ANVIL HOLDINGS INC, 10-Q, 1998-12-15

ANVIL HOLDINGS INC
10-Q, 1998-12-15
KNIT OUTERWEAR MILLS

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

For the Quarterly Period Ended October 31, 1998

Commission File Number 333-26999

ANVIL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)

Delaware 13-3801705
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

228 East 45th Street
New York, New York 10017
(address of principal (Zip Code)
executive office)

Registrant's telephone number (212) 476-0300
(including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes |X| No |_|

At December 15, 1998, there were 290,000 shares of Class A Common Stock, $0.01
par value (the "Class A Common") and 3,590,000 shares of Class B Common Stock,
$0.01 par value (the "Class B Common") of the registrant outstanding.

<PAGE>

ANVIL HOLDINGS, INC.

TABLE OF CONTENTS

PAGE
----

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets as of October 31, 1998
(Unaudited) and January 31, 1998............................... 3

Unaudited Consolidated Statements of Operations for the
Fiscal Quarters and Nine Months Ended October 31, 1998
and November 1, 1997 .......................................... 4

Unaudited Consolidated Statements of Cash Flows for the
Nine Months Ended October 31, 1998 and November 1, 1997........ 5

Notes to Consolidated Financial Statements..................... 6

Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................. 10

PART II. OTHER INFORMATION

Item 2. Changes in Securities and Use of Proceeds..................... 18

Item 6. Exhibits and Reports on Form 8-K.............................. 18

SIGNATURES................................................................... 19

2
<PAGE>

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

ANVIL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)

<TABLE>
<CAPTION>
October 31, January 31,
1998 1998*
---- -----
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ............................................ $ 827 $ 959
Accounts receivable, less allowance for doubtful accounts of
$503 and $822 ...................................................... 23,348 27,271
Inventories .......................................................... 53,695 42,089
Prepaid and refundable income taxes .................................. 5,811 4,640
Deferred income taxes ................................................ 2,510 2,510
Prepaid expenses and other current assets ............................ 985 1,004
--------- ---------

Total current assets ............................................. 87,176 78,473

PROPERTY, PLANT AND EQUIPMENT--Net ..................................... 38,159 38,189
INTANGIBLE ASSETS--Net ................................................. 24,758 25,487
OTHER ASSETS ........................................................... 4,453 4,964
--------- ---------
$ 154,546 $ 147,113
========= =========

LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Accounts payable ..................................................... $ 8,033 $ 11,986
Accrued expenses and other current liabilities ....................... 16,219 15,349
Current portion of long-term debt .................................... 8,800 --
--------- ---------

Total current liabilities ........................................ 33,052 27,335
--------- ---------

LONG-TERM BANK BORROWINGS .............................................. 25,000 21,700
--------- ---------
10-7/8% SENIOR NOTES ................................................... 126,738 126,445
--------- ---------
DEFERRED INCOME TAXES .................................................. 4,613 4,613
--------- ---------
OTHER LONG-TERM OBLIGATIONS ............................................ 1,841 1,883
--------- ---------

REDEEMABLE PREFERRED STOCK
(Liquidation value, $36,359 and $33,605) ............................. 34,883 31,392
--------- ---------

STOCKHOLDERS' DEFICIENCY:
Common stock:
Class A, $.01 par value, 12.5% cumulative; authorized 500,000
shares, issued and outstanding: 290,000 (aggregate liquidation
value, $35,460 and $32,333) ...................................... 3 3
Class B, $.01 par value, authorized 7,500,000 shares; issued and
outstanding: 3,590,000 shares .................................... 36 36
Class C, $.01 par value; authorized 1,400,000 shares; none issued
Additional paid-in capital ........................................... 12,803 12,803
Retained (deficit) ................................................... (84,423) (79,097)
--------- ---------
Total stockholders' deficiency ......................................... (71,581) (66,255)
--------- ---------
$ 154,546 $ 147,113
========= =========
</TABLE>

* Derived from audited financial statements.

See notes to consolidated financial statements.

3
<PAGE>

ANVIL HOLDINGS, INC. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
(In Thousands, Except Share Data)

<TABLE>
<CAPTION>
Fiscal Quarter Ended Fiscal Nine months Ended
-------------------- ------------------------
October 31, November 1, October 31, November 1,
1998 1997 1998 1997
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET SALES .......................................... $ 43,400 $ 53,708 $ 170,475 $ 165,741
COST OF GOODS SOLD ................................. 37,526 42,726 140,026 128,299
--------- --------- --------- ---------
Gross profit ..................................... 5,874 10,982 30,449 37,442
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES ......................................... 6,188 5,887 19,133 17,498
SPECIAL COMPENSATION ............................... -- -- -- 10,915
AMORTIZATION OF INTANGIBLE ASSETS .................. 250 250 729 730
--------- --------- --------- ---------

Operating (loss) income .......................... (564) 4,845 10,587 8,299

OTHER INCOME (EXPENSE):
Interest expense ................................. (4,630) (4,322) (13,726) (12,160)
Interest income and other expense--net ........... 10 46 81 283
--------- --------- --------- ---------
(LOSS) INCOME BEFORE (BENEFIT) PROVISION FOR
INCOME TAXES AND EXTRAORDINARY ITEM .............. (5,184) 569 (3,058) (3,578)

(BENEFIT) PROVISION FOR INCOME TAXES ............... (2,073) 228 (1,223) (1,431)
--------- --------- --------- ---------

(LOSS) INCOME BEFORE EXTRAORDINARY ITEM ............ (3,111) 341 (1,835) (2,147)

EXTRAORDINARY ITEM - Loss on extinguishment
of debt (net of tax benefit of $1,838) ........... -- -- -- (2,757)
--------- --------- --------- ---------

NET (LOSS) INCOME .................................. (3,111) 341 (1,835) (4,904)
Less: Preferred Stock dividends (pro forma in 1997) (1,144) (1,039) (3,328) (3,021)
Common A preference (pro forma in 1997) ...... (1,075) (964) (3,127) (2,805)
--------- --------- --------- ---------
NET (LOSS) ATTRIBUTABLE TO
COMMON STOCKHOLDERS .............................. $ (5,330) $ (1,662) $ (8,290) $ (10,730)
========= ========= ========= =========
BASIC INCOME (LOSS) PER COMMON SHARE
Class A Common Stock:
Income (loss) before extraordinary item .......... $ 2.34 $ 2.90 $ 8.65 $ 7.62
Extraordinary item ............................... -- -- -- (0.71)
--------- --------- --------- ---------
Net income ....................................... $ 2.34 $ 2.90 $ 8.65 $ 6.91
========= ========= ========= =========
Class B Common Stock:
(Loss) income before extraordinary item .......... $ (1.38) $ (0.43) $ (2.14) $ (2.06)
Extraordinary item ............................... -- -- -- (0.71)
--------- --------- --------- ---------
Net (loss) ....................................... $ (1.38) $ (0.43) $ (2.14) $ (2.77)
========= ========= ========= =========

Weighted average shares used in computation of basic
income (loss) per share:

Class A Common ................................... 290 290 290 290
========= ========= ========= =========

Class B Common ................................... 3,590 3,590 3,590 3,590
========= ========= ========= =========
</TABLE>

See notes to consolidated financial statements.

4
<PAGE>

ANVIL HOLDINGS, INC. AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED CASH FLOWS
(In Thousands, Except Share Data)

<TABLE>
<CAPTION>
Fiscal Nine Months Ended
------------------------
October 31, November 1,
1998 1997
---- ----
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) ..................................................... $ (1,835) $ (4,904)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization of fixed assets .................. 4,972 4,900
Amortization of other assets ................................... 1,538 1,474
Noncash interest expense ....................................... -- 1,827
Write-off of deferred financing fees ........................... -- 3,010
Noncash compensation ........................................... -- 5,177
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable .......................................... 4,016 66
Inventories .................................................. (11,606) (4,544)
Prepaid and refundable income taxes .......................... (1,171) (1,461)
Accounts payable ............................................. (3,953) 3,387
Accrued expenses & other liabilities ......................... 828 5,597
Other--net ................................................... (61) (2,530)
--------- ---------
Net cash (used in) provided by operating activities ........ (7,272) 11,999
--------- ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment--net ....................... (4,960) (4,580)
--------- ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit agreement-net ................ 12,100 26,500
Repayment of old revolving credit facility ..................... -- (20,700)
Repayments of long-term debt ................................... -- (46,325)
Repayment of Subordinated Promissory Note ...................... -- (9,575)
Proceeds of Senior Notes ....................................... -- 130,000
Redemption of Old Preferred Stock .............................. -- (22,736)
Repurchase of Old Common Stock ................................. -- (92,262)
Proceeds from sale of Units .................................... -- 26,667
Exercise of stock options ...................................... -- 336
Issuance of New Common Stock ................................... -- 13,063
Repayment of stockholder loans ................................. -- 250
Expenses related to the Recapitalization ....................... -- (13,155)
--------- ---------
Net cash provided by (used in)
financing activities ..................................... 12,100 (7,937)
--------- ---------

(DECREASE) IN CASH ................................................. (132) (518)
CASH, BEGINNING OF PERIOD .......................................... 959 1,862
--------- ---------
CASH, END OF PERIOD ................................................ $ 827 $ 1,344
========= =========
Non-cash Investing and financing activities -
Redeemable preferred stock issued in lieu of dividends ........... $ 3,021 $ 1,993
========= =========
</TABLE>

See notes to consolidated financial statements.

5
<PAGE>

Form 10-Q

ANVIL HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Share Data)

NOTE 1 - Business/Principles of Consolidation

Basis of Presentation: The accompanying consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the fiscal period ended October 31, 1998
are not necessarily indicative of the results that may be expected for the
fiscal year ending January 30, 1999 or any other period. The balance sheet at
January 31, 1998 has been derived from the audited financial statements at that
date. For further information, refer to the financial statements for the fiscal
year ended January 31, 1998.

Anvil Holdings, Inc. ("Holdings") together with its subsidiaries (the "Company")
are engaged in the business of designing, manufacturing and marketing quality
casual knitwear and athletic wear for men, women and children. The Company
markets and distributes its products, under private label and its own brand
names, primarily to wholesalers and screen printers, principally in the United
States. The Company's operations are on a "52/53-week" fiscal year ending on the
Saturday closest to January 31. The accompanying consolidated financial
statements include the accounts of the Company, after elimination of significant
intercompany accounts and transactions.

NOTE 2 - Recapitalization and Refinancing

Effective March 14, 1997, the Company completed a significant recapitalization
and refinancing plan, the major components of which are as follows:

On March 14, 1997, the Company, Anvil VT, Inc., Vestar Equity Partners, L.P.
("Vestar"), 399 Venture Partners, Inc. and certain of its employees and
affiliates (collectively, "399 Venture"), certain management investors and other
existing shareholders of the Company (collectively, the "Existing Shareholders")
and Bruckmann, Rosser, Sherrill & Co., L.P. and certain of its employees and
affiliates (collectively, "BRS") completed a reorganization (the
"Recapitalization") pursuant to which: (i) the Company redeemed or repurchased a
substantial portion of its outstanding shares of capital stock; (ii) BRS
contributed $13,063 for the purchase of new common stock; (iii) 399 Venture and
the management investors reinvested a portion of their existing shares of common
stock of the Company, which were converted into shares of newly issued common
stock, and (iv) 399 Venture exchanged a portion of its existing preferred stock
for 3,333 shares of Senior Exchangeable Preferred Stock and new common stock.

Concurrently with the Recapitalization, the Company sold 30,000 Units consisting
of $30,000, 13% Senior Exchangeable Preferred Stock due 2009, and 390,000 shares
of Class B Common (the "Units Offering"). Additionally, on March 14, 1997,
Holdings' wholly-owned subsidiary, Anvil Knitwear, Inc. ("Anvil") sold $130,000
of 10 7/8% Senior Notes due 2007 ("Senior Notes"), guaranteed by Holdings and
Cottontops, Inc. ("Cottontops") an operating domestic subsidiary of Anvil. The
net proceeds from the Units and Notes offerings and

6
<PAGE>

borrowings under the New Credit Agreement (see below) were used by the Company
to: (i) redeem or repurchase the outstanding common stock and preferred stock;
(ii) repay the balance outstanding under a then existing credit facility ("Old
Credit Agreement"); (iii) repay the subordinated debt; (iv) pay fees and
expenses; (v) pay a management bonus; and (vi) pay amounts due in accordance
with a previously-existing equity buy-out plan.

Concurrently with the Recapitalization, the Company repaid its borrowings under
the Old Credit Agreement and entered into an Amended and Restated Credit
Agreement ("New Credit Agreement") providing a $55,000 revolving credit
facility, with a sublimit of $5,000 for letters of credit, expiring March 14,
2002, subject to certain maximum levels of borrowings based upon asset levels.
The Company used $33,250 of the borrowings under the New Credit Agreement to
finance a portion of the Recapitalization. The Company has classified $25,000
and $21,700 of the revolving credit borrowings as long-term liabilities in the
accompanying balance sheets at October 31, 1998 and January 31, 1998,
respectively, representing, at the respective balance sheet dates, amounts the
Company anticipates continually refinancing.

