on our business. In January 1995, the World Trade
Organization, or the WTO, set forth the mechanisms by which world trade in      
textiles and clothing will be progressively liberalized with the elimination of 
quotas and the reduction of duties to take place over a 10-year period beginning
in January 1995. The selection of products at each phase is made by each        
importing country and must be drawn from each of the four main textile groups:  
yarn, fabrics, made- up textiles and apparel. As it implements the WTO          
mechanisms, the U.S. government is negotiating bilateral trade agreements with  
developing countries (which generally are exporters of textile products) that   
are members of the WTO for the purpose of reducing their tariffs on imports of  
textiles and apparel. The elimination of quotas and reduction of tariffs under  
the WTO may result in increased imports of certain textile products and apparel 
into North America. These factors could make our products less competitive      
against low cost imports from developing countries.                             

     The North American Free Trade Agreement, or NAFTA, among the United
States, Canada and Mexico, became effective on January 1, 1994, and has created 
the world's largest free-trade zone. The agreement contains safeguards sought by
the U.S. textile industry, including a rule of origin requirement that products 
be processed in one of the three countries in order to benefit from NAFTA. In   
addition, NAFTA requires merchandise to be made from yarns and fabrics          
originating in North America in order to avoid trade restrictions. Thus, not    
only must apparel be made from North American fabric but the fabric must be     
woven from North American spun yarn.                                            

         On May 2, 2000, the United States passed the United States -- Caribbean
Basin Trade Partnership Act, or CBTPA, and the Africa Growth and Opportunity    
Act, or AGOA. Under these acts, apparel manufactured in the Caribbean and       
Sub-Saharan regions using yarns or fabrics produced in the United States may be 
imported to the U.S. duty and quota free. In effect, this legislation extends   
the favorable trade terms afforded to Mexico under NAFTA to Caribbean and       
Sub-Saharan countries. The Andean Trade Promotion and Drug Eradication Act was  
enacted in 2002 to renew and enhance the Andean Trade Preference Act, or ATPA.  
Under the enhanced ATPA, apparel manufactured in Bolivia, Colombia, Ecuador and 
Peru using yarns and fabrics produced in the United States may be imported into 
the United States duty free through September 30, 2007, subject to an initial   
cap of 2% of total U.S. apparel imports, which increases by 1% annually to 5% in
2006 and 2007. This legislation effectively grants these four countries the     
favorable trade terms afforded Mexico and the Caribbean region. There can be no 
assurance that the removal of these barriers to trade will not, in the future,  
have a material adverse effect on our results of operations and financial       
condition. See "Business -- Trade Regulation."                                  

IF WE FAIL TO IDENTIFY FASHION TRENDS, WE COULD LOSE MARKET POSITION AND OUR    
FINANCIAL PERFORMANCE COULD BE NEGATIVELY IMPACTED.                             

       The demand for many of our products depends upon early identification
of consumer preferences for fabric designs, colors and styles. A failure by us  
or our customers to identify fashion trends in time to introduce products and   
fabrics consistent with those trends could reduce the acceptance of our products
by our customers and decrease our profitability as a result of costs associated 
with failed product introductions and reduced sales.                            

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FLUCTUATIONS IN THE PRICE OF COTTON AND OTHER RAW MATERIALS OR SHORTAGES OF     
SUPPLY COULD REDUCE OUR PROFITABILITY.                                          

     Our primary raw material is cotton. By law, U.S. textile companies,
including our company, are generally prohibited from importing cotton, subject  
to certain exceptions that take effect primarily when U.S. cotton prices exceed 
world cotton prices for a period of time. From time to time, domestic cotton    
prices have exceeded world prices, which creates a competitive disadvantage for 
us and other domestic textile manufacturers. The U.S. government has taken      
legislative action to improve the price imbalance, but there can be no assurance
that this will continue to be the case. U.S. cotton prices are also affected by 
general economic conditions as well as the demand for U.S. cotton in world      
markets and may increase or decrease depending on other market variables at the 
time. Prevailing cotton prices significantly impact our production costs, and   
price increases could reduce profitability.                                     

     We generally enter into cotton purchase contracts several months in
advance of the scheduled date of delivery. Prices for such purchases are fixed  
either on the date of the contract or thereafter on a date prior to delivery    
and, as a result, we may be favorably or adversely affected if cotton prices    
fluctuate during the contract period. Periodically, we also purchase cotton     
futures and option contracts to hedge exposure to price fluctuations in cotton  
acquired from various suppliers. We cannot assure you that these transactions   
will not result in higher costs to us or will protect us from fluctuations in   
cotton prices.                                                                  

  Further, since cotton is an agricultural product, its supply and
quality are subject to forces of nature. Any material shortage or interruption  
in the supply, variations in the quality of cotton by reason of weather,        
infestations or any other factor that would result in an increase in the cost of
cotton could reduce our profitability if we are unable to pass the increased    
cost on to our customers.                                                       

       We also use significant quantities of polyester in the manufacture of
our products. The price of polyester is influenced by demand, manufacturing     
capacity and costs, petroleum prices, cotton prices and the cost of polymers    
used in producing polyester. Any significant prolonged petrochemical shortages  
could significantly decrease the availability of polyester and could cause a    
significant increase in the demand for cotton. Such conditions could decrease   
the availability of cotton and result in increased prices for cotton and        
polyester. Any of these events could reduce our profitability if we are unable  
to pass the increased cost on to our customers. See "Business -- Operations --  
Raw Materials."                                                                 

IMPEDIMENTS TO OUR ABILITY TO ACCESS FUTURE TECHNOLOGICAL ADVANCES IN THE       
TEXTILE INDUSTRY COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR RESULTS OF         
OPERATIONS AND FINANCIAL CONDITION.                                             

         Future technological advances in the textile industry may result in the
availability of new products or increase the efficiency of existing             
manufacturing and distribution systems. If a new technology becomes available   
that is more cost-effective or creates a competing product, we may be unable to 
access such technology or its use may involve substantial capital expenditures  
that we may be unable to finance. There can be no assurance that existing,      
proposed or yet undeveloped technologies will not render our technology less    
profitable or less viable, or that we will have available the financial and     
other resources to compete effectively against companies possessing such        
technologies. We are unable to predict which of the many possible future        
products and services will meet the evolving industry standards and consumer    
demands. There can be no assurance that we will be able to adapt to such        
technological changes or offer such products on a timely basis or establish or  
maintain competitive positions.                                                 

A LOSS OF KEY MANAGEMENT COULD MAKE IT MORE DIFFICULT FOR US TO MANAGE OUR      
BUSINESS.                                                                       

         Our success is dependent upon the talents and efforts of a small number
of key management personnel including G. Stephen Felker, our chairman, president
and chief executive officer, and Jack R. Altherr, Jr., our vice chairman and    
chief financial officer. Our senior management team has extensive manufacturing,
marketing and management experience within the textile industry and averages    
over 29 years of service with our company. If we were to lose any such          
management personnel, it may be difficult for us to replace them with persons   
who have the same level of knowledge about us or experience in our industry,    
which could make it more difficult for us to manage our business.               

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IF WE ARE UNABLE TO FUND OUR CAPITAL EXPENDITURE REQUIREMENTS, WE MAY FAIL TO   
REMAIN COMPETITIVE AND THEREFORE LOSE MARKET SHARE AND REVENUES.                

       The textile manufacturing industry is capital intensive. Accordingly,
to maintain our competitive position and our revenue base, we must continually  
modernize our manufacturing processes, plants and equipment. Over the last five 
fiscal years, we have made capital expenditures of approximately $250 million.  
We spent approximately $17 million on capital expenditures during fiscal 2003   
for general maintenance and upgrade of facilities and equipment.                

We expect to finance our capital expenditures with cash from  
operations, borrowings and proceeds received in connection with sales of trade  
receivables and issuance of equity and debt securities. To the extent these     
sources of funds are insufficient to meet our ongoing capital improvement       
requirements, we would need to seek alternative sources of financing or curtail 
or delay capital spending plans. We cannot guarantee that we can obtain the     
necessary financing when needed or on terms acceptable to us. If we fail to make
the capital improvements necessary to continue the modernization of our         
manufacturing operations and reduction of our costs, our competitive position   
may suffer, and our operating revenues may decline.                             

WE MUST COMPLY WITH NUMEROUS ENVIRONMENTAL, HEALTH AND SAFETY LAWS AND          
REGULATIONS, WHICH COULD INVOLVE SUBSTANTIAL COSTS. IF WE FAIL TO COMPLY, WE MAY
HAVE TO PAY LARGE PENALTIES.                                                    

         We must comply with various federal, state and local environmental laws
and regulations limiting, among other things, the discharge of pollutants and   
the use, storage, handling, release, discharge and disposal of a variety of     
substances, including some substances that contain constituents considered      
hazardous under environmental laws. Our dyeing and finishing operations result  
in the discharge of substantial quantities of wastewater and emissions to the   
atmosphere. Our operations also must comply with laws and regulations relating  
to workplace safety and worker health which, among other things, establish      
cotton dust, formaldehyde, asbestos and noise standards, and regulate the use of
hazardous chemicals in the workplace. At several of our sites, soil or          
groundwater contamination from past operations is subject to investigation and  
cleanup. In addition, we are currently involved in an environmentally related   
lawsuit, and may be involved in others from time to time. We cannot assure you  
that our environmental or health and safety liabilities and costs will not      
increase materially in the future and cause our cash flow to decrease. See      
"Business -- Legal Proceedings."                                                

        In addition, we cannot predict what environmental or health and safety
legislation or regulations will be enacted in the future or how existing or     
future laws or regulations will be enforced, administered or interpreted. We    
also cannot predict the amount of future expenditures that may be required in   
order to comply with these environmental or health and safety laws or           
regulations. We have certain environmental matters pending, including two       
remediation matters, and we cannot assure you that the resolution of these      
matters, or the discovery of any additional sites alleged to have been          
contaminated by our operations or those of our predecessors, will not in the    
future cause our costs to increase and our profitability to decrease. See       
"Business -- Operations -- Environmental Regulation."                           

WE MAY NOT SUCCESSFULLY IDENTIFY OR COMPLETE ACQUISITIONS, WHICH COULD ADVERSELY
AFFECT OUR BUSINESS.                                                            

   We have expanded our business partly through acquisitions and may
continue to do so. We cannot assure you that we will succeed in:                

-        identifying suitable acquisition candidates;         

-        completing acquisitions;                             

        -        integrating acquired operations into our existing operations;
or                                          

-        expanding into new markets.                          

We also cannot assure you that future acquisitions will not have an adverse     
effect on our operating results, particularly in the fiscal quarters immediately
following their completion while we integrate the operations of the acquired    
business. Once integrated, acquired operations may not achieve levels of        
revenues, profitability or                                                      

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productivity comparable with those achieved by our existing operations, or      
otherwise perform as expected. In addition, we may compete for acquisition and  
expansion opportunities with companies that have substantially greater          
resources. We do not presently have any agreements, arrangements or             
understandings regarding any particular acquisition.                            

THE SITUATION IN IRAQ AND ANY FUTURE ARMED CONFLICT OR TERRORIST ACTIVITIES MAY 
CAUSE THE ECONOMIC CONDITIONS IN THE U.S. TO DETERIORATE, WHICH COULD REDUCE    
DEMAND FOR OUR PRODUCTS.                                                        

        The U.S. and other countries recently engaged in a war in Iraq and are
still engaged in that country. The duration and outcome of these activities are 
unknown. Events in Iraq could escalate geographically or prompt terrorist       
attacks against the U.S. or other countries. Events in Iraq and any future armed
conflict or terrorist activities in the U.S. or abroad and any consequent       
actions on the part of the U.S. government and others, including further        
military action, may cause general economic conditions in the U.S. to           
deteriorate. Further deterioration of prevailing economic conditions in the U.S.
could reduce demand for our products.                                           

OUR PRINCIPAL SHAREHOLDER HAS THE ABILITY TO EXERT SIGNIFICANT INFLUENCE ON OUR 
COMPANY AND ON MATTERS SUBJECT TO THE VOTE OF OUR SHAREHOLDERS.                 

   Avondale Incorporated owns 100% of our outstanding capital stock.
Consequently, Avondale Incorporated has the ability to exercise control over our
business and affairs through its ability to elect directors and vote on all     
matters requiring shareholder approval, including mergers, the sale of          
substantially all of our assets and other business combinations. As of May 30,  
2003, G. Stephen Felker, our chairman, president and chief executive officer,   
controlled approximately 73% of the outstanding combined voting power of        
Avondale Incorporated's common stock. As a result, Mr. Felker is able to        
exercise control over Avondale Incorporated and through his control over        
Avondale Incorporated has the ability to exercise control over our business and 
affairs including the ability to elect directors and vote on all matters        
requiring shareholder approval, including mergers, the sale of substantially all
of our assets and other business combinations. The interests of our principal   
shareholder or Mr. Felker may conflict with the interests of the holders of the 
notes.                                                                          

YOU ARE UNLIKELY TO BE ABLE TO SEEK REMEDIES AGAINST ARTHUR ANDERSEN LLP, OUR   
FORMER INDEPENDENT AUDITOR.                                                     

       Our consolidated financial statements for fiscal 2001, 2000, 1999 and
1998 were audited by Arthur Andersen LLP, our former independent auditor. On    
June 15, 2002, Arthur Andersen was convicted of a federal obstruction of justice
charge arising from the federal government's investigation of Enron Corporation.
On August 31, 2002, Arthur Andersen ceased practicing before the SEC. SEC rules 
require us to present our audited financial statements in various SEC filings,  
along with Arthur Andersen's consent to our inclusion of its audit report on our
financial statements for fiscal 2000 and 2001 included in this prospectus, and  
we did not receive Arthur Andersen's consent for the registration statement of  
which this prospectus is a part. Without this consent, it may become more       
difficult for you to seek remedies against Arthur Andersen. Furthermore, relief 
in connection with claims which may be available to investors under the federal 
securities laws against auditing firms may not be available as a practical      
matter against Arthur Andersen. You are unlikely to be able to exercise         
effective remedies or judgments against Arthur Andersen.                        

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FORWARD-LOOKING STATEMENTS

   This prospectus contains forward-looking statements within the meaning of
the federal securities laws. Statements that are not historical facts, including
statements about our beliefs and expectations, are forward-looking statements.  
Forward-looking statements include statements generally preceded by, followed by
or that include the words "believe," "expect," "anticipate," "plan," "estimate" 
or similar expressions. These statements include, among others, statements      
regarding our business outlook, anticipated financial and operating results,    
strategies, contingencies, working capital requirements, expected sources of    
liquidity, estimated amounts and timing of capital expenditures, estimated      
environmental compliance costs and other expenditures, and expected outcomes of 
litigation.                                                                     

 Forward-looking statements reflect our current expectations and are not
guarantees of performance. These statements are based on our management's       
beliefs and assumptions, which in turn are based on currently available         
information. Important assumptions relating to these forward-looking statements 
include, among others, assumptions regarding product demand, selling prices, raw
material costs, timing and cost of capital expenditures, cost of environmental  
compliance, outcomes of pending litigation, competitive conditions and general  
economic conditions. These assumptions could prove inaccurate. Forward-looking  
statements also involve risks and uncertainties, which could cause actual       
results to differ materially from those contained in any forward-looking        
statement. Many of these factors are beyond our ability to control or predict.  
Such factors include, but are not limited to, all of the risks discussed under  
"Risk Factors" and the following:                                               

-   cyclical and competitive nature of the textile industry;          

     -   pressures on selling prices due to competitive and economic conditions;

     -   deterioration of relationships with, or loss of, significant customers;

-   strength of the U.S. dollar versus the currencies of other textile
producing countries;                                          

-   changes in trade policies, including textile quotas and tariffs;  

-   ability to identify and respond to fashion trends;                

-   availability and pricing of cotton and other raw materials;       

-   changes in government policies affecting raw material costs;      

-   availability and desirability of technological advancements;      

-   retention of key management personnel;                            

-   continued availability of financial resources;                    

-   changes in environmental, health and safety regulations; and      

-   political or military responses to terrorist activities.          

You should not place undue reliance on any forward-looking statements,
which are based on current expectations. Further, forward-looking statements    
speak only as of the date they are made, and we undertake no obligation to      
update publicly any of them in light of new information or future events.       

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 USE OF PROCEEDS

This exchange offer is intended to satisfy our obligations under the  
registration rights agreement. We will not receive any proceeds from the        
exchange offer. You will receive, in exchange for old notes validly tendered    
and accepted for exchange pursuant to the exchange offer, new notes in the same 
principal amount as such old notes. Old notes validly tendered and accepted for 
exchange pursuant to the exchange offer will be retired and cancelled and       
cannot be reissued. Accordingly, the issuance of the new notes will not result  
in any increase of our outstanding debt.                                        

CAPITALIZATION

The following table sets forth our cash and cash equivalents and      
capitalization as of May 30, 2003:                                              

-   on an actual basis; and                                           

     -   on an as adjusted basis, giving effect to the offering of the old notes
        and our use of the estimated net proceeds from the offering of the old
notes.                                                        

You should read the table below in conjunction with "Management's     
Discussion and Analysis of Financial Condition and Results of Operations" and   
our audited consolidated financial statements and related notes included        
elsewhere in this prospectus.                                                   

                                                                [Download Table]

                                                              AS OF MAY 30, 2003   
                                                             --------------------- 
                                                             ACTUAL     AS ADJUSTED
                                                             -------    -----------
                                                                (IN THOUSANDS)     
                                                                                   
Cash...................................................... $      138   $      138 
                                                           ==========   ========== 
Revolving credit facility.................................     22,975        3,611 
Equipment note............................................     18,918       18,918 
                                                           ----------   ---------- 
  Total senior debt.......................................     41,893       22,529 
10.25% Senior Subordinated Notes due 2006.................    125,000           -- 
10 1/4% Senior Subordinated Notes due 2013................         --      150,000 
                                                           ----------   ---------- 
  Total debt..............................................    166,893      172,529 
Shareholders' equity......................................    125,688      123,661 
                                                           ----------   ---------- 
  Total capitalization.................................... $  292,581   $  296,190 
                                                           ==========   ========== 

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SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

   The following selected consolidated statement of income data and selected
consolidated balance sheet data as of and for each of the five fiscal years in  
the period ended August 30, 2002 have been derived from our audited consolidated
financial statements, which have been audited by Arthur Andersen LLP as of and  
for the four fiscal years ended August 31, 2001 and by Crisp Hughes Evans LLP as
of and for the fiscal year ended August 30, 2002. The consolidated selected     
financial data as of and for the thirty-nine weeks ended May 31, 2002 and May   
30, 2003 were derived from our unaudited condensed consolidated financial       
statements and, in our opinion, reflect all adjustments, consisting of normal   
accruals, necessary for a fair presentation of the data for those periods. Our  
results of operations for the thirty-nine weeks ended May 30, 2003 may not be   
indicative of results that may be expected for the full year. The selected      
consolidated financial data set forth below should be read in conjunction with  
"Management's Discussion and Analysis of Financial Condition and Results of     
Operations" and the consolidated financial statements and notes thereto included
elsewhere in this prospectus.                                                   

                                                        [Enlarge/Download Table]

                                                                                                                THIRTY-NINE WEEKS 
                                                                                                                      ENDED       
                                                                          FISCAL YEAR                         ------------------- 
                                                       ---------------------------------------------------     MAY 31,    MAY 30, 
                                                         1998       1999       2000       2001       2002       2002       2003   
                                                       --------    ------     ------     ------     ------     -------    ------- 
                                                                                (IN MILLIONS, EXCEPT RATIOS)                      
                                                                                                                                  
STATEMENT OF INCOME DATA:                                                                                                         
Net sales............................................. $1,064.3    $890.9     $836.5     $772.8     $659.7      $475.2     $461.1 
Gross profit..........................................    137.3      89.7      116.3       60.9       54.0        34.4       40.5 
Facility restructuring................................      2.7       6.2         --         --        7.0         7.0        2.5 
Operating income (loss)...............................     86.6      45.3       77.9       27.9       18.7         5.8       17.1 
Interest expense, net.................................     23.3      23.0       20.2       20.4       18.4        15.3       13.4 
Discount and expenses on sales of receivables.........      7.3       5.6        5.6        4.9        1.1         1.3        2.1 
Other expense (income), net...........................      0.5       0.5        0.5        0.8       (0.5)       (0.4)      (0.2)
Income (loss) before income taxes.....................     55.4      16.3       51.6        1.8       (0.3)      (10.5)       1.7 
Provision for (benefit of) income taxes...............     21.1       6.3       18.6        0.5       (0.2)       (4.7)       0.7 
Net income (loss).....................................     34.3      10.0       33.0        1.3       (0.1)       (5.8)       1.1 
BALANCE SHEET DATA (AT PERIOD END):                                                                                               
Total assets.......................................... $  463.6    $439.7     $438.7     $453.0     $397.4      $415.7     $378.0 
Long-term debt, including current portion.............    246.8     219.5      187.7      230.1      170.0       196.9      166.9 
Shareholders' equity..................................    104.0     109.0      134.5      130.0      130.3       117.5      125.7 
OTHER DATA:                                                                                                                       
Capital expenditures.................................. $   66.3    $ 50.1     $ 30.5     $ 91.1     $ 13.1      $  9.7     $ 13.1 
Depreciation and amortization.........................     39.9      42.8       42.8       46.4       45.5        34.4       32.4 
Net cash provided by operating activities.............     81.8      99.4       67.7       48.1       71.7        44.6       18.4 
EBITDA(1).............................................    126.6      93.9      115.5       75.5       67.9        44.0       52.6 
Ratio of EBITDA to interest expense, net and                                                                                      
  discount and expenses on sale of receivables(1).....     4.1x      3.3x       4.5x       3.0x       3.5x        2.6x       3.4x 
Ratio of total long-term debt to EBITDA(1)............     1.9x      2.3x       1.6x       3.0x       2.5x          --         -- 

(1)  EBITDA is a supplemental non-GAAP financial measure. EBITDA is defined as  
net income (loss) plus (a) interest expense, net, (b) provision for   
(benefit of) income taxes, (c) discount and expenses on sales of      
 receivables, (d) depreciation and amortization, (e) non-cash portion of
   facility restructuring charges and (f) plus or minus, as the case may be,
   adjustments to cost of goods sold made under the LIFO inventory valuation
 method. We have presented EBITDA because we believe that it is a widely
     accepted financial indicator of a company's ability to service indebtedness
and is used by investors and analysts to evaluate companies in our    
    industry. EBITDA is also used as a measure for certain covenants under our
   revolving credit facility, our equipment note and the indenture governing
the notes.                                                            

However, EBITDA: (a) does not represent net income or cash flow from  
   operations as defined by generally accepted accounting principles; (b) is
   not necessarily indicative of cash available to fund our cash flow needs;
 (c) should not be considered as an alternative to operating income, net
    income or cash flows from operating activities as determined in accordance
with generally accepted accounting principles; and (d) should not be  
construed as a measure of our operating performance profitability or  
liquidity. EBITDA as calculated by us is not necessarily comparable to
similarly titled measures reported by other companies.                

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   The following table reconciles EBITDA on a consolidated basis to the line
on our consolidated statement of income entitled net income (loss) for the      
periods presented in the table above:                                           

                                                        [Enlarge/Download Table]

                                                                                                        THIRTY-NINE   
                                                                                                        WEEKS ENDED   
                                                                     FISCAL YEAR                    ------------------
                                                --------------------------------------------------   MAY 31,   MAY 30,
                                                    1998        1999     2000       2001     2002     2002      2003  
                                                   ------      -----    ------      -----    -----   ------    ------ 
                                                                             (IN MILLIONS)                            
                                                                                                                      
Net income (loss)..............................    $ 34.3      $10.0    $ 33.0      $ 1.3    $(0.1)  $ (5.8)    $ 1.1 
Interest expense, net..........................      23.3       23.0      20.2       20.4     18.5     15.3      13.4 
Discount and expenses on sales of receivables..       7.3        5.6       5.6        4.9      1.1      1.3       2.1 
Provision for (benefit of) income taxes........      21.1        6.3      18.6        0.5     (0.2)    (4.7)      0.7 
Depreciation and amortization..................      39.9       42.8      42.8       46.4     45.5     34.4      32.4 
Facility restructuring (non-cash portion)......       2.7        6.2        --         --      5.3      5.3       2.2 
Adjustment of carrying value of inventories                                                                           
  to LIFO basis, net of market adjustment......      (2.0)        --      (4.7)       2.0     (2.2)    (1.8)      0.7 
                                                   ------      -----    ------      -----    -----   ------     ----- 
EBITDA.........................................    $126.6      $93.9    $115.5      $75.5    $67.9   $ 44.0     $52.6 
                                                   ======      =====    ======      =====    =====   ======     ===== 

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 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

  The following discussion and analysis should be read in conjunction with
our consolidated financial statements and notes thereto included elsewhere in   
this prospectus.                                                                

OVERVIEW                                                                        

We are a leading domestic manufacturer and marketer of cotton and     
cotton-blend fabrics and yarns used in the production of casual apparel and, to 
a lesser extent, home furnishings and industrial products. We design,           
manufacture and market a broad line of indigo-dyed denim for both branded and   
private label apparel producers of denim jeans, slacks, shorts, skirts and      
jackets as well as non-apparel producers of denim luggage, bags and other       
products. We also design and manufacture an extensive line of piece-dyed        
sportswear and workwear fabrics. Our sportswear fabrics are marketed to both    
branded and private label producers of casual, or khaki, slacks, shorts and     
skirts. Our workwear fabrics are marketed to producers of uniforms, career      
apparel and other workwear (shirts, slacks and jackets) that are distributed    
through either the rental or retail channels. We manufacture cotton and         
cotton-blend yarns, which are sold to knitters and weavers of apparel fabrics.  
We also manufacture specialty and coated fabrics, which are sold to the apparel,
home furnishings and industrial markets. In fiscal 2002, we sold our fabrics and
yarns to approximately 1,200 customers, including many of the world's leading   
apparel companies.                                                              

Over the past several years, we have made substantial investments to  
enhance our productivity, operating efficiencies and manufacturing flexibility, 
and to reduce our unit costs. During this time, we have closely managed our     
working capital and reduced our debt considerably. In fiscal 2002, we had net   
sales, EBITDA and net loss of $659.7 million, $67.9 million and ($0.1) million, 
respectively. For the thirty-nine weeks ended May 30, 2003, we had net sales,   
EBITDA and net income of $461.1 million, $52.6 million and $1.1 million,        
respectively. See "Selected Consolidated Financial and Other Data" for a        
discussion of EBITDA and the reconciliation of EBITDA to net income (loss).     

General business conditions in the textile industry continue to be    
challenging, reflecting weak consumer demand and a general decline in consumer  
confidence reflective of the uncertainties presented by the current economic and
political environment. In addition, we believe the strength of the United States
dollar in comparison to the Chinese Yuan and currencies of other Asian countries
continues to promote the importation of goods from those countries by United    
States retailers, exacerbating the already highly competitive market conditions 
resulting from the imbalance of global supply and demand for textile and apparel
products.                                                                       

 We believe that one of the most significant factors that can affect our
operating margins is the overall price of cotton and our cotton costs versus    
those of our competitors. Prices for cotton on the global cotton market, our    
competitors' fixed cotton positions and fabric supply and demand determine how  
quickly we must pass on to our customers benefits from lower cotton prices or   
conversely how quickly we can reflect the increased cost of cotton in our       
selling prices. We believe that our cotton purchase commitments were at         
competitive levels during fiscal 2003. However, increases in cotton futures     
prices could adversely affect future results of operations if we are unable to  
increase selling prices. Whether cotton prices are lower or higher long term    
will depend upon global supply and demand for cotton and the level of           
equalization payments received under the U.S. government cotton program.        

    Many of the factors affecting operating performance during the thirty-nine
weeks ended May 30, 2003, including the impact of weak consumer demand, the     
imbalance of global supply and demand for textile and apparel products and the  
strength of the U.S. dollar compared to the Chinese yuan and the currencies of  
other Asian countries, continued through the balance of fiscal 2003. In         
addition, raw material costs continued to increase over this same period. As a  
result, we expect net sales and EBITDA for fiscal 2003 will be below net sales  
and EBITDA in fiscal 2002.                                                      

RESULTS OF OPERATIONS                                                           

    We operate principally in three segments: apparel fabrics, yarns and other
sales.                                                                          

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  The table below sets forth for the periods indicated statement of income
data expressed as a percentage of net sales:                                    

                                                        [Enlarge/Download Table]

                                                                              THIRTY-NINE WEEKS 
                                                                                    ENDED       
                                                          FISCAL YEAR         ----------------- 
                                                 --------------------------   MAY 31,    MAY 30,
                                                  2000       2001      2002    2002       2003  
                                                 -----      -----     -----   -----      -----  
                                                                                                
Net sales....................................... 100.0%     100.0%    100.0%  100.0%     100.0% 
  Apparel fabric sales..........................  73.7       78.2      79.5    83.9       85.4  
  Yarn sales....................................  27.7       30.7      28.7    28.8       28.6  
  Other sales...................................  10.3       10.1      10.7    10.9       11.1  
  Intersegment sales............................ (11.7)     (19.0)    (18.9)  (23.6)     (25.1) 
Cost of goods sold:                                                                             
  Raw materials.................................  37.5       39.9      34.8    35.4       34.2  
  Conversion costs..............................  43.5       46.3      50.2    50.2       50.1  
   Total........................................  81.0       86.2      85.0    85.6       84.3  
Depreciation....................................   5.1        5.9       6.8     7.2        7.0  
Selling and administrative expenses.............   4.6        4.3       4.3     4.5        4.6  
Facility restructuring charges..................    --         --       1.1     1.5        0.5  
Operating income (loss).........................   9.3        3.6       2.8     1.2        3.7  
Interest expense, net...........................   2.4        2.6       2.8     3.2        2.9  
Discount and expenses on sales of receivables...   0.6        0.6       0.2     0.3        0.5  
Provision for (benefit of) income taxes.........   2.2        0.1      (0.0)   (1.0)       0.1  
Net income (loss)...............................   4.0        0.2      (0.0)   (1.2)       0.2  

THIRTY-NINE WEEKS ENDED MAY 30, 2003 COMPARED TO THIRTY-NINE WEEKS ENDED MAY 31,
2002                                                                            

   Net Sales. Net sales decreased 3.0% to $461.1 million for the thirty-nine
weeks ended May 30, 2003 from $475.2 million for the thirty-nine weeks ended May
31, 2002. Volume invoiced was nearly flat for the respective periods while      
average invoice prices were down slightly. Selling prices remain very           
competitive reflecting the significant uncertainties presented by the current   
economic and political environment and the imbalance of global supply and demand
for textile and apparel products. In addition, the strength of the U.S. dollar  
in comparison to the Chinese yuan and the currencies of other Asian countries   
continues to promote the importation of goods from those countries by U.S.      
retailers, exacerbating the already highly competitive market conditions.       
These conditions continued through the fourth quarter of fiscal 2003.           

  Operating Income. Operating income increased 194.8% to $17.1 million for
the thirty-nine weeks ended May 30, 2003, compared to $5.8 million for the      
thirty-nine weeks ended May 31, 2002. The substantial improvement in operating  
income primarily reflected lower raw material costs, significantly enhanced by  
the continued consumption of internally produced yarns and greige fabrics in    
lieu of outside purchases, and lower conversion costs resulting from our ongoing
cost reduction efforts and previous capital expenditure projects. In addition,  
restructuring charges were $2.5 million in the thirty-nine weeks ended May 30,  
2003 compared to $7.0 million in the thirty-nine weeks ended May 31, 2002. Cost 
of goods sold decreased 4.5% to $388.5 million for the thirty-nine weeks ended  
May 30, 2003 from $406.8 million for the thirty-nine weeks ended May 31, 2002.  
Cost of goods sold as a percentage of net sales decreased to 84.3% for the      
thirty-nine weeks ended May 30, 2003 from 85.6% for the thirty-nine weeks ended 
May 31, 2002.                                                                   

     Selling and administrative expenses decreased 2.8% to $21.0 million for the
thirty-nine weeks ended May 30, 2003 from $21.6 million for the thirty-nine     
weeks ended May 31, 2002, reflecting our efforts to control expenses in response
to declining sales. Selling and administrative expenses as a percentage of net  
sales increased to 4.6% for the thirty-nine weeks ended May 30, 2003 from 4.5%  
for the thirty-nine weeks ended May 31, 2002, reflecting the decline in net     
sales.                                                                          

     Segment Performance. Apparel fabrics sales decreased 1.2% to $393.7 million
for the thirty-nine weeks ended May 30, 2003 from $398.5 million for the        
thirty-nine weeks ended May 31, 2002. The decline in apparel fabrics sales      
reflected a 0.7% decrease in yards invoiced and a 0.5% decline in average       
invoice price for the respective                                                

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periods. Operating income for apparel fabrics decreased 1.1% to $27.7 million   
for the thirty-nine weeks ended May 30, 2003 from $28.0 million for the         
thirty-nine weeks ended May 31, 2002, reflecting the decline in sales.          

    Yarn sales declined 3.8% to $131.9 million for the thirty-nine weeks ended
May 30, 2003 from $137.1 million for the thirty-nine weeks ended May 31, 2002,  
primarily reflecting a lower average invoice price on the increase in           
intra-company sales to the apparel fabrics operation. Market pricing for sales  
yarns remains very competitive, with continued excess production capacity within
the domestic industry and continued imports of yarns and knitted apparel from   
China and other Asian countries. The yarn operations produced an operating      
income of $2.4 million for the thirty-nine weeks ended May 30, 2003 compared to 
an operating loss of ($5.7) million for the thirty-nine weeks ended May 31,     
2002, primarily as a result of lower raw material costs and increased           
intra-company sales to the apparel fabrics operation.                           

Other sales, which include sales of greige and specialty fabrics and  
revenues from our trucking operation, decreased 1.2% to $51.0 million for the   
thirty-nine weeks ended May 30, 2003 from $51.6 million for the thirty-nine     
weeks ended May 31, 2002. The decrease in other sales was primarily attributable
to a slight decline in greige sales to outside customers partially offset by    
increased intra-company sales of greige fabrics to the apparel fabrics          
operation. Operating income from other sales increased 46.2% to $3.8 million for
the thirty-nine weeks ended May 30, 2003 from $2.6 million for the thirty-nine  
weeks ended May 31, 2002, primarily due to lower raw material costs and         
increased intra-company sales to the apparel fabrics operation.                 

  Inter-segment sales increased 3.1% to $115.5 million for the thirty-nine
weeks ended May 30, 2003 from $112.0 million for the thirty-nine weeks ended May
31, 2002, primarily reflecting the increase in consumption of internally        
produced yarns and greige fabrics within the apparel fabrics operation.         

Unallocated amounts included in operating income reflect general and  
administrative expenses, certain associate benefits and performance based       
incentives, and adjustments of the carrying value of inventories to LIFO basis, 
net of market adjustments. These amounts increased to $14.3 million for the     
thirty-nine weeks ended May 30, 2003 from $12.0 million for the thirty-nine     
weeks ended May 31, 2002 primarily due to the LIFO inventory adjustment recorded
in the respective periods.                                                      

Interest Expense, Net. Net interest expense decreased 12.4% to $13.4  
million for the thirty-nine weeks ended May 30, 2003 from $15.3 million for the 
thirty-nine weeks ended May 31, 2002. The decrease was primarily the result of a
lower average balance of borrowings outstanding during the thirty-nine weeks    
ended May 30, 2003, partially offset by higher interest rates applicable to     
those borrowings.                                                               

Discount and Expenses on Sale of Receivables. Discount and expenses on
sales of receivables were $2.1 million for the thirty-nine weeks ended May 30,  
2003 compared to $1.3 million for the thirty-nine weeks ended May 31, 2002. This
increase was attributable to higher interest rates and enhanced eligibility of  
receivables under the current securitization facility.                          

  Provision for (Benefit of) Income Taxes. An income tax provision of $0.7
million was recorded for the thirty-nine weeks ended May 30, 2003, reflecting   
our return to profitability, compared to a benefit of income taxes of ($4.7)    
million for the thirty-nine weeks ended May 31, 2002.                           

Facility Restructuring. In response to the highly competitive market  
conditions and continued oversupply of open-end yarns, in January 2002, we      
completed the closing of two separate open-end yarn manufacturing facilities    
located in North Carolina. In connection with these closings, we recorded       
facility restructuring charges and other non-operating costs of approximately   
$5.8 million during fiscal 2002. Additionally, we implemented reductions in     
certain manufacturing overhead costs and selling, general and administrative    
expenses in September 2001. In conjunction with these actions and the two plant 
closings, we recorded expense of approximately $1.2 million related to the      
termination of approximately 70 associates holding manufacturing, marketing and 
administrative positions.                                                       

In response to the deterioration of domestic and regional demand for  
heather and stock-dyed open-end yarns over the past several years, in May 2003, 
we completed the closing of an open-end yarn manufacturing facility located in  
Alabama. Continued operation of this facility could not be justified given the  
diminished volume and pricing for these products. We will shift production of   
stock-dyed yarns for internal consumption by the apparel                        

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fabrics operation to our other manufacturing facilities. In connection with this
action, we recorded facility restructuring charges and other non-operating costs
of approximately $2.5 million during the thirty-nine weeks ended May 30, 2003.  

FISCAL 2002 COMPARED TO FISCAL 2001                                             

     Net sales. Net sales decreased 14.6% to $659.7 million for fiscal 2002 from
$772.8 million for fiscal 2001, as we experienced intensely competitive         
conditions in our markets. Retail sales of apparel continued to be slow during  
the first half of fiscal 2002, reducing demand for apparel fabrics and yarns as 
retailers and apparel producers exercised tighter management of their supply    
chains and the U.S. consumer reacted to the tragic events of September 11, 2001 
and subsequent developments. Financial difficulties of several yarn and apparel 
fabric manufacturers served to further depress selling prices through distressed
sales of inventory during the year. We experienced a rebound in sales in the    
second half of fiscal 2002 as lean inventories were restocked by retailers and  
apparel producers. However, sales slowed near the end of fiscal 2002 as         
inventories were replenished and retail sales of apparel continued their        
weakness into the back to school season. In addition, the strength of the U.S.  
dollar in comparison to the currencies of many Asian countries continued to     
promote the importation of goods from those countries by U.S. retailers,        
exacerbating the already highly competitive market conditions resulting from the
imbalance of global supply and demand for textile and apparel products.         

    Operating income (loss). Operating income decreased 33.0% to $18.7 million
for fiscal 2002 from $27.9 million for fiscal 2001, reflecting declines in unit 
volume and average selling prices and the negative impact on overall unit cost  
absorption of the reduced unit volumes. These factors were somewhat mitigated by
declining raw material costs during fiscal 2002. We continued our consumption of
internally produced yarns and greige fabrics in the production of finished      
apparel fabrics to maintain higher capacity utilization and sales               
rationalization. Cost of goods sold decreased 15.8% to $560.8 million for fiscal
2002 from $666.2 million for fiscal 2001, reflecting the reduction in unit      
sales, lower costs of raw materials and reduced purchases of outside yarns and  
greige fabrics. Cost of goods sold as a percentage of net sales decreased to    
85.0% for fiscal 2002 from 86.2% for fiscal 2001.                               

  Selling and administrative expenses decreased 14.3% to $28.3 million for
fiscal 2002 from $33.0 million for fiscal 2001. This decrease reflected         
reductions in selling, general and administrative staffing and related expenses 
implemented in September 2001, and a reduction in certain associate benefits and
performance based incentives corresponding to the decline in operating income   
for fiscal 2002. Selling and administrative expenses represented 4.3% of net    
sales for fiscal 2002, the same percentage as for fiscal 2001, despite the      
decline in net sales.                                                           

     Segment performance. Apparel fabric sales decreased 13.1% to $524.8 million
for fiscal 2002 from $604.2 million for fiscal 2001. The decline in sales       
reflected a 9.0% decrease in yards sold and a 4.5% decrease in average selling  
prices, as demand for denim and other bottom-weight fabrics weakened            
significantly in the first half of fiscal 2002. Operating income for apparel    
fabrics decreased 14.9% to $40.0 million for fiscal 2002 from $47.0 million for 
fiscal 2001, primarily due to the lower selling prices and reduced unit volume. 

   Yarn sales, including intracompany sales to the apparel fabric operation,
decreased 20.2% to $189.1 million for fiscal 2002 from $236.8 million for fiscal
2001, reflecting a 13.0% decrease in pounds sold, as two open-end yarn plants in
North Carolina were closed, and an 8.3% decrease in average selling prices.     
Market pricing for sales yarns remained very competitive, reflecting continued  
excess production capacity within the domestic industry and continued imports of
yarns and knitted apparel, predominately from Asia and South America. An        
operating loss of ($4.3) million was experienced by the yarns operation for     
fiscal 2002 compared to a loss of ($0.4) million for fiscal 2001, primarily due 
to the lower selling prices and reduced unit volume.                            

Other sales, which include sales of greige and specialty fabrics and  
revenue from our trucking operation, decreased 10.0% to $70.7 million for fiscal
2002 from $78.6 million for fiscal 2001. The decrease in sales reflected an 8.7%
decrease in units sold, a 1.4% decrease in average selling prices, primarily    
reflecting weakened demand in the greige and specialty fabrics markets, and the 
impact of reduced yarn and fabric volume on our trucking operation. Operating   
income for other sales increased 20.6% to $4.1 million for fiscal 2002 from $3.4
million for fiscal 2001, reflecting lower raw material costs and continued      
intracompany sales of yarn and greige fabric production to the apparel fabric   
operation.                                                                      

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 Intersegment sales decreased 15.0% percent to $124.8 million for fiscal
2002 from $146.8 million for fiscal 2001, primarily reflecting a decrease in    
consumption of internally produced yarns by the apparel fabrics operation.      

Interest expense, net. Interest expense, net decreased 9.8% to $18.4  
million for fiscal 2002 from $20.4 million for fiscal 2001. This decrease       
reflected lower average outstanding borrowings during fiscal 2002, partially    
offset by higher average interest rates applicable to the revolving credit      
facility, as amended. In addition, net interest expense for fiscal 2002 was     
reduced by $1.7 million for interest received in conjunction with a refund of   
income taxes. For discussion of the income tax refund, see "Footnote 8. Income  
Taxes" in the notes to consolidated financial statements included in this       
prospectus.                                                                     

 Discount and expenses on sales of receivables. Discount and expenses on
sales of receivables were $1.1 million for fiscal 2002 compared to $4.9 million 
for fiscal 2001. This decrease was attributable to a net decrease in the amount 
of accounts receivable sold under the facility, reflecting the overall decline  
in our net sales, and lower market interest rates and the resulting decline in  
discounts incurred on the receivables sold.                                     

  Provision for (benefit of) income taxes. An income tax benefit of ($0.2)
million was recorded for fiscal 2002 compared to a provision for income taxes of
$0.5 million for fiscal 2001, reflecting the loss before income taxes. Our      
effective tax rate for fiscal 2002 was 63.5% of the pre-tax loss, compared to   
30.1% of the pre-tax income for fiscal 2001, reflecting minor permanent         
differences affecting the provision for income taxes and the nominal level of   
the operating loss.                                                             

Facility restructuring charges. In response to the highly competitive 
market conditions and continued oversupply of open-end yarns, in January 2002,  
we completed the closing of two separate open-end yarn manufacturing facilities 
located in North Carolina. In connection with these closings, we recorded       
facility restructuring charges and other non-operating costs of approximately   
$5.8 million during fiscal 2002. Additionally, we implemented reductions in     
certain manufacturing overhead costs and selling, general and administrative    
expenses in September 2001. In conjunction with these actions and the two plant 
closings, we recorded expense of approximately $1.2 million related to the      
termination of approximately 70 associates holding manufacturing, marketing and 
administrative positions. At August 30, 2002, estimated costs of approximately  
$180,000 related to the facility restructuring remain outstanding and are       
included in other accrued expenses in the consolidated balance sheets.          

  At August 30, 2002, the two closed plant facilities, certain real estate
properties and certain items of equipment have been identified as available for 
sale and are included at estimated net realizable values in assets held for sale
in the consolidated balance sheets.                                             

FISCAL 2001 COMPARED TO FISCAL 2000                                             

    Net sales. Net sales decreased 7.6% to $772.8 million for fiscal 2001 from
$836.5 million for fiscal 2000, as we experienced intensely competitive         
conditions in our markets. Retail sales of apparel slowed considerably during   
the second half of the fiscal year, reducing demand for apparel fabrics and     
yarns. In addition, the strength of the U.S. dollar in comparison to the        
currencies of many Asian countries promoted the importation of goods from those 
countries by U.S. retailers, exacerbating the already highly competitive market 
conditions resulting from the imbalance of global supply and demand for textile 
and apparel products.                                                           

 Operating income. Operating income decreased 64.2% to $27.9 million for
fiscal 2001 from $77.9 million for fiscal 2000, reflecting higher costs of raw  
materials, dyes and chemicals, and energy, in addition to generally lower       
average selling prices. Plant disruption during construction and equipment      
installation in addition to the reduced unit volumes of the period also impeded 
the realization of benefits to be derived from the significant capital          
expenditure projects as well as negatively impacted overall unit cost           
absorption. In response to these intensely competitive conditions, we           
significantly increased our consumption of internally produced yarns and greige 
fabrics in the production of finished apparel fabrics and thereby improved      
capacity utilization and sales rationalization. Cost of goods sold decreased    
1.7% to $666.2 million for fiscal 2001 from $678.0 million for fiscal 2000,     
reflecting the reduction in unit sales. Cost of goods sold as a percentage of   
net sales increased to 86.2% for fiscal 2001 from 81.0% for fiscal 2000.        

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  Selling and administrative expenses decreased 14.3% to $33.0 million for
fiscal 2001 from $38.5 million for fiscal 2000, primarily reflecting reductions 
in certain associate benefits and performance based incentives corresponding to 
the decline in operating income for the fiscal year. Selling and administrative 
expenses as a percentage of net sales decreased to 4.3% for fiscal 2001 from    
4.6% for fiscal 2000.                                                           

    Segment performance. Apparel fabric sales decreased 2.0% to $604.2 million
for fiscal 2001 from $616.4 million for fiscal 2000. The decline in sales       
reflected a 1.7% decrease in yards sold and a 0.3% decrease in average selling  
prices, as demand for denim and other bottom-weight fabrics weakened in the     
second half of the fiscal year. Operating income for apparel fabrics decreased  
45.3% to $47.0 million for fiscal 2001 from $85.9 million for fiscal 2000,      
primarily due to reduced unit volume and higher costs of raw materials, dyes and
chemicals, and energy.                                                          

    Yarn sales, including intracompany sales to the apparel fabric operations,
increased 2.2% to $236.8 million for fiscal 2001 from $231.7 million for fiscal 
2000, reflecting a 1.2% increase in pounds sold and a 1.0% increase in average  
selling prices. Market pricing for sales yarns remained very competitive,       
reflecting continued excess production capacity within the domestic industry and
continued imports of yarns and knitted apparel from Asia. Operating income for  
yarns decreased to a loss of $0.4 million for fiscal 2001 from income of $7.9   
million for fiscal 2000, primarily as a result of higher raw material costs.    

Other sales, which include sales of greige and specialty fabrics and  
revenue from our trucking operation, decreased 8.7% to $78.6 million for fiscal 
2001 from $86.1 million for fiscal 2000. The decrease in sales reflected a 2.3% 
increase in units sold and a 10.8% decrease in average selling prices, primarily
reflecting weakened demand in the greige and specialty fabrics markets.         
Operating income for other sales decreased 66.3% to $3.4 million for fiscal 2001
from $10.1 million for fiscal 2000, reflecting lower unit sales volume and      
higher raw material costs.                                                      

 Intersegment sales increased 50.2% percent to $146.8 million for fiscal
2001 from $97.7 million for fiscal 2000, primarily reflecting the significant   
increase in consumption of internally produced yarns and greige fabrics within  
our apparel fabrics operation.                                                  

Interest expense, net. Interest expense, net increased 1.0% to $20.4  
million for fiscal 2001 from $20.2 million for fiscal 2000. This increase       
reflected higher average outstanding borrowings during fiscal 2001, partially   
offset by a decline in market interest rates applicable to those borrowings.    

 Discount and expenses on sales of receivables. Discount and expenses on
sales of receivables were $4.9 million for fiscal 2001 compared to $5.6 million 
for fiscal 2000. This decrease was attributable to a net decrease in the amount 
of accounts receivable sold under the facility, reflecting the overall decline  
in our net sales, and to lower market interest rates and the resulting decline  
in discounts incurred on the receivables sold.                                  

Provision for (benefit of) income taxes. Provision for income taxes   
decreased to $0.5 million for fiscal 2001 from $18.6 million for fiscal 2000,   
reflecting the decrease in income before income taxes. Our effective tax rate   
declined to 30.1% for fiscal 2001, compared to 36.0% for fiscal 2000.           

LIQUIDITY AND CAPITAL RESOURCES                                                 

GENERAL                                                                         

  We have funded our working capital requirements and capital expenditures
with cash generated from operations, borrowings under our revolving credit      
facility and equipment note and proceeds received in connection with sales of   
trade receivables and issuance of equity and debt securities. At May 30, 2003,  
we had borrowings of $23.0 million outstanding under our revolving credit       
facility and $37.6 million of borrowing available thereunder. At August 30,     
2002, we had borrowings of $25.0 million outstanding under our revolving credit 
facility and $73.6 million of borrowing availability thereunder. Such borrowings
bore interest at a weighted average rate of 4.1% per annum at May 30, 2003. At  
May 30, 2003 and August 30, 2002, we had $18.9 million and $20 million,         
respectively, outstanding under our equipment note. In addition, at May 30, 2003
and August 30, 2002 our $125 million aggregate principal amount of senior       
subordinated notes were outstanding.                                            

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REVOLVING CREDIT FACILITY                                                       

On March 28, 2003, we completed a restructuring of our senior secured 
revolving credit facility with a group of lenders, which provides aggregate     
borrowing availability of a maximum of $62 million through March 27, 2006.      
Borrowings under the revolving credit facility include revolving loans provided 
by the lenders and up to $10 million of revolving swing loans provided by       
Wachovia Bank, National Association. With respect to revolving loans, we can    
designate an interest rate tied to the Eurodollar rate (adjusted for any        
reserves) plus a specified number of basis points or the base rate (which is the
higher of Wachovia's prime rate or one-half of one percent over the overnight   
federal funds rate) plus a specified number of basis points. Interest accrues on
revolving swing loans at our option at either the base rate plus a specified    
number of basis points or at an interest rate to be mutually determined by us   
and Wachovia at the time such loan is made. A commitment fee is payable         
quarterly on the average daily unused portion of the revolving credit           
commitment. The revolving credit facility is secured by substantially all of our
and our material subsidiaries' assets. We are required to pay certain           
administration and funding fees relating to the revolving credit facility.      
Covenants of the revolving credit facility, among other things, require that we 
maintain a minimum cash flow and certain financial ratios, and contain          
restrictions on payment of dividends. We used $19.4 million of the proceeds from
the offering of the old notes to repay indebtedness under our revolving credit  
facility. After giving effect to the use of the net proceeds from the offering  
of the old notes at May 30, 2003, we had borrowings of $3.6 million outstanding 
under our revolving line of credit.                                             

SWAP AGREEMENTS                                                                 

    We have used interest rate swap agreements to effectively fix the interest
rate with respect to the borrowings outstanding under the revolving credit      
facility, which otherwise bear interest at floating rates. Such agreements      
involve the receipt of floating rate amounts in exchange for fixed rate interest
payments during the term of such agreements without an exchange of the          
underlying principal amounts. The differential to be paid or received is accrued
as interest rates change and recognized as an adjustment to interest expense    
related to the borrowings outstanding under the revolving credit facility. The  
related amount payable to or receivable from counterparties is included in other
liabilities or assets. At May 30, 2003 and August 30, 2002, we had swap         
agreements with notional amounts aggregating $35 million, providing an effective
weighted average interest rate of 5.3%. These swap agreements mature in November
2003.                                                                           

EQUIPMENT NOTE                                                                  

     Our equipment note, a secured five-year installment loan, was executed with
The CIT Group/Equipment Financing, Inc. on July 30, 2002 in the amount of $20.0 
million. The equipment note is to be repaid in 53 monthly payments of           
approximately $360,000 commencing March 1, 2003 and a final payment of          
approximately $896,000 on August 1, 2007. Interest accrues on the unpaid        
principal balance of the equipment note at a rate established annually on August
1 at LIBOR plus a specified number of basis points, and is paid monthly         
commencing September 1, 2002 through the final payment date. We may, one time   
and at our option, elect a fixed interest rate for the remaining term of the    
equipment note based on the Federal Reserve "Interest Rate Swap" rate of        
interest, as quoted for the term closest to the remaining term of the equipment 
note, plus a specified number of basis points. The equipment note is secured by 
a senior lien on substantially all of the equipment of two plant locations,     
which had a carrying value of approximately $34.7 million at May 30, 2003 and   
$37.5 million at August 30, 2002. The equipment note contains customary         
covenants, including requirements to maintain certain financial covenants, and  
includes provisions relating to cross defaults to our other debt obligations.   