The New Credit Agreement, as amended, requires the Company to meet certain
financial tests, including minimum levels of consolidated net worth, minimum
levels of consolidated EBITDA (as defined therein), minimum interest coverage
and maximum leverage ratio. The Company has been required to request and has
obtained from its lenders waivers of compliance with these tests for the fiscal
quarter ended October 31, 1998.

The New Credit Agreement also contains covenants which, among other things,
limit: (i) the incurrence of additional indebtedness; (ii) the payment of
dividends; (iii) transactions with affiliates; (iv) asset sales, acquisitions
and mergers; (v) prepayments of other indebtedness; (vi) creation of liens and
encumbrances; and (vii) other matters customarily restricted in such agreements.
All borrowings under this credit facility are secured by substantially all the
assets of Anvil including accounts receivable, inventories and property and
equipment.

As required by the Certificate of Designations relating to the 13% Senior
Exchangeable Preferred Stock, the Company has paid stock dividends aggregating
254,360 shares ($6,359 liquidation value) through October 31, 1998.

During the nine month period ended November 1, 1997, the Company recorded an
extraordinary charge of $2,757, after an applicable income tax benefit, as a
result of losses incurred in connection with certain of the above refinancing
transactions.

NOTE 3 - Recent Exchange Offers

Holdings completed an exchange offer which expired August 26, 1997 (as
extended), pursuant to which its 13% Series A Senior Exchangeable Preferred
Stock was exchanged on a share-for-share basis for its 13% Series B Senior
Exchangeable Preferred Stock, due 2009. Pursuant to the exchange offer,
1,198,566 shares ($29,964 liquidation value) were validly tendered and
exchanged.

Anvil completed an exchange offer which expired August 22, 1997, pursuant to
which its 10-7/8% Series A Senior Notes were exchanged on a dollar-for-dollar
basis for its 10-7/8% Series B Senior Notes, due 2007. Pursuant to the exchange
offer, $129,000 principal amount were validly tendered and exchanged.

7
<PAGE>

The terms and conditions of the aforementioned Series B securities are
substantially identical to the Series A securities for which they were
exchanged, except that the Series B securities have been registered under the
Securities Act of 1933, as amended.

NOTE 4 - Special Compensation

In connection with the Recapitalization and refinancings effected during the
fiscal year ended January 31, 1998, the Company made significant compensatory
payments to members of management during the nine month period ended November 1,
1997. Such amounts related to compensation earned by members of management upon
exercise of options, a special transaction bonus and payments under a then
existing equity buy-out plan. These payments aggregated $10,915, and are
considered by management to be nonrecurring in nature.

NOTE 5 - Inventories

Inventories at October 31, 1998 and January 31, 1998 consisted of the following:

October 31, 1998 January 31, 1998
---------------- ----------------

Finished goods $36,865 $22,505
Work-in-process 9,944 9,830
Raw materials & supplies 6,886 9,754
------- -------
$53,695 $42,089
======= =======

NOTE 6 - Income (loss) per share

Basic income (loss) per share is computed based upon the average outstanding
shares of Class A and Class B Common Stock. For the quarter and nine month
periods ended November 1, 1997, the pro forma amounts presented in the statement
of operations assume the Recapitalization took place on February 2, 1997 (the
beginning of that fiscal year). The following is a computation of basic net
income (loss) per share for the quarter and nine month periods ended November 1,
1997 using the historical shares outstanding, and is computed by dividing net
income (loss) applicable to each class of Common Stock by the actual average
number of common shares outstanding during such periods. Such computation does
not give retroactive effect to the Recapitalization.

<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
November 1, 1997 November 1, 1997
---------------- ----------------
<S> <C> <C>
Net income (loss) .......................... $ 341 $(4,904)
Preferred stock dividends .................. (1,007) (1,982)
Common A preference ........................ (935) (1,841)
------- -------
Net loss attributable to common stockholders $(1,600) $(8,727)
======= =======

Basic income (loss) per share:
Class A Common:
Income before extraordinary item .......... $ 2.87 $ 5.03
======= =======
Net income ................................. $ 2.87 $ 3.43
======= =======

Class B Common:
Loss before extraordinary item ............. $ (0.35) $ (1.31)
======= =======
Net loss ................................... $ (0.35) $ (1.91)
======= =======

Weighted average shares outstanding:
Class A Common ........................... 928 928
======= =======
Class B Common ........................... 3,633 3,633
======= =======
</TABLE>

8
<PAGE>

NOTE 7 - Summarized Financial Data of Certain Wholly-owed Subsidiaries

Following is the summarized balance sheet data of Anvil and Cottontops.
Cottontops is a wholly-owned subsidiary of Anvil, which is a wholly-owned
subsidiary of Holdings.

<TABLE>
<CAPTION>
Anvil Knitwear, Inc. Cottontops, Inc.
------------------------- ------------------------
October 31, January 31, October 31, January 31,
1998 1998 1998 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Current assets .................. $ 87,176 $ 78,473 $ 1,839 $ 3,825
========= ========= ========= =========
Total assets .................... $ 154,546 $ 147,113 $ 2,317 $ 4,166
========= ========= ========= =========

Current liabilities ............. $ 33,052 $ 27,335 $ 589 $ 550
========= ========= ========= =========
Long-term liabilities ........... $ 158,192 $ 154,641 $ -- $ 1,854
========= ========= ========= =========
Total liabilities ............... $ 191,244 $ 181,976 $ 589 $ 2,404
========= ========= ========= =========
Stockholder's equity (deficiency) $ (36,698) $ (34,863) $ 1,728 $ 1,762
========= ========= ========= =========
</TABLE>

Following is the summarized statement of operations data of Anvil and Cottontops
for the periods indicated:

<TABLE>
<CAPTION>
Anvil Knitwear, Inc. Cottontops, Inc.
----------------------------------------------- -----------------------------------------------
Quarter Ended Nine months Ended Quarter Ended Nine months Ended
---------------------- ---------------------- --------------------- ----------------------
Oct 31, Nov 1, Oct 31, Nov 1, Oct 31, Nov 1, Oct 31, Nov 1,
1998 1997 1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales ............... $ 43,400 $ 53,708 $ 70,475 $ 165,741 $ 1,329 $ 1,195 $ 3,081 $ 2,564
Operating (loss) income . $ (564) $ 4,845 $ 10,587 $ 8,299 $ 105 $ (111) $ 255 $ (354)
Interest expense ........ $ 4,630 $ 4,322 $ 13,726 $ 12,160 -- -- -- --
Net (loss) income ....... $ (3,111) $ 341 $ (1,835) $ (4,904) $ 65 $ (60) $ 154 $ (161)
</TABLE>

Holdings and Cottontops have fully and unconditionally, jointly and severally
guaranteed the Series A Senior Notes and the Series B Senior Notes. Complete
financial statements and other disclosures concerning Anvil and Cottontops are
not presented because management has determined they are not material to
investors. Holdings has no independent operations apart from its wholly-owned
subsidiary, Anvil, and its sole asset is the capital stock of Anvil. Anvil is
Holdings' only direct subsidiary. In addition to Cottontops, Anvil has three
other non-guarantor direct subsidiaries: Anvil (Czech), Inc., a Delaware
corporation, A.K.H., S.A., organized in Honduras and Livna, Limitada organized
in El Salvador and one non-guarantor indirect subsidiary, Anvil s.r.o.,
organized in the Czech Republic (a direct subsidiary of Anvil (Czech), Inc.)
(collectively, the "Non-Guarantor Subsidiaries"). Other than as stated herein,
there are no other direct or indirect subsidiaries of the Company. Management
believes the Non-Guarantor Subsidiaries are inconsequential both individually
and in the aggregate.

9
<PAGE>

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations

Results of Operations

General

The Company's results of operations are affected by numerous factors, including
competition, general economic conditions, raw material costs, mix of products
sold and plant utilization. Certain activewear products of the type manufactured
by the Company are generally available from multiple sources and the Company's
customers often purchase products from more than one source. To remain
competitive, the Company reviews and adjusts its pricing structure from time to
time in response to industry-wide price changes. In the basic T-shirt market,
for example, the Company generally does not lead its competitors in setting the
current pricing structure and modifies its prices to the extent necessary to
remain competitive with prices set by its larger competitors in this market.

The gross profit margins of the Company's products vary significantly.
Accordingly, the Company's overall gross profit margin is affected by its
product mix. In addition, plant utilization levels are important to
profitability due to the substantial fixed costs of the Company's textile
operations.

The largest component of the Company's cost of goods sold is the cost of cotton
yarn. Unlike certain of its competitors, the Company does not spin its own yarn.
Instead, the Company obtains substantially all of its yarn from five yarn
suppliers, generally placing orders for quantities ranging from 30 days' to a
one year's supply, and occasionally even longer periods, depending upon
management's expectations regarding future yarn prices and levels of supply.
Yarn prices fluctuate from time to time principally as a result of competitive
conditions in the yarn market and supply and demand for raw cotton. The Company
adjusts the timing and size of its purchase orders for cotton yarn in an effort
to minimize fluctuations in its raw material costs resulting from changes in
yarn prices. Historically, the Company has been successful in mitigating the
impact of fluctuating yarn prices. In recent months, yarn prices have exhibited
a significant downward trend and management has taken steps to adjust the
Company's purchase commitments to take advantage of the declining prices.

Quarter Ended October 31, 1998 Compared to Quarter Ended November 1, 1997

The following table sets forth, for each of the periods indicated, certain
statement of operations data, expressed as a percentage of net sales.

<TABLE>
<CAPTION>
Fiscal Quarter Ended
--------------------
October 31, November 1,
1998 1997
---- ----
<S> <C> <C>
Statement of Operations Data:
Net sales ....................................................... 100.0% 100.0%
Cost of goods sold .............................................. 86.5 79.6
Gross profit .................................................... 13.5 20.4
Selling, general and administrative expenses .................... 14.3 11.0
Interest expense ................................................ 10.7 8.1

Other Data:
EBITDA (1)....................................................... $1.4 million $6.8 million
Percentage of net sales ................................. 3.2% 12.6%
</TABLE>

10
<PAGE>

(1) EBITDA is defined as operating income plus depreciation and amortization.
EBITDA is not a measure of performance under GAAP. EBITDA should not be
considered in isolation or as a substitute for net income, cash flows from
operating activities and other income or cash flow statement data prepared
in accordance with GAAP, or as a measure of profitability or liquidity.
Management believes, however, that EBITDA represents a useful measure of
assessing the performance of the Company's ongoing operating activities as
it reflects earnings trends of the Company without the impact of purchase
accounting. In addition, management believes EBITDA is a widely accepted
financial indicator of a company's ability to service and/or incur
indebtedness and is used by the Company's creditors in assessing debt
covenant compliance. EBITDA should not be construed as an indication of
the Company's operating performance or as a measure of liquidity. EBITDA
does not take into account the Company's debt service requirements and
other commitments and, accordingly, is not necessarily indicative of
amounts that may be available for discretionary uses. The EBITDA measure
presented herein may not be comparable to other similarly titled measures
of other companies.

Net sales for the quarter ended October 31, 1998 decreased $10.3 million (19.2%)
to $43.4 million from $53.7 million for the quarter ended November 1, 1997. The
decrease in net sales is primarily the result of a decline in units sold of more
than 20%. Net sales were also unfavorably impacted by ongoing lower prices for
basic T-shirts. The average selling price for all goods sold is approximately
the same in both periods, which has been maintained by increasing the percentage
of higher priced products, such as henleys and plackets in the Company's product
mix. The sharp decrease in the selling prices for basic T-shirts, and lower
overall unit sales resulted in the sales decline for the quarter. See "Forward
Looking Information," below.

Gross profit for the quarter ended October 31, 1998 declined approximately $5.1
million (46.5%) as gross profit margin declined to 13.5% from 20.4% in the prior
year. The primary cause for the reduced gross margin was the aforementioned
industry-wide price decreases affecting the Company's basic T-shirt business. In
addition, production costs per unit for all products increased due to lower
volume and the inefficiencies created by the transition of most sewing
operations to offshore locations. A significant increase in the Company's
contribution for employee medical benefits continued to unfavorably impact the
Company's results of operations. Management is addressing these areas of
increasing costs. See "Forward Looking Information," below.

Selling, general and administrative expenses (including distribution expense)
for the quarter ended October 31, 1998 increased by $0.3 million (5.1%) to $6.2
million from $5.9 million for the prior year. The increase is primarily the
result of higher advertising expenses incurred in promoting new products. As a
percentage of net sales, selling, general and administrative expenses increased
to 14.3% for the fiscal quarter ended October 31, 1998, from 11.0% in the fiscal
quarter ended November 1, 1997. General and administrative and distribution
expenses remained approximately the same despite the decline in units shipped.
The Company is continuing its efforts to reduce these and other costs as further
discussed in "Forward Looking Information," below.

Interest expense for the quarter ended October 31, 1998 was $4.6 million, an
increase of $0.3 million (7.1%) from the prior year's quarter. This increase in
interest expense was the result of higher borrowings in connection with the
Recapitalization, as well as additional requirements to fund current operations.
Interest rates were also slightly higher during the current quarter compared to
the prior year's quarter.

11
<PAGE>

Net income (loss)

The net loss for the quarter ended October 31, 1998 was $3.1 million compared to
net income of $0.3 million for quarter ended November 1, 1997. The factors
discussed above accounted for the decline in pre-tax profit of approximately
$5.8 million. The benefit for taxes was $2.1 million in the current year's
quarter, compared to a provision of $0.2 million in the prior year, representing
an effective tax rate of approximately 40% in both periods.

Nine months Ended October 31, 1998 Compared to Nine months Ended November 1,
1997

The following table sets forth, for each of the periods indicated, certain
statement of operations data, expressed as a percentage of net sales.

<TABLE>
<CAPTION>
Fiscal Nine months Ended
------------------------
October 31, November 1,
1998 1997
---- ----
<S> <C> <C>
Statement of Operations Data:
Net sales ........................................................ 100.0% 100.0%
Cost of goods sold ............................................... 82.1 77.4
Gross profit ..................................................... 17.9 22.6
Selling, general and administrative expenses ..................... 11.2 10.6
Interest expense ................................................. 8.1 7.3

Other Data:
EBITDA (1) ....................................................... $16.3 million $24.8 million
Percentage of net sales ........................................ 9.6% 15.0%
</TABLE>

(1) EBITDA is defined as operating income plus depreciation and amortization.
EBITDA is not a measure of performance under GAAP. The nine month period
ended November 1, 1997 excludes a non-recurring charge of $10.9 million
for special compensation. EBITDA should not be considered in isolation or
as a substitute for net income, cash flows from operating activities and
other income or cash flow statement data prepared in accordance with GAAP,
or as a measure of profitability or liquidity. Management believes,
however, that EBITDA represents a useful measure of assessing the
performance of the Company's ongoing operating activities as it reflects
earnings trends of the Company without the impact of purchase accounting.
In addition, management believes EBITDA is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness and
is used by the Company's creditors in assessing debt covenant compliance.
EBITDA should not be construed as an indication of the Company's operating
performance or as a measure of liquidity. EBITDA does not take into
account the Company's debt service requirements and other commitments and,
accordingly, is not necessarily indicative of amounts that may be
available for discretionary uses. The EBITDA measure presented herein may
not be comparable to other similarly titled measures of other companies.

Net sales for the nine months ended October 31, 1998 increased $4.7 million
(2.9%) to $170.5 million from $165.7 million for the nine months ended November
1, 1997. Units sold for the nine month period ended October 31, 1998 increased
approximately 2.6% from the same period of the prior year. However, sales
revenues have been unfavorably impacted by ongoing lower prices for basic
T-shirts. While the average selling price for all goods sold is approximately
the same in both periods, the price has been maintained by increasing the
percentage of higher priced products, such as henleys and plackets, in the
Company's product mix. See "Forward Looking Information," below.

Gross profit for the nine months ended October 31, 1998 declined approximately
$7.0 million (18.7%) despite the $4.7 million increase in sales, as gross profit
margin declined to 17.9% from 22.6% in the prior year. This decline is due to
lower prices for basic T-shirts and

12
<PAGE>

increases in certain production costs. The Company continues to emphasize the
sale of products with traditionally higher profit margins such as plackets and
henleys, and is taking additional steps to lower production costs. See "Forward
Looking Information," below.

Selling, general and administrative expenses (including distribution expense)
for the nine months ended October 31, 1998 increased by $1.6 million (9.3%) to
$19.1 million from $17.5 million for the prior year. As a percentage of net
sales, selling, general and administrative expenses were 11.2% and 10.6% for the
fiscal nine month periods ended October 31, 1998 and November 1, 1997,
respectively. Selling expenses increased $0.9 million as a result of higher
sales volume and increased advertising expenditures. The remaining increase is
primarily composed of increased distribution expense due to greater volume, and
unusually high first quarter expenditures to meet delivery commitments.

Interest expense for the nine months ended October 31, 1998 was $13.7 million,
an increase of $1.6 million (12.9%) from the prior year's period. This increase
in interest expense was the result of higher borrowings in connection with the
Recapitalization, as well as additional requirements to fund current operations.
Interest rates were also slightly higher during the current period compared to
the same period of the prior year

Net income (loss)

The net loss for the nine months ended October 31, 1998 was $1.8 million
compared to a net loss of $4.9 million for nine months ended November 1, 1997. A
decrease in gross profit of $7.0 million was further impacted by higher selling,
general and administrative expenses ($1.6 million) and higher interest expense
($1.6 million). In the prior year's period there was a charge of $10.9 million
for "special compensation" and an extraordinary charge of $2.8 million (after
applicable income tax benefit) on extinguishment of debt. A tax benefit of $1.2
million was recognized in the current period compared to $1.4 million for the
same period of the prior year.

Liquidity and Capital Resources

The Company has historically utilized funds generated from operations and
borrowings under its credit agreements to meet working capital and capital
expenditure requirements. During the first nine months of the current fiscal
year, the Company funded its cash requirements chiefly through additional
borrowings under its line of credit.

The Company made capital expenditures of approximately $6.1 million and $4.8
million for the fiscal years ended January 31, 1998 and February 1, 1997,
respectively. The Company's major capital expenditures related to: (i)
improvements to the Company's distribution center in Dillon, South Carolina;
(ii) the acquisition of machinery and equipment; and (iii) the acquisition of
management information systems hardware and software. The Company currently
anticipates capital expenditures of approximately $5.5 million for fiscal 1998
and has no capital commitments outside the ordinary course of business.

The Company's principal working capital requirements are the financing of
accounts receivable and inventories. At October 31, 1998, the Company had net
working capital of approximately $54.1 million, including approximately $23.3
million of accounts receivable, $53.7 million of inventories and $33.1 million
in accounts payable, accrued expenses and current portion of long-term debt.
Inventories have increased significantly due to lower than expected sales in the
current quarter, planned increases of higher-priced products in the mix, and
additional requirements to concurrently meet domestic demand and support
offshore locations. The Company has adjusted its production schedules and
anticipates that by fiscal year end, inventory levels will be near budgeted
amounts. The Company has classified $25.0 million and $21.7 million of its
revolving credit borrowings as long-term liabilities in the accompanying balance

13
<PAGE>

sheets at October 31, 1998 and January 31, 1998, respectively, representing, at
the respective balance sheet dates, amounts the Company anticipates continually
refinancing.

In connection with the Recapitalization, the Company refinanced its existing
indebtedness under the Old Credit Agreement. The New Credit Agreement provides
for borrowings of up to $55.0 million for working capital and other general
corporate purposes, and bears interest, at the Company's option, at LIBOR or
prime rate plus a margin. The indebtedness under the New Credit Agreement is
guaranteed by Holdings and Anvil's domestic operating subsidiary and is secured
by substantially all of Anvil's assets and a pledge by Holdings of all of the
capital stock of Anvil. At October 31, 1998, the Company had $33.8 million
outstanding borrowings under the New Credit Agreement at an interest rate of
approximately 8.2%.

The Company's ability to satisfy its debt obligations, including, in the case of
Anvil, to pay principal and interest on the Senior Notes and, in the case of
Holdings, to pay principal and interest on the Exchange Debentures, if issued,
to perform its obligations under its guarantees and to pay cash dividends on the
Senior Preferred Stock, will depend upon the Company's future operating
performance, which will be affected by prevailing economic conditions and
financial, business and other factors, certain of which are beyond its control,
as well as the availability of revolving credit borrowings under the New Credit
Agreement. However, the Company may be required to refinance a portion of the
principal of the Senior Notes and, if issued, the Exchange Debentures prior to
their maturity and, if the Company is unable to service its indebtedness, it
will be forced to take actions such as reducing or delaying capital
expenditures, selling assets, restructuring or refinancing its indebtedness, or
seeking additional equity capital. There can be no assurance that if any of
these remedies are necessary, they could be effected on satisfactory terms, if
at all.

Holdings has no independent operations with its sole asset being the capital
stock of Anvil, which stock is pledged to secure the obligations under the New
Credit Agreement. As a holding company, Holdings' ability to pay cash dividends
on the Senior Preferred Stock or, if issued, principal and interest on the
debentures into which the Senior Preferred Stock is convertible (the "Exchange
Debentures") is dependent upon the earnings of Anvil and its subsidiaries and
their ability to declare dividends or make other intercompany transfers to
Holdings. Under the terms of the Senior Indenture, Anvil may incur certain
indebtedness pursuant to agreements that may restrict its ability to pay such
dividends or other intercompany transfers necessary to service Holdings'
obligations, including its obligations under the terms of the Senior Preferred
Stock and, if issued, the Exchange Debentures. The Senior Note Indenture
restricts, among other things, Anvil's and certain of its subsidiaries' ability
to pay dividends or make certain other "restricted" payments (except to the
extent,

14
<PAGE>

among other things, the restricted payments are less than 50% of the
Consolidated Net Income of Anvil (as defined therein)), to incur additional
indebtedness, to encumber or sell assets, to enter into transactions with
affiliates, to enter into certain guarantees of indebtedness, to make certain
investments, to merge or consolidate with any other entity and to transfer or
lease all or substantially all of their assets. In addition, the New Credit
Agreement contains other and more restrictive covenants that prohibit Anvil from
declaring dividends or making other intercompany transfers to Holdings in
certain circumstances. Neither the Senior Note Indenture nor the New Credit
Agreement restricts Anvil's subsidiaries from declaring dividends or making
other intercompany transfers to Anvil.

The Company believes that based upon current levels of operations and
anticipated growth, funds generated from operations, together with other
available sources of liquidity, including borrowings under the New Credit
Agreement, will be sufficient over the next twelve months for the Company to
make anticipated capital expenditures, fund working capital requirements and
satisfy its debt service requirements.

Seasonality

The Company's business is not significantly seasonal as it manufactures and
sells a wide variety of activewear products that may be worn throughout the
year.

Effect of Inflation

Inflation generally affects the Company by increasing the interest expense of
floating rate indebtedness and by increasing the cost of labor, equipment and
raw materials. The Company does not believe that inflation has had any material
effect on the Company's business during the periods discussed herein.

New Accounting Standards

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The statement establishes accounting and
reporting standards requiring that derivative instruments be recorded in the
balance sheet as either an asset or liability measured at fair value. The
statement requires that changes in a derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. SFAS
No. 133 is effective for fiscal years beginning after June 15, 199; however, it
may be adopted earlier. It cannot be applied retroactively to financial
statements of prior periods. The Company has not yet quantified the impact on
its financial statements nor determined the timing or method of adopting SFAS
No. 133.

Year 2000 Issues

The Company's comprehensive Year 2000 plan is being implemented and is nearing
completion. As projected, there are no material hardware or software costs
associated with this issue, beyond the budgeted costs for software and hardware
needed for normal business requirements. The Company has upgraded many of its
major systems over the last few years and they are Year 2000 compliant.

The Company has made substantial investment in upgrading its computer hardware.
It is estimated that 95% of its hardware is Year 2000 compliant with the
remainder estimated to be compliant by the end of the Company's fiscal year.
Also, 85-95% of the Company's critical

15
<PAGE>

software systems are Year 2000 compliant with the remainder scheduled for
completion by the end of the Company's fiscal year.

The Company has assigned a senior Information Technology staff member as its
full time Year 2000 project leader to maintain progress and to monitor this
project. A questionnaire has been sent to critical vendors, service providers
and select customers to verify their Year 2000 readiness. A substantial number
of responses have been received, and to date they do not indicate any material
compliance concerns.

Since the Company expects all critical systems to be Year 2000 compliant by
fiscal year end, the Company has not prepared a contingency plan and does not
currently believe that a contingency plan is necessary. Although the Company
believes it is adequately addressing its Year 2000 issues, the failure to
correct a material Year 2000 problem could result in an interruption in, or a
failure of, certain normal business activities or operations. Such failure could
adversely affect the Company's results of operations, liquidity and financial
condition.

Forward-Looking Information

For the past fiscal year, the Company has been experiencing the adverse effects
of a decline in selling prices of basic T-shirts, the Company's primary product.
This industry-wide trend of relatively low average selling prices for basic
T-shirts is beyond the Company's control and has continued into the fourth
fiscal quarter. The Company has been able to slightly lessen the effect of these
pricing pressures by: (i) continuing to emphasize new higher priced products and
de-emphasize certain basic T-shirt sales; (ii) continuing to improve and
modernize its manufacturing processes in order to reduce production costs; and
(iii) moving a majority of its sewing operations offshore to take advantage of
lower wage rates. Following are some of the Company's specific actions and plans
to effect favorable changes in these three areas.

1. On a year to date basis, the Company has been able to increase the
percentage of sales of what it considers its "higher priced" products.
More favorable gross margins on these products have partially offset the
decline in gross margins on basic T-shirts. The Company plans to continue
this strategy.