SENIOR SUBORDINATED NOTES                                                       

       On June 30, 2003, we completed the offering of $150,000,000 aggregate
principal amount of our 10 1/4% senior subordinated notes due 2013. A portion of
the proceeds from the sale of the notes was used to redeem all of our previously
outstanding 10.25% senior subordinated notes due 2006, effective July 21, 2003. 

RECEIVABLES SECURITIZATION FACILITY                                             

  On August 30, 2002, we and our wholly-owned, special purpose subsidiary,
Avondale Funding, LLC, or Funding, entered into a receivables securitization    
facility with General Electric Capital Corporation, or GECC, and                

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Redwood Receivables Corporation, or Redwood, an issuer of commercial paper, to  
provide financing of up to $90 million through the sale of certain trade        
receivables originated by us. On July 3, 2003, GECC purchased Redwood's         
investment and agreed to continue the funding of the receivables securitization 
facility until the earlier of 90 days before the specified final purchase date, 
August 29, 2007, or certain specified termination dates. The receivables        
securitization facility replaced a previous receivables securitization program  
with Bank One, N.A. We have been engaged by Funding and GECC to service the     
receivables.                                                                    

     Funding is a separate legal entity with its own creditors who, in the event
of Funding's liquidation, will be entitled to a claim on Funding's assets prior 
to any distribution to us.                                                      

   Pursuant to the receivables securitization facility, we sell, or transfer
as a contribution of capital, trade receivables, at a discount and without      
recourse, to GECC, whose sole business is the acquisition and financing of the  
trade receivables. Funding sells an undivided interest in a specified portion of
the trade receivables to GECC to provide the funds required by Funding to       
purchase the trade receivables from us. Proceeds from the collection of the     
trade receivables are used by Funding to purchase additional trade receivables  
from us, repay GECC in the event that sufficient additional trade receivables   
are not available to maintain GECC's investment, or pay fees and expenses. At   
May 30, 2003 and August 31, 2002, the outstanding amount of GECC's or Redwood's 
investment in the trade receivables was $58.6 million and $74 million,          
respectively.                                                                   

    The discount rate on the trade receivables purchased from us by Funding is
based on the fair market value of the receivables. The discount rate on the     
undivided interest in the trade receivables purchased by GECC from Funding is   
tied to GECC's commercial paper rate plus a specified number of basis points.   
Funding is required to pay certain unused availability fees under the           
receivables securitization facility. The receivables securitization facility    
contains customary covenants, including requirements to maintain certain        
financial ratios, and includes provisions relating to cross defaults to other of
our debt obligations.                                                           

The receivables securitization facility is our only off-balance sheet 
financing arrangement. We generate funds through the sale of accounts receivable
to Funding, whose sole business purpose is the ongoing acquisition and resale of
specified trade receivables generated by us. Funding retains no interest in the 
investment in the accounts receivable sold to an independent issuer of          
receivables-backed commercial paper, and has not experienced any gains or losses
on the sale of the investment in accounts receivable. We believe minimal counter
party risk exists due to the financial strength of the independent issuer of the
commercial paper.                                                               

CAPITAL EXPENDITURES AND CASH FLOWS ANALYSIS                                    

 Our capital expenditures, aggregating $13.1 million for the thirty-nine
weeks ended May 30, 2003, were used primarily to initiate the installation of an
automated dye mixing and dispensing system at a fabric finishing facility in    
South Carolina, purchase new roving equipment for a ring spinning facility in   
Alabama and complete routine maintenance projects. Management estimates that    
capital expenditures for the balance of fiscal 2003 were approximately $3.6     
million.                                                                        

Net cash provided by operating activities was $18.4 million for the   
thirty-nine weeks ended May 30, 2003. Principal working capital changes included
a $21.7 million decrease in accounts receivable, a $15.5 million decrease in    
accounts receivable sold under the securitization facility, a $12.1 million     
increase in inventories, and a $10.4 million decrease in accounts payable and   
accrued expenses. Investing activities were predominantly equipment purchases   
and related costs of $13.1 million made in connection with the ongoing          
modernization and maintenance of our manufacturing facilities. Financing        
activities included a $3.1 million net decrease in borrowings under the         
revolving credit facility and long-term debt, payment of $3.8 million in        
dividends on outstanding common stock and the purchase and retirement of        
treasury stock of $2.3 million.                                                 

     Net cash provided by operating activities was $71.7 million in fiscal 2002.
Principal working capital changes included a $6.5 million increase in accounts  
receivable and $12.4 million increase in accounts receivable sold under the     
securitization facilities, a $12.7 million reduction in inventories, and a $2.6 
million increase in accounts payable and accrued expenses. Our investing        
activities were primarily capital improvements of $13.1 million. Net cash       
provided by financing activities aggregated $59.4 million, including issuance of
the equipment note of $20.0 million, a net decrease in the revolving credit     
facility and other long term debt of $80.2 million and $3.8 million used to pay 
dividends on common stock.                                                      

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     Net cash provided by operating activities was $48.1 million in fiscal 2001.
Principal working capital changes included a $28.0 million decrease in accounts 
receivable and corresponding $20.0 million decrease in accounts receivable sold 
under the securitization facility, a $6.3 million decrease in inventories, a    
$14.7 million decrease in other assets, primarily deposits on equipment orders, 
a $23.1 million decrease in accounts payable and accrued expenses, and a $9.1   
million decrease in income taxes payable. Our investing activities were         
primarily capital improvements of $91.1 million. Net cash provided by financing 
activities aggregated $37.3 million, including a net increase in the revolving  
credit facility and other long term debt of $42.5 million, and $5.0 million used
to pay dividends on common stock.                                               

     Net cash provided by operating activities was $67.7 million in fiscal 2000.
Principal working capital changes included a $2.4 million decrease in accounts  
receivable, a $7.0 million decrease in accounts receivable sold under the       
securitization facility, a $7.0 million increase in other assets, primarily     
deposits on equipment orders, and a $4.7 million increase in accounts payable   
and accrued expenses. Our investing activities were primarily capital           
improvements of $30.5 million. Net cash used in financing activities aggregated 
$39.3 million, including a net reduction in the revolving credit facility and   
other long term debt of $31.9 million, and $5.1 million used to pay dividends on
common stock.                                                                   

  The table below summarizes our outstanding contractual obligations as of
May 30, 2003 (prior to the issuance of our 10 1/4% senior subordinated notes due
2013), and the effect such obligations are expected to have on liquidity and    
cash flow in future periods (amounts in thousands).                             

                                                        [Enlarge/Download Table]

                                                                  PAYMENTS DUE BY PERIOD                
                                                   -----------------------------------------------------
                                                              LESS THAN      1 -- 3     4 -- 5    AFTER 
         CONTRACTUAL OBLIGATIONS                    TOTAL      1 YEAR        YEARS      YEARS    5 YEARS
         -----------------------                   --------   ---------    --------    ------    -------
                                                                                                        
Long-term debt, including current portion......... $166,893     $ 4,325    $156,625    $5,943      $ -  

Operating leases..................................    7,892       2,208       3,609     2,075        -  

Equipment purchase orders.........................    4,081       4,081           -         -        -  

Raw material purchase orders......................   66,022      66,022           -         -        -  
                                                   --------      ------    --------    ------      ---  

Total............................................. $244,888     $76,636    $160,234    $8,018      $ -  
                                                   ========     =======    ========    ======      ===  

For discussion related to contractual obligations, see "Footnote 9.   
Long-term Debt" and "Footnote 12. Commitments and Contingencies" in the notes to
consolidated financial statements included elsewhere in this prospectus.        

Management believes that cash generated from operations, together with
borrowings available under our revolving credit facility and proceeds received  
in connection with sales of trade receivables, will be sufficient to meet our   
working capital and capital expenditure needs in the foreseeable future. We will
also continue to consider other options available to us in connection with      
future working capital and capital expenditure needs, including the issuance of 
additional debt and equity securities.                                          

REFUND OF PRIOR YEAR INCOME TAXES                                               

   A net benefit of $4.5 million, related to receipt of an income tax refund
resulting from a settlement with the Internal Revenue Service Appeals Division  
in the fourth quarter of fiscal 2002, is included as an addition to retained    
earnings for fiscal 2002 on the consolidated statement of shareholders' equity. 
The claim for the refund was filed in fiscal 1997 utilizing tax basis deductions
against fiscal 1994 taxable income, related to consideration paid in the        
repurchase of treasury stock. Given the technical nature of the claim and       
resulting uncertainty of recovery, recognition of the refund claim was deferred 
until successful resolution in fiscal 2002. Interest received in conjunction    
with the refund of approximately $1.7 million is included as a reduction in     
interest expense, net for fiscal 2002.                                          

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ADJUSTMENT OF DEFERRED INCOME TAXES                                             

 Following the successful settlement of the refund claim noted above, we
reassessed the balance of certain deferred income taxes. Based on this          
evaluation, we determined that the estimates used to establish deferred income  
taxes prior to fiscal 1998 were too conservative and resulted in an             
overstatement of deferred income tax liabilities. Accordingly, an adjustment of 
$4.0 million has been recorded as an addition to the balance of retained        
earnings at August 27, 1999 on the consolidated statements of shareholders'     
equity.                                                                         

OFF-BALANCE SHEET FINANCING ARRANGEMENTS                                        

Our receivables securitization facility is our only off-balance sheet 
financing arrangement. We generate funds through the sale of trade receivables  
to Funding, whose sole business purpose is the ongoing acquisition and resale of
specified trade receivables generated by us. Funding retains no interest in the 
investment in the trade receivables sold to Redwood, an independent issuer of   
receivables-backed commercial paper, and has not experienced any gains or losses
on the sale of the investment in trade receivables to Redwood. We believe       
minimal counterparty risk exists due to the financial strength of the           
independent issuer of the commercial paper.                                     

SEASONALITY                                                                     

   Our sales are broadly distributed over markets with staggered seasonality
and, therefore, generally do not exhibit significant seasonal trends.           

MARKET RISK                                                                     

     Upward or downward changes in market interest rates and their impact on the
reported interest expense of the our variable rate borrowings may affect our    
earnings. However, our use of interest rate swap agreements will limit the      
negative impact of higher interest rates. Assuming the revolving credit facility
and interest rate swap agreements at May 30, 2003 remain in effect throughout   
fiscal 2003, a 10% change in the effective average interest rate would not have 
a material effect on our pretax earnings for fiscal 2003. In addition, a 10%    
change in interest rates would not have a material effect on the fair value our 
interest rate swap agreements and the notes.                                    

Increases or decreases in the market price of cotton may affect the   
valuation of our inventories and fixed purchase commitments and, accordingly,   
our earnings. The potential decline in fair value of these inventories and fixed
purchase commitments resulting from a 10% decline in market prices is estimated 
to be approximately $8 to $11 million.                                          

CRITICAL ACCOUNTING POLICIES                                                    

    Management's discussion and analysis of financial condition and results of
operations are based on our consolidated financial statements that have been    
prepared in accordance with generally accepted accounting principles for        
financial information, or for interim financial information, as appropriate, in 
the United States. The preparation of financial statements in conformity with   
GAAP requires management to make estimates and assumptions that affect the      
reported amounts of assets and liabilities and disclosure of contingent assets  
and liabilities as of the date of the financial statements and the reported     
amounts of revenues and expenses during the reporting period.                   

    We evaluate these estimates and assumptions on an ongoing basis, including
but not limited to those affecting inventories, allowances for doubtful         
accounts, assets held for sale, long-lived assets, income taxes payable and     
deferred income taxes, deferred compensation, associate and post retirement     
benefits, and contingencies. Estimates and assumptions are based on historical  
and other factors believed to be reasonable under the circumstances. The results
of these estimates and assumptions may form the basis of the carrying value of  
certain assets and liabilities. Actual results, under conditions and            
circumstances different from those assumed, may differ from these estimates and 
assumptions.                                                                    

We believe the following accounting policies are critical to the      
presentation and understanding of our financial condition and the results of our
operations and involve the more significant judgments and estimates utilized in 
the preparation of the consolidated financial statements:                       

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Accounts Receivable and Credit Risks. We extend credit lines to our   
customers in the normal course of business and perform ongoing evaluations of   
the financial condition of our customers. In general, collateral is not required
to support such credit lines and the related receivables. We establish          
allowances for doubtful accounts based upon factors surrounding the financial   
condition and credit risk of specific customers, historical payment trends and  
other information.                                                              

  We generate funds through the sale of accounts receivable, at a discount
and without recourse, to a special purpose subsidiary established to facilitate 
the acquisition and subsequent resale of certain accounts receivable to an      
independent issuer of receivables-backed commercial paper. The discount rate on 
the accounts receivable purchased from us is established periodically by the    
subsidiary based on the fair market value of the receivables. We include in     
accounts receivable in our consolidated balance sheets the portion of accounts  
receivable sold to the subsidiary which have not been resold to the commercial  
paper issuer.                                                                   

   Inventories. Inventories are stated at the lower of cost or market value.
Except for certain supply inventories valued on an average cost basis, the costs
of our inventories are determined on a last-in, first-out, or LIFO, basis. Under
LIFO, current material and conversion costs are charged to cost of goods sold   
while inventories are valued using costs incurred in the initial and subsequent 
fiscal years following election of the LIFO method. In periods of declining     
prices, LIFO values may exceed current replacement market values and require    
downward adjustment. Estimates, including the estimated costs to complete work  
in process inventories and the estimated realizable values of all inventories,  
are used in determining the lower of LIFO cost and market. During periods when  
current costs or inventory quantities fluctuate significantly, use of the LIFO  
method may yield cost of goods sold that differs significantly from that which  
would result under other inventory methods.                                     

     Long-Lived Assets. We periodically review the values assigned to long-lived
assets, such as property, plant and equipment, assets held for sale and         
goodwill. The associated depreciation and amortization periods, where           
appropriate, are reviewed on an annual basis. Estimated recoverability of       
long-lived asset values is based on anticipated undiscounted cash flows from    
operations, or in the case of assets held for sale, the lower of historical     
carrying amount or estimated net realizable value. Management periodically      
reviews the values assigned to these assets and if additional information       
becomes available which indicates a decline in value, makes adjustments in that 
period.                                                                         

Revenue Recognition. We record revenues principally when products are 
shipped to customers. Consistent with recognized practice in the textile        
industry, we also record revenues to a lesser extent throughout the fiscal year 
on a bill and hold basis, invoicing goods that have been produced, packaged and 
made ready for shipment. These goods are effectively segregated from inventory  
which is available for sale, the risks of ownership of the goods have passed to 
the customer, and the remittance terms and collection experience on the related 
invoicing is consistent with all our other sales.                               

     Contingencies. We are involved in certain environmental matters and claims.
We provide reserves to cover management's estimates of the cost of              
investigating, monitoring and remediating these and other environmental         
conditions. If more costly remediation measures are necessary than those        
believed to be probable based on current facts and circumstances, actual costs  
may exceed the reserves provided. However, based on the information currently   
available, management does not believe that the outcome of these matters will   
have a material adverse effect on our future results of operations or financial 
condition.                                                                      

  For discussion of certain legal proceedings to which we are a party, see
the discussion under the caption "Business -- Legal Proceedings" in this        
prospectus. We are not currently a party to litigation that management believes 
would have a material adverse effect on our future results of operations or     
financial condition.                                                            

NEW ACCOUNTING PRONOUNCEMENTS                                                   

     We adopted the provisions of Statement of Financial Accounting Standard No.
142, Goodwill and Other Intangible Assets, effective August 31, 2002, and ceased
amortization of goodwill on that date. We completed the transitional goodwill   
impairment test as required by Statement No. 142 during the thirteen weeks ended
November 29, 2002 and determined that no impairment of goodwill should be       
recorded. In accordance with the provisions of Statement No. 142, the adoption  
of this accounting policy is reflected prospectively. Had Avondale              

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accounted for goodwill in accordance with this policy in fiscal 2002, the net   
loss for the thirty-nine weeks ended May 31, 2002 would have been ($5.7) million
or ($0.45) per share-basic and ($0.45) per share-diluted.                       

Effective August 31, 2002, we adopted the provisions of Statements of 
Financial Accounting Standard No. 141 -- Business Combinations, No. 143 --      
Accounting for Asset Retirement Obligations, No. 144 -- Impairment or Disposal  
of Long-lived Assets, No. 145 -- Rescission of Statements No. 4, 44, and 64,    
Amendment of Statement No. 13, and Technical Corrections, and No. 146 --        
Accounting for Costs Associated with Exit or Disposal Activities. The adoption  
of these Statements had no impact on our consolidated financial statements.     

In December 2002, Statement of Financial Accounting Standards No. 148,
Accounting for Stock-Based Compensation -- Transition and Disclosure,           
established the accounting and disclosure requirements associated with          
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation, and changed certain 
disclosure requirements for companies electing to apply the intrinsic value     
method. We plan to continue our use of the intrinsic value method and do not    
believe the adoption of this statement will have a significant effect on our    
consolidated financial statements.                                              

  In January 2003, Financial Accounting Standards Board Interpretation No.
46, "Consolidation of Variable Interest Entities" was issued, requiring the     
accounts of a variable interest entity to be included in the consolidated       
financial statements of a company if that company is subject to a majority of   
the risk of loss from the variable interest entity's activities, or entitled to 
receive a majority of the entity's residual returns, or both. Interpretation No.
46 also requires certain disclosures regarding a variable interest entity in    
which a company has a significant variable interest but is not required to      
include its accounts in the company's consolidated financial statements. The    
consolidation requirements of Interpretation No. 46 apply immediately to        
variable interest entities created after January 31, 2003 and in the first      
fiscal year or interim period beginning after June 15, 2003 for entities        
existing on or before January 31, 2003. Certain of the disclosure requirements  
apply to financial statements issued after January 31, 2003, regardless of the  
date on which the variable interest entity was created. Management has evaluated
the provisions of this interpretation and concluded that the interpretation will
have no effect on our consolidated financial statements since Avondale Funding  
LLC is a qualified special purpose entity.                                      

  In April 2003, the Financial Accounting Standards Board issued Statement
No. 149, Amendments of Statement No. 133 on Derivative Instruments and Hedging  
Activities, which requires that certain contracts with comparable derivative or 
hybrid characteristics be accounted for similarly. Statement No. 149 is         
effective for contracts entered into or modified after June 30, 2003 and for    
hedging relationships designated after June 30, 2003. We are currently          
evaluating the potential impact of Statement 149 on our consolidated financial  
statements.                                                                     

      In May 2003, Financial Accounting Standards Board Statement No. 150,
Accounting for Certain Financial Instruments with Characteristics of both       
Liabilities and Equity, was issued, which requires that certain financial       
instruments be presented on the consolidated balance sheets as liabilities that 
were previously presented as equity or as temporary equity. Such instruments    
include mandatory redeemable preferred and common stock, and certain options and
warrants. Statement No. 150 is effective for mandatory redeemable financial     
instruments of nonpublic entities for fiscal periods beginning after December   
15, 2003. We are currently evaluating the potential impact of Statement 150 on  
our consolidated financial statements.                                          

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BUSINESS

GENERAL                                                                         

We are a leading domestic manufacturer and marketer of cotton and     
cotton-blend fabrics and yarns used in the production of casual apparel and, to 
a lesser extent, home furnishings and industrial products. We design,           
manufacture and market a broad line of indigo-dyed denim for both branded and   
private label apparel producers of denim jeans, slacks, shorts, skirts and      
jackets as well as non-apparel producers of denim luggage, bags and other       
products. We also design and manufacture an extensive line of piece-dyed        
sportswear and workwear fabrics. Our sportswear fabrics are marketed to both    
branded and private label producers of casual, or khaki, slacks, shorts and     
skirts. Our workwear fabrics are marketed to producers of uniforms, career      
apparel and other workwear (shirts, slacks and jackets) that are distributed    
through either the rental or retail channels. We manufacture cotton and         
cotton-blend yarns, which are sold to knitters and weavers of apparel fabrics.  
We also manufacture specialty and coated fabrics, which are sold to the apparel,
home furnishings and industrial markets. In fiscal 2002, we sold our fabrics and
yarns to approximately 1,200 customers, including many of the world's leading   
apparel companies.                                                              

     Our predecessor was founded in 1895 by the family of G. Stephen Felker, our
chairman, president and chief executive officer. We currently operate 20        
manufacturing facilities with locations in Alabama, Georgia, North Carolina and 
South Carolina. Our facilities and equipment are modern and efficient,          
reflecting the significant investment made in recent years to enhance our       
productivity, operating efficiencies and manufacturing flexibility, and to      
reduce our unit costs. During this time, we have closely managed our working    
capital and reduced our debt considerably.                                      

OPERATIONS                                                                      

    We conduct our business through three principal segments: apparel fabrics,
yarns and other sales. Financial information relating to these segments is      
presented in Note 3 to our consolidated financial statements.                   

PRODUCTS                                                                        

 Apparel fabrics. Our apparel fabrics consist of cotton and cotton-blend
denim, sportswear and workwear fabrics and are generally manufactured to fill   
specific customer orders.                                                       

  We are a leading domestic manufacturer and marketer of indigo-dyed denim
used in the production of branded and private label denim jeans, slacks, shorts,
skirts, jackets and other denim garments. We design, often in conjunction with  
our customers, and manufacture a broad range of high quality, value-added denim 
with new and innovative colors, textures, weaves and finishes. Our denim        
customers include VF Corporation (the maker of the Lee, Rider, Wrangler,        
Rustler, Brittania, Chic and Healthtex brands), Levi Strauss & Co., or Levi's,  
The Gap Inc. (including Old Navy) and several large private label manufacturers.

  We are one of the largest domestic manufacturers and marketers of cotton
sportswear fabrics used in the production of khaki slacks, shorts, skirts and   
other sportswear garments. We produce fabrics in a wide variety of styles,      
colors, finishes, textures and weights according to individual customer         
specifications, including, for example, fabrics with water and stain repellant  
finishes. Our sportswear fabrics customers include Levi's (the maker of the     
Dockers brand), VF Corporation, Haggar Corp., Tropical Sportswear Int'l         
Corporation (maker of the Savane and Farah brands) and several large private    
label manufacturers.                                                            

We are a leading domestic manufacturer and marketer of cotton and     
cotton-blend workwear fabrics used in the production of uniforms, career apparel
and other workwear (shirts, slacks, jackets and other garments). Our workwear   
fabrics customers require durable fabrics characterized by long wear and easy   
care. We work closely with customers to develop fabrics with these and other    
enhanced performance characteristics. Our workwear fabrics customers include    
Cintas Corporation, Carhartt, Inc., VF Corporation, Williamson-Dickie Mfg. Co.  
and American Uniform Co.                                                        

Apparel fabrics sales, including intersegment sales, accounted for    
approximately 74%, 78%, 79% and 85%, respectively, of our net sales in fiscal   
2000, 2001, 2002 and the thirty-nine weeks ended May 30, 2003.                  

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Yarns. We are one of the largest domestic manufacturers of cotton and 
cotton-blend yarns, which we use internally in the production of our woven      
apparel fabrics or market to knitters or weavers of apparel fabrics. Our        
customers use our yarns in the manufacture of a broad range of items, including 
apparel (T-shirts, underwear, socks and hosiery, knitted shirts, shorts and     
slacks, denim jeans, woven khaki slacks, and fleece sweatshirts, pants and      
jackets), and home furnishings. Yarn customers include Fruit of the Loom Ltd.,  
Russell Corporation and numerous other producers of knit apparel. Our yarn      
sales, including intersegment sales, accounted for approximately 28%, 31%, 29%  
and 29%, respectively, of our net sales in fiscal 2000, 2001, 2002 and the      
thirty-nine weeks ended May 30, 2003.                                           

Other. Our other sales include greige and coated fabrics.             

   We produce undyed, unfinished cotton and cotton-blend greige fabrics that
we market to manufacturers of apparel, home furnishings and industrial products.
We work with our customers to create new fabric styles and constructions and can
alter our overall product mix to meet changing customer requirements. In        
addition, we can maintain our production levels and efficiencies by             
manufacturing greige fabrics for use in our apparel fabrics operation.          

We produce a variety of coated fabrics that we market to recreational,
industrial and military product manufacturers. Products made from our coated    
fabrics include awnings, tents, boat covers and life vests. We also finish      
customers' fabrics on a commission basis, which enables those customers to meet 
short delivery schedules while minimizing inventories.                          

    Our other sales, including intersegment sales, accounted for approximately
10%, 10%, 11% and 11%, respectively, of our net sales in fiscal 2000, 2001, 2002
and the thirty-nine weeks ended May 30, 2003.                                   

    Intersegment Sales. Intersegment sales represent the transfer of yarns and
greige fabrics among our three business segments. These items ultimately are    
consumed in the production of finished products, and therefore are eliminated   
from our reported net sales. Intersegment sales accounted for (12%), (19%),     
(19%) and (25%), respectively, of our net sales in fiscal 2000, 2001, 2002 and  
the thirty-nine weeks ended May 30, 2003.                                       

PRODUCT DEVELOPMENT                                                             

    We work closely with our customers to develop value-added fabric and yarns
that reflect current fashion trends and are easily integrated into their        
manufacturing operations. We also maintain a research and development staff that
evaluates trends and uses the latest technology to create innovative fabric and 
yarns. Because our sales force is located in close proximity to our customers   
and develops strong working relationships with them, we believe that we are an  
important partner to our customers in the development of new fabrics. We also   
believe that we benefit from the higher margins that can be earned with new     
fabrics.                                                                        

SALES AND MARKETING                                                             

    During fiscal 2002, we sold apparel fabrics, greige and specialty fabrics,
and yarns to approximately 700, 400 and 400 customers, respectively, or         
approximately 1,200 customers in total after eliminating duplications. We are   
one of the leading suppliers of denim to VF Corporation (the maker of the Lee,  
Rider, Wrangler, Rustler, Brittania, Red Kap, Timbercreek, Chic, and Healthtex  
brands), with total sales of apparel fabrics and yarns to VF Corporation        
accounting for 20% and 16%, respectively, of our net sales in fiscal 2002 and   
the thirty-nine weeks ended May 30, 2003. We believe that we have a strong      
working relationship with VF Corporation. Other than VF Corporation, none of our
customers accounted for 10% or more of our net sales in fiscal 2002. Our sales  
billed to customers domiciled outside the U.S. accounted for 8%, 6%, 7% and 7%, 
respectively, of our net sales in fiscal 2000, 2001 and 2002 and the thirty-nine
weeks ended May 30, 2003.                                                       

  We target customers who demand a high level of customer service. Our two
yarn sales offices are located geographically to be close to customers'         
manufacturing facilities, and our six fabric sales offices are generally located
near the headquarters of key customers. Sales associates visit their customers  
on a regular basis and are primarily responsible for interpreting customers'    
needs, processing customer orders and interacting with our                      

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production scheduling personnel. Our sales associates are paid a base salary    
plus sales incentives to the extent certain performance targets are met. Our    
independent sales representatives are paid on a commission basis.               

MANUFACTURING                                                                   

   We are a vertically integrated manufacturer of yarns and fabrics. Through
modernizing our manufacturing facilities, we have sought to reduce lead times,  
lower costs, minimize inventory levels and maximize flexibility to respond to   
changes in customer demand and market conditions.                               

Manufacturing Processes. Our manufacturing processes involve producing
yarn, dyeing yarn, weaving yarn into fabrics and dyeing and finishing fabrics.  
Our manufacturing plants employ automated control systems to monitor the        
manufacturing process and electronic product testing equipment to measure the   
quality of our yarns and fabrics.                                               

     Our yarn manufacturing operations involve spinning raw cotton and synthetic
fibers into cotton and cotton-blend yarns. We use modern carding, drawing,      
combing, open-end spinning and ring spinning equipment and offer a full line of 
yarns to respond to varied customer demand. Yarn produced by us is either sold  
to outside customers or used internally in the production of woven fabrics.     

 Yarn to be used in the manufacture of apparel fabrics may be dyed using
"range" dyeing techniques. We weave dyed or undyed yarn using modern, high-speed
looms to manufacture fabrics that have a variety of widths and weaves. The woven
fabrics may be piece-dyed and finished according to customer specifications. Our
dyeing and finishing facilities use a wide range of technologies, including     
sophisticated electronic monitoring and control systems. These systems allow us 
to continuously monitor and control each phase of the dyeing and finishing      
process, which helps to improve productivity, efficiency, consistency and       
quality.                                                                        

    Manufacturing Facilities. We currently operate 20 manufacturing facilities
in the U.S. Of our manufacturing facilities, 11 produce yarn, six manufacture   
fabrics, four are dyeing facilities and four are engaged in fabric finishing.   

In response to the highly competitive market conditions and continued 
oversupply of open-end yarns, in January 2002, we completed the closing of two  
separate open-end yarn manufacturing facilities located in North Carolina. The  
closing of these two facilities will allow us to reduce our sales of open-end   
yarns which have proven to be unprofitable in recent years and improve the      
capacity utilization and operating efficiencies of our remaining yarn           
manufacturing facilities.                                                       

In response to the deterioration of domestic and regional demand for  
heather and stock-dyed open-end yarns over the past several years, in May 2003, 
we completed the closing of an open-end yarn manufacturing facility located in  
Alabama. We could not justify continued operation of this facility given the    
diminished volume and pricing for these products. Production of stock-dyed yarns
for internal consumption by our apparel fabric operation will be shifted to     
other manufacturing facilities. In connection with this action, we recorded     
facility restructuring charges and other non-operating costs of approximately   
$2.5 million during the thirty-nine weeks ended May 30, 2003.                   

Expansion and Modernization. We have expanded our operations through  
acquisitions, an ongoing capital improvements program and management's efforts  
to optimize the productive output of our manufacturing facilities. As part of   
our expansion and modernization efforts, we have also redeployed capital by     
closing certain manufacturing facilities and, in some cases, moving             
manufacturing equipment to other locations. Our expansion and modernization     
efforts over the past six fiscal years have included, among others, the         
following principal initiatives:                                                

  -   1997 -- Completed replacement of earlier generation projectile looms
with new, high speed air jet looms and installation of two new
       integrated finishing ranges in an existing integrated denim facility;

    -   1997 -- Purchased additional computer controlled cleaning and blending
        equipment for one plant, replaced earlier generation open-end spinning
        equipment with technologically advanced spinning equipment at a second
     plant, and replaced opening and carding equipment at a third plant;

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     -   1997 and 1998 -- Constructed a new denim weaving facility, completed in
     April 1998, housing technologically advanced slashing equipment and
    high speed air jet looms, upgraded fabric finishing equipment, and
executed a lease for a new distribution center;               

     -   1998 and 1999 -- Completed expansion of an existing weaving facility in
        June 1999, which included the installation of technologically advanced
       slashing equipment and high speed air jet looms for the production of
        additional greige fabrics to be piece-dyed for sportswear and workwear
end uses;                                                     

    -   1998 and 1999 -- Completed construction of a new piece-dyeing range in
         February 1999, and installed technologically advanced fabric inspection
equipment for piece-dyed fabrics;                             

    -   2000 -- Completed replacement of earlier generation air jet looms with
         new, high speed air jet looms in November 1999 for production of greige
fabrics to be piece-dyed for sportswear and workwear end uses;

   -   2000 -- Completed modernization of an existing ring spinning facility
         in August 2000, including the replacement of earlier generation roving,
   ring spinning and winding equipment with technologically advanced
linked-ring spinning;                                         

-   2001 -- Completed expansion of an existing piece-dyed finishing   
     facility in January 2001, for the production of additional finished
piece-dyed fabrics for sportswear and workwear end uses;      

 -   2001 -- Completed expansion and modernization of an existing greige
   weaving facility in May 2001, including the construction of a new
        building addition and the installation of modern air jet looms for the
production of additional greige fabrics;                      

     -   2001 -- Completed expansion and modernization of an existing integrated
   denim weaving facility in May 2001, including the installation of
      modern air jet looms for the production of additional denim fabrics;

   -   2001-- Completed expansion of linked-ring spinning facility which was
modernized in August 2000;                                    

   -   2002 -- Completed replacement of earlier generation winding equipment
at an existing ring spinning facility in September 2001 with  
technologically advanced, fully automated winders;            

   -   2002 -- Completed modernization of existing spinning operation within
integrated fabric weaving facility in October 2001, including 
installation of technologically advanced linked-ring spinning 
equipment;                                                    

  -   2002 -- Completed construction of a new ring spinning facility using
existing manufacturing floor space, in October 2001, including
installation of technologically advanced linked-ring spinning 
equipment; and                                                

-   2003 -- Initiated the installation of an automated dye mixing and 
     dispensing system at a fabric finishing facility in South Carolina,
        purchased new roving equipment for a ring spinning facility in Alabama
and completed routine maintenance projects.                   

RAW MATERIALS                                                                   

   We are one of the largest U.S. consumers of raw cotton, the principal raw
material used in our manufacturing processes. Consequently, our results of      
operations may be impacted significantly due to fluctuations in the price of    
cotton. Since cotton is an agricultural product, its supply and quality, which  
affect prevailing prices, are subject to forces of nature. Significant increases
in cotton prices due to any material shortage or interruption in the supply or  
variations in the quality of cotton by reason of weather, disease or other      
factors could have a material adverse effect on our results of operations.      

Because the importation of cotton into the U.S. has generally been    
prohibited, historically, imbalances between the domestic and world price of    
cotton have occurred. In recent years, Congress has passed a series of          
legislative initiatives to ensure that U.S. cotton is priced competitively with 
world markets. The Food, Agriculture,                                           

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Conservation and Trade Act of 1990, or the 1990 Trade Act, and the regulations  
promulgated thereunder established a three-step competitiveness program designed
to make domestic cotton prices approximate world cotton prices. This program    
includes a mechanism that triggers tariff free quotas for the importation of    
cotton if U.S. prices exceed world prices for an extended period of time.       

 The Federal Agricultural Improvement and Reform Act of 1996 established
certain support programs that, among other things, continued through the year   
2002 the three-step competitiveness program established under the 1990 Trade    
Act. Under these support programs, we received reimbursement payments from the  
U.S. Department of Agriculture representing the differential between domestic   
cotton prices and world cotton prices, in excess of 1.25 cents per pound.       
However, these payments ceased as of December 15, 1998 when financing for the   
program was exhausted, and tariff-free quotas for the importation of cotton were
opened in March 1999.                                                           

    Effective October 1, 1999, the Fiscal 2000 Agriculture Appropriations Bill
restored funding of payments under the three-step competitiveness program and   
redefined import quota triggers. The Farm Security and Rural Investment Act of  
2002 extended the program until July 31, 2008, and suspended, from May 14, 2002 
through July 31, 2006, the exclusion of 1.25 cents per pound from payments for  
the differential between domestic cotton prices and world cotton prices.        
Accordingly, we have continued to receive reimbursement payments from the U.S.  
Department of Agriculture relating to the differential between domestic cotton  
prices and world cotton prices for cotton consumed on or after October 1, 1999. 

We closely monitor the cotton market and manage our cotton-buying     
practices. Our chief executive officer is a director of the National Cotton     
Council, a trade organization that spearheads initiatives to implement U.S.     
cotton industry policy, which helps us stay abreast of developments in the      
cotton market. We generally purchase cotton in sufficient quantities to achieve 
planned manufacturing schedules. Our forward cotton purchases may be short of,  
or in excess of, the quantities needed to satisfy customers' orders depending   
upon such factors as our outlook for the cotton market.                         

     We generally enter into cotton purchase contracts several months in advance
of the scheduled date of delivery. Prices for such purchases are fixed either on
the date of the contract or thereafter on a date prior to delivery and, as a    
result, we may be favorably or adversely affected if cotton prices fluctuate    
during the contract period. Periodically, we also purchase cotton futures and   
option contracts to hedge exposure to price fluctuations in cotton acquired from
various suppliers.                                                              

 The principal man-made fiber purchased by us is polyester. We currently
purchase substantially all of the man-made fibers used in our products from two 
suppliers, but such fibers are readily available from other suppliers. We       
maintain a limited supply of such fibers in inventory. We generally have no     
difficulty in obtaining sufficient quantities of man-made fibers.               

    We purchase dyes and chemicals used in our dyeing and finishing processes,
and these dyes and chemicals normally have been available in adequate supplies  
through a number of suppliers. In connection with the acquisition of            
Graniteville, we entered into a supply agreement, extending through March 2006, 
with C.H. Patrick & Co., Inc., or Patrick, which was subsequently acquired by   
B.F. Goodrich. In 2000, B.F. Goodrich sold the chemical portion of their        
business to Noveon, Inc., formerly B.F. Goodrich PMD Group, and the textile dye 
portion of their business to Patrick, formerly CHP Acquisition Group, Inc. On   
February 28, 2001, we executed an assignment of the supply agreement whereby we 
will purchase textile dyes from Patrick and chemicals from Noveon. This supply  
agreement generally stipulates that Patrick and Noveon will have the opportunity
to provide certain dyes and chemicals utilized by us if Patrick and Noveon meet 
certain conditions, including competitive pricing and the ability to provide the
applicable dyes and chemicals in accordance with our specifications and delivery
requirements. The supply agreement is terminable by us prior to the end of the  
original 10-year term in the event of a pattern of repeated, material failures  
by Patrick and Noveon to satisfy their obligations with respect to product      
specifications, delivery schedules or other material terms. Under the supply    
agreement, a default by one supplier will not constitute a default by the other 
supplier.                                                                       

  We purchase yarns and greige fabrics to supplement our internal yarn and
fabric production, and consume these products in the production of greige and   
finished fabrics for our customers. These yarns and greige fabrics are readily  
available from a number of suppliers.                                           

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COMPETITION                                                                     

The textile industry is highly competitive, and no single company is  
dominant. We believe that we are one of the largest domestic manufacturers of   
indigo-dyed denim, piece-dyed fabrics for workwear and sportswear, and cotton   
and cotton-blend yarns. Our competitors include large, vertically integrated    
textile companies and numerous smaller companies. There has been a general trend
toward consolidation within certain markets of the textile industry and, within 
our markets, some increases in manufacturing capacity. However, the resulting   
excess manufacturing capacity, an increase in the U.S. importation of textiles  
and apparel from countries having significantly devalued currencies, a downturn 
in the U.S. economy and the reaction of U.S. consumers to reports of terrorism  
throughout the world and possible military action in response to those terrorist
acts have created intensely competitive market conditions leading to severe     
financial difficulties of several domestic yarn and apparel fabric              
manufacturers, and the accompanying closure of domestic manufacturing capacity. 

    The primary competitive factors in the textile industry are price, product
styling and differentiation, quality, manufacturing flexibility, delivery time  
and customer service. The importance of these factors is determined by the needs
of particular customers and the characteristics of particular products. Our     
failure to compete effectively with respect to any of these key factors or to   
keep pace with rapidly changing markets could have a material adverse effect on 
our results of operations and financial condition.                              

TRADE REGULATION                                                                

Increases in domestic capacity and imports of foreign-made textile and
apparel products are a significant source of competition for many domestic      
textile manufacturers, including us. The U.S. government attempts to regulate   
the growth of certain textile and apparel imports by establishing quotas and    
tariffs on imports from countries that historically account for significant     
shares of U.S. imports. Although imported apparel represents a significant      
portion of the U.S. apparel market, in recent years, a significant portion of   
import growth has been attributable to imports of apparel products manufactured 
outside the U.S. of (or using) domestic textile components. In addition, imports
of certain textile products into the U.S. have increased in recent years        
primarily as a result of significant devaluation of the currencies of other     
textile producing countries, particularly within Asia, against the U.S. dollar. 

     The extent of import protection afforded by the U.S. government to domestic
textile producers has been, and is likely to remain, subject to considerable    
domestic political deliberation and foreign considerations. In January 1995, a  
multilateral trade organization, the World Trade Organization, or the WTO, was  
formed by the members of the General Agreement on Tariffs and Trade, or GATT, to
replace GATT. The WTO has set forth the mechanisms by which world trade in      
textiles and clothing will be progressively liberalized with the elimination of 
quotas and the reduction of duties. The implementation began in January 1995    
with the phasing-out of quotas and the reduction of duties to take place over a 
10-year period. The selection of products at each phase is made by each         
importing country and must be drawn from each of the four main textile groups:  
yarns, fabrics, made-up textiles and apparel. As it implements the WTO          
mechanisms, the U.S. government is negotiating bilateral trade agreements with  
developing countries, which generally are exporters of textile products, that   
are members of the WTO for the purpose of reducing their tariffs on imports of  
textiles and apparel. The elimination of quotas and reduction of tariffs under  
the WTO may result in increased imports of certain textile products and apparel 
into North America. These factors could make our products less competitive      
against low cost imports from developing countries.                             

     The North American Free Trade Agreement, or NAFTA, among the United States,
Canada and Mexico, which became effective on January 1, 1994, has created the   
world's largest free-trade zone. The agreement contains safeguards sought by the
U.S. textile industry, including a rule of origin requirement that products be  
processed in one of the three countries in order to benefit from NAFTA. In      
addition, NAFTA requires merchandise to be made from yarns and fabrics          
originating in North America in order to avoid trade restrictions. Thus, not    
only must apparel be made from North American fabric but the fabric must be     
woven from North American spun yarn. Based on experience to date, NAFTA has had 
a favorable impact on our business.                                             

    On May 2, 2000, the United States passed the United States-Caribbean Basin
Trade Partnership Act and the Africa Growth and Opportunity Act. Under these    
acts, apparel manufactured in the Caribbean and Sub-Saharan regions using yarns 
or fabrics produced in the United States may be imported to the U.S. duty and   
quota free. In                                                                  

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effect, this legislation extends the favorable trade terms afforded to Mexico   
under NAFTA to the Caribbean and Sub-Saharan countries. Management believes that
NAFTA parity for the Caribbean region will have a favorable effect on us by     
providing access to lower cost labor for apparel assembly, making the U.S. a    
more attractive location for textile sourcing.                                  

     The Andean Trade Promotion and Drug Eradication Act was passed on August 6,
2002 to renew and enhance the Andean Trade Preference Act, or ATPA. Under the   
enhanced ATPA, apparel manufactured in Bolivia, Columbia, Ecuador and Peru using
yarns and fabrics produced in the United States may be imported into the U.S.   
duty and quota free through September 30, 2007, subject to an initial cap of 2% 
of total U.S. apparel imports in 2002, which will increase by 1% annually to 5% 
in 2006 and 2007. This legislation effectively grants these four countries the  
favorable trade terms afforded Mexico and the Caribbean region. Management      
believes this legislation further enhances the attractiveness of U.S. textiles  
and will have a favorable impact on us.                                         

BACKLOG                                                                         

Our order backlog was approximately $200 million at May 30, 2003, as  
compared to approximately $287 million at May 31, 2002, primarily reflecting    
reduced demand for denim fabrics and yarns. Orders on hand are not necessarily  
indicative of total future sales. Substantially all of the orders outstanding at
May 30, 2003 are expected to be filled within the next twelve months.           

ENVIRONMENTAL REGULATION                                                        

   We are subject to various federal, state and local environmental laws and
regulations limiting the use, storage, handling, release, discharge and disposal
of a variety of hazardous substances and wastes used in or resulting from our   
operations and potential remediation obligations thereunder, particularly the   
Federal Water Pollution Control Act, the 1990 Clean Air Act, the Resource       
Conservation and Recovery Act (including amendments relating to underground     
storage tanks) and the Comprehensive Environmental Response, Compensation, and  
Liability Act, commonly referred to as "Superfund" or "CERCLA" and various state
counterparts. We have obtained, and are in compliance in all material respects  
with, all significant permits required to be issued by federal, state or local  
law in connection with the operation of our business as described herein.       

Our operations are also governed by laws and regulations relating to  
workplace safety and worker health, principally the Occupational Safety and     
Health Act and regulations thereunder which, among other things, establish      
cotton dust, formaldehyde, asbestos and noise standards, and regulate the use of
hazardous chemicals in the workplace. We use resins containing formaldehyde in  
processing some of our products. Although we do not use asbestos in the         
manufacture of our products, asbestos-containing materials are present in some  
of the structural components of some of our facilities, and management believes 
these materials are properly contained and managed.                             

 Many of our manufacturing facilities have been in operation for several
decades, with some operations originating in the 1800s. Historical management of
hazardous substances and waste disposal practices may have resulted in on-site  
and off-site unknown remediation liability for which we may be responsible. In  
addition, certain operations, including wastewater treatment facilities and air 
emission sources may have to be upgraded to meet more stringent environmental   
requirements in the future. We have established reserves for (1) certain        
significant environmental projects which we anticipate will be completed within 
the next two to three years to address certain known potential environmental    
issues (including the two Graniteville issues discussed in further detail below)
and (2) possible significant capital projects to address certain potential air  
quality and water quality regulations. We cannot with certainty assess at this  
time the impact of future emission or discharge or other regulatory standards or
enforcement practices under the foregoing environmental laws and regulations    
and, in particular, under the 1990 Clean Air Act, upon its operations or capital
expenditure requirements. We believe we are currently in compliance in all      
material respects with the foregoing environmental and health and safety laws   
and regulations.                                                                

     In 1987, Graniteville Company was notified by the South Carolina Department
of Health and Environmental Control, or DHEC, that it had discovered certain    
contamination of a pond near Graniteville, South Carolina and that Graniteville 
may be one of the responsible parties. In 1990 and 1991, Graniteville provided  
reports to DHEC summarizing its required study and investigation of the alleged 
pollution and its sources which concluded that pond sediments should be left    
undisturbed and that other remediation alternatives either provided no          
significant benefit or                                                          

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themselves involved adverse effects. In 1995, Graniteville submitted a proposal 
regarding periodic monitoring of the site, to which DHEC responded with a       
request for additional information. Graniteville provided such information to   
DHEC in February 1996. We are unable to predict at this time whether any further
actions will be required with respect to the site or what the cost thereof may  
be. As noted above, we have provided a reserve for management's estimate of the 
cost of monitoring the site and believe the ultimate outcome of this matter will
not have a material adverse effect on our results of operations or financial    
condition.                                                                      

    As a result of our acquisition of the Graniteville business, we own a nine
acre site in Aiken County, South Carolina, which was operated jointly by        
Graniteville and Aiken County as a landfill from approximately 1950 through     
1973. DHEC conducted a site screening investigation in 1990. The United States  
Environmental Protection Agency conducted a site investigation in 1991 and an   
Expanded Site Inspection in January 1994. Graniteville conducted a groundwater  
quality investigation in 1992 and a supplemental site assessment in 1994. Based 
on these investigations, DHEC requested that Graniteville enter into a consent  
agreement providing for comprehensive assessment of the nature and extent of    
soil and groundwater contamination at the site, if any, and an evaluation of    
appropriate remedial alternatives. DHEC and Avondale entered into a consent     
agreement in December 1997. The cost of the comprehensive assessment required by
the consent agreement is estimated to be between $200,000 and $400,000. In March
2001, we submitted a set of proposed remediation alternatives for DHEC's review 
and approval. Because this investigation has not concluded, we are currently    
unable to predict what further actions, if any, will be necessary to address the
landfill. As noted above, we have provided a reserve for management's estimate  
of the cost of investigating and remediating the site, and we believe the       
ultimate outcome of this matter will not have a material adverse effect on our  
results of operations or financial condition.                                   

  We are currently defending an environmentally related lawsuit, described
under the caption "Business -- Legal Proceedings" in this prospectus.           

PROPERTIES                                                                      

We currently operate 20 manufacturing facilities in the U.S., of which
seven are located in Alabama, one is located in North Carolina, three are       
located in Georgia and nine are located in South Carolina. We own all 20 of     
these facilities. Of our manufacturing facilities, 11 produce yarn, six         
manufacture fabrics, four are dyeing facilities and four are engaged in fabric  
finishing. Additionally, we own four and lease two warehouses.                  

 In January 2002, we completed the closing of two separate open-end yarn
manufacturing facilities located in North Carolina which allowed us to reduce   
our sales of unprofitable open-end yarns and improve capacity utilization and   
operating efficiencies at our remaining yarn manufacturing facilities.          

In response to the deterioration of domestic and regional demand for  
heather and stock-dyed open-end yarns over the past several years, in May 2003, 
we completed the closing of an open-end yarn manufacturing facility located in  
Alabama. We could not justify continued operation of this facility given the    
diminished volume and pricing for these products. Production of stock-dyed yarns
for internal consumption by our apparel fabric operation will be shifted to     
other manufacturing facilities. In connection with this action, we recorded     
facility restructuring charges and other non-operating costs of approximately   
$2.5 million during the thirty-nine weeks ended May 30, 2003.                   

     Many of our plants operate 24 hours a day, seven days a week throughout the
year. We consider our plants and equipment to be in good condition and adequate 
for our current operations. Our principal executive offices are located in      
Monroe, Georgia in a building we own. We also have executive offices in         
Sylacauga, Alabama, and Graniteville, South Carolina, which are located in      
buildings we own. All of our sales offices are leased from unrelated third      
parties.                                                                        

LEGAL PROCEEDINGS                                                               

 On January 13, 2000, a case was filed in the Circuit Court of Jefferson
County, Alabama by Larry and Cynthia Locke and the owners of fourteen other     
residences in the Raintree subdivision of Lake Martin, against Russell          
Corporation, Alabama Power and Avondale. The complaint alleges that Avondale,   
among others, negligently and/or wantonly caused or permitted the discharge and 
disposal of sewage sludge and contaminants into the lake adjacent               

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to the plaintiffs' property, which allegedly interfered with the plaintiffs' use
of the property. As a result of these alleged actions, the plaintiffs claim that
the value of their property has been diminished and that they suffered other    
damages. The complaint seeks compensatory and punitive damages in an undisclosed
amount. After an initial series of actions, the case was stayed by the trial    
court pending resolution of an appeal in the case of Sullivan versus Russell    
Corporation, Avondale and others, which also involved the Raintree subdivision. 
We refer to this case as the Sullivan case. On January 12, 2001, the Alabama    
Supreme Court issued a final order in the Sullivan case rendering that case in  
favor of the defendants. Subsequent to the Alabama Supreme Court's actions with 
regard to the Sullivan case, plaintiff's counsel, which includes attorneys who  
acted as co-plaintiff's counsel on the Sullivan case, presented arguments in a  
hearing before the trial judge on May 4, 2001 based on a narrow legal theory    
that the nuisance claimed in this action is sufficiently different from the     
Sullivan case, and therefore, that this case should be allowed to proceed in    
spite of the fact that the Sullivan case was ultimately decided in favor of the 
defendants. The trial court allowed the case to proceed to the discovery phase. 
On April 25, 2002, the trial court held a hearing on summary judgment motions   
and, on May 22, 2002, entered judgment as a matter of law in our favor on all   
counts except the narrow legal theory involving public nuisance tort. A trial on
this single count is scheduled to begin in October 2003. We intend to vigorously
defend this case and believe that we have a number of defenses available to us. 
While the outcome of this case cannot be predicted with certainty, based upon   
currently available information, we do not believe that it will have a material 
adverse effect on our financial condition or results of operations.             