2. During the last five fiscal years, the Company has invested in excess of
$35 million to modernize and expand its manufacturing and distribution
facilities to improve quality, reduce costs, manage inventories and
shorten textile production cycles. In fiscal 1997, the Company began full
utilization of its centralized distribution facility and is continuing to
refine its textile manufacturing processes to shorten production cycles.
In addition, the Company has negotiated what it considers advantageous
yarn purchase commitments to take advantage of a recent downward trend in
the price of yarn, and has restructured its employee medical plan for
fiscal 1999. While no assurances can be given, Management believes that
the aforementioned changes will significantly contribute to lower unit
costs in future fiscal quarters.

3. Increased competition has caused many domestic apparel manufacturers to
move a portion of their sewing operations offshore to lower costs. The
Company has recently moved a significant portion of its sewing activities
offshore to take advantage of these lower offshore wage rates and may
further increase its offshore sewing operations to the extent necessary to
meet competition. The initial impact of moving offshore was to increase
unit costs due to inefficiencies in production, more irregulars, etc.
Management believes these inefficiencies have abated in recent months.
Because of this increasing shift to offshore production, the Company
closed and sold one of its smaller sewing facilities during fiscal 1997,
and has ceased operations at two other facilities in 1998.

16
<PAGE>

Cautionary Statement Regarding Forward-Looking Information

The Company is including the following cautionary statement in this Form 10-Q to
make applicable and take advantage of the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995 for any forward-looking statements made
by, or on behalf of, the Company. Forward-looking statements include statements
concerning plans, objectives, goals, strategies, future events or performance,
and underlying assumptions and other statements which are other than statements
of historical facts. From time to time, the Company may publish or otherwise
make available forward-looking statements of this nature. All such subsequent
forward-looking statements, whether written or oral and whether made by or on
behalf of the Company, are also expressly qualified by these cautionary
statements. Certain statements contained herein are forward-looking statements
and accordingly involve risks and uncertainties which could cause actual results
or outcomes to differ materially from those expressed in the forward-looking
statements. The forward-looking statements contained herein are based on various
assumptions, many of which are based, in turn, upon further assumptions. The
Company's expectations, beliefs and projections are expressed in good faith and
are believed by the Company to have a reasonable basis, including without
limitation, management's examination of historical operating trends, data
contained in the Company's records and other data available from third parties,
but there can be no assurance that management's expectation, beliefs or
projections will result or be achieved or accomplished. In addition to the other
factors and matters discussed elsewhere herein, the following factors are
important factors that, in the view of the Company, could cause actual results
to differ materially from those discussed in the forward-looking statements:

1. Changes in economic conditions, in particular those which affect the
activewear market.
2. Changes in the availability and/or price of cotton yarn, in particular if
increases in the price of cotton yarn are not passed along to the
Company's customers.
3. Changes in senior management or control of the Company.
4. Inability to obtain new customers or retain existing ones.
5. Significant changes in competitive factors, including product pricing
conditions, affecting the Company.
6. Governmental/regulatory actions and initiatives, including, those
affecting financings.
7. Significant changes from expectations in actual capital expenditures and
operating expenses.
8. Occurrences affecting the Company's ability to obtain funds from
operations, debt or equity to finance needed capital expenditures and
other investments.
9. Significant changes in rates of interest, inflation or taxes.
10. Significant changes in the Company's relationship with its employees and
the potential adverse effects if labor disputes or grievances were to
occur.
11. Changes in accounting principles and/or the application of such principles
to the Company.

The foregoing factors could affect the Company's actual results and could cause
the Company's actual results during fiscal 1998 and beyond to be materially
different from any anticipated results expressed in any forward-looking
statement made by or on behalf of the Company.

The Company disclaims any obligation to update any forward-looking statements to
reflect events or other circumstances after the date hereof.

17
<PAGE>

PART II - OTHER INFORMATION

Item 2. Changes in Securities and Use of Proceeds

See Notes 2 and 3 to Financial Statements.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

3.1 Restated Certificate of Incorporation of Holdings.

10.1 Amendment No. 2 and Waiver dated as of May 21, 1998 to Amended and
Restated Credit Agreement, dated as of March 14, 1997, among Anvil, as
Borrower, Holdings, Cottontops and certain subsidiaries, as Guarantors,
the Banks Identified therein as lending institutions, NationsBank, N.A.
("NationsBank"), as Agent, and Bank of America Illinois, Banque Nationale
de Paris and Heller Financial Inc., as co-agents. (The "New Credit
Agreement" ).

10.2 Amendment No. 3 and Waiver dated as of September 11, 1998 to the New
Credit Agreement.

10.3 Waiver dated December 11, 1998 among the Banks, the Agent and the Borrower
as parties to the New Credit Agreement.

10.4 Management Agreement dated as of November 3, 1998 among Anvil, Holdings,
Cottontops, and Bruckmann, Rosser, Sherrill & Co., Inc.

27.1 Financial Data Schedule.

(b) Reports on Form 8-K

None.

Items 1, 3, 4 and 5 are not applicable and have been omitted.

18
<PAGE>

ANVIL HOLDINGS, INC. AND SUBSIDIARIES Form 10-Q

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.

ANVIL HOLDINGS, INC.
(Registrant)

/s/ Pasquale Branchizio
- ------------------------------
Pasquale Branchizio
Vice President of Finance
(Principal Accounting Officer)

Dated: December 15, 1998

RESTATED CERTIFICATE OF INCORPORATION

ANVIL HOLDINGS, INC.

ARTICLE FIRST

The name of the Corporation is Anvil Holdings, Inc.

ARTICLE SECOND

The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, Wilmington Delaware 19805, in the County of New
Castle. The name of the corporation's registered agent at such address shall be
The Corporation Trust Company. The registered office and/or registered agent of
the corporation may be changed from time to time by action of the board of
directors.

ARTICLE THIRD

The nature of the business or purposes to be conducted or promoted
is to engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of the State of Delaware.

ARTICLE FOURTH

1. AUTHORIZED SHARES

The total number of shares of capital stock which the Corporation
has authority to issue is 14,400,000 shares, consisting of:

A. 500,000 shares of Class A Common Stock, par value $0.01 per share
(the "Class A Common"), which shall be designated either Series-1 or
Series-2 Class A Common;

B. 7,500,000 shares of Class B Common Stock, par value $0.01 per share
(the "Class B Common");

<PAGE>

C. 1,300,000 shares of Class C Common Stock, par value $0.01 per share
(the "Class C Common"); and

D. 5,100,000 shares of Preferred Stock, par value $0.01 per share (the
"Preferred Stock").

In addition to any other consent or approval which may be required
pursuant to this Certificate of Incorporation, no amendment or waiver of any
provision of this Section 1 shall be effective without the prior approval of the
holders of a majority of the then outstanding Common Stock voting as a single
class, and no amendment or waiver of any provision of Section 1 which has the
effect of increasing the number of authorized shares of the Class A Common shall
be effective without the prior approval of a majority of the then outstanding
shares of Class A Common voting as a single class. For purposes of votes on
amendments and waivers to this Section 1, each share of capital stock shall be
entitled to one vote.

2. PREFERRED STOCK The Board of Directors is authorized, subject to limitations
prescribed by law, to provide for the issuance of shares of Preferred Stock in
one or more series, to establish the number of shares to be included in each
such series, and to fix the designations, powers, preferences, and rights of the
shares of each such series, and any qualifications, limitations or restrictions
thereof.

3. COMMON STOCK The Common Stock shall be subject to any right or preference of
any series of Preferred Stock. Except as otherwise provided in this Section 3 or
as otherwise required by applicable law, all shares of Common Stock, shall be
identical in all respects and shall entitle the holders thereof to the same
rights and privileges, subject to the same qualifications, limitations and
restrictions.

A. Voting Rights. Except as otherwise provided herein and as
otherwise required by law: (i) the Class A Common shall have no voting rights
(provided, that each holder of Class A Common shall be entitled to notice of all
stockholders meetings at the same time and in the same manner as notice is given
to the stockholders entitled to vote at such meeting; with respect to any issue
required to be voted on and approved by holders of Class A Common, the holders
of Class A Common will vote as a single class, and provided further, that the
holders of Class A Common shall have the right to vote as a separate class on
any merger or consolidation of the Corporation with or into another entity or
entities, or any recapitalization or reorganization of the Corporation); (ii)
the Class B Common shall be entitled to one vote per share on all matters to be
voted on by the Corporation's stockholders; and (iii) the Class C Common shall
have no voting rights (provided, that each holder of Class C Common shall be
entitled to notice of all stockholders meetings at the same time and in the same
manner as notice is given to the stockholders entitled to vote at such meeting;
with respect to any issue required to be voted on and approved by holders of
Class C Common, the holders of Class C Common will vote as a single class, and
provided further, that the holders of Class C Common shall have the right to
vote as a separate class on any merger or consolidation of the Corporation with
or into another entity or entities, or any recapitalization or reorganization of
the Corporation in which shares of Class C Common would receive or be exchanged
for consideration

-2-
<PAGE>

different on a per share basis from consideration received with respect to or in
exchange for the shares of Class B Common).

B. Distributions. At the time of each Distribution, such
Distribution shall be made to the holders of Series-1 Class A Common, Series-2
Class A Common, Class B Common and Class C Common in the following priority:

(1) Unless otherwise waived in writing by the holders of a
majority of the outstanding shares of Series-1 Class A Common, the holders of
Series-1 Class A Common shall be entitled to receive a Distribution (ratably
among such holders based upon the number of shares of Series-1 Class A Common
held by each such holder as of the time of such Distribution) equal to the
aggregate Unpaid Senior Dividend in advance on each March 15 and September 15
(with the initial Distribution of such Unpaid Senior Dividend to occur on or
about November 4, 1998 for the aggregate Unpaid Senior Dividends payable as of
March 15, 1998), and no Distribution or any portion thereof shall be made under
paragraphs B(2), B(3) or B(4) below until the entire amount of the Unpaid Senior
Dividend as of the time of such Distribution has been paid in full to the
holders of the outstanding shares of Series-1 Class A Common. Any Distribution
made pursuant to this paragraph B(1) shall constitute a payment of Senior
Dividend.

(2) The holders of Series-1 Class A Common and Series-2 Class
A Common, together as a group, shall be entitled to receive all or a portion of
such Distribution (ratably among such holders based upon the number of shares of
Series-1 Class A Common and Series-2 Class A Common held by each such holder as
of the time of such Distribution) equal to the aggregate Unpaid Yield on the
outstanding shares of Series-1 Class A Common and Series-2 Class A Common,
respectively, as of the time of such Distribution, and no Distribution or any
portion thereof shall be made under paragraphs B(3) or B(4) below until the
entire amount of the Unpaid Yield on the outstanding shares of Series-1 Class A
Common and Series-2 Class A Common as of the time of such Distribution has been
paid in full. Any Distribution made pursuant to this paragraph B(2) to holders
of Series-1 Class A Common and Series-2 Class A Common shall constitute a
payment of Yield on Series-1 Class A Common and Series-2 Class A Common,
respectively.

(3) After the aggregate Unpaid Yield on the outstanding shares
of Series-1 Class A Common and the Series-2 Class A Common has been made in full
pursuant to paragraph B(1) and B(2) above, the holders of Series-1 Class A
Common and Series-2 Class A Common, together as a group, shall be entitled to
receive all or a portion of any Distribution (ratably among such holders based
upon the number of shares of Series-1 Class A Common and Series-2 Class A Common
held by each such holder as of the time of such Distribution) equal to the
aggregate Unreturned Original Cost of the outstanding shares of Series-1 Class A
Common and Series-2 Class A Common, respectively, as of the time of such
Distribution, and no Distribution or any portion thereof shall be made under
paragraph B(4) below until the entire amount of the Unreturned Original Cost of
the outstanding shares of Series-1 Class A Common and Series-2 Class A Common as
of the time of such Distribution has been paid in full. Any Distribution made
pursuant to this paragraph

-3-
<PAGE>

B(3) to holders of Series-1 Class A Common and Series-2 Class A Common shall
constitute a return of Original Cost of Series-1 Class A Common and Series-2
Class A Common, respectively.

(4) After the required amount of a Distribution has been made
pursuant to paragraphs B(1), B(2) and B(3) above, holders of Common Stock as a
group, shall be entitled to receive the remaining portion of such Distribution
(ratably among such holders based upon the number of Common Stock held by each
such holder as of the time of such Distribution).

C. Optional Redemptions.

(1) Optional Redemptions. The Corporation may at any time
redeem all or any portion of the Class A Common then outstanding for per share
consideration equal to one share of Class B Common plus an additional amount
equal to the Class A Preference; provided, that all partial optional redemptions
of Class A Common pursuant to this Section 3B, shall be made pro rata among the
holders of such Class A Common on the basis of the number of shares held by each
such holder.

(2) Redemption Price. For each share of Class A Common which
is to be redeemed, the Corporation will be obligated on the Redemption Date to
deliver to the holder thereof (upon surrender by such holder at the
Corporation's principal office of the certificate representing such share) an
amount in immediately available funds equal to the Class A Preference plus one
share of duly authorized, fully paid and nonassessable Class B Common. If the
Corporation's funds which are legally available for redemption of shares on any
Redemption Date are insufficient to redeem the total number of shares to be
redeemed on such date, those funds which are legally available will be used to
redeem the maximum possible number of shares ratably among the holders of the
shares to be redeemed based upon the aggregate Class A Preference held by each
such holder. At any time thereafter when additional funds of the Corporation are
legally available for the redemption of shares, such funds will be immediately
used to redeem the balance of the shares which the Corporation has become
obligated to redeem on any Redemption Date but which it has not redeemed.

(3) Notice of Redemption. The Corporation will mail written
notice of each redemption of Class A Common to each record holder not more than
30 nor less than 10 days prior to the date on which such redemption is to be
made. Upon mailing any notice of redemption which relates to a redemption at the
Corporation's option, the Corporation will become obligated to redeem the total
number of shares specified in such notice at the time of redemption specified
therein. In case fewer than the total number of shares represented by any
certificate are redeemed, a new certificate representing the number of
unredeemed shares will be issued to the holder thereof without cost to such
holder within three business days after surrender of the certificate
representing the redeemed shares.

(4) Determination of the Number of Each Holder's shares to be
Redeemed. Except as otherwise provided herein, the number of shares of Class A
Common to be redeemed from each holder thereof in redemptions hereunder will be
the number of shares determined

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<PAGE>

by multiplying the total number of shares to be redeemed times a fraction, the
numerator of which will be the total number of shares then held by such holder
and the denominator of which will be the total number of shares of Class A
Common then outstanding.

(5) Redeemed or Otherwise Acquired shares. Any shares which
are redeemed or otherwise acquired by the Corporation will be canceled and will
not be reissued, sold or transferred.

D. Priority of Class A Common. So long as any Class A Common remains
outstanding, the Corporation shall not redeem, repurchase, or recapitalize any
Common Stock or declare or pay any dividends on any Common Stock (other than
dividends declared in connection with any stock splits, stock dividends, share
combinations, share exchanges, or other recapitalizations in which such
dividends are made in the form of Class B Common).

E. Conversion of Class C Common.

(1) Right to Convert. At any time and from time to time, each
holder of Class C Common shall be entitled to convert into an equal number of
shares of Class B Common, the specified amount of the shares of such holder's
Class C Common. Additionally, the holder or holders of a majority of the
outstanding shares of Class C Common shall be entitled at any time to cause the
conversion of any or all of the outstanding shares of Class C Common into the
same number of shares of Class B Common. Any such conversion of Class C Common
into Class B Common will be effected among the holders of the Class C Common on
a basis determined by the holder or holders of a majority of outstanding shares
of Class C Common.

(2) Surrender of Certificates. Each conversion of Class C
Common into shares of Class B Common shall be effected by the surrender of the
certificate or certificates representing the shares to be converted at the
principal office of the Corporation at any time during normal business hours,
together with a written notice by the holder of shares of such Class C Common
stating that such holder desires to convert the shares, or a stated number of
the shares of Class C Common represented by such certificate or certificates
into Class B Common. Each conversion of Class C Common shall be deemed to have
been effected as of the close of business on the date on which the Conversion
Notice has been received by the Company, and at such time the rights of the
holder of the converted Class C Common as such holder shall cease, and the
person or persons in whose name or names the certificate or certificates for
shares of Class B Common are to be issued upon such conversion shall be deemed
to have become the holder or holders of record of the shares of Class B Common
represented thereby.

(3) Issuance of Certificates. Promptly after the surrender of
certificates of Class C Common and the receipt of written notice, the
Corporation shall issue and deliver in accordance with the surrendering holder's
instructions the certificate or certificates for the Class B Common issuable
upon such conversion.

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<PAGE>

(4) No Charge. The issuance of certificates for Class B Common
upon conversion of Class C Common will be made without charge to the holders of
such shares of any issuance tax in respect thereof or other cost incurred by the
Corporation in connection with such conversion and the related issuance of
Corporation in connection with such issuance.

(5) The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares of Class B Common, solely
for the purpose of issuance upon the conversion of the Class C Common, such
number of shares of Class B Common issuable upon the conversion of all
outstanding Class C Common. All shares of Class B Common which are so issuable
shall, when issued, be duly and validly issued, fully paid and nonassessable and
free from all taxes, liens and charges. The Corporation shall take all such
actions as may be necessary to assure that all such shares of Class B Common may
be so issued without violation of any applicable law or governmental regulation
or any requirements of any domestic securities exchange upon which shares of
Class B Common may be listed (except for official notice of issuance which shall
be immediately transmitted by the Corporation upon issuance).

F. Stock Splits. If the Corporation in any manner subdivides or
combines the outstanding shares of one class of Common Stock, the outstanding
shares of each other class of Common Stock shall be proportionately subdivided
or combined in a similar manner. All such subdivisions and combinations shall be
payable only in Series-1 Class A Common to the holders of Series-1 Class A
Common, in Series-2 Class A Common to the holders of Series-2 Class A Common, in
Class B Common Stock to the holders of Class B Common Stock and in Class C
Common Stock to the holders of Class C Common Stock. In no event shall a stock
split or stock dividend constitute a payment of Yield or a return of Original
Cost.

G. Registration of Transfer. The Corporation shall keep at its
principal office (or such other place as the Corporation reasonably designates)
a register for the registration of shares of Common Stock. Upon the surrender of
any certificate representing shares of any class of Common Stock at such place,
the Corporation shall, at the request of the record holder of such certificate,
execute and deliver (at the Corporation's expense) a new certificate or
certificates in exchange therefor representing in the aggregate the number of
shares of such class represented by the surrendered certificate and the
Corporation shall forthwith cancel such surrendered certificate. Each such new
certificate shall be registered in such name and shall represent such number of
shares of such class as is requested by the holder of the surrendered
certificate and shall be substantially identical in form to the surrendered
certificate. The issuance of new certificates shall be made without charge to
the holders of the surrendered certificates for any issuance tax in respect
thereof or other cost incurred by the Corporation in connection with such
issuance.

H. Replacement. Upon receipt of evidence reasonably satisfactory to
the Corporation (provided, that an affidavit of the registered holder will be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing one or more shares of any class of Common Stock, and
in the case of any such loss, theft or destruction, upon receipt of indemnity
reasonably satisfactory to the Corporation (provided that if the holder is a
financial

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<PAGE>

institution or other institutional investor its own agreement will be
satisfactory), or, in the case of any such mutilation upon surrender of such
certificate, the Corporation shall (at its expense) execute and deliver in lieu
of such certificate a new certificate of like kind representing the number of
shares of such class represented by such lost, stolen, destroyed or mutilated
certificate and dated the date of such lost, stolen, destroyed or mutilated
certificate.

I. Defined Terms

"Class A Preference" means, with respect to each share of Class A
Common, an amount per share equal to the sum of (a) the Unpaid Yield and (b) the
Unreturned Original Cost thereof.

"Common Stock" means, collectively, all shares of the Series-1 Class
A Common, Series-2 Class A Common, Class B Common and Class C Common, in each
case as adjusted for any stock split, stock dividend, share combination, share
exchange, recapitalization, merger, consolidation or other reorganization.

"Distribution" means each distribution made by the Corporation to
holders of Common Stock, whether in cash, property, or securities of the
Corporation and whether by dividend, liquidating distributions or otherwise;
provided that neither of the following shall be a Distribution: (a) any
redemption or repurchase by the Corporation of any Common Stock for any reason
or (b) any recapitalization or exchange of any Common Stock, or any subdivision
(by stock split, stock dividend or otherwise) or any combination (by stock
split, stock dividend or otherwise) of any outstanding Common Stock.

"Original Cost" of each share of Class A Common shall be equal to
the amount originally paid for such share when it was issued by the Corporation
(as proportionally adjusted for all stock splits, stock dividends and other
recapitalizations affecting the Class A Common); provided that, with respect to
the Class A Common issued pursuant to the Purchase Agreement, all such shares
shall be deemed to have an Original Cost equal to $100.00 per share (as
proportionally adjusted for all stock splits, stock dividends and other
recapitalizations affecting the Class A Common).

"Person" means an individual, a partnership, a company, an
association, a joint stock corporation, a trust, a joint venture, an
unincorporated organization and a governmental entity or any department, agency
or political subdivision thereof.

"Redemption Date" as to any share of Class A Common means the date
specified in the notice of any redemption at the Corporation's option or the
applicable date specified herein in the case of any other redemption; provided,
that no such date will be a Redemption Date unless the applicable Class A
Preference is actually paid, and if not so paid, the Redemption Date will be the
date on which such Class A Preference is fully paid.

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<PAGE>

"Senior Dividend" means, as of the date of any Distribution, an
amount equal to the product of (a) $250,000 per annum and (b) the number of
years elapsed since March 15, 1997, determined as of the earlier of (i) the date
of such Distribution (prorated for any partial years), and (ii) March 15, 2007.

"Unpaid Senior Dividend" means, as of the date of determination, an
amount equal to the excess, if any, of (a) the aggregate Senior Dividend as of
such date, over (b) the aggregate amount of Distributions made by the
Corporation that constitute payment of Senior Dividend.

"Unpaid Yield" of any share of Class A Common means an amount equal
to the excess, if any, of (a) the aggregate Yield accrued on such share, over
(b) the aggregate amount of Distributions made by the Corporation that
constitute payment of Yield on such share.

"Unreturned Original Cost" of any share of Class A Common means an
amount equal to the excess, if any, of (a) the Original Cost of such share, over
(b) the aggregate amount of Distributions made by the Corporation that
constitute a return of Original Cost of such share.

"Yield" means, (a) with respect to each share of Series-1 Class A
Common for each calendar quarter, the amount accruing on such share each day
during such quarter at the rate of 12.5% per annum, and (b) with respect to each
share of Series-2 Class A Common for each calendar quarter, the amount accruing
on such share each day during such quarter at the rate of 12.5% per annum, on
the sum of (x) such share's Unreturned Original Cost, plus (y) the Unpaid Yield
thereon for all prior quarters. In calculating the amount of any Distribution to
be made during a calendar quarter, the portion of a Class A Common share's Yield
for such portion of such quarter elapsing before such Distribution is made shall
be taken into account.

J. Amendment and Waiver No amendment or waiver of any provision of
this Section 3 shall be effective without the prior consent of the holders of at
least 66_% of the then outstanding shares of Common Stock voting as a single
class; provided, that no amendment, modification or waiver which adversely and
prejudicially affects the holders of the Class A Common vis-a-vis the other
holders of Common Stock shall be effective against the holders of the Class A
Common without the prior written consent of the holders of Class A Common with a
Class A Preference representing at least sixty-six and two-thirds percent (66_%)
of the aggregate Class A Preference of such Class A Common then outstanding. For
purposes of votes on amendments and waivers to this Section 3, each share of
Common Stock shall be entitled to one vote.

K. Notices. Except as otherwise expressly provided, all notices
referred to herein will be in writing and will be delivered by registered or
certified mail, return receipt requested, postage prepaid and will be deemed to
have been given when so mailed (i) to the Corporation, at its principal
executive offices and (ii) to any stockholder, at such holder's address as it
appears in the stock records of the Corporation (unless otherwise indicated by
any such holder).

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<PAGE>

L. Effectiveness. Reference is made to that certain Recapitalization
Agreement, dated as of February 12, 1997, by and among the Corporation, certain
of the Corporation's stockholders, Citicorp Venture Capital, Ltd. and Bruckmann,
Rosser, Sherrill & Co., L.P. (the "Recapitalization Agreement"). In the event
that the transactions contemplated by the Recapitalization Agreement are not
consummated by March 20, 1997, the provisions of this Article Fourth shall cease
to have any further force or effect, in which case Article Fourth of the
Corporation's Certificate of Incorporation as in effect immediately prior to the
effectiveness of this Restated Certificate of Incorporation shall govern the
relative rights of the Corporation's stockholders, retroactive to the date of
filing this Restated Certificate of Incorporation.

ARTICLE FIFTH

The Corporation is to have perpetual existence.

ARTICLE SIXTH

In furtherance and not in limitation of the powers conferred by
statute, the board of directors of the Corporation is expressly authorized to
make, alter or repeal the by-laws of the corporation.

ARTICLE SEVENTH

Meetings of stockholders may be held within or without the State of
Delaware, as the by-laws of the Corporation may provide. The books of the
Corporation may be kept outside the State of Delaware at such place or places as
may be designated from time to time by the board of directors or in the by-laws
of the Corporation. Election of directors need not be by written ballot unless
the by-laws of the Corporation so provide.

ARTICLE EIGHTH

To the fullest extent permitted by the General Corporation Law of
the State of Delaware as the same exists or may hereafter be amended, a director
of this Corporation shall not be liable to the Corporation or its stockholders
for monetary damages for a breach of fiduciary duty as a director. Any repeal or
modification of this ARTICLE EIGHTH shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.