 We are also a party to other litigation incidental to our business from
time to time. We are not currently a party to any litigation that management    
believes, if determined adversely to us, would have a material adverse effect on
our financial condition or results of operations.                               

EMPLOYEES                                                                       

At May 30, 2003, we had approximately 5,300 associates. None of our   
associates are covered by a collective bargaining agreement, and management     
believes that our relations with our associates are good.                       

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MANAGEMENT

    The executive officers and directors of Avondale Incorporated and Avondale
Mills, Inc. are as follows:                                                     

                                                        [Enlarge/Download Table]

                       NAME                                AGE                POSITIONS HELD               
                       ----                                ---                --------------               
                                                                                                           
G. Stephen Felker......................................... 51   Chairman of the Board, President and Chief 
                                                                Executive Officer of Avondale Incorporated 
                                                                and Avondale Mills                         
Jack R. Altherr, Jr....................................... 54   Vice Chairman, Chief Financial Officer, and
                                                                Director of Avondale Incorporated and      
                                                                Avondale Mills                             
T. Wayne Spraggins........................................ 66   Vice President of Avondale Mills and       
                                                                President, Manufacturing Operations        
Keith M. Hull............................................. 50   Vice President of Avondale Mills and       
                                                                President, Marketing and Sales             
Craig S. Crockard......................................... 60   Vice President and Assistant Secretary of  
                                                                Avondale Incorporated and Vice President,  
                                                                Planning and Development and Assistant     
                                                                Secretary of Avondale Mills                
M. Delen Boyd............................................. 47   Vice President, Controller and Secretary of
                                                                Avondale Incorporated and Avondale Mills   
Sharon L. Rodgers......................................... 47   Vice President, Human Resources of Avondale
                                                                Mills and Assistant Secretary of Avondale  
                                                                Incorporated and Avondale Mills            
Dale J. Boden(1).......................................... 46   Director of Avondale Incorporated and      
                                                                Avondale Mills                             
Kenneth H. Callaway(1).................................... 48   Director of Avondale Incorporated and      
                                                                Avondale Mills                             
Robert B. Calhoun(1)(2)(3)................................ 60   Director of Avondale Incorporated and      
                                                                Avondale Mills                             
Harry C. Howard(2)(4)..................................... 74   Director of Avondale Incorporated and      
                                                                Avondale Mills                             
C. Linden Longino, Jr.(2)................................. 67   Director of Avondale Incorporated and      
                                                                Avondale Mills                             
James A. Rubright(2)...................................... 56   Director of Avondale Incorporated and      
                                                                Avondale Mills                             
John P. Stevens(1)(5)..................................... 74   Director of Avondale Incorporated and      
                                                                Avondale Mills                             

----------                                                                      

(1)  Member of the Compensation Committee.                                      

(2)  Member of the Audit Committee.                                             

(3)  Mr. Calhoun has been elected a director of Avondale Incorporated pursuant  
to a shareholder's agreement dated as of April 29, 1996 by and among  
  Avondale Incorporated and certain shareholders of Avondale Incorporated.

(4)  Chairman of the Audit Committee.                                           

(5)  Chairman of the Compensation Committee.                                    

G. Stephen Felker has served as Chairman of the Board of Avondale     
Incorporated since 1992, President and Chief Executive Officer of Avondale      
Incorporated since 1980, and in various other capacities since 1974. Mr. Felker 
has served as Chairman of the Board and Chief Executive Officer of Avondale     
Mills since 1986, when Avondale Incorporated acquired Avondale Mills, and       
President of Avondale Mills since 1995. Mr. Felker served as Chairman of the    
Georgia State Advisory Board of Wachovia Bank, N.A. from 1989 to 2000 and is    
currently a director of American Fibers and Yarns, Inc. and Rock-Tenn Company.  

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   Jack R. Altherr, Jr. has served as Vice Chairman of Avondale Incorporated
and Avondale Mills since May 1996, Chief Financial Officer and a director of    
Avondale Incorporated since December 1989, Chief Financial Officer of Avondale  
Mills since October 1988 and a director of Avondale Mills since 1993. With the  
exception of fiscal 1995, he served as Secretary of Avondale Incorporated and   
Avondale Mills from August 1993 until November 1998. Mr. Altherr has served     
Avondale Incorporated and Avondale Mills in various other capacities since July 
1982.                                                                           

T. Wayne Spraggins has served as Vice President of Avondale Mills and 
President, Manufacturing Operations since May 1996. Mr. Spraggins joined        
Avondale Mills as a standards engineer in August 1961 and has served Avondale   
Mills in various other capacities, including Vice President, Manufacturing of   
Avondale Mills, since that time.                                                

 Keith M. Hull has served as President, Marketing and Sales, of Avondale
Mills, Inc. since August 1999, having served as President, Apparel Fabrics, the 
apparel fabrics division of Avondale Mills since May 1996 and Vice President of 
Avondale Mills since April 1989. He has served Avondale Incorporated in various 
other capacities including Vice President, Marketing since 1977. Mr. Hull serves
as a director of Cherokee, Inc.                                                 

     Craig S. Crockard has served as Vice President, Planning and Development of
Avondale Mills since September 1983. Mr. Crockard has served Avondale Mills in  
various other capacities, including Vice President, Corporate Services, since   
September 1966.                                                                 

  M. Delen Boyd has served as Vice President, Controller of Avondale Mills
since May 1996 and Secretary of Avondale Incorporated and Avondale Mills since  
November 1998. Mr. Boyd served as Assistant Secretary of Avondale Incorporated  
and Avondale Mills from May 1996 until November 1998. Mr. Boyd has served as    
Controller of Avondale Mills since 1987. Mr. Boyd joined Avondale Mills in 1982 
and has served in various capacities, including Assistant Controller and        
Corporate Director of Accounting and Taxes.                                     

     Sharon L. Rodgers has served as Vice President, Human Resources of Avondale
Mills since May 1996. Ms. Rodgers served as Vice President, Legal and Assistant 
Secretary of Graniteville Company from 1993 to May 1996. Ms. Rodgers joined     
Graniteville Company in 1980 and served in various other capacities at          
Graniteville Company during the thirteen years ended in 1993.                   

Dale J. Boden has served as a director of Avondale Incorporated and   
Avondale Mills since November 1994. Mr. Boden has served as President and Chief 
Executive Officer of B.F. Capital, Inc., a private investment company, since    
January 1993.                                                                   

     Kenneth H. Callaway has served as a director of Avondale Incorporated since
November 1987 and of Avondale Mills since August 1993. Mr. Callaway has been    
President of Calgati Chemical Company, a specialty chemical manufacturer, since 
December 1991.                                                                  

   Robert B. Calhoun has served as a director of Avondale Incorporated since
August 1993 and of Avondale Mills since November 1991. He is presently a        
Managing Director and Co-founder of Monitor Clipper Partners. Mr. Calhoun is    
also President of Clipper Asset Management Corporation, the sole general partner
of The Clipper Group, L.P., a private investment firm, since January 1991, and  
of Clipper Capital Corporation, the sole general partner of Clipper, an         
affiliated private investment firm, since 1993. From 1975 to 1991, Mr. Calhoun  
was a Managing Director of Credit Suisse First Boston Corporation, an investment
banking firm. Mr. Calhoun is also a director of Interstate Bakeries Corporation 
and Lord Abbett Family of Funds.                                                

 Harry C. Howard has served as a director of Avondale Incorporated since
August 1993 and of Avondale Mills since July 1986. Mr. Howard retired from the  
law firm of King & Spalding, where he had practiced law since 1956, as of       
December 31, 1992.                                                              

  C. Linden Longino, Jr. has served as a director of Avondale Incorporated
since November 1975 and of Avondale Mills since August 1993. Mr. Longino was a  
Senior Vice President of SunTrust Bank, Atlanta from December 1978 until his    
retirement in July 1996. During his 34-year career with SunTrust Bank, Atlanta, 
Mr. Longino served in                                                           

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various management positions. He now serves in various capacities with several  
community and educational organizations.                                        

   James A. Rubright has served as a director of Avondale Incorporated since
November 2000. Mr. Rubright is Chairman and Chief Executive Officer of Rock-Tenn
Company, an integrated paperboard and packaging company. Before joining         
Rock-Tenn Company, Mr. Rubright served as Executive Vice President of Sonat,    
Inc., an energy company, and as a partner in the law firm of King & Spalding.   
Mr. Rubright is also a director of Rock-Tenn Company and AGL Resources, Inc.    

 John P. Stevens has served as a director of Avondale Incorporated since
January 1970 and of Avondale Mills since July 1986. Mr. Stevens served as       
Executive Vice President of Wachovia Bank, N.A. from April 1981 until his       
retirement in January 1994 and was responsible for managing the Government      
Banking and Public Finance Department. Mr. Stevens served as a consultant to    
Wachovia Bank, N.A. from February 1994 to February 1996. In addition, from      
February 1994 until the present time, Mr. Stevens has been a partner in The     
Stevens Group, a consulting firm specializing in providing assistance in a wide 
range of business and governmental affairs.                                     

     All executive officers of Avondale Incorporated are elected annually by and
serve at the discretion of the Board of Directors.                              

The directors of Avondale Incorporated are elected annually by the    
shareholders. The directors of Avondale Mills are elected annually by Avondale  
Mills' sole shareholder, Avondale Incorporated. During the fiscal year ended    
August 30, 2002, the Boards of Directors of Avondale Mills, Inc. and Avondale   
Incorporated each held four meetings.                                           

The Compensation Committee of the Board of Directors of Avondale      
Incorporated during fiscal 2002 consisted of John P. Stevens, Chairman of the   
Compensation Committee, Dale J. Boden, Robert B. Calhoun and Kenneth H.         
Callaway. None of the Members of the Compensation Committee is an employee of   
Avondale Incorporated or Avondale Mills. The Compensation Committee's principal 
responsibilities consist of establishing the compensation for Avondale          
Incorporated and Avondale Mills, named executive officers and administering     
Avondale Incorporated's Stock Option Plan. During the fiscal year ended August  
30, 2002, the Compensation Committee held one meeting.                          

The Audit Committee of the Board of Directors of Avondale Incorporated
during fiscal 2002 consisted of Harry C. Howard, Chairman of the Audit          
Committee, Robert B. Calhoun, C. Linden Longino, Jr., and James A. Rubright.    
None of the members of the Audit Committee is an employee of Avondale           
Incorporated or Avondale Mills. During the fiscal year ended August 30, 2002,   
the Audit Committee held four meetings.                                         

     The Audit Committee meets with the independent public accountants, internal
auditors and management to assure that all are carrying out their respective    
responsibilities. The Audit Committee reviews the performance and fees of the   
independent public accountants prior to recommending their appointment, and     
meets with them, without management present, to discuss the scope and results of
their audit work, including the adequacy of internal controls and the quality of
financial reporting. Both the independent public accountants and the internal   
auditors have full access to the Audit Committee. A written charter for the     
Audit Committee was approved by the Board of Directors effective July 13, 2000. 

     During fiscal 2002, Avondale Incorporated paid each non-employee director a
quarterly fee of $5,250 plus reimbursement of out-of-pocket expenses.           

Avondale Incorporated adopted a stock option plan for its non-employee
directors, effective September 1, 1997, under which 100,000 shares of Avondale  
Incorporated's Class A Common Stock are reserved for issuance. Under the plan,  
each director will automatically be granted annually, on the fifth day following
the annual shareholders meeting, a fully vested option to purchase 2,000 shares 
of Class A Common Stock, at an option price equal to the fair market value of   
such stock on the date the option is granted. Options granted are exercisable   
for a period of ten years, subject to certain limitations. During fiscal 2000,  
12,000 non-qualified options were granted. During fiscal 2001 and 2002, 14,000  
non-qualified options were granted in each respective year. At August 30, 2002, 
36,000 non-qualified options remained available for grant.                      

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EXECUTIVE COMPENSATION                                                          

Summary Compensation Table. The table below sets forth certain
information concerning the compensation earned during fiscal 2002, 2001 and 2000
by Avondale Incorporated's Chief Executive Officer and its four other most      
highly compensated executive officers (collectively, the "named executive       
officers").                                                                     

SUMMARY COMPENSATION TABLE

                                                        [Enlarge/Download Table]

                                                             ANNUAL COMPENSATION(1)                    
                                                             ----------------------                    
                                                  FISCAL                                  ALL OTHER    
NAME AND PRINCIPAL POSITION                        YEAR   SALARY($)   BONUS($)(2)    COMPENSATION($)(3)
---------------------------                        ----   ---------   -----------    ------------------
                                                                                                       
G. Stephen Felker...........................       2002    800,016       400,000             1,578     
  Chairman of the Board, President and Chief       2001    800,016            --             2,983     
  Executive Officer                                2000    800,016     1,015,359             7,230     

Jack R. Altherr, Jr.........................       2002    355,008       100,000             5,760     
  Vice Chairman and Chief Financial Officer        2001    353,340            --             7,577     
                                                   2000    342,500       236,327             9,898     

T. Wayne Spraggins..........................       2002    296,016        75,000            11,050     
  Vice President and President,  Manufacturing     2001    294,680            --            15,875     
  Operations                                       2000    285,836       190,664            15,030     

Keith M. Hull...............................       2002    298,032        75,000             4,115     
  Vice  President and  President,  Marketing and   2001    296,360            --             5,380     
  Sales                                            2000    285,836       195,919             8,401     

Craig S. Crockard...........................       2002    134,520        25,000             3,915     
  Vice President,  Planning and Development        2001    133,768            --             4,800     
                                                   2000    129,176        53,806             7,188     

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

(1)      The aggregate amount of perquisites and other personal benefits, if    
      any, did not exceed the lesser of $50,000 or 10% of the total annual
    salary and bonus reported for each named executive officer and has
therefore been omitted.                                       

(2)      Amounts shown include cash bonuses earned under our management         
      incentive plan, payments received in our distribution of cash profit
         sharing to all of our eligible associates, payments received in lieu of
         profit sharing contributions under the our Associate Profit Sharing and
      Savings Plan on compensation in excess of qualified plan limits, and
   such other payments as the Compensation Committee of the Board of
        Directors elects to make based upon our performance and each officer's
performance.                                                  

(3)      Amounts shown reflect for fiscal 2000, (i) matching 401(k)             
      contributions made by us to the Associate Profit Sharing and Savings
    Plan of $1,275 on behalf of Messrs. Felker, Altherr, Spraggins and
       Hull, respectively, and $1,002 on behalf of Mr. Crockard, (ii) profit
      sharing contributions made by us to the Associate Profit Sharing and
        Savings Plan of $4,617 on behalf of Messrs. Felker, Altherr, Spraggins
        and Hull, respectively, and $3,590 on behalf of Mr. Crockard and (iii)
       life insurance premiums of $4,006, $9,138, $2,509, and $2,596 paid by
us on behalf of Messrs. Altherr, Spraggins, Hull and Crockard,
         respectively, and taxable income of $1,339 to Mr. Felker in conjunction
     with a split dollar insurance agreement. Amounts shown reflect, for
  fiscal 2001, (i) matching 401(k) contributions made by us to the
  Associate Profit Sharing and Savings Plan of $1,275 on behalf of
        Messrs. Felker, Altherr, Spraggins and Hull respectively and $1,003 on
     behalf of Mr. Crockard, and (ii) life insurance premiums of $6,302,
      $14,600, $4,105, and $3,797 paid by us on behalf of Messrs. Altherr,
Spraggins, Hull and Crockard,                                 

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         respectively, and taxable income of $1,708 to Mr. Felker in conjunction
     with a split dollar insurance agreement. Amounts shown reflect, for
  fiscal 2002, (i) matching 401(k) contributions made by us to the
  Associate Profit Sharing and Savings Plan of $1,500 on behalf of
       Messrs. Felker and Altherr and $1,398, $1,397 and $1,009 on behalf of
  Messrs. Spraggins, Hull and Crockard, respectively and (ii) life
 insurance premiums of $4,260, $9,662, $2,718 and $2,906 paid by
         Avondale Incorporated on behalf of Messrs. Altherr, Spraggins, Hull and
    Crockard, respectively, and taxable income of $78 to Mr. Felker in
conjunction with a split dollar insurance agreement.          

       Option Grants Table. Avondale Mills and Avondale Incorporated did not
grant any options to any of the named executive officers during fiscal 2002.    

Aggregated Options Table. The table below sets forth certain  
information with respect to options held at the end of fiscal 2002 by each named
executive officer.                                                              

 FISCAL YEAR END OPTION VALUES TABLE

                                                                [Download Table]

                                           NUMBER OF                       
                                       SHARES UNDERLYING      VALUE OF     
                                          UNEXERCISED       UNEXERCISED    
                                          OPTIONS AT        OPTIONS AT     
                                        FISCAL YEAR END   FISCAL YEAR END  
                                          EXERCISABLE/      EXERCISABLE/   
                                         UNEXERCISABLE     UNEXERCISABLE(1)
                                       -----------------  -----------------
                                                                           
G. Stephen Felker.....................    265,000/   -     $ 780,000/ $ -  
Jack R. Altherr, Jr...................    125,000/   -       325,000/   -  
T. Wayne Spraggins....................     45,000/   -        65,000/   -  
Keith M. Hull.........................     71,001/   -       149,503/   -  
Craig S. Crockard.....................     4,000/6,000             -/   -  

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

(1)      All options are options to purchase Class A Common Stock of Avondale   
         Incorporated. There is no existing public market for the Class A Common
        Stock. The values shown are based on management's estimate of the fair
         market value of the Class A Common Stock at August 30, 2002. No options
have been granted to purchase shares of Avondale Mills, Inc.  

Long-term Incentive Plans. The table below sets forth certain 
information with respect to phantom units held at the end of fiscal 2002 by each
named executive officer. No phantom units were awarded during fiscal 2002.      

LONG-TERM INCENTIVE PLANS -- UNITS HELD AT AUGUST 30, 2002

                                                        [Enlarge/Download Table]

                                             AGGREGATE                       ESTIMATED FUTURE  
                                           PHANTOM UNITS   PERIOD UNTIL      PAYOUTS FOR ALL   
NAME                                          HELD(1)     PAYOUT (YEARS)  PHANTOM UNITS HELD(2)
----                                       -------------  --------------  ---------------------
                                                                                               
G. Stephen Felker.........................      150             14              $ 1,049,330    
Jack R. Altherr, Jr.......................       90             12                  629,598    
T. Wayne Spraggins........................       50              -                  349,777    
Keith M. Hull.............................       90             15                  629,598    
Craig S. Crockard.........................        -              -                        -    

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

(1)      Each phantom unit equals 398.606 phantom shares. The value of each     
    phantom share is equal to the result obtained by dividing (i) five
times Avondale Incorporated's earnings before depreciation,   
amortization,                                                 

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         LIFO inventory adjustments, interest and income taxes for the 10 fiscal
    quarters immediately preceding such date divided by 2.5, plus (ii)
     certain "balance sheet adjustments" by the sum of (i) the aggregate
        number of outstanding phantom shares plus (ii) the aggregate number of
        outstanding shares of Class A Common Stock and Class B Common Stock of
      Avondale Incorporated. Phantom units vest at the rate of 5% per year
       for each full and uninterrupted year that the named executive officer
      remains employed by Avondale Incorporated after August 31, 1989, and
         vest fully if the named executive officer dies before his employment is
       terminated. The value of vested phantom units is payable beginning on
        the later of the date on which the named executive officer reaches the
       age of 65 or the date on which the employment of such named executive
    officer terminates (the "normal payment date"), in 10 equal annual
      installments, with interest equal to the one-year U.S. Treasury Bill
   rate in effect on the normal payment date. If the named executive
    officer dies before his employment is terminated, the value of his
     phantom units on the date of death is payable to his beneficiary as
       described above. If the named executive officer dies after his normal
payment date, the present value of the balance of the annual  
   installments is payable in a lump sum to his beneficiary. A named
        executive officer will forfeit all interest in his Phantom Stock Units
      (whether or not vested) if he violates certain non-compete covenants
       applicable during such named executive officer's employment and for a
period of five years after termination of such employment.    

 (2)    There are no threshold, target or maximum amounts payable with respect
         to phantom unit awards made by Avondale Incorporated. The amounts shown
 reflect the future value, excluding interest payable during the
    installment payment period, as of September 1, 2002, of vested and
      non-vested phantom units held at the end of fiscal 2002 based on the
   results of Avondale Incorporated for the 10 fiscal quarters ended
August 30, 2002.                                              

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION                     

        The members of the Compensation Committee of Avondale Incorporated are
Messrs. Boden, Callaway, Calhoun and Stevens. None of the members of the        
Compensation Committee have ever been an officer or employee of Avondale        
Incorporated or Avondale Mills, Inc. In addition, none of Avondale              
Incorporated's executive officers serves as a member of a Compensation Committee
of a Board of Directors of any entity that has one or more executive officers   
who serves on the Avondale Incorporated's Compensation Committee. As discussed  
below under the caption Certain Relationships and Related Party Transactions,   
Mr. Callaway, is president of Calgati Chemical Company, Ltd. During fiscal 2002,
the Avondale Incorporated purchased specialty chemicals from Calgati Chemical   
Company, Ltd. in the aggregate amount of approximately $1,080,000.              

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

  Kenneth H. Callaway, a director, is president of Calgati Chemical Company,
Ltd. During fiscal 2002, we purchased specialty chemicals from Calgati Chemical 
Company, Ltd. in the aggregate amount of approximately $1,080,000.              

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PRINCIPAL SHAREHOLDERS

All of the capital stock of Avondale Mills, Inc. is owned by Avondale 
Incorporated. The table below sets forth certain information regarding the      
beneficial ownership of the Common Stock of Avondale Incorporated as of July 31,
2003, by (i) each person who is known to Avondale Incorporated to be the        
beneficial owner of more than 5% of the outstanding Class A Common Stock or     
Class B Common Stock, (ii) each of the named executive officers, (iii) each of  
the directors of Avondale Incorporated and (iv) all directors and executive     
officers of Avondale Incorporated as a group. Except as set forth below, the    
shareholders named below have sole voting and investment power with respect to  
all shares of Common Stock shown as being beneficially owned by them.           

                                                        [Enlarge/Download Table]

                                             BENEFICIAL OWNERSHIP    BENEFICIAL OWNERSHIP               
                                                  OF CLASS A              OF CLASS B         PERCENTAGE 
                                                 COMMON STOCK            COMMON STOCK            OF     
                                              NUMBER     PERCENT     NUMBER       PERCENT     COMBINED  
NAME OF BENEFICIAL OWNER(1)                 OF SHARES    OF CLASS  OF SHARES      OF CLASS  VOTING POWER
---------------------------                 ---------    --------  ---------      --------  ------------
                                                                                                        
G. Stephen Felker(2)....................... 4,338,989      34.3%     978,939        100%        73.4%   
Jack R. Altherr, Jr.(3)....................   232,199       2.0%          --         --             *   
T. Wayne Spraggins(4)......................   115,000          *          --         --             *   
Keith M. Hull (5)..........................   121,001          *          --         --             *   
Craig S. Crockard (6)......................    14,077          *          --         --             *   
Dale J. Boden(7)...........................   117,500          *          --         --             *   
Kenneth H. Callaway(8).....................    22,000          *          --         --             *   
Robert B. Calhoun(9)(10)(11)............... 2,312,823      20.3%          --         --          7.5%   
Harry C. Howard(12)........................    57,000                     --         --             *   
C. Linden Longino, Jr.(13).................    37,250          *          --         --             *   
James A. Rubright (14).....................    10,500          *          --         --             *   
John P. Stevens(15)........................   115,000          *          --         --             *   
The Clipper Group(10)(16).................. 2,277,523      20.0%          --         --          7.4%   
Grayward Company(17)....................... 3,497,740      30.7%          --         --         11.3%   
Felker Investments, Ltd.(18)............... 2,093,750      18.4%          --         --          6.8%   
Avondale Mills, Inc. Associate Profit                                                                   
  Sharing and Savings Plan(19).............   450,000       3.9%          --         --          1.5%   
All directors and executive officers                                                                    
  As a group (16 persons).................. 7,524,339      57.9%     978,939        100%        82.7%   

----------------------                                        
*  Less than 1%                                               

(1)      Except as otherwise noted, the address of each person who is an officer
         or a director of Avondale Incorporated is c/o Avondale Mills, Inc., 506
South Broad Street, Monroe, Georgia 30655.                    

(2)      Includes (i) 2,093,750 shares of Class A Common Stock held of record by
    Felker Investments, Ltd., a partnership of which Mr. Felker is the
  general partner (as the general partner, Mr. Felker is deemed to
        beneficially own such shares under Rule 13d-3 under the Exchange Act),
         (ii) 978,939 shares of Class A Common Stock issuable upon conversion of
      the 978,939 shares of Class B Common Stock beneficially owned by Mr.
    Felker, (iii) 265,000 shares of Class A Common Stock issuable upon
   exercise of stock options beneficially owned by Mr. Felker, which
     shares are deemed beneficially owned by Mr. Felker under Rule 13d-3
        under the Exchange Act, and (iv) 100 shares owned by Mr. Felker's son,
  for which Mr. Felker shares neither voting nor investment power.

(3)      Includes 125,000 shares of Class A Common Stock issuable upon exercise 
      of stock options beneficially owned by Mr. Altherr, which shares are
     deemed beneficially owned by Mr. Altherr under Rule 13d-3 under the
Exchange Act.                                                 

(4)      Includes 45,000 shares of Class A Common Stock issuable upon exercise  
        of stock options beneficially owned by Mr. Spraggins, which shares are
       deemed beneficially owned by Mr. Spraggins under Rule 13d-3 under the
Exchange Act.                                                 

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(5)      Includes 71,001 shares of Class A Common Stock issuable upon exercise  
   of stock options beneficially owned by Mr. Hull, which shares are
  deemed beneficially owned by Mr. Hull under Rule 13d-3 under the
Exchange Act.                                                 

(6)      Includes 6,000 shares of Class A Common Stock issuable upon exercise of
    stock options beneficially owned by Mr. Crockard, which shares are
       deemed beneficially owned by Mr. Crockard under Rules 13d-3 under the
Exchange Act.                                                 

(7)      Reflects (i) 12,000 shares of Class A Common Stock issuable upon       
         exercise of stock options beneficially owned by Mr. Boden, which shares
       are deemed beneficially owned by Mr. Boden under Rule 13d-3 under the
       Exchange Act, (ii) 6,333 shares beneficially owned by Textile Capital
Partners with respect to which Mr. Boden has shared voting and
    investment power, (iii) 8,500 shares beneficially owned by Textile
       Capital Partners II with respect to which Mr. Boden has shared voting
    and investment power, (iv) 90,000 shares beneficially owned by The
         Sterling Trust; Hilliard Lyons Trust Co. Trustee, with respect to which
        Mr. Boden is a beneficiary and has shared voting and investment power,
   and (v) 667 shares owned by Mr. Boden's wife, for which Mr. Boden
       shares neither voting nor investment power. Mr. Boden is the majority
      shareholder of Textile Capital Partners and Textile Capital Partners
       II, and, consequently, is deemed to beneficially own under Rule 13d-3
      under the Exchange Act all of the shares beneficially owned by these
entities.                                                     

(8)      Includes 12,000 shares of Class A Common Stock issuable upon exercise  
       of stock options beneficially owned by Mr. Callaway, which shares are
      deemed beneficially owned by Mr. Callaway under Rule 13d-3 under the
Exchange Act.                                                 

(9)      The address of Mr. Calhoun is c/o Clipper Capital Partners, LP, 650    
Madison Avenue, 9th Floor, New York, New York 10022.          

(10)     Includes (i) 12,000 shares of Class A Common Stock issuable upon       
    exercise of stock options beneficially owned by Mr. Calhoun, which
      shares are deemed beneficially owned by Mr. Calhoun under Rule 13d-3
       under the Exchange Act, and (ii) shares beneficially owned by Clipper
    Capital Associates, L.P. ("CCA"), Clipper/Merchant Partners, L.P.,
  Clipper Equity Partners I, L.P., Clipper/Merban L.P. ("Merban"),
    Clipper/European Re, L.P. and CS First Boston Merchant Investments
       1995/96, L.P. ("Merchant"), (whose address is 650 Madison Avenue, 9th
Floor, New York, New York 10022).                             

(11)     CCA is the general partner of all of the Clipper Group partnerships    
    other than Merchant. The general partner of CCA is Clipper Capital
         Associates, Inc. ("CCI"), and Mr. Calhoun is the sole stockholder and a
        director of CCI. Clipper, an affiliate of Mr. Calhoun, has sole voting
         and investment power with respect to the shares of Class A Common Stock
       beneficially owned by Merchant. As a result, each of Mr. Calhoun, CCA
    and CCI is deemed to beneficially own all shares of Class A Common
      Stock beneficially owned by the Clipper Group (other than Merchant),
     and Mr. Calhoun is deemed to beneficially own the shares of Class A
     Common Stock beneficially owned by Merchant. It is anticipated that
Merban will beneficially own shares of Class A Common Stock   
   representing approximately 5.9% of the outstanding Class A Common
   Stock, and Clipper/Merchant Partners, L.P., will beneficially own
       shares of Class A Common Stock representing approximately 5.0% of the
    outstanding Class A Common Stock. Each of the other members of the
       Clipper Group will beneficially own less than 5.0% of the outstanding
Class A Common Stock.                                         

(12)     Includes 12,000 shares of Class A Common Stock issuable upon exercise  
     of stock options beneficially owned by Mr. Howard, which shares are
    deemed beneficially owned by Mr. Howard under Rule 13d-3 under the
Exchange Act.                                                 

(13)     Includes (i) 12,000 shares of Class A Common Stock issuable upon       
    exercise of stock options beneficially owned by Mr. Longino, which
      shares are deemed beneficially owned by Mr. Longino under Rule 13d-3
under the Exchange Act.                                       

(14)     Includes 6,000 shares of Class A Common Stock issuable upon exercise of
    stock options beneficially owned by Mr. Rubright, which shares are
       deemed beneficially owned by Mr. Rubright under Rules 13d-3 under the
Exchange Act.                                                 

(15)     Includes (i) 13,000 shares beneficially owned by Mr. Stevens' spouse,  
       for which Mr. Stevens shares neither voting nor investment power, and
      (ii) 12,000 shares of Class A Common Stock issuable upon exercise of
   stock options beneficially owned by Mr. Stevens, which shares are
     deemed beneficially owned by Mr. Stevens under Rule 13d-3 under the
Exchange Act.                                                 

(16)     Merchant Capital, Inc. ("Merchant Capital"), an affiliate of CS First  
    Boston Corporation, is the general partner of Merchant and the 99%
   limited partner of Clipper/Merchant Partners, L.P. CS Holding, an

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       affiliate of CS First Boston Corporation, is the indirect 99% limited
        partner of Merban. None of Merchant, Merchant Capital, CS First Boston
Corporation and CS Holding is an affiliate of Clipper or CCA. 

(17)     Grayward Company's address is c/o SunTrust Bank, Nashville, N.A., P.O. 
        Box 305110, Nashville, Tennessee 37230. Grayward Company is a trust of
     which SunTrust Bank, Nashville, N.A. serves as trustee. As trustee,
         SunTrust Bank, Nashville, N.A. is deemed to beneficially own under Rule
      13d-3 under the Exchange Act all of the shares beneficially owned by
Grayward Company.                                             

(18)     The address of Felker Investments, Ltd. is c/o G. Stephen Felker, 506  
South Broad Street, Monroe, Georgia 30655.                    

(19)     These shares are held by the trustee, Scudder Trust Company, P.O. Box  
         957, Salem, New Hampshire 03079, for the benefit of participants in the
     Avondale Mills, Inc. Associate Profit Sharing and Savings Plan (the
      "Plan"). Avondale Incorporated is the administrator of the trust and
       its Chairman and Chief Executive Officer votes the shares held by the
trust on behalf of Avondale Incorporated.                     

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THE EXCHANGE OFFER

PURPOSE AND EFFECT OF THE EXCHANGE OFFER                                        

   We sold the old notes on June 30, 2003, pursuant to a purchase agreement,
dated as of June 25, 2003, between us and Wachovia Securities, LLC, who we refer
to in this prospectus as the initial purchaser. The initial purchaser           
subsequently sold the old notes to "qualified institutional buyers," as defined 
in Rule 144A under the Securities Act, in reliance on Rule 144A and to non-U.S. 
persons located outside the U.S. under Regulation S under the Securities Act.   

 As a condition to the initial sale of the old notes, we and the initial
purchaser entered into a registration rights agreement dated as of June 30,     
2003. Pursuant to the registration rights agreement, we agreed to:              

    -   file a registration statement under the Securities Act with respect to
the new notes with the SEC by September 28, 2003;             

    -   use our reasonable best efforts to cause the registration statement to
     become effective under the Securities Act on or before December 17,
2003; and                                                     

    -   use our reasonable best efforts to keep the exchange offer open for at
       least 20 business days after the date notice thereof is mailed to the
        holders of the old notes (or longer if required by applicable law) and
 to consummate the exchange offer on or before January 16, 2004.

 We agreed to issue and exchange the new notes for all old notes validly
tendered and not validly withdrawn before the expiration of the exchange offer. 
We are sending this prospectus, together with the letter of transmittal, to all 
the beneficial holders known to us. For each old note validly tendered to us    
pursuant to the exchange offer and not validly withdrawn, the holder will       
receive a new note having a principal amount equal to that of the tendered old  
note. A copy of the registration rights agreement has been filed as an exhibit  
to the registration statement which includes this prospectus. The registration  
statement is intended to satisfy some of our obligations under the registration 
rights agreement.                                                               

  The term "holder" with respect to the exchange offer means any person in
whose name old notes are registered on the trustee's books or any other person  
who has obtained a properly completed bond power from the registered holder, or 
any person whose old notes are held of record by The Depository Trust Company,  
which we refer to as the Depositary or DTC, who desires to deliver the old note 
by book-entry transfer at DTC.                                                  

RESALE OF THE NEW NOTES                                                         

   We believe that you will be allowed to resell the new notes to the public
without registration under the Securities Act, and without delivering a         
prospectus that satisfies the requirements of Section 10 of the Securities Act, 
if you can make the representations set forth below under "--Procedures for     
Tendering Old Notes." However, if you intend to participate in a distribution   
of the new notes, are a broker-dealer that acquired the old notes from us in    
the initial offering with an intent to distribute those notes and not as a      
result of market-making activities or are an "affiliate" of us as defined in    
Rule 405 of the Securities Act, you will not be eligible to participate in the  
exchange offer and you must comply with the registration and prospectus         
delivery requirements of the Securities Act in connection with the resale of    
your notes.                                                                     

  We base our view on interpretations by the staff of the SEC in no-action
letters issued to other issuers in exchange offers similar to ours. However, we 
have not asked the SEC to consider this particular exchange offer in the context
of a no-action letter. Therefore, you cannot be sure that the SEC will treat it 
in the same way it has treated other exchange offers in the past.               

     A broker-dealer that has acquired old notes as a result of market-making or
other trading activities has to deliver a prospectus in order to resell any new 
notes it receives for its own account in the exchange offer. This prospectus may
be used by such broker-dealer to resell any of its new notes. We have agreed in 
the registration rights agreement to send this prospectus to any broker-dealer  
that requests copies for a period of up to 180 days after                       

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the consummation of the exchange offer, or for such longer period as provided by
the registration rights agreement. See "Plan of Distribution" for more          
information regarding broker-dealers.                                           

 The exchange offer is not being made to, nor will we accept tenders for
exchange from, holders of old notes in any jurisdiction in which this exchange  
offer or the acceptance of the exchange offer would not be in compliance with   
the securities or blue sky laws.                                                

The exchange offer is not subject to any federal or state regulatory  
requirements other than securities laws.                                        

TERMS OF THE EXCHANGE OFFER                                                     

     General. Based on the terms and conditions set forth in this prospectus and
in the letter of transmittal, we will accept any and all old notes validly      
tendered and not validly withdrawn on or before the expiration date.            

    Subject to the minimum denomination requirements of the new notes, we will
issue $1,000 principal amount of new notes in exchange for each $1,000 principal
amount of outstanding old notes validly tendered pursuant to the exchange offer 
and not validly withdrawn on or before the expiration date. Holders may tender  
some or all of their old notes pursuant to the exchange offer. However, old     
notes may be tendered only in amounts that are integral multiples of $1,000     
principal amount.                                                               

   The form and terms of the new notes are the same as the form and terms of
the old notes except that:                                                      

-   the new notes will be registered under the Securities Act and,    
         therefore, the new notes will not bear legends restricting the transfer
of the new notes; and                                         

  -   holders of the new notes will not be entitled to any of the exchange
        offer provisions under the registration rights agreement, which rights
       will terminate upon the consummation of the exchange offer, or to the
      additional interest provisions of the registration rights agreement.

     The new notes of a particular series will evidence the same indebtedness as
the old notes, and will be issued under, and be entitled to the benefits of, the
same indenture that governs the old notes. As a result, both the new notes and  
the old notes will be treated as a single series of debt securities under the   
indenture. The exchange offer does not depend on any minimum aggregate principal
amount of old notes being tendered for exchange.                                

As of the date of this prospectus, $150,000,000 in aggregate principal
amount of the old notes is outstanding, all of which is registered in the name  
of Cede & Co., as nominee for DTC. Solely for reasons of administration, we have
fixed the close of business on September 8, 2003 as the record date for the     
exchange offer for purposes of determining the persons to whom we will initially
mail this prospectus and the letter of transmittal. There will be no fixed      
record date for determining holders of the old notes entitled to participate in 
this exchange offer and all holders of old notes may tender their old notes.    

As a holder of old notes, you do not have any appraisal or dissenters'
rights or any other right to seek monetary damages in court under the Alabama   
Business Corporation Act or the indenture governing the notes as a result of    
the exchange offer. We intend to conduct the exchange offer in accordance with  
the provisions of the registration rights agreement and the applicable          
requirements of the Securities Exchange Act of 1934, as amended, which we refer 
to as the Exchange Act, and the related rules and regulations of the SEC. Old   
notes that are not tendered for exchange in the exchange offer will remain      
outstanding and interest on these notes will continue to accrue at a rate equal 
to 10 1/4% per year.                                                            

   We will be deemed to have accepted validly tendered old notes if and when
we give oral or written notice of our acceptance to Wachovia Bank, National     
Association, which is acting as the exchange agent. The exchange agent will act 
as agent for the tendering holders of old notes for the purpose of receiving the
new notes from us.                                                              

If you validly tender old notes in the exchange offer, you will not be
required to pay brokerage commissions or fees. In addition, subject to the      
instructions in the letter of transmittal, you will not have to pay transfer    
taxes for the exchange of old notes. We will pay all charges and expenses in    
connection with the exchange offer, other than certain applicable taxes         
described under "--Fees and Expenses."                                          

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EXPIRATION DATE; EXTENSIONS; AMENDMENTS                                         

   The "expiration date" means 5:00 p.m., New York City time, on October 21,
2003, unless we extend the exchange offer, in which case the expiration date    
is the latest date and time to which we extend the exchange offer. We do not    
currently intend to extend the exchange offer. However, if we elect to extend   
the exchange offer on one or more occasions, we will not extend the exchange    
offer for more than an aggregate of 30 days.                                    

In order to extend the exchange offer, we will:                       

-   notify the exchange agent of any extension by oral or written     
communication; and                                            

   -   issue a press release or other public announcement, which will report
     the approximate number of old notes tendered, before 9:00 a.m., New
         York City time, on the next business day after the previously scheduled
expiration date.                                              

During any extension of the exchange offer, all old notes previously  
validly tendered and not validly withdrawn will remain subject to the exchange  
offer.                                                                          

We reserve the right:                                                 

-   to delay accepting any old notes;                                 

-   to amend the terms of the exchange offer in compliance with the   
provisions of the Exchange Act;                               

-   to extend the exchange offer; or                                  

 -   if, in the opinion of our counsel, the consummation of the exchange
        offer would violate any law or interpretation of the staff of the SEC,
    to terminate or amend the exchange offer by giving oral or written
notice to the exchange agent.                                 

Any delay in acceptance, extension, termination, or amendment will be 
followed as soon as practicable by a press release or other public announcement.
If we amend the exchange offer in a manner that we determine constitutes a      
material change, we will promptly disclose that amendment by means of a         
prospectus supplement that will be distributed to the registered holders of the 
old notes, and we will extend the exchange offer for a period of time that we   
will determine in compliance with the Exchange Act, depending upon the          
significance of the amendment and the manner of disclosure to the registered    
holders, if the exchange offer would have otherwise expired.                    

     In all cases, issuance of the new notes for old notes that are accepted for
exchange will be made only after timely receipt by the exchange agent of a      
properly completed and duly executed letter of transmittal or a book-entry      
confirmation with an agent's message, in each case, with all other required     
documents. However, we reserve the right to waive any conditions of the exchange
offer which we, in our reasonable discretion, determine are not satisfied or any
defects or irregularities in the tender of old notes. If we do not accept any   
tendered old notes for any reason set forth in the terms and conditions of the  
exchange offer or if you submit old notes for a greater principal amount than   
you want to exchange, we will return the unaccepted or non-exchanged old notes  
to you, or substitute old notes evidencing the unaccepted or non-exchanged      
portion, as appropriate. See "--Return of Old Notes." We will deliver new notes 
issued in exchange for old notes validly tendered and accepted for exchange, and
we will return any old notes not accepted for exchange for any reason, to the   
applicable tendering holder promptly.                                           

PROCEDURES FOR TENDERING OLD NOTES                                              

If you wish to tender old notes you must:                             

-   complete and sign the letter of transmittal or send a timely      
    confirmation of a book-entry transfer of old notes to the exchange
agent;                                                        

     -   have the signatures on the letter of transmittal guaranteed if required
by the letter of transmittal; and                             

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 -   mail or deliver the required documents to the exchange agent at its
         address set forth in the letter of transmittal for receipt on or before
the expiration date.                                          

In addition, either:                                                  

     -   certificates for old notes must be received by the exchange agent along
with the letter of transmittal;                               

  -   a timely confirmation of a book-entry transfer of old notes into the
exchange agent's account at DTC, pursuant to the procedure for
       book-entry transfer described below, must be received by the exchange
agent on or before the expiration date; or                    

     -   you must comply with the procedures described below under "--Guaranteed
Delivery Procedures."                                         

  If you do not validly withdraw your tender of old notes on or before the
expiration date, it will indicate an agreement between you and our company that 
you have agreed to tender the old notes, in accordance with the terms and       
conditions in the letter of transmittal.                                        

 THE METHOD OF DELIVERY OF OLD NOTES, THE LETTER OF TRANSMITTAL, AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT YOUR ELECTION AND RISK.    
INSTEAD OF DELIVERY BY MAIL, WE RECOMMEND THAT YOU USE AN OVERNIGHT OR HAND     
DELIVERY SERVICE, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED. IN ALL CASES,
YOU SHOULD ALLOW SUFFICIENT TIME TO ASSURE DELIVERY TO THE EXCHANGE AGENT ON OR 
BEFORE THE EXPIRATION DATE. DO NOT SEND ANY LETTER OF TRANSMITTAL OR OLD NOTES  
TO US. YOU MAY REQUEST THAT YOUR BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY,
OR OTHER NOMINEE EFFECT DELIVERY OF YOUR OLD NOTES FOR YOU.                     

    If you beneficially own the old notes and you hold those old notes through
a broker, dealer, commercial bank, trust company, or other nominee and you want 
to tender your old notes, you should contact that nominee promptly and instruct 
it to tender your old notes on your behalf.                                     

     Generally, an eligible institution must guarantee signatures on a letter of
transmittal unless:                                                             

     -   you tender your old notes as the registered holder (a registered holder
       means any participant in DTC whose name appears on a security listing
     as the owner of old notes) and the new notes issued in exchange for
      your old notes are to be issued in your name and delivered to you at
        your registered address appearing on the security register for the old
notes; or                                                     

   -   you tender your old notes for the account of an eligible institution.

An "eligible institution" means:                                      

  -   a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc.;             

     -   a commercial bank or trust company having an office or correspondent in
the United States; or                                         

  -   an "eligible guarantor institution" as defined by Rule 17Ad-15 under
the Exchange Act.                                             

In each instance, the eligible institution must be a member of one of the       
signature guarantee programs identified in the letter of transmittal in order to
guarantee signatures on a letter of transmittal.                                

     If the new notes or unexchanged old notes are to be delivered to an address
other than that of the registered holder appearing on the security register for 
the old notes, an eligible institution must guarantee the signature on the      
letter of transmittal.                                                          

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Tendered old notes will be deemed to have been received as of the date
when:                                                                           

   -   the exchange agent receives a properly completed and signed letter of
        transmittal accompanied by the tendered old notes or a confirmation of
         book-entry transfer of such old notes into the exchange agent's account
at DTC with an agent's message; or                            

 -   the exchange agent receives a notice of guaranteed delivery from an
eligible institution.                                         

 Issuances of new notes in exchange for old notes tendered pursuant to a
notice of guaranteed delivery or letter to similar effect by an eligible        
institution will be made only against submission of a duly signed letter of     
transmittal, and any other required documents, and deposit of the tendered old  
notes, or confirmation of a book-entry transfer of such old notes into the      
exchange agent's account at DTC pursuant to the book-entry procedures described 
below.                                                                          

  We will make the final determination regarding all questions relating to
the validity, form, eligibility, including time of receipt of tenders and       
withdrawals of tendered old notes, and our determination will be final and      
binding on all parties.                                                         

  We reserve the absolute right to reject any and all old notes improperly
tendered. We will not accept any old notes if our acceptance of them would, in  
the opinion of our counsel, be unlawful. We also reserve the absolute right to  
waive any defects, irregularities, or conditions of tender as to any particular 
old note. Our interpretation of the terms and conditions of the exchange offer, 
including the instructions in the letter of transmittal, will be final and      
binding on all parties. Unless waived, you must cure any defects or             
irregularities in connection with tenders of old notes on or before the         
expiration date. Although we intend to notify holders of defects or             
irregularities in connection with tenders of old notes, neither we, the exchange
agent, nor anyone else will incur any liability for failure to give that notice.
Tenders of old notes will not be deemed to have been made until any defects or  
irregularities have been cured or waived. All conditions of the exchange offer  
will be satisfied or waived prior to the expiration of the exchange offer. We   
will not waive any condition of the exchange offer with respect to any          
noteholder unless we waive such condition for all noteholders.                  

    We have no current plan to acquire, or to file a registration statement to
permit resales of any old notes that are not validly tendered pursuant to the   
exchange offer. However, we reserve the right in our sole discretion to purchase
or make offers for any old notes that remain outstanding after the expiration   
date. To the extent permitted by law, we also reserve the right to purchase old 
notes in the open market, in privately negotiated transactions, or otherwise.   
The terms of any future purchases or offers could differ from the terms of the  
exchange offer.                                                                 

    Pursuant to the letter of transmittal, if you elect to tender old notes in
exchange for new notes, you must exchange, assign, and transfer the old notes to
us and irrevocably constitute and appoint the exchange agent as your true and   
lawful agent and attorney-in-fact with respect to the tendered old notes, with  
full power of substitution, among other things, to cause the old notes to be    
assigned, transferred, and exchanged. By executing the letter of transmittal,   
you make the representations and warranties set forth below to us. By executing 
the letter of transmittal you also promise, on our request, to execute and      
deliver any additional documents that we consider necessary to complete the     
exchange of old notes for new notes as described in the letter of transmittal.  

  Under existing interpretations of the SEC contained in several no-action
letters to third parties, we believe that the new notes will be freely          
transferable by the holders after the exchange offer without further            
registration under the Securities Act; provided, however, that each holder who  
wishes to exchange its old notes for new notes will be required to represent:   

-   that the holder has full power and authority to tender, exchange, 
assign, and transfer the old notes tendered;                  

   -   that we will acquire good title to the old notes being tendered, free
    and clear of all security interests, liens, restrictions, charges,
 encumbrances, conditional sale agreements, or other obligations
    relating to their sale or transfer, and not subject to any adverse
claim when we accept the old notes;                           

  -   that the holder is acquiring the new notes in the ordinary course of
your business;                                                

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-   that the holder is not participating in and does not intend to    
participate in a distribution of the new notes;               

    -   that the holder has no arrangement or understanding with any person to
participate in the distribution of the new notes;             

     -   that the holder is not an "affiliate," as defined in Rule 405 under the
Securities Act, of us; and                                    

     -   that if the holder is a broker-dealer and it will receive new notes for
        its own account in exchange for old notes that it acquired as a result
  of market-making activities or other trading activities, it will
      deliver a prospectus in connection with any resale of the new notes.

   If you cannot make any of these representations, you will not be eligible
to participate in the exchange offer, you should not rely on the interpretations
of the staff of the SEC in connection with the exchange offer and you must      
comply with the registration and prospectus delivery requirements of the        
Securities Act in connection with the resale of your notes.                     

    Participation in the exchange offer is voluntary. You are urged to consult
your financial and tax advisors in deciding whether to participate in the       
exchange offer.                                                                 

RETURN OF OLD NOTES                                                             

If any old notes are not accepted for any reason described in this    
prospectus, or if old notes are validly withdrawn or are submitted for a greater
principal amount than you want to exchange, the exchange agent will return the  
unaccepted, withdrawn, or non-exchanged old notes to you or, in the case of old 
notes tendered by book-entry transfer, into an account for your benefit at DTC, 
unless otherwise provided in the letter of transmittal. The old notes will be   
credited to an account maintained with DTC promptly.                            

BOOK ENTRY TRANSFER                                                             

     The exchange agent will make a request to establish an account with respect
to the old notes at DTC for purposes of the exchange offer within two business  
days after the date of this prospectus. Any financial institution that is a     
participant in DTC's system may make book-entry delivery of old notes by causing
DTC to transfer the old notes into the exchange agent's account at DTC in       
accordance with DTC's procedures for transfer. To validly tender notes through  
DTC, the financial institution that is a participant in DTC will electronically 
transmit its acceptance through the Automatic Transfer Offer Program. DTC will  
then edit and verify the acceptance and send an agent's message to the exchange 
agent for its acceptance. An agent's message is a message transmitted by DTC to 
the exchange agent stating that (1) DTC has received an express acknowledgment  
from the participant in DTC tendering the old notes that the participant has    
received, (2) the participant agrees to be bound by the terms of the letter of  
transmittal, and (3) we may enforce this agreement against the participant.     