ARTICLE NINTH

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<PAGE>

Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of Section 279 of Title 8 of the Delaware Code,
order a meeting of the creditors or class of creditors, and/or the stockholders
or class of stockholders of the Corporation, as the case may be, to be summoned
in such manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of the
Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders, or class of
stockholders, of the Corporation, as the case may be, and also on this
Corporation.

ARTICLE TENTH

To the fullest extent permitted by the General Corporation Law of
the State of Delaware (including, without limitation, Section 102(b)(7)), as
amended from time to time, no director of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director. Any repeal or amendment of this Article TENTH or adoption of
any provision of the Certificate of Incorporation inconsistent with this Article
TENTH shall have prospective effect only and shall not adversely affect the
liability of a director of the Corporation with respect to any act or omission
occurring at or before the time of such repeal, amendment or adoption of an
inconsistent provision.

ARTICLE ELEVENTH

The Corporation shall, to the fullest extent permitted by the
General Corporation Law of the State of Delaware (including, without limitation,
Section 145 thereof), as amended from time to time, indemnify any promoter or
director whom it shall have power to indemnify from and against any and all of
the expenses, liabilities or other losses of any nature. The indemnification
provided in this Article ELEVENTH shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any bylaw, agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in his or her official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be
promoter or director and shall inure to the benefit of the heirs, executors and
administrators of such a person.

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<PAGE>

ARTICLE TWELFTH

The Corporation expressly elects not to be governed by Section 203
of the General Corporation Law of the State of Delaware.

ARTICLE THIRTEENTH

The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this certificate of incorporation in the manner now
or hereafter prescribed herein and by the laws of the State of Delaware, and all
rights conferred upon stockholders herein are granted subject to this
reservation.

EXHIBIT 10.1

AMENDMENT NO. 2 TO CREDIT AGREEMENT & WAIVER

THIS AMENDMENT NO. 2 TO CREDIT AGREEMENT & WAIVER (this "Amendment No.
2"), dated as of May 21, 1998, is entered into by and among ANVIL KNITWEAR,
INC., a Delaware corporation (the "Borrower"), ANVIL HOLDINGS, INC., a Delaware
corporation (the "Parent Company"), the Subsidiaries of the Borrower identified
on the signature pages hereto and such other Subsidiaries of the Borrower which
may hereafter become a Guarantor in accordance with the terms hereof
(hereinafter together with the Parent Company sometimes referred to individually
as a "Guarantor" and collectively as the "Guarantors"), the various banks and
lending institutions identified on the signature pages hereto (each a "Bank" and
collectively, the "Banks"), NATIONSBANK, N.A., as agent for the Banks (in such
capacity, the "Agent") and BANK OF AMERICA NATIONAL TRUST & SAVINGS BANK
(formerly Bank of America Illinois), BANQUE NATIONALE DE PARIS and HELLER
FINANCIAL, INC., as co-agents for the Banks (in such capacities, the
"Co-Agents").

RECITALS

WHEREAS, the Borrower, the Guarantors, the Banks, the Agent and the
Co-Agents are party to that certain Amended and Restated Credit Agreement dated
as of March 14, 1997, as amended by that certain Amendment No. 1 to Credit
Agreement dated as of May 30, 1997 and as may be further amended, supplemented
or otherwise modified from time to time (the "Existing Credit Agreement");

WHEREAS, the parties hereto have agreed to amend the Existing Credit
Agreement as set forth herein;

WHEREAS, the Required Lenders have agreed to waive certain Defaults and
Events of Default as set forth herein;

NOW, THEREFORE, in consideration of the agreements herein contained, the
parties hereby agree as follows:

PART I
DEFINITIONS

SUBPART 1.1. Certain Definitions. Unless otherwise defined herein or the
context otherwise requires, the following terms used in this Amendment No. 2,
including its preamble and recitals, have the following meanings:

"Amended Credit Agreement" means the Existing Credit Agreement as
amended hereby.

"Amendment No. 2 Effective Date" is defined in Subpart 4.1.

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<PAGE>

SUBPART 1.2. Other Definitions. Unless otherwise defined herein or the
context otherwise requires, terms used in this Amendment No. 2, including its
preamble and recitals, have the meanings provided in the Amended Credit
Agreement.

PART II
AMENDMENTS TO EXISTING CREDIT AGREEMENT

Effective on (and subject to the occurrence of) the Amendment No. 2
Effective Date, the Existing Credit Agreement is hereby amended in accordance
with this Part II.

SUBPART 2.1. Amendment to Section 7.7. Section 7.7 of the Existing Credit
Agreement is amended in its entirety to read as follows:

7.7 Restricted Payments.

None of the Credit Parties will make any Restricted Payments; except
(i) Subsidiaries of the Borrower may pay dividends or make other payments
or advances to the Borrower, (ii) the Borrower may pay dividends or make
payments to the Parent Company (A) pursuant to an intercompany tax sharing
arrangement but only to an extent that the amount of such dividend or
other payment reflects the applicable tax liability of the Parent Company
and its consolidated Subsidiaries which dividend or payment will be paid
by the Parent Company, (B) to enable the Parent Company to pay ordinary
and necessary expenses associated with the limited activities of the
Parent Company, such as reasonable accounting and professional expenses,
to third parties and director's fees and reasonable expenses, which
director's fees

(1) in the case of directors which are Investors or officers,
directors or employees of an Investor, directors' fees shall not exceed
$50,000 in the aggregate in any single calendar year; and

(2) in the case of directors which are not Investors or officers,
directors or employees of an Investor, directors' fees shall not be in
excess of amounts which would be reasonable and customary for outside
directors of similarly situated companies,

and any and all state franchise taxes and similar taxes, and (C) in an
amount necessary to redeem or otherwise purchase capital stock of the
Management Group to the extent permitted by clause (iii) of this Section
7.7, (iii) any Credit Party may redeem or otherwise purchase capital stock
of members of the Management Group in an aggregate cash amount (including
in connection herewith payment or prepayment of Subordinated Debt owing to
members of the Management Group under Section 7.1(j) of up to $500,000 in
any calendar year (or if less than such

2
<PAGE>

amount is paid in any year, the "unused" portion may be carried-over for a
period of three (3) successive calendar years and serve to increase
amounts otherwise permitted in such subsequent years, with purchases and
redemptions in a given year being applied first to carry-over amounts,
beginning with the oldest carry-over amounts and working forward to the
most recent carry-over amounts, and then to the amount permitted for the
year in which they are made), but not to exceed $2,500,000 during the term
of this Credit Agreement, provided, that the aggregate amount of any such
redemptions may be increased in a given fiscal year by an amount equal to
actual cash consideration received in such fiscal year from members of the
Management Group from the sale of capital stock, (iv) the portion of Net
Proceeds from any Equity Transaction which is not paid to the Banks for
application to the Revolving Loans may used to prepay (with a
corresponding commitment reduction in the case of any revolving Funded
Debt) Funded Debt of the Borrower and/or its Subsidiaries in accordance
with the provisions of Section 6.15, (v) the Parent Company may (A) pay
dividends on the Senior Preferred Stock in an amount not to exceed $10,000
in the aggregate during any fiscal year and (B) upon issuance of the
Exchange Debentures in accordance with Section 7.11, repurchase fractional
shares of and pay accrued dividends owing with respect to the Senior
Preferred Stock, (vi) pursuant to the terms of the Recapitalization
Agreement, any payments made in connection with the Recapitalization and
(vii) the Borrower may pay to BRS and Venture Partners a management fee in
an amount not to exceed $500,000 in the aggregate during any fiscal year.

PART III
WAIVER

The Required Lenders hereby (i) waive the requirements of Section 6.11(a)
of the Credit Agreement for May 2, 1998 and (ii) agree that the Borrower's
failure to observe the covenant of Section 6.11(a) for May 2, 1998 shall not
constitute an Event of Default under Section 8.1 of the Credit Agreement.

PART IV
CONDITIONS TO EFFECTIVENESS

SUBPART 4.1. Amendment No. 2 Effective Date. This Amendment No. 2 shall be
and become retroactively effective as of March 14, 1997 (the "Amendment No. 2
Effective Date") when all of the conditions set forth in this Subpart 4.1 shall
have been satisfied, and thereafter this Amendment No. 2 shall be known, and may
be referred to, as "Amendment No. 2."

3
<PAGE>

SUBPART 4.1.1. Execution of Counterparts of Amendment. The Agent shall
have received executed counterparts (or other evidence of execution, including
facsimile signatures, satisfactory to the Agent) of this Amendment No. 2, which
collectively shall have been duly executed on behalf of each of the Borrower,
the Guarantors and the Required Banks.

SUBPART 4.1.2. Other Documents. The Agent shall have received such other
documents as the Agent, any Bank or counsel to the Agent may reasonably request.

PART V
MISCELLANEOUS

SUBPART 5.1. Cross-References. References in this Amendment No. 2 to any
Part or Subpart are, unless otherwise specified, to such Part or Subpart of this
Amendment No. 2.

SUBPART 5.2. Instrument Pursuant to Existing Credit Agreement. This
Amendment No. 2 is a Credit Document executed pursuant to the Existing Credit
Agreement and shall (unless otherwise expressly indicated therein) be construed,
administered and applied in accordance with the terms and provisions of the
Existing Credit Agreement.

SUBPART 5.3. References in Other Credit Documents. At such time as this
Amendment No. 2 shall become effective pursuant to the terms of Subpart 4.1, all
references in the Credit Documents to the "Credit Agreement" shall be deemed to
refer to the Amended Credit Agreement.

SUBPART 5.4. Representations and Warranties. Each Credit Party hereby
represents and warrants that (i) each Credit Party that is party to this
Amendment No. 2: (a) has the requisite corporate power and authority to execute,
deliver and perform this Amendment No. 2, as applicable, and (b) is duly
authorized to, and has been authorized by all necessary corporate action, to
execute, deliver and perform this Amendment No. 2, (ii) the Borrower has no
claims, counterclaims, offsets, or defenses to the Credit Documents and the
performance of its obligations thereunder, or if the Borrower has any such
claims, counterclaims, offsets, or defenses to the Credit Documents or any
transaction related to the Credit Documents, the same are hereby waived,
relinquished and released in consideration of the Banks' execution and delivery
of this Amendment No. 2, (iii) the representations and warranties contained in
Section 5 of the Existing Credit Agreement are, subject to the limitations set
forth therein, true and correct in all material respects on and as of the date
hereof as though made on and as of such date (except for those which expressly
relate to an earlier date) and (iv) after giving effect to this Amendment No. 2,
no Default or Event of Default exists under the Existing Credit Agreement on and
as of the date hereof or will occur as a result of the transactions contemplated
hereby.

SUBPART 5.5. Liens. The Borrower and the Guarantors, as applicable, affirm
the liens and security interests created and granted in the Credit Documents and
agree that this Amendment No. 2 shall in no manner adversely effect or impair
such liens and security interest.

4
<PAGE>

SUBPART 5.6. Acknowledgment of Guarantors. The Guarantors acknowledge and
consent to all of the terms and conditions of this Amendment No. 2 and agree
that this Amendment No. 2 and all documents executed in connection herewith do
not operate to reduce or discharge the Guarantors' obligations under the Amended
Credit Agreement or the other Credit Documents. The Guarantors further
acknowledge and agree that the Guarantors have no claims, counterclaims,
offsets, or defenses to the Credit Documents and the performance of the
Guarantors' obligations thereunder or if the Guarantors did have any such
claims, counterclaims, offsets or defenses to the Credit Documents or any
transaction related to the Credit Documents, the same are hereby waived,
relinquished and released in consideration of the Banks' execution and delivery
of this Amendment No. 2.

SUBPART 5.7. No Other Changes. Except as expressly modified and amended in
this Amendment No. 2, all the terms, provisions and conditions of the Credit
Documents shall remain unchanged and shall continue in full force and effect.

SUBPART 5.8. Counterparts. This Amendment No. 2 may be executed by the
parties hereto in several counterparts, each of which shall be deemed to be an
original and all of which shall constitute together but one and the same
agreement.

SUBPART 5.9. Entirety. This Amendment No. 2, the Amended Credit Agreement
and the other Credit Documents embody the entire agreement between the parties
and supersede all prior agreements and understandings, if any, relating to the
subject matter hereof. These Credit Documents represent the final agreement
between the parties and may not be contradicted by evidence of prior,
contemporaneous or subsequent oral agreements of the parties.

SUBPART 5.10. Governing Law. THIS AMENDMENT NO. 2 AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

SUBPART 5.11. Successors and Assigns. This Amendment No. 2 shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns.

[Signatures to Follow]

5
<PAGE>

This Amendment No. 2 is executed as of the day and year first written
above.