A tender of old notes through a book-entry transfer into the exchange 
agent's account at DTC will only be effective if an agent's message or the      
letter of transmittal with any required signature guarantees and any other      
required documents are transmitted to and received by the exchange agent at its 
address set forth in the letter of transmittal for receipt on or before the     
expiration date unless the guaranteed delivery procedures described below are   
complied with. Delivery of documents to DTC does not constitute delivery to the 
exchange agent.                                                                 

GUARANTEED DELIVERY PROCEDURES                                                  

If you wish to tender your old notes and (1) your old notes are not   
immediately available so that you can meet the expiration date deadline, (2) you
cannot deliver your old notes or other required documents to the exchange agent 
on or before the expiration date, or (3) the procedure for book-entry transfer  
cannot be completed on or before the expiration date, you may nonetheless       
participate in the exchange offer if:                                           

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-   you tender your notes through an eligible institution;            

    -   on or before the expiration date, the exchange agent receives from the
       eligible institution a properly completed and duly executed notice of
       guaranteed delivery substantially in the form provided by us, by mail
   or hand delivery, showing the name and address of the holder, the
name(s) in which the old notes are registered, the certificate
        number(s) of the old notes, if applicable, and the principal amount of
       old notes tendered; the notice of guaranteed delivery must state that
   the tender is being made by the notice of guaranteed delivery and
      guaranteeing that, within three New York Stock Exchange trading days
         after the expiration date, the letter of transmittal, together with the
         certificate(s) representing the old notes, in proper form for transfer,
       or a book-entry confirmation with an agent's message, as the case may
         be, and any other required documents, will be delivered by the eligible
institution to the exchange agent; and                        

-   the properly executed letter of transmittal, as well as the       
        certificate(s) representing all tendered old notes, in proper form for
        transfer, or a book-entry confirmation with an agent's message, as the
case may be, and all other documents required by the letter of
      transmittal are received by the exchange agent within three New York
Stock Exchange trading days after the expiration date.        

   Unless old notes are tendered by the above-described method and deposited
with the exchange agent within the time period set forth above, we may, at our  
option, reject the tender. The exchange agent will send you a notice of         
guaranteed delivery upon your request if you want to tender your old notes      
according to the guaranteed delivery procedures described above.                

WITHDRAWAL OF TENDERS OF OLD NOTES                                              

You may withdraw your tender of old notes at any time on or before the
expiration date.                                                                

  To withdraw old notes tendered in the exchange offer, the exchange agent
must receive a written notice of withdrawal at its address set forth below on or
before the expiration date. Any notice of withdrawal must:                      

 -   specify the name of the person having deposited the old notes to be
withdrawn;                                                    

-   identify the old notes to be withdrawn, including the certificate 
   number or numbers, if applicable, and principal amount of the old
notes;                                                        

     -   contain a statement that the holder is withdrawing the election to have
the old notes exchanged;                                      

     -   be signed by the holder in the same manner as the original signature on
the letter of transmittal used to tender the old notes; and   

-   specify the name in which any old notes are to be registered, if  
    different from that of the registered holder of the old notes and,
   unless the old notes were tendered for the account of an eligible
 institution, the signatures on the notice of withdrawal must be
        guaranteed by an eligible institution. If old notes have been tendered
  pursuant to the procedure for book-entry transfer, any notice of
    withdrawal must specify the name and number of the account at DTC.

We will make the final determination on all questions regarding the   
validity, form, eligibility, including time of receipt of notices of withdrawal,
and our determination will be final and binding on all parties. Any old notes   
validly withdrawn will be deemed not to have been validly tendered for purposes 
of the exchange offer and no new notes will be issued in exchange unless the old
notes so withdrawn are validly tendered again. Properly withdrawn old notes may 
be tendered again by following one of the procedures described above under      
"--Procedures for Tendering Old Notes" at any time on or before the expiration  
date. Any old notes that are not accepted for exchange will be returned at no   
cost to the holder or, in the case of old notes tendered by book-entry transfer,
into an account for your benefit at DTC pursuant to the book-entry transfer     
procedures described above, as soon as practicable after withdrawal, rejection  
of tender or termination of the exchange offer.                                 

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ADDITIONAL OBLIGATIONS                                                          

We may be required, under certain circumstances, to file a shelf      
registration statement. See "Registration Rights." In any event, we are under a 
continuing obligation, for a period of up to 180 days after the consummation of 
the exchange offer, or such longer period as provided by the registration rights
agreement, to keep the registration statement of which this prospectus is a part
effective and to provide copies of the latest version of this prospectus to any 
broker-dealer that requests copies for use in a resale, subject to our ability  
to suspend the use of such prospectus under certain conditions as described in  
the registration rights agreement and as described below under "Registration    
Rights."                                                                        

CONDITIONS OF THE EXCHANGE OFFER                                                

   Notwithstanding any other term of the exchange offer, or any extension of
the exchange offer, we may terminate the exchange offer before acceptance of the
old notes if in our reasonable judgment:                                        

-   the exchange offer would violate applicable law or any applicable 
interpretation of the staff of the SEC; or                    

     -   any action or proceeding has been instituted or threatened in any court
        or by any governmental agency that might materially impair our ability
        to proceed with or complete the exchange offer or any material adverse
development has occurred, with respect to us; or              

    -   we have not obtained any governmental approval which we deem necessary
for the consummation of the exchange offer.                   

If we, in our reasonable discretion, determine that any of the above  
conditions is not satisfied, we may:                                            

     -   refuse to accept any old notes and return all tendered old notes to the
tendering holders;                                            

-   extend the exchange offer and retain all old notes tendered on or 
       before the expiration date, subject to the holders' right to withdraw
the tender of the old notes; or                               

-   waive any unsatisfied conditions regarding the exchange offer and 
         accept all properly tendered old notes that have not been withdrawn. If
     this waiver constitutes a material change to the exchange offer, we
       will promptly disclose the waiver by means of a prospectus supplement
      that will be distributed to the registered holders of the old notes,
         and we will extend the exchange offer for a period of time that we will
         determine, depending upon the significance of the waiver and the manner
      of disclosure to the registered holders, if the exchange offer would
have otherwise expired.                                       

   All conditions to the exchange offer will be satisfied or waived prior to
the expiration of the exchange offer. We will not waive any conditions of the   
exchange offer with respect to any noteholder unless we waive such condition    
for all noteholders.                                                            

If we fail to consummate the exchange offer or file, have declared    
effective or keep effective a shelf registration statement within time periods  
specified by the registration rights agreement, we may be required to pay       
additional interest in respect of the old notes. See "Registration Rights."     

EXCHANGE AGENT                                                                  

     We have appointed Wachovia Bank, National Association as exchange agent for
the exchange offer. Questions and requests for assistance, requests for         
additional copies of this prospectus or of the letter of transmittal and        
requests for notices of guaranteed delivery should be directed to the exchange  
agent at the following addresses:                                               

                                                        [Enlarge/Download Table]
                                                                                                  
        By Overnight Courier:              By Regular Mail or Hand:             By Facsimile:     
Wachovia Bank, National Association  Wachovia Bank, National Association        704-590-7628      
    Customer Information Center          Customer Information Center                              
     Corporate Trust Operations           Corporate Trust Operations      To Confirm by Telephone:
  1525 West W.T. Harris Blvd, 3C3      1525 West W.T. Harris Blvd, 3C3          704-590-7409      
        Charlotte, NC 28262                Charlotte, NC 28288-1153                               
                                          (if by mail, registered or                              
                                            certified recommended)                                

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FEES AND EXPENSES                                                               

     We will pay all expenses incurred in connection with the performance of our
obligations in the exchange offer, including registration fees, fees and        
expenses of the exchange agent, the transfer agent and registrar, and printing  
costs, among others.                                                            

We will also bear the expenses of soliciting tenders. The principal   
solicitation is being made by mail; however, additional solicitation may be made
by facsimile, telephone, or in person by our officers and regular employees or  
by officers and employees of our affiliates. No additional compensation will be 
paid to any officers and employees who engage in soliciting tenders.            

   We have not retained any dealer-manager or other soliciting agent for the
exchange offer and will not make any payments to brokers, dealers, or others    
soliciting acceptance of the exchange offer. We will, however, pay the exchange 
agent reasonable and customary fees for its services and will reimburse it for  
related, reasonable out-of-pocket expenses. We may also reimburse brokerage     
houses and other custodians, nominees and fiduciaries for reasonable            
out-of-pocket expenses they incur in forwarding copies of this prospectus, the  
letter of transmittal and related documents.                                    

   We will pay all transfer taxes, if any, applicable to the exchange of the
old notes. If, however, new notes, or old notes for principal amounts not       
tendered or accepted for exchange, are to be delivered to, or are to be issued  
in the name of, any person other than the registered holder of the old notes    
tendered, or if a transfer tax is imposed for any reason other than the         
exchange, then the amount of any transfer taxes will be payable by the person   
tendering the notes. If you do not submit satisfactory evidence of payment of   
those taxes or exemption from payment of those taxes with the letter of         
transmittal, the amount of those transfer taxes will be billed directly to you. 

CONSEQUENCES OF FAILURE TO EXCHANGE                                             

     Old notes that are not exchanged will remain "restricted securities" within
the meaning of Rule 144(a)(3) of the Securities Act. Accordingly, they may not  
be offered, sold, pledged or otherwise transferred except:                      

-   to us or to any of our subsidiaries;                              

-   inside the United States to a qualified institutional buyer in    
compliance with Rule 144A under the Securities Act;           

    -   inside the United States to an institutional accredited investor that,
before the transfer, furnishes to the trustee a signed letter 
   containing certain representations and agreements relating to the
      restrictions on transfer of the old notes, the form of which you can
        obtain from the trustee and an opinion of counsel acceptable to us and
 the trustee that the transfer complies with the Securities Act;

-   outside the United States in compliance with Rule 904 under the   
Securities Act;                                               

    -   pursuant to the exemption from registration provided by Rule 144 under
the Securities Act, if available;                             

     -   in accordance with another exemption from the registration requirements
      of the Securities Act and based upon an opinion of counsel, if we so
request; or                                                   

  -   pursuant to an effective registration statement under the Securities
Act.                                                          

    The liquidity of the old notes could be adversely affected by the exchange
offer. See "Risk Factors--An active trading market for the notes may not        
develop, which could make it difficult to resell your notes at their fair market
value or at all." Following consummation of the exchange offer, we will not be  
required to register under the Securities Act any old notes that remain         
outstanding except in the limited circumstances in which we are obligated to    
file a shelf                                                                    

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registration statement pursuant to the registration rights agreement. Interest  
on any old notes for certain holders of old notes not eligible to participate in
the exchange offer not tendered or otherwise accepted for exchange in the       
exchange offer will continue to accrue at a rate equal to 10 1/4% per year.     

ACCOUNTING TREATMENT                                                            

   For accounting purposes, we will recognize no gain or loss as a result of
the exchange offer. We will amortize the expenses of the exchange offer and the 
unamortized expenses related to the issuance of the old notes over the remaining
term of the notes.                                                              

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 DESCRIPTION OF CERTAIN INDEBTEDNESS

REVOLVING CREDIT FACILITY                                                       

On March 28, 2003, we completed a restructuring of our senior secured 
revolving credit facility, which provides aggregate borrowing availability of a 
maximum of $62 million through March 27, 2006. Borrowings under the revolving   
credit facility include revolving loans provided by a group of lenders and up to
$10 million of revolving swing loans provided by Wachovia Bank, National        
Association. With respect to revolving loans, we can designate an interest rate 
tied to the Eurodollar rate (adjusted for any reserves) plus a specified number 
of basis points or the base rate (which is the higher of Wachovia's prime rate  
or one-half of one percent over the overnight federal funds rate) plus a        
specified number of basis points. Interest accrues on revolving swing loans at  
our option at either the base rate plus a specified number of basis points or at
an interest rate to be mutually determined by us and Wachovia at the time such  
loan is made. A commitment fee is payable quarterly on the average daily unused 
portion of the revolving credit commitment. The revolving credit facility is    
secured by substantially all of our and our material subsidiaries' assets. We   
are required to pay certain administration and funding fees relating to the     
revolving credit facility. Covenants of the revolving credit facility, among    
other things, require that we maintain a minimum cash flow and certain financial
ratios, and contain restrictions on payment of dividends. We used $19.4 million 
of the proceeds from the offering of the old notes to repay indebtedness under  
our revolving credit facility. After giving effect to the use of the net        
proceeds from the offering of the old notes at May 30, 2003, we had borrowings  
of $3.6 million outstanding under our revolving line of credit.                 

SWAP AGREEMENTS                                                                 

    We have used interest rate swap agreements to effectively fix the interest
rate with respect to the borrowings outstanding under the revolving credit      
facility, which otherwise bear interest at floating rates. Such agreements      
involve the receipt of floating rate amounts in exchange for fixed rate interest
payments during the term of such agreements without an exchange of the          
underlying principal amounts. The differential to be paid or received is accrued
as interest rates change and recognized as an adjustment to interest expense    
related to the borrowings outstanding under the revolving credit facility. The  
related amount payable to or receivable from counterparties is included in other
liabilities or assets. At May 30, 2003 and August 30, 2002, we had swap         
agreements with notional amounts aggregating $35 million, providing an effective
weighted average interest rate of 5.3%. These swap agreements mature in November
2003.                                                                           

EQUIPMENT NOTE                                                                  

     Our equipment note, a secured five-year installment loan, was executed with
The CIT Group/Equipment Financing, Inc. on July 30, 2002 in the amount of $20.0 
million. The equipment note is to be repaid in 53 monthly payments of           
approximately $360,000 commencing March 1, 2003 and a final payment of          
approximately $896,000 on August 1, 2007. Interest accrues on the unpaid        
principal balance of the equipment note at a rate established annually on August
1 at LIBOR plus a specified number of basis points, and is paid monthly         
commencing September 1, 2002 through the final payment date. We may, one time   
and at our option, elect a fixed interest rate for the remaining term of the    
equipment note based on the Federal Reserve "Interest Rate Swap" rate of        
interest, as quoted for the term closest to the remaining term of the equipment 
note, plus a specified number of basis points. The equipment note is secured by 
a senior lien on substantially all of the equipment of two plant locations,     
which had a carrying value of approximately $34.7 million at May 30, 2003 and   
$37.5 million at August 30, 2002. The equipment note contains customary         
covenants, including requirements to maintain certain financial covenants, and  
includes provisions relating to cross defaults to our other debt obligations.   

SENIOR SUBORDINATED NOTES                                                       

       On June 30, 2003, we completed the offering of $150,000,000 aggregate
principal amount of our 10 1/4% senior subordinated notes due 2013. A portion of
the proceeds from the sale of the notes was used to redeem all of our previously
outstanding 10.25% senior subordinated notes due 2006, effective July 21, 2003. 

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RECEIVABLES SECURITIZATION FACILITY                                             

  On August 30, 2002, we and our wholly-owned, special purpose subsidiary,
Avondale Funding, LLC, or Funding, entered into a receivables securitization    
facility with General Electric Capital Corporation, or GECC, and Redwood        
Receivables Corporation, or Redwood, an issuer of commercial paper, to provide  
financing of up to $90 million through the sale of certain trade receivables    
originated by us. On July 3, 2003, GECC purchased Redwood's investment and      
agreed to continue the funding of the receivables securitization facility until 
the earlier of 90 days before the specified final purchase date, August 29,     
2007, or certain specified termination dates. The receivables securitization    
facility replaced a previous receivables securitization program with Bank One,  
N.A. We have been engaged by Funding and GECC to service the receivables.       

     Funding is a separate legal entity with its own creditors who, in the event
of Funding's liquidation, will be entitled to a claim on Funding's assets prior 
to any distribution to us.                                                      

   Pursuant to the receivables securitization facility, we sell, or transfer
as a contribution of capital, trade receivables, at a discount and without      
recourse, to GECC, whose sole business is the acquisition and financing of the  
trade receivables. Funding sells an undivided interest in a specified portion of
the trade receivables to GECC to provide the funds required by Funding to       
purchase the trade receivables from us. Proceeds from the collection of the     
trade receivables are used by Funding to purchase additional trade receivables  
from us, repay GECC in the event that sufficient additional trade receivables   
are not available to maintain GECC's investment, or pay fees and expenses. At   
May 30, 2003 and August 31, 2002, the outstanding amount of GECC's or Redwood's 
investment in the trade receivables was $58.6 million and $74 million,          
respectively.                                                                   

    The discount rate on the trade receivables purchased from us by Funding is
based on the fair market value of the receivables. The discount rate on the     
undivided interest in the trade receivables purchased by GECC from Funding is   
tied to GECC's commercial paper rate plus a specified number of basis points.   
Funding is required to pay certain unused availability fees under the           
receivables securitization facility. The receivables securitization facility    
contains customary covenants, including requirements to maintain certain        
financial ratios, and includes provisions relating to cross defaults to other of
our debt obligations.                                                           

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DESCRIPTION OF THE NEW NOTES

GENERAL                                                                         

 The form and terms of the new notes and the old notes are substantially
identical, except that the transfer restrictions, interest rate increase        
provisions and exchange offer provisions applicable to the old notes do not     
apply to the new notes. References in this section to the "notes" are references
to both the old notes and the new notes.                                        

 The old notes were and the new notes will be issued under an indenture,
dated as of June 30, 2003, among our company, Avondale Incorporated and Wachovia
Bank, National Association, as trustee. Upon the issuance of the new notes, the 
indenture will be subject to and governed by the Trust Indenture Act of 1939, as
amended, or the Trust Indenture Act.                                            

    The following summary of the material provisions of the indenture does not
purport to be complete. You should read the indenture, including the definitions
of certain terms contained therein and those terms made part of the indenture by
reference to the Trust Indenture Act, in its entirety, for provisions that may  
be important to you. You can obtain a copy of the indenture by following the    
directions set forth under the heading "Where You Can Find More Information."   
You can find the definitions of certain capitalized terms used in the following 
summary under "-- Certain Definitions." For purposes of this "Description of the
New Notes," references to "our company," "we," "our" and "us" refer solely to   
Avondale Mills, Inc. and not any of its subsidiaries.                           

   Principal of, premium, if any, and interest on the notes will be payable,
and the notes may be exchanged or transferred, at the office or agency of our   
company in the Borough of Manhattan, The City of New York (which initially shall
be the corporate trust office of the trustee except that, at our option, payment
of interest may be made by check mailed to the address of the holders as such   
address appears in the note register.                                           

     The notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple of $1,000. No service charge  
shall be made for any registration of transfer or exchange of notes, but we may 
require payment of a sum sufficient to cover any transfer tax or other similar  
governmental charge payable in connection therewith.                            

TERMS OF THE NOTES                                                              

    The notes will be our unsecured senior subordinated obligations, initially
limited to $150 million aggregate principal amount, and will mature on July 1,  
2013. We may issue additional notes from time to time after this offering,      
subject to the covenant described below under the caption "-- Certain Covenants 
-- Limitation on Indebtedness." The notes and any additional notes subsequently 
issued under the indenture would be treated as a single class for all purposes  
under the indenture, including, without limitation, waivers, amendments,        
redemptions and offers to purchase. The notes will bear interest at the rate per
annum of 10 1/4% from June 30, 2003, or from the most recent date to which      
interest has been paid or provided for, payable semiannually to holders of      
record at the close of business on the June 15 or December 15 immediately       
preceding the interest payment date on January 1 and July 1 of each year,       
commencing January 1, 2004. We will pay interest on overdue principal at 1% per 
annum in excess of such rate, and we will pay interest on overdue installments  
of interest at such higher rate to the extent lawful. Interest on the notes will
be computed on the basis of a 360-day year of twelve 30-day months.             

The interest rate on the notes is subject to increase in certain      
circumstances if we and Avondale Incorporated do not file a registration        
statement relating to the exchange offer or if the registration statement is not
declared effective on a timely basis or if certain other conditions are not     
satisfied, all as further described under the heading "Exchange Offer;          
Registration Rights."                                                           

OPTIONAL REDEMPTION                                                             

We may at our option redeem all or part of the notes at any time on or
after July 1, 2008 at the following redemption prices (expressed as percentages 
of principal amount), plus accrued and unpaid interest to the redemption date   
(subject to the right of holders of record on the relevant record date to       
receive interest due on the                                                     

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relevant interest payment date), if redeemed during the 12-month period         
beginning on July 1 of the years set forth below:                               

                                                                [Download Table]

PERIOD                                                   REDEMPTION PRICE
------                                                   ----------------
                                                                         
2008................................................         105.1250%   
2009................................................         103.4167%   
2010................................................         101.7083%   
2011 and thereafter.................................         100.0000%   

    At any time prior to July 1, 2008, we may at our option redeem all or part
of the notes at a redemption price equal to the greater of (1) 100% of the      
principal amount of the notes being redeemed and (2) the sum of the present     
values of 105.1250% of the principal amount of the notes being redeemed and     
scheduled interest payments (excluding interest accrued and unpaid to the date  
of redemption) on such notes to and including July 1, 2008, discounted to the   
date of redemption on a semi-annual basis (assuming a 360-day year consisting of
twelve 30-day months) at the Treasury Rate plus 50 basis points, in either case 
plus accrued and unpaid interest, if any, to the date of redemption.            

    In addition, at any time on or prior to July 1, 2006, we may redeem in the
aggregate up to 35% of the original aggregate principal amount of the notes with
the proceeds of one or more Equity Offerings at a redemption price (expressed as
a percentage of principal amount) equal to 110.25% plus accrued and unpaid      
interest to the redemption date (subject to the right of holders of record on   
the relevant record date to receive interest due on the relevant interest       
payment date); provided, however, that at least 65% of the original aggregate   
principal amount of the notes must remain outstanding after each such           
redemption.                                                                     

     We will mail notice of redemption, first-class postage prepaid, at least 30
but not more than 60 days before the redemption date to each holder of notes to 
be redeemed at its registered address. In the case of any partial redemption,   
selection of the notes for redemption will be made by the trustee on a pro rata 
basis, by lot or by such other method as the trustee in its sole discretion     
shall deem to be fair and appropriate, although no note of $1,000 in principal  
amount or less shall be redeemed in part. If any note is to be redeemed in part 
only, the notice of redemption relating to such note shall state the portion of 
the principal amount thereof to be redeemed. A new note in principal amount     
equal to the unredeemed portion thereof will be issued in the name of the holder
thereof upon cancellation of the original note. On and after the redemption     
date, interest will cease to accrue on notes or portions thereof called for     
redemption and accepted for payment.                                            

SINKING FUND                                                                    

The notes will not be entitled to the benefit of any sinking fund.    

RANKING                                                                         

The indebtedness evidenced by the notes is our senior subordinated,   
unsecured obligations. The payment of the principal of, premium (if any) and    
interest on the notes is subordinate in right of payment to the prior payment in
full of all Senior Indebtedness, whether outstanding on the Issue Date or       
thereafter incurred, including our obligations under the Credit Facility.       

     After giving effect to the offering of the old notes and our use of the net
proceeds of the offering of the old notes, as of May 30, 2003, we would have had
$22.5 million of Senior Indebtedness outstanding. This amount does not include  
$57.0 million that we would have had available for borrowing under the Credit   
Facility, which would also have been Senior Indebtedness. See "-- Certain       
Covenants -- Limitation on Indebtedness."                                       

   Only our Indebtedness that is Senior Indebtedness will rank senior to the
notes. The notes will in all respects rank pari passu with all of our other     
Senior Subordinated Indebtedness. We have agreed in the indenture that we will  
not incur, directly or indirectly, any Indebtedness that is subordinate or      
junior in ranking in right of payment to our Senior Indebtedness unless such    
Indebtedness is Senior Subordinated Indebtedness or is expressly subordinated   

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in right of payment to Senior Subordinated Indebtedness. Unsecured Indebtedness 
is not deemed to be subordinated or junior to secured Indebtedness merely       
because it is unsecured.                                                        

   Notwithstanding anything herein to the contrary, we may not pay principal
of, premium (if any) or interest on the notes or make any deposit pursuant to   
the provisions described under "-- Defeasance" below and may not repurchase,    
redeem or otherwise retire any notes (collectively, "pay the notes") if (i) any 
Designated Senior Indebtedness is not paid when due or (ii) any other default on
Designated Senior Indebtedness occurs and the maturity of such Designated Senior
Indebtedness is accelerated in accordance with its terms unless, in either case,
the default has been cured or waived and any such acceleration has been         
rescinded or such Designated Senior Indebtedness has been paid in full. However,
we may pay the notes without regard to the foregoing if we and the trustee      
receive written notice approving such payment from the representative of the    
Designated Senior Indebtedness with respect to which either of the events set   
forth in clause (i) or (ii) of the immediately preceding sentence has occurred  
and is continuing. During the continuance of any default (other than a default  
described in clause (i) or (ii) of the second preceding sentence) with respect  
to any Designated Senior Indebtedness pursuant to which the maturity thereof may
be accelerated immediately without further notice (except such notice as may be 
required to effect such acceleration) or the expiration of any applicable grace 
periods, we may not pay the notes for a period (a "Payment Blockage Period")    
commencing upon the receipt by the trustee (with a copy to us) of written notice
(a "Blockage Notice") of such default from the representative of the holders of 
such Designated Senior Indebtedness specifying an election to effect a Payment  
Blockage Period and ending 179 days thereafter (or earlier if such Payment      
Blockage Period is terminated (i) by written notice to the trustee and we from  
the Person or Persons who gave such Blockage Notice, (ii) because a             
representative of the holders of such Designated Senior Indebtedness has        
notified the trustee that the default giving rise to such Blockage Notice is no 
longer continuing or (iii) because such Designated Senior Indebtedness has been 
repaid in full). Notwithstanding the provisions described in the immediately    
preceding sentence (but subject to the first sentence of this paragraph), unless
the holders of such Designated Senior Indebtedness or the representative of such
holders have accelerated the maturity of such Designated Senior Indebtedness, we
may resume payments on the notes after the end of such Payment Blockage Period. 
The notes shall not be subject to more than one Payment Blockage Period in any  
360-day period, irrespective of the number of defaults with respect to          
Designated Senior Indebtedness during such period.                              

  Upon any payment by us or any distribution of our assets upon a total or
partial liquidation or dissolution or reorganization of or similar proceeding   
relating us or our property, the holders of Senior Indebtedness will be entitled
to receive payment in full of such Senior Indebtedness before the holders of the
notes are entitled to receive any payment, and until all Senior Indebtedness is 
paid in full, any payment or distribution to which holders of the notes would be
entitled but for the subordination provisions of the indenture will be made to  
holders of such Senior Indebtedness as their interests may appear. If a         
distribution is made to holders of the notes that, due to the subordination     
provisions, should not have been made to them, such holders of the notes are    
required to hold it in trust for the holders of Senior Indebtedness and pay it  
over to them as their interests may appear.                                     

   If payment of the notes is accelerated because of an Event of Default, we
or the trustee will promptly notify the holders of Designated Senior            
Indebtedness or the representative of such holders of the acceleration.         

    Because of the subordination provisions contained in the indenture, in the
event of insolvency, our creditors who are holders of Senior Indebtedness may   
recover more, ratably, than the holders of the notes, and our creditors who are 
not holders of Senior Indebtedness may recover less, ratably, than holders of   
Senior Indebtedness and may recover more, ratably, than the holders of the      
notes.                                                                          

     The terms of the subordination provisions described above will not apply to
payment from money or the proceeds of U.S. Government Obligations held in trust 
by the trustee for the payment of principal of and interest on the notes        
pursuant to the provisions described under "-- Defeasance."                     

GUARANTY                                                                        

 Avondale Incorporated, as primary obligor and not merely as surety, has
irrevocably and unconditionally guaranteed (the "Guaranty") on a senior         
subordinated basis the performance and punctual payment when due, whether at    
Stated Maturity, by acceleration or otherwise, of all of our obligations under  
the indenture and the notes, whether for principal of or interest on the notes, 
expenses, indemnification or otherwise (all such obligations                    

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guaranteed by Avondale Incorporated being herein called the "Guaranteed         
Obligations"). Avondale Incorporated has agreed to pay, on a senior subordinated
basis and in addition to the amount stated above, any and all expenses          
(including reasonable counsel fees and expenses) incurred by the trustee or the 
holders in enforcing any rights under the Guaranty with respect to Avondale     
Incorporated. Avondale Incorporated has no material assets other than the common
stock of our company.                                                           

    The obligations of Avondale Incorporated under the Guaranty are unsecured,
senior subordinated obligations. As such, the rights of holders to receive      
payment by Avondale Incorporated pursuant to the Guaranty are subordinate in    
right of payment to the rights of holders of Senior Indebtedness of Avondale    
Incorporated. After giving effect to the offering of the old notes and our use  
of the net proceeds from the offering of the old notes, as of May 30, 2003,     
Avondale Incorporated would have had $22.5 million of Senior Indebtedness       
outstanding, including its obligations under the Credit Facility. The indenture 
does not limit the incurrence of Indebtedness by Avondale Incorporated.         

   The Guaranty is a continuing guarantee and shall (a) remain in full force
and effect until payment in full of all the Guaranteed Obligations, (b) be      
binding upon Avondale Incorporated and (c) inure to the benefit of and be       
enforceable by the trustee, the holders and their successors, transferees and   
assigns.                                                                        

CHANGE OF CONTROL                                                               

Upon the occurrence of any of the following events (each a "change of 
control"), each holder will have the right to require that we repurchase such   
holder's notes at a purchase price in cash equal to 101% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of purchase       
(subject to the right of holders of record on the relevant record date to       
receive interest due on the relevant interest payment date):                    

         (i) prior to the earlier to occur of (A) the first public offering of
    any class of common stock of Avondale Incorporated or (B) the first public
   offering of any class of our common stock, the Permitted Holders cease to
  be the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
  Exchange Act), directly or indirectly, of a majority of the total voting
   power of the Voting Stock of our company (for purposes of this clause (i)
and clause (ii) below, the Permitted Holders shall be deemed to       
   beneficially own any Voting Stock of our company or any other corporation
(in any such case, the "specified corporation") held by Avondale      
Incorporated or any other corporation (in any such case, the "parent  
corporation") so long as the Permitted Holders beneficially own (as so
    defined), directly or indirectly, in the aggregate a majority of the total
voting power of the Voting Stock of the parent corporation);          

   (ii) on or after any such first public offering of common stock
referred to in clause (i) above, any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act), other than one or more 
     Permitted Holders, is or becomes the beneficial owner (as defined in clause
   (i) above, except that for purposes of this clause (ii) such person shall
     be deemed to have "beneficial ownership" of all shares that any such person
    has the right to acquire, whether such right is exercisable immediately or
   only after the passage of time), directly or indirectly, of more than 40%
 of the total voting power of the Voting Stock of our company; provided,
    however, that the Permitted Holders beneficially own (as defined in clause
     (i) above), directly or indirectly, in the aggregate a lesser percentage of
   the total voting power of the Voting Stock of our company than such other
  person and do not have the right or ability by voting power, contract or
 otherwise to elect or designate for election a majority of the Board of
     Directors (for the purposes of this clause (ii), such other person shall be
     deemed to beneficially own any Voting Stock of a specified corporation held
   by a parent corporation, if such other person is the beneficial owner (as
   defined in this clause (ii)), directly or indirectly, of more than 40% of
   the total voting power of the Voting Stock of such parent corporation and
  the Permitted Holders beneficially own (as defined in clause (i) above),
    directly or indirectly, in the aggregate a lesser percentage of the voting
  power of the Voting Stock of such parent corporation and do not have the
right or ability by voting power, contract or otherwise to elect or   
    designate for election a majority of the board of directors of such parent
corporation); or                                                      

         (iii) (A) during any period of two consecutive years, individuals who
at the beginning of such period constituted our Board of Directors    
    (together with any new directors whose election by such Board of Directors
     or whose nomination for election by our shareholders was approved by a vote
    of 66 2/3% of our directors then still in office who were either directors
at the beginning of such period or whose election or nomination for   
election                                                              

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   was previously so approved) cease for any reason to constitute a majority
of the Board of Directors then in office and (B) the Permitted Holders
cease to be the beneficial owners (as defined in clause (ii) above),  
     directly or indirectly, of a majority of the total outstanding Voting Stock
  of Avondale Incorporated or our company or cease to have the ability, by
   voting power, contract or otherwise, to elect or designate for election a
     majority of the Board of Directors of Avondale Incorporated or our company.

  Within 30 days following any change of control, we will mail a notice to
each holder with a copy to the trustee stating:                                 

 (1)  that a change of control has occurred and that such holder has the
     right to require us to purchase such holder's notes at a purchase
    price in cash equal to 101% of the principal amount thereof plus
         accrued and unpaid interest, if any, to the date of purchase (subject
    to the right of holders of record on the relevant record date to
receive interest on the relevant interest payment date);    

    (2)  the circumstances and relevant facts regarding such change of control
       (including information with respect to pro forma historical income,
      cash flow and capitalization after giving effect to such change of
control);                                                   

    (3)  the repurchase date (which shall be no earlier than 30 days nor later
than 60 days from the date such notice is mailed); and      

(4)  the instructions determined by us, consistent with the covenant  
       described hereunder, that a holder must follow in order to have its
notes purchased by us.                                      

   The existence of a holder's right to require us to purchase such holder's
notes upon a change of control may deter a third party from acquiring us in a   
transaction that constitutes a change of control.                               

     We will comply with the applicable tender offer rules, including Rule 14e-1
under the Exchange Act, and any other applicable securities laws and regulations
in connection with a change of control offer. To the extent that the provisions 
of any securities laws or regulations conflict with provisions of this covenant,
we will comply with the applicable securities laws and regulations and will not 
be deemed to have breached our obligations under this clause by virtue thereof. 

    The change of control purchase feature is a result of negotiations between
us and the initial purchaser. We have no present intention to engage in a       
transaction involving a change of control, although it is possible that we would
decide to do so in the future. Subject to the limitations discussed below, we   
could, in the future, enter into certain transactions, including acquisitions,  
refinancings or other recapitalizations, that would not constitute a change of  
control under the indenture, but that could increase the amount of indebtedness 
outstanding at such time or otherwise affect our capital structure or credit    
ratings. Restrictions on our ability to incur additional Indebtedness are       
contained in the covenant described under "-- Certain Covenants -- Limitation on
Indebtedness." Such restrictions can only be waived with the consent of the     
holders of a majority in principal amount of the notes then outstanding. Except 
for the limitations contained in such covenants, however, the indenture will not
contain any covenants or provisions that may afford holders of the notes        
protection in the event of a highly leveraged transaction.                      

     The Credit Facility prohibits (unless permitted by the requisite percentage
of lenders thereunder) us from purchasing any notes, or making any deposit with 
the trustee pursuant to the provisions described under "-- Defeasance," so long 
as any of our obligations remain outstanding under the Credit Facility and the  
commitments under the Credit Facility have not been terminated. The Credit      
Facility also provides that the occurrence of certain change of control events  
with respect to us will constitute a default thereunder. In the event a change  
of control occurs at a time when we are prohibited from purchasing notes, we    
could seek the consent of the lenders under the Credit Facility to the purchase 
of notes or could attempt to refinance the borrowings that contain such         
prohibition. If we do not obtain such a consent or repay such borrowings, we    
will remain prohibited from purchasing notes. In such case, our failure to      
purchase tendered notes would constitute an Event of Default under the indenture
which would, in turn, constitute a default under the Credit Facility. In such   
circumstances, the subordination provisions in the indenture would likely       
restrict payments to holders of the notes.                                      

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   Our future Senior Indebtedness may contain prohibitions on the occurrence
of certain events that would constitute a change of control or require such     
Senior Indebtedness to be repurchased upon a change of control. Moreover, the   
exercise by the holders of their right to require us to purchase the notes could
cause a default under such Senior Indebtedness, even if the change of control   
itself does not, due to the financial effect of such purchase on us. Finally,   
our ability to pay cash to holders of the notes following the occurrence of a   
change of control may be limited by our then existing financial resources. There
can be no assurance that sufficient funds will be available when necessary to   
make any required purchases. The provisions under the indenture relative to our 
obligation to make an offer to purchase the notes as a result of a change of    
control may be waived or modified with the written consent of the holders of a  
majority in principal amount of the notes then outstanding.                     

CERTAIN COVENANTS                                                               

  The indenture contains covenants including, among others, the following:

Limitation on Indebtedness. (a) We shall not, and shall not permit any
Restricted Subsidiary to, incur, directly or indirectly, any Indebtedness       
unless, on the date of such incurrence, the Consolidated Coverage Ratio exceeds 
2.0 to 1.                                                                       

(b) Notwithstanding the foregoing paragraph (a), we and our Restricted
Subsidiaries may incur any or all of the following Indebtedness:                

    (1) Indebtedness incurred by us pursuant to the Credit Facility;
  provided, however, that, after giving effect to any such incurrence, the
   aggregate principal amount of such Indebtedness then outstanding does not
 exceed the greater of $175 million (less the then outstanding principal
     amount of Indebtedness arising under any Receivables Program of our company
   or any Restricted Subsidiary, other than Indebtedness described in clause
     (2) below) and the sum of (i) 50% of the book value of the inventory of our
   company and our Restricted Subsidiaries and (ii) 85% of the book value of
the accounts receivable of our company and our Restricted Subsidiaries
   (other than accounts receivable subject to any Receivables Program of our
company or any Restricted Subsidiary), in each case determined in     
accordance with GAAP;                                                 

    (2) Indebtedness of our company owed to and held by a Restricted
    Subsidiary and Indebtedness of a Restricted Subsidiary owed to and held by
us or a Restricted Subsidiary; provided, however, that any subsequent 
issuance or transfer of any Capital Stock which results in any such   
Restricted Subsidiary ceasing to be a Restricted Subsidiary or any    
    subsequent transfer of such Indebtedness (other than to us or a Restricted
    Subsidiary) shall be deemed, in each case, to constitute the incurrence of
such Indebtedness by the issuer thereof;                              

(3) the notes;                                              

(4) Indebtedness outstanding on the Issue Date (other than  
  Indebtedness described in clause (1), (2), (3) or (10) of this paragraph
(b));                                                                 

    (5) Refinancing Indebtedness in respect of Indebtedness incurred
   pursuant to paragraph (a) or pursuant to clause (3) or (4) or this clause
(5) of this paragraph (b);                                            

(6) Hedging Obligations;                                    

     (7) Indebtedness incurred by a Receivables Subsidiary, other than
    Indebtedness described in clause (2) above, in an amount not exceeding 95%
  of the aggregate unpaid balance of the Receivables and Related Assets of
  such Receivables Subsidiary at the time of such incurrence pursuant to a
Receivables Program;                                                  

          (8) Indebtedness of our company and our Restricted Subsidiaries to the
   extent the net proceeds thereof are concurrently deposited to defease all
outstanding notes as described under the caption "-- Defeasance";     

      (9) Indebtedness represented by guarantees by us or our Restricted
   Subsidiaries of Indebtedness otherwise permitted to be incurred under the
indenture;                                                            

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     (10) until such time as we shall have effected a satisfaction and
  discharge of the indenture under which the existing notes were issued in
  connection with the redemption of such existing notes in accordance with
     the notice of redemption relating to the existing notes mailed on the Issue
Date, the existing notes; and                                         

     (11) Indebtedness incurred by us in an aggregate principal amount
   which, together with all other Indebtedness of our company outstanding on
     the date of such incurrence incurred pursuant to this clause (11), does not
exceed $70 million.                                                   

(c) Notwithstanding the foregoing, we shall not incur any Indebtedness
pursuant to the foregoing paragraph (b) if the proceeds thereof are used,       
directly or indirectly, to Refinance any Subordinated Obligations unless such   
Indebtedness shall be subordinated to the notes to at least the same extent as  
such Subordinated Obligations.                                                  

     (d) For purposes of determining any particular amount of Indebtedness under
this "Limitation on Indebtedness" covenant, (1) Indebtedness incurred under the 
Credit Facility on or prior to the date of the indenture shall be treated as    
incurred pursuant to clause (1) of paragraph (b) above and (2) Guarantees, Liens
or obligations with respect to letters of credit supporting Indebtedness        
otherwise included in the determination of such particular amount shall not be  
included. For purposes of determining compliance with the foregoing covenant,   
(i) in the event that an item of Indebtedness meets the criteria of more than   
one of the types of Indebtedness described above, we, in our sole discretion,   
will classify (and may reclassify) such item of Indebtedness and only be        
required to include the amount and type of such Indebtedness in one of the above
clauses and (ii) an item of Indebtedness may be divided and classified (and     
reclassified) in more than one of the types of Indebtedness described above.    

  (e) Notwithstanding paragraphs (a) and (b) above, we shall not incur (i)
any Indebtedness if such Indebtedness is subordinate or junior in ranking in any
respect to any Senior Indebtedness unless such Indebtedness is Senior           
Subordinated Indebtedness or is expressly subordinated in right of payment to   
Senior Subordinated Indebtedness or (ii) any Indebtedness that is not Senior    
Indebtedness and is secured by a Lien unless contemporaneously therewith        
effective provision is made to secure the notes equally and ratably with respect
to such Lien for so long as such Indebtedness is secured by such a Lien.        

   Limitation on Restricted Payments. (a) We shall not, and shall not permit
any Restricted Subsidiary, directly or indirectly, to make a Restricted Payment 
if at the time we or such Restricted Subsidiary make such Restricted Payment:   

        (1) a Default shall have occurred and be continuing (or would result
therefrom);                                                           

 (2) we or such Restricted Subsidiary are not able to incur an
    additional $1.00 of Indebtedness pursuant to paragraph (a) of the covenant
described under "-- Limitation on Indebtedness"; or                   

     (3) the aggregate amount of such Restricted Payment and all other
Restricted Payments since the Issue Date would exceed the sum of:     

        (A) 50% of the Consolidated Net Income accrued on a cumulative basis
     during the period (treated as one accounting period) beginning on the first
   day of the fiscal quarter in which the Issue Date falls to the end of the
 most recent fiscal quarter ending at least 45 days prior to the date of
    such Restricted Payment (or, in case such Consolidated Net Income shall be
a deficit, minus 100% of such deficit);                               

        (B) the aggregate Net Cash Proceeds received by us from the issuance
 or sale of, or as a capital contribution in respect of, our or Avondale
    Incorporated's Capital Stock (other than Disqualified Stock) subsequent to
the Issue Date (other than an issuance or sale to a Subsidiary of our 
   company and other than an issuance or sale to an employee stock ownership
   plan or to a trust established by Avondale Incorporated, us or any of our
Subsidiaries for the benefit of its, our or their employees);         

        (C) the aggregate Net Cash Proceeds received by us from the issuance
 or sale of, or as a capital contribution in respect of, our or Avondale
    Incorporated's Capital Stock (other than Disqualified Stock) subsequent to
the Issue Date to any employee stock ownership plan or to a trust     
     established by Avondale Incorporated, us or any of our Subsidiaries for the
     benefit of its, our or their employees to the extent that any such Net Cash
Proceeds are                                                          

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     equal to an increase in our Consolidated Net Worth resulting from principal
     repayments made by such employee stock ownership plan or trust with respect
to Indebtedness incurred by it to finance the purchase of such Capital
Stock;                                                                

      (D) the amount by which our Indebtedness is reduced on our balance
  sheet upon the conversion or exchange (other than by a Subsidiary of our
company) subsequent to the Issue Date of any of our Indebtedness      
    convertible or exchangeable for our Capital Stock (other than Disqualified
Stock) (less the amount of any cash, or the fair value of any other   
property, distributed by us upon such conversion or exchange);        

          (E) an amount equal to the sum of (i) the net reduction in Investments
    in any Person resulting from dividends, repayments of loans or advances or
    other transfers of assets, in each case to us or any Restricted Subsidiary
from such Person, and (ii) the portion (proportionate to our equity   
    interest in such Subsidiary) of the fair market value of the net assets of
an Unrestricted Subsidiary at the time such Unrestricted Subsidiary is
   designated a Restricted Subsidiary; provided, however, that the foregoing
sum shall not exceed, in the case of any Unrestricted Subsidiary, the 
     amount of Investments previously made (and treated as a Restricted Payment)
 by us or any Restricted Subsidiary in such Unrestricted Subsidiary; and

(F) $20 million.                                            

(b) The provisions of the foregoing paragraph (a) shall not prohibit: 

       (i) any purchase or redemption of our Capital Stock or Subordinated
Obligations made by exchange for, or out of the proceeds of the       
  substantially concurrent sale of, or capital contribution in respect of,
 our Capital Stock (other than Disqualified Stock and other than Capital
     Stock issued or sold to a Subsidiary of ours or an employee stock ownership
   plan or to a trust established by Avondale Incorporated, us or any of our
 Subsidiaries for the benefit of its, our or their employees); provided,
  however, that (A) such purchase or redemption shall be excluded from the
calculation of the amount of Restricted Payments and (B) the Net Cash 
    Proceeds from such sale or capital contribution shall be excluded from the
calculation of amounts under clause (3)(B) of paragraph (a) above;    

  (ii) any purchase, repurchase, redemption, defeasance or other
 acquisition or retirement for value of Subordinated Obligations made by
   exchange for, or out of the proceeds of the substantially concurrent sale
    of, Indebtedness of ours which is permitted to be incurred pursuant to the
covenant described under "-- Limitation on Indebtedness"; provided,   
  however, that such purchase, repurchase, redemption, defeasance or other
    acquisition or retirement for value shall be excluded from the calculation
of the amount of Restricted Payments;                                 

     (iii) dividends paid within 60 days after the date of declaration
  thereof if at such date of declaration such dividend would have complied
    with this covenant; provided, however, that at the time of payment of such
     dividend, no other Default shall have occurred and be continuing (or result
     therefrom); provided further, however, that such dividend shall be included
in the calculation of the amount of Restricted Payments;              

       (iv) the repurchase of shares of, or options to purchase shares of,
    Capital Stock (other than Preferred Stock) of Avondale Incorporated, us or
any of our Subsidiaries from employees, former employees, directors or
  former directors of Avondale Incorporated, us or any of our Subsidiaries
     (or permitted transferees of such employees, former employees, directors or
     former directors or their respective estates), pursuant to the terms of the
agreements (including employment agreements) or plans (or amendments  
     thereto) approved by the Board of Directors of Avondale Incorporated or us,
  as the case may be, under which such individuals purchase or sell or are
   granted the option or right to purchase or sell such Capital Stock (other
     than Preferred Stock); provided, however, that the aggregate amount of such
     repurchases shall not exceed $2 million in any calendar year (excluding any
   such repurchases funded with the proceeds of any life insurance policy or
     policies maintained by us or under which we are the beneficiary) unless the
  aggregate amount of such repurchases in any prior calendar year was less
     than $2 million in which case (x) the difference, up to an aggregate amount
    of $2 million, may be carried forward and (y) the aggregate amount of such
    repurchases in any subsequent calendar year may not exceed $2 million plus
the then remaining balance of such carry forward amount (after giving 
effect to all prior repurchases utilizing such carry forward amount); 
     provided further, however, that such repurchases shall be excluded from the
calculation of the amount of Restricted Payments;                     

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   (v) dividends paid by us to Avondale Incorporated to be used by
Avondale Incorporated to pay foreign, Federal, state and local taxes  
 payable by Avondale Incorporated and directly attributable to (or which
     arise as a result of) the operations of us and our Restricted Subsidiaries;
   provided, however, that (A) the amount of such dividends shall not exceed
     the amount that we and our Restricted Subsidiaries would be required to pay
   in respect of such foreign, Federal, state and local taxes were we to pay
 such taxes as a stand-alone taxpayer and (B) such dividends pursuant to
    this clause (v) are used by Avondale Incorporated for such purposes within
     20 days of the receipt of such dividends by Avondale Incorporated; provided
further, however, that such dividends shall be excluded from the      
calculation of the amount of Restricted Payments;                     

        (vi) payments or distributions to shareholders pursuant to appraisal
  rights in respect of up to 10% of our or Avondale Incorporated's Capital
Stock required by law in connection with a consolidation, merger or   
transfer of assets that complies with the covenant described under "--
    Merger and Consolidation" below; provided, however, that any such payments
or distributions shall be included in the calculation of the amount of
Restricted Payments;                                                  

       (vii) so long as no Default has occurred and is continuing or would
   result therefrom, any purchase of any fractional share of our or Avondale
Incorporated's Capital Stock resulting from (A) any dividend or other 
distribution on outstanding shares of Capital Stock that is payable in
   shares of such Capital Stock (including any stock split or subdivision of
our or Avondale Incorporated's outstanding Capital Stock), (B) any    
combination of all of the outstanding shares of our or Avondale       
  Incorporated's Capital Stock, (C) any reorganization or consolidation of
   Avondale Incorporated or us in any merger of Avondale Incorporated or our
   company with or into any other Person or (D) the conversion of any of our
or Avondale Incorporated's securities into shares of our or Avondale  
    Incorporated's Capital Stock; provided, however, that such purchases shall
 be included in the calculation of the amount of Restricted Payments; or

          (viii) Investments in an aggregate amount not to exceed $20 million in
    any Person engaged primarily in a Related Business on the date of any such
   Investment; provided, however, that such Investments shall be included in
the calculation of the amount of Restricted Payments.                 

   Limitation on Restrictions on Distributions from Restricted Subsidiaries.
We shall not, and shall not permit any Restricted Subsidiary to, create or      
otherwise cause or permit to exist or become effective any consensual           
encumbrance or restriction on the ability of any Restricted Subsidiary (a) to   
pay dividends or make any other distributions on its Capital Stock to us or a   
Restricted Subsidiary or pay any Indebtedness owed to us, (b) to make any loans 
or advances to us or (c) to transfer any of its property or assets to us,       
except:                                                                         

         (i) any encumbrance or restriction pursuant to an agreement in effect
   at or entered into on the Issue Date, including without limitation, under
the Credit Facility;                                                  

     (ii) any encumbrance or restriction with respect to a Receivables
Subsidiary pursuant to a Receivables Program of such Receivables      
   Subsidiary; provided that such encumbrances and restrictions, at the time
we enter into such Receivables Program, are customarily required by   
    institutional sponsors or arrangers in similar types of documents relating
 to the purchase of similar receivables in connection with the financing
thereof;                                                              

     (iii) any encumbrance or restriction with respect to a Restricted
   Subsidiary pursuant to an agreement relating to any Indebtedness incurred
by such Restricted Subsidiary on or prior to the date on which such   
    Restricted Subsidiary was acquired by or merged into Avondale Incorporated
    or us (other than Indebtedness incurred as consideration in, or to provide
   all or any portion of the funds or credit support utilized to consummate,
  the transaction or series of related transactions pursuant to which such
    Restricted Subsidiary became a Restricted Subsidiary or was acquired by or
merged into Avondale Incorporated or us) and outstanding on such date;

          (iv) any encumbrance or restriction pursuant to an agreement effecting
     a Refinancing of Indebtedness incurred pursuant to an agreement referred to
in clause (i), (ii) or (iii) of this covenant or this clause (iv) or  
    contained in any amendment to an agreement referred to in clause (i), (ii)
    or (iii) of this covenant or this clause (iv); provided, however, that the
  encumbrances and restrictions with respect to such Restricted Subsidiary
contained in any such refinancing agreement or amendment are no less  
favorable in any material respect to the                              

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 holders of the notes than encumbrances and restrictions with respect to
such Restricted Subsidiary contained in such agreements;              

   (v) any such encumbrance or restriction consisting of customary
 nonassignment provisions in leases governing leasehold interests to the
   extent such provisions restrict the transfer of the lease or the property
leased thereunder;                                                    

   (vi) in the case of clause (c) above, restrictions contained in
security agreements or mortgages securing Indebtedness of a Restricted
 Subsidiary to the extent such restrictions restrict the transfer of the
property subject to such security agreements or mortgages; and        

         (vii) any restriction with respect to a Restricted Subsidiary imposed
     pursuant to an agreement entered into for the sale or disposition of all or
     substantially all the Capital Stock or assets of such Restricted Subsidiary
   or any division or business unit thereof pending the closing of such sale
or disposition.                                                       

   Limitation on Sales of Assets and Subsidiary Stock. (a) We shall not, and
shall not permit any Restricted Subsidiary to, directly or indirectly,          
consummate any Asset Disposition unless we or such Restricted Subsidiary receive
consideration at the time of such Asset Disposition at least equal to the Fair  
Market Value (including as to the value of all non-cash consideration) of the   
assets subject to such Asset Disposition and at least 75% of the consideration  
received by us or such Restricted Subsidiary is in the form of cash or cash     
equivalents. For the purposes of this covenant, the following are deemed to be  
cash or cash equivalents: (x) the assumption of Indebtedness of our company or  
any Restricted Subsidiary and the release of our company or such Restricted     
Subsidiary from all liability on such Indebtedness in connection with such Asset
Disposition and (y) securities received by us or any Restricted Subsidiary from 
the transferee that are converted by us or such Restricted Subsidiary into cash 
within 90 days. We or such Restricted Subsidiary may apply the Net Available    
Cash from any such Asset Disposition as follows:                                

          (i) first, to the extent we elect (or are required by the terms of any
Senior Indebtedness), to prepay, repay, redeem or purchase our Senior 
Indebtedness or Indebtedness (other than any Disqualified Stock) of a 
   Restricted Subsidiary (in each case other than Indebtedness owed to us or
 our Affiliate) within one year from the later of the date of such Asset
Disposition or the receipt of such Net Available Cash; or             

        (ii) second, to the extent of the balance of such Net Available Cash
     after application in accordance with clause (i), to the extent we elect, to
 acquire, repair or refurbish Additional Assets within one year from the
later of the date of such Asset Disposition or the receipt of such Net
Available Cash;                                                       

provided, however, that in connection with any prepayment, repayment or purchase
of Indebtedness pursuant to clause (i) above (other than such repayment or      
prepayment of Indebtedness incurred pursuant to clause (1) of paragraph (b) of  
the covenant described under "-- Limitation on Indebtedness"), we or such       
Restricted Subsidiary shall retire such Indebtedness and shall cause the related
loan commitment (if any) to be permanently reduced in an amount equal to the    
principal amount so prepaid, repaid or purchased. Pending application of Net    
Available Cash pursuant to this covenant, such Net Available Cash shall be      
invested in Permitted Investments. The amount of Net Available Cash not used as 
set forth above in this paragraph constitutes "Excess Proceeds."                

    (b) When the aggregate amount of Excess Proceeds exceeds $15.0 million, we
shall, within 30 business days, make an offer to purchase from all holders of   
notes, on a pro rata basis, in accordance with the procedures set forth in the  
indenture, the maximum principal amount (expressed as an integral multiple of   
$1,000) of notes (and other Senior Subordinated Indebtedness) that may be       
purchased with the Excess Proceeds, at a purchase price of 100% of their        
principal amount (without premium) plus accrued and unpaid interest (or, in     
respect of such other Senior Subordinated Indebtedness, such lesser price, if   
any, as may be provided for by the terms of such Senior Subordinated            
Indebtedness) in accordance with the procedures (including prorating in the     
event of oversubscription) set forth in the indenture. To the extent that the   
aggregate principal amount of notes tendered pursuant to an Excess Proceeds     
offer is less than the Excess Proceeds, we may use the deficiency for general   
corporate purposes not otherwise prohibited by the indenture. If the aggregate  
principal amount of notes validly tendered and not withdrawn by holders thereof 
exceeds the Excess Proceeds, we will purchase notes on a pro rata basis.        
Notwithstanding the foregoing, if we must commence an Excess Proceeds offer at  
any time when the terms of any other Senior                                     

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Subordinated Indebtedness provide that a similar offer must be made with respect
to such other Senior Subordinated Indebtedness, then the Excess Proceeds offer  
for the notes shall be made concurrently with such other offer and we will      
purchase notes and such other securities on a pro rata basis in proportion to   
the aggregate principal amount of securities of each issue which the holders    
thereof elect to have purchased. Upon completion of such Excess Proceeds offer, 
the amount of Excess Proceeds shall be reset to zero (regardless of the amount  
of notes actually purchased in the offer). Notwithstanding anything to the      
contrary contained herein, we shall not be required to make such an offer to    
purchase notes (and other Senior Subordinated Indebtedness) pursuant to this    
covenant if the Net Available Cash available therefor is less than $15 million  
(which lesser amount shall be carried forward for purposes of determining       
whether such an offer is required with respect to any subsequent Asset          
Disposition).                                                                   

 (c) We will comply with the applicable tender offer rules, including Rule
14e-1 under the Exchange Act, and any other applicable securities laws and      
regulations in connection with the repurchase of notes pursuant to this         
covenant. To the extent that the provisions of any securities laws or           
regulations conflict with provisions of this covenant, we will comply with the  
applicable securities laws and regulations and will not be deemed to have       
breached our obligations under this clause by virtue thereof.                   

    Limitation on Affiliate Transactions. (a) We shall not, and shall not permit
any Restricted Subsidiary to, enter into or permit to exist any transaction     
(including the purchase, sale, lease or exchange of any property, employee      
compensation arrangements or the rendering of any service) with any Affiliate of
our company (an "Affiliate Transaction") unless the terms thereof (1) are no    
less favorable to us or such Restricted Subsidiary than those that could be     
obtained at the time of such transaction in arm's-length dealings with a Person 
who is not such an Affiliate, (2) if such Affiliate Transaction involves an     
amount in excess of $2.5 million, (i) are set forth in writing and (ii) have    
been approved by a majority of the disinterested members of the Board of        
Directors and (3) if such Affiliate Transaction involves an amount in excess of 
$10 million, have been determined by a nationally recognized investment banking 
or accounting firm having experience in such matters to be fair, from a         
financial point of view, to us and our Restricted Subsidiaries.                 

    (b) The provisions of the foregoing paragraph (a) shall not prohibit (i) any
Restricted Payment permitted to be paid pursuant to the covenant described under
"-- Limitation on Restricted Payments"; (ii) any issuance of securities, or     
other payments, awards or grants in cash, securities or otherwise pursuant to,  
or the funding of, employment arrangements, stock options and stock ownership   
plans or similar employee benefit plans or arrangements approved by the Board of
Directors; (iii) the grant of stock options or similar rights to employees and  
directors of the Avondale Incorporated or our employees and directors pursuant  
to plans approved by the Board of Directors, (iv) loans or advances to employees
in the ordinary course of business in accordance with our past practices or the 
past practices of our Restricted Subsidiaries, but in any event not to exceed   
$2.0 million in the aggregate outstanding at any one time; (v) the payment of   
reasonable fees to directors of the Avondale Incorporated or us and our         
Restricted Subsidiaries who are not employees of us or our Restricted           
Subsidiaries; (vi) any Affiliate Transaction between us and a Restricted        
Subsidiary or between Restricted Subsidiaries; (vii) any Receivables Program of 
our company or a Restricted Subsidiary; or (viii) any agreement or arrangement  
in effect at or entered into on the Issue Date, or any amendment, renewal,      
supplement, modification or extension of any such agreement or arrangement;     
provided that such amendment, renewal, supplement, modification or extension is 
on terms no less favorable in any material respect to the holders of the notes  
than the terms of such agreement or arrangement prior to such amendment,        
renewal, supplement, modification or extension.                                 

Limitation on the Sale or Issuance of Capital Stock of Restricted       
Subsidiaries. We shall not sell or otherwise dispose of any shares of Capital   
Stock of a Restricted Subsidiary, and shall not permit any Restricted           
Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of any
shares of its Capital Stock except (i) to us or a Restricted Subsidiary or (ii) 
if, immediately after giving effect to such issuance, sale or other disposition,
we and our Restricted Subsidiaries would own less than 20% of the Voting Stock  
of such Restricted Subsidiary and have no greater economic interest in such     
Restricted Subsidiary.                                                          

Merger and Consolidation. We shall not consolidate with or merge with or
into, or convey, transfer or lease, in one transaction or a series of           
transactions, all or substantially all our assets to, any Person, unless: (i) we
shall be the resulting, surviving or transferee Person or the resulting,        
surviving or transferee Person (in either case, the "Successor company") shall  
be a Person organized and existing under the laws of the United States of       
America, any State thereof or the District of Columbia and the Successor company
(if not us) shall expressly assume, by an                                       

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indenture supplemental thereto, executed and delivered to the trustee, in form  
satisfactory to the trustee, all of our obligations under the notes and the     
indenture; (ii) immediately after giving effect to such transaction (and        
treating any Indebtedness which becomes an obligation of the Successor company  
or any Restricted Subsidiary as a result of such transaction as having been     
incurred by such Successor company or such Restricted Subsidiary at the time of 
such transaction), no Default shall have occurred and be continuing, (iii)      
immediately after giving effect to such transaction, the Successor company would
be able to incur an additional $1.00 of Indebtedness pursuant to paragraph (a)  
of the covenant described under "-- Limitation on Indebtedness"; and (iv) we    
shall have delivered to the trustee an Officers' Certificate and an Opinion of  
Counsel, each stating that such consolidation, merger or transfer and such      
supplemental indenture (if any) comply with the indenture; provided, however,   
that notwithstanding clause (iii) above, a Restricted Subsidiary may merge with 
or into us.                                                                     

 The Successor company shall be our successor and shall succeed to, and be
substituted for, and may exercise every right and power of, us under the        
indenture, but the predecessor company in the case of a conveyance, transfer or 
lease shall not be released from the obligation to pay the principal of and     
interest on the notes.                                                          

  SEC Reports. Notwithstanding that we may not be required to remain subject
to the reporting requirements of Section 13 or 15(d) of the Exchange Act, we    
shall file with the SEC and provide the trustee and holders of the notes with   
such annual reports and such information, documents and other reports as are    
specified in Sections 13 and 15(d) of the Exchange Act and which would be       
required to be filed if we were subject to such reporting requirements, such    
information, documents and other reports to be so filed and provided at the     
times specified for the filing of such information, documents and reports under 
such Sections; provided, however, that so long as Avondale Incorporated is the  
guarantor of the notes (or the new notes), the reports, information and other   
documents required to be filed and provided as described hereunder may, at our  
option, be filed by and be those of Avondale Incorporated rather than us;       
provided, further, however, that in the event Avondale Incorporated conducts any
business or holds any significant assets other than our capital stock at the    
time of filing and providing any such report, information or other document     
containing financial statements of Avondale Incorporated, Avondale Incorporated 
shall include in such report, information or other document summarized financial
information (as defined in Rule 1-02(bb) of Regulation S-X promulgated by the   
SEC) with respect to us.                                                        

DEFAULTS                                                                        

An Event of Default is defined in the indenture as (i) a default in the 
payment of interest on the notes when due, continued for 30 days, (ii) a default
in the payment of principal of any note when due at its Stated Maturity, upon   
optional redemption, upon required repurchase, upon declaration or otherwise,   
(iii) the failure by us to comply with our obligations under "-- Certain        
Covenants -- Merger and Consolidation" above, (iv) the failure by us to comply  
within 30 days after notice with any of our obligations in the covenants        
described above under "Change of Control" (other than a failure to purchase the 
notes) or under "-- Certain Covenants" under "-- Limitation on Indebtedness",   
"-- Limitation on Restricted Payments", "-- Limitation on Restrictions on       
Distributions from Restricted Subsidiaries", "-- Limitation on Sales of Assets  
and Subsidiary Stock" (other than a failure to purchase notes), "-- Limitation  
on Affiliate Transactions", "-- Limitation on the Sale or Issuance of Capital   
Stock of Restricted Subsidiaries" or "-- SEC Reports", (v) the failure by       
Avondale Incorporated or us to comply within 60 days after notice with its or   
our other agreements contained in the indenture, (vi) Indebtedness of Avondale  
Incorporated, us or any Significant Subsidiary is not paid within any applicable
grace period after final maturity or is accelerated by the holders thereof      
because of a default and the total amount of such Indebtedness unpaid or        
accelerated exceeds $10 million (the "cross acceleration provision"), (vii)     
certain events of bankruptcy, insolvency or reorganization of Avondale          
Incorporated, us or a Significant Subsidiary (the "bankruptcy provisions"),     
(viii) any final, non-appealable judgment or decree for the payment of money in 
excess of $10 million is rendered against Avondale Incorporated, us or a        
Significant Subsidiary and remains outstanding for a period of 60 days following
such judgment and is not discharged, waived or stayed within 10 days after      
notice (the "judgment default provision") or (ix) the Guaranty ceases to be in  
full force and effect (other than in accordance with the terms of such Guaranty)
or Avondale Incorporated denies or disaffirms its obligations under the         
Guaranty. However, a default under clauses (iv), (v) and (viii) will not        
constitute an Event of Default until the trustee or the holders of 25% in       
principal amount of the outstanding notes notify us of the default and we do not
cure such default within the time specified after receipt of such notice.       

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If an Event of Default occurs and is continuing (other than an Event of 
Default described in clause (vii) of the preceding paragraph with respect to    
Avondale Incorporated or us), the trustee or the holders of at least 25% in     
principal amount of the outstanding notes may declare the principal of and      
accrued but unpaid interest on all the notes to be due and payable; provided    
that so long as any Designated Senior Indebtedness of Avondale Incorporated, our
company or any Significant Subsidiary shall be outstanding, the acceleration    
shall not be effective until the earlier of (1) any acceleration of such        
Designated Senior Indebtedness of Avondale Incorporated, us or any Significant  
Subsidiary or (2) five business days after receipt by us and the representative 
in respect of such Designated Senior Indebtedness of written notice of such     
declaration of acceleration of the notes. Upon such a declaration, such         
principal and interest shall be due and payable immediately. If an Event of     
Default described in clause (vii) of the preceding paragraph occurs with respect
to Avondale Incorporated or us, the principal of and interest on all the notes  
will ipso facto become and be immediately due and payable without any           
declaration or other act on the part of the trustee or any holders of the notes.
Under certain circumstances, the holders of a majority in principal amount of   
the outstanding notes may rescind any such acceleration with respect to the     
notes and its consequences.                                                     

Subject to the provisions of the indenture relating to the duties of the
trustee, in case an Event of Default occurs and is continuing, the trustee will 
be under no obligation to exercise any of the rights or powers under the        
indenture at the request or direction of any of the holders of the notes unless 
such holders have offered to the trustee reasonable indemnity or security       
against any loss, liability or expense. Except to enforce the right to receive  
payment of principal, premium (if any) or interest when due, no holder of a note
may pursue any remedy with respect to the indenture or the notes unless (i) such
holder has previously given the trustee notice that an Event of Default is      
continuing, (ii) holders of at least 25% in principal amount of the outstanding 
notes have requested the trustee to pursue the remedy, (iii) such holders have  
offered the trustee reasonable security or indemnity against any loss, liability
or expense, (iv) the trustee has not complied with such request within 60 days  
after the receipt thereof and the offer of security or indemnity and (v) the    
holders of a majority in principal amount of the outstanding notes have not     
given the trustee a direction inconsistent with such request within such 60-day 
period. Subject to certain restrictions, the holders of a majority in principal 
amount of the outstanding notes are given the right to direct the time, method  
and place of conducting any proceeding for any remedy available to the trustee  
or of exercising any trust or power conferred on the trustee. The trustee,      
however, may refuse to follow any direction that conflicts with law or the      
indenture or that the trustee determines is unduly prejudicial to the rights of 
any other holder of a note or that would involve the trustee in personal        
liability.                                                                      

The indenture provides that if a Default occurs and is continuing and is
known to the trustee, the trustee must mail to each holder of the notes notice  
of the Default within 90 days after it occurs. Except in the case of a Default  
in the payment of principal of or interest on any note, the trustee may withhold
notice if and so long as a committee of its trust officers determines that      
withholding notice is not opposed to the interest of the holders of the notes.  
In addition, we are required to deliver to the trustee, within 120 days after   
the end of each fiscal year, a certificate indicating whether the signers       
thereof know of any Default that occurred during the previous year. We also are 
required to deliver to the trustee, within 30 days after the occurrence thereof,
written notice of any event which would constitute certain Defaults, their      
status and what action we are taking or propose to take in respect thereof.     

AMENDMENTS AND WAIVERS                                                          

Subject to certain exceptions, the indenture may be amended with the consent of 
the holders of a majority in principal amount of the notes then outstanding     
(including consents obtained in connection with a tender offer or exchange for  
the notes) and any past default or compliance with any provisions may also be   
waived with the consent of the holders of a majority in principal amount of the 
notes then outstanding. However, without the consent of each holder of an       
outstanding note affected thereby, no amendment may, among other things, (i)    
reduce the amount of notes whose holders must consent to an amendment, (ii)     
reduce the rate of or extend the time for payment of interest on any note, (iii)
reduce the principal of or extend the Stated Maturity of any note, (iv) reduce  
the premium payable upon the redemption of any note or change the time at which 
any note may be redeemed as described under "-- Optional Redemption", (v) make  
any note payable in money other than that stated in the note, (vi) impair the   
right of any holder of the notes to receive payment of principal of and interest
on such holder's notes on or after the due dates therefor or to institute suit  
for the enforcement of any payment on or with respect to such holder's notes,   
(vii) make any change in the amendment provisions which require each holder's   
consent or in the waiver provisions,                                            

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(viii) make any change to the subordination provisions of the indenture that    
would adversely affect the holders of the notes or (ix) make any change in the  
Guaranty that would adversely affect the holders of the notes.                  

 Without the consent of any holder of the notes, we, Avondale Incorporated
and the trustee may amend the indenture to cure any ambiguity, omission, defect 
or inconsistency, to provide for the assumption by a successor corporation of   
our obligations under the indenture, to provide for uncertificated notes in     
addition to or in place of certificated notes (provided that the uncertificated 
notes are issued in registered form for purposes of Section 163(f) of the Code, 
or in a manner such that the uncertificated notes are described in Section      
163(f)(2)(B) of the Code), to add guarantees with respect to the notes, to      
secure the notes, to add to our covenants for the benefit of the holders of the 
notes or to surrender any right or power conferred upon us, to make any change  
that does not materially adversely affect the rights of any holder of the notes 
or to comply with any requirement of the SEC in connection with the             
qualification of the indenture under the Trust Indenture Act. However, no       
amendment may be made to the subordination provisions of the indenture that     
adversely affects the rights of any holder of Senior Indebtedness then          
outstanding unless the holders of such Senior Indebtedness (or their            
representative) consent to such change.                                         

    The consent of the holders of the notes is not necessary under the indenture
to approve the particular form of any proposed amendment. It is sufficient if   
such consent approves the substance of the proposed amendment.                  

    After an amendment under the indenture becomes effective, we are required to
mail to holders of the notes a notice briefly describing such amendment.        
However, the failure to give such notice to all holders of the notes, or any    
defect therein, will not impair or affect the validity of the amendment.        

DEFEASANCE                                                                      

We at any time may terminate all our obligations under the notes and the
indenture ("legal defeasance"), except for certain obligations, including those 
respecting the defeasance trust and obligations to register the transfer or     
exchange of the notes, to replace mutilated, destroyed, lost or stolen notes and
to maintain a registrar and paying agent in respect of the notes. We at any time
may terminate our obligations under "Change of Control" and under the covenants 
described under "-- Certain Covenants" (other than the covenant described under 
"-- Merger and Consolidation"), the operation of the cross acceleration         
provision, the bankruptcy provisions with respect to Significant Subsidiaries   
and the judgment default provision described under "-- Defaults" above and the  
limitations contained in clauses (iii) and (iv) under "-- Certain Covenants --  
Merger and Consolidation" (and clause (iii) of the first paragraph under "--    
Defaults" as it relates to clauses (iii) and (iv) under "-- Certain Covenants --
Merger and Consolidation") above ("covenant defeasance").                       

We may exercise our legal defeasance option notwithstanding our prior   
exercise of our covenant defeasance option. If we exercise our legal defeasance 
option, payment of the notes may not be accelerated because of an Event of      
Default with respect thereto. If we exercise our covenant defeasance option,    
payment of the notes may not be accelerated because of an Event of Default      
specified in clause (iv), (vi), (vii) (with respect only to Significant         
Subsidiaries) or (viii) under "-- Defaults" above or because of our failure to  
comply with clause (iii) or (iv) under "-- Certain Covenants -- Merger and      
Consolidation" above. If we exercise our legal defeasance option or our covenant
defeasance option, Avondale Incorporated will be released from all its          
obligations with respect to the Guaranty.                                       

  In order to exercise either defeasance option, we must irrevocably deposit
in trust (the "defeasance trust") with the trustee money or U.S. Government     
Obligations for the payment of principal and interest on the notes to redemption
or maturity, as the case may be, and we must comply with certain other          
conditions, including delivery to the trustee of an opinion of counsel to the   
effect that holders of the notes will not recognize income, gain or loss for    
federal income tax purposes as a result of such deposit and defeasance and will 
be subject to federal income tax on the same amount and in the same manner and  
at the same times as would have been the case if such deposit and defeasance had
not occurred (and, in the case of legal defeasance only, such opinion of counsel
must be based on a ruling of the Internal Revenue Service or other change in    
applicable federal income tax law).                                             

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CONCERNING THE TRUSTEE                                                          

   Wachovia Bank, National Association will be the trustee under the indenture
and has been appointed by us as Registrar and Paying Agent with respect to the  
notes.                                                                          

   The holders of a majority in principal amount of the outstanding notes will
have the right to direct the time, method and place of conducting any proceeding
for exercising any remedy available to the trustee, subject to certain          
exceptions. The indenture provides that if an Event of Default occurs (and is   
not cured), the trustee will be required, in the exercise of its power, to use  
the degree of care of a prudent man in the conduct of his own affairs. Subject  
to such provisions, the trustee will be under no obligation to exercise any of  
its rights or powers under the indenture at the request of any holder of notes, 
unless such holder shall have offered to the trustee security and indemnity     
satisfactory to it against any loss, liability or expense and then only to the  
extent required by the terms of the indenture.                                  

GOVERNING LAW                                                                   

The indenture provides that it and the notes will be governed by, and   
construed in accordance with, the laws of the State of New York without giving  
effect to applicable principles of conflicts of law to the extent that the      
application of the law of another jurisdiction would be required thereby.       

CERTAIN DEFINITIONS                                                             

"Additional Assets" means (i) any property or assets (other than        
Indebtedness and Capital Stock), including, without limitation, land, machinery,
equipment, leasehold interests and improvements, primarily in a Related         
Business; (ii) the Capital Stock of a Person that becomes a Restricted          
Subsidiary as a result of the acquisition of such Capital Stock by us or another
Restricted Subsidiary; or (iii) Capital Stock constituting a minority interest  
in any Person that at such time is a Restricted Subsidiary; provided, however,  
that any such Restricted Subsidiary described in clause (ii) or (iii) above is  
primarily engaged in a Related Business.                                        

"Affiliate" of any specified Person means any other Person, directly or 
indirectly, controlling or controlled by or under direct or indirect common     
control with such specified Person. For the purposes of this definition,        
"control" when used with respect to any Person means the power to direct the    
management and policies of such Person, directly or indirectly, whether through 
the ownership of voting securities, by contract or otherwise; and the terms     
"controlling" and "controlled" have meanings correlative to the foregoing. For  
purposes of the provisions described under "-- Certain Covenants -- Limitation  
on Restricted Payments", "-- Certain Covenants -- Limitation on Affiliate       
Transactions" and "-- Certain Covenants -- Limitations on Sales of Assets and   
Subsidiary Stock" only, "Affiliate" shall also mean any beneficial owner of     
Capital Stock representing 10% or more of the total voting power of the Voting  
Stock (on a fully diluted basis) of our company or of rights or warrants to     
purchase such Capital Stock (whether or not currently exercisable) and any      
Person who would be an Affiliate of any such beneficial owner pursuant to the   
first sentence hereof.                                                          

    "Asset Disposition" means any sale, lease, transfer or other disposition (or
series of related sales, leases, transfers or dispositions) by us or any        
Restricted Subsidiary, including any disposition by means of a merger,          
consolidation or similar transaction (each referred to for the purposes of this 
definition as a "disposition"), of:                                             

        (i) any shares of Capital Stock of a Restricted Subsidiary (other than
    directors' qualifying shares or shares required by applicable law to be held
by a Person other than us or a Restricted Subsidiary),                  

(ii) all or substantially all the assets of any of our or any 
Restricted Subsidiary's divisions or lines of business or               

         (iii) any of our or any Restricted Subsidiary's other assets outside of
the ordinary course of business of us or such Restricted Subsidiary.    

Notwithstanding the foregoing, the following shall not be deemed an "Asset      
Disposition" for purposes of the indenture:                                     

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  (A) the sale or other transfer or disposition of Receivables and
Related Assets pursuant to or in connection with a Receivables Program, 

      (B) the sale or discount, in each case without recourse, of accounts
receivable arising in the ordinary course of business;                  

  (C) a disposition by a Restricted Subsidiary to us or by us or a
Restricted Subsidiary to a Wholly Owned Subsidiary;                     

        (D) for purposes of the covenant described under "-- Certain Covenants
  -- Limitation on Sales of Assets and Subsidiary Stock" only, a disposition
 that constitutes a Restricted Payment permitted by the covenant described
under "-- Certain Covenants -- Limitation on Restricted Payments") and  

(E)  any transfer of property or assets:                                

         (1) that is governed by the provisions of the indenture described under
"--Merger and Consolidation";                                           

         (2) by us to any Restricted Subsidiary, or by any Restricted Subsidiary
to us or any Restricted Subsidiary, in accordance with the terms of the 
indenture;                                                              

      (3) that are obsolete, damaged, worn out or otherwise unsuitable for
 use in connection with the business of our company or our subsidiaries in
the ordinary course of business;                                        

(4) the sale or other disposition of cash or Cash Equivalents;

       (5) the issuance of Capital Stock by a Restricted Subsidiary to us or
to another Restricted Subsidiary;                                       

 (6) in any transaction or a series of related transactions that
involves assets having a fair market value of less than $1 million;     

        (7) any sale of equipment or other assets specifically contemplated by
    our company's capital expenditure budget previously approved by the Board of
Directors; or                                                           

        (8) the lease, assignment or sublease of any real or personal property
in the ordinary course of business.                                     

  "Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum  
of the products of (x) the numbers of years from the date of determination to   
the dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
(y) the amount of such payment by (ii) the sum of all such principal or         
redemption payments.                                                            

   "Board of Directors" means, as the context requires, the Board of Directors
of Avondale Incorporated or our company or any committee thereof duly authorized
to act on behalf of such Board.                                                 

"Business Day" means each day which is not a Legal Holiday.             

"Capital Lease Obligation" means an obligation that is required to be   
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such     
obligation shall be the capitalized amount of such obligation determined in     
accordance with GAAP; and the Stated Maturity thereof shall be the date of the  
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a 
penalty.                                                                        

    "Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in (however designated) equity of such Person, including any Preferred Stock,   
but excluding any debt securities convertible into such equity.                 

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"Cash Equivalents" means:                                               

      (i) any evidence of Indebtedness with a maturity of one year or less
  issued or directly and fully guaranteed or insured by the United States of
America or any agency or instrumentality thereof (provided that the full
faith and credit of the United States of America is pledged in support  
thereof);                                                               

         (ii) certificates of deposit or acceptances with a maturity of one year
    or less of any financial institution that is a member of the Federal Reserve
    System having combined capital and surplus and undivided profits of not less
than $500 million;                                                      

        (iii) commercial paper with a maturity of one year or less issued by a
    corporation that is not our Affiliate and is organized under the laws of any
 state of the United States or the District of Columbia and rated at least
   A-1 by S&P or any successor rating agency or at least P-1 by Moody's or any
successor rating agency;                                                

         (iv) repurchase obligations with a term of not more than seven days for
   underlying securities of the types described in clauses (i) and (ii) above;

        (v) demand and time deposits with a domestic commercial bank that is a
member of the Federal Reserve System that are FDIC insured;             

     (vi) repurchase obligations with a term of not more than seven days
 entered into with any bank meeting the qualifications specified in clause
(v) above; or                                                           

         (vii) investments in funds investing solely in investments of the types
described in clauses (i) through (vi) above.                            

"Code" means the Internal Revenue Code of 1986, as amended.             

"Comparable Treasury Issue" means the United States Treasury security   
selected by a Reference Treasury Dealer appointed by us as having a maturity    
comparable to the then remaining term of the notes to July 1, 2008 (as if the   
notes matured on such date) that would be utilized, at the time of selection and
in accordance with customary financial practice, in pricing new issues of       
corporate debt securities of comparable maturity to the then remaining term of  
the notes to July 1, 2008 (as if the notes matured on such date).               

   "Comparable Treasury Price" means, with respect to any redemption date, (1)
the average of the bid and asked prices for the Comparable Treasury Issue       
(expressed in each case as a percentage of its principal amount) on the third   
business day preceding such redemption date, as set forth in the daily          
statistical release (or any successor release) published by the Federal Reserve 
Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S.        
Government Securities" or (2) if such release (or any successor release) is not 
published or does not contain such prices on such business day, (A) the average 
of the Reference Treasury Dealer Quotations for such redemption date, after     
excluding the highest and lowest such Reference Treasury Dealer Quotations, or  
(B) if we obtain fewer than four such Reference Treasury Dealer Quotations, the 
average of all such quotations.                                                 

"Consolidated Coverage Ratio" as of any date of determination means the 
ratio of (i) the aggregate amount of EBITDA for the period of the most recent   
four consecutive fiscal quarters ending at least 45 days prior to the date of   
such determination to (ii) Consolidated Interest Expense for such four fiscal   
quarters; provided, however, that (1) if we have or any Restricted Subsidiary   
has incurred any Indebtedness since the beginning of such period that remains   
outstanding or if the transaction giving rise to the need to calculate the      
Consolidated Coverage Ratio is an incurrence of Indebtedness, or both, EBITDA   
and Consolidated Interest Expense for such period shall be calculated after     
giving effect on a pro forma basis to such Indebtedness as if such Indebtedness 
had been incurred on the first day of such period (other than Indebtedness      
incurred or repaid under a revolving credit or similar arrangement to the extent
of the commitment thereunder (or under the predecessor revolving credit or      
similar arrangement) in effect on the last day of such period unless any portion
of such Indebtedness is projected, in the reasonable judgment of our senior     
management, to remain outstanding for a period in excess of twelve months from  
the date of incurrence thereof) and the discharge of any other Indebtedness     
repaid, repurchased, defeased or otherwise discharged with the proceeds of      

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such new Indebtedness as if such discharge had occurred on the first day of such
period, (2) if since the beginning of such period we or any Restricted          
Subsidiary shall have made any Asset Disposition, the EBITDA for such period    
shall be reduced by an amount equal to the EBITDA (if positive) directly        
attributable to the assets which are the subject of such Asset Disposition for  
such period, or increased by an amount equal to the EBITDA (if negative),       
directly attributable thereto for such period and Consolidated Interest Expense 
for such period shall be reduced by an amount equal to the Consolidated Interest
Expense directly attributable to any Indebtedness of our company or any         
Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with
respect to us and our continuing Restricted Subsidiaries in connection with such
Asset Disposition for such period (or, if the Capital Stock of any Restricted   
Subsidiary is sold, the Consolidated Interest Expense for such period directly  
attributable to the Indebtedness of such Restricted Subsidiary to the extent we 
and our continuing Restricted Subsidiaries are no longer liable for such        
Indebtedness after such sale), (3) if since the beginning of such period we or  
any Restricted Subsidiary (by merger or otherwise) shall have made an Investment
in any Restricted Subsidiary (or any person which becomes a Restricted          
Subsidiary) or an acquisition of assets, including any acquisition of assets    
occurring in connection with a transaction requiring a calculation to be made   
hereunder, which constitutes all or substantially all of an operating unit of a 
business, EBITDA and Consolidated Interest Expense for such period shall be     
calculated after giving pro forma effect thereto (including the incurrence of   
any Indebtedness) as if such Investment or acquisition occurred on the first day
of such period and (4) if since the beginning of such period any Person (that   
subsequently became a Restricted Subsidiary or was merged with or into our      
company or any Restricted Subsidiary since the beginning of such period) shall  
have made any Asset Disposition, any Investment or acquisition of assets that   
would have required an adjustment pursuant to clause (2) or (3) above if made by
us or a Restricted Subsidiary during such period, EBITDA and Consolidated       
Interest Expense for such period shall be calculated after giving pro forma     
effect thereto as if such Asset Disposition, Investment or acquisition of assets
occurred on the first day of such period. For purposes of this definition,      
whenever pro forma effect is to be given to an acquisition of assets, the amount
of income or earnings relating thereto and the amount of Consolidated Interest  
Expense associated with any Indebtedness incurred in connection therewith, the  
pro forma calculations shall be determined in good faith by a responsible       
financial or accounting Officer of our company. If any Indebtedness bears a     
floating rate of interest and is being given pro forma effect, the interest of  
such Indebtedness shall be calculated as if the rate in effect on the date of   
determination had been the applicable rate for the entire period (taking into   
account any Interest Rate Agreement applicable to such Indebtedness if such     
Interest Rate Agreement has a remaining term in excess of 12 months).           

 "Consolidated Interest Expense" means, for any period, the total interest
expense of our company and our consolidated Restricted Subsidiaries, plus, to   
the extent not included in such total interest expense, and to the extent       
incurred by us or our Restricted Subsidiaries,                                  

(i)     interest expense attributable to Capital Lease Obligations,     

(ii)    amortization of debt discount and debt issuance cost,           

(iii)   capitalized interest,                                           

(iv)    non-cash interest expenses,                                     

   (v)     commissions, discounts and other fees and charges owed with respect
to letters of credit and bankers' acceptance financing, 

(vi)    net costs associated with Hedging Obligations (including        
amortization of fees),                                  

   (vii)   Preferred Stock dividends in respect of all Preferred Stock held by
  Persons other than our company or a Restricted Subsidiary,

(viii)  interest incurred in connection with Investments in discontinued
operations,                                             

(ix)    interest accruing on any Indebtedness of any other Person to the
      extent such Indebtedness is Guaranteed by us or any Restricted
Subsidiary,                                             

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(x)     the cash contributions to any employee stock ownership plan or  
            similar trust to the extent such contributions are used by such plan
         or trust to pay interest or fees to any Person (other than us) in
       connection with Indebtedness incurred by such plan or trust and

 (xi)    any premiums, fees, discounts, expenses and losses on the sale of
     Receivables and Related Assets (and any amortization thereof)
       payable in connection with the Credit Facility, the Receivables
    Program or the offering of the notes, all as determined on a
consolidated basis in conformity with GAAP.             

"Consolidated Net Income" means, for any period, the net income of our  
company and our consolidated Restricted Subsidiaries; provided, however, that   
there shall be excluded from such Consolidated Net Income, without duplication: 

(i)     any net income of any Person if such Person is not a Restricted 
            Subsidiary, except that subject to the exclusion contained in clause
            (iv) below, our equity in the net income of any such Person for such
          period shall be included in such Consolidated Net Income up to the
           aggregate amount of cash actually distributed by such Person during
           such period to us or a Restricted Subsidiary as a dividend or other
 distribution (subject, in the case of a dividend or other
        distribution paid to a Restricted Subsidiary, to the limitations
contained in clause (iii) below);                       

(ii)    any net income (or loss) of any Person acquired by us or a      
       Subsidiary in a pooling of interests transaction for any period
prior to the date of such acquisition;                  

(iii)   any net income of any Restricted Subsidiary if such Restricted  
         Subsidiary is subject to restrictions, directly or indirectly, on
       the payment of dividends or the making of distributions by such
         Restricted Subsidiary, directly or indirectly, to us, except that
            subject to the exclusion contained in clause (iii) below, our equity
           in the net income of any such Restricted Subsidiary for such period
   shall be included in such Consolidated Net Income up to the
        aggregate amount of cash actually distributed by such Restricted
            Subsidiary during such period to us or another Restricted Subsidiary
      as a dividend or other distribution (subject, in the case of a
 dividend or other distribution paid to another Restricted
Subsidiary, to the limitation contained in this clause);

   (iv)    any gain or loss realized upon the sale or other disposition of any
    of our assets or the assets of our consolidated Subsidiaries
            (including pursuant to any sale-and-leaseback arrangement) which are
            not sold or otherwise disposed of in the ordinary course of business
           and any gain or loss realized upon the sale or other disposition of
any Capital Stock of any Person;                        

(v)     extraordinary gains or losses;                                  

   (vi)    any non-cash goodwill impairment charges incurred subsequent to the
        date of the indenture resulting from the application of SFAS No.
142;                                                    

(vii)   any non-cash charges incurred subsequent to the date of the     
          indenture relating to the underfunded portion of any pension plan;

(viii)  any non-cash charges incurred subsequent to the date of the     
     indenture resulting from the application of SFAS No. 123; and

(ix)    the cumulative effect of a change in accounting principles.     

Notwithstanding the foregoing, for the purposes of the covenant described under 
"Certain Covenants -- Limitation on Restricted Payments" only, there shall be   
excluded from Consolidated Net Income any dividends, repayments of loans or     
advances or other transfers of assets from Unrestricted Subsidiaries to us or a 
Restricted Subsidiary to the extent such dividends, repayments or transfers     
increase the amount of Restricted Payments permitted under such covenant        
pursuant to clause (a)(3)(E) thereof.                                           

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  "Credit Facility" means the credit facility provided to us pursuant to the
Amended and Restated Credit Agreement dated March 28, 2003, among us, the       
lenders and the agents thereunder, as the same may from time to time be amended,
renewed, supplemented, modified, extended, substituted, refinanced (including to
increase the amount available for borrowing thereunder), restructured or        
replaced in whole or in part from time to time, whether with the same or        
different lenders or agents.                                                    

 "Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.                                             

 "Designated Senior Indebtedness" means (i) the Indebtedness and all other
monetary obligations (including Post-Petition Interest, expenses and fees) under
the Credit Facility and any other obligation, including hedging obligations,    
secured by the security agreements referred to in the Credit Facility and (ii)  
any other Senior Indebtedness of our company which, at the date of              
determination, has an aggregate principal amount outstanding of, or under which,
at the date of determination, the holders thereof are committed to lend up to,  
at least $25 million and is specifically designated by us in the instrument     
evidencing or governing such Senior Indebtedness as "Designated Senior          
Indebtedness" for purposes of the indenture.                                    

 "Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable) or upon the happening of any event (i) matures 
or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise,
(ii) is convertible or exchangeable for Indebtedness or Disqualified Stock or   
(iii) is redeemable at the option of the holder thereof, in whole or in part, in
each case on or prior to the first anniversary of the Stated Maturity of the    
notes; provided, however, that any Capital Stock that would not constitute      
Disqualified Stock but for provisions thereof giving holders thereof the right  
to require such Person to repurchase or redeem such Capital Stock upon the      
occurrence of an "asset sale" or "change of control" occurring prior to the     
first anniversary of the Stated Maturity of the notes shall not constitute      
Disqualified Stock if the "asset sale" or "change of control" provisions        
applicable to such Capital Stock are not more favorable to the holders of such  
Capital Stock than the provisions described under "Change of Control" and under 
"-- Certain Covenants -- Limitation on Sales of Assets and Subsidiary Stock."   

"EBITDA" for any period means the sum of Consolidated Net Income plus   
Consolidated Interest Expense plus, without duplication, the following to the   
extent deducted in calculating such Consolidated Net Income: (a) all income tax 
expense of our company, (b) depreciation expense, (c) amortization expense, (d) 
non-cash inventory charges recorded as a result of the utilization of the       
last-in, first-out (LIFO) inventory valuation method and (e) all other non-cash 
items reducing consolidated Net Income (other than items that will require cash 
payments and for which an accrual or reserve is, or is required by GAAP to be,  
made), less all non-cash items increasing Consolidated Net Income, in each case 
for such period. Notwithstanding the foregoing, the provision for taxes based on
the income or profits of, and the depreciation and amortization of, a Subsidiary
of our company shall be added to Consolidated Net Income to compute EBITDA only 
to the extent (and in the same proportion) that the net income of such          
Subsidiary was included in calculating Consolidated Net Income and only if a    
corresponding amount would be permitted at the date of determination to be      
dividended to us by such Subsidiary without prior approval (that has not been   
obtained), pursuant to the terms of its charter and all agreements, instruments,
judgments, decrees, orders, statutes, rules and governmental regulations        
applicable to such Subsidiary or its stockholders.                              

"Equity Offering" means an offering of Capital Stock of our company or  
Avondale Incorporated (other than pursuant to a registration statement on Form  
S-8 or otherwise relating to equity securities issuable under any employee      
benefit plan of our company).                                                   

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

  "Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's-length transaction between an informed 
and willing seller under no compulsion to sell and an informed and willing buyer
under no compulsion to buy. Unless otherwise indicated, Fair Market Value shall 
be determined in good faith by the Board of Directors.                          

  "GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth (i) in  
the opinions and pronouncements of the Accounting Principles Board of the       
American Institute of Certified Public Accountants, (ii) in statements and      
pronouncements of the Financial                                                 

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Accounting Standards Board, (iii) in such other statements by such other entity 
as approved by a significant segment of the accounting profession, and (iv) in  
the published rules and regulations of the SEC governing the inclusion of       
financial statements (including pro forma financial statements) in periodic     
reports required to be filed pursuant to Section 13 of the Exchange Act,        
including opinions and pronouncements in staff accounting bulletins and similar 
written statements from the accounting staff of the SEC.                        

"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any 
Person and any obligation, direct or indirect, contingent or otherwise, of such 
Person (i) to purchase or pay (or advance or supply funds for the purchase or   
payment of) such Indebtedness or other obligation of such Person (whether       
arising by virtue of partnership arrangements, or by agreements to keep-well, to
purchase assets, goods, securities or services, to take-or-pay or to maintain   
financial statement conditions or otherwise) or (ii) entered into for the       
purpose of assuring in any other manner the obligee of such Indebtedness or     
other obligation of the payment thereof or to protect such obligee against loss 
in respect thereof (in whole or in part); provided, however, that the term      
"Guarantee" shall not include endorsements for collection or deposit in the     
ordinary course of business. The term "Guarantee" used as a verb has a          
corresponding meaning. The term "Guarantor" shall mean any Person Guaranteeing  
any obligation.                                                                 

"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate or Currency Protection Agreement.                 

"incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person      
existing at the time such Person becomes a Restricted Subsidiary (whether by    
merger, consolidation, acquisition or otherwise) shall be deemed to be incurred 
by such Subsidiary at the time it becomes a Restricted Subsidiary. The term     
"incurrence" when used as a noun shall have a correlative meaning. The accretion
of principal of a non-interest bearing or other discount security shall be      
deemed the incurrence of Indebtedness.                                          

"Indebtedness" means, with respect to any Person on any date of         
determination (without duplication), (i) the principal of and premium (if any)  
in respect of (A) indebtedness of such Person for money borrowed and (B)        
indebtedness evidenced by notes, debentures, bonds or other similar instruments 
for the payment of which such Person is responsible or liable (other than, in   
the case of us and our Restricted Subsidiaries, any non-negotiable notes of our 
company or our Subsidiaries issued to our insurance carriers in lieu of         
maintenance of policy reserves in connection with our workers compensation and  
liability insurance programs); (ii) all Capital Lease Obligations of such       
Person; (iii) all obligations of such Person issued or assumed as the deferred  
purchase price of property, all conditional sale obligations of such Person and 
all obligations of such Person under any title retention agreement (but         
excluding trade accounts payable arising in the ordinary course of business);   
(iv) all obligations of such Person for the reimbursement of any obligor on any 
letter of credit, banker's acceptance or similar credit transaction (other than 
obligations with respect to letters of credit securing obligations (other than  
obligations described in (i) through (iii) above) entered into in the ordinary  
course of business of such Person to the extent such letters of credit are not  
drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no   
later than the tenth Business Day following receipt by such Person of a demand  
for reimbursement following payment on the letter of credit and time drafts     
relating to any such letters of credit payable within 180 days after the date of
Issuance to the extent such time drafts are issued in the ordinary course of    
business for the payment of goods or services); (v) the amount of all           
obligations of such Person with respect to the redemption, repayment or other   
repurchase of any Disqualified Stock or, with respect to any Subsidiary of such 
Person, any Preferred Stock (but excluding, in each case, any accrued           
dividends); (vi) all obligations of the type referred to in clauses (i) through 
(v) of other Persons and all dividends of other Persons for the payment of      
which, in either case, such Person is responsible or liable, directly or        
indirectly, as obligor, guarantor or otherwise, including by means of any       
Guarantee; (vii) all obligations of the type referred to in clauses (i) through 
(vi) of other Persons secured by any Lien on any property or asset of such      
Person (whether or not such obligation is assumed by such Person), the amount of
such obligation being deemed to be the lesser of the fair market value of such  
property or assets at such date of determination or the amount of the obligation
so secured; and (viii) to the extent not otherwise included in this definition, 
Hedging Obligations of such Person. The amount of Indebtedness of any Person at 
any date shall be the outstanding balance at such date of all unconditional     
obligations as described above and, with respect to contingent obligations, the 
amount of liability required by GAAP to be accrued or reflected on the most     
recently published balance sheet of such Person; provided, however, that (A) the
amount outstanding at any time of any Indebtedness issued with original issue   
discount is the face amount of such                                             

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Indebtedness less the remaining unamortized portion of the original issue       
discount of such Indebtedness at such time as determined in conformity with GAAP
and (B) Indebtedness shall not include any liability for federal, state, local  
or other taxes.                                                                 

"Insolvency or Liquidation Proceeding" means (i) any insolvency or      
bankruptcy case or proceeding, or any receivership, liquidation, reorganization 
or other similar case or proceeding in connection therewith, relating to us or  
our assets, or (ii) any liquidation, dissolution or other winding up of our     
company, whether voluntary or involuntary or whether or not involving insolvency
or bankruptcy, or (iii) any assignment for the benefit of creditors or any other
marshalling of assets or liabilities of our company.                            

"Interest Rate or Currency Protection Agreement" of any Person means any
interest rate protection agreement (including, without limitation, interest rate
swaps, caps, floors, collars, derivative instruments and similar agreements),   
and/or other types of interest hedging agreements and any currency protection   
agreement (including foreign exchange contracts, currency swap agreements or    
other currency hedging arrangements) entered into for bona fide purposes in     
support of our business and not of a speculative nature.                        

    "Investment" in any Person means any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business that are, in      
conformity with GAAP, recorded as accounts receivable on the balance sheet of   
such Person) or other extensions of credit (including by way of Guarantee or    
similar arrangement) or capital contribution to (by means of any transfer of    
cash or other property to others or any payment for property or services for the
account or use of others), or any purchase or acquisition of Capital Stock,     
Indebtedness or other similar instruments issued by, such Person. For purposes  
of the definition of "Unrestricted Subsidiary," the definition of "Restricted   
Payment" and the covenant described under "-- Certain Covenants -- Limitation on
Restricted Payments," (i) "Investment" shall include the portion (proportionate 
to our equity interest in such Subsidiary) of the fair market value of the net  
assets of any Subsidiary of ours at the time that such Subsidiary is designated 
an Unrestricted Subsidiary; provided, however, that upon a redesignation of such
Subsidiary as a Restricted Subsidiary, we shall be deemed to continue to have a 
permanent "Investment" in an Unrestricted Subsidiary equal to an amount (if     
positive) equal to (x) our "Investment" in such Unrestricted Subsidiary at the  
time of such redesignation as a Restricted Subsidiary less (y) the portion      
(proportionate to our equity interest in such Unrestricted Subsidiary) of the   
fair market value of the net assets of such Unrestricted Subsidiary at the time 
of such redesignation as a Restricted Subsidiary; and (ii) any property         
transferred to or from an Unrestricted Subsidiary shall be valued at its fair   
market value at the time of such transfer, in each case as determined in good   
faith by the Board of Directors.                                                

"Issue Date" means the date on which the notes are originally issued.   

  "Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention     
agreement or lease in the nature thereof).                                      

"Net Available Cash" from an Asset Disposition means payments in cash or
cash equivalents received therefrom (including any cash payments received by way
of deferred payment of principal pursuant to a note or installment receivable or
otherwise, but only as and when received, but excluding any other consideration 
received in the form of assumption by the acquiring Person of Indebtedness or   
other obligations relating to such properties or assets or received in any other
noncash form) in each case net of (i) all legal, title and recording tax        
expenses, commissions and other fees and expenses incurred (including fees and  
expenses of investment bankers), and all federal, state, provincial, foreign and
local taxes required to be accrued as a liability under GAAP, incurred in       
connection with such Asset Disposition, (ii) all payments made on any           
Indebtedness which is secured by a Lien on any assets subject to such Asset     
Disposition, in accordance with the terms of any Lien upon or other security    
agreement of any kind with respect to such assets, or which must by its terms,  
or in order to obtain a necessary consent to such Asset Disposition, or by      
applicable law be, repaid out of the proceeds from such Asset Disposition, (iii)
all distributions and other payments required to be made to minority interest   
holders in Subsidiaries or joint ventures as a result of such Asset Disposition 
and (iv) the deduction of appropriate amounts provided by the seller as a       
reserve, in accordance with GAAP, against any liabilities associated with the   
property or other assets disposed in such Asset Disposition, including, without 
limitation, pension and other post-employment benefit liabilities, liabilities  
related to environmental matters and liabilities under any indemnification      
obligations associated with such Asset Dispositions, all as determined in       
conformity with GAAP, and retained by us or any Restricted Subsidiary after such
Asset Disposition.                                                              

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   "Net Cash Proceeds," with respect to any issuance or sale of Capital Stock,
means the proceeds of such issuance or sale in the form of cash or cash         
equivalents net of attorneys' fees, accountants' fees, underwriters' or         
placement agents' fees, discounts or commissions and brokerage, consultant and  
other fees actually incurred in connection with such issuance or sale and net of
taxes paid or payable as a result thereof.                                      

"Permitted Holders" means G. Stephen Felker and/or any "Permitted       
Transferee" (as defined in the Restated and Amended Articles of Incorporation of
Avondale Incorporated as of the Issue Date) of G. Stephen Felker.               

"Permitted Investment" means an investment by us or any Restricted      
Subsidiary in (i) a Receivables Subsidiary or a Restricted Subsidiary or a      
Person that will, upon the making of such Investment, become a Restricted       
Subsidiary; provided, however, that the primary business of such Restricted     
Subsidiary is a Related Business; (ii) another Person if as a result of such    
Investment such other Person is merged or consolidated with or into, or         
transfers or conveys all or substantially all its assets to, us or a Restricted 
Subsidiary; provided, however, that such Person's primary business is a Related 
Business; (iii) Temporary Cash Investments; (iv) receivables owing to us or any 
Restricted Subsidiary if created or acquired in the ordinary course of business 
and payable or dischargeable in accordance with customary trade terms; provided,
however, that such trade terms may include such concessionary trade terms as we 
deem or any such Restricted Subsidiary deems reasonable under the circumstances;
(v) payroll, travel and similar advances to cover matters that are expected at  
the time of such advances ultimately to be treated as expenses for accounting   
purposes and that are made in the ordinary course of business; (vi) loans or    
advances to employees made in the ordinary course of business consistent with   
past practices of our company or such Restricted Subsidiary; (vii) stock,       
obligations or securities received in settlement of debts created in the        
ordinary course of business and owing to us or any Restricted Subsidiary or in  
satisfaction of judgments; (viii) any Person to the extent such investment      
represents the non-cash portion of the consideration received for an Asset      
Disposition as permitted pursuant to the covenant described under "-- Certain   
Covenants -- Limitation on Sales of Assets and Subsidiary Stock"; and (ix) a    
trust, limited liability company, special purpose entity or other similar entity
in connection with a Receivables Program; provided, however, that (A) such      
Investment is made by a Receivables Subsidiary and (B) the only assets          
transferred to such trust, limited liability company, special purpose or other  
similar entity consist of Receivables and Related Assets of such Receivables    
Subsidiary.                                                                     

"Person" means any individual, corporation, partnership, joint venture, 
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.             