BORROWER: ANVIL KNITWEAR, INC.
a Delaware corporation

By: /s/ Bernard Geller
---------------------------------------
Bernard Geller, President

GUARANTORS: ANVIL HOLDINGS, INC.,
a Delaware corporation

By: /s/ Bernard Geller
---------------------------------------
Bernard Geller, Chief Executive Officer

COTTONTOPS, INC.,
a Delaware corporation

By: /s/ Bernard Geller
---------------------------------------
Bernard Geller, Chief Executive Officer

[Signatures Continue]
<PAGE>

BANKS: NATIONSBANK, N.A.,
individually in its capacity as a
Bank and in its capacity as Agent

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

BANK OF AMERICA NATIONAL TRUST &
SAVINGS ASSOCIATION,
individually in its capacity as a
Bank and in its capacity as Co-Agent

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

BANQUE NATIONALE DE PARIS,
individually in its capacity as
a Bank and in its capacity as Co-Agent

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

HELLER FINANCIAL, INC.,
individually in its capacity as a
Bank and in its capacity as Co-Agent

By: /s/ T. Bukowski
-------------------------------
Name: T. Bukowski
Title: Sr. Vice Pres.

[Signatures Continue]
<PAGE>

THE CHASE MANHATTAN BANK

By: /s/ Abby Parsonnet
--------------------------------
Name: Abby Parsonnet
Title: V.P.

FLEET BANK, N.A.

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

EXHIBIT 10.2

AMENDMENT NO. 3 TO CREDIT AGREEMENT & WAIVER

THIS AMENDMENT NO. 3 TO CREDIT AGREEMENT & WAIVER (this "Amendment No.
3"), dated as of September 11, 1998, is entered into by and among ANVIL
KNITWEAR, INC., a Delaware corporation (the "Borrower"), ANVIL HOLDINGS, INC., a
Delaware corporation (the "Parent Company"), the Subsidiaries of the Borrower
identified on the signature pages hereto and such other Subsidiaries of the
Borrower which may hereafter become a Guarantor in accordance with the terms
hereof (hereinafter together with the Parent Company sometimes referred to
individually as a "Guarantor" and collectively as the "Guarantors"), the various
banks and lending institutions identified on the signature pages hereto (each a
"Bank" and collectively, the "Banks"), NATIONSBANK, N.A., as agent for the Banks
(in such capacity, the "Agent") and BANK OF AMERICA NATIONAL TRUST & SAVINGS
BANK (formerly Bank of America Illinois), BANQUE NATIONALE DE PARIS and HELLER
FINANCIAL, INC., as co-agents for the Banks (in such capacities, the
"Co-Agents").

RECITALS

WHEREAS, the Borrower, the Guarantors, the Banks, the Agent and the
Co-Agents are party to that certain Amended and Restated Credit Agreement dated
as of March 14, 1997, as amended by that certain Amendment No. 1 to Credit
Agreement dated as of May 30, 1997, as amended by that certain Amendment No. 2
to Credit Agreement dated as of May 21, 1998 and as may be further amended,
supplemented or otherwise modified from time to time (the "Existing Credit
Agreement");

WHEREAS, the parties hereto have agreed to amend the Existing Credit
Agreement as set forth herein;

WHEREAS, the Required Banks have agreed to waive certain Defaults and
Events of Default as set forth herein;

NOW, THEREFORE, in consideration of the agreements herein contained, the
parties hereby agree as follows:

PART I
DEFINITIONS

SUBPART 1.1. Certain Definitions. Unless otherwise defined herein or the
context otherwise requires, the following terms used in this Amendment No. 3,
including its preamble and recitals, have the following meanings:

"Amended Credit Agreement" means the Existing Credit Agreement as
amended hereby.

"Amendment No. 3 Effective Date" is defined in Subpart 4.1.

1
<PAGE>

SUBPART 1.2. Other Definitions. Unless otherwise defined herein or the
context otherwise requires, terms used in this Amendment No. 3, including its
preamble and recitals, have the meanings provided in the Amended Credit
Agreement.

PART II
AMENDMENTS TO EXISTING CREDIT AGREEMENT

Effective on (and subject to the occurrence of) the Amendment No. 3
Effective Date, the Existing Credit Agreement is hereby amended in accordance
with this Part II.

SUBPART 2.1. Amendment to Section 6.11(a). Section 6.11(a) of the Existing
Credit Agreement is amended in its entirety to read as follows:

6.11 Financial Covenants.

(a) Ave. Funded Debt to Consolidated EBITDA. As of the end of each
fiscal quarter set forth below, there shall be maintained an Ave. Funded
Debt to Consolidated EBITDA Ratio of not greater than the ratio specified
below:

Fiscal Quarter Ending Ratio
--------------------- -----

May 3, 1997 and each fiscal quarter ending 6.00 : 1.00
thereafter until but including the fiscal
quarter ending November 1, 1997

January 31, 1998 and each fiscal quarter ending 5.25 : 1.00
thereafter until but including the fiscal
quarter ending October 30, 1998

October 31, 1998 5.50 : 1.00

January 30, 1999 and each fiscal quarter ending 5.25 : 1.00
thereafter until but including the fiscal
quarter ending October 30, 1999

January 29, 2000 and each fiscal quarter ending 4.50 : 1.00
thereafter until but including the fiscal
quarter ending October 28, 2000

January 27, 2001 and each fiscal quarter ending 4.25 : 1.00
thereafter until but including the fiscal
quarter ending October 27, 2001

February 2, 2002 and thereafter 4.00 : 1.00

2
<PAGE>

PART III
WAIVER

The Required Banks hereby (i) waive the requirements of Section 6.11(a) of
the Credit Agreement for August 1, 1998 and (ii) agree that the Borrower's
failure to observe the covenant of Section 6.11(a) for August 1, 1998 shall not
constitute an Event of Default under Section 8.1 of the Credit Agreement.

PART IV
CONDITIONS TO EFFECTIVENESS

SUBPART 4.1. Amendment No. 3 Effective Date. This Amendment No. 3 shall be
and become retroactively effective as of August 31, 1998 (the "Amendment No. 3
Effective Date") when all of the conditions set forth in this Subpart 4.1 shall
have been satisfied, and thereafter this Amendment No. 3 shall be known, and may
be referred to, as "Amendment No. 3."

SUBPART 4.1.1. Execution of Counterparts of Amendment. The Agent shall
have received executed counterparts (or other evidence of execution, including
facsimile signatures, satisfactory to the Agent) of this Amendment No. 3, which
collectively shall have been duly executed on behalf of each of the Borrower,
the Guarantors and the Required Banks.

SUBPART 4.1.2. Amendment Fee. The Agent shall have received for the
account of each Bank an amendment fee equal to 0.125% on such Bank's Commitment.

SUBPART 4.1.3. Other Documents. The Agent shall have received such other
documents as the Agent, any Bank or counsel to the Agent may reasonably request.

PART V
MISCELLANEOUS

SUBPART 5.1. Cross-References. References in this Amendment No. 3 to any
Part or Subpart are, unless otherwise specified, to such Part or Subpart of this
Amendment No. 3.

SUBPART 5.2. Instrument Pursuant to Existing Credit Agreement. This
Amendment No. 3 is a Credit Document executed pursuant to the Existing Credit
Agreement and shall (unless otherwise expressly indicated therein) be construed,
administered and applied in accordance with the terms and provisions of the
Existing Credit Agreement.

SUBPART 5.3. References in Other Credit Documents. At such time as this
Amendment No. 3 shall become effective pursuant to the terms of Subpart 4.1, all
references in the Credit Documents to the "Credit Agreement" shall be deemed to
refer to the Amended Credit Agreement.

SUBPART 5.4. Representations and Warranties. Each Credit Party hereby
represents and warrants that (i) each Credit Party that is party to this
Amendment No. 3: (a) has the requisite

3
<PAGE>

corporate power and authority to execute, deliver and perform this Amendment No.
3, as applicable, and (b) is duly authorized to, and has been authorized by all
necessary corporate action, to execute, deliver and perform this Amendment No.
3, (ii) the Borrower has no claims, counterclaims, offsets, or defenses to the
Credit Documents and the performance of its obligations thereunder, or if the
Borrower has any such claims, counterclaims, offsets, or defenses to the Credit
Documents or any transaction related to the Credit Documents, the same are
hereby waived, relinquished and released in consideration of the Banks'
execution and delivery of this Amendment No. 3, (iii) the representations and
warranties contained in Section 5 of the Existing Credit Agreement are, subject
to the limitations set forth therein, true and correct in all material respects
on and as of the date hereof as though made on and as of such date (except for
those which expressly relate to an earlier date) and (iv) after giving effect to
this Amendment No. 3, no Default or Event of Default exists under the Existing
Credit Agreement on and as of the date hereof or will occur as a result of the
transactions contemplated hereby.

SUBPART 5.5. Liens. The Borrower and the Guarantors, as applicable, affirm
the liens and security interests created and granted in the Credit Documents and
agree that this Amendment No. 3 shall in no manner adversely effect or impair
such liens and security interest.

SUBPART 5.6. Acknowledgment of Guarantors. The Guarantors acknowledge and
consent to all of the terms and conditions of this Amendment No. 3 and agree
that this Amendment No. 3 and all documents executed in connection herewith do
not operate to reduce or discharge the Guarantors' obligations under the Amended
Credit Agreement or the other Credit Documents. The Guarantors further
acknowledge and agree that the Guarantors have no claims, counterclaims,
offsets, or defenses to the Credit Documents and the performance of the
Guarantors' obligations thereunder or if the Guarantors did have any such
claims, counterclaims, offsets or defenses to the Credit Documents or any
transaction related to the Credit Documents, the same are hereby waived,
relinquished and released in consideration of the Banks' execution and delivery
of this Amendment No. 3.

SUBPART 5.7. No Other Changes. Except as expressly modified and amended in
this Amendment No. 3, all the terms, provisions and conditions of the Credit
Documents shall remain unchanged and shall continue in full force and effect.

SUBPART 5.8. Counterparts. This Amendment No. 3 may be executed by the
parties hereto in several counterparts, each of which shall be deemed to be an
original and all of which shall constitute together but one and the same
agreement.

SUBPART 5.9. Entirety. This Amendment No. 3, the Amended Credit Agreement
and the other Credit Documents embody the entire agreement between the parties
and supersede all prior agreements and understandings, if any, relating to the
subject matter hereof. These Credit Documents represent the final agreement
between the parties and may not be contradicted by evidence of prior,
contemporaneous or subsequent oral agreements of the parties.

4
<PAGE>

SUBPART 5.10. Governing Law. THIS AMENDMENT NO. 3 AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

SUBPART 5.11. Successors and Assigns. This Amendment No. 3 shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns.

[Signatures to Follow]

5
<PAGE>

This Amendment No. 3 is executed as of the day and year first written
above.

BORROWER: ANVIL KNITWEAR, INC.
a Delaware corporation

By: /s/ Bernard Geller
---------------------------------------
Bernard Geller, President

GUARANTORS: ANVIL HOLDINGS, INC.
a Delaware corporation

By: /s/ Bernard Geller
---------------------------------------
Bernard Geller, Chief Executive Officer

COTTONTOPS, INC.,
a Delaware corporation

By: /s/ Bernard Geller
---------------------------------------
Bernard Geller, Chief Executive Officer

[Signatures Continue]

<PAGE>

BANKS: NATIONSBANK N.A.,
individually in its capacity as a
Bank and in its capacity as Agent

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

BANK OF AMERICA NATIONAL TRUST &
SAVINGS ASSOCIATION,
individually in its capacity as a
Bank and in its capacity as Co-Agent

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

BANQUE NATIONALE DE PARIS,
individually in its capacity as
a Bank and in its capacity as Co-Agent

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

HELLER FINANCIAL, INC.,
individually in its capacity as a
Bank and in its capacity as Co-Agent

By /s/ Thomas W. Bukowski
---------------------------------------
Name: Thomas W. Bukowski
Title: Sr. Vice Pres.

[Signatures Continue]

<PAGE>

THE CHASE MANHATTAN BANK

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

FLEET BANK, N.A.

By /s/ A. Glen Kewley
---------------------------------------
Name: A. Glen Kewley
Title: AVP

EXHIBIT 10.3

[LETTERHEAD OF NATIONS BANK]

December 11, 1998

Anvil Knitwear, Inc.
228 East 45th Street
New York, New York 10017
Attn: Jacob Hollander

Re: Amended and Restated Credit Agreement, dated as of March 14, 1997,
among Anvil Knitwear, Inc. (the "Borrower"), the Guarantors party thereto,
the Banks party thereto (the "Banks"), and NationsBank, NA. as agent for
the Banks thereunder (in such capacity, the "Agent") (as amended, modified
or supplemented from time to time, the "Credit Agreement")

Ladies and Gentlemen:

Reference is made to the Credit Agreement described above, the defined terms of
which are incorporated herein by reference.

At your request and subject to the terms and conditions set forth below, we
hereby agree, as Agent under the Credit Agreement and on behalf and with the
consent of the Required Banks, to waive the requirement that the Borrower comply
with the covenants set forth in Section 6.11 of the Credit Agreement for the
fiscal quarter ended on October 31, 1998.