 "Post-Petition Interest" means all interest accrued or accruing after the
commencement of any Insolvency or Liquidation Proceeding (and interest that     
would accrue but for the commencement of any Insolvency or Liquidation          
Proceeding) in accordance with and at the contract rate (including, without     
limitation, any rate applicable upon default) specified in the agreement or     
instrument creating, evidencing or governing any Indebtedness, whether or not,  
pursuant to applicable law or otherwise, the claim for such interest is allowed 
as a claim in such Insolvency or Liquidation Proceeding.                        

    "Preferred Stock," as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends, or as to the distribution of assets upon any       
voluntary or involuntary liquidation or dissolution of such corporation, over   
shares of Capital Stock of any other class of such corporation.                 

  "principal" of a note means the principal of the note plus the premium, if
any, payable on the note which is due or overdue or is to become due at the     
relevant time.                                                                  

"Receivables and Related Assets" means accounts receivable, instruments,
chattel paper, obligations, general intangibles and other similar assets,       
including interest in merchandise or goods, the sale or lease of which give rise
to the foregoing, related contractual rights, guarantees, insurance proceeds,   
collections, other related assets and proceeds of all the foregoing.            

"Receivables Program" means, with respect to any Person, any accounts   
receivable securitization program pursuant to which such Person pledges, sells  
or otherwise transfers or encumbers its accounts receivable, including to a     
trust, limited liability company, special purpose entity or other similar       
entity.                                                                         

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  "Receivables Subsidiary" means a Restricted Subsidiary (i) created for the
purpose of financing receivables created in our and our Subsidiaries' ordinary  
course of business and (ii) the sole assets of which consist of Receivables and 
Related Assets of our company and our Subsidiaries and related Permitted        
Investments.                                                                    

  "Reference Treasury Dealer" means each of (1) Wachovia Securities, LLC and
its successors; provided, however, that if Wachovia Securities, LLC shall cease 
to be a primary U.S. Government securities dealer in the City of New York, we   
shall substitute therefor another primary U.S. Government securities dealer, and
(2) any other primary U.S. Government securities dealers selected by us.        

    "Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer and any redemption date, the average, as determined by us, of   
the bid and asked prices for the Comparable Treasury Issue (expressed in each   
case as a percentage of its principal amount) quoted in writing to us by such   
Reference Treasury Dealer at 5:00 p.m. on the third business day preceding such 
redemption date.                                                                

"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other      
Indebtedness in exchange or replacement for, such indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings.                                  

"Refinancing Indebtedness" means Indebtedness that Refinances any       
Indebtedness of our company or any Restricted Subsidiary existing on the Issue  
Date or incurred in compliance with this indenture, including Indebtedness that 
refinances Refinancing Indebtedness; provided, however, that (i) such           
Refinancing Indebtedness has a Stated Maturity no earlier than the Stated       
Maturity of the Indebtedness being Refinanced, (ii) such Refinancing            
Indebtedness has an Average Life at the time such Refinancing Indebtedness is   
incurred that is equal to or greater than the Average Life of the Indebtedness  
being Refinanced and (iii) such Refinancing Indebtedness has an aggregate       
principal amount (or if incurred with original issue discount, an aggregate     
issue price) that is equal to or less than the aggregate principal amount (or if
incurred with original issue discount, the aggregate accreted value) then       
outstanding or committed (plus fees and expenses including any premium and      
defeasance costs) under the Indebtedness being Refinanced; provided further,    
however, that Refinancing Indebtedness shall not include (x) Indebtedness of a  
Subsidiary that Refinances our Indebtedness, (y) Indebtedness of our company or 
a Restricted Subsidiary that Refinances Indebtedness of an Unrestricted         
Subsidiary (z) Indebtedness that Refinances Indebtedness of a Subsidiary that   
was incurred and outstanding on or prior to the date such Subsidiary was        
acquired by us unless such proposed Refinancing Indebtedness is incurred by such
Subsidiary.                                                                     

"Related Business" means the business conducted by us and our Restricted
Subsidiaries on the Issue Date, any reasonable extension thereof, and any       
additional business reasonably related, incidental, ancillary or complementary  
to the businesses of our company and our Restricted Subsidiaries on the Issue   
Date.                                                                           

   "Representative" means any trustee, agent or representative (if any) for an
issue of our Senior Indebtedness.                                               

    "Restricted Payment" with respect to any Person means (i) the declaration or
payment of any dividends or any other distributions in respect of its Capital   
Stock (including any payment in connection with any merger or consolidation     
involving such Person) or similar payment to the direct or indirect holders of  
its Capital Stock (other than dividends or distributions payable solely in its  
Capital Stock (other than Disqualified Stock)) and dividends or distributions   
payable solely to us or a Restricted Subsidiary, and other than pro rata        
dividends or other distributions made by a Restricted Subsidiary that is not a  
Wholly Owned Subsidiary to minority stockholders (or owners of an equivalent    
interest in the case of a Subsidiary that is an entity other than a             
corporation)), (ii) the purchase, redemption or other acquisition or retirement 
for value of any Capital Stock of our company held by any Person or of any      
Capital Stock of a Restricted Subsidiary held by any Affiliate of ours (other   
than a Restricted Subsidiary), including the exercise of any option to exchange 
any Capital Stock (other than into Capital Stock of our company that is not     
Disqualified Stock), (iii) the purchase, repurchase, redemption, defeasance or  
other acquisition or retirement for value, prior to scheduled maturity,         
scheduled repayment or scheduled sinking fund payment of any Subordinated       
Obligations (other than the purchase, repurchase, or other acquisition of       
Subordinated Obligations purchased in anticipation of satisfying a sinking fund 
obligation, principal installment or final maturity, in each case due within one
year of the date of acquisition) or (iv) the making of any Investment in any    
Person (other than a Permitted Investment).                                     

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"Restricted Subsidiary" means any Subsidiary of ours that is not an     
Unrestricted Subsidiary.                                                        

"SEC" means the Securities and Exchange Commission.                     

"Senior Indebtedness" means with respect to any Person, (i) Indebtedness
referred to in clause (i) of the definition of "Designated Senior Indebtedness,"
(ii) Indebtedness of such Person, whether outstanding on the Issue Date or      
thereafter incurred and (iii) accrued and unpaid interest (including            
Post-Petition Interest) in respect of (A) indebtedness of such Person for money 
borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other    
similar instruments for the payment of which such Person is responsible or      
liable unless, in the instrument creating or evidencing the same or pursuant to 
which the same is outstanding, it is provided that such obligations are         
subordinate in right of payment to the notes; provided, however, that Senior    
Indebtedness shall not include (1) any obligation of such Person to any         
Subsidiary, (2) any liability for Federal, state, local or other taxes owed or  
owing by such Person, (3) any accounts payable or other liability to trade      
creditors arising in the ordinary course of business (including guarantees      
thereof or instruments evidencing such liabilities), (4) any Indebtedness of    
such Person (and any accrued and unpaid interest in respect thereof) which is   
subordinate or junior in any respect to any other Indebtedness or other         
obligation of such Person or (5) that portion of any Indebtedness which at the  
time of incurrence is incurred in violation of this indenture.                  

"Senior Subordinated Indebtedness" means the notes and any other        
Indebtedness of our company that specifically provides that such Indebtedness is
to rank pari passu with the notes in right of payment and is not subordinated by
its terms in right of payment to any Indebtedness or other obligation of ours   
which is not Senior Indebtedness.                                               

"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of our company within the meaning of Rule 1-02 under   
Regulation S-X promulgated by the SEC.                                          

"stated maturity" means, with respect to any security or obligation, the
date specified in such security as the fixed date on which the final payment of 
principal of such security or obligation is due and payable, including pursuant 
to any mandatory redemption provision (but excluding any provision providing for
the repurchase of such security at the option of the holder thereof upon the    
happening of any contingency beyond the control of the issuer unless such       
contingency has occurred).                                                      

"Subordinated Obligation" means any Indebtedness of our company (whether
outstanding on the Issue Date or thereafter incurred) which is subordinate or   
junior in right of payment to the notes pursuant to a written agreement to that 
effect.                                                                         

   "Subsidiary" means, in respect of any Person, any corporation, association,
partnership or other business entity of which more than 50% of the total voting 
power of outstanding shares of Capital Stock or other interests (including      
partnership interests) entitled (without regard to the occurrence of any        
contingency) to vote in the election of directors, managers or trustees thereof 
is at the time owned or controlled, directly or indirectly, by (i) such Person, 
(ii) such Person and one or more Subsidiaries of such Person or (iii) one or    
more Subsidiaries of such Person.                                               

   "Temporary Cash Investments" means any of the following: (i) any investment
in direct obligations of the United States of America or any agency thereof or  
obligations guaranteed by the United States of America or any agency thereof,   
(ii) investments in time deposit accounts, certificates of deposit and money    
market deposits maturing within 180 days of the date of acquisition thereof     
issued by a bank or trust company which is organized under the laws of the      
United States of America, any state thereof or any foreign country recognized by
the United States of America, and which bank or trust company has capital,      
surplus and undivided profits aggregating in excess of $50,000,000 (or the      
foreign currency equivalent thereof) and has outstanding debt that is rated "A" 
(or such similar equivalent rating) or higher by at least one nationally        
recognized statistical rating organization (as defined in Rule 436 under the    
Securities Act) or any money-market fund sponsored by a registered broker dealer
or mutual fund distributor, (iii) repurchase obligations with a term of not more
than 30 days for underlying securities of the types described in clause (i)     
above entered into with a bank meeting the qualifications described in clause   
(ii) above, (iv) investments in commercial paper, maturing not more than 90 days
after the date of acquisition, issued by a corporation (other than an Affiliate 
of our company) organized and in existence under the laws of the United States  

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of America or any foreign country recognized by the United States of America    
with a rating at the time as of which any investment therein is made of "P-1"   
(or higher) according to Moody's Investors Service, Inc. or "A-1" (or higher)   
according to Standard and Poor's Ratings Group, and (v) investments in          
securities with maturities of six months or less from the date of acquisition   
issued or fully guaranteed by any state, commonwealth or territory of the United
States of America, or by any political subdivision or taxing authority thereof, 
and rated at least "A" by Standard & Poor's Ratings Group or "A" by Moody's     
Investors Service, Inc.                                                         

"Treasury Rate" means, with respect to any redemption date, the rate per
annum equal to the semiannual equivalent yield to maturity of the Comparable    
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as
a percentage of its principal amount) equal to the Comparable Treasury Price for
such redemption date.                                                           

 "Unrestricted Subsidiary" means (i) any Subsidiary of our company that at
the time of determination shall be designated an Unrestricted Subsidiary by the 
Board of Directors in the manner provided below and (ii) any Subsidiary of an   
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of 
our company (including any newly acquired or newly formed Subsidiary) to be an  
Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns  
any Capital Stock or Indebtedness of, or holds any Lien on any property of, our 
company or any other Subsidiary of our company that is not a Subsidiary of the  
Subsidiary to be so designated; provided, however, that either (A) the          
Subsidiary to be so designated has total assets of $1,000 or less or (B) if such
Subsidiary has assets greater than $1,000, such designation would be permitted  
under the covenant described under "-- Certain Covenants -- Limitation on       
Restricted Payments". The Board of Directors may designate any Unrestricted     
Subsidiary to be a Restricted Subsidiary; provided, however, that immediately   
after giving effect to such designation (x) we could incur $1.00 of additional  
Indebtedness under paragraph (a) of the covenant described under "-- Certain    
Covenants -- Limitation on Indebtedness" and (y) no Default shall have occurred 
and be continuing. Any such designation by the Board of Directors shall be      
evidenced to the trustee by promptly filing with the trustee a copy of the      
resolution giving effect to such designation and an Officers' Certificate       
certifying that such designation complied with the foregoing provisions.        

"U.S. Government Obligations" means direct obligations (or certificates 
representing an ownership interest in such obligations) of the United States of 
America (including any agency or instrumentality thereof) for the payment of    
which the full faith and credit of the United States of America is pledged and  
which are not callable at the issuer's option.                                  

"Voting Stock" of a Person means all classes of Capital Stock or other  
interests (including partnership interests) of such Person then outstanding and 
normally entitled (without regard to the occurrence of any contingency) to vote 
in the election of directors, managers or trustees thereof.                     

   "Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares and shares held by other
Persons to the extent such shares are required by applicable law to be held by a
Person other than us or a Restricted Subsidiary) is owned by us or one or more  
Wholly Owned Subsidiaries.                                                      

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 REGISTRATION RIGHTS

  As part of the sale of the old notes to the initial purchasers, we and the
initial purchasers entered into a registration rights agreement dated June 30,  
2003, which we refer to as the issue date, pursuant to which we agreed that we  
will, at our expense, for the benefit of the holders of the notes:              

   -    file with the SEC an exchange offer registration statement by the 90th
  day after the date the notes are issued pursuant to which we and
      Avondale Incorporated will offer, in exchange for the old notes, new
       notes, identical in all material respects to, and evidencing the same
       indebtedness as, the old notes (but which will not contain terms with
         respect to transfer restrictions or provide for the additional interest
described below);                                             

-    cause the exchange offer registration statement to be declared     
     effective under the Securities Act by the 170th day after the issue
date;                                                         

  -    cause the exchange to be consummated by the 200th day after the issue
date.                                                         

In the event that:                                                              

-    we and Avondale Incorporated are not permitted to file the exchange
         offer registration statement or to consummate the exchange offer due to
a change in law or SEC policy;                                

-    for any reason, we and Avondale Incorporated do not consummate the 
exchange offer by the 200th day after the issue date;         

-    any holder notifies us on or prior to the 30th day following the   
consummation of the exchange offer that:                      

        -    it is not permitted under law or SEC policy to participate in
the exchange offer;                             

      -    it cannot publicly resell new notes that it acquires in the
       exchange offer without delivering a prospectus, and the
       prospectus contained in the exchange offer registration
             statement is not appropriate or available for resales by that
holder; or                                      

    -    it is a broker-dealer and holds old notes that it has not
             exchanged and that it acquired directly from us or one of our
affiliates; or                                  

        -    the initial purchaser so requests on or prior to the 30th day
              following the consummation of the exchange offer (with respect
        to notes which have not been resold and that it acquired
       directly from Avondale Incorporated or us or one of our
affiliates);                                    

then in addition to or in lieu of conducting the exchange offer, we and Avondale
Incorporated will be required to use our reasonable best efforts to file a shelf
registration statement with the SEC to cover resales of the notes or the new    
notes, as the case may be. In that case, we and Avondale Incorporated will use  
our reasonable best efforts (a) to file the shelf registration statement by the 
30th day after they become obligated to make the filing, (b) to cause the       
registration statement to become effective by the 60th day after they become    
obligated to make the filing, and (c) to maintain the effectiveness of the      
registration statement for two years or such lesser period after which all the  
notes registered therein can be resold without limitation under the Securities  
Act.                                                                            

We will pay additional interest if one of the following "registration   
defaults" occurs:                                                               

-    we and Avondale Incorporated do not file the exchange offer        
     registration statement by the 90th day after the date the notes are
issued;                                                       

    -    the exchange offer registration statement is not effective by the 170th
day after the issue date;                                     

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 -    we and Avondale Incorporated do not consummate the exchange offer by
the 200th day after the issue date;                           

-    we and Avondale Incorporated do not file the shelf registration    
 statement by the 30th day after we become obligated to file it;

    -    the shelf registration statement is not effective by the 90th day after
we become obligated to file it; or                            

-    the exchange offer registration statement or the shelf registration
     statement is declared effective, but thereafter, subject to certain
     exceptions, ceases to be effective or usable in connection with the
      exchange offer or resales of any notes registered under registration
statement.                                                    

 If one of these registration defaults occurs, the annual interest rate on
the notes will increase by 0.25% per year. The amount of additional interest    
will increase by an additional 0.25% per year for any subsequent 90 day period  
until all registration defaults are cured, up to a maximum additional interest  
rate of 0.75% per year over the interest rate of 10.25%. When we have cured all 
the registration defaults, the interest rate on the notes will revert           
immediately to the original level.                                              

 Under current SEC interpretations, the new notes will generally be freely
transferable after the exchange offer, except that any broker-dealer that       
participates in the exchange offer must deliver a prospectus meeting the        
requirements of the Securities Act when it resells any new notes. We have agreed
to make available a prospectus for these purposes for 180 days after the        
consummation of the exchange offer. A broker-dealer that delivers a prospectus  
is subject to the civil liability provisions of the Securities Act and will also
be bound by the registration rights agreement, including indemnification        
obligations.                                                                    

Holders of notes must make certain representations (as described in the 
registration rights agreement) to participate in the exchange offer, notably    
that they are not an affiliate of Avondale Incorporated or us and that they are 
acquiring the new notes in the ordinary course of business and without any      
arrangement or intention to make a distribution of the new notes. Holders of old
notes or new notes must also deliver certain information that is required for a 
shelf registration statement and provide comments on the shelf registration     
statement within the time periods specified in the registration rights agreement
in order to have their old notes or new notes included in the shelf registration
statement and to receive the liquidated damages described above. A broker-dealer
that receives new notes in the new offer or as part of its market-making or     
other trading activities must acknowledge that it will deliver a prospectus when
it resells the new notes.                                                       

 BOOK-ENTRY; DELIVERY AND FORM

THE GLOBAL NOTES                                                                

The new notes will initially be represented by permanent global notes in
fully registered form without interest coupons, which we refer to as global     
notes, and will be deposited with the trustee as a custodian for The Depositary 
Trust Company, or DTC, and registered in the name of a nominee of such          
depositary.                                                                     

We expect that pursuant to procedures established by DTC (i) upon the   
issuance of the global notes, DTC or its custodian will credit, on its internal 
system, the principal amount at maturity of the individual beneficial interests 
represented by such global notes to the respective accounts of persons who have 
accounts with such depositary and (ii) ownership of beneficial interests in the 
global notes will be shown on, and the transfer of such ownership will be       
effected only through, records maintained by DTC or its nominee (with respect to
interests of participants) and the records of participants (with respect to     
interests of persons other than participants). Ownership of beneficial interests
in the global notes will be limited to persons who have accounts with DTC, who  
we refer to as participants, or persons who hold interests through participants.
Holders may hold their interests in the global notes directly through DTC if    
they are participants in such system, or indirectly through organizations which 
are participants in such system.                                                

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    So long as DTC, or its nominee, is the registered owner or holder of the new
notes, DTC or such nominee, as the case may be, will be considered the sole     
owner or holder of the new notes represented by such global notes for all       
purposes under the indenture. No beneficial owner of an interest in the global  
notes will be able to transfer that interest except in accordance with DTC's    
procedures, in addition to those provided for under the indenture with respect  
to the new notes.                                                               

Payments of the principal of, premium (if any) and interest (including  
additional interest) on the global notes will be made to DTC or its nominee, as 
the case may be, as the registered owner thereof. None of us, the trustee or any
paying agent will have any responsibility or liability for any aspect of the    
records relating to or payments made on account of beneficial ownership         
interests in the global notes or for maintaining, supervising or reviewing any  
records relating to such beneficial ownership interest.                         

    We expect that DTC or its nominee, upon receipt of any payment of principal,
premium, if any, interest (including additional interest) on the global notes,  
will credit participants' accounts with payments in amounts proportionate to    
their respective beneficial interests in the principal amount of the global     
notes as shown on the records of DTC or its nominee. We also expect that        
payments by participants to owners of beneficial interests in the global notes  
held through such participants will be governed by standing instructions and    
customary practice, as is now the case with securities held for the accounts of 
customers registered in the names of nominees for such customers. Such payments 
will be the responsibility of such participants.                                

  Transfers between participants in DTC will be effected in the ordinary way
through DTC's same-day funds system in accordance with DTC rules and will be    
settled in same day funds. If a holder requires physical delivery of a          
certificated security for any reason, including to sell new notes to persons in 
states which require physical delivery of the new notes, or to pledge such      
securities, such holder must transfer its interest in a global note, in         
accordance with the normal procedures of DTC and with the procedures set forth  
in the indenture.                                                               

  DTC has advised us that it will take any action permitted to be taken by a
holder of new notes (including the presentation of new notes for exchange as    
described below) only at the direction of one or more participants to whose     
account the DTC interests in the global notes are credited and only in respect  
of such portion of the aggregate principal amount of new notes as to which such 
participant or participants has or have given such direction. However, if there 
is an event of default under the indenture, DTC will exchange the global notes  
for certificated securities, which it will distribute to its participants.      

DTC has advised us as follows: DTC is a limited purpose trust company   
organized under the laws of the State of New York, a member of the Federal      
Reserve System, a "clearing corporation" within the meaning of the Uniform      
Commercial Code and a "Clearing Agency" registered pursuant to the provisions of
Section 17A of the Securities Exchange Act of 1934. DTC was created to hold     
securities for its participants and facilitate the clearance and settlement of  
securities transactions between participants through electronic book-entry      
changes in accounts of its participants, thereby eliminating the need for       
physical movement of certificates. Participants include securities brokers and  
dealers, banks, trust companies and clearing corporations and certain other     
organizations. Indirect access to the DTC system is available to others such as 
banks, brokers, dealers and trust companies that clear through or maintain a    
custodial relationship with a participant, either directly or indirectly.       

  Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the global note among participants of DTC, it is under
no obligation to perform such procedures, and such procedures may be            
discontinued at any time. Neither we nor the trustee under the indenture will   
have any responsibility for the performance by DTC or its participants or       
indirect participants of their respective obligations under the rules and       
procedures governing their operations.                                          

CERTIFICATED SECURITIES                                                         

 A beneficial interest in a global note may not be exchanged for a note in
certificated form unless:                                                       

              (1) DTC (a) notifies us that it is unwilling or unable to continue
      as Depositary for the global note or (b) has ceased to be a clearing
 agency registered under the Exchange Act, and in either case we
  thereupon fail to appoint a successor Depositary within 90 days;

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        (2) We, at our option, notify the trustee in writing that it
        elects to cause the issuance of the new notes in certificated form; or

       (3) There shall have occurred and be continuing an event of
        default or any event which after notice or lapse of time or both would
be an event of default with respect to the new notes.         

  In all cases, certificated notes delivered in exchange for any global note
or beneficial interests therein will be registered in the names, and issued in  
any approved denominations, requested by or on behalf of the Depositary (in     
accordance with its customary procedures).                                      

MATERIAL UNITED STATES FEDERAL
 INCOME TAX CONSEQUENCES

EXCHANGE OF NOTES                                                               

The exchange of old notes for new notes in the exchange offer will not  
constitute a taxable event to holders. Consequently,                            

 -    no gain or loss will be recognized by a holder upon receipt of a new
note,                                                         

  -    the holding period of the new note will include the holding period of
the old note and                                              

    -    the adjusted tax basis of the new note will be the same as the adjusted
tax basis of the old note immediately before the exchange.    

 IN ANY EVENT, PERSONS CONSIDERING THE EXCHANGE OF OLD NOTES FOR NEW NOTES
SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE UNITED STATES FEDERAL      
INCOME TAX CONSEQUENCES IN LIGHT OF THEIR PARTICULAR SITUATIONS, AS WELL AS ANY 
CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTION.           

PLAN OF DISTRIBUTION

We and Avondale Incorporated are not using any underwriters for this    
exchange offer.                                                                 

  Each broker-dealer that receives new notes for its own account pursuant to
the exchange offer must acknowledge that it will deliver a prospectus in        
connection with any resale of the new notes. This prospectus, as it may be      
amended or supplemented from time to time, may be used by a broker-dealer in    
connection with resales of any new notes received in exchange for old notes     
acquired by the broker-dealer as a result of market-making or other trading     
activities. We and Avondale Incorporated have agreed that, for a period of up to
180 days after the consummation of the exchange offer, or such longer period as 
provided by the registration rights agreement, we and Avondale Incorporated will
make this prospectus, as amended or supplemented, available to any broker-dealer
for use in connection with any such resale. In addition, during this 180 day or 
such longer period, all dealers effecting transactions in the new notes may be  
required to deliver a prospectus.                                               

   We and Avondale Incorporated will not receive any proceeds from any sale of
new notes by broker-dealers or any other persons. New notes received by         
broker-dealers for their own account pursuant to the exchange offer may be sold 
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the new notes, or a  
combination of these methods of resale, at market prices prevailing at the time 
of resale, at prices related to the prevailing market prices or negotiated      
prices. Any resale may be made directly to purchasers or to or through brokers  
or dealers who may receive compensation in the form of commissions or           
concessions from any broker-dealer and/or the purchasers of any new notes. Any  
broker-dealer that resells new notes that were received by it for its own       
account pursuant to the exchange offer and any broker-dealer that participates  
in a distribution of new notes may be deemed to be an "underwriter" within the  
meaning of the Securities Act, and any profit resulting from these resales of   
new notes and any commissions or concessions received by any of these persons   
may be deemed to be underwriting compensation under the Securities Act. The     

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letter of transmittal states that, by acknowledging that it will deliver and by 
delivering a prospectus, a broker-dealer will not be deemed to admit that it is 
an "underwriter" within the meaning of the Securities Act.                      

    For a period of up to 180 days after the consummation of the exchange offer,
or such longer period as provided by the registration rights agreement, we and  
Avondale Incorporated will promptly send additional copies of this prospectus   
and any amendment or supplement to this prospectus to any broker-dealer that    
requests these documents in the letter of transmittal. We and Avondale          
Incorporated have agreed to pay all expenses incident to the exchange offer     
other than commissions or concessions of any brokers or dealers and will        
indemnify the holders of the old notes and the new notes (including any         
broker-dealers) against certain liabilities, including liabilities under the    
Securities Act.                                                                 

 LEGAL MATTERS

  The validity of the new notes and the guarantee will be passed upon for us
by King & Spalding LLP. Bradley Arant Rose & White LLP will provide certain     
opinions with respect to matters involving Alabama law.                         

 EXPERTS

The consolidated financial statements of Avondale Incorporated and      
Subsidiaries as of August 30, 2002 and for the year then ended included in this 
prospectus have been audited by Crisp Hughes Evans LLP, independent auditors, as
stated in their report appearing herein. The consolidated financial statements  
of Avondale Incorporated and subsidiaries as of August 31, 2001 and for the     
years ended August 25, 2000 and August 31, 2001, included in this prospectus,   
have been audited by Arthur Andersen LLP, independent public accountants, as    
stated in their report which is also included in this prospectus. On May 14,    
2002, we and Avondale Incorporated engaged Crisp Hughes Evans LLP to replace    
Arthur Andersen LLP as our independent auditors. Relief in connection with      
claims which may be available to you against auditing firms may not be available
as a practical matter against Arthur Andersen LLP. See "Risk Factors -- You are 
unlikely to be able to seek remedies against Arthur Andersen LLP, our former    
independent auditor."                                                           

    In reliance on the temporary relief provided by the SEC under Rule 437(a) of
the Securities Act, we filed the registration statement, of which this          
prospectus is a part, without the written consent of Arthur Andersen LLP as     
required by Section 7 of the Securities Act. Accordingly, you will not be able  
to sue Arthur Andersen LLP pursuant to Section 11(a) of the Securities Act and  
therefore your right of recovery under that section may be limited as a result  
of the lack of consent.                                                         

At a meeting held on May 14, 2002, the Audit Committee of the Board of  
Directors of Avondale Incorporated approved the engagement of Crisp Hughes Evans
LLP as its independent accountants for the fiscal year ended August 30, 2002.   
Concurrently, the Audit Committee determined to dismiss Arthur Andersen LLP,    
Avondale Incorporated's former independent accountants. Avondale Incorporated   
notified both Arthur Andersen LLP and Crisp Hughes Evans LLP of the dismissal of
Arthur Andersen LLP and the engagement of Crisp Hughes Evans LLP on May 15,     
2002.                                                                           

  The reports of Arthur Andersen LLP on Avondale Incorporated's consolidated
financial statements for the past two fiscal years did not contain an adverse   
opinion or a disclaimer of opinion and were not qualified or modified as to     
uncertainty, audit scope or accounting principles, nor was there any event of   
the type requiring disclosure under Item 304(a)(1)(v) of Regulation S-K.        

In connection with the audits of Avondale Incorporated's consolidated   
financial statements for each of the two fiscal years ended August 31, 2001, and
in the subsequent interim period, there were no disagreements with Arthur       
Andersen LLP on any matters of accounting principles or practices, financial    
statement disclosure or auditing scope and procedures which, if not resolved to 
the satisfaction of Arthur Andersen LLP, would have caused Arthur Andersen LLP  
to make reference to the matter in their report.                                

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INDEX TO FINANCIAL STATEMENTS AND SCHEDULE

                                                        [Enlarge/Download Table]

                                                                                                   PAGE
                                                                                                   ----
                                                                                                       
AVONDALE INCORPORATED AND SUBSIDIARIES                                                                 
Report of Independent Public Accountants.......................................................... F-2 
Report of Independent Public Accountants.......................................................... F-3 
Consolidated Balance Sheets at August 31, 2001 and August 30, 2002................................ F-4 
Consolidated Statements of Income for the years ended August 25, 2000, August 31, 2001 and             
  August 30, 2002................................................................................. F-5 
Consolidated Statements of Shareholders' Equity for the years ended August 30, 2002, August 31,        
  2001 and August 25, 2000........................................................................ F-6 
Consolidated Statements of Cash Flows for the years ended August 25, 2000, August 31, 2001 and         
  August 30, 2002................................................................................. F-7 
Notes to Consolidated Financial Statements........................................................ F-8 
Schedule II - Valuation and Qualifying Accounts................................................... F-29
Condensed Consolidated Balance Sheets at August 30, 2002 and May 30, 2003 (Unaudited)............. F-30
Condensed Consolidated Statements of Income for the thirty-nine weeks ended May 31, 2002 and           
  May 30, 2003 (Unaudited)........................................................................ F-31
Condensed Consolidated Statements of Cash Flows for the thirty-nine weeks ended May 31, 2002 and       
  May 30, 2003 (Unaudited)........................................................................ F-32
Notes to Condensed Consolidated Financial Statements (Unaudited).................................. F-33

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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Avondale Incorporated:                                                       

We have audited the accompanying consolidated balance sheet of Avondale 
Incorporated and subsidiaries as of August 30, 2002, and the related            
consolidated statements of income, shareholders' equity and cash flows for the  
year then ended. These consolidated financial statements and the schedule       
referred to below are the responsibility of the Company's management. Our       
responsibility is to express an opinion on these financial statements and       
schedule based on our audit. The consolidated balance sheet of Avondale         
Incorporated and subsidiaries as of August 31, 2001 and the related consolidated
statements of income, shareholders' equity and cash flows and the schedule      
referred to below for each of the fiscal years ended August 25, 2000 and August 
31, 2001 were audited by other auditors who have ceased operations. Those       
auditors expressed an unqualified opinion on those financial statements and     
schedule, prior to the restatement as described in note 8, in their report dated
October 9, 2001.                                                                

We conducted our audit in accordance with auditing standards generally  
accepted in the United States of America. Those standards require that we plan  
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a 
test basis, evidence supporting the amounts and disclosures in the financial    
statements. An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall     
financial statement presentation. We believe that our audit provides a          
reasonable basis for our opinion.                                               

    In our opinion, the 2002 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Avondale    
Incorporated and subsidiaries as of August 30, 2002, and the results of their   
operations and their cash flows for the year then ended in conformity with      
accounting principles generally accepted in the United States of America.       

  Our audit was made for the purpose of forming an opinion on the 2002 basic
consolidated financial statements taken as a whole. Schedule II is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic consolidated financial statements. This schedule has been 
subjected to the auditing procedures applied in the audit of the basic          
consolidated financial statements and, in our opinion, the 2002 information     
fairly states in all material respects the financial data required to be set    
forth therein in relation to the basic consolidated financial statements taken  
as a whole.                                                                     

As discussed above, the consolidated financial statements for the years 
ended August 25, 2000 and August 31, 2001 were audited by other auditors who    
have ceased operations. As described in note 8, these financial statements have 
been restated. We audited the adjustments described in note 8 which were applied
to restate those consolidated financial statements. In our opinion, such        
adjustments are appropriate and have been properly applied. However, we were not
engaged to audit, review, or apply any other procedures to the 2000 and 2001    
consolidated financial statements of the Company other than with respect to such
adjustments and, accordingly, we do not express an opinion or any other form of 
assurance on the 2000 and 2001 consolidated financial statements taken as a     
whole.                                                                          

                          Crisp Hughes Evans LLP

Atlanta, Georgia                                                                
October 11, 2002                                                                

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THE REPORT THAT APPEARS BELOW WAS ISSUED BY THE COMPANY'S PREVIOUS      
INDEPENDENT ACCOUNTANTS, ARTHUR ANDERSEN LLP. THAT FIRM HAS NOT REISSUED THEIR  
REPORT, AND HAS DISCONTINUED PERFORMING AUDITING AND ACCOUNTING SERVICES.       

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Avondale Incorporated:                                                       

We have audited the accompanying consolidated balance sheets of Avondale
Incorporated as of August 31, 2001, and the related consolidated statements of  
income, shareholders' equity and cash flows for each of the two years in the    
period ended August 31, 2001. These financial statements and the schedule       
referred to below are the responsibility of the Company's management. Our       
responsibility is to express an opinion on these financial statements and       
schedule based on our audits.                                                   

We conducted our audits in accordance with auditing standards generally 
accepted in the United States. Those standards require that we plan and perform 
the audit to obtain reasonable assurance about whether the financial statements 
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An 
audit also includes assessing the accounting principles used and significant    
estimates made by management, as well as evaluating the overall financial       
statement presentation. We believe that our audits provide a reasonable basis   
for our opinion.                                                                

  In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Avondale       
Incorporated as of August 31, 2001, and the consolidated results of their       
operations and their cash flows for each of the two years in the period ended   
August 31, 2001 in conformity with accounting principles generally accepted in  
the United States.                                                              

Our audit was made for the purpose of forming an opinion on the basic   
financial statements taken as a whole. The schedule listed in the Index at Item 
14 (a) is presented for purposes of complying with the Securities and Exchange  
Commission's rules and is not part of the basic financial statements. This      
schedule has been subjected to the auditing procedures applied in the audit of  
the basic financial statements and, in our opinion, fairly states in all        
material respects the financial data required to be set forth therein in        
relation to the basic financial statements taken as a whole.                    

                               Arthur Andersen LLP

Atlanta, Georgia                                                                
October 9, 2001                                                                 

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 AVONDALE INCORPORATED

 CONSOLIDATED BALANCE SHEETS

                                                        [Enlarge/Download Table]

                                                                                          AUGUST 31,     AUGUST 30,  
                                                                                             2001          2002      
                                                                                         ------------   ------------ 
                                                                                          (IN THOUSANDS, EXCEPT PER  
                                                                                                 SHARE DATA)         
                                                                                                                     
                                          ASSETS                                                                     
Current assets                                                                                                       
   Cash................................................................................. $      2,969   $      2,859 
   Accounts receivable, less allowance for doubtful accounts of $2,616 in 2001 and                                   
      $2,199 in 2002....................................................................       46,573         43,305 
   Inventories..........................................................................       99,671         86,946 
   Prepaid expenses.....................................................................        1,409            385 
   Income taxes refundable..............................................................        6,721          6,550 
                                                                                         ------------   ------------ 
      Total current assets..............................................................      157,343        140,045 
Assets held for sale....................................................................           --          3,645 
Property, plant and equipment                                                                                        
   Land.................................................................................        8,400          6,634 
   Buildings............................................................................       91,383         81,823 
   Machinery and equipment..............................................................      566,279        526,897 
                                                                                         ------------   ------------ 
                                                                                              666,062        615,354 
   Less accumulated depreciation........................................................     (379,228)      (369,728)
                                                                                         ------------   ------------ 
                                                                                              286,834        245,626 
Other assets............................................................................        5,516          5,146 
Goodwill................................................................................        3,301          2,951 
                                                                                         ------------   ------------ 
                                                                                         $    452,994   $    397,413 
                                                                                         ============   ============ 
                           LIABILITIES AND SHAREHOLDERS' EQUITY                                                      
Current liabilities                                                                                                  
   Accounts payable..................................................................... $     24,147   $     30,591 
   Accrued compensation, benefits and related expenses..................................       10,194         10,369 
   Accrued interest.....................................................................        4,595          4,576 
   Other accrued expenses...............................................................       14,248         10,207 
   Long-term debt due in one year.......................................................          500          2,523 
                                                                                         ------------   ------------ 
   Total current liabilities............................................................       53,684         58,266 
Long-term debt..........................................................................      229,650        167,477 
Deferred income taxes and other long-term liabilities...................................       39,659         41,415 
Commitments and contingencies                                                                                        
Shareholders' equity                                                                                                 
   Preferred stock $.01 par value; 10,000 shares authorized.............................           --             -- 
   Common stock                                                                                                      
   Class A, $.01 par value; 100,000 shares authorized; issued and outstanding -- 11,552                              
     shares in 2001 and 2002............................................................          115            115 
   Class B, $.01 par value; 5,000 shares authorized; issued and outstanding -- 979                                   
     shares in 2001 and 2002............................................................           10             10 
  Capital in excess of par value........................................................       39,669         39,669 
  Accumulated other comprehensive loss..................................................         (561)          (889)
  Retained earnings.....................................................................       90,768         91,350 
                                                                                         ------------   ------------ 
    Total shareholders' equity..........................................................      130,001        130,255 
                                                                                         ------------   ------------ 
                                                                                         $    452,994   $    397,413 
                                                                                         ============   ============ 

The accompanying notes are an integral part of these consolidated 
financial statements. 

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 CONSOLIDATED STATEMENTS OF INCOME

                                                        [Enlarge/Download Table]

                                                                       FISCAL YEAR ENDED           
                                                            -------------------------------------- 
                                                            AUGUST 25,    AUGUST 31,    AUGUST 30, 
                                                               2000          2001         2002     
                                                            ----------    ----------   ----------- 
                                                            (IN THOUSANDS, EXCEPT PER SHARE DATA)  
                                                                                                   
Net sales.................................................. $  836,544    $  772,768   $   659,735 
Operating costs and expenses                                                                       
  Cost of goods sold.......................................    677,952       666,205       560,794 
  Depreciation.............................................     42,250        45,681        44,956 
  Selling and administrative expenses......................     38,474        32,989        28,289 
  Facility restructuring charges...........................         --            --         7,000 
                                                            ----------    ----------   ----------- 
   Operating income........................................     77,868        27,893        18,696 
Interest expense, net......................................     20,249        20,396        18,449 
Discount and expenses on sales of receivables..............      5,578         4,935         1,117 
Other expenses (income), net...............................        458           765          (513)
                                                            ----------    ----------   ----------- 
   Income (loss) before income taxes.......................     51,583         1,797          (357)
Provision for (benefit of) income taxes....................     18,580           540          (227)
                                                            ----------    ----------   ----------- 
   Net income (loss)....................................... $   33,003    $    1,257   $      (130)
                                                            ==========    ==========   =========== 
Per share data                                                                                     
   Net income (loss) -- basic.............................. $     2.61    $      .10   $      (.01)
                                                            ==========    ==========   =========== 
   Net income (loss) -- diluted............................ $     2.57    $      .10   $      (.01)
                                                            ==========    ==========   =========== 

The accompanying notes are an integral part of these consolidated 
financial statements. 

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 AVONDALE INCORPORATED

 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                                                        [Enlarge/Download Table]

                                                COMMON STOCK                      ACCUMULATED                            
                                                   ISSUED          CAPITAL IN        OTHER                      TOTAL    
                                             ------------------     EXCESS OF    COMPREHENSIVE   RETAINED    SHAREHOLDERS
                                             SHARES      AMOUNT     PAR VALUE         LOSS       EARNINGS      EQUITY    
                                             ------      ------    ----------    -------------   ---------   ------------
                                                              (IN THOUSANDS, EXCEPT PER SHARE DATA)                      
                                                                                                                         
Balance as previously reported at                                                                                        
  August 27, 1999........................... 12,677      $  127     $  39,835       $    --      $  65,034    $  104,996 
  Adjustment of deferred income taxes.......     --          --            --            --          4,000         4,000 
                                             ------      ------     ---------       -------      ---------    ---------- 
Balance at August 27, 1999.................. 12,677         127        39,835            --         69,034       108,996 
  Net income................................     --          --            --            --         33,003        33,003 
  Cash dividends ($0.40 per share)..........     --          --            --            --         (5,062)       (5,062)
  Common stock issued.......................     22          --           349            --             --           349 
  Purchase and retirement of treasury                                                                                    
   stock....................................   (155)         (2)         (488)           --         (2,291)       (2,781)
                                             ------      ------     ---------       -------      ---------    ---------- 
Balance at August 25, 2000.................. 12,544         125        39,696            --         94,684       134,505 
  Net income................................     --          --            --            --          1,257         1,257 
  Cumulative effect of adoption of                                                                                       
   Statement No. 133, net of income taxes...     --          --            --           427             --           427 
  Change in fair value of interest rate                                                                                  
   swaps, net of income taxes...............     --          --            --          (988)            --          (988)
  Cash dividends ($0.40 per share)..........     --          --            --            --         (5,015)       (5,015)
  Common stock issued.......................      1          --            20            --             --            20 
  Purchase and retirement of treasury                                                                                    
   stock....................................    (14)         --           (47)           --           (158)         (205)
                                             ------      ------     ---------       -------      ---------    ---------- 
Balance at August 31, 2001.................. 12,531         125        39,669          (561)        90,768       130,001 
  Refund of prior year income taxes.........     --          --            --            --          4,471         4,471 
  Net loss..................................     --          --            --            --           (130)         (130)
  Change in fair value of interest rate                                                                                  
   swaps, net of income taxes...............     --          --            --          (328)            --          (328)
     Cash dividends ($0.30 per share).......     --          --            --            --         (3,759)       (3,759)
                                             ------      ------     ---------       -------      ---------    ---------- 
Balance at August 30, 2002.................. 12,531      $  125     $  39,669       $  (889)     $  91,350    $  130,255 
                                             ======      ======     =========       =======      =========    ========== 

The accompanying notes are an integral part of these consolidated 
financial statements. 

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 AVONDALE INCORPORATED

 CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                        [Enlarge/Download Table]

                                                                               FISCAL YEAR ENDED             
                                                                      -------------------------------------- 
                                                                       AUGUST 25,   AUGUST 31,    AUGUST 30, 
                                                                          2000         2001          2002    
                                                                      -----------  -----------   ----------- 
                                                                                  (IN THOUSANDS)             
                                                                                                             
Operating activities                                                                                         
  Net income (loss).................................................. $    33,003  $     1,257   $      (130)
  Adjustments to reconcile net income (loss) to net cash provided by                                         
   operating activities                                                                                      
   Depreciation and amortization.....................................      42,838       46,399        45,538 
   Provision for deferred income taxes...............................       2,181        6,543         3,534 
   Loss (gain) on sale of equipment and facility restructuring                                               
     charges.........................................................         (99)         640         5,379 
   Sales of accounts receivable, net.................................      (7,000)     (20,000)       12,390 
  Changes in operating assets and liabilities                                                                
    Accounts receivable..............................................       2,417       27,958        (9,122)
    Inventories......................................................         594        6,294        12,725 
    Other assets and liabilities, net................................      (9,908)      11,165        (1,198)
    Accounts payable and accrued expenses............................       4,736      (23,069)        2,559 
    Income taxes payable.............................................      (1,035)      (9,096)           -- 
                                                                      -----------  -----------   ----------- 
      Net cash provided by operating activities......................      67,727       48,091        71,675 
Investing activities                                                                                         
  Purchase of property, plant and equipment..........................     (30,477)     (91,139)      (13,086)
  Proceeds from sale of property, plant and equipment................       1,416          875           739 
                                                                      -----------  -----------   ----------- 
      Net cash used in investing activities..........................     (29,061)     (90,264)      (12,347)
Financing activities                                                                                         
  Payments on long-term debt.........................................      (3,250)     (10,000)       (2,500)
  Advances (payments) on revolving line of credit, net...............     (36,100)      52,475       (77,650)
  Issuance of long-term debt.........................................       7,500           --        20,000 
  Refund of prior year income taxes..................................          --           --         4,471 
  Issuance of common stock...........................................         349           20            -- 
  Purchase and retirement of treasury stock..........................      (2,781)        (205)           -- 
  Dividends paid.....................................................      (5,062)      (5,015)       (3,759)
                                                                      -----------  -----------   ----------- 
      Net cash provided by (used in) financing activities............     (39,344)      37,275       (59,438)
                                                                      -----------  -----------   ----------- 
Decrease in cash.....................................................        (678)      (4,898)         (110)
Cash and cash equivalents at beginning of year.......................       8,545        7,867         2,969 
                                                                      -----------  -----------   ----------- 
      Cash and cash equivalents at end of year....................... $     7,867  $     2,969   $     2,859 
                                                                      ===========  ===========   =========== 

The accompanying notes are an integral part of these consolidated 
financial statements. 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 AUGUST 30, 2002

1.       BASIS OF PRESENTATION                                                  

         The accompanying consolidated financial statements include the accounts
of Avondale Incorporated and its wholly owned subsidiary, Avondale Mills, Inc.  
("Avondale Mills") and, prior to its dissolution on August 30, 2002, Avondale   
Receivables Company, a special purpose subsidiary of Avondale Mills,            
(collectively, the "Company"). All significant intercompany accounts and        
transactions have been eliminated. Certain prior year financial statement       
amounts have been reclassified to conform to the current year's presentation.   
Unless otherwise stated, all references to years relate to the Company's fiscal 
year, which ends on the last Friday in August, rather than calendar years, and  
may contain 52 or 53 weeks.                                                     

      As described in Note 6, on August 30, 2002, Avondale Funding, LLC, a
special purpose subsidiary of Avondale Mills, was established to replace        
Avondale Receivables Corporation, and to provide financing through the sale of  
accounts receivable generated by the Company. The Company accounts for its      
investment in Avondale Funding, LLC using the equity method of accounting.      

   Avondale Incorporated is a holding company and has no operations,
liabilities or assets other than those related to its investment in Avondale    
Mills, Inc.                                                                     

       The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make  
estimates and assumptions that affect the reported amounts of assets and        
liabilities and disclosure of contingent assets and liabilities at the date of  
the financial statements and the reported amounts of revenues and expenses      
during the reporting period. Actual results could differ from those estimates.  

CASH AND CASH EQUIVALENTS                                                       

      The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.                        

INVENTORIES                                                                     

         Inventories are stated at the lower of cost or market value. Except for
certain supply inventories valued on an average cost basis, the cost of the     
Company's inventories is determined on a last-in, first-out ("LIFO") basis.     
Under LIFO, current material and conversion costs are charged to cost of goods  
sold while inventories are valued using costs incurred in the initial and       
subsequent fiscal years following election of the LIFO method. In periods of    
declining prices, LIFO values may exceed current replacement market values and  
require downward adjustment. Estimates, including the estimated costs to        
complete work in process inventories and the estimated realizable values of all 
inventories, are used in determining the lower of LIFO cost and market. During  
periods when current costs or inventory quantities fluctuate significantly, use 
of the LIFO method may produce cost of goods sold that differs significantly    
from that which would be produced under other inventory methods.                

PROPERTY, PLANT AND EQUIPMENT                                                   

      Property, plant and equipment is stated at cost and depreciated over
the estimated useful lives of the related assets, which range from three to     
thirty years. Depreciation is calculated primarily using the straight-line      
method.                                                                         

LONG-LIVED ASSETS                                                               

    The Company periodically reviews the values assigned to long-lived
assets, such as property, plant and equipment and goodwill. The associated      
depreciation and amortization periods are reviewed on an annual basis.          

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Recoverability is measured based on the anticipated undiscounted cash flows from
operations. Management believes that long-lived assets included in the          
accompanying balance sheets are appropriately valued.                           

ASSOCIATE BENEFIT PLANS                                                         

The Company has a discretionary profit sharing plan covering  
substantially all associates. Annual contributions by the Company are made to   
the plan in amounts determined by the board of directors. In addition, the plan 
has 401(k) savings options that are available to all associates. The Company    
matches 25% of the first 3% of compensation contributed by each associate. The  
Company also has a deferred compensation plan for certain key personnel. The    
related expense for these profit sharing and deferred compensation plans is     
charged to operations currently and totaled $7.3 million and $0.1 million for   
fiscal 2000 and 2001, respectively. Due primarily to a decline in vested values 
under provisions of the deferred compensation plan, these plans yielded a net   
credit or reversal of expense of $0.8 million for fiscal 2002.                  

SELF-INSURANCE PROGRAMS                                                         

      The Company maintains self-insurance programs which provide workers'
compensation benefits, long-term disability benefits for claims incurred prior  
to January 1, 2001, and medical and dental benefits for its associates. Workers'
compensation insurance is purchased to provide coverage up to statutory limits, 
in excess of a self-insurance retention of $350,000 per occurrence. Long-term   
disability benefits for claims incurred subsequent to January 1, 2001 are       
covered by a purchased insurance policy.                                        

         Self-insurance reserves for workers' compensation benefits are recorded
based on actuarial estimates. Self-insurance reserves for long-term disability  
benefits relating to claims incurred prior to January 1, 2001 and medical and   
dental benefits are recorded based on the estimates of management taking into   
consideration claims payment experience and current conditions which may affect 
future experience. Actual experience may differ from those estimates.           

OTHER ASSETS AND OTHER LONG-TERM LIABILITIES                                    

         Other assets consist primarily of unamortized loan fees, goodwill, cash
surrender value of life insurance, and deposits on machinery and equipment      
purchases. Loan fees are amortized on a straight line basis over the outstanding
term of the related debt. Goodwill is amortized on a straight line basis over 20
years. Other long- term liabilities consist of accrued postretirement and       
workers' compensation benefits and deferred compensation for certain key        
management personnel.                                                           

FAIR VALUE OF FINANCIAL INSTRUMENTS                                             

         The carrying values of cash, accounts receivable, certain other assets,
accounts payable and accrued expenses approximate reasonable estimates of their 
fair values at August 31, 2001 and August 30, 2002. See Notes 5 and 9 for       
disclosures related to the fair values of interest rate swap agreements and     
long-term debt.                                                                 

EARNINGS PER SHARE                                                              

      Earnings per share is calculated by dividing the reported net income
for the period by the appropriate weighted average number of shares of common   
stock outstanding. For Fiscal 2002, employee and director options are not       
considered due to their antidilutive effect. Share information is summarized as 
follows (in thousands):                                                         

                                                                [Download Table]

                                                               2000    2001    2002 
                                                              ------  ------  ----- 
                                                                                    
Weighted average shares outstanding -- Basic................. 12,652  12,536  12,531
Effect of employee and director stock options................    174     128      --
                                                              ------  ------  ------
Weighted average shares outstanding -- Diluted............... 12,826  12,664  12,531
                                                              ======  ======  ======

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STOCK BASED COMPENSATION                                                        

       The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" and related interpretations  
in accounting for its employee and director stock options and adopted the       
disclosure-only provisions of Statement of Financial Accounting Standards No.   
123, "Accounting for Stock Based Compensation" ("FAS 123"). The Company grants  
stock options for a fixed number of shares to employees and directors with an   
exercise price equal to the fair value of the shares at the date of grant and,  
accordingly, recognizes no compensation expense for the stock option grants.    

REVENUE RECOGNITION                                                             

       The Company records revenues principally when products are shipped to
customers. Consistent with recognized practice in the textile industry, the     
Company also records revenues to a lesser extent throughout the year on a bill  
and hold basis (7%, 7% and 7% of total revenues in fiscal 2000, 2001 and 2002,  
respectively), invoicing goods that have been produced, packaged and made ready 
for shipment. These goods are effectively segregated from inventory which is    
available for sale, the risks of ownership of the goods have passed to the      
customer, and the remittance terms and collection experience on the related     
invoicing is consistent with all other sales by the Company.                    

     The credit status of each customer is approved and monitored by the
Company. Sales to V.F. Corporation and its affiliates represented 15% of net    
sales for fiscal 2000, 17% of net sales for fiscal 2001 and 20% of net sales for
fiscal 2002.                                                                    

RECENT ACCOUNTING PRONOUNCEMENTS                                                

         In June 2001, the Financial Accounting Standards Board issued Statement
No. 141, "Business Combinations," and Statement No. 142, "Goodwill and Other    
Intangible Assets". Statement No. 141 prohibits the pooling of interest method  
of accounting for business combinations initiated after June 2001. Statement No.
142 specifies that goodwill and some intangible assets will no longer be        
amortized but instead will be subject to testing for impairment on an annual    
basis, or as events occur that would reduce the fair value of such asset below  
its carrying value. The Company plans to adopt Statement No. 142 in the first   
quarter of fiscal 2003. Management does not believe the adoption of these       
statements will have a material effect on the consolidated financial statements 
of the Company.                                                                 

         In June 2001, the Financial Accounting Standards Board issued Statement
No. 143, "Accounting for Asset Retirement Obligations," which addresses         
accounting and reporting for asset retirement costs of long-lived assets        
resulting from legal obligations associated with acquisition, construction or   
development transactions. The Company plans to adopt Statement No. 143 in the   
first quarter of fiscal 2003. Management has determined the adoption of this    
statement will not have a material effect on the consolidated financial         
statements of the Company.                                                      

 In August 2001, the Financial Accounting Standards Board issued
Statement No. 144, "Accounting for the Impairment or Disposal of Long-lived     
Assets," which clarifies accounting and reporting for assets held for sale,     
scheduled for abandonment or other disposal, and recognition of impairment loss 
related to the carrying value of long-lived assets. The Company plans to adopt  
Statement No. 144 in the first quarter of fiscal 2003. Management does not      
believe the adoption of this statement will have a material effect on the       
consolidated financial statements of the Company.                               

In April 2002, the Financial Accounting Standards Board issued
Statement No. 145, "Rescission of Statements No. 4, 44, and 64, Amendment of    
Statement No. 13, and Technical Corrections." Statement No. 145 provides that   
gains and losses from extinguishment of debt that do not meet the criteria for  
classification as extraordinary items in Accounting Principles Board Opinion No.
30, "Reporting the Results of Operations -- Reporting the Effects of Disposal of
a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring  
Events and Transactions," should not be classified as extraordinary items. The  
Company plans to adopt Statement No. 145 during fiscal 2003. Management does not
believe the adoption of this statement will have a material effect on the       
consolidated financial statements of the Company.                               

         In June 2002, the Financial Accounting Standards Board issued Statement
No. 146, "Accounting for Costs Associated with Exit or Disposal Activities,"    
addressing financial accounting and reporting for costs associated with         

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exit or disposal activities, and requiring that a liability for costs associated
with an exit or disposal activity be recognized when the liability is incurred. 
In summary, Statement No. 146 requires that the liability be recognized and     
measured initially at its fair value in the period in which the liability is    
incurred, except for one-time termination benefits that meet certain            
requirements. The Company plans to adopt Statement No. 146 during fiscal 2003.  
Management does not believe the adoption of this statement will have a material 
effect on the consolidated financial statements of the Company.                 

2.       FACILITY RESTRUCTURING                                                 

       In response to the highly competitive market conditions and continued
oversupply of open-end yarns, in January 2002, the Company completed the closing
of two separate open-end yarn manufacturing facilities located in North         
Carolina. In connection with these closings, the Company recorded facility      
restructuring charges and other non-operating costs of approximately $5.8       
million during fiscal 2002. Additionally, the Company implemented reductions in 
certain manufacturing overhead costs and selling, general and administrative    
expenses in September 2001. In conjunction with these actions and the two plant 
closings, the Company recorded expense of approximately $1.2 million related to 
the termination of approximately 70 associates holding manufacturing, marketing 
and administrative positions. At August 30, 2002, estimated costs of            
approximately $180,000 related to the facility restructuring remain outstanding,
and are included in other accrued expenses in the consolidated balance sheets.  

   At August 30, 2002, the two closed plant facilities, certain real
estate properties and certain items of equipment have been identified as        
available for sale and are included at estimated net realizable values in assets
held for sale in the consolidated balance sheets.                               

3.       SEGMENT INFORMATION                                                    

      The Company operates principally in three segments: apparel fabrics,
yarns and other sales. Apparel fabrics manufactures and markets cotton and      
cotton-blend fabrics used in the manufacture of jeans, sportswear and workwear. 
Yarns manufactures and markets cotton and cotton-blend yarns to customers in the
knitting and weaving industries. Other sales include the manufacturing and      
marketing of a variety of greige and specialty fabrics to apparel, home         
furnishings, industrial, military and recreational product manufacturers, and   
revenues from the Company's trucking operation. The unallocated amounts shown   
below reflect expenses, assets and capital expenditures for centralized         
transportation, warehouse and administrative services (in thousands).           

                                                        [Enlarge/Download Table]

                                                                  2000          2001         2002     
                                                              -----------   -----------   ----------- 
                                                                                                      
Revenues:                                                                                             
  Apparel fabrics............................................ $   616,436   $   604,168   $   524,766 
  Yarn.......................................................     231,748       236,842       189,057 
  Other......................................................      86,091        78,570        70,715 
                                                              -----------   -----------   ----------- 
                                                                  934,275       919,580       784,538 
   Less intersegment sales...................................      97,731       146,812       124,803 
                                                              -----------   -----------   ----------- 
     Total................................................... $   836,544   $   772,768   $   659,735 
                                                              ===========   ===========   =========== 
Income (loss):                                                                                        
  Apparel fabrics............................................ $    85,887   $    46,953   $    39,976 
  Yarn.......................................................       7,942          (357)       (4,313)
  Other......................................................      10,100         3,390         4,060 
  Unallocated................................................     (26,061)      (22,093)      (21,027)
                                                              -----------   -----------   ----------- 
     Total operating income..................................      77,868        27,893        18,696 
  Interest expense...........................................      20,249        20,396        18,449 
  Discounts and expenses on sales of receivables.............       5,578         4,935         1,117 
  Other expenses (income), net...............................         458           765          (513)
                                                              -----------   -----------   ----------- 
     Income (loss) before income taxes....................... $    51,583   $     1,797   $      (357)
                                                              ===========   ===========   =========== 
Identifiable Assets:                                                                                  
  Apparel fabrics............................................ $   308,306   $   298,399   $   253,348 
  Yarn.......................................................      73,658        92,972        75,018 
  Other......................................................      27,653        23,022        17,728 
  Unallocated................................................      29,091        38,601        50,721 
                                                              -----------   -----------   ----------- 
     Total................................................... $   438,708   $   452,994   $   396,815 
                                                              ===========   ===========   =========== 

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                                                        [Enlarge/Download Table]
                                                                                                   
Depreciation and Amortization:                                                                     
  Apparel fabrics............................................ $    26,653  $    31,396  $    28,188
  Yarn.......................................................      10,162        8,968       11,019
  Other......................................................       3,924        3,937        3,597
  Unallocated................................................       2,099        2,098        2,734
                                                              -----------  -----------  -----------
     Total................................................... $    42,838  $    46,399  $    45,538
                                                              ===========  ===========  ===========
Capital Expenditures:                                                                              
  Apparel fabrics............................................ $    18,698  $    46,302  $     6,391
  Yarn.......................................................       8,377       41,855        4,820
  Other......................................................       2,564        1,994          344
  Unallocated................................................         838          988        1,531
                                                              -----------  -----------  -----------
     Total................................................... $    30,477  $    91,139  $    13,086
                                                              ===========  ===========  ===========
Geographic Sales Information:                                                                      
  United States.............................................. $   773,426  $   723,758  $   612,706
  All Other..................................................      63,118       49,010       47,029
                                                              -----------  -----------  -----------
     Total................................................... $   836,544  $   772,768  $   659,735
                                                              ===========  ===========  ===========

4.       COMPREHENSIVE INCOME                                                   

       Comprehensive income includes unrealized gains and losses in the fair
value of certain derivative instruments which qualify for hedge accounting. A   
reconciliation of net income to comprehensive income is as follows (in          
thousands):                                                                     

                                                        [Enlarge/Download Table]

                                                                                   2001        2002   
                                                                                 ---------   -------- 
                                                                                                      
Net income (loss)............................................................... $   1,257   $   (130)
Cumulative effect of adoption of Statement of Financial Accounting Standards                          
  No. 133, net of income taxes..................................................       427         -- 
Change in fair value of interest rate swaps, net of income taxes................      (988)      (328)
                                                                                 ---------   -------- 
Comprehensive income (loss)..................................................... $     696   $   (458)
                                                                                 =========   ======== 

5.       DERIVATIVES                                                            

        The Company has adopted Financial Accounting Standards Board Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities," as     
amended, which requires that derivative instruments be recorded in the balance  
sheet as either assets or liabilities measured at fair value, and that changes  
in the fair value of the derivative instruments be recorded as unrealized gains 
or losses in either net income or other comprehensive income depending on       
whether specific hedge accounting criteria are met.                             

         Upon adoption of Statement No. 133, the Company recorded the fair value
of the interest rate swap agreements, approximately $427,000 net of income      
taxes, in other assets and accumulated other comprehensive income at the        
beginning of fiscal 2001. For the fiscal years ended August 31, 2001 and August 
30, 2002, declines in fair value of approximately $988,000 and $327,000,        
respectively, net of income taxes, were recorded as unrealized losses in other  
comprehensive income.                                                           

6.       RECEIVABLES SECURITIZATION FACILITIES                                  

       On August 30, 2002, the Company and its wholly owned, special purpose
subsidiary, Avondale Funding, LLC ("Funding"), entered into an arrangement      
("Receivables Securitization Facility") with General Electric Capital           
Corporation ("GECC"), and Redwood Receivables Corporation ("Redwood"), an issuer
of commercial paper to provide financing of up to $90 million through the sale  
of undivided interests in certain trade receivables originated by the Company.  
The Receivables Securitization Facility extends until the earlier of 180 days   
before the specified final receivables purchase date, August 29, 2007, or       
certain specified termination events. The Receivables Securitization Facility   
replaced a previous securitization facility with Bank One, N.A. The Company has 
been engaged by Funding and Redwood to service the receivables.                 

       Funding is a separate legal entity with its own creditors who, in the
event of Funding's liquidation, will be entitled to a claim on Funding's assets 
prior to any distribution to us.                                                

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         Pursuant to the Receivables Securitization Facility, the Company sells,
or transfers as a contribution of capital, trade receivables, at a discount and 
without recourse, to Funding, whose sole business purpose is the acquisition and
financing of the trade receivables. Funding sells an undivided interest in a    
specified portion of the trade receivables to Redwood to provide the funds      
required to purchase the trade receivables from the Company. Proceeds from the  
collection of the trade receivables are used by Funding to purchase additional  
trade receivables from the Company, repay Redwood in the event that sufficient  
additional trade receivables are not available to maintain Redwood's investment,
or pay fees and expenses. In the event Redwood is unable to maintain its capital
investment in the trade receivables, GECC has agreed to purchase Redwood's      
investment and continue the funding of the Receivables Securitization Facility  
until August 29, 2003, as such date may be extended for additional periods not  
to exceed 364 days from time to time upon written agreement of GECC and Redwood.
If GECC is required to consolidate Redwood within its financial statements, GECC
will assume the obligations of Redwood under and for the remaining term of the  
Receivables Securitization Facility.                                            

    The discount rate on the Receivables purchased from the Company by
Funding is based on the fair market value of the trade receivables. The discount
rate on the undivided interest in the trade receivables purchased by Redwood    
from Funding is tied to Redwood's commercial paper rate plus a specified number 
of basis points. Funding is required to pay certain unused availability fees    
under the Receivables Securitization Facility.                                  

       The Receivables Securitization Facility contains customary covenants,
including requirements to maintain certain financial ratios, and includes       
provisions relating to cross defaults to other debt obligations of the Company. 

     In accordance with the provisions of Financial Accounting Standards
Board Statement No. 140, "Accounting for Transfers and Servicing of Financial   
Assets," the Company includes in accounts receivable in its consolidated balance
sheets the portion of trade receivables sold to Funding which have not been     
resold by Funding to the commercial paper issuer.                               

   At August 31, 2001 and August 30, 2002, the outstanding amount of
investments by third parties under the agreements was $66 million and $74       
million, respectively. Accounts receivable in the consolidated balance sheets   
have been reduced by approximately $67.2 million and $74.6 million at August 31,
2001 and August 30, 2002, respectively, representing the face amount of the     
outstanding receivables sold at those dates. During fiscal 2001 and 2002, the   
Company received approximately $748 million and $595 million, respectively, from
sales of receivables under the facilities. The cost to service the receivables  
is remitted weekly and therefore no servicing asset or liability has been       
recorded.                                                                       

      Under the securitization agreements, discounts of $5.6 million, $4.9
million and $1.1 million for fiscal years 2000, 2001, and 2002, respectively,   
have been included in discounts and expenses on sales of receivables in the     
consolidated statements of income.                                              

        Under the securitization agreement in effect prior to August 30, 2002,
the Company sold an undivided interest in a defined pool of receivables held by 
Avondale Receivables Company. The receivables were transferred to a trust at a  
discount, and the trust then sold variable funding certificates to lending      
institutions or other investors representing undivided ownership interests in a 
defined portion of the receivables. Such certificates did not represent         
obligations of, or interests in, and were not guaranteed or insured by, the     
Company. Proceeds from the issuance of the certificates were remitted to the    
Company.                                                                        

       The Company retained a residual interest in the receivables under the
previous securitization agreement in an amount equal to the excess of the       
receivables over the certificates sold. Such residual interest was included in  
accounts receivable in the consolidated balance sheets. The carrying value of   
the residual interest approximated fair value due to the short period of time   
required to collect the underlying receivables. All losses, credits or other    
adjustments relating to the receivables were applied as deductions to the       
Company's residual interest in the receivables. At August 31, 2001, an allowance
of $4.6 million related to the receivables is included in other accrued expenses
in the consolidated balance sheets.                                             

        The previous securitization agreement required the Company to maintain
sufficient levels of receivables to collateralize the outstanding certificates. 
The agreement also contained various covenants, representations and             

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warranties customary to the operation of such securitization programs. The      
agreement did not include financial covenants but contained cross defaults to   
other debt obligations of the Company. The Company, as agent for the trust, was 
responsible for the collection and administrative processing of the receivables.
No servicing asset or liability was recorded since the cost to service the      
receivables approximated the servicing income.                                  

7.       INVENTORIES                                                            

Components of inventories are as follows (in thousands):      

                                                        [Enlarge/Download Table]

                                                                                               AUGUST 31,  AUGUST 30,
                                                                                                  2001       2002    
                                                                                               ----------  ----------
                                                                                                                     
Finished goods................................................................................ $   33,955  $   27,013
Work in process...............................................................................     39,470      33,586
Raw materials.................................................................................     11,713       9,042
Dyes and chemicals............................................................................      5,058       6,163
                                                                                               ----------  ----------
                                                                                                   90,196      75,804
Adjustment of carrying value to LIFO basis, net of market adjustment..........................      2,750       4,900
                                                                                               ----------  ----------
                                                                                                   92,946      80,704
Supplies at average cost......................................................................      6,725       6,242
                                                                                               ----------  ----------
                                                                                               $   99,671  $   86,946
                                                                                               ==========  ==========

8.       INCOME TAXES                                                           

         Provision for income taxes is composed of the following (in thousands):

                                                        [Enlarge/Download Table]

                                                                                          2000        2001         2002    
                                                                                       ----------  ----------   ---------- 
                                                                                                                           
Current:                                                                                                                   
  Federal............................................................................. $   16,116  $   (4,280)  $   (3,602)
  State...............................................................................        283      (1,723)        (159)
                                                                                       ----------  ----------   ---------- 
                                                                                           16,399      (6,003)      (3,761)
Deferred:                                                                                                                  
  Federal.............................................................................      1,888       5,662        3,079 
  State...............................................................................        293         881          455 
                                                                                       ----------  ----------   ---------- 
                                                                                            2,181       6,543        3,534 
                                                                                       ----------  ----------   ---------- 
                                                                                       $   18,580  $      540   $     (227)
                                                                                       ==========  ==========   ========== 

         The following table shows the reconciliation of federal income taxes at
the statutory rate on income (loss) before income taxes to reported income tax  
expense (benefit) (in thousands):                                               

                                                        [Enlarge/Download Table]

                                                                                            2000        2001      2002   
                                                                                         ----------  ---------  -------- 
                                                                                                                         
Federal income taxes at statutory rate.................................................. $   18,055  $    629   $   (125)
State income taxes, net of federal tax effect...........................................        374      (548)       192 
Other...................................................................................        151       459       (294)
                                                                                         ----------  --------   -------- 
                                                                                         $   18,580  $    540   $   (227)
                                                                                         ==========  ========   ======== 

         At August 30, 2002, income taxes refundable represent the estimated tax
benefit on tax basis operating losses for fiscal 2001 and 2002. The Company     
expects to receive approximately $1.5 million of the refund in early fiscal 2003
and use the remaining amount to offset taxes due on fiscal 2003 earnings.       

        The Company made income tax payments of $17.3 million and $6.1 million
during fiscal 2000 and 2001. During fiscal 2002, the Company made no income tax 
payments, but received a refund of estimated fiscal 2001 income taxes paid of   
approximately $5.0 million.                                                     

 Deferred income taxes are provided for temporary differences in
financial and income tax reporting. Significant components of the Company's     
year-end deferred tax liabilities and assets are as follows (in thousands):     

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                                                        [Enlarge/Download Table]

                                                                   AUGUST 31,  AUGUST 30,
                                                                      2001        2002   
                                                                   ----------  ----------
                                                                                         
Deferred tax liabilities:                                                                
  Depreciation.................................................... $   28,523  $   28,404
  Inventory valuation.............................................      5,852       6,631
  Other...........................................................      2,529       2,098
                                                                   ----------  ----------
                                                                       36,904      37,133
Deferred tax assets:                                                                     
  Employee benefit programs.......................................      9,036       6,308
  Receivable reserves.............................................      2,910       2,750
  Other...........................................................        891         474
                                                                   ----------  ----------
                                                                       12,837       9,532
                                                                   ----------  ----------
Net deferred tax liabilities...................................... $   24,067  $   27,601
                                                                   ==========  ==========

    A net benefit of $4.5 million, related to receipt of an income tax
refund resulting from a settlement with the Internal Revenue Service Appeals    
Division in the fourth quarter of fiscal 2002, is included as an addition to    
retained earnings for fiscal 2002 on the consolidated statement of shareholders'
equity. The claim for the refund was filed in fiscal 1997 utilizing tax basis   
deductions against fiscal 1994 taxable income, related to consideration paid in 
the repurchase of treasury stock. Given the technical nature of the claim and   
resulting uncertainty of recovery, recognition of the refund claim was deferred 
until successful resolution in fiscal 2002. Interest received in conjunction    
with the refund of approximately $1.7 million is included as a reduction in     
interest expense, net for fiscal 2002 on the consolidated statements of income. 

      Following the successful settlement of the refund claim noted above,
the Company reassessed the balance of certain deferred income taxes. Based on   
this evaluation, the Company determined that the estimates used to establish    
deferred taxes prior to fiscal 1998 were too conservative and resulted in an    
overstatement of deferred income tax liabilities. Accordingly, an adjustment of 
$4.0 million has been recorded as an addition to the balance of retained        
earnings at August 27, 1999 on the consolidated statements of shareholders      
equity.                                                                         

9.       LONG-TERM DEBT                                                         

Long-term debt consists of the following (in thousands):      

                                                        [Enlarge/Download Table]

                                                                                          AUGUST 31,    AUGUST 30, 
                                                                                             2001          2002    
                                                                                         -----------   ----------- 
                                                                                                                   
Revolving credit facility, interest tied to banks' base rate or alternative rates,                                 
  4.72% -- 7.75% in 2002, due January 2004.............................................. $   102,650   $    25,000 
Equipment note, 5.35% in 2002, due in monthly installments of approximately $360                                   
  beginning March 2003, with final payment of approximately $876 due August 2007........          --        20,000 
Industrial revenue bonds, floating rate, 4.38% -- 5.7% in 2002..........................       2,500            -- 
Senior Subordinated Notes, 10.25%, due May 1, 2006......................................     125,000       125,000 
                                                                                         -----------   ----------- 
                                                                                             230,150       170,000 
Less current portion....................................................................        (500)       (2,523)
                                                                                         -----------   ----------- 
                                                                                         $   229,650   $   167,477 
                                                                                         ===========   =========== 

        The Company maintains a secured revolving credit facility with a group
of banks, amended August 30, 2002 to revise certain financial covenants and     
adjust interest rate pricing, which provides aggregate borrowing availability of
a maximum of $100 million through January 2004. Under the terms of this         
agreement, the Company can designate an interest rate tied to the Eurodollar    
rate (adjusted for any reserves) or the banks' base rate, or at alternative     
rates negotiated with the lead bank, for specified time periods. A commitment   
fee is payable quarterly on the average daily unused portion of the revolving   
credit commitment. The revolving credit facility is secured by substantially all
of the Company's assets. Covenants of the credit agreement require the Company  
to maintain certain cash flow ratios and debt to equity ratios, and contain     
restrictions on payment of dividends. Under the most restrictive of these       
covenants, $11.6 million of retained earnings was available for payment of      
dividends at August 30, 2002.                                                   

         The Company uses interest rate swap agreements to effectively convert a
portion of the borrowings outstanding under the revolving credit facility to a  
fixed rate, thus reducing the impact of interest rate changes on future income. 
These agreements involve the receipt of floating rate amounts in exchange for   
fixed rate interest payments over the                                           

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lives of the agreements without an exchange of the underlying principal amounts.
The differential to be paid or received is accrued as interest rates change and 
recognized as an adjustment to interest expense related to the debt. The related
amount payable to or receivable from counterparties is included in other        
liabilities or assets. At August 30, 2002, the Company had interest rate swap   
agreements with notional amounts aggregating $35 million providing an effective 
weighted average interest rate of 5.3%. See Note 5 for disclosures related to   
the fair market value of the interest rate swap agreements at August 30, 2002.  

        The equipment note, a secured five-year installment loan, was executed
on July 30, 2002 in the amount of $20.0 million. The equipment note is to be    
repaid in 53 monthly payments of approximately $360,000 commencing March 1, 2003
and a final payment of approximately $896,000 on August 1, 2007. Interest       
accrues on the unpaid principal balance of the equipment note at a rate         
established annually on August 1 based on the Eurodollar rate plus a specified  
number of basis points, and is paid monthly commencing September 1, 2002 through
the final payment date. The Company may, at its one time option, elect a fixed  
interest rate for the remaining term of the equipment note based on the Federal 
Reserve "Interest Rate Swap" rate of interest, as quoted for the term closest to
the remaining term of the equipment note, plus a specified number of basis      
points. The equipment note is secured by a senior lien on substantially all of  
the equipment of two plant locations, which had a carrying value of             
approximately $37.5 million at August 30, 2002. The equipment note contains     
customary covenants, including requirements to maintain certain financial       
covenants, and includes provisions relating to cross defaults to other debt     
obligations of the Company.                                                     

   During fiscal 2002, the Company repaid $2.5 million of industrial
revenue bonds without penalty.                                                  

      The Company has $125 million of 10.25% Senior Subordinated Notes due
2006 outstanding which mature on May 1, 2006. The notes are unsecured and       
subordinated to all existing and future senior indebtedness of the Company.     
Interest on the notes is due on May 1 and November 1 of each year. At both      
August 31, 2001 and August 30, 2002, the market value of the notes was          
approximately $116 million. The Company does not anticipate settlement of the   
notes at fair value and currently expects the notes to remain outstanding       
through maturity.                                                               

       The Senior Subordinated Notes are redeemable at the Company's option,
in whole or in part, at a scheduled redemption price of 103.417%, which declines
in intervals to 100% in 2004 and thereafter.                                    

     The indenture under which the Senior Subordinated Notes were issued
contains, among other things, certain restrictive covenants which apply to      
Avondale Mills on issuance of additional debt, payment of dividends, retirement 
of capital stock or indebtedness, purchase of investments, sales or transfers of
assets, certain consolidations or mergers and certain transactions with         
affiliates.                                                                     

         At August 30, 2002, the Company was in compliance with the covenants of
the revolving credit facility, receivables securitization facility, equipment   
note and subordinated note indenture.                                           

The carrying value of the Company's revolving credit facility,
industrial revenue bonds and equipment note approximates fair value.            

       Aggregate maturities of long-term debt are as follows (in thousands):

                                                        [Enlarge/Download Table]
                                                                                      
2003...................................................................... $     2,523
2004......................................................................      29,325
2005......................................................................       4,325
2006......................................................................     129,325
2007......................................................................       4,502
                                                                           -----------
                                                                           $   170,000
                                                                           ===========

   In connection with the Company's borrowings, no interest has been
capitalized. The Company paid interest on revolving credit, long-term debt and  
interest rate swap agreements of approximately $19.3 million, $19.6 million and 
$18.8 million in fiscal 2000, 2001 and 2002, respectively.                      

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10.      POSTRETIREMENT BENEFITS                                                

        The estimated cost of postretirement benefits is recorded ratably over
the service lives of the associates expected to receive such benefits. The      
Company provides certain life and medical insurance benefits granted in 1964 to 
a closed group of associates, the majority of whom have retired, who were in    
designated positions of management and met certain age requirements at the time 
of grant. Certain medical benefits are also provided to three closed groups of  
early retirees as a result of the acquisition of the textile business of        
Graniteville Company in fiscal 1996. In addition, current associates (and their 
covered dependents) that retire on or after age 55 with at least 15 years of    
service are eligible for continued medical coverage through age 65. Benefits are
paid from the general assets of the company.                                    

      Changes in the accumulated postretirement benefit obligation were as
follows (in thousands):                                                         

                                                                [Download Table]

                                                             2001        2002    
                                                          ---------   ---------- 
                                                                                 
Beginning balance........................................ $   7,901   $    8,214 
  Service cost...........................................        95          102 
  Interest cost..........................................       576          590 
  Amortization of prior service cost.....................       332          332 
  Benefits paid..........................................      (486)      (1,185)
  Actuarial gain.........................................      (204)        (202)
                                                          ---------   ---------- 
Ending balance........................................... $   8,214   $    7,851 
                                                          =========   ========== 

         Components of the accrued postretirement benefit obligation included in
other long-term liabilities in the accompanying consolidated balance sheets were
as follows (in thousands):                                                      

                                                        [Enlarge/Download Table]

                                                             AUGUST 31,    AUGUST 30 
                                                                2001         2002    
                                                             ----------   ---------- 
                                                                                     
Accumulated post retirement benefit obligation.............. $   (7,623)  $   (7,667)
Unrecognized prior service cost.............................      1,992        1,660 
Unrecognized net gain.......................................     (2,583)      (1,844)
                                                             ----------   ---------- 
Accrued postretirement benefit liability.................... $   (8,214)  $   (7,851)
                                                             ==========   ========== 

      The Company recorded postretirement benefit costs based on actuarial
calculations using a weighted average discount rate of 8% for fiscal 2000 and   
2001 and 7% for fiscal 2002. Net postretirement benefit costs include the       
following components (in thousands):                                            

                                                        [Enlarge/Download Table]

                                                           2000        2001      2002   
                                                        ----------  ---------  -------  
                                                                                        
Service cost........................................... $      95   $     95   $    102 
Interest cost..........................................       677        576        590 
Net amortization.......................................       332        332        332 
Recognized actuarial gain..............................       (43)      (204)      (202)
                                                        ---------   --------   -------- 
Net postretirement benefit cost........................ $   1,061   $    799   $    822 
                                                        =========   ========   ======== 

      A weighted average annual rate of increase in the per capita cost of
covered health care benefits of 6% was assumed for 2002, decreasing gradually to
5% in 2004 and thereafter. An increase of 1% in the assumed health care cost    
rate of increase would not have a significant impact on the accumulated post    
retirement benefit obligation or the aggregate net periodic postretirement      
benefit cost.                                                                   

11.      COMMON STOCK                                                           

     Each share of Class A Common Stock is entitled to one vote and each
share of Class B Common Stock is entitled to 20 votes with respect to matters   
submitted to a vote of shareholders. Each share of the Class B Common Stock is  
convertible at any time, at the option of its holder, into one share of Class A 
Common Stock. The Class B Common Stock will convert automatically into Class A  
Common Stock, and thereby lose its special voting rights, if such Class B Common
Stock is sold or otherwise transferred to any person or entity other than       
certain designated transferees.                                                 

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    During fiscal 2000 and 2001, the Company repurchased approximately
155,000 and 14,000 shares of Class A Common Stock, respectively, for aggregate  
purchase prices of $2.8 million and $205,000, pursuant to offers to sell made by
various shareholders. All shares repurchased have been canceled and reinstated  
as authorized but unissued shares of Class A Common Stock.                      

         The Company maintains an employee Stock Option Plan that allows for the
grant of non-qualified and incentive stock options. Under this Stock Option     
Plan, options to purchase up to 1,081,250 shares of Class A Common Stock may be 
granted to full-time employees, including executive officers of the Company.    
Activity under the plan is summarized as follows (option shares in thousands):  

                                                        [Enlarge/Download Table]

                                                              GRANT PRICE PER SHARE  
                                                           --------------------------
                                                            $12.50   $18.00    $19.00
                                                           -------   ------    ------
                                                                                     
Stock options outstanding at August 27, 1999..............    505      325        -- 
  Options granted.........................................     --       --       110 
  Options redeemed........................................    (30)      --        -- 
                                                             ----     ----      ---- 
Stock options outstanding at August 25, 2000..............    475      325       110 
  Options exercised.......................................     --       (1)       -- 
  Options forfeited.......................................     --      (68)       -- 
                                                             ----     ----      ---- 
Stock options outstanding at August 31, 2001..............    475      256       110 
  Options exercised.......................................     --       --        -- 
  Options forfeited.......................................     --       (8)      (10)
                                                             ----     ----      ---- 
Stock options outstanding at August 30, 2002..............    475      248       100 
                                                             ====     ====      ==== 
Average contractual life remaining in years...............    2.3      3.8       7.3 
                                                             ====     ====      ==== 
Stock options exercisable at August 30, 2002..............    475      248        40 
                                                             ====     ====      ==== 

         The exercise prices of the options granted approximated the fair market
value of the Company's Common Stock on the dates of grant. Options forfeited by 
employees leaving the Company are reinstated as available for grant. All options
granted vest ratably over five years and may be exercised for a period of ten   
years. At August 30, 2002, there were 132,000 stock options available for grant.

       The Company maintains a Stock Option Plan for Non-employee Directors,
under which 100,000 shares of the Company's Class A Common Stock are reserved   
for issuance. Under the plan, each director will automatically be granted       
annually, on the fifth day following the annual shareholders meeting, a fully   
vested option to purchase 2,000 shares of Class A Common Stock, at an option    
price equal to the fair market value of such stock on the date the option is    
granted. Options granted are exercisable for a period of ten years, subject to  
certain limitations. During fiscal 2000, 12,000 non-qualified options were      
granted. During fiscal 2001 and 2002, 14,000 non-qualified options were granted 
in each year. The exercise price of each grant was $19.00, $19.00 and $16.50 per
share, respectively. At August 30, 2002, 36,000 non-qualified options remain    
available for grant.                                                            

        Pro forma information regarding the effect on the Company's results of
operations, assuming employee and non-employee director stock options had been  
accounted for under the fair value method of Financial Accounting Standards     
Board Statement No. 123, was calculated using the "minimum value" method which  
is permitted for companies with nonpublic equity. The following weighted average
assumptions were used in these calculations for options granted in fiscal 2000, 
2001 and 2002:                                                                  

                                                                [Download Table]

                                                       2000      2001      2002  
                                                     -------   -------   ------- 
                                                                                 
Risk free interest rate.............................     4.6%      4.8%      4.3%
Expected dividend yield.............................     1.8%      1.8%      2.4%
Expected lives...................................... 8 years   8 years   8 years 

      The total values of the options granted during fiscal 2000, 2001 and
2002 were computed as approximately $332,000, $53,000 and $30,000, respectively,
which would be amortized over the vesting period of the options. If the Company 
had accounted for these plans in accordance with Statement No. 123, the reported
net income (loss) and net income (loss) per share would be revised to the       
following pro forma amounts (in thousands, except per share data):              

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                                                          2000        2001       2002  
                                                       ----------  ---------  -------  
                                                                                       
Net income (loss):                                                                     
  As reported......................................... $   33,003  $   1,257  $   (130)
  Pro forma...........................................     32,413      1,204      (169)
Net income (loss) per share:                                                           
  Basic                                                                                
     As reported...................................... $     2.61  $     .10  $   (.01)
     Pro forma........................................       2.56        .10      (.01)
  Diluted                                                                              
     As reported...................................... $     2.57  $     .10  $   (.01)
     Pro forma........................................       2.53        .10      (.01)

      Because the accounting provisions of Statement No. 123 only apply to
options granted after December 1995, the pro forma compensation cost presented  
may not be representative of that to be expected in future years.               

12.      COMMITMENTS AND CONTINGENCIES                                          

      The Company is involved in certain environmental matters and claims.
The Company has provided reserves to cover management's estimates of the costs  
of investigating, monitoring and remediating these and other environmental      
conditions. If more costly remediation measures are necessary than those        
believed to be probable based on current facts and circumstances, actual costs  
may exceed the reserves provided. However, based on the information currently   
available, management does not believe that the outcome of these matters will   
have a material adverse effect on its future results of operations or financial 
position.                                                                       

         On January 13, 2000, a case was filed in the Circuit Court of Jefferson
County, Alabama by Larry and Cynthia Locke and the owners of fourteen other     
residences in the Raintree subdivision of Lake Martin, against Russell          
Corporation, Alabama Power and the Company. The complaint alleges that the      
Company, among others, negligently and/or wantonly caused or permitted the      
discharge and disposal of sewage sludge and contaminants into the lake adjacent 
to the plaintiffs' property, which allegedly interfered with the plaintiffs' use
of the property. As a result of these alleged actions, the plaintiffs claim that
the value of their property has been diminished and that they suffered other    
damages. The complaint seeks compensatory and punitive damages in an undisclosed
amount. After an initial series of actions, the case was stayed by the trial    
court pending resolution of an appeal in the case of Sullivan versus Russell    
Corporation, the Company, and others ("Sullivan case"), which also involved the 
Raintree subdivision. On January 12, 2001, the Alabama Supreme Court issued a   
final order in the Sullivan case rendering that case in favor of the defendants.
Subsequent to the Alabama Supreme Court's actions with regard to the Sullivan   
case, plaintiff's counsel, which includes attorneys who acted as co-plaintiff's 
counsel on the Sullivan case, presented arguments in a hearing before the trial 
judge on May 4, 2001 based on a narrow legal theory that the nuisance claimed in
this action is sufficiently different from the Sullivan case, and therefore,    
that this case should be allowed to proceed in spite of the fact that the       
Sullivan case was ultimately decided in favor of the defendants. The trial court
allowed the case to proceed to the discovery phase. On April 25, 2002, the trial
court held a hearing on summary judgment motions and, on May 22, 2002, entered  
judgment as a matter of law in the Company's favor on all counts except the     
narrow legal theory involving public nuisance tort. A trial on this single count
is scheduled to begin in February 2003. The Company intends to vigorously defend
this case and believes that it has a number of defenses available to it. While  
the outcome of this case cannot be predicted with certainty, based upon         
currently available information, the Company does not believe that it will have 
a material adverse effect on the Company's financial condition or results of    
operations.                                                                     

   The Company is also a party to other litigation incidental to its
business from time to time. The Company is not currently a party to any         
litigation that management, in consultation with legal counsel, believes, if    
determined adversely to the Company, would have a material adverse effect on the
Company's financial condition or results of operations.                         

         The Company leases certain of its facilities and equipment, primarily a
warehouse, several sales offices and computer equipment. Future minimum rental  
payments required under such leases that have lease terms in excess of one year 
are as follows (in thousands):                                                  

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2003.......................................................     $   1,861
2004.......................................................         1,612
2005.......................................................         1,473
2006.......................................................           965
2007.......................................................           965
Thereafter.................................................           183
                                                                ---------
                                                                $   7,059
                                                                =========

      Rent expense for operating leases totaled $2.3 million, $2.6 million
and $2.6 for fiscal 2000, 2001 and 2002, respectively.                          

Commitments for future additions to plant and equipment were  
approximately $2.6 million at August 30, 2002. Commitments for the purchase of  
raw materials were approximately $63.0 million at August 30, 2002.              

13.     CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION         

    The following consolidating financial information presents balance
sheets, statements of income and statements of cash flow of the Company and its 
subsidiaries. Avondale Incorporated, the parent company, has fully and          
unconditionally guaranteed the 10.25% Senior Subordinated Notes due 2006 issued 
by the Company. The statements of the non-guarantor and wholly owned subsidiary 
of the Company, Avondale Graniteville Fabrics Inc., represent the operations of 
a manufacturing facility and warehouse operation dedicated to apparel fabrics   
production of the Company.                                                      

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CONSOLIDATING BALANCE SHEETS
 AUGUST 30, 2002

                                                        [Enlarge/Download Table]

                                                                   NON-GUARANTOR                             
                                                    GUARANTOR        AVONDALE                                
                                        AVONDALE    AVONDALE       GRANITEVILLE                              
                                      MILLS, INC.  INCORPORATED    FABRICS, INC.   ELIMINATIONS  CONSOLIDATED
                                      -----------  ------------    -------------   ------------  ------------

                                                                  (IN THOUSANDS)                             
                                                                      ASSETS                                 
                                                                                                             
Current assets                                                                                               
  Cash...............................  $   2,859    $      --       $        --    $        --   $     2,859 
  Accounts receivable, net...........     43,304           --                 1             --        43,305 
  Inventories........................     83,311           --             3,635             --        86,946 
  Prepaid expenses...................        385           --                --             --           385 
  Income taxes refundable............      6,550           --                --             --         6,550 
                                       ---------    ---------       -----------    -----------   ----------- 
    Total current assets.............    136,409           --             3,636             --       140,045 
Assets held for sale.................      3,645           --                --             --         3,645 
Property, plant and equipment Land...      6,438           --               196             --         6,634 
  Buildings..........................     70,073           --            11,750             --        81,823 
  Machinery and equipment............    489,675           --            37,222             --       526,897 
                                       ---------    ---------       -----------    -----------   ----------- 
                                         566,186           --            49,168             --       615,354 
  Less accumulated depreciation......   (348,200)          --           (21,528)            --      (369,728)
                                       ---------    ---------       -----------    -----------   ----------- 
    Net property plant and equipment.    217,986           --            27,640             --       245,626 
Other assets.........................      5,146           --                --             --         5,146 
Investment in subsidiaries...........      7,901      114,520                --       (122,421)           -- 
Goodwill.............................      2,951           --                --             --         2,951 
                                       ---------    ---------       -----------    -----------   ----------- 
                                       $ 374,038    $ 114,520       $    31,276    $  (122,421)  $   397,413 
                                       =========    =========       ===========    ===========   =========== 

                                                     LIABILITIES AND SHAREHOLDERS' EQUITY                    

Current liabilities                                                                                          
  Accounts payable...................  $  29,114    $      --       $     1,477    $        --   $    30,591 
  Accrued compensation, benefits.....     10,249           --               120             --        10,369 
  Accrued interest...................      4,576           --                --             --         4,576 
  Other accrued expenses.............     10,206           --                 1             --        10,207 
  Long term debt due in one year.....      2,523           --                --             --         2,523 
                                       ---------                    -----------    -----------   ----------- 
    Total current liabilities........     56,668           --             1,598             --        58,266 
Long term debt.......................    167,477           --                --             --       167,477 
Deferred income taxes and other                                                                              
  long term liabilities..............     41,415           --                --             --        41,415 
Due to (from) affiliates.............     (6,042)     (15,735)           21,777             --            -- 
Shareholders' equity.................    114,520      130,255             7,901       (122,421)      130,255 
                                       ---------    ---------       -----------    -----------   ----------- 
                                       $ 374,038    $ 114,520       $    31,276    $  (122,421)  $   397,413 
                                       =========    =========       ===========    ===========   =========== 

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CONSOLIDATING STATEMENTS OF INCOME
 FOR THE FISCAL YEAR ENDED AUGUST 30, 2002

                                                        [Enlarge/Download Table]

                                                                            NON-GUARANTOR                              
                                                               GUARANTOR      AVONDALE                                 
                                                 AVONDALE      AVONDALE     GRANITEVILLE                               
                                                MILLS, INC.  INCORPORATED   FABRICS, INC.  ELIMINATIONS   CONSOLIDATED 
                                                -----------  ------------   -------------  ------------   ------------ 
                                                                           (IN THOUSANDS)                              
                                                                                                                       
Net sales, including intercompany transfers                                                                            
  and charges................................. $   659,735   $        101   $      97,121  $    (97,222)  $    659,735 
Operating costs and expenses                                                                                           
  Cost of goods sold..........................     565,211             --          92,704       (97,121)       560,794 
  Depreciation................................      40,839             --           4,117            --         44,956 
  Selling and administrative expenses.........      28,390             --              --          (101)        28,289 
  Facility restructuring expenses.............       7,000             --              --            --          7,000 
                                               -----------   ------------   -------------  ------------   ------------ 
   Operating income...........................      18,295            101             300            --         18,696 
Interest expense, net.........................      18,449             --              --            --         18,449 
Discount and expenses on sales of receivables.       1,117             --              --            --          1,117 
Other, net....................................        (513)            --              --            --           (513)
                                               -----------   ------------   -------------  ------------   ------------ 
   Income (loss) before income taxes..........        (758)           101             300            --           (357)
Provision for (benefit of) income taxes.......        (362)            35             100            --           (227)
Equity in income (loss) of subsidiaries.......         200           (196)             --            (4)            -- 
                                               -----------   ------------   -------------  ------------   ------------ 
      Net income (loss)....................... $      (196)  $       (130)  $         200  $         (4)  $       (130)
                                               ===========   ============   =============  ============   ============ 

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CONSOLIDATING STATEMENTS OF CASH FLOWS
 FOR THE FISCAL YEAR ENDED AUGUST 30, 2002

                                                        [Enlarge/Download Table]

                                                                                 NON-GUARANTOR                               
                                                                    GUARANTOR      AVONDALE                                  
                                                      AVONDALE      AVONDALE     GRANITEVILLE                                
                                                     MILLS, INC.  INCORPORATED    FABRICS INC.   ELIMINATIONS   CONSOLIDATED 
                                                     -----------  ------------    ------------   ------------   ------------ 
                                                                                (IN THOUSANDS)                               
                                                                                                                             
Operating activities                                                                                                         
Net income (loss).................................. $      (196)  $      (130)   $         200   $         (4)  $       (130)
Adjustments to reconcile net income (loss) to net                                                                            
  cash provided by operating activities:                                                                                     
  Depreciation and amortization....................      41,421            --            4,117             --         45,538 
  Provision for deferred income taxes..............       3,534            --               --             --          3,534 
  Loss on sale of equipment and facility                                                                                     
   restructuring charges...........................       5,379            --               --             --          5,379 
  Sale of accounts receivable, net.................      12,390            --               --             --         12,390 
  Changes in operating assets and liabilities:                                                                               
   Accounts receivable.............................      (9,123)           --                1             --         (9,122)
   Inventories.....................................      11,192            --            1,533             --         12,725 
   Other assets and liabilities, net...............       4,321           (66)          (5,453)            --         (1,198)
   Accounts payable and accrued expenses...........       2,863            --             (304)            --          2,559 
  Dividends from subsidiary........................          --         3,759               --         (3,759)            -- 
  Equity in income (loss) of subsidiaries..........        (200)          196               --              4             -- 
                                                    -----------   -----------    -------------   ------------   ------------ 
    Net cash provided by operating activities......      71,581         3,759               94         (3,759)        71,675 
Investing activities                                                                                                         
  Purchase of property, plant and equipment........     (12,992)           --              (94)            --        (13,086)
  Proceeds from sale of property, plant and                                                                                  
   equipment.......................................         739            --               --             --            739 
                                                    -----------   -----------    -------------   ------------   ------------ 
  Net cash used in investing activities............     (12,253)           --              (94)            --        (12,347)
Financing activities                                                                                                         
  Payments on long term debt.......................      (2,500)           --               --             --         (2,500)
  Payments on revolving line of credit, net........     (77,650)           --               --             --        (77,650)
  Issuance of long term debt.......................      20,000            --               --             --         20,000 
  Refund of prior year income taxes................       4,471            --               --             --          4,471 
  Dividends paid...................................      (3,759)       (3,759)              --          3,759         (3,759)
                                                    -----------   -----------    -------------   ------------   ------------ 
    Net cash used in financing activities..........     (59,438)       (3,759)              --          3,759        (59,438)
                                                    -----------   -----------    -------------   ------------   ------------ 
Decrease in cash...................................        (110)           --               --             --           (110)
Cash at beginning of year..........................       2,969            --               --             --          2,969 
                                                    -----------   -----------    -------------   ------------   ------------ 
Cash at end of year................................ $     2,859   $        --    $          --   $         --   $      2,859 
                                                    ===========   ===========    =============   ============   ============ 

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CONSOLIDATING BALANCE SHEETS (UNAUDITED)
 AUGUST 31, 2001

                                                        [Enlarge/Download Table]

                                                                       NON-GUARANTOR                               
                                                         GUARANTOR       AVONDALE                                  
                                           AVONDALE      AVONDALE      GRANITEVILLE                                
                                          MILLS, INC.   INCORPORATED   FABRICS, INC.   ELIMINATIONS   CONSOLIDATED 
                                          -----------   ------------   -------------   ------------   ------------ 
                                                                      (IN THOUSANDS)                               
                                                                          ASSETS                                   
                                                                                                                   
Current assets                                                                                                     
  Cash................................... $     2,969   $         --   $         --    $         --   $      2,969 
  Accounts receivable, net...............      46,572             --              1              --         46,573 
  Inventories............................      93,422             --          6,249              --         99,671 
  Prepaid expenses.......................       1,409             --             --              --          1,409 
  Income taxes refundable................       6,721             --             --              --          6,721 
                                          -----------   ------------   ------------    ------------   ------------ 
   Total current assets..................     151,093             --          6,250              --        157,343 
Property, plant and equipment                                                                                      
  Land...................................       8,204             --            196              --          8,400 
  Buildings..............................      79,633             --         11,750              --         91,383 
  Machinery and equipment................     529,539             --         36,740              --        566,279 
                                          -----------   ------------   ------------    ------------   ------------ 
                                              617,376             --         48,686              --        666,062 
  Less accumulated depreciation..........    (361,795)            --        (17,433)             --       (379,228)
                                          -----------   ------------   ------------    ------------   ------------ 
  Net property plant and equipment.......     255,581             --         31,253              --        286,834 
Other assets.............................       5,516             --             --              --          5,516 
Investment in subsidiaries...............       7,701        118,892             --        (126,593)            -- 
Goodwill.................................       3,301             --             --              --          3,301 
                                          -----------   ------------   ------------    ------------   ------------ 
                                          $   423,192   $    118,892   $     37,503    $   (126,593)  $    452,994 
                                          ===========   ============   ============    ============   ============ 

                                                             LIABILITIES AND SHAREHOLDERS' EQUITY                  

Current liabilities                                                                                                
  Accounts payable....................... $    22,958   $         --   $      1,189    $         --   $     24,147 
  Accrued compensation, benefits.........      10,074             --            120              --         10,194 
  Accrued interest.......................       4,595             --             --              --          4,595 
  Other accrued expenses.................      14,238             --             10              --         14,248 
  Long term debt due in one year.........         500             --             --              --            500 
                                          -----------   ------------   ------------    ------------   ------------ 
   Total current liabilities.............      52,365             --          1,319              --         53,684 
Long term debt...........................     229,650             --             --              --        229,650 
Deferred income taxes and other long                                                                               
  term liabilities.......................      39,659             --             --              --         39,659 
Due to(from) affiliates..................     (17,374)       (11,109)        28,483              --             -- 
Shareholders' equity.....................     118,892        130,001          7,701        (126,593)       130,001 
                                          -----------   ------------   ------------    ------------   ------------ 
                                          $   423,192   $    118,892   $     37,503    $   (126,593)  $    452,994 
                                          ===========   ============   ============    ============   ============ 

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CONSOLIDATING STATEMENTS OF INCOME (UNAUDITED)
 FOR THE FISCAL YEAR ENDED AUGUST 31, 2001

                                                        [Enlarge/Download Table]

                                                                            NON-GUARANTOR                              
                                                                              AVONDALE                                 
                                                              GUARANTOR     GRANITEVILLE                               
                                                AVONDALE      AVONDALE        FABRICS,                                 
                                               MILLS, INC.   INCORPORATED        INC.       ELIMINATIONS   CONSOLIDATED
                                               -----------   ------------   -------------   ------------   ------------
                                                                           (IN THOUSANDS)                              
                                                                                                                       
Net sales, including intercompany                                                                                      
  transfers and charges....................... $   772,768   $       107    $     109,500   $   (109,607)  $    772,768
Operating costs and expenses                                                                                           
  Cost of goods sold..........................     670,091            --          105,614       (109,500)       666,205
  Depreciation................................      41,475            --            4,206             --         45,681
  Selling and administrative                                                                                           
     expenses.................................      33,096            --               --           (107)        32,989
                                               -----------   -----------    -------------   ------------   ------------
     Operating income (loss)..................      28,106           107             (320)            --         27,893
Interest expense, net.........................      20,396            --               --             --         20,396
Discount and expenses on sales of                                                                                      
  receivables.................................       4,935            --               --             --          4,935
Other, net....................................         765            --               --             --            765
                                               -----------   -----------    -------------   ------------   ------------
  Income (loss) before income                                                                                          
     taxes....................................       2,010           107             (320)            --          1,797
Provision for (benefit of) income                                                                                      
  taxes.......................................         620            40             (120)            --            540
Equity in income (loss) of                                                                                             
  subsidiaries................................        (200)        1,190               --           (990)            --
                                               -----------   -----------    -------------   ------------   ------------
     Net income (loss)........................ $     1,190   $     1,257    $        (200)  $       (990)  $      1,257
                                               ===========   ===========    =============   ============   ============

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CONSOLIDATING STATEMENTS OF CASH FLOWS (UNAUDITED)
 FOR THE FISCAL YEAR ENDED AUGUST 31, 2001

                                                        [Enlarge/Download Table]