In consideration of this waiver, the Borrower agrees that:

(A) Until further written notice is delivered to the Borrower from the
Required Banks:

(i) the definition of Borrowing Base shall be amended to read as
follows:

"Borrowing Base" means, as of any day, the sum of (i) 85% of
Eligible Receivables plus (ii) 60% of Eligible Raw Materials plus
(iii) 50% of Eligible Finished Goods Inventory, in each case as set
forth in the most recent Borrowing Base Certificate delivered to the
Agent and the Banks in accordance with the terms of Section 6.1(d).

(ii) no Credit Party shall be permitted to make any Acquisition
(including any Permitted Acquisition).
<PAGE>

Anvil Knitwear, Inc.
December 11, 1998
Page 2

(C) The Borrower shall pay to the Agent, for the account of each Bank, a
waiver fee equal to 0.125% on such Bank's Commitment.

The waiver set forth in this letter shall be effective only in the specific
circumstances provided for above and only for the purposes for which given and
shall not be construed to waive compliance with any other provision of the
Credit Agreement (including, without limitation, future compliance with Section
6.11).

Except as waived or modified hereby, all of the terms and provisions of the
Credit Agreement shall remain in full force and effect.

This letter agreement shall be governed by and construed in accordance with the
laws of the State of New York.

This letter may be executed in any number of counterparts and by facsimile, each
of which shall constitute an original, but all of which when taken together
shall constitute but one contract. Upon execution, this letter shall be deemed
retroactively effective as of October 31, 1998.

Sincerely,

NATIONSBANK, NA.,
as Agent for the Banks, and individually as a Bank

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

ACCEPTED AND AGREED AS OF THE DATE FIRST ABOVE WRITTEN:

ANVIL KNITWEAR, INC.

By /s/ Jacob Hollander
---------------------------
Title: EVP
<PAGE>

Anvil Knitwear, Inc.
December 11, 1998
Page 3

ACKNOWLEDGED AND CONSENTED TO AS OF THE DATE FIRST ABOVE WRITTEN:

ANVIL HOLDINGS, INC.

By /s/ Jacob Hollander
---------------------------
Title: VP

COTTONTOPS, INC.

By /s/ Jacob Hollander
---------------------------
Title: VP

[Banks' consents follow.]
<PAGE>

Anvil Knitwear, Inc.
December 11, 1998
Page 4

BANKS: HELLER FINANCIAL, INC.,
individually in its capacity as a
Bank and in its capacity as Co-Agent

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

THE CHASE MANHATTAN BANK

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

FLEET BANK, N.A.

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

MANAGEMENT AGREEMENT

This Management Agreement (this "Agreement") is made as of November
3, 1998 among Anvil Knitwear, Inc., a Delaware corporation ("Anvil"), Anvil
Holdings, Inc., a Delaware corporation ("Holdings"), Cottontops, Inc., a
Delaware corporation ("Cottontops", and together with Anvil, Holdings, and any
subsidiary hereinafter formed of any of them, the "Companies"), Bruckmann,
Rosser, Sherrill & Co., Inc., a Delaware corporation (the "Consultant").

WHEREAS, BRS, by and through its officers, employees, agents,
representatives and affiliates, has expertise in the areas of corporate
management, finance, investment, acquisitions and other matters relating to the
business of the Companies; and

WHEREAS, each of the Companies desires to avail themselves, for the
term of this Agreement, of the expertise of the Consultant in the aforesaid
areas (in which it acknowledges the expertise of the Consultant) in the manner
set forth herein;

NOW, THEREFORE, in consideration of the foregoing recitals and the
covenants and conditions herein set forth, the parties hereto agree as follows:

1. Appointment. Each of the Companies hereby appoints the Consultant
to render the advisory and consulting services described in Paragraph 2 hereof
for the term of this Agreement.

2. Services of the Consultant. The Consultant hereby agrees that
during the term of this Agreement, it shall render to the Companies by and
through its officers, employees, agents, representatives and affiliates as the
Consultant, in its sole discretion, shall designate from time to time, advisory
and consulting services in relation to the affairs of the Companies in
connection with strategic financial planning, and other services not referred to
in the next sentence including, without limitation, advisory and consulting
services in relation to the selection, supervision and retention of independent
auditors, the selection, retention and supervision of outside legal counsel, and
the selection, retention and supervision of investment bankers or other
financial advisors or consultants. It is expressly agreed that the services to
be performed under this Paragraph 2 shall not include investment banking or
other financial advisory services rendered by the Consultant to the Companies in
connection with acquisitions and divestitures by any of the Companies,
refinancings, initial public offerings, sales of stock by the Company, or a
transaction that constitutes a Sale of the Company under that certain
Stockholders Agreement, dated as of March 14, 1997, by and among Holdings, an
affiliate of the Consultant, and certain other parties (the "Stockholders
Agreement"); if any such services are rendered, the Consultant shall be entitled
to receive additional compensation for such services.

3. Fees. In consideration of the services contemplated by Paragraph
2, the Companies and their successors agree to pay, semi-annually in advance (on
March 15 and September 15 of each year), an aggregate per annum fee (the "Fee")
equal to $250,000 to the
<PAGE>

Consultant, effective as of March 15, 1997 (with the March 15, 1997, September
15, 1997, and March 15, 1998 payments (for a total of $375,000) due and payable
on the date hereof and the September 15, 1998 payment due and payable on the
first day of the 1999 fiscal year). The Fee shall be paid in cash (including
check, bank draft, money order or wire transfer of immediately available funds).

4. Reimbursements. In addition to the Fee, the Companies shall, at
the direction of the Consultant, pay directly or reimburse the Consultant for
its reasonable Out-of-Pocket Expenses incurred in connection with the services
provided for in Paragraph 2 hereof. For the purposes of this Agreement, the term
"Out-of-Pocket Expenses" shall mean the amounts paid by the Consultant in
connection with the services provided for in Paragraph 2, including reasonable
(i) fees and disbursements of any independent professionals and organizations,
including independent auditors and outside legal counsel, investment bankers or
other financial advisors or consultants, (ii) costs of any outside services or
independent contractors such as financial printers, couriers, business
publication or similar services and (iii) transportation, per diem, telephone
calls, word processing expenses or any similar expense not associated with its
ordinary operations. All reimbursements for Out-of-Pocket Expenses shall be made
promptly upon or as soon as practicable after presentation by the Consultant to
the Companies and any of the Companies of the statement in connection therewith.

5. Indemnification. The Companies will indemnify and hold harmless
the Consultant and its officers, employees, agents, representatives and
affiliates (each being an "Indemnified Party") from and against any and all
losses, claims, damages and liabilities, joint or several, to which such
Indemnified Party may become subject under any applicable federal or state law,
or any claim made by any third party, or otherwise, to the extent they relate to
or arise out of the advisory and consulting services contemplated by this
Agreement or the engagement of the Consultant pursuant to, and the performance
by the Consultant of the services contemplated by this Agreement. The Companies
will reimburse any Indemnified Party for all reasonable costs and expense
(including reasonable attorneys' fees and expenses) as they are incurred in
connection with the investigation of, preparation for or defense of any pending
or threatened claim for which the Indemnified Party would be entitled to
indemnification under the terms of the previous sentence, or any action or
proceeding arising therefrom, whether or not such Indemnified Party is a party
hereto. None of the Companies will be liable under the foregoing indemnification
provision to the extent that any loss, claim, damage, liability, cost or expense
is determined by a court in a final judgment from which no further appeal may be
taken, to have resulted primarily from the gross negligence or willful
misconduct of the Consultant.

6. Term. This Agreement shall be in effect on the date hereof and
continue until March 15, 2007. The provisions of Paragraph 5 and otherwise as
the context so requires shall survive the termination of this Agreement.

7. Permitted Activities. Subject to applicable provisions of
Delaware law that impose fiduciary duties upon the Consultant or its partners or
affiliates, nothing herein shall in any way preclude the Consultant or its
respective officers, employees or affiliates from engaging in any business
activities or from performing services for their own account or for the account
of others, including for companies that may be in competition with the business
conducted by the Companies.

2
<PAGE>

8. General.

(a) No amendment or waiver of any provision of this Agreement, or
consent to any departure by either party from any such provision, shall in any
event be effective unless the same shall be in writing and signed by the parties
to this Agreement and then such amendment, waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.

(b) Any and all notices hereunder shall, in the absence of receipted
hand delivery, be deemed duly given when mailed, if the same shall be sent by
registered or certified mail, return receipt requested, and the mailing date
shall be deemed the date from which all time periods pertaining to a date of
notice shall run. Notices shall be addressed to the parties at the following
addresses:

If to the Companies:

Anvil Knitwear, Inc.
228 East 45th Street
New York, New York 10017
Attention: Chief Administrative Officer

With copies, which shall not constitute notice:

399 Venture Partners, Inc.
c/o Citicorp Venture Capital, Ltd.
399 Park Avenue, 14th Floor
New York, New York 10043
Attention: David F. Thomas

c/o Bruckmann, Rosser, Sherrill & Co., Inc.
126 East 56th Street, 29th Floor
New York, New York 10022
Attention: Bruce C. Bruckmann

If to the Consultant:

c/o Bruckmann, Rosser, Sherrill & Co., Inc.
126 East 56th Street, 29th Floor
New York, New York 10022
Attention: Bruce C. Bruckmann

3
<PAGE>

In any case, with copies to:

Kirkland & Ellis
Citicorp Center
153 E. 53rd Street
New York, New York 10022-4675
Attention: Kirk A. Radke, Esq.

(c) This Agreement shall constitute the entire Agreement between the
parties with respect to the subject matter hereof, and shall supersede all
previous oral and written (and all contemporaneous oral) negotiations,
commitments, agreements and understandings relating hereto.

(d) THIS AGREEMENT SHALL BE GOVERNED BY, AND ENFORCED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK. THE PARTIES TO THIS AGREEMENT HEREBY
AGREE TO SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE FEDERAL AND STATE COURTS
LOCATED IN THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT.

(e) This Agreement shall inure to the benefit of, and be binding
upon, the Companies and the Consultant and their respective successors and
assigns.

(f) This Agreement may be executed in two or more counterparts, and
by different parties on separate counterparts, each set of counterparts showing
execution by all parties shall be deemed an original, but all of which shall
constitute one and the same instrument.

(g) Each of the Companies shall cause their respective subsidiaries
and hereinafter formed or acquired to execute a counterpart to this Agreement,
thereby assuming the rights and obligations of a Company under this Agreement;
provided that the obligations of a subsidiary hereunder shall terminate at the
time such subsidiary is no longer a subsidiary of any of the Companies.

(h) The waiver by any party of any breach of this Agreement shall
not operate as or be construed to be a waiver by such party of any subsequent
breach.

(i) This Agreement may not be assigned by the Consultant except to
an affiliate; provided that under no circumstances may an entity that is not an
affiliate of the Consultant have the right to the benefits, or the obligations,
under this Agreement.

* * * * *

4
<PAGE>

IN WITNESS WHEREOF, the parties have caused this Management
Agreement to be executed and delivered by their duty authorized officers or
agents as set forth below.

BRUCKMANN, ROSSER, SHERRILL & CO., INC.

By: /s/ Stephen Edwards
---------------------------
Name:
Title:

ANVIL KNITWEAR, INC.

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

ANVIL HOLDINGS, INC.

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

COTTONTOPS, INC.

By:
---------------------------
Name:
Title:
<PAGE>

IN WITNESS WHEREOF, the parties have caused this Management
Agreement to be executed and delivered by their duty authorized officers or
agents as set forth below.

BRUCKMANN, ROSSER, SHERRILL & CO., INC.

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

ANVIL KNITWEAR, INC.

By: /s/ Jacob Hollander EVP
---------------------------
Name:
Title:

ANVIL HOLDINGS, INC.

By: /s/ Jacob Hollander VP
---------------------------
Name:
Title:

COTTONTOPS, INC.

By: /s/ Jacob Hollander VP
---------------------------
Name:
Title:

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ANVIL
HOLDINGS' FINANCIAL STATEMENTS INCLUDED IN ITS FORM 10-Q FOR THE QUARTER ENDED
OCTOBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> OCT-31-1998
<CASH> 827
<SECURITIES> 0
<RECEIVABLES> 23,851
<ALLOWANCES> 503
<INVENTORY> 53,695
<CURRENT-ASSETS> 87,176
<PP&E> 61,030
<DEPRECIATION> 22,871
<TOTAL-ASSETS> 154,546
<CURRENT-LIABILITIES> 33,052
<BONDS> 126,738
34,883
0
<COMMON> 39
<OTHER-SE> (71,542)
<TOTAL-LIABILITY-AND-EQUITY> 154,546
<SALES> 170,475
<TOTAL-REVENUES> 170,475
<CGS> 140,026
<TOTAL-COSTS> 32,778
<OTHER-EXPENSES> 729
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,726
<INCOME-PRETAX> (3,058)
<INCOME-TAX> (1,223)
<INCOME-CONTINUING> (1,835)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,835)
<EPS-PRIMARY> 8.65
<EPS-DILUTED> 8.65

</TABLE>