                                                                                  NON-GUARANTOR                               
                                                                    GUARANTOR       AVONDALE                                  
                                                      AVONDALE      AVONDALE      GRANITEVILLE                                
                                                    MILLS, INC.   INCORPORATED    FABRICS, INC.   ELIMINATIONS   CONSOLIDATED 
                                                    -----------   ------------    -------------   ------------   ------------ 
                                                                                (IN THOUSANDS)                                
                                                                                                                              
Operating activities                                                                                                          
Net income (loss).................................. $     1,190   $      1,257    $        (200)  $       (990)  $      1,257 
Adjustments to reconcile net income (loss) to net                                                                             
  cash provided by operating activities:                                                                                      
  Depreciation and amortization....................      42,193             --            4,206             --         46,399 
  Provision for deferred income taxes..............       6,543             --               --             --          6,543 
  Loss on disposal of equipment....................         640             --               --             --            640 
  Sale of accounts receivable, net.................     (20,000)            --               --             --        (20,000)
  Changes in operating assets and liabilities:                                                                                
   Accounts receivable.............................      27,959             --               (1)            --         27,958 
   Inventories.....................................      10,018             --           (3,724)            --          6,294 
   Other assets and liabilities, net...............      11,097            118              (50)            --         11,165 
   Accounts payable and accrued expenses...........     (23,385)            --              316             --        (23,069)
   Income taxes payable............................      (9,096)            --               --             --         (9,096)
  Dividends from subsidiary........................          --          5,015               --         (5,015)            -- 
  Equity in income (loss) of subsidiaries..........         200         (1,190)              --            990             -- 
                                                    -----------   ------------    -------------   ------------   ------------ 
    Net cash provided by operating activities......      47,359          5,200              547         (5,015)        48,091 
Investing activities                                                                                                          
  Purchase of property, plant and equipment........     (90,592)            --             (547)            --        (91,139)
  Proceeds from sale of property, plant and                                                                                   
   equipment.......................................         875             --               --             --            875 
                                                    -----------   ------------    -------------   ------------   ------------ 
    Net cash used in investing activities..........     (89,717)            --             (547)            --        (90,264)
Financing activities                                                                                                          
  Payments on long term debt.......................     (10,000)            --               --             --        (10,000)
  Advances on revolving line of credit, net........      52,475             --               --             --         52,475 
  Issuance of common stock.........................          --             20               --             --             20 
  Purchase and retirement of treasury stock........          --           (205)              --             --           (205)
  Dividends paid...................................      (5,015)        (5,015)              --          5,015         (5,015)
                                                    -----------   ------------    -------------   ------------   ------------ 
    Net cash provided by (used in) financing                                                                                  
     activities....................................      37,460         (5,200)              --          5,015         37,275 
                                                    -----------   ------------    -------------   ------------   ------------ 
Decrease in cash...................................      (4,898)            --               --             --         (4,898)
Cash at beginning of year..........................       7,867             --               --             --          7,867 
                                                    -----------   ------------    -------------   ------------   ------------ 
Cash at end of year................................ $     2,969   $         --    $          --   $         --   $      2,969 
                                                    ===========   ============    =============   ============   ============ 

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 AVONDALE INCORPORATED

CONSOLIDATING STATEMENTS OF INCOME (UNAUDITED)
 FOR THE FISCAL YEAR ENDED AUGUST 25, 2000

                                                        [Enlarge/Download Table]

                                                                          NON-GUARANTOR                              
                                                             GUARANTOR      AVONDALE                                 
                                                AVONDALE      AVONDALE    GRANITEVILLE                               
                                               MILLS, INC.  INCORPORATED  FABRICS, INC.   ELIMINATIONS   CONSOLIDATED
                                               -----------  ------------  -------------   ------------   ------------
                                                                          (IN THOUSANDS)                             
                                                                                                                     
Net sales, including intercompany transfers                                                                          
  and charges................................. $   836,544  $         63  $     104,248   $   (104,311)  $    836,544
Operating costs and expenses                                                                                         
  Cost of goods sold..........................     682,357            --         99,805       (104,210)       677,952
  Depreciation................................      38,133            --          4,117             --         42,250
  Selling and administrative expenses.........      38,575            --             --           (101)        38,474
  Facility restructuring expenses.............          --            --             --             --             --
                                               -----------  ------------  -------------   ------------   ------------
   Operating income...........................      77,479            63            326             --         77,868
Interest expense, net.........................      20,249            --             --             --         20,249
Discount and expenses on sales of receivables.       5,578            --             --             --          5,578
Other, net....................................         458            --             --             --            458
                                               -----------  ------------  -------------   ------------   ------------
   Income before income taxes.................      51,194            63            326             --         51,583
Provision for income taxes....................      18,434            24            122             --         18,580
Equity in income of subsidiaries..............         204        32,964             --        (33,168)            --
                                               -----------  ------------  -------------   ------------   ------------
   Net income................................. $    32,964  $     33,003  $         204   $    (33,168)  $     33,003
                                               ===========  ============  =============   ============   ============

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 AVONDALE INCORPORATED

CONSOLIDATING STATEMENTS OF CASH FLOWS (UNAUDITED)
 FOR THE FISCAL YEAR ENDED AUGUST 25, 2000

                                                        [Enlarge/Download Table]

                                                                                     NON-GUARANTOR                             
                                                                                        AVONDALE                               
                                                                        GUARANTOR     GRANITEVILLE                             
                                                          AVONDALE       AVONDALE       FABRICS,                               
                                                         MILLS, INC.   INCORPORATED       INC.       ELIMINATIONS  CONSOLIDATED
                                                         -----------   ------------  --------------  ------------  ------------
                                                                                     (IN THOUSANDS)                            
                                                                                                                               
Operating activities                                                                                                           
Net income.............................................. $    32,964    $   33,003     $      204    $   (33,168)   $   33,003 
Adjustments to reconcile net income to net cash                                                                                
  provided by operating activities:                                                                                            
  Depreciation and amortization.........................      38,721            --          4,117             --        42,838 
  Provision for deferred income taxes...................       2,181            --             --             --         2,181 
  Gain on sale of equipment.............................         (99)           --             --             --           (99)
  Sale of accounts receivable, net......................      (7,000)           --             --             --        (7,000)
  Changes in operating assets and liabilities:                                                                                 
   Accounts receivable..................................       2,417            --             --             --         2,417 
   Inventories..........................................         602            --             (8)            --           594 
   Other assets and liabilities, net....................     (41,392)        2,393         29,091             --        (9,908)
   Accounts payable and accrued expenses................      37,940            --        (33,204)            --         4,736 
   Income taxes payable.................................      (1,035)           --             --             --        (1,035)
  Dividends from subsidiary.............................          --         5,062             --         (5,062)           -- 
  Equity in income of subsidiaries......................        (204)      (32,964)            --         33,168            -- 
                                                         -----------    ----------     ----------    -----------    ---------- 
    Net cash provided by operating activities...........      65,095         7,494            200         (5,062)       67,727 
Investing activities                                                                                                           
  Purchase of property, plant and equipment.............     (30,277)           --           (200)            --       (30,477)
  Proceeds from sale of property, plant and equipment...       1,416            --             --             --         1,416 
                                                         -----------    ----------     ----------    -----------    ---------- 
    Net cash used in investing activities...............     (28,861)           --           (200)            --       (29,061)
Financing activities                                                                                                           
  Payments on long term debt............................      (3,250)           --             --             --        (3,250)
  Payments on revolving line of credit, net.............     (36,100)           --             --             --       (36,100)
  Issuance of long term debt............................       7,500            --             --             --         7,500 
  Issuance of common stock..............................          --           349             --             --           349 
  Purchase and retirement of treasury stock.............          --        (2,781)            --             --        (2,781)
  Dividends paid........................................      (5,062)       (5,062)            --          5,062        (5,062)
                                                         -----------    ----------     ----------    -----------    ---------- 
    Net cash used in financing activities...............     (36,912)       (7,494)            --          5,062       (39,344)
                                                         -----------    ----------     ----------    -----------    ---------- 
Decrease in cash........................................        (678)           --             --             --          (678)
Cash at beginning of year...............................       8,545            --             --             --         8,545 
                                                         -----------    ----------     ----------    -----------    ---------- 
Cash at end of year..................................... $     7,867    $       --     $       --    $        --    $    7,867 
                                                         ===========    ==========     ==========    ===========    ========== 

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                                                                     SCHEDULE II

 AVONDALE INCORPORATED

 CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
VALUATION AND QUALIFYING ACCOUNTS (in thousands)

                                                        [Enlarge/Download Table]

                                                                                                  (B)  
                                                          BALANCE        CHARGED                BALANCE
                                                            AT          TO COSTS                AT END 
                                                         BEGINNING         AND        (A)(C)      OF   
                                  DESCRIPTION             PERIOD        EARNINGS    DEDUCTIONS  PERIOD 
                            -------------------------  --------------  -----------  ----------  -------
                                                                                                       
Year Ended August 25, 2000  Allowance for doubtful          7,650          900          (747)     7,803
                            accounts                                                                   
Year Ended August 31, 2001  Allowance for doubtful          7,803          699        (1,306)     7,196
                            accounts                                                                   
Year Ended August 31, 2001  Allowance for doubtful          7,196        1,442        (6,439)     2,199
                            accounts                                                                   

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

(A)      Deductions represent customer account balances written off during the  
period.                                                       

(B)      At August 25, 2000 and August 31, 2001, the balance at end of period   
includes $4,814 and $4,580, respectively, related to accounts 
       receivable sold. These amounts are included in other accrued expenses
in the Consolidated Balance Sheets.                           

(C)      For the fiscal year ended August 30, 2002, deductions include $5,000   
    related to the write down of accounts receivable to net realizable
     value in conjunction with the sale of those receivables to Avondale
Funding, LLC.                                                 

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 AVONDALE INCORPORATED

 CONDENSED CONSOLIDATED BALANCE SHEETS

                                                        [Enlarge/Download Table]

                                                                              AUGUST 30,          MAY 30,     
                                                                                 2002              2003       
                                                                             -----------        -----------   
                                                                                                (UNAUDITED)   
                                                                         (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                                                                                              
                                                       ASSETS                                                 
Current Assets                                                                                                
  Cash.............................................................          $     2,859        $       138   
  Accounts receivable, less allowance for doubtful                                                            
    accounts of $2,199 at Aug. 30, 2002 and $2,359 at May 30, 2003.               43,305             37,150   
  Inventories......................................................               86,946             99,017   
  Prepaid expenses.................................................                  385              1,312   
  Income taxes refundable..........................................                6,550              4,949   
                                                                             -----------        -----------   
  Total current assets.............................................              140,045            142,566   
Assets held for sale...............................................                3,645              2,577   
Property, plant and equipment:                                                                                
  Land.............................................................                6,634              6,484   
  Buildings........................................................               81,823             80,639   
  Machinery and equipment..........................................              526,897            517,372   
                                                                             -----------        -----------   
                                                                                 615,354            604,495   
  Less accumulated depreciation....................................             (369,728)          (380,087)  
                                                                             -----------        -----------   
                                                                                 245,626            224,408   
Other Assets.......................................................                5,146              5,466   
Goodwill...........................................................                2,951              2,951   
                                                                             -----------        -----------   
                                                                             $   397,413        $   377,968   
                                                                             ===========        ===========   
                                        LIABILITIES AND SHAREHOLDERS' EQUITY                                  
Current Liabilities                                                                                           
  Accounts payable.................................................          $    30,591        $    23,530   
  Accrued compensation, benefits and related expenses..............               10,369             10,030   
  Accrued interest.................................................                4,576              1,266   
  Other accrued expenses...........................................               10,207             10,481   
  Long-term debt due in one year...................................                2,523              4,325   
                                                                             -----------        -----------   
  Total current liabilities........................................               58,266             49,623   

Long term debt.....................................................              167,477            162,568   
Deferred income taxes and other long-term liabilities..............               41,415             40,080   
Shareholders' equity:                                                                                         
  Preferred stock $.01 par value; 10,000 shares authorized.........                   --                 --   
Common stock                                                                                                  
  Class A, $.01 par value; 100,000 shares authorized, 11,401                                                  
    issued and outstanding.........................................                  115                114   
  Class B, $.01 par value; 5,000 shares authorized, 979 issued and                                            
    outstanding....................................................                   10                 10   
Capital in excess of par value.....................................               39,669             39,194   
Accumulated other comprehensive loss...............................                 (889)              (447)  
Retained earnings..................................................               91,350             86,817   
                                                                             -----------        -----------   
  Total shareholders' equity.......................................              130,255            125,688   
                                                                             -----------        -----------   
                                                                             $   397,413        $   377,968   
                                                                             ===========        ===========   

The accompanying notes are an integral part of these condensed consolidated 
financial statements. 

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 AVONDALE INCORPORATED

 CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

                                                        [Enlarge/Download Table]

                                                                                         THIRTY-NINE WEEKS ENDED       
                                                                                      -----------------------------    
                                                                                       MAY 31,             MAY 30,     
                                                                                        2002                2003       
                                                                                      ---------           ---------    
                                                                                  (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                                                                                                       
Net sales........................................................................     $ 475,163           $ 461,136    

Operating costs and expenses                                                                                           
      Cost of goods sold.........................................................       406,810             388,491    

      Depreciation...............................................................        33,995              32,120    

      Selling and administrative expenses........................................        21,594              21,001    

      Facility restructuring charges.............................................         7,000               2,450    
                                                                                      ---------           ---------    

           Operating income .....................................................         5,764              17,074    

Interest expense, net............................................................        15,342              13,418    
Discount and expenses on sales of receivables....................................         1,314               2,096    
Other, net.......................................................................          (382)               (162)   
                                                                                      ---------           ---------    

      Income (loss) before income taxes..........................................       (10,510)              1,722    

Provision for (benefit of) income taxes..........................................        (4,680)                665    
                                                                                      ---------           ---------    

           Net income (loss).....................................................     $  (5,830)          $   1,057    
                                                                                      =========           =========    

Per share data:                                                                                                        
           Net income (loss)-basic...............................................     $    (.47)          $     .08    
                                                                                      =========           =========    

           Net income (loss)-diluted.............................................     $    (.47)          $     .08    
                                                                                      =========           =========    

           Dividends declared....................................................     $     .20           $     .30    
                                                                                      =========           =========    

The accompanying notes are an integral part of these condensed consolidated 
financial statements. 

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 AVONDALE INCORPORATED

 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                                                THIRTY-NINE WEEKS ENDED 
                                                                                ----------------------- 
                                                                                 MAY 31,        MAY 30, 
                                                                                  2002           2003   
                                                                                --------       -------- 
                                                                                    (IN THOUSANDS)      
                                                                                                        
Operating activities                                                                                    
       Net income (loss) .....................................................  $ (5,830)      $  1,057 
       Adjustments to reconcile net income (loss) to net                                                
            cash provided by operating activities:                                                      
              Depreciation and amortization ..................................    34,437         32,394 
              Benefit of deferred income taxes ...............................    (1,807)          (934)
              Loss on disposal of equipment and facility restructuring charges     4,652          2,151 
              Sale of accounts receivable, net ...............................     4,000        (15,516)
              Changes in operating assets and liabilities ....................     9,142           (714)
                                                                                --------       -------- 

                  Net cash provided by operating activities...................    44,594         18,438 

Investing activities                                                                                    
       Purchases of property, plant and equipment ............................    (9,674)       (13,102)
       Proceeds from sale of property, plant and equipment and                                          
           assets held for sale ..............................................     1,100          1,116 
                                                                                --------       -------- 

                  Net cash used in investing activities ......................    (8,574)       (11,986)

Financing activities                                                                                    
       Net payments on revolving line of credit and long-term debt ...........   (33,250)        (3,106)
       Purchase and retirement of common stock ...............................        --         (2,315)
       Dividends paid ........................................................    (2,506)        (3,752)
                                                                                --------       -------- 

                  Net cash used in financing activities ......................   (35,756)        (9,173)
                                                                                --------       -------- 

Increase (decrease) in cash ..................................................       264         (2,721)

Cash at beginning of period ..................................................     2,969          2,859 
                                                                                --------       -------- 

Cash at end of period ........................................................  $  3,233       $    138 
                                                                                ========       ======== 

The accompanying notes are an integral part of these condensed consolidated 
financial statements. 

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 AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MAY 30, 2003

1. Basis of Presentation: The accompanying unaudited condensed
consolidated financial statements include the accounts of Avondale Incorporated 
and its wholly owned subsidiary, Avondale Mills, Inc. ("Avondale Mills") and,   
prior to its dissolution on August 30, 2002, Avondale Receivables Company, a    
special purpose subsidiary of Avondale Mills, (collectively, the "Company"). All
significant intercompany accounts and transactions have been eliminated. Certain
prior year financial statement amounts have been reclassified to conform to the 
current year's presentation. The August 30, 2002 balance sheet has been derived 
from the audited financial statements at that date. The accounting policies and 
basis of presentation followed by the Company are presented in Note 1 to the    
August 30, 2002 Audited Consolidated Financial Statements.                      

         On August 30, 2002, Avondale Funding LLC ("Funding"), a special purpose
subsidiary of Avondale Mills, was established to replace Avondale Receivables   
Corporation and provide financing through the sale of accounts receivable       
generated by the Company. The Company accounts for its investment in Avondale   
Funding, LLC using the equity method of accounting.                             

       The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make  
estimates and assumptions that affect the reported amounts of assets and        
liabilities and disclosure of contingent assets and liabilities at the date of  
the financial statements and the reported amounts of revenues and expenses      
during the reporting period. Actual results could differ from those estimates.  

   These statements have been prepared in accordance with accounting
principles generally accepted in the United States for interim financial        
information. Accordingly, they do not include all of the information and        
footnotes required by accounting principles generally accepted in the United    
States for complete financial statements.                                       

    In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting of normal 
recurring accruals) necessary for a fair presentation. Operating results for the
thirty-nine weeks ended May 30, 2003 are not necessarily indicative of the      
results that may be expected for the fiscal year ending August 29, 2003.        

      2. Inventories: Components of inventories are as follows (amounts in
thousands):                                                                     

                                                                [Download Table]

                                                      AUG. 30,  MAY 30, 
                                                        2002      2003  
                                                      --------  ------- 
                                                                        
Finished goods....................................... $27,013   $ 34,884
Work in process......................................  33,586     37,500
Raw materials........................................   9,042     11,129
Dyes and chemicals...................................   6,163      4,610
                                                      -------   --------
Inventories at FIFO..................................  75,804     88,123

Adjustment of carrying value to LIFO basis,                             
     net of market adjustment........................   4,900      4,250
                                                      -------   --------
                                                       80,704     92,373
Supplies at average cost.............................   6,242      6,644
                                                      -------   --------

                                                      $86,946   $ 99,017
                                                      =======   ========

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 AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED) (CONTINUED)
MAY 30, 2003

        The Company's inventories at May 30, 2003 under the last-in, first-out
(LIFO) method and the related impact on the statement of income for the         
thirty-nine weeks then ended have been recorded using estimated quantities and  
costs as of August 29, 2003, the end of fiscal 2003. As a result, these interim 
amounts are subject to the final LIFO calculations for fiscal 2003.             

         3. Earnings Per Share: Earnings per share is calculated by dividing the
reported net income (loss) for the period by the appropriate weighted average   
number of shares of common stock outstanding, as shown below (amounts in        
thousands):                                                                     

                                                                [Download Table]

                                                     THIRTY-NINE WEEKS ENDED  
                                                     -----------------------  
                                                     MAY 31,           MAY 30,
                                                      2002              2003  
                                                     -------           -------
                                                                              
Weighted average shares outstanding - basic......... 12,531            12,483 
Effect of employee stock options....................     --                90 
                                                     ------            ------ 
Weighted average shares outstanding - diluted....... 12,531            12,573 
                                                     ======            ====== 

     4. Segment Information: Condensed segment information is as follows
(amounts in thousands):                                                         

                                                                [Download Table]

                                                   THIRTY-NINE WEEKS ENDED  
                                                   -----------------------  
                                                    MAY 31,        MAY 30,  
                                                     2002           2003    
                                                   ---------      --------- 
                                                                            
Revenues:                                                                   
     Apparel fabrics ............................. $ 398,534      $ 393,709 
     Yarns .......................................   137,052        131,936 
     Other .......................................    51,575         50,974 
                                                   ---------      --------- 
                                                     587,161        576,619 
     Less intersegment sales .....................   111,998        115,483 
                                                   ---------      --------- 
            Total ................................ $ 475,163      $ 461,136 
                                                   =========      ========= 

Income (loss):                                                              
     Apparel fabrics ............................. $  28,024      $  27,661 
     Yarns .......................................    (5,868)         2,413 
     Other .......................................     2,616          3,775 
     Facility restructuring charges ..............    (7,000)        (2,450)
     Unallocated .................................   (12,008)       (14,325)
                                                   ---------      --------- 
            Total operating income ...............     5,764         17,074 
     Interest expense, net .......................    15,342         13,418 
     Discount and expenses on sale of receivables      1,314          2,096 
     Other expense (income), net .................      (382)          (162)
                                                   ---------      --------- 
            Income (loss) before income taxes .... $ (10,510)     $   1,722 
                                                   =========      ========= 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED) (CONTINUED)
MAY 30, 2003

      5. Comprehensive income (loss): Comprehensive income (loss) includes
unrealized gains and losses in the fair value of certain derivative instruments 
which qualify for hedge accounting. A reconciliation of net income (loss) to    
comprehensive income (loss) is as follows (amounts in thousands):               

                                                                [Download Table]

                                                       THIRTY-NINE WEEKS ENDED
                                                       -----------------------
                                                       MAY 31,        MAY 30, 
                                                        2002           2003   
                                                       -------        ------- 
                                                                              
Net income (loss) .................................... $(5,830)       $ 1,057 
Change in fair value of interest rate swaps, net of                           
    income taxes .....................................    (194)           443 
                                                       -------        ------- 
Comprehensive income (loss) .......................... $(6,024)       $ 1,500 
                                                       =======        ======= 

         6. New Accounting Pronouncements: The Company adopted the provisions of
Statement of Financial Accounting Standard No. 142, Goodwill and Other          
Intangible Assets, effective August 31, 2002, and ceased amortization of        
goodwill on that date. The Company completed the transitional goodwill          
impairment test as required by Statement No. 142 during the thirteen weeks ended
November 29, 2002 and determined that no impairment of goodwill should be       
recorded. In accordance with the provisions of Statement No. 142, the adoption  
of this accounting policy is reflected prospectively. Had the Company accounted 
for goodwill in accordance with this policy in fiscal 2002, the net loss for the
thirty-nine weeks ended May 31, 2002 would have been ($5.7) million or ($.45)   
per share-basic and ($.45) per share-diluted.                                   

  Effective August 31, 2002, the Company adopted the provisions of
Statements of Financial Accounting Standard No. 141 - Business Combinations, No.
143 - Accounting for Asset Retirement Obligations, No. 144 - Impairment or      
Disposal of Long-lived Assets, No. 145 - Rescission of Statements No. 4, 44, and
64, Amendment of Statement No. 13, and Technical Corrections, and No. 146 -     
Accounting for Costs Associated with Exit or Disposal Activities. The adoption  
of these Statements had no impact on the condensed consolidated financial       
statements.                                                                     

        In December 2002, Statement of Financial Accounting Standards No. 148,
Accounting for Stock-Based Compensation - Transition and Disclosure, established
accounting and disclosure requirements pertaining to a change from the intrinsic
value method to the fair value method of accounting for stock-based             
compensation, and revised disclosure requirements for companies continuing to   
apply the intrinsic value method. The Company adopted the provisions of this    
statement during the thirteen weeks ended May 30, 2003, electing to continue its
use of the intrinsic value method. Accordingly, no stock-based compensation has 
been recorded, as all options granted under the existing plan have an exercise  
price equal to the market value of the underlying common stock on the date of   
grant. If the Company had elected to record stock-based compensation in         
accordance with the fair value method and provisions of Statement No. 123,      
reported net income and earnings per share would be revised to the following pro
forma amounts (amounts in thousands, except per share data):                    

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 AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)(CONTINUED)
MAY 30, 2003

                                                                [Download Table]

                                               THIRTY-NINE WEEKS ENDED  
                                               -----------------------  
                                                MAY 31,        MAY 30,  
                                                 2002           2003    
                                               ---------      --------- 
                                                                        
Net income (loss) as reported................  $  (5,830)     $   1,057 
Pro forma stock-based compensation, net of                              
    income taxes.............................        (28)           (28)
                                               ---------      --------- 
Pro forma net income (loss)..................  $  (5,858)     $   1,029 
                                               =========      ========= 

Per share data:                                                         
     Net income (loss)-basic as reported.....  $    (.47)     $     .08 
                                               =========      ========= 

     Net income (loss)-basic pro forma.......  $    (.47)     $     .08 
                                               =========      ========= 

     Net income (loss)-diluted as reported...  $    (.47)     $     .08 
                                               =========      ========= 

     Net income (loss)-diluted pro forma.....  $    (.47)     $     .08 
                                               =========      ========= 

  In January 2003, the Financial Accounting Standards Board issued
Interpretation No. 46, "Consolidation of Variable Interest Entities", which     
requires the accounts of a variable interest entity to be included in the       
consolidated financial statements of a company if that company is subject to a  
majority of the risk of loss from the variable interest entity's activities, is 
entitled to receive a majority of the entity's residual returns, or both.       
Interpretation No. 46 also requires certain disclosures regarding a variable    
interest entity in which a company has a significant variable interest but is   
not required to include its accounts in the company's consolidated financial    
statements. The consolidation requirements of Interpretation No. 46 apply       
immediately to variable interest entities created after January 31, 2003 and in 
the first fiscal year or interim period beginning after June 15, 2003 for       
entities existing on or before January 31, 2003. Certain of the disclosure      
requirements apply to financial statements issued after January 31, 2003,       
regardless of the date on which the variable interest entity was created. The   
Company has evaluated the provisions of this interpretation and concluded that  
the interpretation will have no effect on the consolidated financial statements 
of the Company since Avondale Funding LLC is a qualified special purpose entity.

In April 2003, the Financial Accounting Standards Board issued
Statement No. 149, Amendments of Statement No. 133 on Derivative Instruments and
Hedging Activities, which requires certain contracts to be treated as either    
derivatives or hybrid instruments, on a consistent basis. Statement No. 149 is  
effective for contracts and hedging transactions executed or modified after June
30, 2003. The Company is currently evaluating the impact of Statement 149 on its
consolidated financial statements.                                              

        In May 2003, the Financial Accounting Standards Board issued Statement
No. 150, Accounting for Certain Financial Instruments with Characteristics of   
Both Liabilities and Equity, which requires certain financial instruments that  
were previously presented on the consolidated balance sheets as equity or       
temporary equity to be presented as liabilities. Such instruments include       
mandatory redeemable preferred and common stock, and certain options and        
warrants. Statement No. 150 is generally effective for financial instruments    
entered into or modified after May 31, 2003 and for the first interim period    
beginning after June 15, 2003. The Company is currently evaluating the impact of
Statement 150 on its consolidated financial statements.                         

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED) (CONTINUED)
MAY 30, 2003

    7. Contingencies: The Company is involved in certain environmental
matters and claims. The Company has provided reserves to cover management's     
estimates of the costs of investigating, monitoring and remediating these and   
other environmental conditions. If more costly remediation measures are         
necessary than those believed to be probable based on current facts and         
circumstances, actual costs may exceed the reserves provided. However, based on 
the information currently available, management does not believe that the       
outcome of these matters will have a material adverse effect on the Company's   
results of operations or financial condition.                                   

       For discussion of certain legal proceedings to which the Company is a
party, see Item 3 "Legal Proceedings" in the Company's Annual Report on Form    
10-K for the fiscal year ended August 30, 2002. The Company is also a party to  
other litigation incidental to its business from time to time. The Company is   
not currently a party to any litigation that management, in consultation with   
legal counsel, believes would have a material adverse effect on the Company's   
financial condition or results of operations.                                   

      8. Purchase and retirement of treasury stock: During the thirty-nine
weeks ended May 30, 2003, the Company repurchased 150,000 shares of its Class A 
Common Stock for an aggregate purchase price of approximately $2.3 million,     
pursuant to offers to sell by the Avondale Mills, Inc. Associate Profit Sharing 
and Savings Plan.                                                               

         9. Facility restructuring: In response to the highly competitive market
conditions and continued oversupply of open-end yarns, in January 2002, the     
Company completed the closing of two separate open-end yarn manufacturing       
facilities located in North Carolina. In connection with these closings, the    
Company recorded facility restructuring charges and other non-operating costs of
approximately $5.8 million during fiscal 2002. Additionally, the Company        
implemented reductions in certain manufacturing overhead costs and selling,     
general and administrative expenses in September 2001. In conjunction with these
actions and the two plant closings, the Company recorded expense of             
approximately $1.2 million related to the termination of approximately 70       
associates holding manufacturing, marketing and administrative positions.       

      In response to the deterioration of domestic and regional demand for
heather and stock-dyed open-end yarns over the past several years, in May 2003, 
the Company completed the closing of an open-end yarn manufacturing facility    
located in Alabama. Continued operation of this facility could not be justified 
given the diminished volume and pricing for these products. Production of       
stock-dyed yarns for internal consumption by the apparel fabrics operation will 
be shifted to other manufacturing facilities within the Company. In connection  
with this action, the Company recorded facility restructuring charges and other 
non-operating costs of approximately $2.5 million during the thirty-nine weeks  
ended May 30, 2003.                                                             

10. Long-term debt: On March 28, 2003, the Company completed a
restructuring of its senior secured revolving credit facility with a group of   
lenders, which provides aggregate borrowing availability of a maximum of $62    
million through March 27, 2006, or November 1, 2005 if the Company's 10.25%     
Senior Subordinated Notes have not been refinanced by that date. Borrowings     
under the revolving credit facility include revolving loans provided by the     
lenders and up to $10 million of revolving swing loans provided by Wachovia     
Bank, N. A. ("Wachovia"). With respect to revolving loans, the Company can      
designate an interest rate tied to the Eurodollar rate (adjusted for any        
reserves) plus a specified number of basis points or the base rate (which is the
higher of Wachovia's prime rate or one-half of one percent over the overnight   
federal funds rate) plus a specified number of basis points. Interest accrues on
revolving swing loans at the Company's option at either the base rate plus a    
specified number of basis points or at an interest rate to be mutually          
determined by the Company and Wachovia at the time such loan is made. A         
commitment fee is payable quarterly on the average daily unused portion of the  
revolving credit commitment. The revolving credit facility is secured by        
substantially all of the Company's assets. Covenants of the credit agreement,   
among other things, require the Company to maintain a minimum operating cash    
flow and certain financial ratios,                                              

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and contain restrictions on payment of dividends. At May 30, 2003 the Company   
had borrowings of $23.0 million outstanding under the revolving credit facility.

       11. Subsequent events: On June 30, 2003, Avondale Mills issued at par
$150 million of 10 1/4% Senior Subordinated Notes (the Notes) in a private      
placement to qualified institutional buyers. The Notes, which mature on July 1, 
2013, are unsecured and subordinated to all existing and future senior          
indebtedness of the Company. Interest on the Notes is due semiannually, on      
January 1 and July 1, commencing January 1, 2004. Proceeds from the sale of the 
Notes will be used to redeem Avondale Mill's 10.25% Senior Subordinated Notes   
Due 2006, to repay indebtedness outstanding under the revolving credit facility 
and for general corporate purposes.                                             

     The Company has entered into an agreement with Wachovia Securities,
LLC, the original purchaser of the Notes, to use reasonable best efforts to file
a registration statement with the Securities and Exchange Commission within 90  
days after June 30, 2003, with respect to an offer to exchange the unregistered 
notes for freely tradable notes that have substantially identical terms. In the 
event of a registration default, the annual interest rate on the Notes will     
increase by .25%.                                                               

     The Notes contain a redemption feature allowing the Company, at any
time prior to July 1, 2006, to redeem up to an aggregate of $52.5 million of the
principal amount of the Notes with the proceeds of one or more public equity    
offerings, at a redemption price of 110.25% plus accrued interest to the        
redemption date, provided that at least $97.5 million aggregate principal amount
of the Notes remains outstanding after such redemption. On or after July 1,     
2008, the Notes are redeemable at the Company's option, in whole or in part, at 
a redemption price of 105.125%, which declines in intervals to 100% in 2011 and 
thereafter.                                                                     

       The indenture under which the Notes were issued contains, among other
things, certain restrictive covenants applicable to issuance of additional debt,
payment of dividends, retirement of capital stock or indebtedness, purchase of  
investments, sales or transfers of assets, certain consolidations or mergers and
certain transactions with affiliates.                                           

      12. Consolidating guarantor and non-guarantor financial information:
The following consolidating financial information presents balance sheets,      
statements of income and statements of cash flow of the Company and its         
subsidiaries. Avondale Incorporated, the parent company and sole shareholder of 
Avondale Mills, has fully and unconditionally guaranteed the Notes. Avondale    
Mills Graniteville Fabrics, Inc., a wholly owned subsidiary of Avondale Mills   
and non-guarantor of the Notes, operates a denim manufacturing facility and     
warehouse operation located in South Carolina.                                  

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)(CONTINUED)
MAY 30, 2003

 AVONDALE INCORPORATED
CONSOLIDATING BALANCE SHEETS
MAY 30, 2003

                                                        [Enlarge/Download Table]

                                                                                 Non-Guarantor                              
                                                                                  Avondale                                  
                                                                                    Mills                                   
                                                                 Guarantor      Graniteville                                
                                                 Avondale        Avondale         Fabrics,                                  
                                               Mills, Inc.     Incorporated         Inc.          Eliminations  Consolidated
                                               -----------     ------------     --------------    ------------  ------------
                                                                           (AMOUNTS IN THOUSANDS)                           
                                                                                                                            
                                                           ASSETS                                                           

Current Assets                                                                                                              
     Cash...................................   $     138        $        -        $       -       $        -     $     138  
     Accounts receivable....................      37,148                 -                2                -        37,150  
     Inventories............................      95,445                 -            3,572                -        99,017  
     Prepaid expenses.......................       1,312                 -                -                -         1,312  
     Income taxes refundable................       4,949                 -                -                -         4,949  
                                               ---------        ----------        ---------       ----------     ---------  
         Total current assets...............     138,992                 -            3,574                -       142,566  
Assets held for sale........................       2,577                                                             2,577  
Property, plant and equipment                                                                                               
      Land..................................       6,288                 -              196                -         6,484  
      Buildings.............................      68,889                 -           11,750                -        80,639  
      Machinery and equipment...............     479,660                 -           37,712                -       517,372  
                                               ---------        ----------        ---------       ----------     ---------  
                                                 554,837                 -           49,658                -       604,495  
      Less accumulated depreciation.........    (355,561)                -          (24,526)               -      (380,087) 
                                               ---------        ----------        ---------       ----------     ---------  
                                                 199,276                 -           25,132                -       224,408  
Other assets................................       5,466                 -                -                -         5,466  
Investment in subsidiaries..................       8,380           115,768                -         (124,148)            -  
Goodwill....................................       2,951                 -                -                -         2,951  
                                               ---------        ----------        ---------       ----------     ---------  
                                               $ 357,642        $  115,768        $  28,706       $ (124,148)    $ 377,968  
                                               =========        ==========        =========       ==========     =========  

                                            LIABILITIES AND SHAREHOLDERS' EQUITY                                            

Current Liabilities                                                                                                         
      Accounts payable......................   $  22,528        $        -        $   1,002       $        -     $  23,530  
      Accrued compensation, benefits........       9,823                 -              207                -        10,030  
      Accrued interest......................       1,266                 -                0                -         1,266  
      Other accrued expenses................      10,480                 -                1                -        10,481  
      Long- term debt due in one year.......       4,325                 -                -                -         4,325  
                                               ---------        ----------        ---------       ----------     ---------  
         Total current liabilities..........      48,422                 -            1,210                -        49,632  
Long-term debt..............................     162,568                 -                -                -       162,568  
Deferred income taxes                                                                                                       
   and other long term liabilities .........      40,080                 -                -                -        40,080  
Due to (from) subsidiaries..................      (9,196)           (9,920)          19,116                -             -  
Shareholders' equity........................     115,768           125,688            8,380         (124,148)      125,688  
                                               ---------        ----------        ---------       ----------     ---------  
                                               $ 357,642        $  115,768        $  28,706       $ (124,148)    $ 377,968  
                                               =========        ==========        =========       ==========     =========  

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 AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)(CONTINUED)

 AVONDALE INCORPORATED
CONSOLIDATING BALANCE SHEETS
 AUGUST 30, 2002

                                                        [Enlarge/Download Table]

                                                                                Non-Guarantor                              
                                                                               Avondale Mills                              
                                                                 Guarantor      Graniteville                               
                                                 Avondale        Avondale         Fabrics,                                 
                                               Mills, Inc.     Incorporated         Inc.         Eliminations  Consolidated
                                               -----------     ------------    --------------    ------------  ------------
                                                                           (AMOUNTS IN THOUSANDS)                          
                                                                                                                           
                                                            ASSETS                                                         

Current Assets                                                                                                             
     Cash...................................   $   2,859       $         -         $      -       $        -    $   2,859  
     Accounts receivable....................      43,304                 -                1                -       43,305  
     Inventories............................      83,311                 -            3,635                -       86,946  
     Prepaid expenses.......................         385                 -                -                -          385  
     Income taxes refundable................       6,550                 -                -                -        6,550  
                                               ---------       -----------         --------       ----------    ---------  
         Total current assets...............     136,409                 -            3,635                -      140,045  
Assets held for sale........................       3,645                                                            3,645  
Property, plant and equipment                                                                                              
      Land..................................       6,438                 -              196                -        6,634  
      Buildings.............................      70,073                 -           11,750                -       81,823  
      Machinery and equipment...............     489,675                 -           37,222                -      526,897  
                                               ---------       -----------         --------       ----------    ---------  
                                                 566,186                 -           49,168                -      615,354  
      Less accumulated depreciation.........    (348,200)                -          (21,528)               -     (369,728) 
                                               ---------       -----------         --------       ----------    ---------  
                                                 217,986                 -           27,640                -      245,626  
Other assets................................       5,146                 -                -                -        5,146  
Investment in subsidiaries..................       7,901           114,520                -         (122,421)           -  
Goodwill....................................       2,951                 -                -                -        2,951  
                                               ---------       -----------         --------       ----------    ---------  
                                               $ 374,038       $   114,520         $ 31,276       $ (122,421)   $ 397,413  
                                               =========       ===========         ========       ==========    =========  

                                             LIABILITIES AND SHAREHOLDERS' EQUITY                                          

Current Liabilities                                                                                                        
      Accounts payable......................   $  29,114       $         -         $  1,477       $        -    $  30,591  
      Accrued compensation, benefits........      10,249                 -              120                -       10,369  
      Accrued interest......................       4,576                 -                -                -        4,576  
      Other accrued expenses................      10,206                 -                1                -       10,207  
      Long-term debt due in one year........       2,523                 -                -                -        2,523  
                                               ---------       -----------         --------       ----------    ---------  
         Total current liabilities..........      56,668                 -            1,598                -       58,266  
Long-term debt..............................     167,477                 -                -                -      167,477  
Deferred income taxes                                                                                                      
   and other long term liabilities .........      41,415                 -                -                -       41,415  
Due to (from) subsidiaries..................      (6,042)          (15,735)          21,777                -            -  
Shareholders' equity........................     114,520           130,255            7,901         (122,421)     130,255  
                                               ---------       -----------         --------       ----------    ---------  
                                               $ 374,038       $   114,520         $ 31,276       $ (122,421)   $ 397,413  
                                               =========       ===========         ========       ==========    =========  

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 AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED) (CONTINUED)
MAY 30, 2003

 AVONDALE INCORPORATED
CONSOLIDATING STATEMENTS OF INCOME
FOR THE THIRTY-NINE WEEKS ENDED MAY 30, 2003

                                                        [Enlarge/Download Table]

                                                                         Non-Guarantor                              
                                                                           Avondale                                 
                                                                             Mills                                  
                                                           Guarantor     Graniteville                               
                                             Avondale      Avondale        Fabrics,                                 
                                            Mills, Inc.   Incorporated       Inc.         Eliminations  Consolidated
                                            -----------   ------------   -------------    ------------  ------------
                                                                     (AMOUNTS IN THOUSANDS)                         
                                                                                                                    
Net sales, including intercompany                                                                                   
    transfers and charges ................. $   461,136     $     92        $ 69,363       $  (69,455)  $  461,136  
Operating costs and expenses                                                                                        
  Cost of goods sold ......................     392,315            -          65,539          (69,363)     388,491  
  Depreciation ............................      29,069            -           3,051                        32,120  
  Selling and administrative expenses .....      21,093            -               -              (92)      21,001  
  Facility restructuring charges ..........       2,450            -               -                -        2,450  
                                            -----------     --------        --------       ----------   ----------  
    Operating income ......................      16,209           92             773                -       17,074  
Interest expense, net .....................      13,418            -               -                -       13,418  
Discount and expenses on sales                                                                                      
    of receivables ........................       2,096            -               -                -        2,096  
Other, net ................................        (162)           -               -                -         (162) 
                                            -----------     --------        --------       ----------   ----------  
    Income before income taxes ............         857           92             773                -        1,722  
Provision for income taxes ................         335           35             295                -          665  
Equity in earnings of subsidiary ..........         478        1,000               -           (1,478)           -  
                                            -----------     --------        --------       ----------   ----------  
    Net income............................. $     1,000     $  1,057        $    478       $   (1,478)  $    1,057  
                                            ===========     ========        ========       ==========   ==========  

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AVONDALE INCORPORATED 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED) (CONTINUED)
MAY 30, 2003

 AVONDALE INCORPORATED
CONSOLIDATING STATEMENTS OF INCOME
FOR THE THIRTY-NINE WEEKS ENDED MAY 31, 2002

                                                        [Enlarge/Download Table]

                                                                     Non-Guarantor                              
                                                                        Avondale                                
                                                                         Mills                                  
                                                        Guarantor     Graniteville                              
                                            Avondale     Avondale       Fabrics,                                
                                          Mills, Inc.  Incorporated       Inc.        Eliminations  Consolidated
                                          -----------  ------------  -------------    ------------  ------------
                                                                         (AMOUNTS IN THOUSANDS)                 
                                                                                                                
Net sales, including intercompany                                                                               
    transfers and charges ...............  $ 475,163    $      76      $  69,509        $ (69,585)   $ 475,163  
Operating costs and expenses                                                                                    
  Cost of goods sold ....................    409,837           --         66,482          (69,509)     406,810  
  Depreciation ..........................     30,906           --          3,089                        33,995  
  Selling and administrative expenses ...     21,670           --             --              (76)      21,594  
  Facility restructuring charges ........      7,000           --             --               --        7,000  
                                           ---------    ---------      ---------        ---------    ---------  
    Operating income (loss)                    5,750           76            (62)              --        5,764  
Interest expense, net ...................     15,342           --             --               --       15,342  
Discount and expenses on sales                                                                                  
    of receivables ......................      1,314           --             --               --        1,314  
Other, net ..............................       (382)          --             --               --         (382) 
                                           ---------    ---------      ---------        ---------    ---------  
    Income (loss) before income taxes ...    (10,524)          76            (62)              --      (10,510) 
Provision for (benefit of) income taxes..     (4,685)          29            (24)                       (4,680) 
Equity in loss of subsidiary ............        (38)      (5,877)            --            5,915           --  
                                           ---------    ---------      ---------        ---------    ---------  
    Net loss ............................  $  (5,877)   $  (5,830)     $     (38)       $   5,915    $  (5,830) 
                                           =========    =========      =========        =========    =========  

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 AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED) (CONTINUED)
MAY 30, 2003

 AVONDALE INCORPORATED
CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE THIRTY-NINE WEEKS ENDED MAY 30, 2003

                                                        [Enlarge/Download Table]

                                                                            Non-Guarantor                              
                                                                               Avondale                                
                                                                                Mills                                  
                                                               Guarantor     Graniteville                              
                                                  Avondale     Avondale        Fabrics,                                
                                                Mills, Inc.  Incorporated        Inc.        Eliminations  Consolidated
                                                -----------  -------------  --------------   ------------  ------------
                                                                        (AMOUNTS IN THOUSANDS)                         
                                                                                                                       
Operating activities                                                                                                   
Net income ...................................    $  1,000     $  1,057        $    478        $ (1,478)     $  1,057  
Adjustments to reconcile net income                                                                                    
  to net cash provided by operating                                                                                    
  activities:                                                                                                          
   Depreciation and amortization .............      29,343           --           3,051              --        32,394  
   Benefit of deferred income taxes ..........        (934)          --              --              --          (934) 
   Loss on disposal of equipment and                                                                                   
      facility restructuring charges .........       2,151           --              --              --         2,151  
   Sale of accounts receivable, net ..........     (15,516)          --              --              --       (15,516) 
   Changes in operating assets and liabilities         557        2,258          (3,529)             --          (714) 
   Dividends from subsidiary .................          --        3,752              --          (3,752)           --  
   Equity in earnings of subsidiary ..........        (478)      (1,000)             --           1,478            --  
                                                  --------     --------        --------        --------      --------  
      Net cash provided by operating                                                                                   
       activities ............................      16,123        6,067              --          (3,752)       18,438  

Investing activities                                                                                                   
     Purchase of property, plant and equipment     (13,102)          --              --              --       (13,102) 
     Proceeds from sale of property, plant                                                                             
      and equipment ..........................       1,116           --              --              --         1,116  
                                                  --------     --------        --------        --------      --------  
      Net cash used in investing activities        (11,986)          --              --              --       (11,986) 
Financing activities                                                                                                   
      Net payments on revolving line of                                                                                
        credit and long term debt ............      (3,106)          --              --              --        (3,106) 
     Purchase and retirement of treasury stock          --       (2,315)             --              --        (2,315) 
     Dividends paid ..........................      (3,752)      (3,752)             --           3,752        (3,752) 
                                                  --------     --------        --------        --------      --------  
      Net cash used in financing activities         (6,858)      (6,067)             --           3,752        (9,173) 
                                                  --------     --------        --------        --------      --------  
Decrease in cash .............................      (2,721)          --              --              --        (2,721) 
Cash at beginning of period ..................       2,859           --              --              --         2,859  
                                                  --------     --------        --------        --------      --------  
Cash at end of period ........................    $    138     $     --        $     --        $     --      $    138  
                                                  ========     ========        ========        ========      ========  

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 AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED) (CONTINUED)
MAY 30, 2003

 AVONDALE INCORPORATED
CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE THIRTY-NINE WEEKS ENDED MAY 31, 2002

                                                        [Enlarge/Download Table]

                                                                               Non-Guarantor                               
                                                                                  Avondale                                 
                                                                                   Mills                                   
                                                                 Guarantor      Graniteville                               
                                                   Avondale      Avondale         Fabrics,                                 
                                                  Mills, Inc.  Incorporated         Inc.        Eliminations  Consolidated 
                                                  -----------  ------------    -------------    ------------  -------------
                                                                           (AMOUNTS IN THOUSANDS)                          
                                                                                                                           
Operating activities                                                                                                       
Net loss .......................................   $ (5,877)     $ (5,830)        $    (38)       $  5,915     $ (5,830)   
Adjustments to reconcile net loss                                                                                          
  to net cash provided by operating activities:                                                                            
   Depreciation and amortization ...............     31,348            --            3,089              --       34,437    
   Benefit of deferred income taxes ............     (1,807)           --               --              --       (1,807)   
   Loss on disposal of equipment and                                                                                       
      facility restructuring charges ...........      4,652            --               --              --        4,652    
   Sale of accounts receivable, net ............      4,000            --               --              --        4,000    
   Changes in operating assets and liabilities..     12,240           (47)          (3,051)             --        9,142    
   Dividends from subsidiary ...................         --         2,506               --          (2,506)          --    
   Equity in loss of subsidiary ................         38         5,877               --          (5,915)          --    
                                                   --------      --------         --------        --------     --------    
       Net cash provided by operating activities     44,594         2,506               --          (2,506)      44,594    

Investing activities                                                                                                       
     Purchase of property, plant and equipment..     (9,674)           --               --              --       (9,674)   
     Proceeds from sale of property, plant                                                                                 
      and equipment ............................      1,100            --               --              --        1,100    
                                                   --------      --------         --------        --------     --------    
       Net cash used in investing activities ...     (8,574)           --               --              --       (8,574)   
Financing activities                                                                                                       
     Net payments on revolving line of                                                                                     
        credit and long term debt ..............    (33,250)           --               --              --      (33,250)   
    Dividends paid .............................     (2,506)       (2,506)              --           2,506       (2,506)   
                                                   --------      --------         --------        --------     --------    
       Net cash used in financing activities ...    (35,756)       (2,506)              --           2,506      (35,756)   
                                                   --------      --------         --------        --------     --------    
Increase in cash ...............................        264            --               --              --          264    
Cash at beginning of period ....................      2,969            --               --              --        2,969    
                                                   --------      --------         --------        --------     --------    
Cash at end of period ..........................   $  3,233      $     --         $     --        $     --     $  3,233    
                                                   ========      ========         ========        ========     ========    

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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY            
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR 
MADE, SUCH INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING    
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE    
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO     
WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY    
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS     
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER   
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO   
CHANGE IN THE AFFAIRS OF AVONDALE MILLS, INC. OR AVONDALE INCORPORATED SINCE THE
DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME  
SUBSEQUENT TO ITS DATE.                                                         

AVONDALE MILLS, INC.

$150,000,000

 OFFER TO EXCHANGE

10 1/4% SENIOR SUBORDINATED NOTES DUE 2013
THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933

 FOR

 ANY AND ALL OUTSTANDING
10 1/4% SENIOR SUBORDINATED NOTES DUE 2013
THAT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933

September 18, 2003

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘424B3’ Filing		Date		First		Last			Other Filings
		7/1/13		1		135
		7/31/08		41
		7/1/08		1		135
		9/30/07		17		43
		8/29/07		32		109
		8/1/07		31		113
		7/31/06		41
		7/1/06		1		135
		5/1/06		112		113
		3/27/06		31		134
		11/1/05		134
		1/16/04		55
		1/1/04		1		135
		12/17/03		55
		12/15/03		36
		10/21/03		1		57
		9/28/03		55
Filed on:		9/19/03
		9/18/03		1		142
		9/8/03		56
		8/29/03		110		131			10-K,  S-4
		7/31/03		52
		7/21/03		31		65
		7/3/03		32		66
		6/30/03		6		135
		6/25/03		55					8-K
		6/15/03		36		133
		5/31/03		133
		5/30/03		4		141			10-Q
		3/28/03		31		134
		3/1/03		31		113
		1/31/03		36		133
		11/29/02		35		132			10-Q
		10/11/02		99
		9/1/02		31		113
		8/31/02		20		132
		8/30/02		11		137			10-K
		8/6/02		43
		7/30/02		31		113
		6/15/02		20
		5/31/02		11		141			10-Q
		5/22/02		45		116
		5/15/02		97
		5/14/02		41		97			8-K
		4/25/02		45		116
		10/9/01		99		100
		9/11/01		28
		8/31/01		11		126			10-K405
		5/4/01		45		116
		2/28/01		41
		1/12/01		45		116
		1/1/01		106
		8/25/00		97		126			10-K405
		7/13/00		48
		5/2/00		17		42
		1/13/00		44		116
		10/1/99		41
		8/27/99		34		115			10-K405
		12/15/98		41
		9/1/97		48
		4/29/96		46
		1/1/94		17		42
		12/31/92		47
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